S. 31(7) Arbitration | Arbitral Tribunal Has Power To Award Different Rates Of Interest For Pre-Reference & Pendente Lite Period : Supreme Court

The Supreme Court held that under the Arbitration and Conciliation Act, 1996, an Arbitral Tribunal has the power to award different rates of interest for different phases.

A bench comprising Justices Abhay S. Oka and Ujjal Bhuyan overturned the Delhi High Court's ruling, which had invalidated the tribunal's grant of interest on interest, deeming it impermissible under Section 31(7) of the Act.

The bench heard the case where the dispute originated from a 1984 contract for the Thermal Power Project in Andhra Pradesh. After the completion of work in 1987, the Appellant-Interstate Construction claimed unpaid dues from NPCC, leading to arbitration proceedings that began in 1993 and continued for nearly three decades through multiple arbitrators.

In its 2020 award, the arbitral tribunal had granted pre-reference interest at 18% per annum from 1987-1998, pendente lite interest at 12% per annum (with an 8-year gap due to the claimant's delay), and future interest at 18% per annum.

The High Court had set aside the award's compound interest component, holding that arbitrators couldn't award interest on accrued interest.

Setting aside the High Court's decision, the judgment authored by Justice Bhuyan interpreting Section 31(7) of the Arbitration Act stated that the provision gives tribunals discretion to award interest for any part of the period between the cause of action and the award date, including different rates for different phases.

In support, the Court affirmed its 2015 ruling in Hyder Consulting (UK) Ltd. Vs. Governor, State of Orissa, (2015) 2 SCC 189, where it was held that the "sum" in Section 31(7)(b) includes principal plus accrued interest, allowing compound interest.

Explaining the true purport of Section 31(7)(a) of the 1996 Act, the Court observed:

“A careful and minute reading of this provision will make it clear that the arbitral tribunal has the discretion to include in the sum awarded interest at such rate as it deems reasonable on the whole or any part of the money awarded for the whole or any part of the period from the date on which the cause of action arose till the date on which the award is made.”

Further explaining, the Court noted:

“the arbitral tribunal can exclude a period from the date on which the cause of action arose till the date on which the award is made for the purpose of grant of interest, as has been done in the present case. It would also mean that the arbitral tribunal can grant interest for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. It can be a composite period or the said period can be further sub-divided, as done in the present case i.e. from the date of cause of action to filing of the claim and from the date of filing of the claim till the date of the award excluding the period when the appellant was found to be remiss. It would also mean that there can be one rate of interest for the whole period or one or more rates of interest for the sub-divided periods as has been done in the instant case. In our opinion, this would be the correct approach to interpret Section 31(7)(a), given the scheme of the 1996 Act.”

Also, the Court referenced the cases of Pam Developments Private Limited Vs. State of West Bengal, 2024 LiveLaw (SC) 613 and North Delhi Municipal Corporation Vs. S.A. Builders Ltd, 2024 LiveLaw (SC) 1010, which supported the view that an arbitral tribunal has the power to grant – (i) pre-award (ii) pendente lite, and (iii) post-award interest.

“That being the position, we are of the view that the Division Bench had fallen in error by holding that the arbitral tribunal had no jurisdiction to award interest for two periods i.e. pre-reference and pendente lite when the statute provides for only one period viz. from the date when the cause of action arose till the date of the award. The view expressed by the High Court is not the correct interpretation of Section 37(1)(a) of the 1996 Act as explained by us supra as well as in Pam Developments Private Limited (supra) and S.A. Builders Ltd. (supra).”, the court said.

In terms of the aforesaid, the Court allowed the appeal and directed the Respondent to pay the awarded amount with compound interest as originally determined by the arbitrator.

Case Title: M/S. INTERSTATE CONSTRUCTION VERSUS NATIONAL PROJECTS CONSTRUCTION CORPORATION LTD.

Citation : 2025 LiveLaw (SC) 585

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Appearance:

For Petitioner(s) : Mrs. S. Janani, Sr. Adv. Ms. Madhu Moolchandani, AOR Ms. Sharika Rai, Adv.

For Respondent(s) : Mr. Dhruv Mehta,Sr.Adv. Mr. Rajat Arora, AOR Ms. Mariya Shahab,Adv. Ms. Nishi Sangtani,Adv.