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SUPREME COURT OF INDIA
H.L. DATTU, CJI., S.A. BOBDE, ABHAY MANOHAR SAPRE, JJ.
M/S. HYDER CONSULTING (UK) LTD. – APPELLANT
VERSUS
GOVERNOR, STATE OF ORISSA THROUGH CHIEF ENGINEER – RESPONDENT
CIVIL APPEAL NO. 3147 OF 2012 CIVIL APPEAL NO. 3149 OF 2012; CIVIL APPEAL NO. 1390 OF 2013 S.L.P. (C) NO. 19895 OF 2008; S.L.P. (C) NO. 20282 OF 2008; S.L.P. (C) NO. 21896 OF 2010; S.L.P. (C) NO. 18614 OF 2012; CIVIL APPEAL NO. 3148 OF 2012
Decided On: 25-11-2014
(a) Administration of Justice – Judicial propriety – Per incuriam – Literally means ‘through inadvertence’ – A decision can be said to be given per incuriam when the Court of record has acted in ignorance of any previous decision of its own, or a subordinate court has acted in ignorance of a decision of the Court of record – Supreme Court cannot be said to have ‘declared the law’ on a given subject if the judgment was rendered per incurium because it did not duly consider the relevant law – A prior decision on identical facts and law binds the Court on the same points of law in a later case – If owing to obvious inadvertence or oversight, a judgment fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, the principle of per incuriam may apply. (Para 13, 14)
(1991) 4 SCC 139; (2001) 6 SCC 356 – Relied upon
(b) Arbitration and Conciliation Act, 1996 – Section 31(7) – Three Circles merely re-stating contention of respondent in McDermott for permitting arbitrator to award interest upon interest – Court in McDermott not deliberating upon the issue, it was only submission of respondent – Three Circles held per incurium – Moreover, Three Circles and ONGC dealt with Arbitration Act 1940 – Not applicable to present case. (Para 17, 18, 20, 21, 24)
(2010) 3 SCC 690; (2009) 12 SCC 26; (2010) 8 SCC 767 – Relied upon
(2006) 11 SCC 181; (1999) 4 SCC 327; (2002) 1 SCC 367 – Distinguished
(2009) 10 SCC 374 – Per incurium
(c) Administration of Justice – Judicial propriety – Section 31(7), Arbitration and Conciliation Act, 1996 – Award of interest upon interest – S.L. Arora correctly decided – Three Circles rightly held to be passed on inadvertent erroneous assumption – McDermott did not deal with the question pertaining to awarding of ‘interest on interest’ or compound interest – Decision in the ONGC pertained to the Act, 1940, and, therefore, would not be applicable to cases under the Act, 1996 – Decision in the Central Bank of India did not deal with interpretation of sub-section (7) of Section 31 of the Act, 1996, nor was contrary to the decision in S.L. Arora. (Para 30)
(2010) 3 SCC 690 – Relied upon
(2006) 11 SCC 181; (2009) 10 SCC 374; (1999) 4 SCC 327; (2002) 1 SCC 367 – Distinguished
(d) Arbitration and Conciliation Act, 1996 – Section 31(7)(a) – Arbitrator having discretion to impose interest from date of cause of action to date of award, only in absence of an agreement in the contract – Arbitrator also given discretion to decide rate of interest on the principles stated in the provision – Discretion must be exercised reasonably. (Para 34, 35, 36)
(2010) 8 SCC 767; (2003) 6 SCC 56 – Relied upon
(e) Arbitration and Conciliation Act, 1996 – Section 31(7)(a) – ‘Sum’ and ‘interest’ – Terms not defined in the Act – Contextual interpretation – ‘Sum’ and ‘money’ used interchangeably – Interest to be awarded on the “money” for which arbitral award made – Would simply refer to the principal amount – Interest is compensation allowed for use of money belonging to another or for the delay in paying the said money after it has become payable – Mere aggregation of interest with a payment of a different nature would not alter the distinct nature of interest from the money on which it is levied. (Para 38, 40, 43, 46)
1953 SCR 319; (2002) 1 SCC 367 – Relied upon
[1947] A.C. 390; [2013] UKUT 0225 (TCC) – Referred
(f) Arbitration and Conciliation Act, 1996 – Section 31(7)(b) – Interest for post award period – Award must first state that interest shall be payable for post award period then only clause (b) would apply. (Para 49)
(2012) 4 SCC 505 – Relied upon
(g) Interpretation of statute – Same word used more than once in the same provision – Presumption of same meaning at each place – Unless the context indicates otherwise – Interest would be included as part of the principal amount only once it is capitalized. (Para 53, 55, 56)
(2002) 1 SCC 367; (2014) 6 SCC 335; [1985] 1 WLR 310; [1966] 2 Q.B. 617 – Relied upon
(h) Arbitration and Conciliation Act, 1996 – Section 31(7) – Word ‘sum’ having same meaning in clauses (a) and (b) – This would be the money awarded, distinct from interest – Interest for the period from cause of action to date of award cannot be merged with principal money – Arbitral award silent about interest from the date of award till the date of payment – Beneficiary will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till the date of payment. (Para 60, 61)
Per S.A. BOBDE, J.
