Ms. Prem Lata Bansal, Sr. Advocate with Mr. Paras Chaudhary and Mr.Shivang Bansal, Advocates v. M/S NAVEEN ENTERPRISES & ORS

enforce the contract between the parties and that an award passed in contravention of the terms of the contract is violative of Section 28(3) of the A&C Act and liable to be set aside. The learned Senior counsel submitted the case on hand, invoices/bijaks issued by the petitioner clearly contained printed terms relating to levy of interest in the event of delayed payment, in addition to the arbitration clause. Having held that the arbitration clause printed on the invoices constituted a valid arbitration agreement, the learned Arbitrator could not have selectively disregarded the remaining contractual stipulations forming part of the same document.

6.1. It is further submitted that the finding of the learned Arbitrator that the claim was essentially one for interest and interest upon interest is contrary to the record and ignores settled principles governing commercial transactions. It is argued that the claim was fundamentally for recovery of outstanding amounts Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 under unpaid invoices and that interest was claimed as a contractual and compensatory consequence of delayed payment. In this regard, reliance was placed on Irrigation Deptt., Govt. of Orissa v. G.C. Roy, (1992) 1 SCC 508: 1991 SCC OnLine SC 342, wherein the Apex Court recognised that a party deprived of the use of money to which it is legitimately entitled has a right to be compensated for such deprivation, and that interest is a normal accretion in commercial dealings unless expressly prohibited by contract.

6.3. It is further urged by the learned Senior counsel that even assuming, for argument sake, that the contract was silent on certain aspects of interest calculation, the learned Arbitrator was not justified in rejecting the claim outrightly, particularly when the respondents had been proceeded ex-parte and had not rebutted the documentary evidence led by the petitioner. The Arbitrator failed to appreciate the statement of accounts, sundry debtors list and transport records, which cumulatively established the subsisting Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 liability of the respondents and such non-consideration of material evidence renders the Award perverse and arbitrary, goes the argument.

6.4. It is further contended that the District Court erred in declining interference by mechanically characterising objections as an attempt at re-appreciation of evidence. It was submitted that the objections squarely fell within the permissible grounds under Section 34(2) of the A&C Act, as explained by the Apex Court in DDA v. R.S. Sharma and Co., (2008) 13 SCC 80 : 2008 SCC OnLine SC 1298, which holds that an award can be set aside if it is contrary to substantive law, the provisions of the A&C Act, or the terms of the contract, or if it is patently illegal or shocks the conscience of the court. However, in the present case, the Court failed to examine whether the Award was in conflict with the fundamental policy of Indian law or suffered from patent illegality arising from disregard of contractual terms and trade usage. Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016

7. Heard the appellant/petitioner and perused the records.

8. On perusal of records, it emerges that the existence of commercial transactions between the parties, evidenced by invoices/bijaks issued by the petitioner and the maintenance of a running account, is not in dispute. The major dispute between the parties centres around the petitioner’s entitlement to interest on delayed payments in terms of the conditions printed on the said invoices.

9. Therefore, the principal issue that falls before this court for consideration is whether the learned Arbitrator as well as the District Court was justified in rejecting the petitioner’s claim for interest, despite the existence of a contractual stipulation relating thereto and statutory framework governing award of interest under the A&C Act.

10. At the outset, it is apposite to refer to Clause 2 of the ‘Note’ printed on the back side of the invoice/bijak governing the transactions between the parties, which reads as thus: Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 “2. याज दर 1.75 o सेकड़ा िलया जायेगा।” (Translation: “Interest at the rate of 1.75 per hundred shall be charged.”)

10.1. The aforesaid clause clearly records an agreement between the parties for levy of interest rate @1.75 per hundred. In trade language, particularly in Adhatiya (middlemen/brokerage) transactions, the said expression denotes interest @1.75% per month. The petitioner’s claim of interest @21% per annum is only an annualised expression of the said agreed monthly rate.

11. It is pertinent to note that, once invoices are accepted as binding contractual documents, the terms and conditions printed thereon, including the clause relating to the levy of interest cannot be selectively ignored. Therefore, the learned Arbitrator, having held that there is a valid arbitration agreement between the parties on the basis of the clauses printed on the invoices/bijaks, erred in disregarding Clause 2 thereof, while adjudicating the claim for interest. This approach of the learned Arbitrator is contrary to Section 28(3) of the A&C Act which reads thus: Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 “28.Rules applicable to substance of dispute.— (3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable transaction.”

11.1. The learned Arbitrator erred in appreciating the terms of the agreement between the parties while holding that the petitioner had essentially filed the claim only for recovery of unlimited and unjustified interest under the garb of outstanding bill amounts, despite the interest clause printed on the bills and the course of dealings between the parties. The reasoning of the learned Arbitrator that the interest clause did not specify the basis or manner of levy of interest cannot be sustained. The rate of interest was contractually stipulated, and the manner of its application flows from established trade usage. The rejection of interest on the ground of alleged ambiguity is, therefore, unsustainable. As held by the Apex Court in the dictum of ONGC (supra), the primary duty of the Arbitral Tribunal is to enforce the Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 contract between the parties, and an award rendered in disregard of the contractual terms is patently illegal and opposed to public policy.

