2015 (7) TMI 256 - SC - Indian Laws

Validity of Arbitral award - whether the appellant is liable to pay interest to the respondent though there was a provision in the contract that no interest should be paid on the amount payable to the contractor - Held that - Section 31(7) of the Act, by using the words unless otherwise agreed by the parties , categorically specifies that the arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest. - if there is a bar against payment of interest in the contract, the arbitrator cannot award any interest for such period. In view of the specific bar under Clause 13(3) of the contract entered into between the parties, we are of the view that the Arbitral Tribunal was not justified in awarding interest from the date of entering upon the reference to the Arbitral Tribunal till the date of the award. - We set aside the impugned judgment and the award so far as it pertains to payment of interest pendente lite and direct that no interest would be paid on the amount payable under the contract to the respondent from the date of the reference till the date of the award. - Impugned order is set aside - Decided in favour of Appellant.

Summary

Issues:
- Whether the appellant is liable to pay interest to the respondent despite a contract provision against it.

Analysis:
The judgment involves a dispute arising from an arbitration award where the Arbitral Tribunal awarded interest to the respondent contractor, which the appellant contested. The contract between the parties explicitly stated that no interest would be payable on the amount due to the contractor. The appellant argued that the Tribunal lacked the authority to award interest due to this contractual provision. The Tribunal's decision was based on a previous Supreme Court judgment regarding the power of arbitrators to award interest. The High Court dismissed the appellant's appeal, relying on a previous case without providing detailed reasoning.

The Supreme Court analyzed the contract clause that explicitly prohibited the payment of interest on the amount due to the contractor. It emphasized that parties are bound by the terms they agreed upon, and if the contract specifies no interest payment, the Arbitral Tribunal cannot award interest. The Court referred to Section 31(7) of the Arbitration and Conciliation Act, 1996, which allows interest unless otherwise agreed by the parties. It highlighted that the arbitrator must adhere to the contract terms regarding interest payments.

Moreover, the Court cited a previous case to support its decision, emphasizing that if a contract prohibits interest payment, the arbitrator cannot award interest. The Court criticized the Arbitral Tribunal for not considering the contract terms and relevant legal provisions before awarding interest to the respondent. It noted that the Tribunal's reliance on an outdated judgment based on a previous arbitration act was misplaced.

In conclusion, the Supreme Court set aside the Arbitral Tribunal's decision to award interest to the respondent. It directed that no interest should be paid on the amount due under the contract from the date of reference to the date of the award. The Court allowed the appeal, highlighting the importance of respecting the parties' agreement and the applicable legal provisions in arbitration disputes.