Interest payments on arbitral awards may be curtailed

InSayeed Ahmed & Co v State of Uttar Pradesh the Supreme Court of India ruled that where parties to arbitration have agreed not to grant any interest on payments, an arbitrator does not have the power to grant interest from the date of the cause of action until the date of the arbitral award.

The State of Uttar Pradesh entrusted construction work to M/s Sayeed Ahmed and Company under an agreement dated 30 March 1990. The work was completed on 31 March 1996. Later, disputes arose between the parties over the rejection of Ahmed’s claims by the State of Uttar Pradesh.

The disputes were referred to arbitration and the arbitrator passed an award granting Ahmed: (i) Rs2,418,586, with interest at 18% per annum from 1 April 1996, until the date of payment; (ii) the amount, if any, due to Ahmed on finalizing the final bill with interest at 14% per annum from 1 May 1996 until the date of payment; and (iii) the security deposit amount due with interest at 12% per annum from 1 October 1996 until the date of payment.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.