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If Any Agreement Expressly Bars Its Payment Then No Interest Will Be Awarded By Arbitral Tribunal: SC

Team SoOLEGAL 8 Feb 2019 6:00pm

If Any Agreement Expressly Bars Its Payment Then No Interest Will Be Awarded By Arbitral Tribunal: SC

The agreement, if expressly prohibits grant of interest then the arbitrator cannot award interest on award stated by The Supreme Court of India recently. The bench of Justices A K Sikri, Abdul Nazeer and M R Shah dismissed an appeal To uphold the Delhi High Court’s judgement, a bench of 3 judges, Justices A K Sikri, Abdul Nazeer and M R Shah had set aside an arbitration award to the extent it granted interest overlooking the prohibition in the agreement. It was a contractor who appealed for this petition, as he entered into a works contract with Tehri Hydro Development Corporation of India Ltd.

There was a General Conditions of Contract (GCC) between the parties and clause 51 and clause 50 of the contract expressly stated that no interest will be payable to the contractor on the money due to him. Taking into the consideration the case of Trustees for the Port of Calcutta v. Engineers-De-Spaceage, maximum no. arbitration of tribunals awarded interest, which held that power of arbitrator of awarding interest as per general principles of law was not stifled by terms of agreement.

The award was set aside by the HC to such an extent it awarded interest. Therefore, the contractor approached the SC. It was duly observed by the SC that Section 31 of the Arbitration and Conciliation Act made the power of arbitration tribunal to award interest subject to the terms of agreement between parties. Justice Sikri held in his Judgement that "Section 31(7) of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered". The SC observed that the current Arbitration Act is different from the time when the judgement was passed in the case of Trustees of the Port of Calcutta v. Engineers-De-Spaceage therefore, SC agreed with the conclusion of HC.


"At this stage itself, it may be mentioned that in case clauses 50 and 51 of GCC put a bar on the arbitral tribunal to award interest, the arbitral tribunal did not have any jurisdiction to do so",the SC held.

The SC also didn’t agree with the applicability of the judgment in
State of UP vs Harish Chandra & Cobecause it was also rendered under 1940 Arbitration Act which has changed now. SC observed that this judgment was explained and distinguished in Sayeed Ahmed and Company case. The bench held that,
"In this scenario, when we find that Harish Chandra case which is of the vintage of 1940 Act and is distinguished in Sayeed Ahmed and Company coupled with the fact that the ratio of Sayeed Ahmed and Company has been consistently followed, there is no reason to deviate from the construction to Clauses 50 and 51 of the GCC given by the arbitral tribunal in the first instance as well as the High Court"

The bench also noted that a 2017 judgment authored by one of the members of the bench (Justice Nazeer) in Sri ChittaranjanMaity v. Union of India case, and also a 2016 decision of a three judges bench in Union of India vs Ambica Constructions had taken the same view. It further noted that exactly same clauses of contract were interpreted by the SC in Tehri Hydro Development Corporation (THDC) Limited & Anr. v. Jai Prakash Associates Limited to hold against arbitrator awarding interest.


Tagged: Agreement   expressly Bars Its Payment   No Interest   Awarded By Arbitral Tribunal   SC  
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