Contractual Bars Defeated Pre-Award Interest, but Post-Award Interest Was Retained at a Reduced Rate

The Background

The dispute arose from a turnkey contract for modernization of the Jhansi Workshop of North Central Railways. L&T secured an arbitral award on multiple claims, including components linked to delay, financing charges, payment disputes, and interest.

The award survived challenge before the Commercial Court and the High Court, which brought the Union to the Supreme Court.

Why the Supreme Court Intervened

The Court examined the General Conditions of Contract and concluded that Clauses 16(3) and 64(5) barred pre-award and pendente lite interest, including amounts effectively awarded in the nature of interest on the relevant claims.

At the same time, it accepted that post-award interest stands on a different statutory footing under Section 31(7)(b) and can be moderated in light of the present economic context and the court’s power to adjust an excessive rate.

The Final Decision

The Supreme Court set aside the award, and the judgments below, to the extent they granted pre-award or pendente lite interest or interest-like amounts on Claim Nos. 1, 3, and 6.

The post-award interest rate was modified from 12% per annum to 8% per annum from the date of the award until realization. The appeal was partly allowed.

Why This Judgment Matters

The ruling is important for arbitration law because it shows both restraint and correction: courts will honour express contractual prohibitions on pre-award interest, yet still intervene to rationalise future post-award interest where the rate is unjustifiably high.