ADVOCATEMMMOHAN

Saturday, February 28, 2026

Arbitration and Conciliation Act, 1996 — Sections 28(3), 31(7)(a) — Contractual bar on interest — Clauses 16(3) and 64(5) of GCC — Award of pre-award / pendente lite interest impermissible. (Paras 31–45, 52–53, 61(A)) Clause 16(3) of the General Conditions of Contract expressly stipulated that “no interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract.” Clause 64(5) barred payment of interest “till the date on which the award is made.” Section 31(7)(a) makes the arbitral power to award interest expressly subject to party agreement. Once the contract excludes interest on amounts payable under the contract, the Arbitral Tribunal, being a creature of the contract, cannot award pre-award or pendente lite interest, even if styled as “compensation.” The principle of ejusdem generis was held inapplicable, as the expression “amounts payable to the contractor under the contract” is disjunctive and of wide amplitude. Ratio Decidendi: Where the contract expressly prohibits payment of interest on amounts payable under the contract, Section 31(7)(a) mandates adherence to such prohibition; the Arbitral Tribunal lacks jurisdiction to award pre-award or pendente lite interest, whether termed as interest or compensation.

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Arbitration and Conciliation Act, 1996 — Sections 28(3), 31(7)(a) — Contractual bar on interest — Clauses 16(3) and 64(5) of GCC — Award of pre-award / pendente lite interest impermissible. (Paras 31–45, 52–53, 61(A))

Clause 16(3) of the General Conditions of Contract expressly stipulated that “no interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract.” Clause 64(5) barred payment of interest “till the date on which the award is made.”

Section 31(7)(a) makes the arbitral power to award interest expressly subject to party agreement. Once the contract excludes interest on amounts payable under the contract, the Arbitral Tribunal, being a creature of the contract, cannot award pre-award or pendente lite interest, even if styled as “compensation.”

The principle of ejusdem generis was held inapplicable, as the expression “amounts payable to the contractor under the contract” is disjunctive and of wide amplitude.

Ratio Decidendi: Where the contract expressly prohibits payment of interest on amounts payable under the contract, Section 31(7)(a) mandates adherence to such prohibition; the Arbitral Tribunal lacks jurisdiction to award pre-award or pendente lite interest, whether termed as interest or compensation.

Contract Interpretation — Ejusdem Generis — Inapplicability where general words are disjunctive and independent. (Paras 37–39)

The respondent’s contention that “amounts payable under the contract” should be read ejusdem generis with earnest money and security deposit was rejected. The word “or” denotes disjunction, and the clause cannot be read restrictively.

Ratio Decidendi: The rule of ejusdem generis does not apply where the contractual language is clear, disjunctive, and of independent amplitude; courts must give effect to plain meaning.

Arbitration Act, 1996 — Distinction between 1940 Act and 1996 Act — Contractual primacy under Section 31(7)(a). (Paras 44–45)

Decisions under the Arbitration Act, 1940 permitting pendente lite interest despite contractual bar were distinguished. Under the 1996 Act, Section 31(7)(a) expressly subordinates arbitral discretion to party agreement.

Ratio Decidendi: Under the Arbitration and Conciliation Act, 1996, arbitral discretion to award pre-award interest is expressly subordinate to contractual stipulation; precedents under the 1940 Act are inapplicable where statutory scheme materially differs.

Section 31(7)(b) — Post-award interest — Independent statutory regime — Not subject to contractual bar unless expressly excluded. (Paras 47–58, 61(B))

Post-award interest operates under Section 31(7)(b), which is distinct from Section 31(7)(a). Unlike clause (a), clause (b) is not subject to party autonomy except as to rate. Clause 64(5) barred interest only “till the date of award” and did not exclude post-award interest.

Therefore, post-award interest was legally sustainable notwithstanding the contractual bar on pre-award interest.

Ratio Decidendi: Post-award interest under Section 31(7)(b) is a statutory consequence and cannot be denied unless the contract expressly and unequivocally excludes it; a bar confined to pre-award interest cannot, by implication, extend to post-award interest.

Modification of Post-Award Interest — Judicial power to adjust rate — Reasonableness and proportionality. (Paras 58–60)

Although post-award interest was upheld, the rate of 12% per annum was found excessive in absence of reasoning and considering prevailing economic conditions. Exercising judicial power to modify, the rate was reduced to 8% per annum from date of award till realization.

Ratio Decidendi: Courts possess power to modify the rate of post-award interest under Section 31(7)(b) where the rate awarded is unreasonable or unsupported by reasons; modification avoids setting aside the award in entirety.

Scope of Interference under Sections 34 and 37 — Award contrary to express contractual bar — Patent illegality. (Paras 52–53, 61(C))

Failure by the Commercial Court and High Court to interfere with the award of pendente lite interest, despite clear contractual prohibition, constituted an error attracting correction even within limited supervisory jurisdiction.

