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2014 (11) TMI 1240 - SC - Indian LawsAS PER H.L. Dattu, C.J.I. Award of interest on interest from the date of award - whether in light of the Three Circles case 2008 (9) TMI 935 - SUPREME COURT and McDermott case 2006 (5) TMI 442 - SUPREME COURT there exists any infirmity in the decision rendered by this Court in the S.L. Arora case 2010 (1) TMI 1261 - SUPREME COURT - whether Sub-section (7) of Section 31 of the Act, 1996 could be interpreted to include interest pendente lite within the sum payable as per the arbitral award, for the purposes of awarding post-award interest? HELD THAT - From the above-quoted paragraphs of the McDermott case 2006 (5) TMI 442 - SUPREME COURT , it is abundantly clear that the decision neither makes any reference to awarding of compound interest nor does it allow post-award interest to be imposed on the aggregate of the principal claim and interest pendente lite. This Court had merely sought to clarify the position with respect to the rate of interest awarded and further the power of this Court to invoke Article 142 of the Constitution of India, 1950 to alter the said rate of interest in order to do complete justice. Thus, it is evident from paragraphs 154 to 156 of the McDermott case 2006 (5) TMI 442 - SUPREME COURT , that the proposition surrounding arbitral tribunal's authority to award of 'interest on interest' was not deliberated upon but merely argued by the Respondents therein. However, this argument was erroneously relied upon in the Three Circles case (supra) to decide upon the issue related to awarding of 'interest on interest' or compound interest. This Court, therefore, in the S.L. Arora case 2010 (1) TMI 1261 - SUPREME COURT has disagreed with the reasoning laid down in the McDermott case (supra) as well as the Three Circles case (supra). This Court, on perusal of the relevant paragraphs in the aforesaid decisions, held that the observations therein must be treated as per incuriam on the issue around awarding of 'interest on interest' or compound interest. Since the position on the interpretation of Sub-section (7) of Section 31 of the Act, 1996 regarding award of interest upon interest has been correctly decided in the S.L. Arora case 2010 (1) TMI 1261 - SUPREME COURT , the present reference may not be required. The decision of this Court in the Three Circles case (supra) was rightly held to be passed on inadvertent erroneous assumption, as stated in the S.L. Arora case 2010 (1) TMI 1261 - SUPREME COURT . The McDermott case 2006 (5) TMI 442 - SUPREME COURT did not deal with the question pertaining to awarding of 'interest on interest' or compound interest. It is a sound rule of construction whereby the same word appearing in the same section of the same statute must be given the same meaning, unless there is anything to indicate the contrary. The only exception to this rule of construction, whereby the said principle may be rebutted, is by making reference to the context in which the words are used. The word may be understood in a different sense, if the context so requires that to be done. The context herein, that is, under Clause (a) and under Clause (b) of Sub-section (7) of Section 31 of the Act, 1996, does not appear to be divergent from one another. The word sum has been used in both clauses in the context of what is to be paid as per the arbitral award. Thus, the term sum as used in Clause (b) of Sub-section (7) of Section 31 of the Act, 1996 would have the same meaning as assigned to the word under Clause (a) of the same provision. It would refer to the money as adjudicated by the arbitral tribunal based on the claim of the parties to the arbitral proceedings. The matters are remanded back to an appropriate two-Judge Bench of this Court for adjudication. AS PER S.A. Bobde, J. It is clear that the interest, the sum directed to be paid by the Arbitral Award under Clause (b) of Sub-section (7) of Section 31 of the Act is inclusive of interest pendent lite - It is settled law that where different language is used by Parliament, it is intended to have a different effect. In the Arbitration Act, the word sum has deliberately not been qualified by using the word principal before it. If it had been so used, there would have been no scope for the contention that the word sum may include interest. In Section 31(7) of the Act, Parliament has deliberately used the word sum to refer to the aggregate of the amounts that may be directed to be paid by the Arbitral Tribunal and not merely the principal sum without interest - it is apparent that vide Clause (a) of Sub-section (7) of Section 31 of the Act, Parliament intended that an award for payment of money may be inclusive of interest, and the sum of the principal amount plus interest may be directed to be paid by the Arbitral Tribunal for the pre-award period. Thereupon, the Arbitral Tribunal may direct interest to be paid on such sum for the post-award period vide Clause (b) of Sub-section (7) of Section 31 of the Act, at which stage the amount would be the sum arrived at after the merging of interest with the principal; the two components having lost their separate identities. S.L. Arora's case is wrongly decided in that it holds that a sum directed to be paid by an Arbitral Tribunal and the reference to the Award on the substantive claim does not refer to interest pendente lite awarded on the sum directed to be paid upon Award and that in the absence of any provision of interest upon interest in the contract, the Arbitral Tribunal does not have the power to award interest upon interest, or compound interest either for the pre-award period or for the post-award period. Parliament has the undoubted power to