Arbitral interest discretion must be reasoned; prolonged claimant delay can justify denial or reduction of interest.

Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 gives the arbitral tribunal discretion to award interest, but that discretion must be exercised reasonably on relevant facts and supported by reasons. Where the claimant's prolonged and unexplained inactivity materially contributed to delay in commencing arbitration, interest for the affected pre-reference and pendente lite periods may be denied. The long lapse of time also justified reducing interest for the remaining period to achieve complete justice. The interest component was therefore curtailed, with no interest for two specified periods and interest for the balance confined to 9% per annum.

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Issues: Whether the arbitral award of interest at 18% per annum for the pre-reference period, pendente lite period and post-award period, without reasons and despite long delay attributable to the claimant, was sustainable, and whether the rate of interest required reduction.

Analysis: Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 confers discretion on the arbitral tribunal to award interest at a rate it deems reasonable and also to determine whether interest should run on the whole or part of the amount and for the whole or part of the relevant period. That discretion must be exercised on relevant facts and supported by reasons. The award and the concurrent orders did not disclose any such exercise. The claimant remained inactive for long periods, first between completion of the work and issuance of the demand notice, and again after the decree directing production of the agreement, which materially contributed to the delay in commencement of arbitration. In the circumstances, the award of interest for those periods was not justified. Considering the long lapse of time and the need to do complete justice, the rate of interest for the remaining periods also required reduction.

Conclusion: The interest component was reduced. No interest was payable for the period between 30 August 1977 and 25 July 1989 and for the period between 14 February 1990 and 15 October 2001, and for the remaining period interest was confined to 9% per annum.

Ratio Decidendi: Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, an arbitral tribunal must exercise its discretion on interest reasonably and with reasons, and prolonged unexplained delay by the claimant can justify denial or reduction of interest.

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