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Arbitrator cannot award interest when expressly barred

In a recent judgment Union of India Vs. M/s. Ambica Construction, the issue raised before the Hon'ble Supreme Court was in regard to the power of the Arbitrator to award pendente lite interest when contract contains bar for grant of interest in a case covered by the Arbitration Act, 1940 . A Division Bench of this Court had doubted the correctness of the decisions in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age (1996) and Madnani Construction Corporation (P) Ltd. v. Union of India and Others (2010).

In view of the decision of the Constitution Bench judgment in Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy (1992) and Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors. v. N.C. Budharaj (D) by L.Rs. & Ors. (2001) which held that the Arbitrator had the jurisdiction and authority to award interest for pre-reference period, pendente lite and future period if there was no express bar in the contract regarding award of interest. A doubt was expressed about the correctness of the decision in Engineers-De- Space Age (supra) in Sayeed Ahmed & Co. v. State of U.P. & Ors. (2009) 12 SCC 26 and Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palghat & Ors. (2010). Hence the matter had been referred to a larger Bench for decision.

The Hon'ble court went on to state -

Thus, our answer to the reference is that if contract expressly bars award of interest pendente
lite, the same cannot be awarded by the Arbitrator. We also make it clear that the bar to award
interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of Arbitrator has to be considered on
various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench
to consider the case on merits. 


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