MORGAN SECURITIES AND CREDITS PVT. LTD. versus VIDEOCON INDUSTRIES LTD. on 1 September 2022

MORGAN SECURITIES AND CREDITS PVT. LTD.

v.

VIDEOCON INDUSTRIES LTD.

(Civil Appeal No. 5437 of 2022)

SEPTEMBER 01, 2022

[DR DHANANJAYA Y CHANDRACHUD ANDA S BOPANNA, JJ.]

Arbitration and Conciliation Act 1996: s. 31(7)(a), 31(7)(b)– Post award interest on principal sum – Grant of – Discretion ofarbitrator – On facts, arbitral award in favour of the appellant –Post-award interest fixed at the rate of 18% on the principle sum,from the date of award to the date of payment – Challenge to, bythe appellant that the post-award interest of 18% pa should begranted on the total sum awarded, both inclusive of principal andpre-award interest – Single Judge held that the arbitrator had inhis discretion restricted the post-award interest to the principalamount and that the court would not interfere with the exercise ofdiscretion – On appeal, held: Abitrator has the discretion to awardpost-award interest on a part of the sum – There is nothing in theprovision which restricts the discretion of the arbitrator for the grantof post-award interest on the part of the sum, which the arbitratorotherwise holds inherent to their authority – Discretion of thearbitrator can only be restricted by an express provision to thateffect – Phrase ‘unless the award otherwise directs’ in s. 31(7)(b),only qualify the rate of post-award interest – As per s. 31(7)(b), ifthe arbitrator does not grant post-award interest, the award holderis entitled to post-award interest at eighteen percent – Arbitratormust exercise the discretion in good faith, must take into accountrelevant and not irrelevant considerations, and must act reasonablyand rationally taking cognizance of the surrounding circumstances– Thus, the award of the arbitrator granting post award interest onthe principal amount does not suffer from an error apparent.

Dismissing the appeal, the Court

HELD 1.1 While, clause (a) of Section 31(7) of theArbitration and Conciliation Act, 1996 is qualified by the arbitrationagreement, clause (b) is qualified by the arbitration award.

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AHowever, the placement of the phrases is crucial to theirinterpretation. The words, “unless otherwise agreed by theparties” occurs at the beginning of clause (a) qualifying the entireprovision. However, in clause (b), the words, “unless the awardotherwise directs” occurs after the words ‘a sum directed to bepaid by an arbitral award shall’ and before the words ‘carry interestBat the rate of eighteen per cent”. Thereby, those words only qualifythe rate of post-award interest. [Para 18][833-F-G]

1.2 Section 31(7)(a) confers a wide discretion upon thearbitrator in regard to the grant of pre-award interest. Thearbitrator has the discretion to determine the rate of reasonableCinterest, the sum on which the interest is to be paid, that iswhether on the whole or any part of the principal amount, and theperiod for which payment of interest is to be made - whether itshould be for the whole or any part of the period between thedate on which the cause of action arose and the date of the award.

DWhen a discretion has been conferred on the arbitrator in regardto the grant of pre-award interest, it would be against the grain ofstatutory interpretation to presuppose that the legislative intentwas to reduce the discretionary power of the arbitrator for thegrant of post-award interest under clause (b). Clause (b) onlycontemplates a situation where the arbitration award is silent onEpost-award interest, in which event the award-holder is entitledto a post-award interest of eighteen percent. [Para 19][833-H;834-A-C]

1.3 The arbitrator has the discretion to grant post-awardinterest. Clause (b) does not fetter the discretion of the arbitratorFto grant post-award interest. It only contemplates a situation inwhich the discretion is not exercised by the arbitrator. Therefore,the observations Hyder Consulting’s case on the meaning of ‘sum’will not restrict the discretion of the arbitrator to grant post-awardinterest. There is nothing in the provision which restricts theGdiscretion of the arbitrator for the grant of post-award interestwhich the arbitrator otherwise holds inherent to their authority.[Para 20][834-C-E]

1.4 The purpose of granting post-award interest is to ensurethat the award- debtor does not delay the payment of the award.