Ratio Decidendi: An arbitral award granting interest contrary to an express contractual prohibition suffers from patent illegality and warrants interference under Sections 34 and 37 of the Act.

Operative Conclusion

The appeal was partly allowed.

The Arbitral Award dated 25.12.2018 was set aside to the extent it granted pre-award / pendente lite interest or amounts in the nature of interest under Claim Nos. 1, 3 and 6.
Post-award interest was upheld but modified from 12% per annum to 8% per annum from the date of award till realization.
Orders of the Commercial Court and High Court were set aside to the aforesaid extent.

Pending applications disposed of.

Insolvency and Bankruptcy Code, 2016 — Section 7 — Section 60(2) & (3) — Simultaneous initiation of CIRP against principal borrower and corporate guarantor — Maintainability. (Paras 2–4, 73–79) The issue whether simultaneous proceedings for Corporate Insolvency Resolution Process (CIRP) may be maintained against the principal debtor and its corporate guarantor stands covered by the decision in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd.. Section 60(2) of the IBC contemplates filing of proceedings relating to the corporate debtor and its guarantor before the same Adjudicating Authority. The liability of the guarantor being co-extensive with that of the principal debtor under Section 128 of the Contract Act, the IBC permits separate or simultaneous proceedings against both. Ratio Decidendi: The Insolvency and Bankruptcy Code permits initiation and continuation of simultaneous CIRP proceedings against a corporate debtor and its corporate guarantor; admission of one proceeding does not bar admission of the other for the same debt.

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Insolvency and Bankruptcy Code, 2016 — Section 7 — Section 60(2) & (3) — Simultaneous initiation of CIRP against principal borrower and corporate guarantor — Maintainability. (Paras 2–4, 73–79)

The issue whether simultaneous proceedings for Corporate Insolvency Resolution Process (CIRP) may be maintained against the principal debtor and its corporate guarantor stands covered by the decision in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd.. Section 60(2) of the IBC contemplates filing of proceedings relating to the corporate debtor and its guarantor before the same Adjudicating Authority.

The liability of the guarantor being co-extensive with that of the principal debtor under Section 128 of the Contract Act, the IBC permits separate or simultaneous proceedings against both.

Ratio Decidendi: The Insolvency and Bankruptcy Code permits initiation and continuation of simultaneous CIRP proceedings against a corporate debtor and its corporate guarantor; admission of one proceeding does not bar admission of the other for the same debt.

IBC — Rejection of ‘one debt–one proceeding’ theory — Interpretation of Vishnu Kumar Agarwal — Clarification of law. (Paras 73–79)

The view in Vishnu Kumar Agarwal that once a Section 7 application is admitted against one corporate debtor, a second application for the same claim cannot be admitted against another, does not represent the correct legal position in view of subsequent authoritative pronouncement in BRS Ventures.

Ratio Decidendi: Admission of CIRP against one obligor (principal borrower or guarantor) does not legally preclude admission of CIRP against the other obligor in respect of the same debt.

IBC — Nature of proceedings — Not mere recovery proceedings — Scope of discretion under Section 7(5)(a). (Paras 80–86)

IBC proceedings are not pure recovery proceedings; they are aimed at insolvency resolution and maximization of asset value. However, if statutory conditions of “debt” and “default” are satisfied, admission cannot be denied solely on the ground that recovery may incidentally follow.

Reliance placed on Axis Bank Ltd. v. Vidarbha Industries Power Ltd. regarding discretion under Section 7(5)(a).

Ratio Decidendi: While the Adjudicating Authority has limited discretion under Section 7(5)(a), simultaneous CIRP against debtor and guarantor cannot be refused merely because IBC is not intended as a recovery mechanism.

Doctrine of Election — Applicability to IBC — Rejected. (Paras 87–95)

The doctrine of election requires (i) existence of two or more remedies, (ii) inconsistency between such remedies, and (iii) a choice of one. Simultaneous proceedings under IBC against debtor and guarantor do not satisfy these conditions.

The Code contains no statutory mandate compelling a financial creditor to elect between remedies against principal borrower and guarantor.

Ratio Decidendi: The doctrine of election is inapplicable to simultaneous insolvency proceedings against principal borrower and guarantor; creditor cannot be compelled to restrict or split its claim.

Clean Slate Principle — Filing of full claim necessary — No compulsory bifurcation of debt. (Paras 90–93)

In light of the ‘clean slate’ principle explained in Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, if a creditor fails to lodge its full claim in a CIRP, it risks extinguishment of the unpaid portion upon approval of the resolution plan.

Ratio Decidendi: A financial creditor is entitled to file its entire claim in each CIRP proceeding against obligors jointly and severally liable; mandatory election or bifurcation would undermine statutory rights under the Code.

Double Enrichment — Safeguards under Regulations 12A and 14 of CIRP Regulations, 2016. (Paras 96–100)

Though simultaneous proceedings are permissible, a creditor cannot recover more than the debt due. Regulation 12A obligates updating of claims when satisfied wholly or partly; Regulation 14 requires revision of admitted claims upon additional information.

