Arbitration | Arbitral Award Must Carry Post-Award Interest As Per S. 31(7)(b) : Supreme Court

The Supreme Court held that the post-award period shall carry a rate of interest decided as per Section 31(7)(b) of the Arbitration & Conciliation Act, 1996 (Arbitration Act).

“For the reasons to follow, while allowing the appeal we have held that as this is a case arising out of the Arbitration and Conciliation Act, 1996, by operation of Section 31(7)(b), the sum directed to be paid under the Arbitral Award shall carry interest. This is a first principle. A sum directed to be paid by an Arbitral Award must carry interest. In this view of the matter, we have restored the judgment of the District Court granting 18% interest from the date of the award to its realization.”, the Court held.

The bench comprising Justices PS Narasimha and Sandeep Mehta set aside the High Court's findings, which had denied the post-award interest to the award holder noting that the contract between the parties does not permit the grant of post-award interest.

The Court observed that even an agreement between the parties not to grant post-award interest cannot eliminate the statutory right to post-award interest.

To this effect, the Court explained the difference between Sections 31(7)(a) and 31(7)(b) of the Arbitration Act, where clause (a) deals with pre-award interest and clause (b) deals with post-award interest.

The Court noted that the grant of pre-award interest is subject to the agreement between the parties, whereas the grant of post-award interest is a statutory right and not subject to an agreement between the parties i.e., the party's right to interest for the post-award period can't be contracted out under Section 31(7)(b).

“The statutory scheme relating to grant of interest provided in Section 31(7) creates a distinction between interest payable before and after the award. So far as the interest before the passing of the award is concerned, it is regulated by Section 31(7)(a) of the Act which provides that the grant of interest shall be subject to the agreement between the parties. This is evident from the specific expression at the commencement of the sub-section which says 'unless otherwise agreed by the parties'.”, the judgment authored by Justice Narasimha observed.

“So far as the entitlement of the post-award interest is concerned, sub-Section (b) of Section 31(7) provides that the sum directed to be paid by the Arbitral Tribunal shall carry interest. The rate of interest can be provided by the Arbitrator and in default the statutory prescription will apply. Clause (b) of Section 31(7) is therefore in contrast with clause (a) and is not subject to party autonomy. In other words, clause (b) does not give the parties the right to “contract out” interest for the post-award period. The expression 'unless the award otherwise directs' in Section 31(7)(b) relates to rate of interest and not entitlement of interest. The only distinction made by Section 31(7)(b) is that the rate of interest granted under the Award is to be given precedence over the statutorily prescribed rate. The assumption of the High Court that payment of the interest for the post award period is subject to the contract is a clear error.”, the court held.

In essence, the Court held that granting post-award interest is not subject to the contract between the parties which was recently affirmed in the case of Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd., 2022 LiveLaw (SC) 728.

Accordingly, the appeal was allowed.

Appearance:

For Petitioner(s) Mr. Parikshit Mahipal, Adv. Mr. Vaibhav Kumar Garg, Adv. Ms. Savita Garg, Adv. Ms. Shivani Mahipal, Adv. Ms. Bushra Parveen, AOR

For Respondent(s) Mr. Pradeep Kumar Mathur, AOR Chiranjeev Johri, Adv. Mr. M.K. Tiwari, Adv. Mr. Gurmeet Singh Makker, AOR

Case Title: R.P. GARG VERSUS THE CHIEF GENERAL MANAGER, TELECOM DEPARTMENT & ORS., CIVIL APPEAL NO. 10472 OF 2024

Citation : 2024 LiveLaw (SC) 794

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