Summary
ONGC challenged an arbitral award, as affirmed by the Gauhati High Court under Section 37, only to the extent that it granted 12% interest on the awarded sum from the date the statement of claim was affirmed, contending that clause 18.1 of the contract barred interest on delayed or disputed payments. The Supreme Court held that an arbitral tribunal's power under Section 31(7)(a) to award pendente lite interest is excluded only where the contract bars it expressly or by necessary implication; a clause merely denying interest on delayed payment is not readily inferred as such a bar. Clause 18.1 did not bar pendente lite interest, and the appeal was dismissed.
Issues
- Whether clause 18.1 of the agreement, which stated that no interest would be payable by ONGC on any delayed payment or disputed claim, barred the arbitral tribunal from awarding pendente lite interest on the sum awarded.
- What is the scope of the arbitral tribunal's power to award interest for the pre-reference, pendente lite and post-award periods under Section 31(7) of the Arbitration and Conciliation Act, 1996, and when can that power be treated as excluded by agreement.
Provisions considered
- Section 31(7)(a), Arbitration and Conciliation Act, 1996Clause (a) permits the tribunal, unless otherwise agreed by the parties, to include interest at a reasonable rate on the whole or part of the money for the whole or part of the period between the date the cause of action arose and the date of the award. The Court read this as making pre-reference and pendente lite interest subject to the parties' agreement: if the agreement stipulates that no interest is payable the tribunal cannot award it and an award contrary to the contract is vulnerable under Section 34, while if the agreement is silent the tribunal may award interest. Applied to clause 18.1, the Court found no express or necessarily implied bar on pendente lite interest. (¶¶ 8, 12, 14, 25, 26)
- Section 31(7)(b), Arbitration and Conciliation Act, 1996Clause (b), as it stood before the 2015 amendment, mandated interest at 18% per annum from the date of the award to the date of payment unless the award directed otherwise. The Court held that clause (b) is not subject to the parties' agreement, so parties cannot contract out of post-award interest, and found the 12% rate awarded reasonable as it was below the statutory rate then prevalent. (¶¶ 12, 13, 26)
- Section 34, Arbitration and Conciliation Act, 1996The Court noted that an award of interest contrary to the terms of the contract would be open to challenge under Section 34; here the District Judge had set aside the award under Section 34 on other grounds, which were not before the Court because notice on the special leave petition was limited to the question of interest. (¶¶ 3, 4, 6, 7, 12)
- Section 28, Indian Contract Act, 1872The Court observed that an agreement to waive interest is not ultra vires Section 28. (¶ 12)
Held
- Under Section 31(7) of the Arbitration and Conciliation Act, 1996 the arbitral tribunal may award interest for three distinct periods: pre-reference, pendente lite and post-award. Award of pre-reference and pendente lite interest under clause (a) is subject to the agreement between the parties; if the agreement stipulates that no interest is payable the tribunal cannot award it for that period and such an award is vulnerable under Section 34, whereas if the agreement is silent the tribunal may award interest. Post-award interest under clause (b) is statutorily governed and not subject to agreement, so the parties cannot contract out of it. (¶ 12)
- An arbitral tribunal is denuded of its power to award pendente lite interest only if the contract is so worded that the award of pendente lite interest is barred either explicitly or by necessary implication, as in clauses that bar interest 'in any respect whatsoever'. A clause merely barring interest on delayed payment will not by itself be readily inferred as a bar on the tribunal's power to award pendente lite interest; the question depends on the phraseology of the agreement, the clauses conferring arbitral power, the nature of the claim and dispute, and the items and period for which the power to award interest is taken away. (¶¶ 17, 18, 19, 20, 24, 25)
- Clause 18.1 of the agreement, read as a whole, only provides that no interest is payable by the Corporation on any delayed payment or disputed claim; it neither bars the arbitral tribunal from awarding pendente lite interest nor states that interest is not payable in any respect whatsoever. It therefore does not limit the tribunal's statutory power to award pendente lite interest, and the award of interest at 12% per annum from the date the statement of claim was affirmed warranted no interference. Post-award interest was in line with Section 31(7)(b) as then in force. (¶¶ 13, 14, 26)
Result
Appeal dismissed; the arbitral award, including the award of pendente lite interest at 12% per annum from the date the statement of claim was affirmed, as affirmed by the High Court, left undisturbed; pending applications disposed of.