Contractual bar on interest under arbitration law upheld for pre-reference and pendente lite periods

Clause 16(2) of the General Conditions of Contract expressly barred interest on earnest money, security deposit and amounts payable under the contract. On that basis, interest on the sums covered by claim No. 4 and claim No. 6 was contractually prohibited. Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 permits interest for the period from accrual of the cause of action to the award only where the parties have not agreed otherwise. Earlier decisions under the Arbitration Act, 1940 were held inapplicable because the 1996 Act contains its own statutory scheme on interest. The arbitral tribunal therefore lacked authority to grant pre-reference interest, and its refusal of pendente lite interest was sustained.

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Issues: Whether the contract contained an express bar against award of interest, and if so, whether the arbitral tribunal was justified in refusing interest for the period from the date of cause of action to the date of award, including the pre-reference and pendente lite periods.

Analysis: Clause 16(2) of the General Conditions of Contract expressly barred payment of interest on earnest money, security deposit, and amounts payable to the contractor under the contract. The amount awarded on claim No. 4 was held to be an amount payable under the contract, and claim No. 6 related to security deposit; therefore, interest on those sums was contractually prohibited. Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, the arbitral tribunal may award interest for the period between accrual of cause of action and the award only unless otherwise agreed by the parties. The earlier decisions under the Arbitration Act, 1940 were held inapplicable because the new Act contains an express statutory scheme governing interest. The tribunal had therefore no authority to grant interest for the period covered by the contractual bar, and its refusal to award pendente lite interest was also sustained.

Conclusion: The contract did contain an express bar on interest, and the arbitral tribunal was justified in refusing interest for the pre-reference and pendente lite periods.

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