Apex Court: Arbitral Tribunal Cannot Award Interest If Agreement Expressly Bars
Today Apex court bench of Justices A K Sikri, Abdul Nazeer and M R Shah order in Jai Prakash Associates Limited v. Tehri Hydro Development Corporation (THDC) Limited & Anr. that arbitrator cannot award interest on award if the agreement expressly prohibits grant of interest.
The Supreme Court dismissed an appeal to uphold a judgment of Delhi High Court, which had set aside an arbitration award to the extent it granted interest overlooking the prohibition in the agreement.
The appeal was filed by a contractor, who had entered into a works contract with Tehri Hydro Development Corporation of India Ltd.
Clauses 50 and 51 of the General Conditions of Contract (GCC) between them expressly stated that no interest will be payable to the contractor on the money due to him. But Despite the express denial in clauses, the arbitration tribunal awarded interest, relying on Supreme Court judgment in Board of Trustees for the Port of Calcutta v. Engineers-De-SpaceAge, which had held that arbitrator’s power to award interest as per general principles of law was not stifled by terms of agreement.
The Delhi HC set aside the award to the extent it awarded interest. The contractor approaching the Supreme Court against the Delhi High Court order.
The Supreme Court point out 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.“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”, observed the judgment authored by Justice Sikri.
The SC agreed with the Delhi HC that the judgment in Board of Trustees for the Port of Calcutta was not applicable, as it was a case under 1940 Arbitration Act, which did not have a provision similar to Section 31(7) of the 1996 Act.
The bench also noted that a 2017 judgment in Sri Chittaranjan Maity 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.
The SC agreed with the Delhi HC that the judgment in Board of Trustees for the Port of Calcutta was not applicable, as it was a case under 1940 Arbitration Act, which did not have a provision similar to Section 31(7) of the 1996 Act.
The bench also noted that a 2017 judgment in Sri Chittaranjan Maity 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.
Source: LiveLaw
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