𝐖𝐡𝐞𝐭𝐡𝐞𝐫 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐥 𝐓𝐫𝐢𝐛𝐮𝐧𝐚𝐥 𝐜𝐚𝐧 𝐠𝐫𝐚𝐧𝐭 𝐏𝐫𝐞-𝐀𝐰𝐚𝐫𝐝, 𝐏𝐞𝐧𝐝𝐞𝐧𝐭𝐞 𝐋𝐢𝐭𝐞 & 𝐏𝐨𝐬𝐭-𝐀𝐰𝐚𝐫𝐝 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐰𝐡𝐞𝐧 𝐭𝐡𝐞 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐩𝐫𝐨𝐡𝐢𝐛𝐢𝐭𝐬 𝐢𝐭. Union of India & Ors. (Appellants) v. Larsen and Toubro Limited (Respondent) 𝐅𝐚𝐜𝐭𝐬: The dispute arose from a 2011 contract between the Appellants and Respondent for modernization work at Jhansi Workshop. The project faced significant delays (about 40 months), leading to disputes over payments and compensation. The contract contained clauses prohibiting payment of interest on amounts payable under the contract. The Respondent initiated arbitration whereupon the Arbitral Tribunal awarded approximately ₹5.53 crore, including amounts that effectively contained interest components. It also granted post-award interest at 12% in case of delay. Appellants challenged the award under S.34 and S.37 of the A&C Act, 1996, but both the Commercial Court at Jhansi and Allahabad High Court upheld the award. The Appellants argued that the Tribunal had violated the express contractual bar on interest by awarding it in the guise of compensation. They contended that under S.31(7)(a) of the A&C Act, arbitral tribunals are bound by the contract, and once interest is barred, it cannot be granted under any label. Conversely, the Respondent, put forth that the clause should be narrowly interpreted, that some claims were admitted dues not hit by the bar, and that compensation for delayed payment was justified. It also maintained that post-award interest is statutory under S. 31(7)(b). 𝐃𝐞𝐜𝐢𝐬𝐢𝐨𝐧 𝐚𝐧𝐝 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬: The Hon’ble Supreme Court partly allowed the appeal. It held that the contractual clauses clearly barred payment of interest on all amounts payable under the contract, and this prohibition could not be circumvented by awarding interest as “compensation.” The Hon’ble Court observed that Tribunal had erred in granting pre-award and pendente lite interest, and the S.34 and S.37 courts failed to correct this. However, the Apex Court distinguished post-award interest, holding that it is governed by S. 31(7)(b) and is not subject to contractual exclusion unless expressly barred. Thus, the Court allowed the post-award interest, however, it modified the rate of interest to 8%. 𝐂𝐫𝐞𝐝𝐢𝐭𝐬: Riana Mukherjee 𝐋𝐢𝐧𝐤 𝐭𝐨 𝐭𝐡𝐞 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭: https://lnkd.in/g2AqFDAd 𝐂𝐚𝐬𝐞 𝐃𝐞𝐭𝐚𝐢𝐥𝐬 𝐂𝐢𝐭𝐚𝐭𝐢𝐨𝐧: 2026 INSC 203 𝐃𝐚𝐭𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭: 27th February, 2026 𝐂𝐨𝐮𝐫𝐭: Supreme Court of India 𝐂𝐨𝐫𝐚𝐦: J. Sanjay Karol & J. Vipul M. Pancholi #Arbitration #LegalUpdate #Contract #SupremeCourtofIndia #CaseLaw #Payment #ArbitralTribunal #PendenteLiteInterest #Delay #Barred #Prohibition #CourtJudgment #LegalPrecedent #CommercialLaw
