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2025 (9) TMI 1461
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....e Division Bench of the High Court set aside the order dated 02.11.2023 passed by the Principal Special Court in the cadre of District Judge for trial and disposal of commercial disputes at Hyderabad (referred to hereinafter as 'the Executing Court') in CEP No. 05 of 2021 rejecting the petition filed by the respondent for enforcement of the arbitral award dated 08.09.2019 on the ground that respondent is not entitled to compound interest and that the amount paid by the judgment debtor (appellant) to the decree holder (respondent) i.e. Rs. 44,42,05,254.00 was in full satisfaction of the award. 3. Question for consideration in this appeal is whether in the facts and circumstances of the case, the decree holder (respondent) would be entitled to interest upon interest in terms of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 or the interest awarded by the arbitral tribunal in the award dated 08.09.2019 in terms of the memorandum of understanding dated 09.04.2014 entered into between the parties i.e. between the appellant and the respondent fulfil the requirement of Section 31(7)(a) and (b) of the said Act? 4. The above question arises in the following factual bac....
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....respondent) with interest at the rate of 21 percent per annum from the date it was given to the date it is repaid. Appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (briefly, 'the 1996 Act' hereinafter) before the learned Special Court for trial and disposal of commercial disputes at Hyderabad (Special Court) for setting aside of the award which was registered as COP No. 118 of 2019. Learned Special Court vide the judgment and order dated 19.03.2021 dismissed COP No. 118 of 2019. 8. It appears that there was no further challenge to the award. Thus, the arbitral award dated 08.09.2019 attained finality. 9. Thereafter, respondent filed execution petition CEP No. 05 of 2021 before the executing court for execution of the arbitral award dated 08.09.2019. 10. In the course of hearing, the judgment debtor (appellant) paid a total of Rs. 44,42,05,254.00 on various dates and in various amounts starting from 22.07.2022 to 31.07.2023 which according to it was in full compliance to the award including interest. 11. Decree holder i.e. the respondent filed a calculation sheet before the executing court claiming compound interest over and above....
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....terest at the rate of 21%. Neither any compound interest was granted nor any post-award interest. Therefore, respondent is not entitled to compound interest. This aspect of the matter was overlooked by the High Court which also did not consider the fact that the calculation submitted by the appellant was accepted by the executing court after due consideration of all the facts and circumstances of the case. 14.2. According to him, the reasoning given by the executing court cannot be faulted. Calculation offered by the appellant having been accepted by the executing court with sufficient reasons, the High Court was not justified in setting aside the order passed by the executing court and remanding the matter back for fresh consideration. 14.3. Learned senior counsel submits that by 31.07.2023, the entire amount of Rs. 44,42,05,254.00 was paid by the appellant to the respondent in full compliance to the award which included the interest quotient as well. No further amount remains to be paid. Therefore, the executing court rightly closed the execution case. 14.4. It is submitted that respondent in its claim before the arbitral tribunal had itself calculated the interest porti....
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....Suresh, learned senior counsel for the respondent submits that the impugned order does not determine any inter se rights of the parties. It is only an order of remand with the observation that the High Court has not expressed any opinion on merit. Therefore, such an order calls for no interference, that too, under Article 136 of the Constitution of India. 15.1. As and when the executing court decides the issue finally, parties to the lis would have the right to take recourse to the remedy as provided under the law. In such circumstances, filing of the special leave petition by the appellant is clearly an abuse of the process of the court. 15.2. As per the interest calculation sheet as on 31.07.2023 filed by the respondent before the executing court, appellant was liable to pay Rs. 57,74,68,490.00. As against this, appellant has only paid to the respondent Rs. 44,42,05,254.00 till 31.07.2023. Therefore, an amount of more than Rs. 13 crores still remains outstanding. It is required to be paid by the appellant to the respondent. 15.3. Learned senior counsel for the respondent submits that the interest for the prior period till the date of the award has to be capitalized which....
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....s made. The arbitral tribunal is further conferred the discretion to award interest on the principal sum awarded at such rate as it deems reasonable. However, this discretion of the arbitral tribunal is subject to any decision which is agreed upon by the parties. 18. Clause (a) of Section 31(7) of the 1996 Act was examined by this Court in S.A. Builders (supra) whereafter it was held as under: 36.1. From a minute reading of sub-section (7), it is seen that it has got two parts: the first part i.e. clause (a) deals with passing of award which would include interest up to the date on which the award is made. The second part i.e. clause (b) deals with grant of interest on the "sum" awarded by the Arbitral Tribunal. 36.2. Let us now discuss in detail the contours of the two clauses. As per clause (a), when an award is made by the Arbitral Tribunal for payment of money, the "sum" which is awarded may include interest at such rate as the Arbitral Tribunal deems appropriate, on the whole or any part of the money and for the whole or any part of the period. The period for which the interest may be granted would be between the date on which the cause of action arose and....
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....rest is mandatory. Therefore, the legislature has consciously used the word shall. 20. Thus, from a conjoint analysis of Section 31(7)(a) and Section 31(7)(b) of the 1996 Act, what is discernible is that insofar award of interest from the date on which the cause of action arose till the date of the award is concerned, the legislative intent is that the parties possess the autonomy to determine the interest and the rate of interest for the aforesaid period. Clause (a) i.e. discretion of the arbitral tribunal to award interest is subject to agreement by and between the parties. Therefore, party autonomy takes precedence over the discretion of the arbitral tribunal. However, clause (b) is subject to award of interest by the arbitral tribunal. In other words, as per clause (b), the 'sum' directed to be paid under an arbitral award shall carry interest at the rate of 18% per annum from the date of the award to the date of payment 'unless the award otherwise directs'. Therefore, this provision is subject to award of interest by the arbitral tribunal. If it awards interest, then the same shall be applicable from the date of the award till the date of payment; if not, then the 'sum' as ....
