[2010] 2 S.C.R. 297 2 9 8 SUPREME COURT REPORTS [2010] 2 S.C.R. STATE OF HARYANA & ORS. A A Renusagar Power Co. Ltd v. General Electric Co. 1993(3) v. Suppl. SCR 22 = 1994 Supp.(1) SCC 644; and Central S.L. ARORA & COMPANY Bank of India vs. Ravindra 2001(4) Suppl. SCR 323 = 2002 (Civil Appeal No.1094 of 2010) (1) SCC 367 – referred to. JANUARY 29, 2010 Arbitration and Conciliation Act, 1996: B B [R.V. RAVEENDRAN AND K.S. RADHAKRISHNAN, JJ.] ss.31(7)(a) and (b) – Award of interest – Interest upon interest – Clauses (a) and (b) of sub-section(7) of s.31 clearly Interest Act, 1978: indicate that the section contemplates award of only simple interest and not compound interest or interest upon interest s. 3 – Interest – Compound interest or Interest upon C C – s.31(7) makes no reference to compound interest – Nor interest – HELD: Section 3 enables the courts and arbitral does it require the interest which accrues till the date of award, tribunals to award interest from the date of cause of action to to be treated as part of the principal from the date of award the date of institution of legal proceedings or initiation of for calculating the post-award interest – In the absence of any arbitration proceedings – It does no deal with either pendente provision for interest upon interest in the contract, the arbitral lite or future interest – Sub-section (3)(c) of s.3 makes it clear D D tribunals do not have the power to award interest upon interest that nothing in the said section shall empower the court or or compound interest either for the pre-award period or for the arbitrator to award interest upon interest –Interest is usually post-award period – However, substantial the quantum of quantified in terms of a percentage of the ‘principal’ or the interest and costs may be in a given case, interest, in ‘investment’ or the ‘amount of liability’ – Interest unless particular, interest from the date of the award, and costs are otherwise specified, refers to simple interest, that is interest E E ancillary issues and are not substantive disputes – If the paid on only the principal and not on any accrued interest – contract provides for compounding of interest, or provides for Compound interest refers to a method of charging interest payment of interest upon interest, or provides for interest where interest is computed not only on the principal, but also payable on the principal upto any specified stage/s being the accrued interest – For this purpose, periodical rests are treated as part of principal for the purpose of charging of provided for computation of interest, say yearly, or quarterly interest during any subsequent period, the arbitral tribunal will F F or monthly – Compound interest can be awarded only if there have to give effect to it – But when the award is challenged u/ is a specific contract, or authority under a Statute, for s 34 of the Act, if the court finds that the interest awarded is compounding of interest – There is no general discretion in in conflict with, or violating the public policy of India, it may courts or tribunals to award compound interest or interest upon set aside that part of the award – In the instant case, the award interest –Arbitration and Conciliation Act, 1996 – s.31(7). [Para of interest upon the total amount of award refers to the total 8-10] G G of the amounts awarded on substantive claims excluding the claim relating to interest – The contractor was entitled only to State Bank of India vs. Ganjam District Tractor Owners simple interest on the principal amount as per original Association, 1994 (5) SCC 238, relied on. calculation shown in the execution petition – Judgment. [Para 14-15, 17, 18.3 and 21] 297 H H STATE OF HARYANA & ORS. v. S.L.ARORA & 299 3 0 0 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY s. 31(7) – Legal position regarding award of interest by A A CIVIL APPELLATE JURISDICTION : Civil Appeal No. arbitral tribunals, as emerging from s.31(7) – Explained – 1094 of 2010. Interest for pre-award period and interest for post-award period From the Judgment & Order dated 9.9.2008 of the High – Difference between clauses (a) and (b) of s.31(7) – Court of Punjab & Haryana at Chandigarh in Civil Revision No. Relevancy of contract in awarding interest – Discretion of 259 of 2008. arbitral tribunal – Purpose of post-award interest – B B Applicability of 18% interest – Explained. [para 18 to 18.6] Govind Geol, Ambuj Agarwal, Nitin Singh, Naresh Bakshi, M.L. Sharma for the Appellants. Judgment – Interpretation of – The observation in Three Circles* that Mcdermott** held that interest awarded on the Anusuya Salwan, S. Janani, Neha Mittal for the principal amount upto the date of award becomes the principal C C Respondent. amount and therefore award of future interest