1. Construction contract dispute — Arbitration award granting interest for pre-reference, pendente lite, and future periods — Challenge under Section 31(7), Arbitration and Conciliation Act, 1996. (Para 4 , 5 , 6 , 7 , 18 )
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2025 Supreme(SC) 838
SUPREME COURT OF INDIA
Abhay S. Oka, Ujjal Bhuyan, JJ.
M/s. Interstate Construction – Appellant
Vs.
National Projects Construction Corporation Ltd. – Respondent
Civil Appeal No. 3461 of 2025
Decided On : 15-05-2025
Important Points
IMPORTANT POINTS
(1) Interest has to be awarded as specified in contract and in absence of any contract, as per discretion of Arbitral Tribunal - Arbitral Tribunal can grant pre-reference interest from date on which cause of action arose till date on which award is made.
(2) Sum awarded would mean principal amount plus interest awarded from date of cause of action up to date of award.
(1) Interest has to be awarded as specified in contract and in absence of any contract, as per discretion of Arbitral Tribunal - Arbitral Tribunal can grant pre-reference interest from date on which cause of action arose till date on which award is made.
(2) Sum awarded would mean principal amount plus interest awarded from date of cause of action up to date of award.
Subject
Arbitration Law - Interest on Arbitral Awards
Act Referred
Headnote
(A) Arbitration and Conciliation Act, 1996 - Section 31(7)(a) - Award of interest by Arbitrator - Interest has to be awarded as specified in contract and in absence of any contract, as per discretion of Arbitral Tribunal - Award of interest like award of cost are ancillary matters. Therefore, the expressions sum for which the award is made and the sum directed to be paid by an arbitral award contextually refers to the award on the substantive claims and not ancillary or consequential directions relating to interest or cost - Interest may be for whole or any part of period between date on which cause of action arose and date on which award is made - There is now a statutory recognition of power of Arbitral Tribunal to grant pre-reference interest from date on which cause of action arose till the date on which award is made - Arbitral Tribunal can exclude a period from the date on which cause of action arose till the date on which the award is made for the purpose of grant of interest - Arbitral Tribunal can grant interest for whole or any part of period between date on which cause of action arose and date on which award is made - It can be a composite period or said period can be further sub-divided. (Paras 28, 32, 34, 35 and 39)
(B) Arbitration and Conciliation Act, 1996 - Sections 31(7)(a) and 31(7)(b) - Sum awarded - Sum awarded would mean principal amount plus interest awarded from the date of cause of action up to date of award - Sum awarded in Section 31(7)(a) would mean principal amount plus interest awarded - As per Section 31(7)(b) of 1996 Act, sum (principal amount + interest) would carry further interest at the rate of 2 per cent higher than current rate of interest prevalent on date of award to date of payment. (Para 44)
Facts of the case:
Vide impugned judgment), Division Bench of High Court of Delhi (High Court) allowed appeal of National Projects Construction Corporation Limited, (NPCC) filed under Section 37 of Arbitration and Conciliation Act, 1996, setting aside that part of judgment and order dated 02.08.2021 passed by a Single Judge of High Court under Section 34 of 1996 Act upholding directions contained in Paragraph 58(b) of award.
Findings of Court:
Division Bench had fallen in error by holding that Arbitral Tribunal had no jurisdiction to award interest for two periods i.e. pre-reference and pendente lite when statute provides for only one period viz. from the date when the cause of action arose till the date of the award.
Result : Civil Appeal allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Ms. Madhu Moolchandani, AOR
For the Appellant(s) : Ms. Madhu Moolchandani, AOR
Table of Contents
2. Whether Section 31(7) permits subdividing pre-award interest into pre-reference and pendente lite periods and whether awarding interest on pre-award interest constitutes impermissible compound interest. (Para 20 , 25 )
3. Section 31(7)(a) allows tribunals discretion to award interest for any part of the period from cause of action to award, permitting subdivision and varying rates. (Para 26 , 28 , 30 , 31 , 32 , 33 , 34 , 35 )
4. Section 31(7) permits subdividing pre-award interest and allows post-award interest to be calculated on the total sum inclusive of pre-award interest. (Para 36 , 40 , 41 , 43 , 44 )
5. Appeal allowed — Impugned judgment of the Division Bench set aside — Arbitral award restored regarding interest calculations. (Para 45 , 46 )
6. Can an arbitral tribunal subdivide the period between the cause of action and the award to grant interest at different rates?
