2019 (8) TMI 477 - SC - Indian Laws

Supreme Court Reinstates 18% Interest Rate in Arbitration Award

The Supreme Court allowed the appeal, setting aside the judgments of the High Court and the District Judge regarding the reduction of the interest rate ... Arbitral Award - dispute between the parties with respect to the rate of payment for additional work under the agreement - HELD THAT:- The Act of 1996 has come into force with effect from 22.08.1996. Section 85 of the Act of 1996 expressly repeals the provisions of the Arbitration Act, 1940. Thus, the Act of 1996 would be applicable to all arbitral proceedings which have commenced on or after the said Act came into force. Para 7A of Section 24 of the U.P. Amendment Act was an amendment to the First Schedule of Arbitration Act, 1940. This amendment was introduced by the U.P. Act No. 57 of 1976. The provisions of the Arbitration Act, 1940 including the State amendment will have no application to the proceedings commenced after coming into force of the Act of 1996. Section 31(7)(b) of the Act of 1996, before its amendment by Act 3 of 2016, which has come into force with effect from 23.10.2015, is relevant for the purpose of this case, empowers the Arbitrator to award pre-award and post-award interest. In the instant case, though the agreement was earlier to the date of coming into force of the Act of 1996, the proceedings admittedly commenced on 27.10.1999 and were conducted in accordance with the Act of 1996. If that be so, para 7A of Section 24 of the U.P. Amendment Act has no application to the case at hand. Since the rate of interest granted by the Arbitrator is in accordance with Section 31(7)(b) of the Act of 1996, the High Court and the District Judge were not justified in reducing the rate of interest by following the U.P. Amendment Act. Appeal allowed. Issues:- Reduction of statutory interest rate from 18% p.a. to 6% p.a. by the High Court.- Applicability of para 7A of Section 24 of the U.P. Amendment Act to arbitration proceedings.- Interpretation of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 regarding the rate of interest.Analysis:Issue 1: Reduction of statutory interest rateThe appellant challenged the reduction of interest from 18% p.a. to 6% p.a. by the High Court. The Arbitrator had awarded interest at 18% p.a. as per Section 31(7)(b) of the Act of 1996. The District Judge also upheld the sum awarded but reduced the interest rate based on para 7A of Section 24 of the U.P. Amendment Act. The High Court affirmed this decision, stating that the reduction was justified under the U.P. Amendment Act.Issue 2: Applicability of U.P. Amendment ActThe appellant argued that the U.P. Amendment Act, specifically para 7A of Section 24, was inapplicable to proceedings under the Act of 1996. The appellant contended that since the Arbitration Act, 1940, was repealed by the Act of 1996, the State amendments, including para 7A, were no longer valid. The appellant claimed that the proceedings commenced in 1999 under the Act of 1996, making the U.P. Amendment Act irrelevant.Issue 3: Interpretation of Section 31(7)(b) of the Act of 1996The Court analyzed Section 31(7)(b) of the Act of 1996, which mandated interest at 18% p.a. on the awarded sum unless otherwise directed by the Arbitrator. The Court highlighted that the repealed Arbitration Act, 1940, and its amendments, including para 7A, were not applicable to proceedings under the Act of 1996. The Court emphasized that the rate of interest granted by the Arbitrator in accordance with the Act of 1996 should not have been reduced by the lower courts based on the U.P. Amendment Act.In conclusion, the Supreme Court allowed the appeal, setting aside the judgments of the High Court and the District Judge regarding the reduction of the interest rate. The Court reinstated the interest awarded by the Arbitrator in line with Section 31(7)(b) of the Act of 1996. The Court clarified that the provisions of the repealed Arbitration Act, 1940, and State amendments like para 7A of the U.P. Amendment Act were not applicable to proceedings initiated under the Act of 1996.