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With the proliferation of arbitration, issues involving both highand low financial implications are referred to arbitration. Thearbitrator takes note of various factors such as the financialstanding of the award-debtor and the circumstances of the partiesin dispute before awarding interest. The discretion of thearbitrator can only be restricted by an express provision to thateffect. Clause (a) subjects the exercise of discretion by thearbitrator on the grant of pre-award interest to the arbitral award.However, there is no provision in the Act which restricts theexercise of discretion to grant post-award interest by thearbitrator. The arbitrator must exercise the discretion in goodfaith, must take into account relevant and not irrelevantconsiderations, and must act reasonably and rationally takingcognizance of the surrounding circumstances. [Para 21][834-E-G]

1.5 The judgment of the two-Judge Bench in SL Arora’scase was referred to a three-Judge Bench in Hyder Consulting’scase on the question of whether post-award interest could begranted on the aggregate of the principal and the pre-awardinterest arrived at under Section 31(7)(a) of the Act wherein itwas held that the arbitrator may grant post-award interest on theaggregate of the principal and the pre-award interest. The opiniondid not discuss the issue of whether the arbitrator could use theirdiscretion to award post- award interest on a part of the ‘sum’awarded under Section 31(7)(a). The phrase ‘unless the awardotherwise directs’ in Section 31(7)(b) only qualifies the rate ofinterest. According to Section 31(7)(b), if the arbitrator does notgrant post- award interest, the award holder is entitled to post-award interest at eighteen percent. Section 31(7)(b) does notfetter or restrict the discretion that the arbitrator holds in grantingpost-award interest. The arbitrator has the discretion to awardpost-award interest on a part of the sum. The arbitrator mustexercise the discretionary power to grant post- award interestreasonably and in good faith, taking into account all relevantcircumstances. By the arbitral award dated 29 April 2013, a post-award interest of eighteen percent was awarded on the principalamount in view of the judgment of this Court in SL Arora’s case.The arbitrator has the discretion to award post-award interest ona part of the ‘sum’; the ‘sum’ as interpreted in Hyder Consulting’s AB

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Acase. Thus, the award of the arbitrator granting post award intereston the principal amount does not suffer from an error apparent.[Para 22][834-H; 835-A-F]

Hyder Consulting Ltd. v. State of Orissa (2013) 2 SCC719; State of Haryana v. SL Arora (2010) 3 SCC 690 :B[2010] 2 SCR 297 – referred to.

Case Law Reference

CCIVIL APPELLATE JURISDICTION: Civil Appeal No. 5437of 2022.

From the Judgment and Order dated 26.02.2020 of the High Courtof Delhi at New Delhi in FAO (OS) (COMM) No. 9 of 2020.

Abhishek Puri, Ms. Aruna Gupta, Ms. Surabhi Gupta, Advs. forDthe Appellant.

Nakul Dewan, Sr. Adv., Arjun Pall, Ms. Sadhika Gulati, Ms. NeeluMohan, Sathvik Chandrasekhar, S. S. Shroff, Advs. for the Respondent.

The Judgment of the Court was delivered byEDR DHANANJAYA Y CHANDRACHUD, J.

1. This appeal arises from a judgment dated 26 February 2020 ofthe High Court of Delhi by which the appeal under Section 37 of theArbitration and Conciliation Act 1996[1] against a judgment of the SingleJudge dated 7 February 2019 has been dismissed. At the core, the issueFis whether the arbitrator has the discretion to grant post-award interestonly on the principal sum due under Section 31(7)(b) of the Act.

Facts

2. On 27 January 2003, the appellant and the respondent enteredinto an agreement under which the respondent availed of bill discountingGfacilities from the appellant. The appellant disbursed Rs. 5,00,32,656pursuant to the agreement. The dues remained unpaid. The appellantissued a notice to the respondent on 10 January 2006 demanding the payment of the principal amount of Rs. 5,00,32,656 as on 17 April 2003,which is the date of default, along with an overdue interest. Since therespondent did not pay the amount as demanded, the appellant issued anotice on 31 January 2006, invoking the arbitration clause of theagreement.

