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TMI Blog2022 (9) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... um 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. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) twenty one percent per annum has been granted from the date of default to the date of the demand notice; (ii) thirty six percent per annum with monthly rests from the date of the demand notice to the date of award ( pre-award interest ); and (iii) eighteen percent per annum on the principal amount of Rs. 5,00,32,656 from the date of award to the date of payment ( post-award interest ). The relevant extract of the award is set out below: In view of the findings of the Tribunal above, Respondent No. 2 is liable to pay a sum of Rs. 5,00,32, 656 (Rupees five crores thirty two thousand six hundred and fifty six only) to the Claimant along with interest at 21% p.a till the date of demand notice. After the date of the demand notice, i.e 10.01.2006, the Claimant is entitled to receive interest at the rate 36% p.a with monthly rests. Further, in terms of the aforesaid decision in S.L Arora, the Claimant is entitled to receive post- award interest at the rate of 18% p.a only on the principal amount of Rs 5,00,32,656/ (emphasis supplied) 4 The appellant challenged the arbitral award OMP No. 972 of 2013 in a petition under Section 34 before the Delhi High Court raising o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave Petition as regards the award of interest prior to the date of the award. 2 The Arbitrator, in awarding interest at the rate of 18% post award on the principal sum, based the award on the decision in State of Haryana v SL Arora. The decision in S L Arora was overruled in Hyder Consulting (UK) Ltd. v. State of Orissa. 3. In view of the above premises, we issue notice confined to the above issue returnable in eight weeks. Submissions 6 Mr. Abhishek Puri, learned counsel appearing for the appellant made the following submissions: (i) In view of the provisions of Section 31(7) of the Act and the judgment of this Court in Hyder Consulting (supra), if pre-award interest is awarded on the principal sum, the aggregate of the principal and the pre-award interest is the sum on which post-award interest must be granted; (ii) According to the majority opinion in Hyder Consulting (supra), once pre-award interest is granted on the principal sum under Section 31(7)(a) of the Act, the interest award loses its character as interest and takes the color of the awarded sum for the purposes of post-award interest under Section 31(7)(b) of the Act; (iii) The arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, between the date of award to the date of payment. Section 31(7) reads as follows: (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, 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; (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment. (emphasis supplied) 9 In SL Arora (supra) this court had to interpret the expression sum in Section 31(7). This Court framed the following issue: (i) Whether Section 31(7) of the Act authorises and enables Arbitral Tribunals to award interest on interest from the date of award? Justice R V Raveendran writing for a two-Judge Bench held that Section 31(7) does not enable the arbitral tribunal to provide interest on interest from the date of the award. While arriving a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest. In my humble view, this conclusion does not seem to be in consonance with the clear language of Section 31(7) of the Act. Referring to Section 31(7)(a), Justice Bobde observed that (i) since Parliament has not qualified the phrase sum with the word principal , (as in Section 34 of the Code of Civil Procedure 1908) the word sum only takes the meaning of a particular amount of money ; (ii) the sum would include both principal and interest; and (iii) when interest is directed to be paid on the principal under Section 31(7)(a), the aggregate amount after merging pre-award interest and the principal would be the sum , where the two components of principal and interest would have lost their identities. The relevant observations are extracted below: 7. Thus, when used as a noun, as it seems to have been used in this provision, the word sum simply means an amount of money ; whatever it may include - principal and interest or one of the two. Once the meaning of the word sum is clear, the same meaning must be ascribed to the word in clause (b) of sub-section (7) of Section 31 of the Act, where it provides that a sum directed to be paid by an arbitral award s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression sum and held that once the interest is included in the sum , then the interest and the principal component cannot be segregated : 28. Therefore, 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 loses its character of an interest and takes the colour of sum for which the award is made. 29. 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 awarded and the interest component in it. [ ] 31. [ ] Interest under clause (b) is granted on the sum directed to be paid by an arbitral award wherein the sum is nothing more than what is arrived at under clause (a) (emphasis supplied) 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregate of the principal and pre-award interest. The argument of Mr Nakul Dewan is that the arbitral tribunal has the discretion to determine- a) whether post-award interest should be granted; b) the sum on which the post-award interest is to be granted; and c) the rate of such interest. 14 The interpretation of Section 31(7)(b) has to focus on the meaning of two phrases - first, the expression sum ; and second, unless the award otherwise directs . The phrase sum has been interpreted in the opinion of Justice Bobde and in the concurring opinion of Justice Sapre in Hyder Consulting (supra) to mean the amount directed to be paid by an arbitral award as arrived in Section 31(7)(a), which would include the aggregate of the principal and the pre-award interest. While Justice Sapre was of the view that the arbitrator only has the discretion to determine the rate of post-award interest, Justice Bobde did not expressly discuss the ambit of discretion of the arbitrator while granting post-award interest. In Justice Bobde s opinion, there was no discussion on whether the arbitrator had the discretion to order post-award interest on a part of the sum that was arrived under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 post0award 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. 17 The decision in Hyder Consulting (supra) was on the limited issue of whether post-award interest could be granted on the aggregate of the principal and the pre-award interest. As noted above, the opinion authored by Justice Bobde was limited to this aspect of post-award interest. It was in the concurring opinion of Justice Sapre that it was held that the arbitrator only has the discretion to determine the rate of post-award interest. Therefore, the issue of whether the arbitrator could award post-award interest on a part of the aggregate sum was not conclusively decided the opinions forming a part of the majority in Hyder Consulting (supra). 18 The issue before us is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the arbitrator for the grant of post-award interest which the arbitrator otherwise holds inherent to their authority. 21 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. 22 In view of the discussion above, we summarise our findings below: (i) The ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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