TaxTMI 
TaxTMI 
2026 (3) TMI 6
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....n of India and 2 others v. Larsen & Tubro Limited (L and T)". 3. Vide the impugned judgment, the High Court dismissed the appeal filed by the appellants herein and upheld the Order dated 15.09.2022 passed by the Commercial Court, Jhansi, and thereby upheld the Arbitral Award dated 25.12.2018 passed by the learned Arbitral Tribunal. FACTUAL MATRIX 4. The brief facts of the case are that the underlying dispute originates from the Agreement dated 27.01.2011, bearing No. CME/NCR/JHSW/MOD/2010 (Turnkey), executed between the appellants (Union of India & North Central Railway Administration) and the respondent (Larsen & Tubro Limited [L&T]). 5. The contract stipulated the execution of work related to the modernization of Jhansi Workshop of North Central Railways, valued at a negotiated rate of Rs. 93,08,07,696/-. The original date for the completion of the work was 18.07.2012 (a period of 18 months). However, the same was extended by the appellants 10 times until 30.11.2015. This resulted in a total delay of 40 months beyond the original deadline. 6. During this course, disputes concerning the execution of the work and outstanding payments arose between the parties. The Ge....
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..../- 7,90,032/- Total Award 5,84,57,597/- Counter Claim: Sr. Particulars Claim Amount in Rs. Award sum in Rs. Counter Claim Losses to railway due to late commissioning of CNC Portal Wheel Lathe, MOD item No. 6 8,95,25,520/- 31,00,000/- Net Award sum payable to the Claimant is Rs.5,53,57,597/- 6.0 Costs of Arbitration: The costs of arbitration worked out are as under: In terms of Section 31A of the Act, Costs mean reasonable costs relating to- i) The fees & expenses of arbitrators etc. ii) Legal fees & expenses iii) Any other expenses incurred in connection with the arbitral proceedings and the arbitral award. i) Fees, incidental & travel expenses of Arbitrators.: Entire sum towards fees & incidental expenses of three Members of the Tribunal were deposited by the Claimant in tranches under the provision of Section 38(2) of the Act as the Respondent side declined to make deposit in advance of the sums on equitable share basis despite repeated directions of the Tribunal in its several arbitral notices & Order Sheets. Tribunal therefore constrained to i....
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....d Commercial Court dismissed the Section 34 application vide the order dated 15.09.2022, affirming the Arbitral Award. The learned Commercial Court further held that the scope of interference under Section 34 of the Act is limited and since it was not a case wherein the Arbitral Award could have been set aside on the basis of provision of Section 34 of the Act, the application filed by the appellants was rejected. 12. Aggrieved by the Commercial Court Order, the appellants filed an Arbitration Appeal under Section 37 of the Act before the High Court of Judicature at Allahabad. 13. Vide the impugned judgment dated 25.05.2023, the High Court dismissed the appeal filed by the appellants and upheld the Arbitral Award passed by the AT, holding that Clause 16(3) of the GCC related only to earnest money and security deposits and Clause 64(5) of the GCC merely barred pendente lite interest, which the AT had correctly interpreted. 14. Aggrieved by the impugned judgment, the appellants have filed the present appeal. SUBMISSIONS ON BEHALF OF THE APPELLANTS 15. Ms. Aishwarya Bhati, learned Additional Solicitor General, appearing on behalf of the appellants, contended that the co....
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....y provides that "unless the contract provides otherwise". However, in the present case, the contract expressly excluded the interest. It is therefore urged that Section 73 cannot override the agreement between the parties. 21. It is further submitted that the reliance of the respondent on the decision of this Court in the case of RP Garg vs. Chief General Manager, Telecom Department & Ors., 2024 SCC OnLine SC 2928, in support of post-award interest, is misconceived, as this decision is applicable only where the contract does not prohibit interest on the category of sums awarded. It is therefore urged that in the present case, the contractual bar applies to all amounts payable under the contract. It is also pointed out that Section 31(7)(b) of the Act is expressly subject to Section 31(7)(a) of the Act. It is therefore urged that where the parties have contractually agreed to exclude interest altogether, post-award interest cannot be awarded. 22. Lastly, it is submitted that the award of interest under Claim Nos. 1, 3 and 6 of the Arbitral Award by the AT is contrary to the contract, contrary to the referred judicial pronouncements of this Court, and thus, the Arbitral Award a....