Reliance placed on Maitreya Doshi v. Anand Rathi Global Finance Ltd..

Ratio Decidendi: While simultaneous CIRP is maintainable, recovery cannot exceed the debt due; regulatory safeguards prevent double enrichment.

Judicial Restraint — Refusal to frame additional guidelines on group insolvency. (Paras 101–104)

Though submissions were made seeking guidelines on modalities of simultaneous proceedings and group insolvency, the Court declined to legislate judicially, leaving the matter to legislative and regulatory authorities.

Ratio Decidendi: Policy refinements concerning group insolvency or procedural modalities fall within the legislative/regulatory domain and not judicial prescription.

Criminal Procedure — Quashing of FIR — Civil dispute given criminal colour — Scope of judicial scrutiny under Article 226/Section 482 CrPC — Duty to examine admitted documents along with FIR. (Paras 15, 29–30) While ordinarily the allegations in the FIR are to be taken at face value, where the dispute is essentially civil in nature, the Court must examine attending circumstances and admitted documents to ascertain whether a criminal offence is prima facie made out or whether the proceedings amount to abuse of process. Ratio Decidendi: Where the foundational dispute arises from a contractual arrangement and admitted documents negate the essential ingredients of alleged offences, continuation of criminal proceedings constitutes abuse of process and warrants quashing.

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Criminal Procedure — Quashing of FIR — Civil dispute given criminal colour — Scope of judicial scrutiny under Article 226/Section 482 CrPC — Duty to examine admitted documents along with FIR. (Paras 15, 29–30)

While ordinarily the allegations in the FIR are to be taken at face value, where the dispute is essentially civil in nature, the Court must examine attending circumstances and admitted documents to ascertain whether a criminal offence is prima facie made out or whether the proceedings amount to abuse of process.

Ratio Decidendi: Where the foundational dispute arises from a contractual arrangement and admitted documents negate the essential ingredients of alleged offences, continuation of criminal proceedings constitutes abuse of process and warrants quashing.

Indian Penal Code, 1860 — Sections 420, 406 — Cheating and Criminal Breach of Trust — Absence of dishonest intention at inception — Non-fulfilment of contractual obligations. (Paras 25–28)

The Joint Venture Agreement (JVA) dated 16.08.2010 governed the rights and obligations of the parties. Allegations of non-performance, non-refund of security deposit and breach of contractual terms, absent evidence of dishonest intention at inception, do not constitute offences of cheating or criminal breach of trust.

Security money under Clause 5 was non-refundable and adjustable against the share of the first party; hence, non-refund could at best give rise to civil consequences.

Ratio Decidendi: Mere breach of contract or failure to perform contractual obligations, without fraudulent or dishonest intention at the inception of the transaction, does not attract Sections 420 or 406 IPC.

Indian Penal Code, 1860 — Sections 467, 468, 471 — Forgery — Meaning of “false document” under Section 464 IPC — Non-traceability of certificate insufficient. (Paras 23–24)

A letter issued by the Tehsildar was alleged to be forged merely because it was not traceable in official records after several years. The Court held that absence of record does not ipso facto establish fabrication. A document constitutes a “false document” only if it satisfies the ingredients of Section 464 IPC, including dishonest or fraudulent making, alteration or execution.

Ratio Decidendi: Non-traceability of an official certificate in departmental records does not establish forgery; criminal liability for forgery arises only when the document satisfies the statutory ingredients of a “false document” under Section 464 IPC.

Cheating — False representation regarding title — Construction of contractual assurances — No explicit statement of “no litigation pending.” (Paras 19–21, 26)

The JVA contained assurances regarding absence of attachment, restraint orders, and indemnification for marketable title, but did not contain any specific representation that no litigation was pending. Allegations in the FIR that the accused falsely represented absence of litigation were unsupported by the terms of the agreement.

Ratio Decidendi: Where contractual covenants do not contain the alleged misrepresentation and no falsity in declared assurances is demonstrated, the offence of cheating is not made out.

Delay in lodging FIR — Indicative of civil dispute — Absence of prompt allegation of fraud. (Para 25)

The JVA was executed in 2010; FIR was lodged in 2021. The prolonged delay without intervening allegation of fraudulent conduct indicates a contractual dispute rather than criminality at inception.

Ratio Decidendi: Long delay in initiating criminal proceedings in a purely contractual dispute, without contemporaneous allegation of fraud, reinforces the inference that the matter is civil in nature.

Final Holding

The dispute arose from a Joint Venture Agreement and disclosed, at best, a civil cause of action. Essential ingredients of offences under Sections 406, 420, 467, 468 and 471 IPC were not made out even on a complete reading of the FIR along with admitted documents.

The judgment of the High Court was set aside. FIR No. 0112 of 2021 dated 14.03.2021 and all consequential proceedings were quashed.

Pending applications disposed of.