IMPORTANT POINT
Post award interest – Granting post-award interest is not subject to contract between parties – Rate of interest can be provided by Arbitrator and in default statutory prescription will apply.

JUDGMENT :

PAMIDIGHANTAM SRI NARASIMHA, J.

1. Leave granted.

2. The short question before us is whether the appellant is entitled to post award interest on the sum awarded by the Arbitrator. The Arbitrator denied payment of such interest under a misplaced impression that the contract between the parties prohibited it. The executing Court¹[Order in M.A No. 19 of 2001 dated 10.10.2002.] affirmed the finding of the Arbitrator and rejected the prayer. However, allowing the appeal, the District Court²[Order passed by the District Judge in Civil Appeal no.86 of 11.11.2002 dated 04.03.2003] held that the appellant will be entitled to post award interest. By the order impugned before us, the High Court³[Order dated 14.05.2019 passed by the High Court of Punjab and Haryana in Civil Revision No. 2561 of 2003] allowed the revision and set aside the District Court order while holding that the contract between the parties did not permit grant of post award interest.

2.1 For the reasons to follow, while allowing the appeal we have held that as this is a case arising out of the Arbitration and Conciliation Act, 1996⁴[Hereinafter referred to as ‘the Act’], by operation of Section 31(7)(b), the sum directed to be paid under the Arbitral Award shall carry interest. This is a first principle. A sum directed to be paid by an Arbitral Award must carry interest. In this view of the matter, we have restored the judgment of the District Court granting 18% interest from the date of the award to its realization. The short facts are as under:

3. A contract was executed on 17.10.1997 between the appellant contractor, and the Telecom Department of Haryana, Respondents 1 and 2 herein, for trenching and laying of underground cables. Terms of the contract required the appellant to furnish a security of Rs. 10 Lakhs. Disputes that arose with respect to non-payment of bills submitted by the appellant during execution of the contract were referred to Arbitrator appointed under Section 11 of the Act on 24.10.2000.

4. The Arbitrator passed the Award on 08.03.2001. In the said Award, though the claim of the appellant was allowed, his plea for interest was denied on the ground that there is a specific clause in the Arbitration Agreement prohibiting the same.

5. During execution of the Award, the appellant claimed payment of post award interest on the Award by raising a specific objection to that effect. However, the learned Civil Judge, Senior Division vide his order dated 10.10.2002 dismissed the objection and affirmed the original award.

6. Aggrieved, the appellant filed an appeal. The District Judge allowed the appeal and by Order dated 04.03.2003 directed payment of post award interest at the rate of 18% on the Award amount. The appellant was also directed to approach the trial court for recovery of the same.

7. Being aggrieved, the Telecom Department, the respondent herein, filed a Civil Revision Petition before the High Court which was allowed by the High Court by the order impugned before us. The High Court looked into sub-clause (iv) of Clause 1 of the Contract entered between parties which provides for the scope of the grant of interest on certain payment. The sub clause is as under:-

“No interest will be payable on the earnest money or security deposit amount or any amount payable to the contractor under the contract.”

8. Assuming that the above referred clause of interest is an agreement between the parties prohibiting the grant of interest, the High Court proceeded to allow the Revision and set aside the grant of interest. The High court referred to the decision of this Court in Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd., (2019) 17 SCC 786. and came to the conclusion that the Supreme Court has laid down a precedent that interest cannot be paid when a contractual clause specifically prohibits it.

9. We are of the opinion that the judgment of High Court is clearly erroneous. Firstly, the interest granted by the First Appellate Cour