therein does not amount to award of interest on interest, is per incuriam due The Order of the Court was delivered by to an inadvertent erroneous assumption - Precedents. [Para 21] O R D E R *Uttar Pradesh Cooperative Federation Limited vs. Three D D R.V. RAVEENDRAN J. 1. Leave granted. Heard the Circles 2009 (14) SCR 310 = (2009) 10 SCC 374; and parties. **Mcdermott International Inc. vs. Burn Standard Co. Ltd and 2. The appellants awarded a construction contract to the Others – 2006(2) Suppl. SCR 409=(2006) 11 SCC 181, respondent. The work which had to be completed within 18 referred to. months from 18.3.1985, was actually completed on 30.11.1989. E E Oil & Natural Gas Commission v. M.C. Clelland The delay led to claims by the contractor and counter-claims Engineers S.A. - 1999 (2) SCR 830 =(1999) (4) SCC 327 – by the employer (appellants). The disputes were referred to a held inapplicable. sole Arbitrator who made an award dated 22.06.2000. The Arbitral Tribunal rejected the counter claims of the appellants. Case Law Reference: It awarded in all Rs.14,94,000/- with interest to the respondent- F F contractor. The operative portion of the award is extracted 1993(3) Suppl. SCR 22 referred to para 11 below: 1994 (5) SCC 238 relied on para 11 “I award Rs.14.94 lacs (Rupees Fourteen Lacs Ninety 2001(4) Suppl. SCR 323 referred to para 11 Four Thousands only) along with interest at the rate of 12% 1999 (2) SCR 830 held inapplicable para 19 G G with effect from 19.12.1990 till the date of award in favour of M/s. S.L. Arora and Company, 5E-10, Bunglow Plot, 2006(2) Suppl. SCR 409 referred to para 19 N.I.T., Faridabad(Claimant) to be paid by the Haryana PWD B&R Branch Department (respondent). In case the 2009 (14)SCR 310 referred to para 19 total amount of award together with this interest is not paid H H STATE OF HARYANA & ORS. v. S.L.ARORA & 301 3 0 2 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] within 30 days from the date of making this award, future A A execution petition. The respondent alleged that earlier, due to interest shall be paid @ 18% per annum on the sums due oversight, it had calculated the future interest at the rate of 18% to the claimant from the date of Award upto the actual date per annum from 23.6.2000 to date of execution petition of payment …………” (24.10.2004), only on the principal sum of Rs.14,94,000/-; that the future interest ought to have been calculated on a higher (emphasis supplied) B B sum of Rs.31,98,879/= (made up of Rs.14,94,000/- being the principal amount plus Rs.17,04,879/- being the interest at 12% 3. The application filed by the appellants to set aside the per annum which had accrued due up to the date of Award); said the award, under Section 34 of the Arbitration and and that therefore the amount due as on the date of execution Conciliation Act 1996 (‘Act’ for short), was rejected by the civil petition was Rs.56,97,685/- instead of Rs.43,65,918/- claimed court. Thereafter, on 26.10.2004, the respondent levied therein. The Executing Court after hearing the parties, by its execution against the appellants, to recover the following C C order dated 5.9.2007 accepted the revised calculation made amount: by the respondent. The revision petition filed by the appellants (i) Principal amount : Rs.14,94,000/- against the said order was dismissed by the High Court by the impugned order dated 9.9.2008 without examining the issue (ii) Interest at 12% per on merits, on the assumption that what was claimed was the D D annum on Rs.14,94,000/- balance of an admitted liability under the award. from 19.12.1990 to 22.6.2000 (date of the award) : Rs.17,04,879/- 5. The appellants did not dispute their liability to pay interest. They however contended that Section 31(7) of the Act (iii) Interest at 18% per annum on does not contemplate award of interest on interest; that an Rs.14,94,000/- from 23.6.2000 E E arbitral tribunal can award future interest only on the principal to 23.10.2004 (date of : Rs.11,67,039/- amount but not on the interest thereon which had accrued due execution petition) ——————— up to the date of award; and that the Arbitral Tribunal in this case TOTAL : Rs.43,65,918/- has in fact awarded interest only on the principal of ============= Rs.14,94,000/- and not on the interest which had accrued due F F up to the date of the award. It was also submitted that even if The appellants paid to the respondent, a sum of the Arbitral Tribunal had power to award interest, the award Rs.44,59,587/- on 1.3.2005, which was made up could not be interpreted as awarding interest upon interest, Rs.14,94,000/- plus interest thereon at the rate of 12% per unless the arbitral tribunal expressly awards interest upon annum from 19.12.1990 to 22.6.2000 plus interest at the rate interest. of 18% per annum from 23.6.2000 to 28.2.2005. According to G G the appellants, the said payment was in full and final settlement, 6. The respondent contended that Section 31(7) though full satisfaction of the decree was not entered. authorises and empowers the arbitral tribunal to award interest upon interest from the date of the award to date of payment. 