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....al tribunals to award interest on interest from the date of the award? In the facts of that case, the consequential question formulated was as to whether the arbitral award granted future interest from the date of award, only on the principal amount found due to the respondent or on the aggregate of the principal and interest up to the date of the award? After an analysis of the aforesaid provision, the Bench observed that Section 31(7) makes no reference to payment of compound interest or payment of interest upon interest. It was held that in the absence of any provision for interest upon interest in the contract, arbitral tribunals do not have the power to award interest upon interest or compound interest either for the pre-award period or for the post-award period. It was held thus: 18. Section 31(7) makes no reference to payment of compound interest or payment of interest upon interest. Nor does it require the interest which accrues till the date of the award, to be treated as part of the principal from the date of award for calculating the post-award interest. The use of the words "where and insofar as an arbitral award is for the payment of money" and use of the word....
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.... the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till the date of payment. The calculation that was made in the execution petition as originally filed was correct and the modification by the respondent increasing the amount due under the award was contrary to the award. 24. The correctness of the view taken in S.L. Arora (supra) came up for consideration before a three-Judge Bench of this Court in Hyder Consulting (supra). The majority held that the conclusion reached in S.L. Arora (supra) was not in consonance with the clear language of Section 31(7) of the Act. After extracting Section 31(7) of the 1996 Act, the Bench explained clause (a) of sub-section (7) of Section 31 in the following manner: 4. Clause (a) of sub-section (7) provides that where an award is made for the payment of money, the Arbitral Tribunal may include interest in the sum for which the award is made. In plain terms, this provision confers a power upon the Arbitral Tribunal while making an award for payment of money, to include interest in the sum for which the award is made on either the whole or any part of the money and for ....
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....b-section (7) of Section 31 of the Act, Parliament intended that an award for payment of money may be inclusive of interest, and the "sum" of the principal amount plus interest may be directed to be paid by the Arbitral Tribunal for the pre-award period. Thereupon, the Arbitral Tribunal may direct interest to be paid on such "sum" for the post-award period vide clause (b) of sub-section (7) of Section 31 of the Act, at which stage the amount would be the sum arrived at after the merging of interest with the principal; the two components having lost their separate identities. 25. The question as to whether the 'sum' awarded under clause (a) of sub-section (7) of Section 31 of the 1996 Act would include interest pendente lite or not again came up for consideration before a two-Judge Bench of this Court in Delhi Airport Metro Express Private Limited Vs. Delhi Metro Rail Corporation (2022) 9 SCC 286. The Bench analyzed Hyder Consulting (supra) in the following manner: 15. It could thus be seen that the majority view of this Court in Hyder Consulting (UK) is that the sum awarded may include the principal amount and such interest as the Arbitral Tribunal deems fit. It is furt....
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....herwise agreed by the parties. If there is an agreement between the parties to the contrary, the arbitral tribunal would lose its discretion to award interest and will have to be guided by the agreement between the parties. Thus, the expression 'unless otherwise agreed by the parties' assumes significance and concluded as under: 20. If clause (a) of sub-section (7) of Section 31 of the 1996 Act is given a plain and literal meaning, the legislative intent would be clear that the discretion with regard to grant of interest would be available to the Arbitral Tribunal only when there is no agreement to the contrary between the parties. The phrase "unless otherwise agreed by the parties" clearly emphasises that when the parties have agreed with regard to any of the aspects covered under clause (a) of sub-section (7) of Section 31 of the 1996 Act, the Arbitral Tribunal would cease to have any discretion with regard to the aspects mentioned in the said provision. Only in the absence of such an agreement, the Arbitral Tribunal would have a discretion to exercise its powers under clause (a) of sub-section (7) of Section 31 of the 1996 Act. The discretion is wide enough. It may gran....
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....e award otherwise directs' occurring in clause (b) only qualifies the rate of post-award interest. Thereafter, this Court summarized the findings and we extract only those portions which are relevant for our present purpose: 28.3. The phrase "unless the award otherwise directs" in Section 31(7)(b) only qualifies the rate of interest. 28.4. According to Section 31(7)(b), if the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at eighteen per cent. 28.5. 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. 28.6. The arbitrator must exercise the discretionary power to grant post-award interest reasonably and in good faith, taking into account all relevant circumstances. 27. Though learned senior counsel for the respondent placed heavy reliance on S.A. Builders Limited (supra), we are of the view that S.A. Builders Limited (supra) is a continuum of what was held by this Court in Delhi Airport Metro Express Private Limited (supra) and in Morgan Securities and Credits Private....
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....express provision contained in clause (a) of sub-section (7) of Section 31, the arbitral tribunal awarded interest in terms of the MoU from the date of the cause of action till the date of repayment. As the arbitral tribunal had expressly provided interest till the date of repayment, question of additional or compound interest under clause (b) of sub-section (7) of Section 31 of 1996 Act would not arise. The arbitral tribunal in its award dated 08.09.2019 has faithfully complied with the MoU agreed by and between the parties. Thus, the arbitral tribunal exercised its discretion within the overall framework of Section 31(7) of the 1996 Act aligning with the legislative intent that the award, rather than the statutory default, should govern the parties, more so in a case as in the present one where the parties have themselves made provision for interest throughout. 30. Therefore, reliance placed by the respondent on Hyder Consulting (supra) to claim post-award interest is misplaced. That principle would apply only when the arbitral tribunal leaves a matter unqualified or is silent. In the present case the arbitral tribunal bound by the MoU and exercising its statutory discretion h....