Allahabad HC Upholds Road Contractor’s ₹1.56-Crore Award, Replacing Annual Compounding With Simple Interest As Contract Was Silent

The dispute arose from a contract to widen and strengthen the Raya–Math Road.

The contractor claimed unpaid amounts for completed work; the State disputed the claim, alleging incomplete and substandard work and relying on the absence of a completion certificate.

The arbitral tribunal found the contractor had completed 11.8 kilometres, awarded Rs.1,56,79,034.65, interest at 14% per annum compounded annually, and costs, while allowing a State counterclaim deduction of Rs.1,39,619 with interest.

The Commercial Court dismissed the State’s Section 34 challenge.

The State appealed under Section 37, challenging the finding of completion and the award of compound interest.

Section 31(7) of the Arbitration and Conciliation Act, 1996 empowers an arbitral tribunal, where the parties have not otherwise agreed, to award interest for the pre-award period and provides for post-award interest unless the award directs otherwise.

The court read this provision alongside Sections 2(a) and 3(3)(c) of the Interest Act, 1978, under which an arbitrator is included within “Court” and interest upon interest may not be awarded under Section 3.

Relying on State of Haryana v. S.L. Arora & Co., Hyder Consulting (UK) Ltd. v. State of Orissa, Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd., and HLV Ltd. v. PBSAMP Projects (P) Ltd., the court held that the tribunal could award interest but could not compound it in the absence of an applicable contractual stipulation.

Under Gayatri Balasamy v. ISG Novasoft Technologies Ltd., modification may be made where the invalid part of an award is severable and the correction falls within the limits recognised by the Supreme Court.

The tribunal’s finding that the contractor completed 11.8 kilometres was supported by the evidence: the State had not issued a notice alleging non-completion or defective work, and the inspection reports did not conclude that the work was incomplete.

The absence of a completion certificate, which the State was responsible for issuing under the contract, did not outweigh that evidence or establish incompletion.

The court therefore declined to disturb the factual finding or the principal amount awarded.

As to interest, the contract was silent, so the tribunal had authority to award interest at 14%; however, annual capitalization amounted to interest upon interest and was impermissible without a contractual stipulation.

Because the defect was confined to the interest calculation and was severable, the court modified that part of the award rather than setting aside the award as a whole.

The court affirmed the finding that the contractor completed the work and preserved the principal award of Rs.1,56,79,034.65.

It modified the interest award to provide 14% per annum simple interest from 1 September 2009 to 31 January 2016, with the amount then crystallised carrying 14% per annum simple interest from 1 February 2016 until payment.

The State’s deduction of Rs.1,39,619, with 14% per annum simple interest from 1 September 2009 until payment, was to be made as directed in the award.

The judgment’s paragraph 92 prints “31.01.2026” as the crystallisation date, although paragraph 87 and the stated commencement date of 1 February 2016 indicate that the intended date is 31 January 2016.

No order as to costs was made.