4. On 25.5.2005, the respondent made an application for The respondent submitted that the operative portion of the modification of the amount claimed, contending that due to award stated that future interest has been awarded at 18% per inadvertence, a lesser amount had been claimed in the H H STATE OF HARYANA & ORS. v. S.L.ARORA & 303 3 0 4 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] annum “on the sums due to the claimant” from the date of award A A but also the accrued interest. For this purpose, periodical rests to the actual date of payment; and that as the interest up to date are provided for computation of interest, say yearly, or quarterly of award is a ‘sum due’ on the date of the award, the said or monthly. At the end of the first ‘rest’, the interest accrued till amount would also carry interest at 18% per annum from the then is added to the principal, so that for the second interest date of the award. bearing period, the aggregate of the original principal and B B interest thereon becomes the enhanced principal. At the end 7. On the contentions urged, the following questions arise of the second rest, the accrued interest on the enhanced for consideration: principal is added to the enhanced principal so that such further enhanced principal becomes the principal for charging the (i) Whether section 31(7) of the Act authorizes and interest for the third period. It goes on in this manner until enables arbitral tribunals to award interest on repayment, by progressively enlarging the principal base by interest from the date of award? C C adding interest at regular intervals. As a result, the debtor is (ii) Whether the Arbitral Award granted future interest made to pay interest not only on the original principal, but on from the date of award, only on the principal amount the interest on the principal, and on the interest upon the interest found due to the respondent (that is Rs.14,94,000/ on the principal and so on. A variant of compound interest, -) or on the aggregate of the principal and interest involves limited compounding, where interest is not added to D D upto the date of award (Rs.31,98,879/-). the principal with periodical rests, but only once or twice at agreed stages. For example, where a loan is repayable within Re : Question (i) one year, if a provision is made in the contract that in the event of the loan not being repaid within one year, the interest which 8. Payment of interest arises in different circumstances. It had accrued during the one year period will be added to the can be the consideration paid by a borrower to a lender for use E E principal, and as a consequence, after one year, interest will of the money lent or made available by the lender. It can be the be payable on the aggregate of the principal and the interest return given by a bank, financial institution or a company on for one year, it is a provision for interest upon interest. amounts deposited or invested with them by a customer or Compound interest can be awarded only if there is a specific constituent. It can be the compensation paid by a person who contract, or authority under a Statute, for compounding of withholds or defaults in paying an amount or in discharging a F F interest. There is no general discretion in courts or tribunals to liability, when it is due and payable. Interest may be payable in award compound interest or interest upon interest. pursuance of a contract, or a provision in a statute, or the fiat of a court of tribunal. It is usually quantified in terms of a 10. Section 3 of the Interest Act, 1978 enables the courts percentage of the ‘principal’ or the ‘investment’ or the ‘amount and arbitral tribunals to award interest from the date of cause of liability’. Interest unless otherwise specified, refers to simple of action to the date of institution of legal proceedings or G G interest, that is interest paid on only the principal and not on initiation of arbitration proceedings. Sub-section (3)(c) of any accrued interest. section 3 of the Interest Act, 1978 makes it clear that nothing in the said section shall empower the Court or arbitrator to 9. Compound interest refers to a method of charging award interest upon interest. It should be noted that section 3 interest where interest is computed not only on the principal, H H STATE OF HARYANA & ORS. v. S.L.ARORA & 305 3 0 6 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] of Interest Act does not deal with either pendente lite or future A A approved long established banking practice of charging interest. interest at reasonable rates on periodical rests and capitalising the same on remaining unpaid. Such a 11. This Court in Renusagar Power Co. Ltd v. General practice is prevalent and also recognised in non-banking Electric Co. – [1994 Supp.