Senior Advocate, Harish N. Salve submitted before Supreme Court of India [‘SC’] in Board of Trustees for Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 [‘Port of Calcutta’], the Arbitrator had awarded interest pendente lite despite a prohibition contained in one Clause 13(g). A Division Bench held, Clause 13(g) only prohibited a “Commissioner” from paying interest and not an Arbitrator who was not “in any manner, stifled.” Port of Calcutta relied upon The Arbitration Act, 1940 which required an express, specific clause to constitute a bar on Arbitrators from granting interest. As regards The Arbitration and Conciliation Act, 1996 [“1996 Act”], pendente lite interest is not payable if the contract provides so, even if it is not a specific bar against an Arbitrator.

It is obvious, a contract may also have a “clause which prohibits a claim of damage other than interest” [‘prohibited damage claim’], for example, relating to “idle machinery” as was common in Bharat Drilling and Foundation Treatment Private Limited v. State of Jharkhand, (2009) 16 SCC 705 [‘Bharat Drilling’]; Pam Developments Private Limited v. State of West Bengal, (2024) 10 SCC 715 [‘Pam Developments’] and State of Jharkhand v. Indian Builders Jamsehdpur, 2025 SCC OnLine 2717 [‘Indian Builders’]. Pam Developments held, an Arbitrator could not entertain such a prohibited damage claim. Justice Pamidighantam Sri Narasimha [‘Justice Narasimha’] was part of the Bench in both Pam Developments and Indian Builders and understood, a prohibited damage claim may be for a lot more than “idle machinery”. Just as under the 1996 Act pendente lite interest is not payable if a contract provides so, even if it is not a specific bar against an Arbitrator, can prohibited damage claims never be entertained by an Arbitrator? Indian Builders Referred the Question to a Larger Bench.

Hon’ble Chief Justice of India, Justice Dr. D.Y. Chandrachud [‘Justice Chandrachud’] reminded in Central Organisation for Railway Electrification v. Ms. ECI SPIC SMO MCML (JV), 2024 SCC OnLine SC 3219 [‘CoRE’], “party autonomy” is the “brooding and guiding spirit” and “backbone” of Arbitrations. Justice Chandrachud declared in Cox and Kings Ltd. v. SAP India Private Ltd., (2024) 4 SCC 1, intention of parties has to be derived from words used in the Arbitration Agreement and it is the duty of Court to not delve deep into intricacies of the human mind, but only consider “expressed intentions”. Once we have respected “party autonomy” and derived their “expressed intentions”, should not we also respect, as was Justice Narasimha’s vital input in CoRE, the possibility of a human being “thinking against its own interests” and therefore allowing, in complete information, the other party an upper hand? Arnold v. Britton, [2015] UKSC 36 remarked, “Experience shows, it is by no means unknown for people to enter into arrangements which are ill-advised. When interpreting a contract, Judges should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.” Also, concept of unequal bargaining power has no application in case of commercial contracts as held in S.K. Jain v. State of Haryana, (2009) 4 SCC 357. In this light, under the 1996 Act, could an Arbitrator not entertain a prohibited damage claim even if such a clause be ruthless, producing harsh outcomes.

We explore. Delhi High Court in Simplex Concrete Piles (India) Ltd. v. Union of India, 2010 SCC OnLine Del 821 [‘Simplex Concrete’], when assessing a prohibited a damage claim for delays caused by Union of India, answered, “it is trite that no right can be waived where public policy or public interest is involved” and commercial contracts would be non-existent if “deliberate breaches without any consequences” are permitted. MBL Infrastructures Limited v. Delhi Metro Rail Corporation, 2023 DHC 9067 cited and accepted Simplex Concrete. However, notice C & C Constructions Limited v. IRCON International Limited, (2025) 4 SCC 234 [‘IRCON’]. The relevant Clause 49.5 in IRCON read, “In the event of any failure or delay by the Employer/Engineer in fulfilling his obligations under the contract, then such failure or delay, shall in no way affect or vitiate the contract or alter the character thereof; or entitle the Contractor to damages or compensation thereof but in any such case, the Engineer shall grant such extension or extensions of time to complete the work, as in his opinion is/are reasonable.” Respondent in a letter to Appellant had stated, a claim for an additional financial burden has to be dealt together with a proposal of extension of time. Appellant was requested to submit a detailed claim “immediately” so that Appellant’s request for extension of time could be processed. Thereafter, on two occasions, extension of time was granted by Respondent. A detailed claim, as requested, was surprisingly never submitted by Appellant. SC dismissed the Appeal and found Clause 49.5 to be applicable. A “failure or delay”, and possibly a “deliberate breach”, by the Employer/Engineer thus had no consequences, the very circumstance Simplex Concrete warned against. M/s. Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354 at least had Union of India assure, before any Arbitration had been initiated at all, further claims would be decided “across the table”. No such assurance was discernible in IRCON. Clause 49.5 in IRCON withstood a test of time. It could be, even if real damage may have accrued, Arbitral Tribunals, under the 1996 Act, cannot entertain prohibited damage claims when such clauses have neither been waived by the party with the upper hand and nor been protested against by the other. That will not always be the case.

Section 28(3) of the 1996 Act mandates, in all cases an Arbitral Tribunal shall note “terms of the contract". This provision does compel an Arbitrator to respect a prohibited damage claim maintaining that terms of the contract are not just persuasive; they are binding. But, terms of a contract must be read in entirety including obligations the Contractee undertook and yet breached. When against a Clause 49.5, as it was in IRCON, and a Contractee's own failure or delay caused the very damage it now seeks to exclude from Arbitral scrutiny, the Contractee cannot, in principle, invoke that exclusion. An IRCONish Clause 49.5 cannot always immunize a Contractee's own wrongdoing from consequence.

The relevant clause in Corinno Civetta Construction Corp. v. City of New York, 67 N.Y.2d 297 (1986) [‘Corinno Civetta’] read, “The Contractor agrees to make no claim for damages for delay in the performance of this contract occasioned by any act or omission to act of the City or any of its representatives, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the work as provided herein.” When faced by clauses as they were in IRCON or Corinno Civetta, Arbitral Tribunals should be entitled to entertain prohibited damage claims when the delays were caused by the Contractee’s “wilful, malicious or grossly negligent conduct”. This is what was held in Corinno Civetta, which offers a balanced threshold.

While “party autonomy” is the “backbone” of Arbitrations and Judges should avoid re-writing a contract to assist an “unwise party”, this cannot be used to hide breaches levelled against. Considering the referral in Indian Builders, Arbitral Tribunals are left to navigate a difficult divide. It would be best to remember, what Simplex Concrete warned, commercial contracts would be non-existent if “deliberate breaches without any consequences” are permitted. Indeed, “clause which prohibits a claim of damage other than interest”, that is, prohibited damage claims, cannot simply become an instrument to excuse a deliberate breach.