The judgment in the matter of Hyder Consulting was delivered by a three Judge bench and was a majority judgment.
The majority decision disagreed with the judgment in S.L. Arora case. The majority held that the interest given under Section 31(7) of the Act will also apply to the interest pendente lite. They argued that the ‘sum’ under Section 31 (7) (a)(b) includes the interest on the principal amount in the preaward period. Basically the entire calculated amount in the pre-award period becomes the ‘sum’ and only if no interest is awarded on the principal amount by the court the ‘sum’ would comprise of principal amount (only).
It was held by Sapre J in concurring judgment as under: “31. Coming not to post award interest, Section 31(7)(b) of the Act employs the words, “A sum directed to be paid by an arbitral award..”. Clause (b) used the word “arbitral award” and not the “Arbitral Tribunal”. The arbitral award, as held above, is made in respect of a “sum” which includes interest. It is therefore obvious that what carries under Section 31(7)(b) of the Act is the “sum directed to be paid by an arbitral award” and not any other amount much less by or under the name “interest” in such situation it cannot be said that what is being granted under Section 31(7)(b) of the Act is “interest on interest”. Interest under clause(b) is granted on the “sum” directed to be paid by an arbitral award wherein the “sum” is nothing more than what is arrived at under clause(a)”.
On comparison of the language of Section 31(7) of 1996 Act and Section 34 of CPC it was found that they both have two different interpretations. It was held that since Section 34 of CPC empowers the Court to award interest “on the principal sum” and not merely the “sum” as provided under Section 31(7) of the Act, they both are evidently different.
To conclude the majority view stated that the total amount awarded on the date of award i.e. principal amount plus the interest becomes the ‘sum’ and in the post-award period interest is awarded on the said sum. Thus, the usage of the term ‘interest on interest’ seems inaccurate. To clarify what it means is that if the award gives interest @ 12% pa from the date of cause of action till date of award then the amount awarded of the claim of dues with interest @ 12% till the date of award will become the principal sum and on this principal sum the post award interest is to be awarded in accordance with Section 31(7)(b). The reason behind post award interest is the speedy repayment of the awarded sum under the provision of Section 31 (7) of 1996 Act. In such a situation, what is being granted under Section 31(7) (b) is not compound interest; instead, interest is granted on the sum directed to be paid by an arbitral award.
The Supreme Court recently in the matter of Punjab State Civil Supplies Corporation Limited (Punsup) vs. Ganpati Rice Mills observed that an Arbitrator has substantial discretion in awarding interest under Section 31(7)(c) of the Arbitration and Conciliation Act, 1996. Where the contract between the parties provided for payment of interest @ 21% pa and the arbitrator had awarded interest @ 18% pa which was reduced to 12% pa by District Judge and further reduced to 9% pa by High Court while making the above mentioned observation the Court restored the interest @ 12% pa since that amount had been accepted by the claimant.
Drafted and Settled byVarun S. Ahuja (Partner)
Of Ahuja Law Offices
Email: alo@ahujalawoffices.com
Phone Nos: 011-49096435,9810781997, 9971673660