(1) SCC 644] held that award of money lending transactions. Legislature has stepped in interest on interest was not opposed to the public policy of India, from time to time to relieve the debtors from hardship B B but could be awarded only if authorized by contract or statute. whenever it has found the practice of charging compound This Court observed: interest and its capitalization to be oppressive and hence needing to be curbed. The practice is permissible, legal “Merely because in Section 3(3)(c) of the Interest Act, and judicially upheld excepting when superseded by 1978, the court is precluded from awarding interest on legislation. There is nothing wrong in the parties interest does not mean that it is not permissible to award C C voluntarily entering into transactions, evidenced by such interest under a contract or usage or under the deeds incorporating covenant or stipulation for payment statute. It is common knowledge that provision is made for of compound interest at reasonable rates, and authorising the payment of compound interest in contracts for loans the creditor to capitalise the interest on remaining unpaid advanced by banks and financial institutions and the said so as to enable interest being charged at the agreed rate contracts are enforced by courts. Hence it cannot be said D D on the interest component of the capitalised sum for the that award of interest on interest, i.e., compound interest, succeeding period. Interest once capitalised, sheds its is against the public policy of India. We are, therefore, colour of being interest and becomes a part of principal unable to accept the contention that award of interest on so as to bind the debtor/borrower.” interest i.e. compound interest is contrary to public policy of India.” E E [emphasis supplied] [emphasis supplied] 12. In the Arbitration Act, 1940 (‘old Act’ for short) there was no provision dealing with the power of arbitral tribunals to In State Bank of India vs. Ganjam District Tractor Owners award interest. Section 29 of the old Act merely provided for Association – 1994 (5) SCC 238, this Court again observed post-decree interest and authorized the court to direct in the that in the absence of a provision for compound interest or F F decree, where the award was for payment of money, payment interest with periodical rests in the agreement between a bank of interest from the date of decree at such rate as the court and the borrower, the bank cannot claim such interest. deemed reasonable, to be paid on the principal sum as In Central Bank of India vs. Ravindra – 2002 (1) SCC adjudged by the award and confirmed by the decree. The power 367, a constitution bench of this Court, after exhaustive of arbitral tribunals to award interest was governed by the G G consideration of the case law, summarized the legal position provisions of Interest Act, 1978 and the law enunciated by regarding compound interest thus: courts. “The English decisions and the decisions of this Court and 13. The Arbitration and Conciliation Act 1996, on the other almost all the High courts of the country have noticed and hand, contains a specific provision dealing with the power of H H the arbitral tribunal to award interest. The said provision is STATE OF HARYANA & ORS. v. S.L.ARORA & 307 3 0 8 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] incorporated in sub-section (7) of Section 31 which deals with A A compound interest, either for the pre-award period or for the the form and contents of arbitral awards. The said Sub-section post-award period. (7) is extracted below:- 15. There is a tendency among contractors to elevate the “31(7)(a) Unless otherwise agreed by the parties, where claims for interest and costs to the level of substantive disputes and insofar as an arbitral award is for the payment of by describing them as separate and independent heads of B B money, the arbitral tribunal may include in the sum for which claim. The long pendency of arbitration matters either due to the award is made, interest, at such rate as it deems prolonged arbitration proceedings or due to litigations (both reasonable, on the whole or any part of the money, for the intervening and post-arbitral), has the unfortunate effect of whole or any part of the period between the date on which swelling the interest payable on the amount awarded and costs the cause of action arose and the date on which the award to very