3. The sole arbitrator rendered an arbitral award in favour of theappellant on 1 March 2013. The award was corrected on 29 April 2013and decrees the claim of the appellant in the amount of Rs. 5,00,32,656.Interest at the rate of (i) twenty one percent per annum has been grantedfrom the date of default to the date of the demand notice; (ii) thirty sixpercent per annum with monthly rests from the date of the demandnotice to the date of award (“pre-award interest”); and (iii) eighteenpercent per annum on the principal amount of Rs. 5,00,32,656 from thedate of award to the date of payment (“post-award interest”). Therelevant extract of the award is set out below:

“ In view of the findings of the Tribunal above, Respondent No. 2is liable to pay a sum of Rs. 5,00,32, 656 (Rupees five croresthirty two thousand six hundred and fifty six only) to the Claimantalong with interest at 21% p.a till the date of demand notice. Afterthe date of the demand notice, i.e 10.01.2006, the Claimant isentitled to receive interest at the rate 36% p.a with monthly rests.Further, in terms of the aforesaid decision in S.L Arora, theClaimant is entitled to receive post- award interest at therate of 18% p.a only on the principal amount of Rs5,00,32,656/”

4. The appellant challenged the arbitral award [2] in a petition underSection 34 before the Delhi High Court raising objections on the grant ofpost-award and pre-award interest. The respondent also filed a petition[3].The appellant urged that the post-award interest of eighteen percent perannum should be granted on the total sum awarded, inclusive both ofprincipal and pre-award interest. By a judgment dated 7 February 2019,the Single Judge of the Delhi High Court dismissed the petition filed bythe appellant on the grant of post-award interest. The Single Judge heldthat the Arbitrator had in his discretion restricted the post-award interest 2 OMP No. 972 of 2013

3 OMP 665 of 2013

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Ato the principal amount and that the court would not interfere with theexercise of discretion:

The appeal against the judgment of the Single Judge was dismissedby the Division Bench of the High Court by a judgment dated 26February 2020. The counsel for the appellant before the HighBCourt placed reliance on the decision of a three-Judge Bench ofthis Court in Hyder Consulting (UK) Limited v. Governor,State of Orissa[4] and contended that post-award interest ought tobe granted on the sum directed to be paid under the arbitral award,which also includes the pre-award interest. Counsel for therespondent contended that reliance ought not to be placed on theCjudgment in Hyder Consulting (supra) since the decision in Stateof Haryana v. SL Arora[5]was the applicable law when the petitionunder Section 34 was instituted. The Division Bench of the HighCourt observed that the judgment in Hyder Consulting (supra)clarifies that when the arbitral award is silent on post-awardDinterest, it would be payable on the ‘sum’ awarded, which wouldinclude both the principal and the pre-award interest. The DivisionBench held that in this case since the arbitral award is not silenton post-award interest, the provisions of Section 31(7)(b) of theAct would not be applicable.

EBoth the Single Judge and the Division Bench of the Delhi HighCourt also decided on the other objections of the appellant and therespondent.

5. Proceedings under Article 136 of the Constitution were initiatedfor challenging the judgment of the Division Bench of the Delhi HighFCourt dated 26 February 2020. On 16 July 2021, this Court issued noticeconfined to the issue of post-award interest. The order reads as follows:

“1 Issue notice confined to the post award interest. We are notentertaining the Special Leave Petition as regards the award ofinterest prior to the date of the award.

G2 The Arbitrator, in awarding interest at the rate of 18% postaward on the principal sum, based the award on the decision inState of Haryana v SL Arora. The decision in S L Arora wasoverruled in Hyder Consulting (UK) Ltd. v. State of Orissa.

