Contractual bar on interest limits arbitral pre-award interest, while post-award interest may survive subject to judicial reduction.

A contractual bar on interest in the GCC prevented an arbitral tribunal from granting pre-award or pendente lite interest, because Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 makes such interest subject to party agreement and Section 28(3) requires the tribunal to follow the contract; that component was therefore set aside. Post-award interest was not excluded by the clause, so Section 31(7)(b) applied, but the tribunal's 12% rate was found excessive and was reduced to 8% per annum from the date of award until realization. The SC held that the Commercial Court and High Court erred in upholding the pre-award interest and the unmodified post-award rate.

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Issues: (i) Whether pre-award or pendente lite interest, described as compensation, could be granted in the face of the contractual bar under the GCC and the Arbitration and Conciliation Act, 1996; (ii) Whether post-award interest could be granted and, if so, whether the rate fixed by the arbitral tribunal was sustainable; (iii) Whether the Commercial Court and the High Court erred in refusing to interfere under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Issue (i): Whether pre-award or pendente lite interest, described as compensation, could be granted in the face of the contractual bar under the GCC and the Arbitration and Conciliation Act, 1996.

Analysis: Clause 16(3) of the GCC expressly barred interest on amounts payable to the contractor under the contract. Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 makes the award of pre-award interest subject to party agreement, and Section 28(3) requires the tribunal to act in accordance with the contract. The contractual bar was held to be wide and independent, and the tribunal could not avoid it by labelling the award as compensation.

Conclusion: Pre-award or pendente lite interest was not permissible and the award of such interest was liable to be set aside.

Issue (ii): Whether post-award interest could be granted and, if so, whether the rate fixed by the arbitral tribunal was sustainable.

Analysis: Clause 64(5) of the GCC barred interest only up to the date of the award and did not exclude interest thereafter. Section 31(7)(b) operates independently of contractual exclusion unless the award itself directs otherwise. The entitlement to post-award interest was therefore upheld, but the tribunal had given no reasons for fixing it at 12% per annum and the rate was considered excessive in the circumstances.

Conclusion: Post-award interest was justified, but the rate was reduced from 12% per annum to 8% per annum from the date of award till realization.

Issue (iii): Whether the Commercial Court and the High Court erred in refusing to interfere under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Analysis: The courts below failed to notice that the tribunal had awarded pre-award interest in breach of an express contractual prohibition. That error went to the legality of the award and justified interference even within the limited supervisory scope under Sections 34 and 37. At the same time, the grant of post-award interest was not barred, though its rate required modification.

Conclusion: The Commercial Court and the High Court erred in law in so far as they upheld the pre-award interest component and the unmodified post-award rate.

Final Conclusion: The award was sustained only to the extent of post-award interest as modified, while the component granting pre-award or pendente lite interest was set aside, resulting in a partial allowance of the appeal.

Ratio Decidendi: Under the 1996 Act, an arbitrator cannot grant pre-award interest where the contract expressly bars it, but post-award interest under Section 31(7)(b) is not excluded by such bar unless the contract clearly so provides; the rate of post-award interest remains subject to judicial modification where unjustified.

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