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TMI BlogGRANT OF POST ARBITRAL AWARD INTEREST IS MANDATORY UNDER SECTION 31(7)(b) OF THE ARBITRATION AND CONCILIATION ACT, 1996X X X X Extracts X X X X X X X X Extracts X X X X ..... GRANT OF POST ARBITRAL AWARD INTEREST IS MANDATORY UNDER SECTION 31(7)(b) OF THE ARBITRATION AND CONCILIATION ACT, 1996 X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- * Clause (a) deals with passing of award which would include interest up to the date on which the award is made; * Clause (b) deals with the grant of interest on the sum awarded by the Arbitral Tribunal. The power of an Arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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:- * The arbitrator may grant post-award interest on the aggregate of the principal and the pre-award interest. * The phrase 'unless the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward otherwise directs' in Section 31(7)(b) only qualifies the rate of interest. * If the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at 18%. * Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the discretion to award post-award interest on a part of the sum. * The arbitrator must exercise the discretionary power to grant post-award interest reasonably and in good faith, taking into account all relevant circumstances. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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- * Is the time essence of the contract between the parties or not? * Whether the respondent imposed any penalty/liquidated damages upon the complainant (respondent in this case) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till the completion of work? * Whether the complainant is entitled to claim amounts as per the claim petition? 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the order of the Execution Court. The petitioner submitted the following before the High Court- * Section 31(7)(b) does not restrict the discretion of the Arbitrator for the grant of post-award interest. * The Arbitrator in the present matter has expressly exercised its authority and decided to award interest only with regard to Claims No. 1 & 8. * Non-grant of post-award interest with regard to some of the claims by the learned Arbitrator was never challenged by the respondent before any court. * The executing court, therefore, cannot go behind the decree and has to enforce the award under Section 36 of the Act, as if it was a decree of the court and cannot be interfered with. * The executing court did not consider the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of discretion upon the learned Arbitrator with regard to post-award interest. * There is nothing in Section 31(7)(b), which restricts the discretion with regard to the post-award interest. * Thus, the Executing Court made an error of law in passing the impugned order dated 25.10.2024. The respondent submitted the following before the High Court- * The grant of interest under Section 31(7)(b) is mandatory and the only discretion that the Arbitrator has is to determine the rate of interest failing which it is statutory rate of interest, which would be payable on the sum awarded by the Arbitrator. * The Arbitrator granted interest at the rate of 10% per annum with effect from 01.02.2005 till the date of actual payment or realizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on a sum of Rs. 10,84,383/- with respect to Claim No. 1 & 8 but did not award any future interest with respect to the remaining claims. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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-aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X
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