TMI Blog2014 (11) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... arded 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 undoubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghav Awasthi, Siddharth N., Advs. for Karanjawala and Co., L. Nageswara Rao, ASG, Kirti Renu Mishra, Shivraj Gaonkar, A. Tewari, Eliza Bar, Advs. for Shree Pal Singh and Ashok Mathur, Advs. JUDGMENT H.L. Dattu, C.J.I. 1. In view of the reference order dated 13.03.2012, this Civil Appeal and the matters connected therewith are placed before a three-Judge Bench of this Court for consideration and decision. The question before this Court is, whether the decision of this Court in State of Haryana and Ors. v. S.L. Arora Co. (2010) 3 SCC 690, wherein it is held that an award of interest on interest from the date of award is not permissible Under Sub-section (7) of Section 31 of the Arbitration and Conciliation Act, 1996 (for short, the Act, 1996 ), is in consonance with earlier decisions of this Court. A two-Judge Bench of this Court, by the said reference order, is of the opinion that the present appeal and the connected matters would need to be heard by a Bench of three Judges of this Court. 2. By the referral order dated 13.03.2012, it is found that the learned Counsel for the Appellants therein would doubt the correctness of the decision in the S.L. Arora case ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount payable under the award keeping in view the principles laid down in the S.L. Arora case (supra). 4. According to the referral order dated 13.03.2012, the Appellants contended that the S.L. Arora case (supra) was based on an inadvertent erroneous assumption that McDermott case (supra) and the Three Circles case (supra) were per incuriam in holding that interest awarded on the principal amount upto the date of award becomes the principal amount and, therefore, award of future interest thereon would not amount to award of interest on interest. The S.L. Arora case (supra) held contrary to the aforementioned principle. To support their contention, the Appellants also made a reference to the ONGC case (supra) and the Central Bank of India case (supra). Issues: 5. The issues that arise for the consideration of this Court are firstly, whether in light of the Three Circles case (supra) and McDermott case (supra) there exists any infirmity in the decision rendered by this Court in the S.L. Arora case (supra); and secondly to determine whether Sub-section (7) of Section 31 of the Act, 1996 could be interpreted to include interest pendente lite within the sum payable as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on the total amount, as the gain to the judgment debtor on that element of interest is a loss to the claimant for which he has no recourse; seventhly, the S.L. Arora case (supra) was wrongly decided as the judgment is contrary to the Act, 1996 on the grounds, inter alia, that it would be a misnomer to state that interest would not be applicable on substantive claims as the same finds no mention in the given provision; and lastly, 18% interest would be applicable proprio vigore unless stopped by the award itself. 8. Per contra, Shri L. Nageshwara Rao, learned Senior Counsel and Additional Solicitor General of India would submit that there was no infirmity whatsoever in the S.L. Arora case (supra) and that, therefore, the present reference was not required. Furthermore, the learned Additional Solicitor General would submit that the term sum as found in Sub-section (7) of Section 31 of the Act, 1996 should be read as principal amount as held in the S.L. Arora case (supra). Discussion: 9. At the outset, it would be necessary to discuss the correctness of the reference order in light of the S.L. Arora case (supra). This Court, in the S.L. Arora case (supra), was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitral litigations, the interest payable on the amount awarded often increases to substantial amounts, sometimes even exceeding the actual amount awarded. The Court, in the S.L. Arora case (supra), then sought to set out the legal position on the award of interest to understand the authority of the tribunal as envisioned in Sub-section (7) of Section 31 of the Act, 1996. 12. The present reference requires this Court to reconsider the decision in S.L. Arora case (supra), in light of previous decisions of this Court in the McDermott case (supra) and the Three Circles case (supra). It may be reiterated that the referral order dated 13.03.2012 takes note of the contention of the Appellants that the S.L. Arora case (supra) erroneously held the Three Circles case (supra) and the McDermott case (supra) to be per incuriam in holding that interest awarded on the principal amount upto the date of award becomes the principal amount. 13. Before I consider the correctness of the aforementioned decisions, it would be necessary to elaborate upon the concept of per incuriam . The latin expression per incuriam literally means 'through inadvertence'. A decision can be said to be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Ors. (2006) 11 SCC 181 has settled this question in which it had observed as follows (SCC p.207, para 44): 44. ...The Arbitrator has awarded the principal amount and interest thereon upto the date of award and future interest thereupon which do not amount to award on interest on interest as interest awarded on the principal amount upto the date of award became the principal amount which is permissible in law. The High Court on this question has also rightly relied on a decision of this Court in the case of Oil and Natural Gas Commission v. M.C. Clelland Engineers S.A. (1999) 4 SCC 327. That being the position, we are unable to find any ground to set aside the judgment of the Division Bench of the High Court while considering the ground of 'interest on interest'. 