substantial amounts. In many arbitral awards for money, C C is made. the interest awarded often exceeds the amount awarded, by several times. Leisurely arbitrations, avoidable judicial (b) A sum directed to be paid by an arbitral award shall, interventions, and indecisiveness on the part of decision makers unless the award otherwise directs, carry interest at the in government and statutory bodies in accepting and settling rate of eighteen per cent per annum from the date of the genuine claims either at the stage when the claim is made or award to the date of payment.” D D at least at the stage when the award is made have resulted in undue emphasis and importance being bestowed upon interest 14. Section 31(7) makes no reference to payment of and costs. However substantial their quantum may be in a given compound interest or payment of interest upon interest. Nor case, interest, in particular interest from the date of the award, does it require the interest which accrues till the date of the and costs are ancillary issues and are not substantive disputes. award, to be treated as part of the principal from the date of E E award for calculating the post-award interest. The use of the 16. Some Arbitral Tribunals have misconstrued clause (b) words “where and in so far as an arbitral award is for the of section 31(7) of the Act and assumed that the said provision payment of money” and use of the words “the arbitral tribunal requires the rate of post-award interest in all arbitral awards may include in the sum for which the award is made, should be 18% per annum, and that they do not have any interest…… on the whole or any part of the money” in clause discretion in regard to post-award interest. Some have F F (a) and use of the words “a sum directed to be paid by an misconstrued it further to infer the rate of interest mentioned arbitral award shall carry interest” in clause (b) of sub-section therein is an indication that invariably the rate of interest in (7) of section 31 clearly indicate that the section contemplates arbitrations, either pre-award or post-award, should be 18% per award of only simple interest and not compound interest or annum. Both these assumptions are baseless and erroneous. interest upon interest. ‘A sum directed to be paid by an arbitral If that was the legislative intention, there would have been no award’ refers to the award of sums on the substantive claims G G need for vesting discretion in Arbitral Tribunals, in the matter and does not refer to interest awarded on the ‘sum directed to of interest, under section 31(7)(a). The principles relating to be paid by the award’. In the absence of any provision for award of interest, in general, are not different for courts and interest upon interest in the contract, the arbitral tribunals do arbitral tribunals, except to the extent indicated in section 31(7) not have the power to award interest upon interest, or of the Act and CPC. A comparatively high rate of post-award H H STATE OF HARYANA & ORS. v. S.L.ARORA & 309 3 1 0 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] interest is provided in section 31(7)(b) of the Act, not because A A hand, in regard to the post-award period, interest is payable 18% is the normal rate of interest to be awarded in arbitrations, as per the discretion of the Arbitral Tribunal and in the absence but purely as a deterrent to award-debtors from avoiding of exercise of such discretion, at a mandatory statutory rate of payment or using delaying tactics. In fact a provision similar to 18% per annum. section 31(7)(b) of the Act, if provided in section 34 of Code 18. As there is some confusion as to what section 31(7) of Civil Procedure, will considerably reduce the travails of B B authorizes and what it does not authorize, we will attempt to set plaintiffs in executing their decrees in civil cases. Be that as it out the legal position regarding award of interest by the arbitral may. tribunals, as emerging from section 31(7) of the Act. 17. The difference between clauses (a) and (b) of section (18.1) The provision for interest in the Act is contained in 31(7) of the Act may conveniently be noted at this stage. They C C section 31 dealing with the form and contents of arbitral award. are : It employs two significant expressions “where the arbitral award (i) Clause (a) relates to pre-award period and clause (b) is for payment of money” and “the arbitral tribunal may include relates to post-award period. The contract binds and in the sum for which the award is made, interest….. on the whole prevails in regard to interest during the pre-award period. or any part of the money”. The legislature has thus made it clear The contract has no application in regard to interest during D D that award of interest under