Arbitrator’s Discretion on Post-Award Interest

In the legal realm, a crucial question arises regarding the arbitrator’s authority to award post-award interest. Delving into the court’s interpretation of Section 31(7)(b) of the Act sheds light on the intricacies of this issue. Let’s unravel the nuances of the arbitrator’s discretion in granting post-award interest and explore the legal analysis provided by the court.

Facts

• The appellant challenged the arbitral award in a petition under Section 34 before the Delhi High Court.
• The appellant raised objections on the grant of post-award and pre-award interest.
• The respondent also filed a petition challenging the arbitral award.
• The appellant issued 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.
• Proceedings under Article 136 of the Constitution initiated to challenge the judgment of the Division Bench of the Delhi High Court dated 26 February 2020.
• Appellant sought post-award interest of eighteen percent per annum on the total sum awarded, inclusive of principal and pre-award interest.
• Single Judge of the Delhi High Court in a judgment dated 7 February 2019, dismissed the petition for post-award interest, citing the Arbitrator’s discretion to limit it to the principal amount.
• Both Single Judge and Division Bench of the Delhi High Court addressed objections raised by the appellant and the respondent.

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Issue

• The core issue in question is whether the arbitrator holds the discretion to award post-award interest solely on the principal sum according to Section 31(7)(b) of the Act.

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Arguments

• The arbitral tribunal has the discretion to determine the grant of post-award interest.
• The tribunal can decide the ‘sum’ on which the post-award interest will be granted.
• The rate of post-award interest is also at the discretion of the tribunal.
• These decisions are within the authority of the arbitral tribunal.

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Analysis

• Section 31(7)(b) of the Act does not allow the arbitrator to determine the ‘sum’ on which post-award interest is to be granted, as it is specified in the statute.
• The decision in Hyder Consulting overruled the decision in SL Arora on the issue of post-award interest on the aggregate of principal and pre-award interest.
• The ‘sum’ mentioned in the statute refers to the aggregate of principal and pre-award interest, indicating that interest should be calculated on this combined amount.
• There is a debate on whether the arbitrator has the discretion to order post-award interest on a part of the ‘sum’ arrived at under Section 31(7)(a).
• Justice Sapre and Justice Bobde had differing views on the discretion of the arbitrator in granting post-award interest, with Justice Bobde not expressly discussing the arbitrator’s discretion.
• Section 31(7)(b) is applicable only when the arbitration award does not specifically provide for post-award interest.
• Section 31(7) of the Act deals with pre-award and post-award interest.
• The purpose of granting post-award interest is to prevent delay in payment by the award-debtor.
• The arbitrator has discretion in determining the rate of interest, the period of payment, and the quantum for which interest is awarded.
• High statutory rate of eighteen percent is recognized for post-award interest to deter delay in payment.
• Discretion of the arbitrator for post-award interest is not restricted by the Act unless explicitly provided.
• The arbitrator’s discretion is influenced by factors such as the financial standing of the award-debtor and circumstances of the parties.
• The discretion for granting post-award interest is inherent to the arbitrator’s authority.
• Clause (b) under Section 31(7) allows for post-award interest at eighteen percent when the award is silent on the matter.
• The arbitrator can determine the rate, sum, and period for post-award interest.
• The decision in SL Arora case only relates to the rate of post-award interest, not the discretion of the arbitrator.
• Section 31(7)(a) provides for pre-award interest from the date of cause of action to the award date.
• Section 31(7)(b) applies when the award does not address post-award interest.
• Arbitrators can decide on post-award interest, its duration, and rate under Section 31(7)(b).
• The conclusion in SL Arora (supra) was questioned for its correctness.
• The issue in Hyder Consultancy (supra) was whether post-award interest can be granted on the aggregate of principal and pre-award interest.

Case Title: MORGAN SECURITIES AND CREDITS PVT. LTD. Vs. VIDEOCON INDUSTRIES LTD. (2022 INSC 898)

Case Number: C.A. No.-005437-005437 / 2022

Click here to read/download original judgement