Section 31(7) of The Arbitration Act XI

Posted on by Rudrajyoti Nath Ray

Court has, on multiple occasions, noted, a contractual clause which bars payment of interest is interpreted differently under 1940 Act and 1996 Act. In fact, while deciding cases under 1996 Act, Court has been slow to rely on principles laid down under 1940 Act, considering legislative incorporation of Arbitrator’s power to grant interest through Section 31(7) of 1996 Act [Sayeed Ahmed v. State of U.P., (2009) 12 SCC 26; Sree Kamatchi Amman Constructions v. Railways, (2010) 8 SCC 767; Union of India v. Bright Power Projects (India) (P) Ltd., (2015) 9 SCC 695; Chittaranjan Maity v. Union of India, (2017) 9 SCC 611; Garg Builders v. BHEL, (2022) 11 SCC 697].

Under 1940 Act, a stricter approach is followed that requires a clear and express clause against payment of interest in case of difference, dispute, or misunderstanding, in case of delay of payment, or any other case whatsoever, to constitute a bar on Arbitrators from granting interest. Under 1996 Act, wherein Section 31(7)(a) sanctifies party autonomy, interest is not payable the moment the contract provides otherwise. This distinction has been reiterated by us in Pam Developments Private Limited v. State of West Bengal, (2024) 10 SCC 715.

As these proceedings arise under 1940 Act, scope and jurisdiction of Court to modify or vary award is larger than that of Court exercising jurisdiction under Section 34 of 1996 Act.

– Hon’ble Justice Pamidighantam Sri Narasimha, M/s. Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan, [Special Leave Petition (Civil) No. 7851 of 2023].

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“A bar on award of interest for delayed payment would not be readily inferred as an express bar to award of pendente lite interest by Arbitrator.”

– M/s. Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan, 2025 SCC OnLine SC 708.

A clause merely barring award of interest on delayed payment by itself will not be readily inferred as a bar to award pendente-lite interest by Arbitral Tribunal.

– Hon’ble Justice Manoj Misra, Oil and Natural Gas Corporation Ltd. v. M/s. G & T Beckfield Drilling Services Pvt. Ltd., [Civil Appeal No. 11324 of 2025] decided on 02.09.2025.

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