Does an arbitrator have the power to grant interest (on the amount due under a contract) despite the arbitration agreement between the parties prohibiting it?
Ruling in Union of India v Krafters Engineers & Leasing Ltd, the Supreme Court held that when an arbitration agreement expressly excludes the award of interest, the arbitrator cannot impose it on the party. In doing so, the apex court pointed out that the Arbitration and Conciliation Act, 1996, has a specific provision about the award of interest by the arbitrator. Its predecessor, the Arbitration Act, 1940, was silent on this and as a result arbitrators could award interest even if the arbitration agreement prohibited it.
Allowing the appeal by the Union of India, the Supreme Court set aside the ruling passed in 2006 by the Bombay High Court, which allowed the award of interest to Krafters by the arbitrator.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
