Arbitrator Can Grant Post-Award Interest On The Interest Amount Awarded: Supreme Court

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

In an appeal filed under Section 37 of the Arbitration and Conciliation Act, the Division Bench of the Himachal Pradesh High Court held that in the absence of any provision for interest upon interest in the contract, the 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.

In appeal filed by UHL, the Apex Court bench noted that the Division Bench had relied on State of Haryana v. S.L. Arora and Co. (2010) 3 SCC 690 which has been overruled in Hyder Consulting (UK) Ltd. V. Governor, State of Orissa (2015) 2 SCC 189. The majority view is that post-award interest can be granted by an Arbitrator on the interest amount awarded, the court noted. The bench referred to this observations in Hyder Consulting:

""21. In the result, I am of the view that S.L. Arora case [State of Haryana v. S.L. Arora and Co. (2010) 3 SCC] is wrongly decided in that it holds that a sum directed to be paid by an Arbitral Tribunal and the reference to the award on the substantive claim does not refer to interest pendente lite awarded on the "sum directed to be paid upon award" and that in the absence of any provision of interest upon interest in the contract, the Arbitral Tribunal does not have the power to award interest upon interest, or compound interest either for the pre-award period or for the post-award period. Parliament has the undoubted power to legislate on the subject and provide that the Arbitral Tribunal may award interest on the sum directed to be paid by the award, meaning a sum inclusive of principal sum adjudged and the interest, and this has been done by Parliament in plain language."

Therefore, allowing the appeal, the court observed thus:

As the judgment in the case of S.L. Arora (supra), on which reliance has been placed by the Division Bench of the High Court of Himachal Pradesh, has since been overruled by a three-Judge Bench of this Court in the case of Hyder Consulting (UK) Ltd. (supra), the findings returned by the Appellate Court in the impugned judgment to the effect that the Arbitral Tribunal is not empowered to grant compound interest or interest upon interest and only simple interest can be awarded in favour of UHL on the principal amount claimed, is quashed and set aside. As a result, the findings returned in para 54(a) of the impugned judgment insofar as it relates to grant of the interest component, are reversed while restoring the arbitral award on the above aspect in favour of UHL.

The court, however, agreed with the view expressed by the Appellate Court that the Single Judge (while considering Section 34 petition to set aside Arbitration Award) committed a gross error in re-appreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant clauses of the Implementation Agreement governing the parties.

It was not open to the said Court to do so in proceedings under Section 34 of the Arbitration Act, by virtually acting as a Court of Appeal, the court said. Referring to various judgments, the court noted thus:

1. As it is, the jurisdiction conferred on Courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an Appellate Court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed.
2. It has also been held time and again by this Court that if there are two plausible interpretations of the terms and conditions of the contract, then no fault can be found, if the learned Arbitrator proceeds to accept one interpretation as against the other. In Dyna Technologies (P) Ltd. V. Crompton Greaves Ltd.
3. Arbitral Tribunal must decide in accordance with the terms of the contract, but if a term of the contract has been construed in a reasonable manner, then the award ought not to be set aside on this ground

While restoring the Arbitration award, the bench observed:

21. In the instant case, we are of the view that the interpretation of the relevant clauses of the Implementation Agreement, as arrived at by the learned Sole Arbitrator, are both, possible and plausible. Merely because another view could have been taken, can hardly be a ground for the learned Single Judge to have interfered with the arbitral award. In the given facts and circumstances of the case, the Appellate Court has rightly held that the learned Single Judge exceeded his jurisdiction in interfering with the award by questioning the interpretation given to the relevant clauses of the Implementation Agreement, as the reasons given are backed by logic.

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