đź“ŚSection 31(a) and 34– Pendent elite interest-effect of the words unless
otherwise agreed by parties‖ in Section 31(7) (a) of the Act
đź“ŚBeing aggrieved by the judgment delivered in Union of India v. Bright Power Projects (I) (P) Ltd. dated 7-8-2006 by the High Court of Judicature of Bombay, this appeal has been filed wherein the issue is whether the appellant is
liable to pay interest to the respondent though there was a provision in the contract that no interest should be paid on the amount payable to the contractor. It was held by Supreme Court Section 31(7) (a) of the Arbitration and Conciliation Act, 1996 is clear
to the effect that unless otherwise agreed by the parties, the Arbitral Tribunal
can award interest of reasonable rate for a period commencing from that date
when the cause of action arises till the date of the award. Section 31(7)(a) 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. In view of the specific bar under
Clause 13(3) of the contract entered into between the parties, we are of the view
that the Arbitral Tribunal was not justified in awarding interest from the date of
entering upon the reference to the Arbitral Tribunal till the date of the award.The Tribunal, however, failed to consider the provisions of Section 31(7) of the Act and clause 13(3) of the contract before awarding interest in the present
case. Section 31(7)(a) of the Act ought to have been read and interpreted by the
Arbitral Tribunal before taking any decision with regard to awarding interest.
The said Section, which has been reproduced hereinabove, gives more respect
to the agreement entered into between the parties. If the parties to the agreement agree not to pay interest to each other, the Arbitral Tribunal has no right to award interest pendente lite.
đź“ŚUnion of India v. Bright Projects (India) (P) Ltd.
đź“Ś(2015) 9 SCC 695