Arbitral tribunal cannot award pre-reference or pendente lite interest where contract specifically prohibits such payment.

The dispute arose from a 2011 turnkey agreement for the modernization of the Jhansi Workshop, North Central Railways.

Completion was delayed by 40 months beyond the original 18-month deadline, leading L&T (Respondent) to seek arbitration for outstanding payments and interest.

An Arbitral Tribunal (AT) awarded L&T ₹5,53,57,597, which included "financing charges" and interest components under Claims 1, 3, and 6, despite Clause 16(3) and 64(5) of the General Conditions of Contract (GCC) prohibiting interest on amounts payable under the contract.

The Union of India challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 ("the Act"), and subsequently under Section 37, but both the Commercial Court and the Allahabad High Court upheld the award.

Whether the Arbitral Tribunal was justified in awarding pre-award/pendente lite interest, styled as compensation, despite contractual prohibitions in Clause 16(3) and 64(5) of the GCC.

Whether the Arbitral Tribunal was justified in awarding post-award interest and if the rate was reasonable.

Whether the lower courts erred in their oversight of the Arbitral Award under Sections 34 and 37 of the Act.

The Court applied Section 28(3) and Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, which mandate that an arbitrator must decide in accordance with the contract terms and that the power to award interest is subject to the agreement of the parties.

It relied on Union of India v. Bright Power Projects (India) (P) Ltd. (2015), establishing that when a contract bars interest, the arbitrator lacks jurisdiction to award it.

The principle of ejusdem generis was evaluated via Union of India v. Manraj Enterprises (2022) to hold that "amounts payable under the contract" is an independent category.

Regarding post-award interest, the Court applied Section 31(7)(b) of the Act and the precedent in R.P. Garg v. Chief General Manager, Telecom Department (2024), which distinguishes post-award interest as a statutory right not subject to party autonomy.

Lastly, it applied Gayatri Balasamy v. M/s. ISG Novasoft Technologies Ltd. (2025) regarding the court's power to modify interest rates.

The Court noted that Section 31(7)(a) is qualified by the phrase "Unless otherwise agreed by the parties," making the contract paramount regarding pre-award interest.

Clause 16(3) of the GCC explicitly barred interest on "amounts payable to the contractor," and the Court rejected the Respondent’s attempt to limit this clause via ejusdem generis, ruling that the bar applied to all claims for delayed payments.

The AT's attempt to award interest under the guise of "compensation" (Claims 1, 3, 6) was found to be a violation of the contractual bar and Section 28(3).

Conversely, for post-award interest, Clause 64(5) only barred interest "till the date the award is made," leaving the post-award period open.

Under Section 31(7)(b), post-award interest is a statutory mandate intended to ensure prompt compliance; however, the Court found the 12% rate lacked justification and was excessive in the current economic context.

It held that the AT lacked jurisdiction to grant pre-award or pendente lite interest (Claims 1, 3, and 6) due to the express bar in Clauses 16(3) and 64(5) of the GCC.

The award of post-award interest was upheld as a statutory right under Section 31(7)(b), but the rate was modified from 12% per annum to 8% per annum from the date of the award until realization.

The judgments of the High Court and Commercial Court were set aside to the extent they affirmed the pre-award interest.