Arbitration and Conciliation Act, 1996 – s.31(7)(a) – Arbitral award – Interest on arbitral awards – Discretion vested in arbitral tribunal – Reduction of interest u/Art.142 of the Constitution – Held: s.31(7)(a) itself requires interest to be at such rate as the arbitral tribunal deems reasonable – When a discretion is vested to an arbitral tribunal to award interest at a rate which it deems reasonable, then a duty would be cast upon the arbitral tribunal to give reasons as to how it deems the rate of interest to be reasonable – Further, the arbitral tribunal would be required to apply its mind to the facts of the case and decide as to whether the interest is payable on whole or any part of the money and also as to whether it is to be awarded to the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made – In the present case, the very conduct of respondent of remaining silent for a long period disentitled him for interest during such period – A party cannot be permitted to derive benefits from its own lapses – Insofar as rate of interest is concerned, in the present case, the Arbitrator, without assigning any reasons, awarded interest at the rate of 18% p.a. for the period during which the proceedings were pending and also at the same rate after the award was made till the actual payment – Taking into consideration the conduct of the respondent in delaying proceedings at every stage which led to long pendency of the dispute, interest at all the three stages, that is prereference period, pendent-lite and post-award period, reduced to 9% p.a. u/Art.142 of the Constitution – Constitution of India – Art.142.
Partly allowing the appeal, the Court
HELD: 1. A perusal of clause (a) of subsection (7) of Section
31 of the Arbitration and Conciliation Act, 1996 would reveal that, no doubt, a discretion is vested in the arbitral tribunal to include in the sum for which the award is made interest, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. However, it would reveal that the section itself requires interest to be at such rate as the arbitral tribunal deems reasonable. When a discretion is vested to an arbitral tribunal to award interest at a rate which it deems reasonable, then a duty would be cast upon the arbitral tribunal to give reasons as to how it deems the rate of interest to be reasonable. Further, the arbitral tribunal would be required to apply its mind to the facts of the case and decide as to whether the interest is payable on whole or any part of the money and also as to whether it is to be awarded to the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. [Para 10][315-B-F]
2. In the present case, the Arbitrator, without assigning any reasons, has awarded interest at the rate of 18% per annum for the period during which the proceedings were pending and also at the same rate after the award was made till the actual payment. [Para 11][315-F-G]
3. The very conduct of the respondent of remaining silent for a long period from August 30, 1997 till July 25, 1989 would disentitle him for the interest during the said period. Similarly, though a decree was passed on 14th February 1990 and the respondent was directed to file the original agreement, he took no step till 4th February 2000. In the meantime, the 1996 Act came into force. Thereafter, the respondent filed an application in the disposed of suit which came to be dismissed on 4th February 2000. Thereafter, he moved an application before the High Court for appointment of arbitrator under Section 11 of the 1996 Act which came to be allowed on 15th October 2001. It could thus be seen that for a period of almost ten years, the respondent was again in silent mode. Had he filed the original agreement immediately after the decree was passed on 14th February 1990, the arbitration proceedings would have commenced and concluded immediately thereafter. As such, the Arbitrator was not justified in awarding interest for the period from 14th February 1990 to 4th February 2000. A party cannot be permitted to derive benefits from its own lapses. Further, though after the commencement of the 1996 Act, the respondent could not have moved an application in the disposed suit, he chose to do so and only after dismissal of the said application on the ground of lack of jurisdiction, did he move an application for appointment of an arbitrator under Section
11 of the 1996 Act before the High Court, which was allowed on 15th October 2001. Therefore the respondent would not be entitled for interest for the period from 14th February 1990 to 15th October 2001. [Paras 12, 13 and 14][316-A-F]
4. Present case is a fit case wherein this Court needs to exercise its powers under Article 142 of the Constitution of India to reduce the rate of interest. Taking into consideration the conduct of the respondent in delaying the proceedings at every stage which led to a long pendency of the dispute, though it will not be in the interest of justice to interfere with the principal award, this is a fit case wherein the interest at all the three stages, that is pre-reference period, pendente lite and post-award period, requires to be reduced. As a result, the respondent would not be entitled to any interest for the period between 30th August 1977 and 25th July 1989 and for the period between 14th February 1990 and 4th February 2000. In respect of the remaining period at all the three stages, that is pre-reference period, pendente lite and post-award period, the respondent would be entitled to interest at the rate of 9% per annum. [Paras 20 and 21][319-DG] Rajendra Construction Co. v. Maharashtra Housing & Area Development Authority and Others (2005) 6 SCC
678 : [2005] 2 Suppl. SCR 582; Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy and Another (2007) 2 SCC 720 : [2007] 1 SCR 698; and Mcdermott International Inc. v. Burn Standard Co. Ltd. and Others (2006) 11 SCC 181 : [2006] 2 Suppl. SCR 409 – relied on.
Hyder Consulting (UK) Limited v. Governor, State of Orissa Through Chief Engineer (2015) 2 SCC 189 : [2014] 14 SCR 1029; Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation (2022) SCC OnLine SC 549 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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