(i) Administration of Justice – Doctrine of Precedent – S.L. Arora rightly holding that Three Circles was incorrectly founded upon the decision in McDermott – Such reliance was not in consonance with the doctrine of precedent. (Para 1)
(2010) 3 SCC 690 – Relied upon
(2009) 10 SCC 374; (2006) 11 SCC 181; (1999) 4 SCC 327; (2002) 1 SCC 367 – Distinguished
(j) Arbitration and Conciliation Act, 1996 – Section 31(7) – Clause (a) – Confers power upon the Arbitral Tribunal to include interest in the sum for which the Award is made on either the whole or any part of the money and for the whole or any part of the period for the entire pre-award period between the date on which the cause of action arose and the date on which the Award is made – In other words an award, inclusive of interest for the pre-award period on the entire amount directed to be paid or part thereof, may be passed. (Para 4)
(k) Arbitration and Conciliation Act, 1996 – Section 31(7) – Expression ‘sum’ – Used as noun – Meaning “an amount of money”; whatever it may include -“principal” and “interest” or one of the two – As per clause (b), ‘sum’ directed to be paid by the award, inclusive or exclusive of interest, shall carry interest @ 18% p.a. for post award period – Sum directed to be paid by the Arbitral Award u/s 31(7)(b) of the Act is inclusive of interest pendente lite. (Para 7, 8, 10)
(l) Arbitration and Conciliation Act, 1996 – Section 31(7) and section 34, Code of Civil Procedure, 1908 – Section 34 using words “on the principal sum adjudged” – Section 31(7) only using the words ‘sum’ – Word ‘principal’ not prefixed – Legislative intent of including interest – In view of plain and unambiguous language of the provision no other interpretation possible. (Para 12, 13, 14)
1995 Supp (1) SCC 192; (1990) 2 SCC 231; AIR 1939 PC 47; (2007) 7 SCC 636; AIR 1945 PC 48; (2003) 2 SCC 577 – Relied upon
[1943] 1 ALL ER 23 (HL); [1960] 1 ALL ER 505 (HL); [1967] 1 A.C. 472; [1965] I W.L.R. 1133; [1967] 2 W.L.R. 60; [1963] A.C. 557; [1963] A.C. 758; [1853] 7 Ex. 475; (1878) 48 L.J.Ch. 56; [1952] A.C. 189; (1840) 7 Cl. & F. 572; [1949] 1 K.B. 358; [1949] A.C. 275; [1844] 11 Cl & F 85; 242 U.S. 470, 485 (1917); – Referred
(m) Arbitration and Conciliation Act, 1996 – Section 31(7)(a) and (b) – Interest till the date of award shall be merged in the principal amount adjudged – Further, Arbitral Tribunal may award interest on the sum directed to be paid by the Award, meaning a sum inclusive of principal sum adjudged and the interest for the post award period. (Para 15)
ABHAY MANOHAR SAPRE, J
(n) Arbitration and Conciliation Act, 1996 – Section 31(7)(a) – Words "include in the sum" – Of utmost importance – Any interest awarded for pre-award period shall become part and parcel of the award – Interest becomes ‘sum’ – In case no principal, but only interest is awarded, it will become the ‘sum’ – Amount of award, with or without interest, constitutes a ‘sum’ for which the award is made. (Para 6, 7, 8, 9)
(o) Arbitration and Conciliation Act, 1996 – Section 31(7)(b) – Words, "A sum directed to be paid by an arbitral award..." and not ‘arbitral tribunal’ – Award is made in respect of a "sum" which includes the interest – Question of grant of interest on interest does not arise. (Para 10, 11)
Facts of the case:
The question arising in this case is whether the decision in State of Haryana and Others v. S.L. Arora and Company, (2010) 3 SCC 690 in the context of award of interest on interest is not per incuriam earlier decisions.
