Whether arbitrator can grant post award compound interest without there being an express clause under the contract?

In UHL POWER COMPANY LIMITED vs. State of Himachal Pradesh SupremeCourtofIndia , three judge bench, decided on 07.01.2022), the Arbitrator had awarded compound interest in favour of UHL @ 9% per annum till the date of claim and in the event the awarded amount was not realized within a period of six months from the date of making the award, future interest was awarded @ 18% per annum on the principal claim with interest.

The question was whether the tribunal could have awarded compound interest on claims without there being an express clause under the contract.

Here the Division Bench had held that compound interest can be awarded only if there is a specific contract, or authority under a statute, for compounding of interest and that there is no general discretion vested arbitrators to award compound interest, either pre-award or post award period. (Relying on Haryana v. S.L. Arora and Co. MANU/SC/0131/2010 : (2010) 3 SCC 690)

The Court, while setting aside the judgment of the High Court, and upholding the award held as follows:

1. It has already been held by the SC that SL Arora has been wrongly decided. The Arbitral Tribunal, as per Section 31(7)(b) has power to grant interest on the “sum” awarded, and the “sum” awarded can include the interest component for the pre-reference and pendent-lite period. (Reliance placed on Hyder Consulting (UK) Ltd. v. Governor, State of Orissa through Chief Engineer (2015) 2 SCC 189)

2. The single judge committed a gross error in re-appreciating the findings returned by the Arbitral Tribunal and taking an entirely different view with respect to interpretation of contract terms, as it was not open for the Court to do so under Section 34 of the Arbitration & Conciliation Act, 1996, by virtually acting as Court of appeal. 

3. When it comes to scope of an Appeal under Section 37, the jurisdiction of Appellate Court is all the more circumscribed. 

4. It is also settled law that where two views are possible, the Court cannot interfere in the plausible view taken by the arbitrator supported by reasoning. (Reliance placed on Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1)

In the Supreme Court of India

(Before N.V. Ramana, C.J. and A.S. Bopanna and Hima Kohli, JJ.)

Civil Appeal No. 10341 of 2011

UHL Power Company Ltd. Vs State of Himachal Pradesh 

Civil Appeal No. 10341 of 2011 and Civil Appeal No. 10342 of 2011

Decided on January 7, 2022

Citation: 2022 SCC OnLine SC 19

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Whether granting of compound interest by arbitrator is permissible?

 Recently, the decision in S.L. Arora (supra) has been overruled by majority view in M/s. Hyder Consulting (UK) Ltd. v. Governor, State of Orissa MANU/SC/1078/2014 : (2015) 2 SCC 189.

9. In view of the aforesaid, the interest component payable to the Appellant shall be computed in accordance with law laid down in M/s. Hyder Consulting (UK) Ltd. (supra) not in accordance with S.L. Arora (supra) as that has been declared not good law.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 3148, 3147, 3149 of 2012, 1390 of 2013, 2842 of 2015 

Decided On: 12.03.2015

Hyder Consulting (UK) Ltd.
Vs.
 Governor, State of Orissa

Hon'ble Judges/Coram:Dipak Misra and Prafulla C. Pant, JJ.

Citation:(2016) 6 SCC362

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Whether awarding of interest on interest granted under arbitration proceeding is permissible?

Thus, when used as a noun, as it seems to have been used in this provision, the word "sum" simply means "an amount of money"; whatever it may include-"principal" and "interest" or one of the two. Once the meaning of the word "sum" is clear, the same meaning must be ascribed to the word in Clause (b) of Sub-section (7) of Section 31 of the Act, where it provides that a sum directed to be paid by an Arbitral Award "shall carry interest...." from the date of the Award to the date of the payment i.e. post-award. In other words, what Clause (b) of Sub-section (7) of Section 31 of the Act directs is that the "sum," which is directed to be paid by the Award, whether inclusive or exclusive of interest, shall carry interest at the rate of eighteen per cent per annum for the post-award period, unless otherwise ordered.

70. Thus, Sub-section (7) of Section 31 of the Act provides, firstly, vide Clause (a) that the Arbitral Tribunal may include interest while making an award for payment of money in the sum for which the Award is made and further, vide Clause (b) that the sum so directed to be made by the Award shall carry interest at a certain rate for the post award period.

71. The purpose of enacting this provision is clear, namely, viz. to encourage early payment of the awarded sum and to discourage the usual delay, which accompanies the execution of the Award in the same manner as if it were a decree of the court vide Section 36 of the Act.

72. In this view of the matter, it is clear that the interest, the sum directed to be paid by the Arbitral Award under Clause (b) of Sub-section (7) of Section 31 of the Act is inclusive of interest pendent lite.

73. At this juncture, it may be useful to refer to Section 34 of the Code of Civil Procedure, also enacted by Parliament and conferring the same power upon a court to award interest on an award i.e. post-award interest. While enacting Section 34, Code of Civil Procedure, Parliament conferred power on a court to order interest "on the principal sum adjudged" and not on merely the "sum" as provided in the Arbitration Act. The departure from the language of Section 34 Code of Civil Procedure in Section 31(7) of the Act, 1996 is significant and shows the intention of Parliament.

74. It is settled law that where different language is used by Parliament, it is intended to have a different effect. In the Arbitration Act, the word "sum" has deliberately not been qualified by using the word "principal" before it. If it had been so used, there would have been no scope for the contention that the word "sum" may include "interest." In Section 31(7) of the Act, Parliament has deliberately used the word "sum" to refer to the aggregate of the amounts that may be directed to be paid by the Arbitral Tribunal and not merely the "principal" sum without interest.

75. Thus, it is apparent that vide Clause (a) of Sub-section (7) of Section 31 of the Act, Parliament intended that an award for payment of money may be inclusive of interest, and the "sum" of the principal amount plus interest may be directed to be paid by the Arbitral Tribunal for the pre-award period. Thereupon, the Arbitral Tribunal may direct interest to be paid on such "sum" for the post-award period vide Clause (b) of Sub-section (7) of Section 31 of the Act, at which stage the amount would be the sum arrived at after the merging of interest with the principal; the two components having lost their separate identities.

76. In fact this is a case where the language of Sub-section 7 Clause (a) and (b) is so plain and unambiguous that no question of construction of a statutory provision arises. The language itself provides that in the sum for which an award is made, interest may be included for the pre-award period and that for the post-award period interest up to the rate of eighteen per cent per annum may be awarded on such sum directed to be paid by the Arbitral Award.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 3147, 3148, 3149 of 2012, 

Decided On: 25.11.2014

 Hyder Consulting (UK) Ltd.
Vs.
 Governor, State of Orissa

Hon'ble Judges/Coram:H.L. Dattu, C.J.I., S.A. Bobde and Abhay Manohar Sapre, JJ.

Citation: (2015)2 SCC 189

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