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GRANT OF POST ARBITRAL AWARD INTEREST IS MANDATORY UNDER SECTION 31(7)(b) OF THE ARBITRATION AND CONCILIATION ACT, 1996 |
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GRANT OF POST ARBITRAL AWARD INTEREST IS MANDATORY UNDER SECTION 31(7)(b) OF THE ARBITRATION AND CONCILIATION ACT, 1996 |
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Arbitration proceedings is an alternate to Civil Cases. It is less time consuming and money consuming process. Further the formalities in arbitration are very less when compared to civil cases. The arbitration agreement is the basis for conducting arbitration proceedings. The appointment of arbitrators may be done either by the parties themselves or by Court. The Arbitrator shall conduct the proceedings in his own procedure but not violating the principles of Natural Justice. The Arbitrator considers the claim of the claimant and the objections raised by the other party. He also analyses the documents on the record and finally passes the award. The award passed by the Arbitrator is binding on the parties to the agreement. The award may be executed as if it is a decree. The affected party may file appeal before the Court under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’ for short). Section 31 of the Act provides the form and contents of the arbitral award. Section 31(7) of the Act provides for the interest on the arbitral award. Section 31(7) (a) of the Act provides that 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. Section 31(7)(b) of the Act provides that a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 2% higher than the current rate of interest prevalent on the date of award, from the date of award Section 31(7) it is seen that it is in two parts-
The power of an Arbitrator to award interest for pre-award period, the interest pendent lite and interest post-award period. Section 31(7)(a) provides that the Arbitrator has the power to award interest at such rate as it deems reasonable, on the whole or on 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. The grant of such interest during the pre-award period is subject to the agreement as regard the rate of interest or unpaid sum between the parties. Section 31(7)(b) of the Act gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract. If such discretion is not exercised by the Arbitral Tribunal, then the statute steps in and mandates the payment of interest at the rate specified for the post- award period. While Clause (a) gives parties an option to contract out of interest, no such option is available in regard to the post-award period. In MORGAN SECURITIES AND CREDITS PVT. LTD. VERSUS VIDEOCON INDUSTRIES LTD. - 2022 (9) TMI 108 - SUPREME COURT, while considering the issue as to whether the Arbitrator has discretion to grant post-award interest only on the principal amount due under Section 31(7)(b) of the Act, the Supreme Court summarized the following findings:-
In R.P. GARG VERSUS THE CHIEF GENERAL MANAGER, TELECOM DEPARTMENT & ORS. - 2024 (9) TMI 1742 - SUPREME COURT, the Arbitrator had denied payment of interest under a misplaced impression that the contract between the parties prohibited it. The executing court affirmed the finding of the Arbitrator and rejected the prayer. However, allowing the appeal, the District Judge held that the appellant will be entitled to post-award interest. The High Court allowed the revision against the said order and had set aside the District Court order while holding that the contract between the parties did not permit the grant of post-award interest. While allowing the appeal, the Supreme Court held that the sum directed to be paid under the arbitral award must carry interest. In UNION OF INDIA & ANR. VERSUS SUDHIR TYAGI - 2025 (5) TMI 1279 - DELHI HIGH COURT, the Northern Railway awarded a contract to the respondent Sudhir Tyagi. In course of time dispute arose between the said petitioner and the respondent. The respondent invoked the provisions of arbitration clause. An application was filed before the High Court for the appointment of an Arbitrator. The High Court appointed a sole arbitrator vide their order dated 16.11.2012. The claim application was filed by the respondent before the Arbitrator along with the required documents. The petitioner also filed reply to the claim before the Arbitrator. The Arbitrator considered the following issues to be decided in the arbitration-
The Arbitrator decided first two issues in favour of the Northern Railway, in its award passed on 13.10.2015. In respect of third issue the Arbitrator passed and award directing the Northern Railway to pay Rs.61,48,277/- with interest on Rs.10,84,385/- @ 10% from 18.01.2005 to till date of payment. The petitioner filed an appeal before District Court under Section 34 of the Act to set aside the arbitral award. The District Court dismissed the appeal filed by the petitioner on 07.07.2023. In the meanwhile, the respondent filed an execution petition to execute the award which was passed in favour of him on 13.10.2015. The petitioner paid the full amount Rs. 82,86,547.62 to the respondent as per the arbitral award. Any how the respondent filed an application under Section 151 of the Civil Procedure Code in which he prayed the Court that he was entitled interest to the tune of Rs.7,71,800/- on Rs. Rs. 46,83,892/- from 13.10.2015 to 25.08.2024 as on 25.08.2024, Since the Arbitrator did not direct post award interest on Rs. 46,83,892/- on claim No. 2,3,4 & 5 the Executing Court passed an order directing the petitioner to pay 18% interest on the arbitral award amount, under section 31(7)(b) of the Act. The Court directed the petitioner to pay Rs.7,71,800/- towards interest to the respondent. The petitioner filed the present writ petition before the High Court, against the order of the Execution Court. The petitioner submitted the following before the High Court-
The respondent submitted the following before the High Court-
The High Court considered the submissions made by the parties to the present writ petition. The High Court analysed the provisions in relation to arbitral award and award of interest on the award and also the leading case laws as discussed above. The High Court observed that Section 31(7)(a) confers a wide discretion upon the arbitrator in regard to the grant of pre-award interest. The arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made - whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award. 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 18%. The High Court, on the base of the above said contentions, held that the grant of post-award interest under Section 31(7)(b) is mandatory. The only discretion which the Arbitral Tribunal has is to decide the rate of interest to be awarded. Where the Arbitrator does not fix any rate of interest, then statutory rate, as provided in Section 31(7)(b), shall apply. Since in the present case the Arbitrator did not award the post-award interest in respect of Claims No. 2, 3, 4 & 5, the High Court held that the petitioners would be entitled to the post-award interest at the rate of 18% per annum, as awarded by the learned executing court. The High Court further held that the grant of post-award interest is a statutory mandate and therefore even if non-grant of interest is not challenged by the petitioners, grant of post-award interest by the executing court would not amount to going beyond the decree. The High Court found no illegality or perversity in the impugned order dated 25.10.2024, passed by the executing court and dismissed the appeal.
By: DR.MARIAPPAN GOVINDARAJAN - May 21, 2025
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