Garg Builders vs Bharat Heavy Electricals Limited

Case Number: Civil Appeal No(s). 6216 OF 2021 (Arising out of SLP (C) No. 16320 of 2018)

Judges Name: Hon’ble Judges S.Abdul Nazeer J, Krishna Murari J

Order dated: 04.10.2021

Facts of the Case:

This case is an appeal preferred against the Order of Division Bench of Hon’ble High Court of Delhi. The Appellant successfully bid for a tender floated by the Respondent and a contract was signed by Appellant and Respondent which had a clause stating there shall be no interest payable on any monies due from the Respondent. Disputes arose between the parties and a single learned arbitrator passed an award with pendente lite interest payable from date of filing the claim till the date of realization of the award amount. The Respondent challenged the award on various grounds and also on the pendente lite interest payable. The learned Single Judge of the Hon’ble High Court of Delhi delivered a judgement referring to Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 (Act) and held that the award of pendente lite interest is barred by agreement. The Appellant preferred an appeal before the Division Bench of the Hon’ble High Court of Delhi and the same was dismissed subsequently. The Appellant has challenged the Division Bench’s order of the Hon’ble High Court of Delhi before the Supreme Court and also interest clauses of the contract as ultra vires of the Contract Act, 1872.


The Hon’ble Supreme Court observed/held as follows:

  • The law relating to award of pendente lite interest is no longer res integra and well settled as the Act gives paramount importance to the contract entered by the parties.
  • Section 31(7)(a) of the Act is very clear as if the contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award interest for the said period.
  • The contract uses the words “any moneys due to the contractor”, and even the contract is very clear.
  • Section 28 of the Contract Act, 1872 states that a contract is void to the extent it restricts absolutely a party from enforcing his rights by usual proceedings in ordinary courts or if it limits the time within which he may enforce his right and exception 1 to this section says a contract for arbitration is not illegal. Court observed that the clause for no interest has not violated Section 28 of the Contract Act.
  • Section 3(3)(a)(ii) of the Interest Act, 1978 says that when the parties have contract out, then Interest Act, 1978 does not apply.

The Hon’ble Supreme Court dismissed the appeal.


Phone: +919841011111