4 (2015) 2 SCC 189H5 (2010) 3 SCC 690

3. In view of the above premises, we issue notice confined to theabove issue returnable in eight weeks.”

Submissions

6. Mr. Abhishek Puri, learned counsel appearing for the appellant made the following submissions:

(i) In view of the provisions of Section 31(7) of the Act and thejudgment of this Court in Hyder Consulting (supra), if pre-award interest is awarded on the principal sum, the aggregateof the principal and the pre-award interest is the ‘sum’ onwhich post-award interest must be granted;

(ii) According to the majority opinion in Hyder Consulting(supra), once pre-award interest is granted on the principalsum under Section 31(7)(a) of the Act, the interest awardloses its character as interest and takes the color of theawarded ‘sum’ for the purposes of post-award interest underSection 31(7)(b) of the Act;

(iii) The arbitral award is silent on post-award interest on thecomponent of interest. Therefore, the appellant is entitled tothe statutory rate of interest on the aggregate of the principaland pre-award interest under Section 31(7)(b) of the Act;

(iv) Even according to the decision in SL Arora (supra), thediscretion of the arbitral tribunal under Section 31(7)(b) ofthe Act was only with respect to the rate of the post-awardinterest. In this case, the arbitrator has awarded post-awardinterest only on the principal sum solely in view of the judgmentin SL Arora (supra);

(v) The arbitrator only has the discretion to determine the ratepost-award interest. The Arbitrator does not have thediscretion to determine the ‘sum’ on which the post-awardinterest is to be granted; and

(vi) The contention that Section 31(7)(b) of the Act would beinapplicable in cases where the arbitrator has awarded post-award interest by exercising discretion is not borne out of thedecisions in SL Arora (supra) or Hyder Consulting (supra).

7. Mr Nakul Dewan, learned senior counsel for the respondentmade the following submissions:

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A(i)Section 31(7)(b) is qualified by the phrase “unless the awardotherwise directs”. Therefore, Section 31(7)(b) would onlybe applicable where an arbitral award is silent on thecomponent of post-award interest;

(ii) Under Section 31(7)(b) of the Act, the arbitrator has theBdiscretion to (a) grant post-award interest; (b) determine thequantum over which the post-award interest should begranted; and (c) determine the rate at which the interest shouldbe calculated; and

(iii) In Hyder Consulting (supra), a three-Judge Bench of thisCCourt overruled SL Arora (supra) to the extent that the latterdecision held that the arbitral tribunal does not have the powerto award interest over interest. However, in HyderConsulting (supra), it was not held that it is mandatory thatthe post-award interest ought to only be granted on theaggregate of the principal and the pre-award interest.D

Analysis

8. Section 31 provides for the “form and content of arbitral award”.Sub-section 7 of Section 31 deals with pre-award and post-award interest.Section 31(7)(a) provides for pre-award interest, that is for the periodbetween the date on which the cause of action arose and the date onEwhich the award is made. Section 31(7)(b) provides for post-awardinterest, between the date of award to the date of payment. Section31(7) reads as follows:

(7) (a) Unless otherwise agreed by the parties, where and in soFfar as an arbitral award is for the payment of money, the arbitraltribunal may include in the sum for which the award is madeinterest, at such rate as it deems reasonable, on the whole orany part of the money, for the whole or any part of the periodbetween the date on which the cause of action arose and the dateon which the award is made; G

(b) A sum directed to be paid by an arbitral award shall,unless the award otherwise directs, carry interest at the rate ofeighteen per centum per annum from the date of the award to thedate of payment.

9. In SL Arora (supra) this court had to interpret the expression‘sum’ in Section 31(7). This Court framed the following issue:

“(i) Whether Section 31(7) of the Act authorises and enablesArbitral Tribunals to award interest on interest from the date ofaward?”

Justice R V Raveendran writing for a two-Judge Bench held thatSection 31(7) does not enable the arbitral tribunal to provide interest oninterest from the date of the award. While arriving at this conclusion, thecourt observed that:

(i) Section 31(7) does not make any reference to the paymentof compound interest or interest on interest. The phrase “sumdirected to be paid by the award” refers to the award of“sums on substantive claims”, that is, the principal amount.In the absence of a provision enabling the grant of compoundinterest, such a power cannot be read into the provisions eitherfor the pre-award period or for the post-award period;

(ii) A high rate of interest at eighteen percent is statutorilyrecognised in Section 31(7)(b) for the post-award period todeter the award-debtor from delaying the payment of moniesas directed in the award;

