You are on page 1of 3

Weusecookiestogiveyouthebestonlineexperience.Byusingourwebsiteyouagreetoouruseofcookiesinaccordancewithourcookiepolicy.

Learnmore
here .
CloseMe

Home>India>Litigation,Mediation&Arbitration

India: Supreme Court: Arbitrators Can Award Post Award Interest


On Interest Pendente Lite
LastUpdated:23December2014
ArticlebyVarunaBhanrale,ShalakaPatilandNishithDesai
NishithDesaiAssociates
1

TheSupremeCourthas:
HeldthatpostawardinterestunderSection31(7)(b)oftheArbitrationandConciliationAct,1996wouldalsobeawarded
ontheamountofinterestpendentlite,ifany,andnotmerelyontheprincipalsum
Interpretedtheword'sum'usedinSection31(7),subclauses(a)and(b)oftheActtobeanamountofmoneythatcould
includeprincipalorinterestorboth.
TheSupremeCourt'sjudgmentinStateofHaryanaandOthersvsS.L.Arora&Co.waspronouncedasincorrectand
overruled

INTRODUCTION
InitsrecentjudgmentofM/sHyderConsulting(UK)Ltdv.GovernorStateOfOrissathroughChiefEngineer,theSupreme
Courthasconsideredthemuchdebatedquestionofwhetherpostawardinterestcanbeawardedbyanarbitraltribunalon
penditeliteinterestunderSection31(7)oftheArbitrationandConciliationAct,1996("Act").Themajoritydecisionhasheldin
theaffirmative.

FACTS
AnarbitralawardofRs.2,30,59,802wasmadeinfavouroftheappellant.Duringexecutionproceedings,theDistrictJudge
orderedpaymentofRs.8,92,15,993takingintoaccountinterestpayableontheprincipalamountandtheinterestpendantlite
thereonforthecalculationofpostawardinterest.
TheHighCourtofOrissa,quashedtheorderoftheDistrictJudgeonthebasisofthejudgmentoftheSupremeCourtinthe
caseofStateofHaryanav.SLAroraandCo.1("SLAroraCase")whichstatedthat"interestoninterest"inthepostaward
phasecouldnotbeawarded.ThisorderwassetasidebytheHighCourtofOrissaandtheDistrictJudgewasinstructedto
calculatethetotalamountpayablewithoutconsideringinterestoninterestpendentlite.
TheHighCourt'sorderwasappealedintheSupremeCourt.

ISSUE
Whether,underSection31(7)oftheAct,interestpendentliteisincludedwithinthe"sum"payableasperthearbitral
award,forthepurposesofawardingpostawardinterest.
WhetherthejudgmentintheSLAroraCasecontainedanyinfirmity,interalia,initsinterpretationoftheMcDermott2and
theThreeCircles3cases.

JUDGMENT
MajorityDecision(ABobdeandAMSapreJ.J)
ContrarytotheviewtakenbytheHon'bleCJI,themajoritydecisiondisagreedwiththejudgmentintheSLAroraCasewhereby
ithadbeenheldthatunlessstatedinthecontract,thetribunaldidnothavethepowertoprovideforinterestonpreaward
interest.TheHon'bleCourtstatedthatpostawardinterest,asprescribedunderSection31(7)(a)oftheAct,wouldalsobe
applicabletotheinterestpendentliteandnotmerelytheprincipalamountawardedbyanarbitraltribunal.
Inthisregard,theHon'bleCourtreasonedandheldasfollows:
Section31(7)(a)oftheActcontemplatedthattheterm"sum"wouldincludeinterestforthepreawardperiodontheentire
sumawardedbyanArbitralTribunal.Onlyifnointerestisawardedwould"sum"compriseonlytheprincipal.Thiswas
evidentfromthelanguageofSection31(7)(a)oftheActwhichstatedthat"...thearbitraltribunalmayincludeinthesum
forwhichtheawardismadeinterest..."TheCourt,thus,concludedthatthislineintheActitselfsuggestedthattheterm
"sum"couldincludeinterest.
OnacomparisonwithSection34oftheCodeofCivilProcedure,1908("CPC")(whichconcernedinterestincivilsuits),

thelanguageofSection31(7)oftheActwasdifferentandevidentlyintendedtohaveadifferenteffect.
ItwasheldthatsinceSection34ofCPCempoweredtheCourttoawardinterest"ontheprincipalsum"andnotmerely
the"sum"asprovidedunderSection31(7)oftheAct.Thus,clearlytheambitofSection31(7)oftheActwastoinclude
thepreawardinterestawardedalongwiththeprincipalsum.HadthatnotbeenthecaseSection31(7)oftheActwould
havethesamelanguageasthetarget=_blankSection34oftheCPC.
Atthepostawardstagethe"sumdirectedtobepaidbyanarbitraltribunal"wouldincludeinterest,aselucidatedabove.
Thus,anypostawardinterestbeinggrantedbythetribunalunderSection31(7)(b)oftheActisonlyonthe"sumdirected
tobepaidbyanarbitraltribunal"andnotonanyamountreferredtoas"interest".Thus,usageoftheterm"intereston
interest"seemsinaccurate.
ThepurposeofenactingtheprovisionunderSection31(7)wastoencourageearlypaymentoftheawardedsum.Thus,
"sum"couldbeinterpretedtoincludeinterest,inlinewiththepurposeoftheprovision.

