In a recent matter, the Supreme Court has concluded that an arbitral tribunal has no jurisdiction to grant a pre-award interest in form of compensation when there is an express provision in the contract, prohibiting the same.
The Bench, comprising of Justice Sanjay Karol and Justice Vipul M. Pancholi, took over the matter, after the Allahabad High Court upheld an arbitral award that granted some monetary claims with interest for the period before the award was delivered. It had to be examined whether this amounted to a pre-award interest or pendente lite.
Referring to the Arbitration and Conciliation Act 1996, the Apex Court noted that tribunals can grant such interest only when there is no specific restriction mentioned in the contract. In the current matter, the contract governing the arbitration, contained a clause prohibiting interest for the relevant period. The terms of the contract are to be given the upper hand in such a situation. Since the agreement expressly barres the pre-award interest, the tribunal cannot bypass it by awarding the amount but under a different label.
Therefore, the court set aside the part of the award which granted the pre-award interest, and held that it was inconsistent with the contract and the law governing arbitration.
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