12. Even otherwise, Section 31(7)(a) of the A&C Act confers the power upon the Arbitral Tribunal to award interest for the period between the date on which the cause of action arose and the date of award, unless otherwise agreed by the parties. Section 31(7) of the A&C Act reads thus: “31. Form and contents of arbitral award.— (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of award, from the date of award to Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 the date of payment. Explanation. — The expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).”

12.1. In Interstate Construction v. National Projects Construction Corporation Ltd: 2025 KHC 6492: 2025 SCC OnLine SC 1127, it has been held the power of the arbitrator to grant pre-reference interest, pendente lite interest, and post award interest under Section 31(7) of the A&C Act is fairly well - settled. This provision has two parts. Under clause (a), the arbitrator can award interest for the period between the date of cause of action to the date of the award, “unless otherwise agreed by the parties”. Clause (b) provides that unless the award directs otherwise, the sum directed to be paid by an arbitral award shall carry interest @ 2% higher than the current rate of interest, from the date of the award to the date of payment (referring to the post 23.10.2015 position).

12.2. The wordings of Section 31(7) (a) of the A&C Act Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 marks a departure from the A&C Act in two ways: first, it does not make an explicit distinction between pre-reference and pendente lite interest as both of them are provided for under this sub-section; second, it sanctifies party autonomy and restricts the power to grant pre-reference and pendente lite interest, the moment the agreement bars payment of interest, even if it is not a specific bar against the arbitrator. The power of the arbitrator to award pre- reference and pendente lite interest is not restricted when the agreement is silent on whether interest can be awarded or does not contain a specific term that prohibits the same. While pendente lite interest is a matter of procedural law, pre-reference interest is governed by substantive law. Therefore, the grant of pre-reference interest cannot be sourced solely in Section 31(7) (a) of the A&C Act (which is a procedural law), but must be based on an agreement between the parties (express or implied), statutory provision (such as Section 3 of the Interest Act, 1978), or proof of mercantile usage. Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016

12.3. It was further held that, from a minute reading of sub- section (7), it can be seen that it has got two parts: the first part i.e., clause (a) deals with passing of award, which would include interest up to the date on which the award is made. The second part i.e., clause (b) deals with grant of interest on the 'sum' awarded by the arbitral tribunal. Hence, under Section 31(7) of the A&C Act, an arbitral tribunal has the power to grant-- (i) pre- award; (ii) pendente lite; and (iii) post-award interest. The Apex Court also explained the reason for award of such interest as - the intention behind awarding pre-award interest is primarily to compensate the claimant for the pecuniary loss suffered from the time the cause of action arose till passing of the arbitral award. Further, this is also to ensure that the arbitral proceedings is concluded within a reasonable period to minimise the impact of the pre-award interest as well as interest pendente lite; thereby ensuring that the debtor does not delay payment of the arbitral amount to the award holder promoting efficiency in the arbitration Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 process. Similarly, the grant of post-award interest also serves a salutary purpose. It primarily acts as a disincentive to the award debtor not to delay payment of the arbitral amount to the award holder.

12.4. It has been further held that the sum awarded would mean the principal amount plus the interest awarded from the date of cause of action up to the date of the award. The sum awarded in Section 31(7) (a) of the A&C Act would mean principal amount plus the interest awarded. Thereafter, as per Section 31(7) (b) of the A&C Act, the sum (principal amount + interest) would carry further interest @ of 2 % higher than the current rate of interest prevalent on the date of the award to the date of payment.

13. Coming to the case on hand, Clause 2 of the Note expressly permits levy of interest. Thus, this is not a case where the tribunal was required to infer power to grant interest in the absence of an agreement; rather, there existed a clear contractual stipulation authorising levy of interest. The learned Arbitrator, Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 therefore, committed a manifest error in declining interest despite the existence of such an agreement. As held in Irrigation Deptt., Govt. of Orissa (supra) as well as in Interstate Construction (supra), a party deprived of the use of money to which it is legitimately entitled must ordinarily be compensated for such deprivation, and that interest is a normal accretion in commercial transactions, squarely applies to cases where the contract itself provides for payment of interest.

14. The District Court, while dismissing the objections raised by the appellant/petitioner under Section 34 of the A&C Act, failed to appreciate the statutory position and erroneously proceeded on the premise that the challenge raised by the petitioner amounted to mere re-appreciation of the evidence. Hence, this court is of the view that the Arbitral Award, insofar as it rejects the claim for interest, cannot be sustained.

15. Accordingly, the appeal is allowed.

16. The impugned judgement dated 31.03.2016 and the Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016 Arbitral Award dated 31.03.2014 are set aside to the extent they reject the petitioner’s claim for interest. The petitioner shall be entitled to interest in terms of Clause 2 of the Note printed on the invoices, i.e., @ of 1.75% per month (equivalent to 21% per annum, simple interest) on the outstanding principal amount of ₹1,92,483.46, from the date the amount became due, i.e.,

01.04.2011 till the date of the arbitral award, i.e., 31.03.2014 and thereafter @ of 18% per annum till realisation.

17. The appeal stands disposed of in the above terms. Applications, if any, pending, shall stand closed. CHANDRASEKHARAN SUDHA (JUDGE) DECEMBER 20, 2025 RN Signature Not Verified Signed By:KOMAL DHAWAN Signing Date:22.12.2025 14:33:16 FAO 407/2016