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TMI Blog2025 (5) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 58(b) of the said award. 3. Relevant facts may be briefly noted. 4. Respondent had engaged the services of the appellant for executing a contract relating to Ramagundam Super Thermal Power Project, Ramagundam, District Karimnagar in the then composite State of Andhra Pradesh. In this regard, two separate work orders were issued: (i) Work order No.917344/838 dated 19.06.1984 in respect of the work excavation of foundation package work-II 3 X 500 MW of National Thermal Power Corporation Limited, Ramagundam Super Thermal Power Project; (ii) Work Order No. 917344/2382 in respect of the work foundation package work, stage-II, at Ramagundam Super Thermal Power Project; 5. Thereafter, contract agreement was entered into between the parties. As per clause 4 of the conditions of contract read with clause 15 of the special conditions attached to the work orders, all the disputes and differences between the parties were to be settled by way of arbitration. 6. It is stated that appellant had completed the contract work in the year 1987. Respondent had paid the appellant the contractual dues after withholding certain sums on account of recoveries. Appellant disputed such recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 537/2007. 15. It may be mentioned that Shri L.R. Gupta resigned as the sole arbitrator on 23.06.2008. 16. Vide order dated 30.01.2007, learned Single Judge disposed of the petition filed under Section 34 of the 1996 Act bearing OMP No.537/2007. 17. Appellant filed a petition under Section 15 of the 1996 Act before the High Court being OMP (T) (Comm) No. 30/2018 seeking appointment of an arbitrator in place of Shri L.R. Gupta who had resigned. The said petition was disposed of by the learned Single Judge of the High Court vide order dated 31.05.2018 reconstituting the arbitral tribunal by appointing Mr. Justice R.C. Jain, a former Judge of the High Court, as the sole arbitrator to arbitrate on the disputes between the parties. 18. New arbitrator held the first hearing on 03.05.2019 and finally pronounced the award on 28.10.2020. While the arbitral tribunal allowed the claims of the appellant under several heads, we are concerned with the contentious part of the award relating to payment of interest (claim No. 7) contained in paragraph 58 of the award. Relevant portion contained in paragraph 58 of the award reads as under: 58. *** *** *** *** In a nutshell the claimant is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Division Bench of the High Court vide the judgment and order dated 01.08.2023 (impugned judgment) allowed the appeal by setting aside the directions contained in paragraph 58(b). 21. Aggrieved thereby, appellant filed the related SLP (C) No.23235/2023 before this Court. By order dated 19.10.2023, this Court issued notice. In the hearing held on 25.02.2025, leave was granted. 22. Though there is no challenge by either parties to the award on merit, challenge of the respondent being confined only to the interest part, nonetheless, to have a complete picture, it would be appropriate to mention the claims of the appellant and the corresponding amounts awarded by the arbitral tribunal. The following statement in tabular form will throw light on the amounts claimed by the appellant and the amounts awarded by the arbitral tribunal under sixteen heads of claim. The tabular statement is as under: Claim No. Particulars Amount Claimed Amount Awarded (a) Escalation at 10% for work order 48/4 Rs. 20,71,322.0 0 Rs. 20,71,322 .00 (b) Escalation at 10% for work order 47/11 Rs. 1,84,418. 77 Rs. 1,84,418. 77 (c) Refund of panel recovery of steel taking 5% of scrap wastage in place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .89, para IV Rs. 4,81,000.00 m) 2% interest rate difference on mobilization advance. Rs. 50,000.00 n) Interest on delayed release of S.D. refer para 9 of our letter ISC/Claims/1 dt. 14.10.89. Rs. 2,40,000.00 o) Mental anguishes, torture and loss of social status suffered refer Letter No. ISC/ Claims/1 dt. 14.10.89 para II. Rs. 60,00,000.0 0 p) Addl. 24% interest for 10.5 years w.e.f. July 1987 upto Dec. 1997. Rs. 3,19,57,039. 0 Total Rs. 4,46,38,404. 00 Rs. 34,43,490 .61 23. We have already extracted the nature of interest payment provided in the award dated 28.10.2020. However, for ready reference, interest awarded to the appellant by the arbitral tribunal may once again be noted which is as under: (a) Pre-reference/past period interest at the rate of 18% per annum on the sum of Rs. 34,43,490.61 with effect from July 1987 uptill 19.01.1998. (b) Pendente lite interest at the rate of 12% per annum with effect from 20.01.1998 uptill 31.12.2008 on the total amount (that is, principal amount plus the amount of interest for the pre- reference/past period). (c) Pendente lite interest at the rate of 12% per annum with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able but held that 18 percent future interest from the date of the award till the date of payment granted by the arbitral tribunal was ex facie erroneous as according to learned Single Judge the interest rate should have been 2 percent higher than the current rate of interest prevalent on the date of the award. Therefore, this portion of the award was set aside by the learned Single Judge; instead learned Single Judge awarded future interest holding that it could not have been in excess of 9 percent per annum. Therefore, learned Single Judge partly allowed the petition under Section 34 of the 1996 Act to the extent of setting aside the award of future interest at a rate exceeding 9 percent per annum from the date of the award till the date of payment. 