Case Note & Summary
The dispute arose from a contract awarded to Jaiprakash Associates Ltd. (JAL) by Tehri Hydro Development Corporation India Ltd. (THDC) for execution of certain works, signed on 18th December 1998. Disputes led to arbitration under the Arbitration and Conciliation Act, 1996. The majority arbitral award dated 10th October 2010 allowed two claims and granted interest at 10% per annum from the date of invocation of arbitration (9th October 2007) until 60 days after the award, and future interest at 18% per annum until payment. THDC objected, arguing that Clauses 50 and 51 of the General Conditions of Contract (GCC) barred any interest. The Delhi High Court Single Judge quashed the interest portion, and the Division Bench upheld that decision. The core legal issue was whether the arbitral tribunal could award interest despite the express contractual prohibition. JAL argued that the clauses did not prohibit interest and that the earlier three-judge bench decision in State of Uttar Pradesh v. Harish Chandra and Company (1999) 1 SCC 63 should prevail over the later decision in Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd. (2012) 12 SCC 10, which interpreted identical clauses. Alternatively, JAL sought reference to a larger bench. THDC contended that the clauses were different from those in Harish Chandra, and that under Section 31(7)(a) of the 1996 Act, an arbitrator cannot award interest when the contract expressly prohibits it. The Supreme Court held that the clauses in the present case were identical to those in THDC v. Jai Prakash Associates Ltd., which had already decided that no interest was payable. The Court distinguished Harish Chandra as arising under the 1940 Act and involving different clause wording. The Court dismissed the appeal, affirming that the arbitral tribunal had no jurisdiction to award interest in light of the express contractual bar.
Headnote
A) Arbitration Law - Power to Award Interest - Contractual Prohibition - Section 31(7)(a) Arbitration and Conciliation Act, 1996 - Where the contract between the parties expressly prohibits payment of interest, the arbitral tribunal has no jurisdiction to award pendente lite interest. The High Court correctly set aside the award of interest by the arbitrators as Clauses 50 and 51 of the GCC barred such interest. (Paras 2-5, 12-13) B) Arbitration Law - Precedent - Conflict of Decisions - Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 - The identical clauses were interpreted in this case between the same parties, holding that no interest was payable. This judgment governs the present case, and there is no conflict with State of Uttar Pradesh v. Harish Chandra and Company, (1999) 1 SCC 63 as the clauses were different and the latter arose under the Arbitration Act, 1940. (Paras 5, 10, 13)
Issue of Consideration
Whether the arbitral tribunal could award interest in view of Clauses 50 and 51 of the General Conditions of Contract which prohibited payment of interest on amounts due to the contractor.
Final Decision
The Supreme Court dismissed the appeal, upholding the High Court's decision that no interest is payable as Clauses 50 and 51 of GCC bar the arbitrators from granting interest.
Law Points
- Arbitration
- Interest
- Contractual prohibition
- Pendente lite interest
- Section 31(7)(a) Arbitration and Conciliation Act
- 1996