sub-section (7) of section 31 (and the post-award period. award of costs under sub-section (8) of Section 31 of the Act) are ancillary matters to be provided for by the award, when the (ii) Clause (a) gives discretion to the Arbitral Tribunal in arbitral tribunal decides the substantive disputes between the regard to the rate, the period, the quantum (principal which parties. The words ‘sum for which the award is made’ and ‘a is to be subjected to interest) when awarding interest. But E E sum directed to be paid by an arbitral award’ contextually refer such discretion is always subject to the contract between to award on the substantive claims and not ancillary or the parties. Clause (b) also gives discretion to the Arbitral consequential directions relating to interest and costs. Tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that (18.2.) The authority of the arbitral tribunals to award discretion is not exercised by the arbitral Tribunal, then the interest under section 31(7)(a) is subject to the contract F F statute steps in and mandates payment of interest, at the between the parties and the contract will prevail over the specified rate of 18% per annum for the post-award provisions of section 31(7)(a) of the Act. Where the contract period. between the parties contains a provision relating to, or regulating or prohibiting interest, the entitlement of a party to (iii) While clause (a) gives the parties an option to contract the contract to interest for the period between the date on which out of interest, no such option is available in regard to the G G the cause of action arose and the date on which the award is post-award period. made, will be governed by the provisions of the contract, and the arbitral tribunal will have to grant or refuse interest, strictly In a nutshell, in regard to pre-award period, interest has in accordance with the contract. The arbitral tribunals cannot to be awarded as specified in the contract and in the absence ignore the contract between the parties, while dealing with or of contract as per discretion of the Arbitral Tribunal. On the other H H awarding pre-award interest. Where the contract does not STATE OF HARYANA & ORS. v. S.L.ARORA & 311 3 1 2 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] prohibit award of interest, and where the arbitral award is for A A (18.6) Clause (b) of Section 31(7) is intended to ensure payment of money, the arbitral tribunal can award interest in prompt payment by the award-debtor once the award is made. accordance with Section 31(7) (a) of the Act, subject to any term The said clause provides that the “sum directed to be paid by regarding interest in the contract. an arbitral award” shall carry interest at the rate of 18% per annum from the date of award to the date of payment if the (18.3) If the contract provides for compounding of interest, B B award does not provide otherwise in regard to the interest from or provides for payment of interest upon interest, or provides the date of the award. This makes it clear that if the award for interest payable on the principal upto any specified stage/ grants interest at a specified rate up to the date of payment, s being treated as part of principal for the purpose of charging or specifies the rate of interest payable from the date of award of interest during any subsequent period, the arbitral tribunal till date of payment, or if the award specifically refused interest, will have to give effect to it. But when the award is challenged clause (b) of Section 31 will not come into play. But if the award C C under Section 34 of the Act, if the court finds that the interest is silent in regard to the interest from the date of award, or awarded is in conflict with, or violating the public policy of India, does not specify the rate of interest from the date of award, then it may set aside that part of the award. the party in whose favour an award for money has been made, will be entitled to interest at 18% per annum from the date of (18.4) Where an arbitral tribunal awards interest under award. He may claim the said amount in execution even though section 31(7)(a) of the Act, it is given discretion in three areas D D there is no reference to any post award interest in the award. to do justice between the parties. First is in regard to rate of Even if the pre-award interest is at much lower rate, if the award interest. The Tribunal can award interest at such rate as it is silent in regard to post- award interest, the claimant will be deems reasonable. The second is with reference to the amount entitled to post- award interest at the higher rate of 18% per on which the interest is to be awarded. Interest may be annum. The higher rate of interest is provided in clause (b) with awarded on the whole