High Court of Delhi

Union of India Vs. Om Vajrakaya Construction Company

MANU/DE/3619/2021

20.12.2021

Arbitration

If there is a specific contract between the parties that proscribes award of interest, award of pre-reference interest would be impermissible

The Petitioner (the 'Railway') has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 ('A and C Act') impugning an arbitral award dated 8th April, 2020 ('impugned award') passed by the Arbitral Tribunal. The impugned award was rendered in the context of disputes that have arisen between the parties in relation to a contract signed between the parties on 16th December, 2011 ('Contract').

Learned counsel appearing for the Railway assailed the impugned award submitting that, the Arbitral Tribunal had grossly erred in awarding pendente lite interest as the same was contrary to the express provisions of the General Conditions of Contract (GCC) forming part of the Contract.

The Arbitral Tribunal has awarded pendente lite and future interest at the rate of 9% per annum. There is merit in the contention that the award of pendente lite interest runs contrary to Clause 64.5 of the GCC which expressly provides that 'no interest shall be payable on whole or any part of the money for any period till the date on which the award is made.'

The Supreme Court in Union of India v. Bright Power Projects India (P) Ltd had held that if there is a specific contract between the parties that proscribes award of interest, award of pre-reference interest would be impermissible. Thus, the impugned award to the extent that it awards pendente lite interest, is liable to be set aside.

The provisions of the contract cannot be read to override the provisions of Section 31A of the A and C Act unless the parties enter into the contract after the disputes have arisen. The discretion of the Court or the Arbitral Tribunal to award costs is not subject to the agreement between the parties unless that agreement is entered after the disputes have arisen.

Sub-Section (5) of Section 31A of the A and C Act makes it amply clear that an agreement, which has the effect that a party has to pay whole, or part of the costs would be valid only if such an agreement is made after the disputes have arisen. Clause 64(6) of the GCC which provides that parties would bear their own costs does amount to an agreement that a party would bear a part of the costs and, by virtue of Section 31A(5) of the A and C Act, this agreement is not valid as it was not entered into after the disputes have arisen. The impugned award to the extent it awards pendente lite interest, is set aside. The petition is disposed of.

Tags : Award Interest Validity

Share :