Court Upholds Arbitral Tribunal Decision on Interest Bar in Contract

The appeals were dismissed, and the court upheld the arbitral tribunal's decision to refuse interest for the pre-reference period and pendente lite due to the express bar in the contract. The court emphasized that the arbitrator is bound by the terms of the contract as per Section 31(7) of the Arbitration and Conciliation Act, 1996.

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Issues Involved:
1. Whether the contract between the parties contains an express bar regarding the award of interest.
2. If so, whether the arbitral tribunal was justified in refusing interest for the period between the date of cause of action to the date of the award.

Issue-wise Detailed Analysis:

Issue 1: Whether the contract between the parties contains an express bar regarding the award of interest.

Clause 16(2) of the General Conditions of Contract:
- The contract explicitly states, "No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract, but Government Securities deposit in terms of sub-Clause (1) of this Clause will be repayable (with) interest accrued thereon."
- The court noted that the two claims awarded (claim No. 4 related to erroneous billing and claim No. 6 related to security deposit) fall under this clause.
- Since the amount awarded under claim No. 4 was for work executed as part of the contract and the payment was in accordance with the Agreement Schedule Item No. 19, it was deemed an "amount payable to the contractor under the contract."
- Consequently, the court concluded that no interest could be paid on these amounts due to the bar under Clause 16(2).

Issue 2: If so, whether the arbitral tribunal was justified in refusing interest for the period between the date of cause of action to the date of the award.

Jurisdiction and Authority of Arbitrator to Award Interest:
- The court referenced several precedents, including Sayeed Ahmed & Co. v. State of U.P., which clarified that under the Arbitration and Conciliation Act, 1996, the arbitrator could award interest for the pre-reference period, pendente lite, and future period unless there was an express bar in the contract.
- Section 31(7) of the Act specifies that unless otherwise agreed by the parties, the arbitral tribunal may award interest from the date of cause of action to the date of the award and from the date of the award to the date of payment at 18% per annum unless otherwise directed.

Specific Bar in the Contract:
- The court reiterated that if the contract expressly bars the payment of interest, the arbitrator cannot award interest for the pre-reference period or pendente lite.
- The court cited Union of India v. Saraswat Trading Agency, which supported this stance.

Contention on Interest Pendente Lite:
- The appellant argued that even if pre-reference interest was barred, interest pendente lite should be allowed based on the decisions in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age and Madnani Construction Corporation Pvt. Ltd. v. Union of India.
- However, the court noted that these cases arose under the old Arbitration Act, 1940, which did not have a provision similar to section 31(7) of the new Act. Therefore, the logic from these cases was not applicable under the new Act.

Discretion of the Arbitrator:
- The court observed that under the new Act, the arbitrator's discretion is limited by the terms of the contract. If the contract bars interest, the arbitrator cannot award it for the period from the date of cause of action to the date of the award.
- The court further noted that even if the logic from Engineers-De-Space-Age and Madnani applied, the arbitral tribunal in this case had exercised its discretion to refuse interest for the pendente lite period, and such discretion could not be interfered with.

Conclusion:
The appeals were dismissed, and the court upheld the arbitral tribunal's decision to refuse interest for the pre-reference period and pendente lite due to the express bar in the contract. The court emphasized that the arbitrator is bound by the terms of the contract as per Section 31(7) of the Arbitration and Conciliation Act, 1996.

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