Can The Parties Restrict The Tribunal’s or Court’s Power To Award Interest and Costs?
An important question came for consideration before Hon’ble High Court in Delhi in Union of India v. Om Vajrakaya Construction Company [O.M.P. (COMM) 299/2021 & I.A. 12966/2021] when a petition under section 34 was filed challenging the arbitral award inter alia on the ground that the Ld. Arbitral Tribunal granted pendent lite or pre-award interest and arbitration cost which was allegedly in contravention of the express terms of the agreement between the parties. The contractual clause provided that where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made and that the cost shall be borne by respective parties.
To address the first issue that the award of pendent lite interest runs contrary to the express provision in the contract, the Hon’ble Delhi High Court relied on the judgments of Hon’ble Supreme Court in Union of India v Bright Power Projects India (P) Ltd [2015 9 SCC 695] wherein it was held that award of pre-reference interest would not be permissible when the award of such interest is contracted out by the parties. The view was once again affirmed in Jaiprakash Associates Limited v. Tehri Hydro Development Corporation (India) Ltd [2019 17 SCC 786]. Therefore, the award to the extent it granted the pre-award interest was set aside.
With regards to the issue of awarding the cost when the contract stipulated that the cost shall be borne by respective parties, the Court referred to the relevant provision of the Arbitration and Conciliation Act, 1996 (“1996 Act”). The Arbitral Tribunal had awarded costs of the arbitral proceedings, which included the Arbitral Tribunal’s fees paid by respondent and the counsel fee paid, limited to the Arbitral Tribunal’s fee. The Court observed that the objection against the prayer of cost was not raised by the party earlier and is liable to be rejected on this ground alone. The objection is also without any merits. Referring to Section 31A which contains provisions regarding determination of costs, the Court reiterated that “Unlike the power of the Arbitral Tribunal to award interest under Section 31 (7)(a) of the A&C Act, which is subject to the contract between the parties, there are no such fetters on the discretion of the Arbitral Tribunal to award costs under Section 31A of the A&C Act. The only exception being any agreement between the parties regarding costs which is entered into after the disputes have arisen.”
The Court explained that while the power to award interest under Section 31 (7)(a) of the 1996 Act is subject to the contract between the parties, the Arbitral Tribunal has discretion to award costs under Section 31A(5) of the 1996 Act except in the event of parties entering into an agreement regarding costs after the dispute has arisen. The Court further elaborated that Section 31A of the 1996 Act gives discretion to the Arbitral Tribunal as well as the Court to award cost and such power/discretion has an overriding effect over any contrary provisions in the contract as well as provisions contained in the Code of Civil Procedure, 1908. While applying the principle to the facts of the case, the Court held that although the agreement between the parties provided that parties would bear their own costs, it was not a valid agreement by virtue of Section 31A(5) of the 1996 Act as it was not entered into after the disputes arose.
