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IN THE HIGH COURT AT CALCUTTA
MOUSHUMI BHATTACHARYA, J.
Amiya Steel Private Limited - Petitioner
Versus
Steel Authority of India Limited - Respondent
EC No. 88 of 2021
Decided On : 27-02-2024
Interest Rate - Arbitration and Conciliation - Section 31(7)(b) of The Arbitration and Conciliation Act, 1996 - 18% per annum, 2% higher than the current rate of interest prevalent from the date of the award to the date of the payment
Fact of the Case:
The award-holder sought interest on the awarded amount at 18% per annum from the date of the award to the date of payment. The award-debtor argued that the rate of interest should be governed by Section 31(7)(b) of The Arbitration and Conciliation Act, 1996, as the Award was made pre-amendment.
Finding of the Court:
The Court held that the petitioner is entitled to interest on the awarded amount, but the rate of interest would be under the amended Section 31(7)(b), which contemplates the rate of interest as being 2% higher than the current rate of interest prevalent from the date of the award to the date of the payment.
Issues: The main issue was the determination of the rate of interest the award-holder is entitled to in terms of the Amendment of 2016, i.e., whether the interest rate should be 18% or 2% higher than the rate of interest prevalent on the date of the Award.
Ratio Decidendi: The Court's decision was influenced by the fact that the Award was made before the Amendments to Section 31(7)(b) were brought into effect, and the Arbitrator refused to grant interest on the Award. The Court also considered relevant case law, including Hindustan Construction Company Limited vs. Union of India (2020) 17 SCC 324, in reaching its decision.
Final Decision: The award-debtor was ordered to pay interest at the rate of 2% higher than the prevalent rate on the date of the Award, i.e., 30th September, 2008, till the date of payment, which amounted to 15.75% on the awarded amount. The amount was to be paid by 7th March, 2024 by way of banker’s cheque to the award-holder’s designated bank account.
JUDGMENT :
Moushumi Bhattacharya, J.
1. The award-holder has filed this application in its execution proceeding pertaining to an Award dated 30th September, 2008. By the impugned Award, the award-debtor was held liable for a sum of Rs.3,87,73,200/- on account of the award-holder’s loss of profit. The learned Arbitrator also awarded costs assessed at Rs.4 lakhs in favour of the award-holder. The Award has now fructified into a decree of the Court and the award-holder says that the award-debtor should be directed to pay interest on the Award at 18% per annum till the date of payment.
2. Learned counsel appearing for the award-holder submits that the rate of interest would be 18% taking into account the position before the Amendment of 2016 which came into effect from 23.10.2015. Counsel also places paragraph 15.12 of the Award to say that the interest at 18% would start accruing if the award-debtor failed to pay the awarded sum within a reasonable period. Counsel submits that the award-holder construed this reasonable period from 1st February, 2009 and accordingly seeks interest at 18% on the awarded amount from 1st February, 2009.
3. Learned counsel appearing for the award-debtor submits that the rate of interest would be governed by Section 31(7)(b) of The Arbitration and Conciliation Act, 1996 since the Award was made pre-amendment.
4. The only question which falls for consideration is the rate of interest which the award-holder is entitled to in terms of the Amendment of 2016 brought into effect from 23.10.2015, i.e., whether the interest rate should be 18% or 2% higher than the rate of interest prevalent on the date of the Award which is to be paid from the date of the Award to the date of payment.
5. The admitted dates, which are relevant to this question, are as follows : The Award was delivered on 30th September, 2008. The award-debtor sought for setting aside of the Award which resulted in a judgment of the learned Single Judge of 12th December, 2018 setting aside part of the Award. Both the award-debtor as well as the award-holder challenged the said judgment and the Divison Bench by a judgment dated 17th August, 2019 restored the Award to its original form and quantum. The Supreme Court dismissed the award-debtor’s Special Leave Petition on 10th February, 2020. The award-debtor thereafter furnished 8 cheques covering the amount of Rs.3,89,04,600/-towards the principal amount and costs of Rs.4 lakhs on 6th August, 2021 but did not pay the interest component which the petitioner/award-holder now demands.
6. The award-holder in the meantime had earlier filed two execution applications in 2010 and 2017 which were withdrawn and the present execution proceedings filed on 20th July, 2021.
7. From the brief sequence of events, it is evident that the Award was made before the Amendments to Section 31(7)(b) were brought into effect on and from 23.10.2015. The pre-amendment position was that a sum directed to be paid by an arbitral tribunal shall, unless the Award otherwise directs, carry interest at the rate of 18% per annum from the date of the Award to the date of payment.
8. On and from 23.10.2015 i.e., post-amendment, Section 31(7)(b) was transformed to require the Award, unless directed otherwise, to carry interest at the rate of 2% higher than the current rate of interest prevalent on the date of the Award, from the date of the Award to the date of payment.
9. Since the Award would be governed by the pre-amendment position, the Award would normally have attracted the interest rate at 18% per annum. However, the last paragraph of the Award read with paragraph 15.12 makes it clear that the Arbitrator thought it fit only to award the principal amount of approximately of Rs.3.87 crores on account of loss of profit without the interest component of 18% which was claimed by the award-holder. Paragraph 15.12 of the Award records that the Arbitrator agreed with the respondent that the respondent should not be liable for payment of the 18%
Setting aside arbitral award – Illegality must go to root of matter and cannot be of a trivial nature.
Arbitral Tribunal's power to grant interest for the period post award till realization is subject to the discretion only in respect to the rate as it is the mandate of the law to grant such interest ....
The main legal point established is that interest on the interest component and the interest rate should be determined in accordance with the statutory provisions of the Arbitration and Conciliation ....
The Arbitral Award holds primacy in determining post-award interest, and interest on costs is to be granted by the Arbitral Tribunal.
The court emphasized the importance of substantiating claims regarding the excessiveness of interest rates and the need to provide evidence of prevailing interest rates when challenging arbitration a....
The Arbitral Tribunal's authority to award interest is governed by the arbitration agreement, with specific provisions for pre-award and post-award interest under the Arbitration Act.
Arbitral Awards prevail over statutory default provisions regarding interest unless explicitly stated otherwise in the Award.
Arbitral awards inherently carry a statutory interest rate of 18% for post-award periods, ensuring prompt compliance regardless of parties' prior decisions.
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.
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.
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