Court confirms completion of road project despite absence of completion certificate, restricts compound interest to simple interest in arbitral award
In a significant judgment dated October 24, 2026, the Allahabad High Court (Division Bench, Lucknow) upheld the arbitral award in favor of M/s Apex Construction Company against the State of Uttar Pradesh, while partially modifying the interest component of the award. The case arose from a contract dispute over the widening and strengthening of the Raya-Math Road in Mathura district.
The State of U.P., through the Public Works Department, contested the claim submitted by Apex Construction, arguing that the absence of a formal completion certificate meant the contractual work was incomplete and that substandard materials were used. The arbitral tribunal, however, had found that the contractor completed 11.8 kilometers of road work as per the contract specifications and standards, rejecting claims of substandard quality or incomplete work. No notices or communications were issued by the State to the contractor alleging defects or incomplete work during or after the project.
The High Court, after thorough examination of evidence including expert reports by the Central Road Research Institute and the Public Works Department, concurred with the arbitral tribunal's factual findings. The Court held that mere absence of a completion certificate does not conclusively prove non-completion of contractual obligations, especially when the evidence and conduct of parties suggest completion. This affirmed the principle that the arbitral tribunal's fact-based findings are entitled to deference and cannot be lightly disturbed on appeal under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
On the issue of interest, the arbitral tribunal awarded the contractor a sum of Rs. 1.56 crores along with 14% interest compounded annually from the date of cause of action until payment. The State challenged this, contending that the contract was silent on interest and that the tribunal lacked jurisdiction to award compound interest, which is prohibited in the absence of express contractual terms.
The Court agreed with the appellant on this point, drawing upon settled Supreme Court jurisprudence including recent decisions such as Gayatri Balasamy v. ISG Novasoft and HLV Ltd. v. PBSAMP Projects. The Court explained that while arbitral tribunals may award interest for pre-reference and post-award periods under Section 31(7) of the Arbitration Act, compound interest or interest-on-interest cannot be granted unless specifically agreed upon by the parties. The Court held that annual compounding constituted impermissible compound interest.
Accordingly, the Court modified the award to substitute compound interest with simple interest at 14% per annum. The simple interest is to be calculated from September 1, 2009, to January 31, 2016, on the principal sum, and thereafter simple interest on the crystallized amount until actual payment. This modification was deemed severable and did not necessitate setting aside the entire award.
The judgment reinforces that arbitral awards based on factual findings of completion and quality of work will not be interfered with lightly, and clarifies the scope of interest awards under the Arbitration Act in the absence of contractual provisions. The ruling balances contractual autonomy with statutory and judicial safeguards against excessive interest burdens.
Bottom Line:
Arbitration, Section 37 appeal - Absence of completion certificate by itself does not prove non-completion of contractual work when evidence shows work was completed and no notice of defects or incomplete work was ever issued - Arbitral finding on completion of work being based on evidence cannot be interfered with. Arbitral Tribunal can award pre-reference, pendente lite and future interest under Section 31(7) of Arbitration and Conciliation Act, 1996 when contract is silent, but in absence of contractual stipulation, compound interest/interest upon interest is impermissible - Award can be modified to substitute compound interest with simple interest where error is severable.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 31(7), 34, 37; Interest Act, 1978 Sections 2(a), 3(3)(c)
State of U.P. v. Apex Construction Company, (Allahabad)(DB)(Lucknow) : Law Finder Doc Id # 3002424
