17 June 2024


Supreme Court

Jaiprakash Associates Ltd. Vs. Tehri Hydro Development Corporation India Ltd.




No interest is payable, when clauses agreement bars arbitrators from granting interest

In present matter, the Appellant herein was awarded the contract under which it was to execute certain Works. Agreement in this behalf was signed on 18th December, 1998. Some disputes arose between the parties. Since the agreement contained an arbitration clause, two claims raised by the Appellant were referred for arbitration. The arbitral tribunal was of three Arbitrators. This arbitration was under the Arbitration and Conciliation Act, 1996 ('1996 Act'). The majority award pronounced allowed the two claims to certain extent. On the said claims awarded, the Arbitrators also granted interest.

Dispute which has travelled upto this Court pertains only to the question as to whether the Arbitrators could award any interest in view of Clauses 50 and 51 of the General Conditions of Contract (GCC) which governed the terms between the parties. The objections were filed before the High Court. A Single Judge of the High Court of Delhi passed the order quashing the award limited to the interest that was awarded by the Arbitrators. The Appellant preferred intra-court appeal which has also been dismissed. The effect is that the High Court has held that, no interest is payable as Clauses 50 and 51 of GCC bar the arbitrators from granting interest.

In a recent judgment in the case of Reliance Cellulose Products Limited v. Oil and Natural Gas Corporation Limited, the entire case law on the subject is revisited and legal position re-emphasised. The grant of pendente lite interest depends upon the phraseology used in the agreement, clauses conferring power relating to arbitration, the nature of claim and dispute referred to the arbitrator, and on what items the power to award interest has been taken away and for which period. Also, the position under Section 31(7) of the 1996 Act, is wholly different, inasmuch as Section 31(7) of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered.

Present case is regulated by 1996 Act. At this stage itself, it may be mentioned that in case clauses 50 and 51 of GCC put a bar on the arbitral tribunal to award interest, the arbitral tribunal did not have any jurisdiction to do so. Right from the stage of arbitration proceedings till the High Court, these clauses are interpreted to hold that they put such a bar on the arbitral tribunal. Even the majority award of the arbitral tribunal recognised this. Notwithstanding the same, it awarded the interest by relying upon Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age, Board of Trustees for the Port of Calcutta case.

The High Court, both Single Bench as well as Division Bench, rightly noted that the aforesaid judgment was under the 1940 Act and the legal position in this behalf have taken a paradigm shift. This rationale given by the High Court is in tune with the legal position which stands crystallised by catena of judgments. The conclusions of the High Court in the impugned judgment are correct and need no interference. This appeal is accordingly dismissed.


Reliance Cellulose Products Limited v. Oil and Natural Gas Corporation Limited MANU/SC/0777/2018

Tags : Award Interest Legality

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