Case Note & Summary
The present appeal arose from a judgment and order of the Gauhati High Court dated 08.03.2019, which had allowed the respondent's appeal under Section 37 of the Arbitration and Conciliation Act, 1996, set aside the District Judge's order, and affirmed an arbitral award dated 21.11.2004. The appellant, Oil and Natural Gas Corporation Ltd., had suffered an arbitral award passed by a three-member tribunal in favour of the respondent, M/s G & T Beckfield Drilling Services Pvt. Ltd., for a total of USD 6,56,272.34 with interest at 12% per annum from 12.12.1998 until recovery and costs of Rs.5 lakh. The award allowed various invoice claims, performance-bond amount, and rejected counterclaims. Aggrieved, the appellant filed an application under Section 34 before the District Judge, Sivasagar, which set aside the award on grounds that it was non-reasoned and the Section 16(2) objection was not decided. The respondent then appealed to the High Court under Section 37(1)(c), which restored the award. The appellant challenged this before the Supreme Court by way of special leave petition, wherein notice was limited to the issue of whether interest at 12% per annum on the total awarded amount from 12.12.1998 could be awarded at all. The appellant's counsel relied on clause 18.1 of the contract and Section 31(7)(a) of the 1996 Act, contending that the tribunal's power to award interest between cause of action and award is subject to party agreement, and since clause 18.1 stated no interest shall be payable on delayed payment/disputed claim, the award of pre-award interest was illegal. The respondent's counsel argued that clause 18.1 did not bar pendente lite interest; it only prevented interest on delayed payment when a dispute existed, and here the tribunal awarded interest from the date the statement of claim was affirmed, not from the date cause of action arose, after finding that the balance amount was unjustifiably withheld. The Supreme Court framed the issue as whether clause 18.1 proscribed payment of even pendente lite interest on the sum awarded. The Court observed that Section 31(7) contains two clauses: clause (a) permits the tribunal to include interest for the period between the date cause of action arose and date of award, subject to contrary agreement; clause (b) deals with post-award interest and is not subject to contrary agreement. The Court noted that the arbitral tribunal has jurisdiction to award interest for pre-reference, pendente lite, and post-award periods, and that pre-reference and pendente lite interest are subject to party agreement, whereas post-award interest cannot be contracted out. An agreement to waive interest is not ultra vires under Section 28 of the Contract Act. The Court found the rate of 12% per annum reasonable being lower than the then statutory 18% under clause (b). The Court then examined clause 18.1, which provided that no interest shall be payable on any delayed payment/disputed claim, and considered precedents on when a bar on interest can be inferred from contract terms. The excerpt of the judgment provided ends during the discussion of these precedents and does not contain the final holding or operative directions of the Supreme Court. Accordingly, the final decision on whether clause 18.1 barred pendente lite interest is not available from the provided text.
Headnote
A) Arbitration Law - Award of Interest by Arbitral Tribunal - Section 31(7) Arbitration and Conciliation Act, 1996 - Pre-reference and pendente lite interest subject to party agreement; post-award interest statutory and not subject to contract - In an appeal against affirmation of an arbitral award, the Supreme Court examined Section 31(7) and observed that clause (a) permits tribunal to award interest from cause of action to date of award unless otherwise agreed, and clause (b) governs future interest independently of party agreement; the tribunal has jurisdiction over three periods - Held that pre-reference and pendente lite interest are subject to agreement between parties, while post-award interest cannot be contracted out (Paras 12-13). B) Contract Law - Waiver of Interest - Section 28 Contract Act, 1872 - Contractual waiver of interest not ultra vires - The Court noted that an agreement stipulating no interest payable is valid and an award contrary to such stipulation is vulnerable to challenge under Section 34 of Arbitration and Conciliation Act, 1996; thus a contractual bar on interest is enforceable only for pre-reference and pendente lite periods - Held that agreement to waive interest does not violate Section 28 and is enforceable to the extent provided (Paras 12-14). C) Arbitration Law - Interpretation of Clause 18.1 - No Interest on Delayed Payment/Disputed Claim - Whether clause proscribes pendente lite interest - Clause 18.1 allowed withholding disputed amounts but required payment of undisputed amounts within 30 days and stated no interest shall be payable on delayed payment/disputed claim; appellant argued this bars all pre-award interest while respondent argued it does not bar pendente lite interest because tribunal awarded interest from date claim affirmed - The Court considered whether the contractual bar extended to pendente lite interest, noting that tribunal had declined pre-reference interest (Paras 14-16). D) Arbitration Law - Precedents on Implied Bar of Interest - Arbitration Act, 1940 and Arbitration and Conciliation Act, 1996 - Supreme Court decisions on when bar on interest can be inferred from contract terms - The Court referred to decisions including Irrigation Deptt., State of Orissa v. G.C. Roy, Union of India v. Bright Power Projects, Sayeed Ahmed and Company v. State of Uttar Pradesh, Sree Kamatchi Amman Constructions v. Divisional Railway Manager, Garg Builders v. Bharat Heavy Electricals, Jaiprakash Associates v. Tehri Hydro Development Corporation, Pam Developments v. State of West Bengal, and R.P. Garg v. Chief General Manager, Telecom Department - Held that these precedents guided interpretation of contractual interest bars, although final application to clause 18.1 was not detailed in the excerpt (Paras 12, 17).
Issue of Consideration
Whether clause 18.1 of the agreement proscribes payment of even pendente lite interest on the sum awarded.
Law Points
- Arbitral tribunal's power to award pre-reference and pendente lite interest under Section 31(7)(a) is subject to agreement between parties
- post-award interest under Section 31(7)(b) is statutorily governed and not subject to contract
- agreement to waive interest is not ultra vires under Section 28 Contract Act
- arbitral tribunal has jurisdiction over three distinct periods of interest: pre-reference
- pendente lite
- and post-award