17. It would be crucial to note that the reliance upon the McDermott case (supra) by this Court in the Three Circles case (supra) is not in consonance with the doctrine of precedents. On a perusal of the McDermott case (supra), it is observed that the substantive proposition of that case did not address the issue on the power of the tribunal to award 'interest on interest' or compound interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution 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 (supra), 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. 19. This Court, therefore, in the S.L. Arora case (supra) 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. It was observed that: 28. ...But a careful reading of the decision in Mcdermott, shows that the portion of Mcdermott extracted in Three Circles, assuming it to be the law laid down in Mcdermott, is not a finding or conclusion of this Court, nor the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the decisions of this Court in the ONGC case (supra) as well as the Central Bank of India case (supra). It was argued, as per the referral order, that these decisions would support the proposition that arbitral tribunals have the authority to award 'interest on interest' from the date of the award. 23. On perusal of the ONGC case (supra), I find that this Court has recognised and accepted the power of arbitral tribunals to award interest upon interest. This Court has considered such an award as a requisite compensatory measure for delayed payment and included such interest along with the principal amount in the 'sum' so awarded. This Court observed as follows: 4. There cannot be any doubt that the Arbitrators have powers to grant interest akin to Section 34 of the Code of Civil Procedure which is the power of the court in view of Section 29 of the Arbitration Act, 1940. It is clear that interest is not granted upon interest awarded but upon the claim made. The claim made in the proceedings is under two heads-one is the balance of amount claimed under invoices and letter dated February 10, 1981 and the amount certified and paid by the Appellant and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 8 SCC 767. 26. Furthermore, I take note of the fact that the aforementioned principle was applied by this Court in the S.L. Arora case (supra). It was explicitly stated that since the ONGC case (supra) and Three Circles case (supra) related to awards under the Arbitration Act, 1940, they can be of no assistance in interpreting Sub-section (7) of Section 31 of the Act, 1996. I concur with the above reasoning to show the inapplicability of the ONGC case (supra) and the Three Circles case (supra) to the present case. 27. The last case relied upon by the Appellants herein is the Central Bank of India case (supra). This Court in the Central Bank of India case (supra), Under Section 34 of the Code of Civil Procedure, 1908 (for short, the Code ), sought to determine whether the liability of the borrower to pay interest on the principal sum, would include interest that became merged with the principal sum adjudged. This aforesaid decision discussed the scope for charging compound interest Under Section 34 of the Code. The Court sought to determine the meaning attached to phrases 'principal sum adjudged' and 'such principal sum', pursuant to the 1956 amendment to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (supra). The McDermott case (supra) did not deal with the question pertaining to awarding of 'interest on interest' or compound interest. Furthermore, the decision in the ONGC case (supra) pertained to the Act, 1940, and, therefore, in light of the settled principle of law, would not be applicable to cases under the Act, 1996. Lastly, the decision in the Central Bank of India case (supra) did not deal with the issue around interpretation of Sub-section (7) of Section 31 of the Act, 1996, nor did the principle laid down therein hold contrary to the decision in S.L. Arora case (supra). 31. However, out of sheer deference to the learned two-Judge Bench of this Court, I would clarify the apparent controversy around Sub-section (7) of Section 31 of the Act, 1996. The said provision reads as follows: 31. Form and contents of arbitral award.-- ... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, 1996, the phrase unless otherwise agreed by the parties was explained in the case of N.S. Nayak and Sons v. State of Goa (2003) 6 SCC 56. This Court observed that: 14. ...The phrase unless otherwise agreed by the parties used in various sections, namely, 17, 21, 23(3), 24(1), 25, 26, 29, 31, 85(2)(a) etc. indicates that it is open to the parties to agree otherwise. During the arbitral proceedings, right is given to the parties to decide their own procedure. So if there is an agreement between the parties with regard to the procedure to be followed by the arbitrator, the arbitrator is required to follow the said procedure. Reason being, the arbitrator is appointed on the basis of the contract between the parties and is required to act as per the contract. However, this would not mean that in appeal parties can contend that the appellate procedure should be as per their agreement.... 