IMPORTANT POINT
Arbitrator has discretion to grant post-award interest – If Arbitrator does not grant post-award interest, award holder is entitled to post-award interest at eighteen percent.

JUDGMENT :

DHANANJAYA Y. CHANDRACHUD, J.

1. This appeal arises from a judgment dated 26 February 2020 of the High Court of Delhi by which the appeal under Section 37 of the Arbitration and Conciliation Act 1996¹ [“The Act”] against a judgment of the Single Judge dated 7 February 2019 has been dismissed. At the core, the issue is whether the arbitrator has the discretion to grant post-award interest only on the principal sum due under Section 31(7)(b) of the Act.

Facts

2. On 27 January 2003, the appellant and the respondent entered into an agreement under which the respondent availed of bill discounting facilities from the appellant. The appellant disbursed Rs. 5,00,32,656 pursuant to the agreement. The dues remained unpaid. 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, along with an overdue interest. Since the respondent did not pay the amount as demanded, the appellant issued a notice on 31 January 2006, invoking the arbitration clause of the agreement.

3. The sole arbitrator rendered an arbitral award in favour of the appellant on 1 March 2013. The award was corrected on 29 April 2013 and 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 granted from the date of default to the date of the demand notice; (ii) thirty six percent per annum with monthly rests from the date of the demand notice to the date of award (“pre-award interest”) and (iii) eighteen percent per annum on the principal amount of Rs. 5,00,32,656 from the date of award to the date of payment (“post-award interest”). The relevant extract of the award is set out below:

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

(Emphasis supplied)

4. The appellant challenged the arbitral award² [OMP No. 972 of 2013] in a petition under Section 34 before the Delhi High Court raising objections on the grant of post-award and pre-award interest. The respondent also filed a petition³ [OMP No. 665 of 2013]. The appellant urged that the post-award interest of eighteen percent per annum should be granted on the total sum awarded, inclusive both of principal and pre-award interest. By a judgment dated 7 February 2019, the Single Judge of the Delhi High Court dismissed the petition filed by the appellant on the grant of post-award interest. The Single Judge held that the Arbitrator had in his discretion restricted the post-award interest to the principal amount and that the court would not interfere with the exercise of discretion:

The appeal against the judgment of the Single Judge was dismissed by the Division Bench of the High Court by a judgment dated 26 February 2020. The counsel for the appellant before the High Court placed reliance on the decision of a three-Judge Bench of this Court in Hyder Consulting (UK) Limited vs. Governor, State of Orissa, (2015) 2 SCC 189 and contended that post-award interest ought to be granted on the sum directed to be paid under the arbitral award, which also includes the pre-award interest. Counsel for the respondent contended that reliance ought not to be placed on the judgment in Hyder Consulting (supra) since the decision in State of Haryana vs. S.L. Arora, (2010) 3 SCC 690 was the applicable law when the petition under Section 34 was instituted. The Division Bench of the High Court observed that the