Arbitral Tribunal Can Grant Post Award Interest On Interest Component Included In The Sum Of The Award: Supreme Court

Facts

The appeal was filed against the order of the Punjab and Haryana High Court by which the Court held that the arbitrator can only grant post-award interest on the principal amount and cannot allow interest on the interest component included in the award. The High Court modified that award of the tribunal to the extent of disallowing post-award interest on the amount of interest included in the award. It further reduced the rate of interest from 18% to 9%.

Aggrieved by the order of the High Court, the petitioner challenged it before the Apex Court.

Issue Involved In The Matter

Whether the arbitrator can grant post-award interest on the interest component included in the sum of the award.

Analysis By The Court

The Court held that the reasoning of the High Court is in teeth of the finding arrived at by the three-judge bench of the Supreme Court in Hyder Consulting Ltd. v. Governor, State of Orissa, (2015) 2 SCC 189, wherein the court specifically held that there is nothing in law that prevents the arbitrator from awarding post award interest on the interest component. The Court held that the arbitrator is entitled to award interest in respect of the entire sum of the award which necessarily includes both the principal award and interest awarded on such principal amount.

The Court reiterated that the word sum used under Section 31(7) of the A&C Act includes the interest awarded on the substantive claims, therefore, the post award interest would be on both the amount awarded in respect of the substantive claims and the interest awarded on such claims.

The Court further held that Section 31(7)(b) provides that the rate of post award interest shall be 18% p.a., therefore, the High Court erred in reducing the rate of interest as the same is clearly against the mandate of Section 31(7)(b).

Case Title: Indian Oil Corpn. Ltd v. U.B. Engineering Ltd and Anr. SLP(C) Nos. 24912-24913 of 2013

Date: 12.04.2022

Citation : 2022 LiveLaw (SC) 409

Counsel for the Petitioner: Mr. VN Koura, Mrs. Paramjeet Benipal and Mr. Avneesh Arputham, AOR

Counsel for the Respondent: Mr. Dhaval Deshpande, Advocate.

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