35. In the event that the terms of the given contract, as applicable to the parties to the arbitration proceedings, are silent on the question of interest payable in the first stage, as given under Clause (a) of Sub-section (7) of Section 31 of the Act, 1996, only then would the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider the meaning of the words sum and interest as used in Clause (a) of Sub-section (7) of Section 31 of the Act, 1996. It is settled principle of interpretation of statutes that while interpreting the words of a statute, the context in which they appear would be necessary to be taken into consideration. In support of the said principle of contextual interpretation, I refer to a Constitution Bench decision of this Court in Darshan Singh Balwant Singh v. State of Punjab 1953 SCR 319, wherein it was observed as follows: 10. ...It is a cardinal rule of interpretation that the language used by the legislature is the true depository of the legislative intent, and that words and phrases occurring in a statute are to be taken not in an isolated or detached manner dissociated from the context, but are to be read together and construed in the light of the purpose and object of the Act itself. 39. In the absence of a definition in the Act, 1996, I would notice that the word sum , would simply refer to money in common parlance. Further, the dictionary meaning of the word may be taken into consideration. Webster's Third New International Dictionary, Volume III defines sum to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Third New International Dictionary, Volume III defines interest to mean, inter alia, the following: interest. The price paid for borrowing money generally expressed as a percentage of the amount borrowed paid in one year. Corpus Juris Secundum, Volume XLVII, explains the word interest as follows: Interest is the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, or as damages for its detention. Stroud's Judicial Dictionary, Seventh Edition, 2008, Volume 2, p. 1385, defines the term interest as follows: Interest is compensation paid by the borrower to the lender for deprivation of the use of his money. 43. Therefore, in light of the above, interest would be the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. It may be understood to mean the amount which one has contracted to pay for the use of borrowed money. It is a consideration paid either for the use of money or for forbearance in demanding it, after it has fallen due, and thus, it could be said to be a charge for the use or forbearance of a particular amount of money. In this sense, it is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reported as saying: If in its nature a sum is interest of money I think it retains that nature even if the parties to a contract provide for it to be wrapped up with some other sum and the whole paid in the form of single indivisible sum. The wrappings may conceal the nature of the contents, but they do not alter them... If the true nature of a sum of money is that it is interest of money that sum will not be denatured, or transmuted into something different, simply by being incorporated into some larger sum before being made payable under the terms of the contract. ... 46. It may be inferred from the aforesaid decisions, that for an amount to be referred as interest , it must, prima facie, fulfill two conditions- (1) There must be a sum of money by reference to which the payment of interest may be ascertained. (2) The sum of money must, generally, be due to the person entitled to the interest. Furthermore, it would be gainsaid in stating that the mere fact that a payment of interest may be aggregated with a payment of a different nature, the said aggregation would not alter the distinct nature of interest from the money on which it is levied. 47. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatory as per law that the award would carry interest at the rate of 18% per annum from the date of the award to the date of payment. The term used in the given clause is shall , therefore, if applicable, the imposition of interest as per Clause (b) would be mandatory. 51. It would be relevant also to take note of the case of H.P. Housing and Urban Development Authority v. Ranjit Singh Rana (2012) 4 SCC 505. In the Ranjit Singh Rana case (supra), this Court dealt with the meaning of the word payment as under Clause (b) of Sub-section (7) of Section 31 of the Act, 1996 to ascertain when the liability to pay post-award interest would come to an end. After making a reference to the S.L. Arora case (supra), this Court went into the dictionary meaning of the word payment . The Court explained as follows: 15. The word payment may have different meaning in different context but in the context of Section 37(1)(b); it means extinguishment of the liability arising under the award. It signifies satisfaction of the award. The deposit of the award amount into the court is nothing but a payment to the credit of the decree-holder. In this view, once the award amount was deposited b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e resorted to only in the event of repugnancy in the subject or context being spelled out. It has been the consistent view of the Supreme Court that when the legislature used same word or expression in different parts of the same section or statute, there is a presumption that the word is used in the same sense throughout (ibid, p. 263). More correct statement of the rule is, as held by the House of Lords in Farrell v. Alexander All ER at p. 736b, where the draftsman uses the same word or phrase in similar contexts, he must be presumed to intend it in each place to bear the same meaning . The court having accepted invitation to embark upon interpretative expedition shall identify on its radar the contextual use of the word or expression and then determine its direction avoiding collision with icebergs of inconsistency and repugnancy. 