Jaiprakash Associates Ltd. (JAL) v. Tehri Hydro Development Corporation India Ltd. (THDC)
Background
JAL was awarded a construction contract by THDC in 1998, and when disputes arose, two of JAL's claims went to a three-member arbitral tribunal. The arbitrators allowed the claims and also granted JAL interest at 10% per annum pendente lite and 18% per annum as future interest, but THDC challenged the interest award on the ground that Clauses 50 and 51 of the General Conditions of Contract barred the arbitrators from granting any interest on amounts due under the contract. A single judge of the Delhi High Court quashed the interest portion of the award, and a Division Bench of the High Court upheld that decision, prompting JAL's appeal to the Supreme Court.
Decision Breakdown
The Supreme Court examined the wording of the contractual clause barring interest "on any amount due to the contractor by the employer," and rejected JAL's argument that the clause should be read narrowly (by the rule of ejusdem generis) to apply only to amounts like earnest money or security deposits. The Court held that the clause's language was deliberately wide and could not be cut down by that interpretive rule, since the bar was not limited to a specific category of payments comparable to the preceding examples. Agreeing with the High Court's reasoning, the Supreme Court held the contractual bar on interest was validly invoked and dismissed JAL's appeal, affirming that the arbitrators had exceeded their authority in awarding interest.
Lesson Learnt
When a construction or commercial contract contains a clear, broadly worded clause barring interest on amounts due, an arbitral tribunal cannot award interest despite that bar, and courts will enforce such a clause according to its plain wide wording rather than narrowing it through technical rules of interpretation like ejusdem generis.