(iii) Section 31(7)(a) confers the arbitrator with the discretion todetermine the rate of interest, the period for which the interestis to be paid, and the quantum on which interest is to beawarded. However, the discretionary power of the arbitratoris subject to the contract between the parties. Section 31(7)(b)provides the arbitrator the discretion to award interest for thepost-award period. The discretion is not subject to anycontract. If the arbitrator does not exercise the discretion byawarding post-award interest, then the mandated interest ofeighteen percent shall be awarded; and

(iv) If the award provides interest at a specified rate till the dateof payment, then Section 31(7)(b) of the Act will not beinvoked. Section 31(7)(b) will be invoked only if the award issilent on the post-award interest.

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A10. A two-judge bench of this Court[6] referred the correctness ofthe decision in SL Arora (supra) to a three-Judge Bench. In HyderConsulting (supra), a three-Judge Bench overruled the decision in SLArora (supra). Three separate judgments were authored. In order todetermine the ratio decidendi in Hyder Consulting (supra), it isnecessary that all three opinions are carefully analysed. Justice SA Bobde,Bobserved that the view in SL Arora (supra) that pre-award interest shouldnot be included in the ‘sum’ for calculating post-award interest iserroneous:

“2. It is not possible to agree with the conclusion in S.L. Aroracase that Section 31(7) of the Act does not require that interestCwhich accrues till the date of the award be included in the ‘sum’from the date of award for calculating the post-award interest. Inmy humble view, this conclusion does not seem to be in consonancewith the clear language of Section 31(7) of the Act.”

Referring to Section 31(7)(a), Justice Bobde observed that (i)Dsince Parliament has not qualified the phrase ‘sum’ with the word‘principal’, (as in Section 34 of the Code of Civil Procedure 1908) theword ‘sum’ only takes the meaning of ‘a particular amount of money’;(ii) the ‘sum’ would include both principal and interest; and (iii) wheninterest is directed to be paid on the principal under Section 31(7)(a), theEaggregate amount after merging pre-award interest and the principalwould be the ‘sum’, where the two components of principal and interestwould have lost their identities. The relevant observations are extractedbelow:

7. Thus, when used as a noun, as it seems to have been used inFthis provision, the word “sum” simply means “an amount ofmoney”; whatever it may include — “principal” and “interest” orone of the two. Once the meaning of the word “sum” is clear, thesame meaning must be ascribed to the word in clause (b) of sub-section (7) of Section 31 of the Act, where it provides thata sum directed to be paid by an arbitral award “shall … carryGinterest …” from the date of the award to the date of the paymenti.e. post-award. In other words, what clause (b) of sub-section(7) of Section 31 of the Act directs is that the “sum”, whichis directed to be paid by the award, whether inclusive or H6 Hyder Consulting Ltd. v. State of Orissa, (2013) 2 SCC 719

exclusive of interest, shall carry interest at the rate ofeighteen per cent per annum for the post-award period,unless otherwise ordered.

[…]

13. Thus, it is apparent that vide clause (a) of sub-section (7) ofSection 31 of the Act, Parliament intended that an award forpayment of money may be inclusive of interest, and the “sum” ofthe principal amount plus interest may be directed to be paid bythe Arbitral Tribunal for the pre-award period. Thereupon, theArbitral 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 theamount would be the sum arrived at after the merging ofinterest with the principal; the two components having losttheir separate identities.”

11. Justice AM Sapre in his concurring opinion noted that whilethe grant of pre-award interest is at the discretion of the arbitral tribunal;post-award interest is mandated by the statute where the arbitrator onlyhas the discretion to decide the rate of interest. That is, if the arbitraltribunal has used its discretion to grant post-award interest at a particularrate, then such rate as directed would prevail, otherwise, the rate ofinterest mentioned in the statute would be applicable. The relevant extractof the judgment reads as follows:

“26. […] Pre-award interest is at the discretion of the ArbitralTribunal, while the post-award interest on the awarded sumis mandate of the statute—the only difference being that ofrate of interest to be awarded by the Arbitral Tribunal. Inother words, if the Arbitral Tribunal has awarded post-awardinterest payable from the date of award to the date of payment ata particular rate in its discretion then it will prevail else the partywill be entitled to claim post-award interest on the awarded sumat the statutory rate specified in clause (b) of Section 31(7) of theAct i.e. 18%. Thus, there is a clear distinction in time period andthe intended purpose of grant of interest.”

