Meghalaya High Court: Executing Court Cannot Modify an Arbitral Award's Interest Calculation

Shillong: The Meghalaya High Court, in a significant ruling on the scope of an executing court's power, has held that an executing court cannot reinterpret an arbitral award to effectively grant compound interest when the award explicitly directs the payment of simple interest. Justice B. Bhattacharjee set aside an order by a Commercial Court, emphasizing that the executing court is bound by the specific terms of the arbitral award and cannot go beyond it.

The decision came in a revision petition filed by the Power Grid Corporation of India Ltd. (the petitioner) against an order of the Commercial Court, Shillong, which had accepted the interest calculation submitted by M/s Mega Electricals (the respondent).

Background of the Dispute

The case originates from an arbitral award dated December 30, 2016, in favor of M/s Mega Electricals. The award directed Power Grid to pay Rs. 1,31,87,889 along with simple interest at 12% per annum on the principal components from specific dates until payment. Power Grid's challenge to the award under Section 34 of the Arbitration and Conciliation Act, 1996 , was dismissed, and the award became final.

During execution proceedings, a dispute arose over the calculation of interest. M/s Mega Electricals claimed a total of Rs. 3.87 crore, calculating post-award interest on the aggregate sum of the principal and pre-award interest. Power Grid objected, arguing this amounted to unauthorized compounding of interest and deposited Rs. 2.98 crore, which it contended was the full and final amount due as per a simple interest calculation. The Commercial Court rejected Power Grid's objection, leading to the present revision petition before the High Court.

Arguments Presented

Power Grid Corporation of India Ltd. (Petitioner): - The petitioner, represented by Senior Counsel Mr. A. Kumar, argued that the Commercial Court had overstepped its jurisdiction by modifying the arbitral award. - It was contended that the award specified simple interest on the principal sums and did not provide for merging pre-award interest with the principal for calculating post-award interest. - Relying on Supreme Court judgments like Morgan Securities and D. Khosla , the petitioner asserted that an executing court cannot grant what the arbitral tribunal did not award. - The petitioner also argued that interest should cease to accrue on the principal amount that had already been paid, citing the deposit of 25% of the award amount (approx. Rs. 32.96 lakh) in 2019.

M/s Mega Electricals (Respondent): - The respondent, represented by Senior Counsel Mr. V. K. Jindal, defended the Commercial Court's order, arguing that it correctly applied the legal principle established in Hyder Consulting (UK) Ltd. v. State of Orissa . - This principle holds that pre-award interest merges with the principal amount to form the "sum" for which the award is made, on which post-award interest is then calculated. - The respondent argued that this interpretation does not amount to modifying the award but rather to correctly executing it based on established law. - It was also submitted that the 25% deposit was conditional for a stay and did not stop interest from accruing on the entire awarded amount.

High Court's Analysis and Ruling

Justice B. Bhattacharjee meticulously analyzed the arbitral award and relevant Supreme Court precedents to resolve the conflict.

The Court observed that while the Hyder Consulting principle allows for the merging of pre-award interest with the principal, this applies primarily when an award is silent or unqualified on the matter. However, the subsequent Morgan Securities case clarified that an arbitrator retains the discretion to award post-award interest on the whole or only a part of the sum.

The High Court then turned to the specific wording of the 2016 arbitral award.

> "...the Respondents shall pay simple interest @12% per annum on the awarded amount of Rs.1,26,55,793.00... and on the awarded amount of Rs. 5,32,096.00... till the date of payment..."

Based on this text, the Court concluded:

> "A careful perusal of the operative part of the award makes it clear that the Arbitral Tribunal had not granted compound interest rather awarded composite interest i.e. simple interest per annum effective from the dates mentioned in the award till the date of payment... There is no stipulation made in the award that... future interest should be paid on the total sum due..."

The High Court held that the award was clear in granting only simple interest on the principal amounts. Therefore, the respondent could not claim post-award interest on an aggregated sum that included pre-award interest, as this was not contemplated by the award.

On the second issue, the Court ruled that interest ceases to accrue on any portion of the principal that has been paid. Following the Supreme Court's decision in * Nepa Limited v. Manoj Kumar Agarwal *, the Court stated:

> "...interest is payable only on amount that is not paid and it will be incongruous to hold that person would be liable to pay interest even in respect of amount which has been paid and handed over to decree holder. Therefore, the claim of the respondent with regard to interest on the entire principal amount after 27-08-2019 is not valid in the eye of law."

However, the Court also found Power Grid's calculation faulty, as it had incorrectly excluded interest on the 25% deposited amount for the period before the deposit was made.

Final Decision

The Meghalaya High Court set aside the Commercial Court's order dated February 5, 2025. The matter was remanded back to the Executing Court for reconsideration of the interest calculation. Both parties were directed to submit fresh calculation sheets strictly in line with the High Court's observations: simple interest on the principal amounts, with interest ceasing on any paid portion from the date of payment.