TaxTMI 
TaxTMI 
2025 (5) TMI 1124
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....the arbitral tribunal as contained in paragraph 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 ....
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....High Court by filing a petition under Section 34 of the 1996 Act, being OMP No. 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 5....
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....pre-reference/past period. Likewise, arbitral tribunal awarded interest on identical terms in sub- paragraph (b)(ii) of paragraph 58 which was objected to. 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 R....
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..... 17,690.00 j) Claims of not allotting quarry as agreed by E.D.S.R. Rs. 2,66,000.00 k) 1200 M3 of stone aggregate from Karim Nagar for rate differences of Rs. 70/- M3 extra and the claim was agreed by EDSR referred to our letter ISC/ Claims/1 Dt.14.10.89 para III. Rs. 13,40,000.0 0 l) Idle labour charges refer our letter ISC/Claims/1 dt. 14.10.89, 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 ....
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....d from 20.01.1998 till 31.12.2008 and again from 01.01.2017 till 28.10.2020, justified the decision of the arbitral tribunal not to award interest for the period from 01.01.2009 to 31.12.2016 as during this period the appellant was remiss and did not pursue its claim before the arbitral tribunal diligently. On the rate of interest, learned Single Judge held that interest at the rate of 12 percent per annum could not by any stretch be considered to be exorbitant or unreasonable 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 ....
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....e principal amount awarded. This amounted to levying compound interest which is impermissible. Accordingly, the directions contained in paragraph 58(b) were set aside by the Division Bench. 26. In our considered view, the reasonings given by the Division Bench are fallacious. We say so for the reasons mentioned hereunder. 27. Section 31 of the 1996 Act is the relevant provision. It deals with the form and contents of arbitral award. Section 31 has eight sub-sections. Sub-section (7) is 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 ....
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.... period between the date on which the cause of action arose and the date on which the award is made and the second period is from the date of the award till the date of payment. 30. We are unable to agree with the view expressed by the Division Bench. Even in Sayeed Ahmed and Company (supra) relied upon by the Division Bench, the Bench held that Section 31(7) had carved out two periods, the first period being from the date on which the cause of action arose till the date on which the award is made and the second period being from the date of 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 wh....
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....t, the power of the arbitrator to grant interest is governed by the statutory provision in Section 31(7). This provision has two parts. Under clause (a), the arbitrator can award interest for the period between the date of cause of action to the date of the award, unless otherwise agreed by the parties. Clause (b) provides that unless the award directs otherwise, the sum directed to be paid by an arbitral award shall carry interest @ 2% higher than the current rate of interest, from the date of the award to the date of payment (referring to the post 23.10.2015 position). 23.4. 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 sile....
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....e arbitral amount to the award holder. 34. Thus, what Section 31(7)(a) has done is that there is now a statutory recognition of the power of the arbitral tribunal to grant pre-reference interest from the date on which the cause of action arose till the date on which the award is made. There was a vacuum in the Arbitration Act, 1940 as there was no such provision for granting pre-reference interest. It was through judicial pronouncements that such power of the arbitrator to grant pre-reference interest was conferred. Now under Section 31(7)(a) of the 1996 Act, such power is statutorily recognized. 35. Let us revert back 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 contro....
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....he pendente lite or post award period on merger with the principal amount as this would amount to levy of compound interest. 38. This aspect of the matter is no longer res integra. 39. In State of Haryana Vs. S.L. Arora (2010) 3 SCC 690, a two-Judge Bench of this Court observed that as regards pre-award period, interest has to be awarded as specified in the contract and in the absence of any contract, as per the discretion of the arbitral tribunal. However, with regard to the post-award period, the interest is payable as per the discretion of the arbitral tribunal and in the absence of exercise of such discretion, at the mandatory 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....