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Issues: (i) Whether an arbitral tribunal could award interest for the period prior to the award where the contract contained an express bar on claims for interest; (ii) whether the court could reduce the rate of interest awarded for the post-award period.
Issue (i): Whether an arbitral tribunal could award interest for the period prior to the award where the contract contained an express bar on claims for interest.
Analysis: The contractual clause was comprehensive and expressly prohibited any claim for interest in respect of money due or lying with the Government on account of disputes, delay in payment, or any other matter whatsoever. Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, the tribunal may award interest for the period between the cause of action and the award only unless otherwise agreed by the parties. The express contractual bar displaced the tribunal's power to grant interest for the pre-award period. The distinction drawn under the Arbitration Act, 1940 between pre-reference and pendente lite interest did not assist the appellant in view of the statutory scheme of the 1996 Act.
Conclusion: The arbitral tribunal had no authority to award interest up to the date of award, and the High Court was right in setting aside that part of the award.
Issue (ii): Whether the court could reduce the rate of interest awarded for the post-award period.
Analysis: Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 provides that, unless the award otherwise directs, the awarded sum carries interest at 18% per annum from the date of award to the date of payment. The arbitrator had awarded post-award interest at rates below that statutory default rate on different sums. The contract bar operated only up to the award and did not justify reduction of the post-award rate. In the absence of reasons showing that the awarded rate was unwarranted, the court ought not to substitute a lower rate.
Conclusion: The reduction of post-award interest to 6% per annum was unsustainable, and the rate fixed by the arbitrator was restored.
Final Conclusion: The decision sustained the contractual bar against pre-award interest, but restored the post-award interest awarded by the arbitrator.
Ratio Decidendi: Where the contract expressly bars interest, an arbitral tribunal cannot award interest for the period covered by Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, but the post-award interest under Section 31(7)(b) cannot be arbitrarily curtailed without justification.
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