2025 (9) TMI 617 - SC - Indian Laws

Appeal dismissed; arbitral award confirms pendente lite and post-award interest; contract clause did not bar such relief

OIL AND NATURAL GAS CORPORATION LTD. Versus M/s G & T BECKFIELD DRILLING SERVICES PVT. LTD.

SC dismissed the appeal and upheld the arbitral award granting pendente lite and post-award interest. The Court held an arbitral tribunal's power to award ... Payment of even pendente lite interest on the sum awarded - Non-reasoned award - violation of mandate of Section 31(3) of A&C Act, 1996 - objection under Section 16(2) was neither rejected prior to proceeding further, nor considered by the arbitral tribunal at the time of making final award - HELD THAT:- Admittedly, arbitral tribunal has declined interest on the balance amount payable under the invoices from the date the cause of action arose up to the date when the statement of claim was affirmed before the arbitral tribunal. The arbitral tribunal can be denuded of its power to award pendente lite interest only if the agreement/ contract between the parties is so worded that the award of pendente lite interest is either explicitly or by necessary implication barred. A clause merely barring award of interest on delayed payment by itself will not be readily inferred as a bar to award pendente-lite interest by the arbitral tribunal. Clause 18.1, which appellant relies upon to canvass that the agreement between the parties proscribes grant of pendente-lite interest, when read as a whole, does not expressly or by necessary implication proscribes grant of pendente lite interest by the arbitral tribunal. The clause merely says that there would be no interest payable by the Corporation on any delayed payment / disputed claim. There are no error in the award of pendente lite interest as may warrant interference with the award. Since post-award interest is in line with the statutory provision of clause (b) of sub-section (7) of Section 31 as was in vogue then, there are no merit in the appeal, and the same is, accordingly, dismissed. Petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether clause 18.1 of the contract proscribes payment of pendente lite (pre-award) interest on sums awarded by an arbitral tribunal. 2. Whether an arbitral tribunal lacked jurisdiction to award interest from the date the statement of claim was affirmed before it (i.e., pendente lite interest) where the contract contains a clause stating 'No interest shall be payable ... on any delayed payment / disputed claim.' 3. Whether the rate of interest of 12% per annum awarded by the arbitral tribunal is reasonable in relation to statutory post-award interest provisions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether clause 18.1 proscribes award of pendente lite interest Legal framework: Sub-section (7) of Section 31 of the Arbitration and Conciliation Act contemplates (a) interest for the period between the cause of action and the award (pre-reference and pendente lite), which is subject to agreement between the parties, and (b) post-award interest from the date of award to payment, which is statutorily governed and not subject to agreement. Precedent Treatment: Earlier jurisprudence establishes that (i) where the agreement expressly bars pendente lite interest, an arbitrator cannot award it; (ii) where the agreement is silent, the arbitrator may grant pendente lite interest as an implied contractual term and in the exercise of discretion; and (iii) a clause proscribing interest on delayed payment does not necessarily amount to an express bar on pendente lite interest unless the clause, by its phraseology, clearly or necessarily implies such a bar. Interpretation and reasoning: Clause 18.1 requires payment within 30 days of certified invoices, permits withholding of disputed amounts, and states 'No interest shall be payable ... on any delayed payment / disputed claim.' Read as a whole, the clause ensures payment of undisputed amounts and allows withholding of disputed items; it does not employ comprehensive, categorical language excluding interest 'in any respect whatsoever' or otherwise clearly ousting the tribunal's power to award pendente lite interest. A mere prohibition of contractual liability for delay in payment is distinguishable from an explicit contractual bar on the arbitrator's power to award interest pendente lite. The Court therefore examines the text, context and functional effect of clause 18.1 and concludes it does not, expressly or by necessary implication, divest the arbitral tribunal of jurisdiction to award pendente lite interest. Ratio vs. Obiter: Ratio - An interest-proscribing clause will deprive an arbitrator of power to award pendente lite interest only if the contract is so worded that such power is explicitly or necessarily impliedly taken away; a clause merely barring interest on delayed payment will not readily be inferred to bar pendente lite interest. Obiter - Observations on various factual permutations of interest clauses in other decisions are explanatory. Conclusion: Clause 18.1 does not proscribe the award of pendente lite interest and therefore does not render the arbitral tribunal's award of interest pendente lite void for lack of jurisdiction. Issue 2 - Validity of awarding interest from the date the statement of claim was affirmed before the arbitral tribunal Legal framework: The arbitral tribunal may award interest for three distinct periods - pre-reference, pendente lite, and post-award - subject to the agreement for the first two categories; post-award interest is governed by statute and not contractually waivable. Precedent Treatment: Authorities recognize that when parties refer all disputes (including interest) to arbitration, the arbitrator has power to award pendente lite interest unless contractually barred; conversely, an express and comprehensive contractual bar will prevent award of pendente lite interest. Interpretation and reasoning: In the present factual matrix the arbitral tribunal declined pre-reference interest up to the date the statement of claim was affirmed but awarded interest from the date of that affirmation to the date of the award. Given clause 18.1 does not operate as an express or necessarily implied bar to pendente lite interest, the tribunal's exercise of discretion to award interest from the date of assertion of the claim before it is permissible. The tribunal's choice of the pendente lite commencement date (date of affirmation of claim) is a legitimate exercise of its statutory and contractual powers where the contract does not preclude such relief. Ratio vs. Obiter: Ratio - Where a contract does not expressly or by necessary implication bar pendente lite interest, an arbitral tribunal may award interest commencing from an appropriate pendente lite date (including the date of affirmation of claim) as an exercise of its discretion under Section 31(7). Obiter - The precise selection of pendente lite commencement date will depend on facts and tribunal discretion. Conclusion: The arbitral tribunal validly awarded pendente lite interest from the date the statement of claim was affirmed; that award does not offend the contract clause relied upon to contend otherwise. Issue 3 - Reasonableness of the 12% per annum interest rate Legal framework: Clause (b) of sub-section (7) prescribes post-award interest where the award does not otherwise direct; historically a statutory rate applied to post-award interest, while the arbitral tribunal may fix a reasonable rate for pre-award periods subject to agreement. Precedent Treatment: Courts have intervened where interest rates are exorbitant or contrary to statutory prescriptions for post-award periods; a rate lower than statutory post-award rate is ordinarily reasonable when awarded. Interpretation and reasoning: The tribunal awarded 12% per annum, which is lower than the statutorily prescribed post-award rate then prevalent. The Court treats that rate as reasonable for the pendente lite period and not contrary to law, given clause 18.1 does not preclude pendente lite interest and clause (b) governs post-award interest in any event. Ratio vs. Obiter: Ratio - A pendente lite interest rate of 12% per annum is reasonable where it is below the then statutory post-award rate and the contract does not bar pendente lite interest; courts will not disturb such an award absent demonstrable unreasonableness. Obiter - Consideration of alternative rates is fact-sensitive. Conclusion: The rate of 12% per annum awarded by the arbitral tribunal is reasonable and does not warrant interference. Overall Conclusion and Disposition The contract clause relied upon does not expressly or by necessary implication bar the award of pendente lite interest; the arbitral tribunal lawfully awarded pendente lite interest commencing from the date of affirmation of the claim and fixed a reasonable rate of 12% per annum. Consequently, there is no error in affirming the arbitral award insofar as interest and post-award interest conforms with statutory provisions.