Supreme Court: a clause barring interest on 'delayed payments' can also bar pre-reference interest

In a dispute traced back to a 1996 public-works contract for a Gas Turbine Power Project in Tripura, the Supreme Court examined whether an Arbitral Tribunal was competent, under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, to award pre-reference interest despite a contract clause restricting interest. The Arbitral Tribunal had awarded the contractor Rs. 3.30 crore along with pre-reference interest; the Commercial Court disallowed the interest, citing Clause 54 of the contract's General Conditions, but the High Court restored it, treating Clause 54 as identical to the clause construed in State of U.P. v. Harish Chandra and Co., a case decided under the since-repealed Arbitration Act, 1940, which had been held not to bar pre-award interest.

The Supreme Court disagreed, holding that Clause 54 contains an additional line specifically barring interest on delayed payments, over and above money withheld due to a dispute, and that this wording brings it within the later line of decisions beginning with Sayeed Ahmed & Company v. State of U.P., which treat such clauses as a complete bar on an arbitrator's power to award interest for both the pre-reference and pendente lite periods. The Court held the appellant had not waived the point, having raised it before the Tribunal itself, and set aside the grant of pre-reference interest as being in excess of the Tribunal's jurisdiction.