Yes. Section 31(7)(a) of the 1996 Act allows the tribunal to award interest for the whole or any part of the period, permitting the subdivision into pre-reference and pendente lite interest with varying rates. (Para 30 , 34 , 35 )
7. Is an arbitrator empowered to award post-award interest on the sum inclusive of pre-award interest?
Yes. The sum directed to be paid under Section 31(7) includes the principal amount plus the interest granted up to the date of the award. Post-award interest is then calculated on this total sum. (Para 40 , 41 , 43 , 44 )
8. Can an arbitral tribunal exclude a specific period from the grant of interest between the cause of action and the award?
Yes. The phrase whole or any part of the period in Section 31(7)(a) grants the tribunal discretion to exclude specific periods, such as those where the claimant was remiss in pursuing claims. (Para 35 )
JUDGMENT :
Ujjal Bhuyan, J.
This appeal by special leave is directed against the judgment and order dated 01.08.2023 passed by the Division Bench of the High Court of Delhi in FAO (OS) (Comm) No.175 of 2021.
2. It may be mentioned that by the aforesaid judgment and order dated 01.08.2023 (impugned judgment), Division Bench of the High Court of Delhi (High Court) allowed the appeal of National Projects Construction Corporation Limited, (NPCC) or the respondent hereinafter, filed under Section 37 of the Arbitration and Conciliation Act, 1996 (briefly ‘the 1996 Act’ hereinafter) setting aside that part of the judgment and order dated 02.08.2021 passed by a learned Single Judge of the High Court under Section 34 of the 1996 Act upholding the directions contained in paragraph 58(b) of the award dated 28.10.2020 as well as setting aside the directions of the arbitral tribunal as contained in paragraph 58(b) of the said award.
3. Relevant facts may be briefly noted.
4. Respondent had engaged the services of the appellant for executing a contract relating to Ramagundam Super Thermal Power Project, Ramagundam, District Karimnagar in the then composite State of Andhra Pradesh. In this regard, two separate work orders were issued:
(i) Work order No.917344/838 dated 19.06.1984 in respect of the work excavation of foundation package work-II 3 X 500 MW of National Thermal Power Corporation Limited, Ramagundam Super Thermal Power Project;
(ii) Work Order No. 917344/2382 in respect of the work foundation package work, stage-II, at Ramagundam Super Thermal Power Project;
5. Thereafter, contract agreement was entered into between the parties. As per clause 4 of the conditions of contract read with clause 15 of the special conditions attached to the work orders, all the disputes and differences between the parties were to be settled by way of arbitration.
6. It is stated that appellant had completed the contract work in the year 1987. Respondent had paid the appellant the contractual dues after withholding certain sums on account of recoveries. Appellant disputed such recoveries. Additionally, appellant also raised certain claims which were not accepted by the respondent.
7. In view of such disputes and differences, appellant invoked the arbitration clause by issuing notice dated 17.05.1993.
8. Respondent did not take immediate steps for appointment of an arbitrator. After considerable delay, by communication dated 07.10.1997, respondent appointed Shri Shivamoy Ghosh, Additional General Manager, NPCC, Madras Sector, Chennai as the sole arbitrator to arbitrate on the subject dispute.
9. Appellant filed statement of claims before the learned arbitrator on 20.01.1998 claiming an aggregate amount of Rs.4,46,29,404.00 along with pendente lite and future interest at the rate of 24 percent per annum till final realization of the amount.
10. Appellant sought for a direction from the learned arbitrator to the respondent to supply various documents related to the dispute. However, learned arbitrator only permitted the appellant an opportunity to inspect the documents and did not issue any direction to the respondent for supply of copies.
11. Aggrieved thereby, appellant filed a petition under Section 14 of the 1996 Act before the High Court seeking termination of the mandate of the learned arbitrator and for appointment of a new arbitrator in his place. This petition was registered as OMP No. 214/2002. By order dated 11.10.2004, learned Single Judge terminated the mandate of Shri Shivamoy Ghosh and appointed Shri A.S. Chandhiok, Sr. Advocate, as the sole arbitrator.
12. Respondent challenged the said order of the learned Single Judge dated 11.10.2004 before the Division Bench of the High Court in FAO (OS) No.241/2004. By order dated 02.02.2005, Division Bench appointed Shri L.R. Gupta, retired Director General of CPWD as the sole arbitrator.
13. Before Shri L.R. Gupta, the learned arbitrator, respondent while filing its reply to the statement of claims filed by the appe
