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Arbitral Tribunal Cannot Award Interest If Agreement Expressly Bars Its Payment

In CIVIL APPEAL NO(S). 1539 OF 2019 before the Supreme Court, JAIPRAKASH ASSOCIATES LTD. vs TEHRI HYDRO DEVELOPMENT CORPORATION INDIA LTD., the appellant, a contractor, went for arbitration as per agreement against the Defendant and despite the express prohibition on interest to be paid to the contractor on the money due to him, the majority of the arbitration tribunal awarded interest, relying on SC 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 High Court set aside the award to the extent it awarded interest. This led the contractor approaching the SC.

The Supreme Court agreeing with the HC held that the 1996 Arbitration Act had altered the position contained in the 1940 Act.Under the new Act, an arbitrator could not award pendente lite interest when there was an express bar against award of such an interest. This legal position is contained in Section 31(7)(a) of the 1996 Act and the legal position stood crystallised in the case of Sayeed Ahmed and Company v. State of Uttar Pradesh & Ors.


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