Grant Of Post-Award Interest U/S 31(7)(B) Of A&C Act Is Mandatory, Arbitrator's Discretion Limited To Rate Of Interest: Delhi HC
The Delhi High Court bench of Justice Ravinder Dudeja has held that the grant of post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“the Act”) is mandatory. The only discretion which the Arbitral Tribunal has is to decide the rate of interest to be awarded. Where the Arbitrator does not fix any rate of interest, then statutory rate, as...
The Delhi High Court bench of Justice Ravinder Dudeja has held that the grant of post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“the Act”) is mandatory. The only discretion which the Arbitral Tribunal has is to decide the rate of interest to be awarded. Where the Arbitrator does not fix any rate of interest, then statutory rate, as provided in Section 31(7)(b), shall apply.
Brief Facts
Petitioner No. 1 i.e., Northern Railway, awarded contractual work to the Respondent. Due to certain disputes, the respondent invoked the arbitration clause of the agreement. The High Court, on 16.11.2012, appointed a sole arbitrator.
The Arbitrator framed three issues: (i) whether time was of the essence in the contract, (ii) whether the respondent imposed any penalty or liquidated damages, and (iii) whether the claimant was entitled to claim amounts. The Arbitrator decided the first two issues in favour of the respondent and awarded the claimant Rs. 61,48,277 with interest.
The petitioner challenged the award under Section 34 of the Act. The District Judge dismissed the objections. The petitioner then filed an appeal before the High Court.
In the meantime, the respondent filed an execution petition. The petitioners paid Rs. 82,86,547.62 as per the award. The respondent sought post-award interest on a portion of the awarded amount under Section 151 of CPC. By the impugned order dated 25.10.2024, the executing court, relying on Section 31(7)(b) of the Act and the Supreme Court's judgment in R.P. Garg v. CGM, Telecom Dept., granted post-award interest at 18% p.a. and directed payment of Rs. 77,18,000 within two months.
The petitioner filed the petition under Article 227 of the Constitution against the impugned order, arguing that the executing court did not consider the issue of discretion upon the Arbitrator with regard to post-award interest and there is nothing in Section 31(7)(b) which restricts the discretion.
Issue
Whether the expression “unless the award otherwise directs” in Section 31(7)(b) of the Arbitration & Conciliation Act, 1996, relates to rate of interest and not entitlement of interest.
Observations
The Court began its analysis by reproducing Section 31(7). It noted that the section consists of two distinct parts: Clause (a) deals with the interest that may be granted up to the date of the award, whereas Clause (b) provides that “a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per cent per annum from the date of award to the date of payment”. The Court clarified that Clause (b) is concerned with post-award interest and stated: “What Clause (b) provides for is that Arbitral Tribunal may award interest on the sum adjudged under Clause (a). But if no such interest is awarded, then there shall be interest at the rate of 18%.”
The court observed that the intent behind granting post-award interest is to deter delay in the enforcement of awards.
The Court further held that Clause (b) “gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract”. It noted that unlike Clause (a), which allows the parties to 'contract out' of the provision, no such liberty is given in Clause (b). The Court relied upon the three-Judge Bench decision in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa (2015) which had overruled the earlier decision in S.L. Arora & Company (2010). In Hyder Consulting, Justice A.N. Sapre had held that while the pre-award interest is at the discretion of the Tribunal, the post-award interest is a statutory mandate, and that “the only difference being that of rate of interest to be awarded by the Arbitral Tribunal”.
It was observed in that case that: “if the Arbitral Tribunal has awarded post-award interest payable from the date of award to the date of payment at a particular rate in its discretion then it will prevail else the party will be entitled to claim post-award interest on the awarded sum at the statutory rate specified in clause (b) of Section 31(7) of the Act, i.e., 18%.”
The court then referred to the decision in Morgan Securities & Credits Pvt. Ltd. v. Videocon Industries Ltd. wherein the Supreme Court observed that “Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest”. The Court further held that "the arbitrator has the discretion to award post-award interest on a part of the sum”; and that the arbitrator must "exercise the discretionary power to grant post-award interest reasonably and in good faith, taking into account all relevant circumstances”.
The court relied on R.P. Garg v. The General Manager, Telecom Department & Ors., where the Supreme Court was called upon to determine whether the appellant was entitled to post-award interest on the sum awarded by the Arbitrator. In that case, the Arbitrator had denied the grant of interest under the mistaken belief that the contract between the parties precluded such entitlement. The Supreme Court held that the amount awarded under an arbitral award must carry post-award interest.
In Morgan Securities & Credits Pvt. Ltd., it was clarified that Clause (b) of Section 31(7) is not subject to party autonomy. In other words, clause (b) does not give the parties the right to 'contract out' of interest for the post-award period. It was observed that “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 Court held that it is no longer res integra that the grant of post-award interest under Section 31(7)(b) is mandatory. The only discretion which the Arbitral Tribunal has is to decide the rate of interest to be awarded. Where the Arbitrator does not fix any rate of interest, then statutory rate, as provided in Section 31(7)(b), shall apply. The court further held that even if non-grant of interest is not challenged by the petitioners, grant of post-award interest by the executing court would not amount to going beyond the decree.
Finding no illegality or perversity, the court dismissed the petition.
Case Title: Union of India & Anr. vs. Sudhir Tyagi
Citation: 2025 LiveLaw (Del) 456
Case Number: CM(M) 4025/2024
For Petitioner: Mr. Jivesh Kumar Tiwari, SPC with Ms. Samiksha, Adv.
For Respondent: Mr. Sanjoy Bhaumik, Adv.
Date of Judgment: 17.04.2025