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Chittaranjan Maity v. Union of India

Civil Appeal · 2017 INSC 987Decided 3 Oct 2017
Civil Appeal Nos. 15545-15546 of 2017
Justice J. Chelameswar · Justice S. Abdul Nazeer

Background

The appellant (a contractor) had been awarded a contract by the Union of India (South-Eastern Railway) in 1991 to build earthworks for a new railway goods terminal in Howrah district. Disputes arose during execution, the contract was terminated, and the matter went to arbitration; the Arbitral Tribunal awarded the contractor a principal sum plus interest. The Calcutta High Court's Division Bench later set aside part of the award relating to interest, reversing a Single Judge's earlier ruling, leading to this appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that where a government contract expressly bars payment of interest on amounts due to the contractor, an arbitrator cannot override that clause and award interest for the period before or during the arbitration (pendente lite), relying on its own precedent under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996. Since the contract here contained such a bar, the appellant was not entitled to any interest on the sum awarded. However, since the contractor had already withdrawn an amount (via the deposited award money) that exceeded the principal award without interest, the Court directed that this excess need not be recovered from him. The appeals were thus partly allowed and finally disposed of on these terms, with no order as to costs.

Lesson Learnt

If a contract clearly states that no interest will be paid on amounts due, courts and arbitrators will enforce that term strictly: parties are bound by the terms they agreed to, even if it means forfeiting interest they might otherwise have claimed.

Official source (sci.gov.in)View Judgment (PDF)

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