or any part of the amount awarded. The E E the deliberate intent of discouraging award-debtors from third is with reference to the period for which the interest is to adopting dilatory tactics and to persuade them to comply with be awarded. Interest may be awarded for the whole or any part the award. of the period between the date on which cause of action arose and the date on which the award is made. 19. We will next deal with the three cases relied upon by F F the learned counsel for the respondent to contend that this Court (18.5) The Act does away with the distinction and has recognized and accepted the power of the arbitral tribunals differentiation among the four interest bearing periods, that is, to award interest upon interest: Oil & Natural Gas Commission pre-reference period, pendente lite period, post-award period v. M.C. Clelland Engineers S.A. - (1999) (4) SCC 327, and post-decree period. Though a dividing line has been Mcdermott International Inc. vs. Burn Standard Co. Ltd and maintained between pre-award and post-award periods, the Others - (2006) 11 SCC 181, and Uttar Pradesh Cooperative interest bearing period can now be a single continuous period G G Federation Limited vs. Three Circles - (2009) 10 SCC 374. the outer limits being the date on which the cause of action But out of these three decisions only the decision in Mcdermott arose and the date of payment, subject however to the discretion relates to an award under the Arbitration and Conciliation Act, of the arbitral tribunal to restrict the interest to such period as 1996. The other two decisions relate to awards under the old it deems fit. Act (Arbitration Act, 1940) and are of no assistance in H H STATE OF HARYANA & ORS. v. S.L.ARORA & 313 3 1 4 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] interpreting section 31(7) of the new Act. A A A careful reading of the same shows that there is no reference to awarding of compound interest or interest from the 20. In Mcdermott, paras 154 to 159 of the judgment deal date of the award on the interest that had accrued due up to with the issue of interest. Relevant portions thereof are the date of award. The decision dealt with the rate of interest extracted below in entirety: and exercise of jurisdiction under Article 142 of the Constitution to set right anomalies in regard to rate of interest. The said “The power of the arbitrator to award interest for pre-award B B decision is therefore, of no assistance. period, interest pendent lite and interest post-award period is not in dispute. Section 31(7) (a) provides that the arbitral 21. Learned counsel for the respondent submitted that in tribunal may award interest, at such rate as it deems Three Circles, this Court has observed that Mcdermott reasonable, on the whole or any part of the money, for the recognized that interest awarded on the principal amount upto whole or any part of the period between the date on which C C the date of the award becomes part of the principal from the the cause of action arose and the date on which award is date of the award. We extract below the relevant portion of made, i.e., pre-award period. This, however, is subject to Three Circles relied upon by the respondent : the agreement as regard the rate of interest on unpaid sum between the parties. The question as to whether interest “Now the question comes which is related to awarding of would be paid on the whole or part of the amount or D D `interest on interest’. According to the appellant, they have whether it should be awarded in the pre- award period to pay interest on an amount which was inclusive of interest would depend upon the facts and circumstances of each and the principal amount and, therefore, this amount to a case. The arbitral tribunal in this behalf will have to liability to pay `interest on interest. This question is no exercise its discretion as regards (i) at what rate interest longer res integra at the present point of time. This Court should be awarded; (ii) whether interest should be in McDermott International Inc. v. Burn Standard Co. Ltd, E E awarded on whole or part of the award money; and (iii) and Ors.