Supreme Court HELD that where a contract expressly bars interest, the Arbitral Tribunal cannot award pre-award or pendente lite interest – even indirectly as “compensation”.
Contractual Prohibition or Bar to the Award of Interest on all contract amounts and Section 73 of the Contract Act
Clauses 16(3) provides that no interest shall be payable upon the earnest money or the security deposit or “the amounts payable to the contractor under the contract”.
Clause 64(5) of GCC specifically restricts payment of interest on the money payable under an award till the date of award.
The contract for modernization of Jhansi Workshop of North Central Railway was given to L&T. The period of 18 months for completion was extended till 30.11.2015, resulting in delay of 40 months.
The Arbitral Tribunal adjudicated the claims for delayed payments.
The Arbitral Tribunal has awarded pre-award / pendente lite interest, by way of compensation, while passing the award in favour of the respondent – claimant.
AT has committed serious error by awarding pre-award/pendente lite interest qua Claim Nos. 1, 3 & 6, though AT has observed that the said amount are awarded by way of compensation, however, in view of the peculiar clause of GCC as well as provisions contained in Section 31(7)(a) of the Act of 1996 and the decisions rendered by this Court, the AT could not have awarded the pre-award/pendente lite interest.
the conditional grant of post-award interest in the present case is consistent with the statutory framework and serves the purpose of ensuring timely satisfaction of the award. However, we are of the considered opinion that the rate of post award interest at 12% per annum, as awarded by the AT, is on the higher side. It is pertinent to note that the AT has not assigned any reasons whatsoever for fixing the rate of post award interest at 12% per annum. In the absence of any justification in the award for fixing the rate at 12% per annum and keeping in view the contemporary economic scenario, such rate would result in an excessive financial burden and would not subserve the principle of just compensation.
AT is not justified in awarding pre-award/pendente lite interest, by way of compensation, while passing the award in favour of the respondent-claimant, and more particularly in view of Clause 16(3) and Clause 64(5) of the GCC. The award of such interest is not in accordance with the agreement, and liable to be set aside.
Compensation cannot be used to circumvent interest bar in the contract.
Reduction of Excessive Post-Award Interest for lack of reasons by the Arbitral Tribunal, did not reflect economic realities and imposed undue financial burden.
Supreme Court HELD that where a contract expressly bars interest, the Arbitral Tribunal cannot award pre-award or pendente lite interest – even indirectly as “compensation”.
Judgment dated 27.2.2026 of the Supreme Court of India in SLP (Civil) No.14989 of 2023 of Union of India and others Vs. Larsen & Tubro Limited
