1. Arbitral award execution — Dispute over calculation of post-award interest on principal versus aggregate sum — Application of Section 31(7) of the Arbitration and Conciliation Act, 1996. (Para 5 , 6 , 7 , 14 , 20 , 21 )
Back
Next 
2024 Supreme(SC) 1197
SUPREME COURT OF INDIA
ABHAY S. OKA, UJJAL BHUYAN, JJ.
North Delhi Municipal Corporation – Appellant
Versus
M/s. S.A. Builders Ltd. – Respondent
Civil Appeal No. 1878 of 2024 [Special Leave Petition (Civil) No. 3421 of 2024]
Decided On : 17-12-2024
Important Points
The court clarified that post-award interest includes both principal and pre-award interest, overruling previous decisions that restricted such calculations.
Subject
Civil Law - Arbitration
Act Referred
Headnote
(A) Arbitration and Conciliation Act, 1996 - Section 31(7) - Interest on arbitral awards - The court clarified that post-award interest includes both principal and pre-award interest, overruling the previous decision in S.L. Arora - The learned Arbitrator's clarification was upheld as valid and within jurisdiction. (Paras 40-61)
(B) Jurisdiction of Arbitrator - The court held that the learned Arbitrator had not become functus officio and was within his rights to issue clarifications post-award, as permitted by the court. (Paras 36-39)
Facts of the case:
The respondent was awarded a contract for construction work, which was not completed, leading to disputes over payments and interest calculations. The matter involved multiple appeals regarding the interpretation of interest provisions under the Arbitration Act.
Findings of Court:
The court upheld the interpretation that the sum awarded includes both principal and interest, and clarified the jurisdiction of the Arbitrator to issue post-award clarifications.
Issues: The main issues were whether the Arbitrator had jurisdiction to clarify the award and how interest should be calculated under the Arbitration Act.
Ratio Decidendi: The court ruled that the learned Arbitrator's clarification was valid and that the sum awarded includes both principal and interest, thus allowing for post-award interest calculations.
Result: Appeal dismissed.
(B) Jurisdiction of Arbitrator - The court held that the learned Arbitrator had not become functus officio and was within his rights to issue clarifications post-award, as permitted by the court. (Paras 36-39)
Facts of the case:
The respondent was awarded a contract for construction work, which was not completed, leading to disputes over payments and interest calculations. The matter involved multiple appeals regarding the interpretation of interest provisions under the Arbitration Act.
Findings of Court:
The court upheld the interpretation that the sum awarded includes both principal and interest, and clarified the jurisdiction of the Arbitrator to issue post-award clarifications.
Issues: The main issues were whether the Arbitrator had jurisdiction to clarify the award and how interest should be calculated under the Arbitration Act.
Ratio Decidendi: The court ruled that the learned Arbitrator's clarification was valid and that the sum awarded includes both principal and interest, thus allowing for post-award interest calculations.
Result: Appeal dismissed.
Judgement Key Points
Section 32(1) of the Arbitration and Conciliation Act, 1996, provides that within thirty days from the receipt of the arbitral award, unless another period has been agreed upon by the parties, a party may request the arbitral tribunal to correct any computation errors, clerical or typographical errors, or errors of a similar nature occurring in the award (!) . Additionally, if the parties agree, a party may request the arbitral tribunal to give an interpretation of a specific point or part of the award within the same period (!) . The provision emphasizes that the arbitral tribunal shall make the correction or provide the interpretation within thirty days if the request is justified, and such interpretation shall form part of the award (!) .
Furthermore, the section allows the arbitral tribunal to correct errors on its own initiative within thirty days from the date of the award (!) . The period for such correction or interpretation can be extended if necessary, with the approval of the parties (!) .
Importantly, the phrase "unless another period has been agreed upon by the parties" indicates that the default time limit of thirty days is not inflexible, and the parties can agree to extend this period (!) . This flexibility is integral to the provision, ensuring that the correction or interpretation process can be adapted to the specific circumstances and agreements of the parties involved (!) .
In summary, Section 32(1) establishes a statutory time frame for requesting corrections or interpretations of an arbitral award, which can be extended by mutual agreement, thereby providing a mechanism for clarifying or rectifying awards within a flexible and mutually agreed period.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Ms. Madhavi Divan, Sr. Adv. Mr. Amol Chitale, Adv. Mr. Nirnimesh Dube, Adv. Mr. Sunil Goel, Adv. Mr. Ankur S. Kulkarni, Adv. Mr. Susheel Joseph Cyriac, Adv. Ms. Uditha Chakravarthy, Adv. Ms. Aiashani Narayan, Adv. Ms. Priya S. Bhalerao, Adv. Mr. Varun Kanwal, Adv. M/s. Lex Regis Law Offices, AOR
For the Respondent(s): Mr. C. Aryama Sundaram, Sr. Adv. Mr. Tarun Gupta, AOR
For the Appellant(s) : Ms. Madhavi Divan, Sr. Adv. Mr. Amol Chitale, Adv. Mr. Nirnimesh Dube, Adv. Mr. Sunil Goel, Adv. Mr. Ankur S. Kulkarni, Adv. Mr. Susheel Joseph Cyriac, Adv. Ms. Uditha Chakravarthy, Adv. Ms. Aiashani Narayan, Adv. Ms. Priya S. Bhalerao, Adv. Mr. Varun Kanwal, Adv. M/s. Lex Regis Law Offices, AOR
For the Respondent(s): Mr. C. Aryama Sundaram, Sr. Adv. Mr. Tarun Gupta, AOR
Table of Contents
2. Appellant contends Arbitrator was functus officio and lacked jurisdiction to clarify the award; Respondent argues the clarification is valid and affirmed by precedent. (Para 30 , 31 , 32 , 33 )
3. The sum under Section 31(7) includes principal and pre-award interest; the 30-day limit for clarification under Section 33(1) can be extended by party agreement. (Para 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 )
4. Post-award interest under Section 31(7)(b) is calculated on the aggregate sum of principal and pre-award interest; Section 33(1) time limits are flexible by agreement. (Para 38 , 59 )
5. Appeal dismissed; the Arbitrator's clarification is upheld, and interest is to be computed in accordance with the law laid down in M/s. Hyder Consulting (UK) Ltd. (Para 60 , 61 )
