Introduction
In a significant ruling on the scope of arbitral powers under the Arbitration and Conciliation Act, 1996, the Supreme Court of India in Union of India v. Larsen & Toubro Ltd.1 has reaffirmed the primacy of contractual terms in determining the arbitrator’s authority to award interest. The Court clarified that where a contract expressly prohibits the payment of interest, an arbitral tribunal cannot grant pre-award or pendente lite interest, even if such amounts are framed as compensation. At the same time, the Court reiterated that post-award interest operates under a distinct statutory framework and may still be granted in the absence of an explicit contractual prohibition. This decision is particularly relevant in the context of infrastructure and government contracts, where clauses restricting interest are commonly incorporated in standard contractual conditions.