legislate on the subject and provide that the Arbitral Tribunal may award interest on the sum directed to be paid by the Award, meaning a sum inclusive of principal sum adjudged and the interest, and this has been done by Parliament in plain language. AS PER Abhay Manohar Sapre, J. I n complete agreement with the reasoning and the eventual conclusion arrived at by brother Bobde J. Even though, the judgment delivered by brother Bobde J. encapsulates everything of what is required to be said, I, however, looking to the point involved and very ably argued by all learned senior Counsel, wish to record my own reasons, in addition to what has already been laid down. For the purposes of an award, there is no distinction between a sum with interest, and a sum without interest. Once the interest is included in the sum for which the award is made, the original sum and the interest component cannot be segregated and be seen independent of each other. The interest component then looses its character of an interest and takes the colour of sum for which the award is made - There may arise a situation where, the Arbitral Tribunal may not award any amount towards principal claim but award only interest . This award of interest would itself then become the sum for which an award is made Under Section 31(7)(a) of the Act. Thus, in a pre-award stage, the legislation seeks to make no distinction between the sum award and the interest component in it - he amount award Under Section 31(7)(a) of the Act, whether with interest or without interest, constitutes a sum for which the award is made. Post-award interest - HELD THAT - The expression grant of interest on interest while exercising the power Under Section 31(7) of the Act does not arise and, therefore, the Arbitral Tribunal is well empowered to grant interest even in the absence of clause in the contract for grant of interest.
Issues Involved:
1. Whether the decision in S.L. Arora & Co. (2010) 3 SCC 690 is in consonance with earlier decisions regarding the award of interest on interest under Section 31(7) of the Arbitration and Conciliation Act, 1996. 2. Whether Sub-section (7) of Section 31 of the Arbitration and Conciliation Act, 1996 can be interpreted to include interest pendente lite within the sum payable as per the arbitral award for the purposes of awarding post-award interest. Issue-wise Detailed Analysis: 1. Consonance of S.L. Arora & Co. Decision with Earlier Decisions: - Appellants' Contention: The appellants argued that the S.L. Arora case was incorrectly decided by ignoring previous decisions such as McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 and others, which held that interest awarded on the principal amount up to the date of the award becomes the principal amount for future interest. - Court's Analysis: The court examined the McDermott case and the Three Circles case and found that the reliance on McDermott by the Three Circles case was not in consonance with the doctrine of precedents. The McDermott case did not address the issue of awarding interest on interest or compound interest. The court concluded that the decision in the S.L. Arora case correctly identified the McDermott and Three Circles cases as per incuriam on the issue of awarding interest on interest. - Conclusion: The S.L. Arora decision was affirmed as correctly interpreting Section 31(7) of the Act, 1996, in not allowing compound interest or interest on interest. 2. Interpretation of Sub-section (7) of Section 31: - Appellants' Argument: The appellants contended that the sum directed to be paid by an arbitral award should include interest pendente lite, thus allowing post-award interest on this aggregate sum. - Court's Interpretation: - Clause (a) of Sub-section (7): The court noted that Clause (a) allows the arbitral tribunal to include interest in the sum for which the award is made, from the date of cause of action to the date of the award. This interest becomes part of the principal sum. - Clause (b) of Sub-section (7): This clause mandates that the sum directed to be paid by an arbitral award carries interest at 18% per annum from the date of the award to the date of payment unless otherwise directed by the award. - Sum and Interest Definitions: The court emphasized that the term "sum" refers to the principal amount awarded, and "interest" is compensation for the use or forbearance of money. The court held that the sum does not merge with the interest awarded for the pre-award period. - Conclusion: The court concluded that the interest under Clause (b) is imposed on the principal amount awarded by the arbitral tribunal and does not include interest awarded under Clause (a). Separate Judgments Delivered: - H.L. Dattu, C.J.I.: Affirmed the S.L. Arora decision and clarified that the term "sum" in Clause (b) of Sub-section (7) refers to the principal amount awarded, excluding interest awarded under Clause (a). - S.A. Bobde, J.: Agreed with the Chief Justice but added that the term "sum" should include the interest component for the pre-award period, making it the principal amount for post-award interest. - Abhay Manohar Sapre, J.: Agreed with Justice Bobde, emphasizing that the interest component becomes part of the "sum" for which the award is made, thus allowing post-award interest on this aggregate sum. Final Decision: The court answered the reference by affirming the S.L. Arora decision and remanded Civil Appeal No. 3148 of 2012 and connected matters to an appropriate two-Judge Bench for adjudication. The court clarified that the arbitral tribunal's power under Section 31(7) of the Act, 1996, does not include awarding compound interest or interest on interest.
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