Post-Award Interest Can Be Granted By Arbitrator On Interest Amount Awarded: Supreme Court

The Supreme Court reiterated that the post-award interest can be granted by an Arbitrator on the interest amount awarded. 

The Court reiterated thus in a Civil Appeal preferred by North Delhi Municipal Corporation against the Order of the Delhi High Court by which it disposed of the pleas.

The two-Judge Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan observed, “A three-Judge Bench of this Court in UHL Power Company Limited Vs. State of Himachal Pradesh9, declared that the judgment in S.L. Arora (supra) has since been overruled by a three-Judge Bench of this Court in M/s. Hyder Consulting (UK) Ltd. (supra). The majority view in M/s. Hyder Consulting (UK) Ltd. (supra) is that post-award interest can be granted by an arbitrator on the interest amount awarded."

The Bench said that the Division Bench of the High Court after taking the consent of the parties had remitted the matter back to the High Court only as to the calculations permitting both the parties to make submissions before the Single Judge on the quantum payable to the company and if that be the position, it is not open to assail the Order.

Senior Advocate Madhavi Divan appeared for the Appellant while Senior Advocate C. Aryama Sundaram appeared for the Respondent.

In this case, the Respondent company was awarded a contract work relating to construction of approaches to flyover at the level crossing on New Rohtak Road with clover-leaf slip road and service road etc. by the Appellant-Corporation. A contract agreement was entered into between the parties in this regard in 1983 but the work could not be completed even beyond the stipulated date of completion till March 1990 and therefore, the work had to be closed in an incomplete form. The main reason for closing the work was non-availability of site. The last payment to the tune of Rs. 4,71,48,122.00 was made to the Respondent in 1988 and thereafter, no payments were made to the Respondent for the work done upto March, 1990 when the contract was closed. The Respondent submitted its final bill which the Appellant failed to pay and as a result, dispute arose between the parties.

Thereafter, the Respondent filed an Application under Section 20 of the Arbitration and Conciliation Act, 1940 (A&C Act) before the High Court, seeking appointment of Arbitrator. On the consent of both the parties, the arbitration proceedings were carried out and the Arbitrator awarded various sums under different heads out of the 26 claims, while rejecting a few of the claims of the Respondent. The Respondent filed an Execution Petition under A&C Act, 1996 before the Single Bench and simultaneously, the Appellant filed a Petition under Section 34 A&C Act challenging the Award but the same was dismissed. The Appellant then filed an Appeal before the Division Bench and it was also dismissed and hence, the case was before the Apex Court.

The Supreme Court in view of the facts and circumstances of the case, noted, “The ‘sum’ directed to be paid by the arbitral tribunal shall, unless the award otherwise directs, carry interest at the rate of 18 percent per annum from the date of the award to the date of payment. Thus, what clause (b) provides for is that the arbitral tribunal may award interest on the ‘sum’ adjudged under clause (a). But if no such interest is awarded, then there shall be interest at the rate of 18 percent on the ‘sum’ awarded by the arbitral tribunal from the date of the award to the date of payment. The two crucial words in this part are sum and shall. As seen from clause (a), the ‘sum’ awarded by the arbitral tribunal would include interest if it is granted by the arbitral tribunal.”

The Court added that the ‘sum’ as awarded by the Arbitral Tribunal may or may not include interest and whether the ‘sum’ so awarded includes or does not include interest, it would carry further interest at the rate of 18 percent from the date of the award to the date of payment unless another rate of interest is granted by the Arbitral Tribunal.

“While granting of interest under clauses (a) and (b) by the arbitral tribunal is discretionary, the interest contemplated under clause (b) in the event of failure of the arbitral tribunal to award interest is mandatory. Therefore, the legislature has consciously used the word shall”, it said.

The Court further noted that the Appellant had participated in the clarificatory proceeding before the Arbitrator taking the stand that no clarification as sought for was required on merit.

“… the impugned order is a consent order. Division Bench of the High Court after taking the consent of the parties had remitted the matter back to the High Court only as to the calculations permitting both the parties to make submissions before the learned Single Judge on the quantum payable to the respondent. If that be the position, it is not open to the appellant to assail the aforesaid order”, it added.

The Court concluded that the clarification sought for and issued by the Arbitrator would be covered by the expression unless another period of time has been agreed upon by the parties appearing in Section 33 (1) of the 1996 Act.

Accordingly, the Apex Court dismissed the Appeal.

Cause Title- North Delhi Municipal Corporation v. M/s. S.A. Builders Ltd. (Neutral Citation: 2024 INSC 988)

Appearance:

Appellant: Senior Advocate Madhavi Divan, Advocates Amol Chitale, Nirnimesh Dube, Sunil Goel, Ankur S. Kulkarni, Susheel Joseph Cyriac, Uditha Chakravarthy, Aiashani Narayan, Priya S. Bhalerao, and Varun Kanwal.

Respondent: Senior Advocate C. Aryama Sundaram and AOR Tarun Gupta.

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