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AJustice Sapre agreed with Justice Bobde on the meaning of theexpression ‘sum’ and held that once the interest is ‘included in the sum’,then the interest and the principal component cannot be segregated :

“28. Therefore, for the purposes of an award, there is no distinctionbetween a “sum” with interest, and a “sum” without interest. OnceBthe interest is “included in the sum” for which the award ismade, the original sum and the interest component cannotbe segregated and be seen independent of each other. Theinterest component then loses its character of an “interest”and takes the colour of “sum” for which the award is made.

C29. There may arise a situation where, the Arbitral Tribunal maynot award any amount towards principal claim but award only“interest”. This award of interest would itself then become the“sum” for which an award is made under Section 31(7)(a) of theAct. Thus, in a pre-award stage, the legislation seeks tomake no distinction between the sum awarded and theDinterest component in it.

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31. […] Interest under clause (b) is granted on the “sum”directed to be paid by an arbitral award wherein the “sum”Eis nothing more than what is arrived at under clause (a)”

12. The view of Chief Justice HL Dattu in his dissenting opinionwas that :

(i) The phrase ‘sum’ in Section 31(7)(a) refers to ‘money’ inFcommon parlance. Section 31(7)(a) states that interest maybe awarded on the ‘sum’, which would mean the interestawarded on the money for which the arbitral award is made.Therefore, sum refers to the ‘principal’ amount awarded;

(ii) The phrase ‘sum’ as used in clause (b) is used in the sameGcontext as in clause (a). Therefore, the phrase ‘sum’ in clause(b) also means the ‘principal’ amount; and

(iii) The words ‘unless the award otherwise directs” in Section31(7) (b) would mean that if the arbitral tribunal directs post-award interest to be paid, then Section 31(7)(b) would beH

inapplicable. The corollary is that even if the award directsthat no post-award interest is to be granted, clause (b) cannotbe invoked. The observations in the dissent are extractedbelow:

“81. […] The said clause uses the phrase “unless the awardotherwise directs”, which would mean that in the event the ArbitralTribunal, in its award, makes a provision for interest to be imposedin this second stage as envisaged by sub-section (7) of Section 31of the 1996 Act, clause (b) would become inapplicable. By thesaid award, the Arbitral Tribunal has the power to impose aninterest for the post-award period which may be higher or lowerthan the rate as prescribed under clause (b). Even if the awardstates that no interest shall be imposed in the post-award period,clause (b) cannot be invoked.

82. If the arbitral award is silent on the question of whether therewould be any post-award interest, only in that situation could clause(b) be made applicable. In the said situation, it would be mandatoryas per law that the award could carry interest at the rate of 18%per annum from the date of the award to the date of payment.The term used in the given clause is “shall”, therefore, if applicable,the imposition of interest as per clause (b) would be mandatory.”

13. The contention of the respondent is that Section 31(7)(b) couldbe invoked only when the arbitration award is silent on post-awardinterest. That is, if the award does not make a specific provision forpost-award interest, then in view of Section 31(7)(b) of the Act, post-award interest of eighteen percent shall be paid on the ‘sum’, for whichpurpose the ‘sum’ shall be the aggregate of the principal and pre-awardinterest. The argument of Mr Nakul Dewan is that the arbitral tribunalhas the discretion to determine- a) whether post-award interest shouldbe granted; b) the ‘sum’ on which the post-award interest is to be granted;and c) the rate of such interest.

14. The interpretation of Section 31(7)(b) has to focus on themeaning of two phrases - first, the expression “sum”; and second, “unlessthe award otherwise directs”. The phrase ‘sum’ has been interpreted inthe opinion of Justice Bobde and in the concurring opinion of JusticeSapre in Hyder Consulting (supra) to mean the amount directed to bepaid by an arbitral award as arrived in Section 31(7)(a), which would A

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Ainclude the aggregate of the principal and the pre-award interest. WhileJustice Sapre was of the view that the arbitrator only has the discretionto determine the rate of post-award interest, Justice Bobde did notexpressly discuss the ambit of discretion of the arbitrator while grantingpost-award interest. In Justice Bobde’s opinion, there was no discussionon whether the arbitrator had the discretion to order post-award interestBon a part of the ‘sum’ that was arrived under Section 31(7)(a).

