Summary
An arbitrator awarded Morgan Securities about Rs. 5 crore with pre-award interest, plus 18% post-award interest on the principal only, following State of Haryana v. S.L. Arora. Relying on Hyder Consulting, which overruled S.L. Arora, the award-holder argued that post-award interest must run on the principal plus pre-award interest. The Supreme Court dismissed the appeal. Hyder Consulting decided only that post-award interest may be granted on that aggregate, not that the arbitrator must grant it so. In Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, 'unless the award otherwise directs' qualifies only the rate, and the 18% default applies where the award is silent. The arbitrator may award post-award interest on part of the sum, exercising the discretion reasonably.
Issues
- Whether, after Hyder Consulting, an arbitrator must award post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 on the aggregate of principal and pre-award interest, or may award it on the principal alone
- What the phrase 'unless the award otherwise directs' in Section 31(7)(b) qualifies
Provisions considered
- Section 31(7)(a) and (b), Arbitration and Conciliation Act, 1996Clause (b) provides 18% post-award interest only where the award does not provide for it. It does not fetter the arbitrator's discretion to award post-award interest on part of the sum. (¶¶ 8, 18, 19, 20, 22)
Held
- Hyder Consulting held that the 'sum' in Section 31(7) includes pre-award interest, so post-award interest may be granted on the aggregate. The majority opinions did not conclusively decide whether an arbitrator may grant post-award interest on only part of that sum. (¶¶ 14, 16, 17, 22)
- In clause (a), 'unless otherwise agreed by the parties' qualifies the whole provision. In clause (b), 'unless the award otherwise directs' sits before the words fixing the 18% rate and qualifies only the rate. (¶¶ 18, 22)
- Clause (a) gives the arbitrator wide discretion over pre-award interest, and nothing in clause (b) curtails the parallel discretion over post-award interest. Clause (b) applies only where the award is silent, and the award-holder then receives 18%. (¶¶ 19, 20, 22)
- Post-award interest exists to deter delay in payment. The arbitrator may award it on part of the sum, but must exercise that discretion in good faith and reasonably, considering relevant circumstances. (¶¶ 21, 22)
- The award of 18% post-award interest on the principal alone therefore disclosed no error apparent. (¶ 22)
Result
Appeal dismissed; the Delhi High Court's refusal to disturb the arbitrator's grant of post-award interest on the principal amount only was upheld.