Chhattisgarh High Court clarifies that, even where a contract is silent on interest for delayed payments, arbitrators can award interest under Section 31(7) of the Arbitration and Conciliation Act, 1996, unless there is an express bar. The judgment aligns with recent Supreme Court authority and partially overturns contrary lower court and arbitral findings. Binding precedent for arbitral challenges and construction/contract disputes.
Summary
| Category | Data |
|---|---|
| Case Name | ARBA/7/2018 of P.D.GOYAL Vs SOUTH EASTERN COALFIELDS LIMITED, CNR CGHC010048682018 |
| Date of Registration | 07-02-2018 |
| Decision Date | 02-09-2025 |
| Disposal Nature | PARTLY ALLOWED |
| Judgment Author | HON’BLE SHRI JUSTICE NARESH KUMAR CHANDRAVANSHI |
| Court | High Court Of Chhattisgarh at Bilaspur |
| Precedent Value | Binding within Chhattisgarh; significant persuasive authority elsewhere |
| Overrules / Affirms |
|
| Type of Law | Arbitration and Conciliation Act, 1996 – Contract Law (Interest on Delayed Payment) |
| Questions of Law |
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| Ratio Decidendi |
The absence of a specific clause in a contract regarding payment of interest on delayed payment does not bar the arbitrator from awarding interest under Section 31(7) of the Act. Unless there is an express term barring interest, arbitrators retain power to award reasonable interest for the period of delay. The High Court followed the recent Supreme Court decision in Ferro Concrete Construction (India) v. State of Rajasthan (2025 SCC OnLine SC 708) and distinguished the present case from those where an explicit bar existed. The court held that the silence of an agreement is not equivalent to a bar, and the applicant is entitled to 12% interest p.a. from the date of the application until actual payment of the final bill amount. Other claims for damages, penalty refund, and price escalation were rejected on facts and documentary evidence. |
| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon by the Court |
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| Facts as Summarised by the Court |
The applicant, a transport contractor, was assigned transportation of coal by SECL for a contract period of 12 months. A dispute arose regarding actual distance, price escalation of diesel, penalties for non-achievement of targets, closure of a siding, and delayed payment of the final bill. Arbitration was invoked; the arbitral award denied all claims. Lower courts largely affirmed, but the High Court set aside denial of interest on delayed final payment in the absence of a contractual bar. |
| Citations |
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Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts in Chhattisgarh; arbitral tribunals within the State |
| Persuasive For | Other High Courts, commercial courts, and arbitral institutions throughout India |
| Follows |
|
| Overrules | District Judge Baikunthpur order dated 6-1-2018 (only on denial of interest claim); partially the sole arbitral award denying interest |
| Distinguishes | Cases where contract has an express bar on interest (cites but distinguishes MD, Army Welfare Housing Organisation v. Sumangal Services (P) Ltd.) |
What’s New / What Lawyers Should Note
- Explicitly clarifies that, as per Section 31(7) of the Arbitration and Conciliation Act, 1996, arbitrators may award interest on delayed payments when the contract is silent, unless there is an express provision barring such interest.
- Silence in the contract regarding interest does not amount to exclusion.
- Follows the latest Supreme Court law, making the precedent robust for citing in arbitral challenges involving delayed payments.
- Awards 12% p.a. on delayed bill, underscoring arbitral discretion in absence of a contractual rate.
- Other claims (damages, price escalation, penalty refund) will require strict factual proof; mere contractor assertions are insufficient.
- Useful precedent in construction/contract claims where payment delays occur post-contract and the agreement is silent on interest.
Summary of Legal Reasoning
- The court examined Section 31(7) of the Arbitration and Conciliation Act, 1996, which empowers arbitrators to grant interest on sums awarded, unless the contract states otherwise.
- Analysing the record, the court found that while there was no explicit clause authorising interest on delayed payment, there was also no express prohibition.