55. It can be concluded that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed and payable by the Revenue. The Government, there-being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies.... 58. I may also take note of the decision in Parkside Leasing Ltd. v. Smith (Inspector of Taxes) (1985) 1 WLR 310, wherein the Chancery Division, while discussing the difference between the receipt of proceeds by cash or by cheque, was of the view that it would be the actual receipt of the proceeds, in either case, that places such proceeds at the disposal of the payee. The said decision relied upon D C Builders Ltd. v. Rees (1966) 2 Q.B. 617, wherein Lord Denning observed that: ...The cheque, when given, is conditional payment. When honoured, it is actual payment.... In other words, the Parkside Leasing Ltd. case (supra) was of the view that money would be paid only when the recipient would have the option to utilise the said money and exercise willful discretion. 59. For the purposes of the Act, 1996, interest could be included with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in State of Haryana and Ors. v. S.L. Arora Co. (2010) 3 SCC 690 that Uttar Pradesh Cooperative Federation Limited v. Three Circles (2009) 10 SCC 374 was incorrectly founded upon the decision in McDermott International INC v. Burn Standard Co. Ltd. (2006) 11 SCC 181 and that such reliance was not in consonance with the doctrine of precedent. The McDermott case is not an authority on the question whether the Arbitrator may award compound interest nor does that decision sanction post-award interest be imposed on the aggregate sum and interest pendent lite. The Arbitral Tribunal's authority to award interest on interest was not discussed therein. This Court, therefore, while deciding State of Haryana and Ors. v. S.L. Arora Co. (2010) 3 SCC 690, rightly refused to treat the McDermott case as well as the Three Circles case as authorities for awarding interest on interest and held that both were wrongly decided. Further, the decisions in ONGC v. M.C. Clelland Engineers S.A. (1999) 4 SCC 327 as well as the Three Circles case pertain to an Award under the Arbitration Act, 1940, which did not contain a specific provision dealing with the arbitrator's power to grant inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest is awarded, the sum comprises only the principal. The significant words occurring in Clause (a) of Sub-section (7) of Section 31 of the Act are the sum for which the award is made. On a plain reading, this expression refers to the total amount or sum for the payment for which the Award is made. Parliament has not added a qualification like principal to the word sum, and therefore, the word sum here simply means a particular amount of money. In Section 31(7), this particular amount of money may include interest from the date of cause of action to the date of the award. 67. The Oxford Dictionary gives the following meaning to the word sum : Sum, 'if noun': A particular amount of money. Sum, 'if verb': The total amount resulting from the addition of two or more numbers, amounts, or items. 68. In Black's Law Dictionary, the word sum is given the following meaning: SUM. In English law-A summary or abstract; a compendium; a collection. Several of the old law treatises are called sum. Lord Hale applies the term to summaries of statute law. Burrill. The sense in which the term is most commonly used is money ; a quantity of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significant and shows the intention of Parliament. 74. 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. 75. Thus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the Court's jurisdiction cannot be invoked to interpret a statute so as to add or subtract words or read something into a provision which is not there. Infact, Maxwell on the Interpretation of Statutes, states, where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise. The decision in this case, said Lord Morris of Borth-y-Gest in a revenue case, calls for a full and fair application of particular statutory language to particular facts as found. The desirability or the undesirability of one conclusion as compared with another cannot furnish a guide in reaching a decision. [Shop and Store Developments Ltd. v. I.R.C. (1967) 1 A.C. 472, per Lord Morris of Borth-y-Gest at p. 493. But see I.R.C. v. Bates (1965) I W.L.R. 1133, per Lord Denning M.R., affirmed in H.L. at (1967) 2 W.L.R. 60 sub. Nom. Bates v. I.R.C.; Luke v. I.R.C. (1963) A.C. 557, per Lord Reid.] Where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the legislature, it must be enforced however harsh or absurd or contrary to common sense the result may be. [Cartledge v. E. Jopling Sons, Ltd. (1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat respect, I find myself in 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. 80. Reiteration of facts is unnecessary. The only question that arises for determination in the instant lis is, Whether grant of interest by the Arbitral Tribunal Under Section 31(7) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act ) amounts to granting interest on interest ? 81. The aforesaid question can be answered by a plain and simple reading of Section 31(7) of the Act which reads as under: 31(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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise 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. 86. Therefore, I am inclined to hold that the 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. 87. Coming now to the post-award interest, Section 31(7)(b) of the Act employs the words, A sum directed to be paid by an arbitral award... . Sub-clause (b) uses the words arbitral award and not the arbitral tribunal . The arbitral award, as held above, is made in respect of a sum which includes the interest. It is, therefore, obvious that what carries Under Section 31(7)(b) of the Act is the sum directed to be paid by an arbitral award and not any other amount much less by or under the name interest . In such situation, it cannot be said that what is being granted Under Section 31(7)(b) of the Act is interest on intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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