In an execution of arbitral award, the District Judge had issued order of attachment in favour of the appellant. The claim was for payment of Rs.8,92,15,993/- which included post award interest on the aggregate of the principal amount awarded by the arbitral award and interest pendente lite thereon. The arbitral tribunal awarded a principal amount of Rs.2,30,59,802/- in favour of the appellant.
The Division Bench of the High Court relying upon the S.L. Arora case upheld the award and quashed the orders passed by the District Judge, whereby Rs.8,92,15,993/-was awarded in favour of the appellant. The learned Judges of the High Court, vide the impugned judgment, directed the executing court to re-calculate the total amount payable under the award keeping in view the principles laid down in the S.L. Arora case.
Finding of the Court:
Per H.L. DATTU, CJI
The decision in S.L. Arora case is sound and wholly conclusive on the interpretation of sub-section (7) of Section 31 of the Act, 1996 on the issue of awarding ‘interest on interest’.
Per S.A. BOBDE, ABHAY MANOHAR SAPRE, J. J.
S.L. Arora’s case is wrongly decided
The legal document primarily addresses the interpretation of interest awards within arbitral proceedings under the relevant arbitration legislation. The key points include:
Interest as Compensation: Interest is awarded to compensate a party for the wrongful denial of money that rightfully belongs to them under the governing agreement (!) (!) .
Inclusion of Interest in the Sum Awarded: When an arbitral award is for a sum of money, interest for the pre-award period can be included in the total sum awarded. This sum, which may comprise the principal amount and interest, is considered as a single, indivisible "sum" for the purpose of post-award interest calculation (!) (!) .
Distinction Between Principal and Interest: The terms "sum" and "interest" are distinct, with "sum" generally referring to the total monetary amount awarded, including principal and possibly interest, but not interest on interest unless explicitly awarded. Interest is understood as compensation for the use or delay of money belonging to another (!) (!) (!) .
Awarding Interest on the Entire Sum: When interest is awarded for the pre-award period, it becomes part of the "sum" for which the award is made, and thus, interest on that interest (compound interest) is generally not awarded unless explicitly provided for (!) (!) .
Post-Award Interest: The interest awarded from the date of the award to the date of payment is based on the sum directed to be paid by the award. This sum includes the principal and any interest included in the award but does not extend to interest on interest unless specifically directed (!) (!) .
Legislative Intent and Language: The language used in the relevant statutory provisions is clear and unambiguous, indicating that interest awarded under the legislation is meant to be simple interest on the principal sum or the total sum including pre-award interest, but not interest compounded or on interest unless explicitly stated (!) (!) .
Principle of Statutory Interpretation: The interpretation of the words "sum" and "interest" should be consistent throughout the provision, and their meanings should be derived from their common usage and the context within the statute. The words are presumed to have the same meaning wherever they appear unless the context indicates otherwise (!) (!) .
Inapplicability of Past Decisions: Decisions under previous legislation or different legal frameworks, such as those relating to older arbitration laws or civil procedure, are not directly applicable to the current statute. The current law explicitly clarifies the scope and limits of interest awards, including the prohibition of awarding interest on interest unless explicitly provided (!) (!) (!) .
Judicial Discretion and Reasonableness: The arbitral tribunal has discretion to determine the rate of interest and the period for which interest is awarded, but this discretion must be exercised reasonably and within the bounds of the law (!) (!) .
