Supreme Court overturns Arbitral Tribunal decision on interest payments, underscores contract terms

The Supreme Court held that the Arbitral Tribunal erred in awarding interest to the respondent contractor despite the contract explicitly prohibiting such payments. Emphasizing the parties' agreement and relevant legal provisions, the Court set aside the Tribunal's decision and directed that no interest be paid on the amount due under the contract. The Court highlighted the arbitrator's obligation to adhere to contract terms regarding interest payments, ultimately allowing the appeal and underscoring the importance of upholding contractual agreements in arbitration disputes.

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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 It noted that the Tribunal's reliance on an outdated judgment based on a previous arbitration act was misplaced.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.

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