In Brief
A contractor engaged with the Indian Railways under a contract containing a General Conditions of Contract clause 16(2) that expressly barred payment of interest on amounts due under the contract. The arbitrator awarded pendente lite and future interest, which was upheld by the High Court. The Supreme Court reversed this, holding that where a contract expressly prohibits interest on amounts payable to the contractor, the arbitrator cannot award pendente lite or future interest, as arbitrators are bound by the express terms of the contract. Section 31(7)(a) of the Arbitration Act, 1996 makes an arbitrator's power to award interest subject to the parties' agreement.
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