Purpose of Interest Provisions: The legislative scheme encourages the early payment of awarded sums and discourages delays, with different provisions addressing interest for the pre-award period and post-award period, emphasizing their separate treatment (!) (!) .
In conclusion, interest awarded in arbitration proceedings under the current legislation is generally to be simple interest on the principal or total sum awarded, excluding interest on interest unless specifically directed by the arbitral award. The language and intent of the statute favor a clear distinction between principal and interest, with the legislative framework designed to prevent the award of compound interest or interest on interest unless explicitly provided.
JUDGMENT
H.L. DATTU, CJI.
1. In view of the reference order dated 13.03.2012, this Civil Appeal and the matters connected therewith are placed before a three-Judge Bench of this Court for consideration and decision. The question before this Court is, whether the decision of this Court in State of Haryana and Others v. S.L. Arora and Company., (2010) 3 SCC 690, wherein it is held that an award of interest on interest from the date of award is not permissible under sub-section (7) of section 31 of the Arbitration and Conciliation Act, 1996 (for short, “the Act, 1996”), is in consonance with earlier decisions of this Court. A two-Judge Bench of this Court, by the said reference order, is of the opinion that the present appeal and the connected matters would need to be heard by a Bench of three Judges of this Court.
2. By the referral order dated 13.03.2012, it is found that the learned counsel for the appellants therein would doubt the correctness of the decision in the S.L. Arora case (supra) in light of McDermott International INC v. Burn Standard Co. Ltd. and Others, (2006) 11 SCC 181; Uttar Pradesh Cooperative Federation Limited v. Three Circles, (2009) 10 SCC 374; Oil and Natural Gas Commission v. M.C. Clelland Engineers S.A., (1999) 4 SCC 327; and Central Bank of India v. Ravindra and Others, (2002) 1 SCC 367. Therein, the appellants would contend that, in accordance with the decision of this Court in the aforementioned cases, the interest awarded on the principal amount upto the date of award, becomes the principal amount for the purposes of awarding future interest under the Act, 1996. The appellants would contend that the decision in the S.L. Arora case (supra) inadvertently and erroneously assumed that the aforementioned cases would not be applicable to it. Since the decision in the S.L. Arora case (supra) negated the above stated principle, the appellants would contend that the said case would require reconsideration by a larger Bench of this Court.
FACTS :
Civil Appeal No.3148 of 2012
3. The present civil appeal came before a two-Judge Bench of this Court against a judgment and final order dated 28.07.2010, passed by the High Court of Orissa at Cuttack in Writ Petition (Civil) No. 5302 of 2009. The said Writ Petition was filed challenging the orders dated 19.02.2009 and 26.03.2009, passed by the District Judge, Khurda in Execution Petition No. 17 of 2006, whereby the learned District Judge had issued order of attachment in favour of the appellant herein. The claim in the execution petition was for the payment of Rs.8,92,15,993/-. The said claim included in itself post award interest on the aggregate of the principal amount awarded by the arbitral award and interest pendente lite thereon. By virtue of arbitral award dated 26.04.2000, which was upheld by the Division Bench of the High Court of Orissa by its order dated 28.06.2006, a principal amount of Rs.2,30,59,802/-was awarded in favour of the appellant herein. The said impugned judgment of the High Court of Orissa dated 28.07.2010, inter alia, relied upon the decision of this Court in the S.L. Arora case (supra) and quashed the orders passed by the learned District Judge, whereby Rs.8,92,15,993/-was awarded in favour of the appellant. The learned Judges of the High Court, vide the impugned judgment, directed the executing court to re-calculate the total amount payable under the award keeping in view the principles laid down in the S.L. Arora case (supra).
4. According to the referral order dated 13.03.2012, the appellants contended that the S.L. Arora case (supra) was based on an inadvertent erroneous assumption that McDermott case (supra) and the Three Circles case (supra) were per incuriam in holding that interest awarded on the principal amount upto the date of award becomes the principal amount and, therefore, award of future interest thereon would not amount to award of interest on interest. The S.L. Arora case (supra) held contrary to the aforementioned principle. T
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