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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 ..... pal amount of Rs. 5,00,32,656 as on 17 April 2003, which is the date of default, along with an overdue interest. Since the respondent did not pay the amount as demanded, the appellant issued a notice on 31 January 2006, invoking the arbitration clause of the agreement. 3 The sole arbitrator rendered an arbitral award in favour of the appellant on 1 March 2013. The award was corrected on 29 April 2013 and decrees the claim of the appellant in the amount of Rs. 5,00,32,656. Interest at the rate of (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Delhi High Court also decided on the other objections of the appellant and the respondent. 5 Proceedings under Article 136 of the Constitution were initiated for challenging the judgment of the Division Bench of the Delhi High Court dated 26 February 2020. On 16 July 2021, this Court issued notice confined to the issue of post-award interest. The order reads as follows: " 1 Issue notice confined to the post award interest. We are not entertaining the Special Leave 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 agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be granted on the aggregate of the principal and the pre-award interest. Analysis 8 Section 31 provides for the "form and content of arbitral award". Sub-section 7 of Section 31 deals with pre-award and post-award interest. Section 31(7)(a) provides for pre-award interest, that is for the period between the date on which the cause of action arose and the date on which the award is made. Section 31(7)(b) provides for post-award interest, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the view in SL Arora (supra) that pre-award interest should not be included in the 'sum' for calculating post-award interest is erroneous: " 2. It is not possible to agree with the conclusion in S.L. Arora case that Section 31(7) of the Act does not require that interest which accrues till the date of the award be included in the 'sum' from the date of award for calculating the post-award interest. 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 us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a particular rate in its discretion then it will prevail else the party will be entitled to claim post-award interest on the awarded sum at the statutory rate specified in clause (b) of Section 31(7) of the Act i.e. 18%. Thus, there is a clear distinction in time period and the intended purpose of grant of interest." (emphasis supplied) Justice Sapre agreed with Justice Bobde on the meaning of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contention of the respondent is that Section 31(7)(b) could be invoked only when the arbitration award is silent on post-award interest. That is, if the award does not make a specific provision for post-award interest, then in view of Section 31(7)(b) of the Act, post-award interest of eighteen percent shall be paid on the 'sum', for which purpose the 'sum' shall be the aggregate 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that SL Arora (supra) was wrongly decided: " 24. In the result, I am of the view that SL Arora 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 pendent 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 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 opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 (supra) 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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