Arbitration and Conciliation Act, 1996 – s.37 – Arbitral award – Award of interest for pre-reference and pendente lite period – Respondent engaged services of the appellant for executing a contract relating to Power Project – Appellant disputed certain recoveries – Arbitration clause invoked – Arbitrator passed an award, while arbitral tribunal allowed the claims of the appellant under several heads, awarding pre-reference interest, pendente lite interest and future interest – In petition u/s.34 by the respondent for setting aside the award, the Single Judge of the High Court set aside the award with regard to future interest at a rate exceeding 9 percent pa from the date of the award till the date of payment – However, the Division Bench of High Court set aside the directions related to pendente lite interest, holding that it was not open for the arbitral tribunal to have carved out three periods for payment of interest-prereference, pendente lite and future when the statute provides for only two periods, period being the period between the date on which the cause of action arose and the date on which the award is made, and the period from the date of the award till the date of payment – Sustainability:
Held: Not sustainable – Reasoning given by the Division Bench is fallacious – Arbitral tribunal has the discretion to include in the sum awarded, firstly, interest at such rate as it deems reasonable; and secondly, 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 – This would mean that the arbitral tribunal can exclude a period from the date on which the cause of action arose till the date on which the award is made for the purpose of grant of interest as has been done in the instant case – It would also mean that the arbitral tribunal can grant interest 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 – It can be a composite period or the said period can be further sub-divided, as done in the instant case i.e. from the date of cause of action to filing of the claim and from the date of filing of the claim till the date of the award excluding the period when the appellant was found to be remiss – It would also mean that there can be one rate of interest for the whole period or one or more rates of interest for the sub-divided periods as has been done in the instant case – This would be the correct approach to interpret s.31(7)(a), given the scheme of the 1996 Act – Division Bench erred by holding that the arbitral tribunal had no jurisdiction to award interest for two periods-pre-reference and pendente lite when the statute provides for only one period, from the date when the cause of action arose till the date of the award – View expressed by the High Court not the correct interpretation of s.37(1)(a) – Sum awarded in s.31(7)(a) would mean principal amount plus the interest awarded from the date of cause of action upto the date of the award – As per s.31(7)(b) of the 1996 Act, the sum (principal amount + interest) would carry further interest at the rate of 2 per cent higher than the current rate of interest prevalent on the date of the award to the date of payment – Impugned judgment and order passed by the Division Bench of the High Court set aside. [Paras 26, 35, 36, 44, 45]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Nidhi Jain. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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