15. On the interpretation of the words ‘unless the award otherwisedirects’, Justice Sapre interpreted them to mean that post-award interestis a statutory mandate and that the arbitrator only has the discretion todetermine the rate of interest to be awarded. Justice Bobde did notCspecifically interpret the phrase ‘unless the award otherwise directs’.The learned Judge made a passing reference to the phrase in paragraph7 of the judgment, where he observed that “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 inclusiveDor exclusive of interest, shall carry interest at the rate of eighteenper cent per annum for the post-award period, unless otherwiseordered.”However, in paragraph 13 of the judgment, the learned Judgeobserved, “Thereupon the Arbitral Tribunal may direct interest to bepaid on such ‘sum’for the post-award period vide clause (b) ofsub-section (7) of Section 31 of the Act, at which stage the amountEwould be the sum arrived at after the merging of interest with theprincipal; the two components having lost their separate identities.”

16. The use of the words ‘may direct interest to be made’ inparagraph 13 of Justice Bobde’s opinion could be interpreted to meaneither that the arbitrator has the discretion to decide not to grant post-Faward interest or as recognising the discretion of the arbitrator on whetherto grant interest on the aggregate of the principal and the pre-awardinterest. Nothing in the observations extracted above limit the discretionof the arbitrator in awarding post-award interest. This conclusion isfurther fortified by the issue framed in Hyder Consultancy (supra),Gwhere the Court was to determine if the conclusion in SL Arora (supra)is correct to the extent that it holds that post-award interest cannot begranted on the aggregate of principal and pre-award interest. In theconcluding paragraph of Justice Bobde’s opinion , it has been observedthat SL Arora (supra) was wrongly decided:

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“24. In the result, I am of the view that SL Arora case is wronglydecided in that it holds that a sum directed to be paid by an ArbitralTribunal and the reference to the award on the substantive claimdoes not refer to interest pendent lite awarded on the “sum directedto be paid upon award” and that in the absence of any provisionof interest upon interest in the contract the Arbitral Tribunal doesnot have the power to award interest upon interest, or compoundinterest either for the pre-award period or for the post0awardperiod. Parliament has the undoubted power to legislate on thesubject and provide that the Arbitral Tribunal may award intereston the sum directed to be paid by the award, meaning a suminclusive of principal sum adjudged and the interest, and this hasbeen done by Parliament in plain language.”

17. The decision in Hyder Consulting (supra) was on the limitedissue of whether post-award interest could be granted on the aggregateof the principal and the pre-award interest. As noted above, the opinionauthored by Justice Bobde was limited to this aspect of post-awardinterest. It was in the concurring opinion of Justice Sapre that it washeld that the arbitrator only has the discretion to determine the rate ofpost-award interest. Therefore, the issue of whether the arbitrator couldaward post-award interest on a part of the aggregate sum was notconclusively decided the opinions forming a part of the majority in HyderConsulting (supra).

18. The issue before us is whether the phrase ‘unless the awardotherwise directs’ in Section 31(7)(b) of the Act only provides the arbitratorthe discretion to determine the rate of interest or both the rate of interestand the ‘sum’ it must be paid against. At this juncture, it is crucial to notethat both clauses (a) and (b) are qualified. While, clause (a) is qualifiedby the arbitration agreement, clause (b) is qualified by the arbitrationaward. However, the placement of the phrases is crucial to theirinterpretation. The words, “unless otherwise agreed by the parties” occursat the beginning of clause (a) qualifying the entire provision. However,in clause (b), the words, “unless the award otherwise directs” occursafter the words ‘a sum directed to be paid by an arbitral award shall’and before the words ‘carry interest at the rate of eighteen per cent”.Thereby, those words only qualify the rate of post-award interest.