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....ted sums under Claim Nos. 3 and 6 from the said sums becoming due and till the date of their payment to the respondent. 26. Further, with respect to the post-award interest, reliance is placed on the decision rendered by this Court in RP Garg (supra), wherein this Court has categorically held that so far as the entitlement of the post-award interest is concerned, Section 31(7)(b) of the Act provides that the sum directed to be paid by the arbitral tribunal shall carry interest. 27. Lastly, it is submitted that the judicial pronouncements relied upon by learned ASG for the appellants would not be applicable to the facts of the present case. It is therefore urged that the AT has specifically observed that "it would be travesty of justice if this interest as compensation is not paid because principal unpaid sum is an admitted amount by the Respondent but simply not paid without any reason". 28. Therefore, it is submitted that the present appeal filed by the appellants is liable to be dismissed as it is devoid of merit. ANALYSIS AND FINDINGS 29. We have heard learned counsel for the parties and perused the material placed on record. The following issues are raised for ou....
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....shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment. Explanation.-The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978)." 35. On perusal of Section 28(3) and Section 31(7)(a) of the Act, it is clear that the statutory scheme itself subordinates the discretion of the arbitrator to the contractual provisions governing interest. 36. In the present case, Clause 16(3) of the GCC, as referred hereinabove, expressly stipulates that no interest will be payable upon earnest money and security deposits or amounts payable to the contractor under the contract. 37. Learned counsel for the respondent has sought to restrict the scope of Clause 16(3) of the GCC by invoking the principle of ejusdem generis contending that the expression "amounts payable to the contractor under the contract" must be confined to deposits akin to earnest money and security deposits. 38. This Court in the decision rendered in the case of Manraj E....
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....aid thereon. 11. When parties to the contract had agreed to the fact that interest would not be awarded on the amount payable to the contractor under the contract, in our opinion, they were bound by their understanding. Having once agreed that the contractor would not claim any interest on the amount to be paid under the contract, he could not have claimed interest either before a civil court or before an Arbitral Tribunal. ............... 13. Section 31(7) of the Act, by using the words "unless otherwise agreed by the parties", categorically specifies that the arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest." 41. In the case of Sree Kamatchi Amman Constructions (supra), this Court has held in para 19 as under: "19. Section 37(1)[Sic Section 31(7)] of the new Act by using the words "unless otherwise agreed by the parties" categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of inter....
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....Union of India, (2017) 14 SCC 323 (a three-judge bench judgment of this Court). After considering the aforesaid decisions as well as several other decisions referred on the issue, this Court has observed in para 8 and 11 as under: "8. After considering various decisions on award of interest pendente lite and the future interest by the arbitrator and after discussing the decisions of this Court in Ambica Construction v. Union of India [Ambica Construction v. Union of India, (2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] and Raveechee & Co. [Raveechee & Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ) 711] and other decisions on the point, this Court has observed in paras 9 to 18 as under : (Garg Builders [Garg Builders v. BHEL, (2022) 11 SCC 697 : 2021 SCC OnLine SC 855], SCC paras 9-19) "9. On the other hand, Mr Pallav Kumar, learned counsel for the respondent, submitted that Section 31(7)(a) of the 1996 Act gives paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre-reference and pendente lite interest when the parties themselves have agreed to the contrary. He argued tha....
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....ring interest is very clear and categorical. It uses the expression "any moneys due to the contractor" by the employer which includes the amount awarded by the arbitrator. 13. In Sayeed Ahmed & Co. v. State of U.P. [Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629], this Court has held that a provision has been made under Section 31(7)(a) of the 1996 Act in relation to the power of the arbitrator to award interest. As per this section, if the contract bars payment of interest, the arbitrator cannot award interest from the date of cause of action till the date of award. 14. In Sree Kamatchi Amman Constructions v. Railways [Sree Kamatchi Amman Constructions v. Railways, (2010) 8 SCC 767 : (2010) 3 SCC (Civ) 575], it was held by this Court that where the parties had agreed that the interest shall not be payable, the Arbitral Tribunal cannot award interest between the date on which the cause of action arose to the date of the award. 15. BHEL v. Globe Hi-Fabs Ltd. [BHEL v. Globe Hi-Fabs Ltd., (2015) 5 SCC 718 : (2015) 3 SCC (Civ) 287], is an identical case where this Court has held as under : (SCC p. 723, para 16) '16. In....
