Contractual bar on interest led to partial setting aside of arbitral award, while overrun charges were upheld.

An arbitral award granting overrun charges was found not liable to interference under Section 34 of the Arbitration and Conciliation Act, 1996 because the tribunal relied on the work order, contemporaneous correspondence and the contractual basis for extended site maintenance and running costs. By contrast, the award of pre-suit and pendente lite interest was held unsustainable where the work order expressly barred interest and Section 28(3) required the tribunal to decide in accordance with the contract. That part of the award was set aside, while post-award interest was sustained. The result was only partial interference with the award, limited to the interest component.

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Issues: (i) Whether the arbitral award granting overrun charges was liable to be interfered with under Section 34 of the Arbitration and Conciliation Act, 1996. (ii) Whether the award of pre-suit and pendente lite interest was sustainable in view of the contractual bar and Section 28(3) of the Arbitration and Conciliation Act, 1996.

Issue (i): Whether the arbitral award granting overrun charges was liable to be interfered with under Section 34 of the Arbitration and Conciliation Act, 1996.

Analysis: The award examined Clause 9 of the work order and the contemporaneous correspondence, including the email stating that overrun charges would be paid. The arbitral reasoning proceeded on the basis that the contractor had claimed only a limited amount towards overrun charges and that the contractual material supported compensation for extended site maintenance and running costs. The Court found no legal infirmity in the award on this aspect and held that no ground was made out for interference under Section 34(2)(b)(ii).

Conclusion: The award of overrun charges was upheld and no interference was warranted.

Issue (ii): Whether the award of pre-suit and pendente lite interest was sustainable in view of the contractual bar and Section 28(3) of the Arbitration and Conciliation Act, 1996.

Analysis: Clause 5.7 of the work order expressly prohibited interest on amounts due to the contractor. The award of pendente lite interest was therefore contrary to the agreed terms of the contract and inconsistent with Section 28(3), which requires the arbitral tribunal to decide in accordance with the terms of the contract. To that extent, the award offended the fundamental policy of Indian law.

Conclusion: The award of pre-suit and pendente lite interest was set aside, while post-award interest was sustained.

Final Conclusion: The challenge to the arbitral award succeeded only in part, limited to the interest component, while the award of overrun charges remained undisturbed.

Ratio Decidendi: An arbitral award cannot grant interest contrary to an express contractual prohibition, and such an award is liable to be set aside for non-compliance with the contract and Section 28(3) of the Arbitration and Conciliation Act, 1996.

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