Arbitration interest under Section 31(7): tribunal cannot award compound interest without express contractual stipulation.
Section 31(7) of the Arbitration and Conciliation Act, 1996 was interpreted as permitting only simple interest unless the contract expressly provides otherwise. The tribunal may award pre-award interest on the money awarded and post-award interest on the sum directed to be paid, but pre-award interest cannot be capitalised into principal for post-award interest. The statutory reference to 18% was treated as the default post-award rate, not a mandate for compound interest. On the award wording, future interest was construed as applying only to the principal amount awarded, not to any pre-award interest component.
Issues: (i) Whether section 31(7) of the Arbitration and Conciliation Act, 1996 authorises an arbitral tribunal to award interest on interest from the date of the award. (ii) Whether the arbitral award granted future interest only on the principal sum awarded or on the aggregate of principal and pre-award interest.
Issue (i): Whether section 31(7) of the Arbitration and Conciliation Act, 1996 authorises an arbitral tribunal to award interest on interest from the date of the award.
Analysis: Section 31(7) was held to contemplate only simple interest. Clause (a) permits award of interest on the money awarded for the pre-award period subject to the contract, and clause (b) provides for post-award interest on the sum directed to be paid by the award. The provision contains no authority for compounding, and the pre-award interest cannot be capitalised into principal for the purpose of post-award interest unless the contract expressly so provides. The reference to 18% in clause (b) was held to be a statutory default rate for the post-award period, not a mandate to award compound interest.
Conclusion: Section 31(7) does not authorise an arbitral tribunal to award interest upon interest in the absence of contractual stipulation.
Issue (ii): Whether the arbitral award granted future interest only on the principal sum awarded or on the aggregate of principal and pre-award interest.
Analysis: Reading the operative part of the award with the reasoning on the interest claim, the expressions used by the arbitrator were held to refer to the total amount awarded on the substantive claims and not to pre-award interest. The future interest direction was therefore construed as interest only on the principal award amount, and not on the earlier interest component.
Conclusion: The award granted future interest only on the principal amount of Rs. 14,94,000/- and not on the aggregate including pre-award interest.
Final Conclusion: The revised execution calculation was held to be unsustainable, and the award-debtor's liability was confined to simple interest on the principal sum awarded.
Ratio Decidendi: In the absence of an express contractual provision, section 31(7) of the Arbitration and Conciliation Act, 1996 permits only simple interest on the awarded money and does not authorise capitalisation of pre-award interest for the purpose of post-award interest.
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