Arbitration and Conciliation Act 1996: s. 31(7)(a), 31(7)(b) – Post award interest on principal sum – Grant of – Discretion of arbitrator – On facts, arbitral award in favour of the appellant – Post-award interest fixed at the rate of 18% on the principle sum, from the date of award to the date of payment – Challenge to, by the appellant that the post-award interest of 18% pa should be granted on the total sum awarded, both inclusive of principal and pre-award interest – Single Judge held that the arbitrator had in his discretion restricted the post-award interest to the principal amount and that the court would not interfere with the exercise of discretion – On appeal, held: Abitrator has the discretion to award post-award interest on a part of the sum – There is nothing in the provision which restricts the discretion of the arbitrator for the grant of post-award interest on the part of the sum, which the arbitrator otherwise holds inherent to their authority – Discretion of the arbitrator can only be restricted by an express provision to that effect – Phrase ‘unless the award otherwise directs’ in s. 31(7)(b), only qualify the rate of post-award interest – As per s. 31(7)(b), if the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at eighteen percent – Arbitrator must exercise the discretion in good faith, must take into account relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances – Thus, the award of the arbitrator granting post award interest on the principal amount does not suffer from an error apparent.
Dismissing the appeal, the Court
HELD 1.1 While, clause (a) of Section 31(7) of the Arbitration and Conciliation Act, 1996 is qualified by the arbitration agreement, clause (b) is qualified by the arbitration award. However, the placement of the phrases is crucial to their interpretation. The words, “unless otherwise agreed by the parties” occurs at the beginning of clause (a) qualifying the entire provision. However, in clause (b), the words, “unless the award otherwise directs” occurs after the words ‘a sum directed to be paid by an arbitral award shall’ and before the words ‘carry interest at the rate of eighteen per cent”. Thereby, those words only qualify the rate of post-award interest. [Para 18][833-F-G]
1.2 Section 31(7)(a) confers a wide discretion upon the arbitrator in regard to the grant of pre-award interest. The arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made - whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award. When a discretion has been conferred on the arbitrator in regard to the grant of pre-award interest, it would be against the grain of statutory interpretation to presuppose that the legislative intent was to reduce the discretionary power of the arbitrator for the grant of post-award interest under clause (b). Clause (b) only contemplates a situation where the arbitration award is silent on post-award interest, in which event the award-holder is entitled to a post-award interest of eighteen percent. [Para 19][833-H; 834-A-C]
1.3 The arbitrator has the discretion to grant post-award interest. Clause (b) does not fetter the discretion of the arbitrator to grant post-award interest. It only contemplates a situation in which the discretion is not exercised by the arbitrator. Therefore, the observations Hyder Consulting’s case on the meaning of ‘sum’ will not restrict the discretion of the arbitrator to grant post-award interest. There is nothing in the provision which restricts the discretion of the arbitrator for the grant of post-award interest which the arbitrator otherwise holds inherent to their authority. [Para 20][834-C-E]
1.4 The purpose of granting post-award interest is to ensure that the award- debtor does not delay the payment of the award. With the proliferation of arbitration, issues involving both high and low financial implications are referred to arbitration. The arbitrator takes note of various factors such as the financial standing of the award-debtor and the circumstances of the parties in dispute before awarding interest. The discretion of the arbitrator can only be restricted by an express provision to that effect. Clause (a) subjects the exercise of discretion by the arbitrator on the grant of pre-award interest to the arbitral award. However, there is no provision in the Act which restricts the exercise of discretion to grant post-award interest by the arbitrator. The arbitrator must exercise the discretion in good faith, must take into account relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances. [Para 21][834-EG]
1.5 The judgment of the two-Judge Bench in SL Arora’s case was referred to a three-Judge Bench in Hyder Consulting’s case on the question of whether post-award interest could be granted on the aggregate of the principal and the pre-award interest arrived at under Section 31(7)(a) of the Act wherein it was held that the arbitrator may grant post-award interest on the aggregate of the principal and the pre-award interest. The opinion did not discuss the issue of whether the arbitrator could use their discretion to award post- award interest on a part of the ‘sum’ awarded under Section 31(7)(a). The phrase ‘unless the award otherwise directs’ in Section 31(7)(b) only qualifies the rate of interest. According to Section 31(7)(b), if the arbitrator does not grant post- award interest, the award holder is entitled to postaward interest at eighteen percent. Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the discretion to award post-award interest on a part of the sum. The arbitrator must exercise the discretionary power to grant post- award interest reasonably and in good faith, taking into account all relevant circumstances. By the arbitral award dated 29 April 2013, a postaward interest of eighteen percent was awarded on the principal amount in view of the judgment of this Court in SL Arora’s case. The arbitrator has the discretion to award post-award interest on a part of the ‘sum’; the ‘sum’ as interpreted in Hyder Consulting’s case. Thus, the award of the arbitrator granting post award interest on the principal amount does not suffer from an error apparent. [Para 22][834-H; 835-A-F]
Hyder Consulting Ltd. v. State of Orissa (2013) 2 SCC 719; State of Haryana v. SL Arora (2010) 3 SCC 690 : [2010] 2 SCR 297 – 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.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.