ABSTRACT
This article delves into the legal framework and judicial interpretations surrounding the award of interest in arbitration proceedings in India, with a particular focus on post-award interest. It examines Section 31(7) of the Arbitration and Conciliation Act, 1996, which governs how arbitral tribunals grant pre-award, pendente lite, and post-award interest. The essay traces the journey of judicial interpretations, highlighting the shift from earlier restrictive views to more progressive and expansive interpretations. Key Supreme Court rulings, such as Hyder Consulting and R.P. Garg, are discussed to clarify the current legal stance. Notably, the essay underscores that post-award interest is no longer merely a discretionary provision but a statutory requirement. The analysis extends to the debate over whether post-award interest should apply only to the principal amount or include pre-award interest as well. It also explores the arbitral tribunal’s discretion in deciding the rate and applicability of post-award interest. To provide a broader perspective, the essay briefly touches on international arbitration practices regarding post-award interest. In conclusion, the essay emphasizes how recent judicial trends in India reflect a more comprehensive approach to post-award interest, one that aligns with modern financial realities and ensures fair compensation. This evolution in arbitration law highlights the critical role of post-award interest in encouraging timely compliance with arbitral awards and safeguarding the rights of successful parties.
Keywords: Post award interest, arbitral tribunal, compound interest, section 31(7), compensation.
INTRODUCTION
Section 31(7)[1] of the Arbitration and Conciliation Act, 1996 elucidates the Indian position on the award of interests in arbitrations. In accordance with the provisions contained in Section 31(7) of the Arbitration Act, an Arbitral Tribunal possesses the authority to grant (i) pre-award; (ii) pendente lite; and (iii) post-award interest. The discretion of the arbitral tribunal in awarding interest from the date of the cause of action until the date of the award, even in instances where the contract was silent on the matter, has been upheld by various judgments including Pam Developments Private Limited v. The State of West Bengal &Anr[2]. and G.C. Roy[3], drawing upon the principle that a party deprived of the use of money is entitled to compensation. The court has consistently held that the power to grant interest emanated from Section 31(7)(a) of the Act and could only be restricted if a clear and unambiguous clause in the agreement between the parties explicitly prohibited the granting of such interest. Furthermore, as elucidated by the judgment of the Supreme Court in S.L. Aroracase[4], the Arbitral tribunal’s discretion in awarding pre-award interest is three-pronged, encompassing (i) the rate of interest (ii) the period for which the interest is to be paid (iii) the quantum on which the interest is to be awarded. Based on the judicial interpretations thus far, the arbitral tribunal’s discretion in awarding the pre-award and pendente lite interest, and the rate thereof has been sufficiently explicated. The focus of our analysis shall be the post-award interest and whether it would be simple or compound interest.
[1]The Arbitration & Conciliation Act, 1996, §37(7)
[2]Pam Developments (P) Ltd. v. State of W.B., (2024) 10 SCC 715 (per P.S. Narasimha, J.) (India)
[3]Irrigation Deptt., Govt. of Orissa v. G.C. Roy, (1992) 1 SCC 508 (per K.N. Singh, C.J.) (India)
[4]State of Haryana v. S.L. Arora & Co., (2010) 3 SCC 690 (per R.V. Raveendran, J.) (India)