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.... post-award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the pre-award period, the arbitrator cannot award interest for the said period. Therefore, the decision in Ambica Construction [Ambica Construction v. Union of India, (2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] cannot be made applicable to the instant case.' 18. The decision in Raveechee & Co. [Raveechee & Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ) 711] relied on by the learned counsel for the appellant is again under the Arbitration Act, 1940 which has no application to the facts of the present case. 19. Having regard to the above, we are of the view that the High Court [Garg Builders v. BHEL, 2017 SCC OnLine Del 12871] was justified in rejecting the claim of the appellant seeking pendente lite interest on the award amount." ........... 11. In the said decision in Bright Power Projects [Union of India v. Bright Power Projects (India) (P) Ltd., (2015) 9 SCC 695 : (2015) 4 SCC (Civ) 702], this Court also considered Section 31(7)(a) of the 1996 Act. It is specifically observed and held that Sectio....
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....endente lite interest. The relevant paragraph of the Arbitral Award reads as under:- "The Interest so claimed is therefore not admissible as per Section 31(7)(a) of the Act read with Clause 64(5) of the GCC & Clause 7.35 of SCC of the contract agreement signed between the two parties. Tribunal did not therefore consider to award any interest on the award sum as claimed by the Claimant. Therefore, Arbitral Tribunal declare Nil Award against this claim." 47. With regard to the post-award interest, Section 31(7)(b) of the Act provides that unless the award otherwise directs, the sum awarded shall carry interest from the date of the award till payment. The legislative intent underlying this provision is twofold: first, to compensate the successful party for delayed realization of the award, and second, to ensure prompt compliance with the award by the judgment-debtor. 48. Recently, this Court in the case of R.P. Garg (supra), has observed and held in para 9, 11 and 12 as under: "9. We are of the opinion that the judgment of High Court is clearly erroneous. Firstly, the interest granted by the First Appellate Court only related to post award period, and therefore....
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....lified by the arbitration award. However, the placement of the phrases is crucial to their interpretation. The words, "unless otherwise agreed by the parties" occur at the beginning of clause (a) qualifying the entire provision. However, in clause (b), the words, "unless the award otherwise directs" occur after the words "a sum directed to be paid by an arbitral award shall" and before the words "carry interest at the rate of eighteen per cent". Thereby, those words only qualify the rate of post-award interest. 25. Section 31(7)(a) confers a wide discretion upon the arbitrator in regard to the grant of pre-award interest. The arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made - whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award. When a discretion has been conferred on the arbitrator in regard to the grant of pre-award interest, it would be against the grain of statutory interpretation to presupp....
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....ew that the AT has committed serious error by awarding pre-award/pendente lite interest qua Claim Nos. 1, 3 & 6, though AT has observed that the said amount are awarded by way of compensation, however, in view of the peculiar clause of GCC as well as provisions contained in Section 31(7)(a) of the Act of 1996 and the decisions rendered by this Court, the AT could not have awarded the pre-award/pendente lite interest. 53. For the above stated reasons, the Commercial Court and the High Court failed to appreciate that the AT had awarded pendente lite interest in violation of an express contractual bar and such failure attracts interference even within the limited scope of Sections 34 and 37 of the Act. 54. Further, in the present case, the AT has expressly directed that the awarded sum shall carry post-award interest at the rate of 12% per annum only in the event of default, i.e., if payment is not made within the stipulated period of 60 days. The grant of post-award interest is, therefore, conditional in nature and operates as a deterrent against delayed payment, rather than as an automatic or punitive imposition of post-award interest. 55. There is no provision in the GCC w....