Arbitration In IndiaArbitral Tribunal cannot levy interest on delayed payment contrary to the terms of the Agreement

The Delhi High Court in Rites Limited v. Ahluwalia Contract (India) Ltd. [OMP (COMM) 56/2019 & IA 15760/2019] held that interest cannot be levied by an Arbitral Tribunal on delayed payment if expressly excluded in the Arbitration Agreement.

FACTS

Rites Limited (hereinafter referred to as the “Petitioner”) had entrusted Ahluwalia Contract (India) Ltd. (hereinafter referred to as the “Respondent”) with the task of construction of hostels and flats in the North Campus of the University vide an Agreement dated 24.03.2009.

Due to disputes between the parties, the Respondent invoked Arbitration Clause of the Agreement and filed 4 claims before the Arbitral Tribunal. The Arbitral Tribunal vide the Arbitral Award dated 20.09.2018 awarded in favour of the Respondent along with interest and cost (hereinafter referred to as the “Impugned Award”).

Being aggrieved and dissatisfied by the Impugned Award, the Petitioner has filed the present petition.

ISSUE BEFORE THE DELHI HIGH COURT

Whether the Arbitral Tribunal was justified on levy of interest for the delayed payment under the Impugned Award?

CONTENTIONS OF THE PARTIES

The Petitioner submitted that Clause 9 of the Agreement categorically stated that the Respondent would not be entitled to any compensation or claims or damages by way of interest in case of delay of payment. It was also contended that Clause 25 of the Agreement also stated that no interest was payable for the period till which an Arbitral Award is made.

The Petitioner argued that such submissions were not considered by the Arbitral Tribunal during passing of the Impugned Award.

The Respondent contended that the interest had been awarded in form of compensation of delayed payment. Moreover, the delay on part of the Petitioner was not justified and therefore, the Respondent was compensated.

DISCUSSION AND FINDINGS

The Delhi High Court observed the Clause 9 and Clause 25 of the Agreement and held that both the clauses were unambiguous. The Delhi High Court relied upon Garg Builders v. BHEL ((2022) 11 SCC 697) and Union of India v. Manraj Enterprises [(2022) 2 SCC 331] and held that when the Agreement categorically bars levy of interest, an award to the contrary is not sustainable.

It was observed that levy of interest was beyond the powers of the Arbitral Tribunal and hence, the part of the Impugned Award granting interest under Claim 3 was set aside.

AMLEGALS REMARKS

The Delhi High Court has upheld the intent of the A&C Act of party autonomy. Once, both the parties have decided that interest would not be leviable even in case of delayed payment, Arbitral Tribunal cannot levy penalty even in form of compensation.

– Team AMLEGALS