- 2006 (11) SCC 181 has settled this question in whether interest should be awarded for whole or any part which it had observed as follows: of the pre-award period.” The Arbitrator has awarded the principal amount and “The 1996 Act provides for award of 18% interest. The interest thereon upto the date of award and future interest F F arbitrator in his wisdom has granted 10% interest both for thereupon which do not amount to award of interest on the principal amount as also for the interim. By reason of interest as interest awarded on the principal amount upto the award, interest was awarded on the principal amount. the date of award became the principal amount which is An interest thereon was upto the date of award as also the permissible in law.” future interest at the rate of 18% per annum. G G [emphasis supplied] However, in some cases, this Court was resorted to But a careful reading of the decision in Mcdermott, shows that exercise its jurisdiction under Article 142 in order to do the portion of Mcdermott extracted in Three Circles, assuming complete justice between the parties………. In this case, it to be the law laid down in Mcdermott, is not a finding or given the long lapse of time, it will be in furtherance of conclusion of this court, nor the ratio decidendi of the case, but justice to reduce the rate of interest to 7 1/2%. ” H H STATE OF HARYANA & ORS. v. S.L.ARORA & 315 3 1 6 SUPREME COURT REPORTS [2010] 2 S.C.R. COMPANY [R.V. RAVEENDRAN, J.] is only a reference to the contention of the respondent in A A 12% per annum on the total amount of Award i.e. on Mcdermott. Paras 1 to 27 (of the SCC report) in Mcdermott Rs.14.94 lacs with effect from 19.12.1990 (date of first state the factual background. Paras 28 and 29 contain the reference of Arbitrator) upto the date of making this award. submissions of the learned counsel for BSCL, the respondent In case the total amount of award together with this interest therein. Paras 30 to 44 contain the submissions made by the is not paid within 30 days from the date of making this learned counsel for Mcdermott, the appellant therein, in reply B B award, future interest shall be paid @ 18% per annum on to the submissions made on behalf of BSCL. The passage that the entire Award from the date of Award upto the actual is extracted in Three Circles is part of para 44 of the decision date of payment”. which contains the last submission of the learned counsel for (emphasis supplied) Mcdermott on the question of interest. The reasoning in the decision starts from para 45. This Court considered the several C C The above portion of the award when read with the operative questions seriatum in paras 45 to 160. The question relating portion of the award shows that the words ‘entire award’ used to interest was considered in paras 154 to 159 relevant in the para dealing interest and the words ‘sums due’ used in portions of which we have extracted above. Therefore, the the operative portion of the award refer to the ‘total amount of observation in Three Circles that Mcdermott held that interest award’ referred to earlier in the said two portions relating to awarded on the principal amount upto the date of award D D interest. becomes the principal amount and therefore award of future interest therein does not amount to award of interest on interest, 23. The Arbitrator allowed interest at the rate 12% per is per incuriam due to an inadvertent erroneous assumption. annum on the total amount of the award, that is Rs.14,94,000/ -, with effect from 19.12.1990 up to the date of the Award. He Re : Question (ii) further directed that in case the “total amount of the award E E together with this interest” is not paid within 30 days from the 22. The operative portion of an arbitral award dealing with date of making the award, future interest shall be paid at the several claims on which separate decisions have been rate 18% per annum on the entire Award from the date of recorded, is really an abstract of the decisions/awards on each Award upto the actual date of payment. The words “total amount of the claims. Therefore, the findings/award reached by the of the Award together with interest” makes it clear that the Arbitrator on claim No. (8) relating to interest, have to be read F F Arbitrator has used the words “total amount of the Award” as with the operative portion to know what is directed by the award. referring to the total or aggregate of the awards on the We therefore extract below the reasoning, finding and award substantive claims of the contractor (claims 1 to 7) excluding on claim No. (8) relating to interest: the ancillary claims (claim No.8) relating to interest. The “Claim 8 : Payment on account of interest at the rate of Arbitrator has also used the words “entire award” and “sums G G 30% per annum with effect from 18.8.1990 till final due” synonymous with the words “total amount of the award”. payment. Therefore, when the operative portion states that future interest is awarded on the “sums due”, it refers to the “total amount of The claimant has claimed interest @ 30% per annum with the award”, that is total of the amounts awarded on substantive effect from 18.8.1990 till final payment of Award. Keeping claims (that is claims (1) to (7) of the contractor) excluding the in view the reasonability of the claim, I allow interest @ H H claim relating interest. Therefore, what was awarded by the