2024 (12) TMI 1015 - SC - Indian Laws

Calculation of post award interest - to be calculated on the principal sum adjudged or would it be calculated on the principal sum plus interest on the principal sum which has accrued from the date of cause of action to date of passing of award, as under the new 1996 Act, award is enforced as a decree of the court? - Applicability of Section 31(7) of the Arbitration and Conciliation Act, 1996 - Jurisdiction of the Arbitrator post-award for issuing clarification - HELD THAT - From an analysis of Section 31(7)(a) of the 1996 Act, which provides for pre-award interest, it is seen that the provision begins with the expression unless otherwise agreed by the parties, thereby highlighting the legislative stance that parties possess the autonomy to determine pre-award interest on the payment of money awarded by the arbitral tribunal. However, no such discretion is available to the parties under Section 31(7)(b) of the 1996 Act though such discretion is available to the arbitral tribunal. Natural corollary to the analysis would be that the sum so awarded by the arbitral tribunal which may include interest from the date when the cause of action arose to the date of the award, would carry further interest of 18 percent from the date of the award to the date of payment unless the arbitral award otherwise directs. Thus, the legislative intent is that the awarded sum whether inclusive of interest or not, in case included, then from the date of cause of action to the date of award, would carry further interest from the date of the award to the date of payment. Going by the provisions contained in Section 31(7) of the 1996 Act, it is evident that an arbitral tribunal has the power to grant (i) pre-award (ii) pendente lite (iii) post-award interest. Intention behind awarding pre-award interest is primarily to compensate the claimant for the pecuniary loss suffered from the time the cause of action arose till passing of the arbitral award - It primarily acts as a disincentive to the award debtor not to delay payment of the arbitral amount to the award holder. Clause (a) of sub-Section (7) of Section 31 provides that the arbitral tribunal may include interest while making an award for payment of money in the sum for which the award is made and as per clause (b), the sum so directed to be made by the award shall carry interest at a certain rate for the post-award period. The purpose for enacting such a provision is to encourage early payment of the awarded sum and to discourage delay. Therefore, the sum directed to be paid by the arbitral award under clause (b) of sub-Section (7) of Section 31 of the 1996 Act is inclusive of interest pendente lite. The appellant had participated in the clarificatory proceeding before the learned Arbitrator taking the stand that no clarification as sought for was required on merit. Learned Single Judge, firstly, held that it was no longer open to examine the question as to whether the respondent had any right to approach the learned Arbitrator to seek clarification or whether the learned Arbitrator had become functus officio since the Division Bench had expressly permitted the respondent to seek clarification from the learned Arbitrator which decision was not interfered with by this Court. Thereafter, the decision of the Single Bench setting aside the clarification of the learned Arbitrator which was affirmed by the Division Bench were set aside by this Court in the civil appeal of the respondent with liberty to the respondent to seek execution as per the law laid down in M/s. Hyder Consulting (UK) Ltd. Secondly, learned Single Judge clarified that the respondent would be entitled to post-award interest not only on the claims as awarded but also on the pre-award interest as well as on the interest pendente lite. The quantum of pre-award interest and the interest pendente lite would be calculated and included in the amount awarded i.e. the sum and the post-award interest would run on the said sum i.e. principal amount plus interest (preaward interest plus interest pendente lite). The issue raised by the appellant in the present proceeding i.e. learned Arbitrator had become functus officio and therefore had no jurisdiction to issue the clarification, was also raised in the miscellaneous application filed by the appellant before this Court seeking clarification of the order dated 12.03.2015. While dismissing the miscellaneous application, no leave was granted by this Court to agitate the aforesaid issue in any other proceeding. Therefore, viewed from this perspective also, it is not open to the appellant to raise the aforesaid issue again in the present proceeding. The clarification sought for and issued by the learned Arbitrator would be covered by the expression unless another period of time has been agreed upon by the parties appearing in Section 33 (1) of the 1996 Act. This is a case where court had permitted the respondent to seek clarification from the learned Arbitrator beyond the initial period of 30 days whereafter the appellant fully participated in the clarificatory proceeding. Therefore, the present case would be covered by the above expression. In the circumstances, contention of the appellant that the learned Arbitrator had become functus officio and therefore lacked jurisdiction to issue the clarification cannot be accepted and is thus rejected. There are no error or infirmity in the impugned order passed by the Division Bench of the High Court - the appeal lacks merit and is, accordingly, dismissed.

Summary

Issues Involved:

1. Jurisdiction of the Arbitrator post-award for issuing clarification.
2. Applicability of Section 31(7) of the Arbitration and Conciliation Act, 1996 regarding interest.
3. Interpretation of the term "sum" in the context of interest calculation.
4. Applicability of the principle of res judicata in execution proceedings.

Detailed Analysis:

1. Jurisdiction of the Arbitrator Post-Award for Issuing Clarification:

The appellant contended that the Arbitrator had become functus officio after passing the award on 16.12.1997 and thus had no jurisdiction to issue the clarification dated 15.03.2005. The Arbitrator's clarification was challenged on the grounds that it substantially modified the original award, which was beyond the scope of permissible corrections under Section 33 of the Arbitration and Conciliation Act, 1996. The Supreme Court, however, noted that the Division Bench had permitted the respondent to seek clarification from the Arbitrator, and this permission was not interfered with by the Supreme Court. The Court held that the expression "unless another period of time has been agreed upon by the parties" in Section 33(1) allowed for the extension of the 30-day period for corrections, and since the appellant participated in the clarification proceedings, the Arbitrator's jurisdiction was valid.

2. Applicability of Section 31(7) of the Arbitration and Conciliation Act, 1996 Regarding Interest:

The core issue was whether post-award interest under Section 31(7) should be calculated on the principal amount alone or on the principal plus pre-award interest. The Supreme Court referred to its decision in M/s. Hyder Consulting (UK) Ltd., which overruled the earlier decision in S.L. Arora, clarifying that the "sum" for which the award is made includes both the principal and the pre-award interest. Therefore, post-award interest is applicable on this composite sum.

3. Interpretation of the Term "Sum" in the Context of Interest Calculation:

The Court analyzed Section 31(7) of the 1996 Act, which consists of two parts: clause (a) concerning the inclusion of interest up to the date of the award in the "sum," and clause (b) concerning post-award interest. The Court emphasized that the "sum" includes the principal amount plus any interest awarded up to the date of the award. This interpretation aligns with the legislative intent to ensure prompt payment and discourage delays by providing for post-award interest on the entire awarded sum.

4. Applicability of the Principle of Res Judicata in Execution Proceedings:

The respondent argued that the issue of the Arbitrator's jurisdiction had been previously raised and decided in favor of the respondent, thus invoking the principle of res judicata. The Court agreed, noting that the appellant had raised and withdrawn similar objections in prior proceedings, and therefore, the appellant was barred from raising the same issue again. The principle of constructive res judicata applies to execution proceedings, preventing the appellant from re-litigating the issue.

Conclusion:

The Supreme Court concluded that the Arbitrator's clarification was valid and consistent with the law laid down in M/s. Hyder Consulting (UK) Ltd. The appeal was dismissed, affirming that the interest payable should be calculated on the principal plus pre-award interest, and the Arbitrator's jurisdiction to issue clarification was upheld. The Court found no merit in the appellant's contentions and emphasized the finality of the matter as determined by previous judicial decisions.