19. Section 31(7)(a) confers a wide discretion upon the arbitratorin regard to the grant of pre-award interest. The arbitrator has the A

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Adiscretion to determine the rate of reasonable interest, the sum on whichthe interest is to be paid, that is whether on the whole or any part of theprincipal amount, and the period for which payment of interest is to bemade - whether it should be for the whole or any part of the periodbetween the date on which the cause of action arose and the date of theaward. When a discretion has been conferred on the arbitrator in regardBto the grant of pre-award interest, it would be against the grain of statutoryinterpretation to presuppose that the legislative intent was to reduce thediscretionary power of the arbitrator for the grant of post-award interestunder clause (b). Clause (b) only contemplates a situation where thearbitration award is silent on post-award interest, in which event theCaward-holder is entitled to a post-award interest of eighteen percent.20. The arbitrator has the discretion to grant post-award interest.Clause (b) does not fetter the discretion of the arbitrator to grant post-award interest. It only contemplates a situation in which the discretion isnot exercised by the arbitrator. Therefore, the observations Hyder DConsulting (supra) on the meaning of ‘sum’ will not restrict the discretionof the arbitrator to grant post-award interest. There is nothing in theprovision which restricts the discretion of the arbitrator for the grant ofpost-award interest which the arbitrator otherwise holds inherent to theirauthority.

21. The purpose of granting post-award interest is to ensure thatEthe award-debtor does not delay the payment of the award. With theproliferation of arbitration, issues involving both high and low financialimplications are referred to arbitration. The arbitrator takes note of variousfactors such as the financial standing of the award-debtor and thecircumstances of the parties in dispute before awarding interest. TheFdiscretion of the arbitrator can only be restricted by an express provisionto that effect. Clause (a) subjects the exercise of discretion by thearbitrator on the grant of pre-award interest to the arbitral award.However, there is no provision in the Act which restricts the exercise ofdiscretion to grant post-award interest by the arbitrator. The arbitrator must exercise the discretion in good faith, must take into account relevantGand not irrelevant considerations, and must act reasonably and rationallytaking cognizance of the surrounding circumstances.22. In view of the discussion above, we summarise our findingsbelow:

(i) The judgment of the two-Judge Bench in SL Arora (supra)Hwas referred to a three-Judge Bench in Hyder Consulting

(supra) on the question of whether post-award interest couldbe granted on the aggregate of the principal and the pre-award interest arrived at under Section 31(7)(a) of the Act; A

(ii) Justice Bobde’s opinion in Hyder Consulting (supra) heldthat the arbitrator may grant post-award interest on theaggregate of the principal and the pre-award interest. Theopinion did not discuss the issue of whether the arbitratorcould use their discretion to award post-award interest ona part of the ‘sum’ awarded under Section 31(7)(a); B

(iii) The phrase ‘unless the award otherwise directs’ in Section31(7)(b) only qualifies the rate of interest; C

(iv) According to Section 31(7)(b), if the arbitrator does notgrant post-award interest, the award holder is entitled topost-award interest at eighteen percent;

(v) Section 31(7)(b) does not fetter or restrict the discretionthat the arbitrator holds in granting post-award interest. TheDarbitrator has the discretion to award post-award intereston a part of the sum;

(vi) The arbitrator must exercise the discretionary power to grantpost-award interest reasonably and in good faith, taking intoaccount all relevant circumstances; and E

(vii) By the arbitral award dated 29 April 2013, a post-awardinterest of eighteen percent was awarded on the principalamount in view of the judgment of this Court in SL Arora(supra). In view of the above discussion, the arbitrator hasthe discretion to award post-award interest on a part of the‘sum’; the ‘sum’ as interpreted in Hyder Consulting(supra). Thus, the award of the arbitrator granting postaward interest on the principal amount does not suffer froman error apparent.

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23. For the reasons indicated above, the appeal against the judgmentof the Delhi High Court dated 26 February 2020 is dismissed.

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24. All pending application(s), if any, are disposed of.

Nidhi Jain

(Assisted by : Shashwat Jain, LCRA)

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