- The court extensively relied upon and quoted the Supreme Court’s recent judgment in Ferro Concrete Construction (India) v. State of Rajasthan (2025 SCC OnLine SC 708), which affirms party autonomy but holds silence does not amount to a bar.
- Prior Supreme Court precedents including Bhagawati Oxygen Ltd., Sayeed Ahmed & Company, and MD, Army Welfare Housing Organisation were analysed to clarify distinctions between express prohibition and silence in contracts.
- Applying these principles, the court held the arbitrator and District Judge erred by refusing interest on the sole ground of contract silence.
- Factual review showed delayed payment of final bill—over 2.5 years—without justification, entitling the applicant to interest at 12% p.a. from application under Section 11 until the payment is realised.
- Other claims (damages, penalty, diesel price escalation, mental agony) were rejected, as evidence on record did not support contractor’s allegations or satisfy the applicable contract/tender clauses.
Arguments by the Parties
Petitioner:
- Actual distance for coal transport was greater than contractually stated; led to higher costs.
- Diesel prices increased during contract; entitled to price escalation.
- Penalty deducted was arbitrary; caused financial loss.
- Severe delay in final bill payment, against contractual stipulation; entitled to 18% interest.
- Even absent express contract term, interest should be granted per Section 31(7) and Supreme Court law.
- Cited Bhagawati Oxygen Ltd. and Sayeed Ahmed & Company.
Respondent:
- Contract correctly stated distance; next contract had different destination.
- No demand or evidence provided for diesel price escalation; certificate produced not valid.
- Contractor failed to meet targets due to inadequate vehicles; penalty valid.
- Delay due to proper procedures; only security deposit was delayed, with deductions as per contract.
- No explicit contract term on interest; arbitrator cannot go beyond terms—cited MD, Army Welfare Housing Organisation.
- Claims otherwise baseless; appeal should be rejected.
Factual Background
The dispute arose from a work order issued by South Eastern Coalfields Limited to the contractor (appellant) for transportation of 6.10 lakh tonnes of coal for 12 months in 1994–95. The contractor contended that the actual distance was understated in the contract and diesel price hikes were disregarded, leading to cost escalations. He also faced penalties for alleged non-achievement of targets and delayed payment of the final bill (paid over 2.5 years late). Arbitration was invoked under the contract; the arbitrator denied all claims. Lower courts largely affirmed. The High Court remitted, then re-heard, ultimately granting interest on the delayed payment.
Statutory Analysis
- Section 31(7) of the Arbitration and Conciliation Act, 1996 was interpreted as empowering arbitrators to award interest unless the parties’ agreement expressly provides otherwise.
- The court distinguished between “silence” of a contract and an “express bar” to payment of interest; only the latter restricts arbitrator’s jurisdiction.
- Contractual clauses must be strictly construed; in their absence, the statutory default applies.
- The court cited relevant explanations and interpretations from the Supreme Court’s decisions, clarifying that a mere absence of interest provisions is not a prohibition.
Dissenting / Concurring Opinion Summary
No separate dissenting or concurring opinions recorded in the judgment.
Procedural Innovations
- The court applied and clarified the correct scope of Section 31(7) vis-à-vis arbitral power, in light of binding Supreme Court law.
- Set aside the District Judge’s order only on the limited issue of interest, despite concurrent factual findings on all other heads.
Alert Indicators
- ✔ Precedent Followed – Confirms/aligns with Supreme Court law (Ferro Concrete Construction (India) v. State of Rajasthan).
- 🚨 Breaking Precedent – Sets aside lower court and arbitral denial of interest where contract is silent.
- 🔄 Conflicting Decisions – Resolves discrepancy with prior lower court/arbitral view that silence on interest is a bar.
Citations
- Ferro Concrete Construction (India) v. State of Rajasthan, 2025 SCC OnLine SC 708
- Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd., (2005) 6 SCC 462
- Sayeed Ahmed & Company v. State of UP, (2009) 12 SCC 26
- MD, Army Welfare Housing Organisation v. Sumangal Services (P) Ltd., (2004) 9 SCC 619