25. This brings us to the impugned judgment and order dated 01.08.2023. We have already noted about the limited nature of challenge made by the respondent during the hearing of the appeal filed under Section 37 of the 1996 Act. Learned senior counsel appearing for the respondent clarified that the challenge to the award stood restricted to the directions issued by the arbitral tribunal insofar the issue of interest was concerned. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... central to the debate and after the amendment with retrospective effect from 23.10.2015 read as under: 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 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 two per cent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment. 27.1. Before substitution and prior to 23.10.2015, clause (b) of sub-section (7) of Section 31 stood thus: (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. 28. We now come to the analysis of Section 31(7), both c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f award till the date of payment. As regards the first period, the Bench clarified that it includes the pre-reference period plus pendente lite period. Though the arbitral tribunal had granted interest for three periods: pre-reference period, pendente lite and post award period, the first two period basically comprises of the period contemplated under clause (a) of sub-section (7) of Section 31. It is another matter that the arbitral tribunal awarded varying degrees of interest for the two sub-periods: 18 percent per annum for the pre-reference period and 12 percent as pendente lite, excluding from the said period, the period of eight years when the appellant was found to be remiss in pursuing its claims before the arbitral tribunal. This is also permissible as we shall explain. 31. Therefore, Sayeed Ahmed and Company (supra) does not exclude or does not say that interest should not be granted for the pre-reference period. All that it explains is that Section 31(7)(a) has joined the two periods of interest: pre-reference and pendente lite. 32. This position has been clarified by a recent decision of this Court in Pam Developments Private Limited Vs. State of West Bengal (2024) 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4. The wording of Section 31(7)(a) marks a departure from the Arbitration Act, 1940 in two ways : first, it does not make an explicit distinction between pre-reference and pendente lite interest as both of them are provided for under this sub- section; second, it sanctifies party autonomy and restricts the power to grant pre-reference and pendente lite interest the moment the agreement bars payment of interest, even if it is not a specific bar against the arbitrator. 23.5. The power of the arbitrator to award pre- reference and pendente lite interest is not restricted when the agreement is silent on whether interest can be awarded or does not contain a specific term that prohibits the same. 23.6. While pendente lite interest is a matter of procedural law, pre-reference interest is governed by substantive law. Therefore, the grant of pre- reference interest cannot be sourced solely in Section 31(7)(a) (which is a procedural law), but must be based on an agreement between the parties (express or implied), statutory provision (such as Section 3 of the Interest Act, 1978), or proof of mercantile usage. 24. In view of the above, the High Court had no reason to interfere with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to clause (a) of sub-section (7) of Section 31 of the 1996 Act. A careful and minute reading of this provision will make it clear that the arbitral tribunal has the discretion to include in the sum awarded interest at such rate as it deems reasonable on the whole or any part of the money awarded for the whole or any part of the period from the date on which the cause of action arose till the date on which the award is made. We may exclude that part of the sentence 'on the whole or any part of the money' from our analysis since this is not relevant to the controversy. If we exclude this portion, what then becomes discernible is that the arbitral tribunal has the discretion to include in the sum awarded : firstly, interest at such rate as it deems reasonable; and secondly, 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. This would mean that the arbitral tribunal can exclude a period from the date on which the cause of action arose till the date on which the award is made for the purpose of grant of interest, as has been done in the present case. It would also mean that the arbitral tribunal can gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory statutory rate of 18 percent per annum. Award of interest like award of cost are ancillary matters. Therefore, the expressions sum for which the award is made and the sum directed to be paid by an arbitral award contextually refers to the award on the substantive claims and not ancillary or consequential directions relating to interest or cost. It was held that arbitral tribunals did not have the power to award interest upon interest or compound interest either for the pre-award period or for the post-award period. 40. A three-Judge Bench of this Court in Hyder Consulting (UK) Ltd. Vs. Governor, State of Orissa (2015) 2 SCC 189, opined that it was not possible to agree with the conclusion in S.L. Arora (supra) that Section 31(7) of the 1996 Act does not require that interest which accrues till the date of the award be included in the sum from the date of the award for calculating the post- award interest. Justice Bobde (as His Lordship then was) authoring the majority opinion was of the view that the conclusion reached in S.L. Arora (supra) did not seem to be in consonance with the clear language of Section 31(7) of the 1996 Act. Hyder Consulting (UK) Ltd. (supra) declared t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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