Summary
The Supreme Court held that a sum directed to be paid by an arbitral award carries post-award interest by operation of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, and that a contractual clause barring interest does not affect post-award interest; it restored the District Court's grant of 18% interest from the date of the award to realisation.
Issues
- Whether a contract clause stating that no interest is payable on amounts due to the contractor bars post-award interest on an arbitral award.
- Whether Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 is subject to party autonomy.
Provisions considered
- Section 31(7)(a), Arbitration and Conciliation Act, 1996The Court noted that pre-award interest under clause (a) is expressly subject to the parties' agreement, as shown by the opening words 'unless otherwise agreed by the parties'. (¶¶ 9, 10)
- Section 31(7)(b), Arbitration and Conciliation Act, 1996The Court held that clause (b), governing interest from the date of the award to payment, is not subject to party autonomy; the words 'unless the award otherwise directs' concern only the rate of interest, not the entitlement, so parties cannot contract out of post-award interest. (¶¶ 2.1, 9, 10, 11, 12)
Held
- A sum directed to be paid by an arbitral award must carry interest; under Section 31(7)(b) post-award interest is a matter of entitlement, and the rate fixed in the award only takes precedence over the statutory rate. (¶¶ 2.1, 11)
- Section 31(7) distinguishes between interest before and after the award: pre-award interest under clause (a) is subject to the agreement between the parties, but post-award interest under clause (b) is not, so the contract clause had no bearing on the post-award period. (¶¶ 9, 11)
- The Court relied on Morgan Securities & Credits v. Videocon Industries, which read 'unless the award otherwise directs' in clause (b) as qualifying only the rate of post-award interest. (¶ 12)
- The High Court erred in relying on Jaiprakash Associates v. Tehri Hydro Development Corporation, which concerned a contractual prohibition on pendente lite interest and does not apply to post-award interest. (¶¶ 8, 13)
Result
Appeal allowed; High Court's revisional order set aside and the District Court's order granting post-award interest at 18% per annum restored; parties to bear their own costs.