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Arbitrator must follow terms of contract

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An arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties agree that no interest shall be payable, the arbitral tribunal cannot award interest. Supreme Court stated so case, Union of India vs Bright Power Projects. In this case, the government and the firm entered into a contract to erect certain structures. Disputes arose between them and they were referred to arbitration. The award was granted in favour of the firm, and it even included interest on the amount awarded. The government moved the high court arguing that interest was excluded in the contract. However, the high court dismissed the contention invoking Section 37 ( 7) of the Arbitration and Conciliation Act dealing with payment of interest. Supreme Court allowed the appeal of the government accepting its contention that the contract had specifically excluded interest. According to Section 37, if the terms of the agreement exclude interest, the arbitrator cannot impose it on the party which is ordered to pay. However, if there is no mention of payment of interest in the contract, the arbitrator can impose interest.
Business Standard, New Delhi, 13th July 2015

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