IMPORTANT POINT
Arbitration – Grant of post-award interest under Section 31(7)(b) of Arbitration and Conciliation Act, 1996 is mandatory – Only discretion which Arbitral Tribunal has is to decide rate of interest to be awarded.

JUDGMENT :

J.B. PARDIWALA, J.

1. Leave granted.

2. This appeal arises from the judgment and order passed by the Division Bench of the High Court of Judicature at Madras dated 07.01.2020 by which the original side appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short “the Act 1996”) filed by the appellants herein being O.S.A. No. 202 of 2019 came to be dismissed thereby affirming the order passed by the learned Single Judge dismissing O.P. No. 137 of 2015 preferred by the appellants under Section 34 of the Act, 1996, seeking to challenge the arbitral award.

A. FACTUAL MATRIX

3. Appellant no. 1, viz. M/s Sri Lakshmi Hotels Pvt. Limited, is a Private Limited company registered under the Companies Act, 1956. Appellant no. 2 viz. V.S. Palanivel is the Managing Director of appellant no. 1. Respondent no. 1 viz. Sriram City Union Finance Ltd. is a Non-Banking Financial Company (for short “the NBFC”). Respondent no. 2 viz. Mr. K. Balasubramanian is a retired District Judge who was appointed as the arbitrator and who had passed the arbitral award.

4. Appellant no. 1 through appellant no. 2 had availed a loan facility amounting to INR 1,50,00,000/- (Rupees One Crore and Fifty Lakh) from respondent no. 1 vide a loan agreement dated 03.04.2006 (“First Agreement”). Additionally, appellant No. 2 had also obtained one another loan facility from respondent no. 1 amounting to INR 7,25,000/- (Rupees Seven Lakhs Twenty-Five Thousand) vide a loan agreement dated 03.07.2006 (“Second Agreement”). Thus, in total an amount of INR 1,57,25,000 (Rupees One Crore Fifty-Seven Lakhs and Twenty- Five Thousand) was borrowed by the appellants from respondent no. 1

5. The salient features of the loan agreements relevant for the adjudication of the subject in issue are as follows:

(i) Under the First Agreement, the appellants were to repay the loan amount within a period of 12 months along with an interest rate of 24% p.a. on monthly rest on the 4th of every month commencing from 04.05.2006.

(ii) Under the Second Agreement, the appellants were to repay the loan amount within a period of 6 months along with an interest rate of 24% p.a. on monthly rest on the 4th of every month, commencing from 04.08.2006.

6. The appellants paid an amount of INR 44,66,250/- (Rupees Forty-Four Lakh Sixty-Six Thousand Two Hundred and Fifty only) till 04.04.2007 and thereafter, stopped making any further payment.

7. In view of the continuing default by the appellants, the respondent no. 1 issued several demand notices upon the appellants to regularize their default. However, no further payments were made. Pertinently, in all their replies to the demand notices, the appellants never disputed the principal amount borrowed. Notably in a reply dated 06.09.2007, the appellants, inter alia, had assured the respondent no. 1 that they were on war footing to repay the outstanding amount. However, even after such assurance no payment was made. In fact, for the first time, the appellants vide the letter dated 25.01.2008, objected to the interest rate of 24% p.a. and contended that only 12% p.a. was payable on the loan amount.

8. Pertinently, appellant no. 2 had issued a cheque in 2008 amounting to INR 1,89,92,538/- (Rupees One Crore Eighty Nine Lakh Ninety-Two Thousand Five Hundred and Thirty Eight only) towards the full and final settlement of the loan amount. However, the said cheque was dishonored due to insufficiency of funds. Consequently, respondent no. 1 initiated proceedings under Section 138 of the Negotiable Instruments Act, 1881.

9. Since the appellants failed to repay the complete loan amount, the respondent no. 1 invoked the arbitration clause under the First and Second loan agreements respectively and accordingly, the respondent no. 2 was appointed as the sole arbitrator in Arbitration Case No. 01 of 2009. The respondent no. 1 filed its Statement of Claim on 26.03.2009 inter alia claiming an amount of INR 2,21,08,244 (Rupees Two Crore Twenty-One Lakh Eight Thousan