MinorityDissentingJudgment(HLDattu,CJI)
TheHon'bleJudgeconsideredthedecisionoftheSupremeCourtintheSLAroraCaseandfoundittobecorrect.TheHon'ble
JudgeconsideredthefollowingrationaleundertheSLAroraCase:
Theuseofthewords"whereandinsofarasanarbitralawardisforthepaymentofmoney"anduseofthewords"the
ArbitralTribunalmayincludeinthesumforwhichtheawardismade,interest...onthewholeoranypartofthemoney"in
Clause(a)anduseofthewords"asumdirectedtobepaidbyanarbitralawardshall...carryinterest"inClause(b)of
Subsection(7)ofSection31clearlyindicatethatthesectioncontemplatesawardofonlysimpleinterestandnot
compoundinterestorinterestuponinterest.
TheHon'bleJudgeheldthattheinterpretationofSection31(7)oftheActundertheSLAroraCasewascorrectand
thereforethejudgmentthereinwasnotperincuriam.
ItwasfurtherheldthattheinterestawardedunderSection31(7)oftheActwasonlytowardscompensatingonepartyforthe
otherparty'swithholdingofthemoneywhichrightfullybelongedtothefirstpartyandnotforwithholdingtheinterest.Thus,
postawardinterestcouldonlybepaidtowardstheprincipalsumclaimedbythepartyandnottowardstheinterestpendente
lite.
Theword"sum"undersubsections(a)and(b)ofSection31(7)oftheAct,inthisregard,wasalsointerpretedtomeanthe
moneydirectedtobepaidaspertheawardanddidnotincludetheinterestpendentlite.DattuJ.examinedanumberoflegal
dictionariestogivetheterm"sum"itsordinarymeaningandindoingsoarrivedattheconclusionthat"sum"couldonlymean
principalsumandnotinterest.

ANALYSIS
Themajorityjudgmentinthiscasehasusedtheliteralruleofinterpretationtoreadtheprovisionsastheyareandgivethem
theirplainmeaninginordertogleanthelegislativeintentfromthewordsusedintheprovisions.Ithasexaminedthelegislative
intenttodeterminethattheword"sum"wouldhavetobereadasinclusiveoftheprincipalandinterestpendentlite.The
implicationofthismajorityjudgmentwouldbethatpartieswouldavoidunnecessarydelaysorprolongingofproceedingsduring
thecourseofarbitration.Duringthepostawardstage,therewouldbeareductioninfrivolouschallengestotheenforcementof
awards,bythepartiessincethepartieswouldbepayingaheftyinterestoverapotentiallyenlargedclaimamount.
ThejudgmentisalsoinlinewiththeLawCommissioninitsReportonAmendmentstoArbitrationandConciliationAct,19964
whereintheinclusionofanexplanationtoSection31(7)(b)thatwouldlegislativelyoverrulethedecisionoftheSupremeCourt
inSLAroraCaseandincludinginterestpendentliteasapartofword'sum'hasbeensuggested.
Thedissentingjudgmentdoesprovidefoodforthoughtconsideringthenatureoftheterminterest,whichiscompensatoryin
nature.Therecouldbealegitimateargumentthatshouldthedisputehavebeenadjudicatedthroughasuitthenpostdecree
interestwouldonlybeoverthedecretalprincipalandnotoverthependentliteinterest.However,merelybecausethedisputeis
adjudicatedthroughanarbitralaward,partiesbecomeentitledtoapostawardinterestoverboththeprincipalandtheinterest
pendentlite,itremainstobeseeifthelegislatureintendedsucharesult.
Onecouldalsosee,astheHon'bleChiefJusticehasheld,thatintheportion"thearbitraltribunalmayincludeinthesumfor
whichtheawardismadeinterest"ofSection31(7)(a)couldbereaddichotomouslytostatethatthesummeansprincipalbut
suchprincipalcouldalsoincludeinterest,whentheawardisbeinggiven.
Itisimportanttonotethatwhileinterestonpendenteliteinterestmaybepayableinrespectofdomesticarbitrations,itmaynot
beapplicabletointernationalarbitrationsseatedoutsideIndia.ThisisowingtothenonapplicabilityofSection31(7)oftheAct
toforeignawards5andtheabsenceofasimilarprovisionunderPartIIoftheActwhichdealswiththeexecutionofforeign
awards.
WhilethisjudgmenthasoverruledSLAroraCaseandhasreversedthepositionoflawaslaiddowntherein,giventhe
importanceofthisissueintherealmofarbitrationitremainstobeseenwhetherthecasewouldbeconsideredbya
constitutionbenchoftheSupremeCourt,forfurtherclarityontheissue.
Footnotes

1.(2010)3SCC690
2.McDermottInternationalINCv.BurnStandardCo.Ltd.andOthers,(2006)11SCC181
3.UttarPradeshCooperativeFederationLimitedv.ThreeCircles,(2009)10SCC374
4.ReportNo.246
5.ProgettoGranoS.P.A.v.ShriLalMahalLimited,(2014)2SCC433Youmayperuseourhotlineonthecasehere

Thecontentofthisarticleisintendedtoprovideageneralguidetothesubjectmatter.Specialistadviceshouldbesoughtabout
yourspecificcircumstances.
DoyouhaveaQuestionorComment?

InterestedinthenextWebinaronthisTopic?

ClickheretoemailtheAuthor

ClickheretoregisteryourInterest

Contributor
VarunaBhanrale

EmailFirm

MorefromthisFirm

NishithDesaiAssociates

MorefromthisAuthor

Authors
VarunaBhanrale

ShalakaPatil

NishithDesai

ContactUs | YourPrivacy | Feedback

MondaqLtd19942015
AllRightsReserved

You might also like