Summary
An award under the Arbitration Act, 1940 granted 12% simple interest on the amount awarded up to the award and 15% thereafter. The contractor claimed in execution that post-award interest ran on the principal plus pre-award interest. The Supreme Court held that, absent a statutory provision or contractual term permitting it, interest on interest is not ordinarily granted, and the award and decree on their plain terms gave 15% only on the principal sum; the SLP was dismissed.
Issues
- Whether post-award interest at 15% under an award made under the Arbitration Act, 1940 is payable on the principal sum plus the 12% pre-award interest, or only on the principal sum awarded.
- When courts or arbitrators may award interest on interest or compound interest.
Provisions considered
- Section 29, Arbitration Act, 1940Read as allowing the court, in the decree, to order interest only on the principal sum adjudged by the award, not interest on interest. (¶¶ 15, 24)
- Sections 14 and 17, Arbitration Act, 1940The award was made a rule of the court and a decree drawn; since the award operates as a decree, the CPC applies to a limited extent for interest and execution. (¶¶ 2, 16)
- Section 34(1), Code of Civil Procedure, 1908Interest under it is payable on the 'principal sum adjudged', not on the interest component; the section is silent on interest upon interest. (¶¶ 17, 21, 24)
- Section 3(3), Interest Act, 1978Expressly denies courts power under Section 3 to award interest upon interest, so such interest is ordinarily unavailable unless a statute or the contract provides for it. (¶¶ 18, 24)
- Section 31(7), Arbitration and Conciliation Act, 1996Distinguished: Hyder Consulting and UHL Power read the word 'sum' in this provision as including pre-award interest, in contrast to the 'principal sum adjudged' in Section 34 CPC; the provision did not govern this 1940 Act award. (¶¶ 21, 22)
- Article 136, Constitution of IndiaThe Court declined to exercise its discretionary jurisdiction to disturb the concurrent view of the executing court and the High Court. (¶ 28)
Held
- Ordinarily courts do not grant interest on interest unless a statute specifically provides for it or the contract stipulates it. Courts have the power to award interest on interest or compound interest only where a statute or the contract confers it. (¶¶ 18, 20, 23)
- Neither the Arbitration Act, 1940 nor Section 34 CPC empowers the award of interest upon interest; Section 29 of the 1940 Act and Section 34 CPC speak of interest on the principal sum adjudged, and Section 3(3) of the Interest Act, 1978 prohibits interest upon interest. (¶¶ 15, 17, 18, 24)
- The rulings under Section 31(7) of the 1996 Act, where post-award interest runs on a 'sum' that includes pre-award interest, rest on the different wording of that provision and do not apply where the governing provisions speak of the principal sum adjudged. (¶¶ 21, 22)
- In the award, the 'amount awarded' on which 12% pre-award and 15% post-award interest were granted must mean the same principal amount in both parts. Neither the award nor the decree provided for 15% on the principal plus pre-award interest, no contractual term to that effect was shown, and the claim for the shortfall in interest was rightly rejected. (¶¶ 13, 27)
Result
Special Leave Petition dismissed; the concurrent orders of the executing court and the High Court refusing interest on pre-award interest upheld.