6. How is the sum for post-award interest calculated under Section 31(7) of the 1996 Act?
The sum includes the principal amount plus any interest awarded for the pre-award period, including pre-reference and pendente lite interest. Post-award interest is then calculated on this aggregate composite amount. (Para 38 , 60 )
7. Can an arbitral tribunal clarify an award after the statutory 30-day period under Section 33(1)?
Yes, provided the parties agree to another period of time. If a court permits clarification and the parties participate in the proceedings, it is considered an agreement to extend the time limit. (Para 59 )
8. Does an arbitrator become functus officio immediately after the award, barring any further clarification?
Not absolutely; the arbitrator retains the power to correct computation, clerical, or typographical errors, or provide interpretations under Section 33, subject to the statutory time limits or party agreement. (Para 45 , 59 )
9. What is the distinction between Section 31(7)(a) and Section 31(7)(b) of the 1996 Act?
Clause (a) gives the tribunal discretion to include pre-award interest in the awarded sum. Clause (b) mandates post-award interest (usually 18% p.a.) on that sum unless the award directs otherwise. (Para 36 , 37 )
JUDGMENT :
UJJAL BHUYAN, J.
1. Heard learned counsel for the parties.
2. This civil appeal by special leave is directed against the impugned order dated 01.07.2019 passed by a Division Bench of the High Court of Delhi at New Delhi (‘High Court’) disposing of EFA (OS) No. 17/2017 and C.M. No. 20662/2017 ( North Delhi Municipal Corporation vs. M/s. S.A. Builders Ltd. .
3. By the impugned order dated 01.07.2019, the Division Bench held that this Court vide the order dated 12.03.2015 had directed the High Court to decide the issue of interest component payable to the respondent in accordance with the law laid down in M/s. Hyder Consulting (UK) Ltd. vs. Governor, State of Orissa, (2015) 2 SCC 189 and not in accordance with the law laid down in State of Haryana vs. S.L. Arora, (2010) 3 SCC 690 declaring that the matter relating to amount payable to the respondent had attained finality and could not be interfered with. The Division Bench set aside that part of the order of the learned Single Judge dated 19.04.2017 passed in E.A. (OS) No. 34/2016 pertaining only to the calculations and permitted both the parties (appellant and respondent) to make submissions before the learned Single Judge restricted to the quantum of the amount payable to the respondent. The appeal and the miscellaneous application were disposed of with the observation that learned Single Judge would decide the amount payable by the appellant to the respondent after hearing both the sides.
4. At the outset, it would be appropriate to advert to the relevant facts having a material bearing on the lis.
Facts
5. Respondent was awarded a contract work relating to construction of approaches to flyover at the level crossing on New Rohtak Road with clover-leaf slip road and service road etc. by the appellant. A contract agreement was entered into between the parties in this regard on 11.11.1983. The work however could not be completed even beyond the stipulated date of completion till March, 1990 and, therefore, the work had to be closed in an incomplete form. The main reason for closing the work was non- availability of site.
5.1. The last payment to the tune of Rs. 4,71,48,122.00 was made to the respondent on 09.02.1988. Thereafter, no payments were made to the respondent for the work done upto March, 1990 when the contract was closed. Respondent submitted its final bill which the appellant failed to pay. As a result, dispute arose between the parties.
6. Thereafter, respondent filed an application under Section 20 of the Arbitration Act, 1940 before the High Court seeking appointment of an arbitrator to arbitrate the dispute between the parties. High Court appointed Sh. S.P. Rai, Ex- Member (Personnel), Postal Services Board and Additional Secretary to the Government of India, Ministry of Communications, as the sole Arbitrator. It may be mentioned that on the consent of both the parties, the arbitration proceedings were carried out in terms of the Arbitration and Conciliation Act, 1996 whereafter award was passed by the sole Arbitrator on 16.12.1997. Learned Arbitrator awarded various sums under different heads out of the 26 claims, while rejecting a few of the claims of the respondent. Counter claim of the appellant was also allowed to a limited extent under three heads. After adjusting the two, an amount of Rs. 1,70,70,720.80 was awarded to the respondent with simple interest @ 18% per annum on the award amount w.e.f. 01.04.1990 upto the date of actual payment except on claim No. 23(b) which related to expenses incurred by the respondent on account of bank guarantee commission, margin money etc. for keeping the bank guarantee alive.
6.1. Thereafter, the sole Arbitrator issued a corrigendum dated 18.12.1997 pointing out certain typographical errors in the award, whereafter it was mentioned that the net amount payable to the respondent would be Rs. 1,70,40,720.80 instead of Rs. 1,70,70,720.80, further clarifying that the above correction would form part of the award dated 16.12.1
