Contractual Prohibition on Interest prevents pre-award interest; post-award interest may be awarded but rate subject to judicial reduction.

The text addresses whether an arbitral tribunal may award pre-award (pendente lite) and post-award interest where contract clauses expressly bar interest. It clarifies that an express contractual bar on interest payable under the contract prevents an arbitrator from granting pre-award/pendente lite interest even if styled as compensation, whereas entitlement to post-award interest arises from the statutory scheme and is not automatically displaced by a pre-award contractual prohibition. The courts retain power to moderate an arbitrator's post-award interest rate to avoid disproportionate burden; operative effect: pre-award interest disallowed, post-award interest may be awarded subject to judicial rate adjustment.

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Issues: (i) Whether the arbitral tribunal was justified in awarding pre-award/pendente lite interest (by way of compensation) in view of contractual Clauses 16(3) and 64(5) of the General Conditions of Contract; (ii) Whether the arbitral tribunal was justified in awarding post-award interest and, if so, whether the rate fixed required modification; (iii) Whether the courts below erred in refusing to set aside or modify the award under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996.

Issue (i): Whether pre-award/pendente lite interest could be awarded despite a contractual bar.

Analysis: Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 subjects the arbitrator's power to award interest before the award to the agreement between the parties; Clause 16(3) expressly bars interest on earnest money, security deposits and "amounts payable to the contractor under the contract" while Clause 64(5) bars interest up to the date of the award. The expression covering "amounts payable" is disjunctive and of wide amplitude and cannot be read down by ejusdem generis in the facts of this contract. Prior decisions applying the 1996 Act establish that a contractual prohibition of interest precludes an arbitral award of pendente lite or pre-award interest even if labelled as compensation.

Conclusion: The award of pre-award/pendente lite interest in respect of the specified claims is not justified and is set aside.

Issue (ii): Whether post-award interest could be awarded and whether the rate required modification.

Analysis: Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 entitles a sum directed by an award to carry post-award interest unless the award otherwise directs; entitlement to post-award interest is not subject to party autonomy and a contractual bar applicable to pre-award interest does not, by implication, exclude post-award interest. The arbitral tribunal awarded post-award interest at 12% per annum without reasons; courts possess power to modify the rate where the statutory benchmark and facts justify adjustment to avoid disproportionate burden and to ensure just compensation.

Conclusion: Post-award interest is justified; the rate of post-award interest as fixed by the arbitral tribunal is modified from 12% per annum to 8% per annum from the date of award until realization.

Issue (iii): Whether the courts below erred in their exercise of powers under Section 34 and Section 37.

Analysis: The arbitral tribunal's grant of pre-award interest contravened the contractual bar and Section 31(7)(a), a legal error warranting interference under Section 34 and Section 37; the courts below failed to correct that error. The conditional grant of post-award interest remains permissible but the rate required judicial moderation in the circumstances.

Conclusion: The courts below erred in upholding the parts of the award granting pre-award interest and in declining to moderate the post-award interest rate; interference was warranted to set aside pre-award interest awards and to modify the post-award interest rate.

Final Conclusion: The arbitral award is set aside to the extent it awards pre-award/pendente lite interest on the specified claims; the award is otherwise maintained but the post-award interest rate is reduced to 8% per annum from the date of award until realization, and the appeal is partly allowed.

Ratio Decidendi: Where a contract under the Arbitration and Conciliation Act, 1996 expressly bars interest on amounts payable, Section 31(7)(a) prevents the arbitrator from awarding pre-award/pendente lite interest; by contrast, entitlement to post-award interest under Section 31(7)(b) is statutory and, absent an explicit contractual exclusion, may be awarded but the rate is subject to judicial modification where justified.

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