Arbitrator cannot award pre-reference or pendente lite interest when contract expressly excludes "any moneys due" - Sections 28, 31(7)(a)

The SC held that an arbitrator under the 1996 Act cannot award prereference or pendente lite interest where the parties' contract expressly bars such interest; a clear clause excluding "any moneys due" (including awards) prevents an award of interest. Exception I to Section 28 and Section 31(7)(a) permit parties to stipulate arbitration and to waive claims to interest; such a clause is not ultra vires. The HC therefore correctly denied pendente lite interest and the appeal was dismissed.

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Issues:
1. Denial of pendente lite interest on the award amount.
2. Interpretation of the contract clause barring interest.
3. Applicability of Section 31(7)(a) of the Arbitration and Conciliation Act, 1996.
4. Validity of the contract clause in light of Section 28 of the Indian Contract Act, 1872.

Issue 1: Denial of Pendente Lite Interest on the Award Amount
The appellant claimed pendente lite and future interest on the award amount in an arbitration proceeding. The Arbitrator awarded interest at the rate of 10% p.a. The respondent challenged this award under Section 34 of the 1996 Act, arguing that the Arbitrator exceeded his authority by awarding pendente lite interest. The High Court upheld the challenge, stating that the contract clause expressly barred such interest. The Supreme Court concurred, emphasizing that if the contract prohibits pendente lite interest, the arbitrator cannot award it.

Issue 2: Interpretation of the Contract Clause Barring Interest
The contract clause in question stated that no interest shall be payable on any moneys due to the contractor. The appellant argued that this clause did not bar interest for the pendente lite period. However, the courts held that the clause was clear and categorical in its prohibition of interest on amounts due to the contractor, including the award amount. Precedents were cited to support the interpretation that specific clauses barring interest prevent the arbitrator from awarding pendente lite interest.

Issue 3: Applicability of Section 31(7)(a) of the Arbitration and Conciliation Act, 1996
Section 31(7)(a) of the 1996 Act emphasizes the importance of the contract between parties in determining the arbitrator's power to award interest. It stipulates that unless agreed otherwise, the arbitrator may include interest in the award amount. However, if the contract prohibits interest, the arbitrator cannot award it. This provision was central to the courts' decision to deny pendente lite interest in this case.

Issue 4: Validity of the Contract Clause in Light of Section 28 of the Indian Contract Act, 1872
The appellant argued that the contract clause barring interest was ultra vires Section 28 of the Indian Contract Act, 1872. Section 28 renders contracts void if they restrict a party from enforcing their rights. However, Exception I to Section 28 saves contracts that refer disputes to arbitration. The courts held that the contract clause did not violate Section 28 as it was a lawful agreement between the parties. The Interest Act, 1978 also allowed parties to waive interest claims by agreement, further supporting the validity of the contract clause.

In conclusion, the Supreme Court dismissed the appeal, upholding the denial of pendente lite interest. The court emphasized the importance of contractual clauses barring interest and the limitations they impose on arbitrators. The validity of the contract clause in light of relevant legal provisions was also affirmed.

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