In a recent ruling of the Supreme Court of India in Civil Appeal No. 10341 of 2011. D/d. 7.1.2022, the Court reaffirmed that post-award interest can be granted by an Arbitrator even on the interest component contained in the Award passed in Arbitration.
In an arbitration between UHL Power Company Limited ("UHL") and the State of Himachal Pradesh, the Ld. Sole Arbitrator passed and Award in favour of UHL in the sum of Rs.26,08,89,107.35 towards expenses claimed along with pre-claim interest capitalised annually on the expenses so incurred. Further, compound interest was awarded in favour of UHL at the rate of 9% per annum till the date of claim and in the event, the awarded amount was not realized within a period of six months from the date of making the award, future interest was awarded at the rate of 18% per annum on the principal claim with interest.
The award was challenged by the State of HP u/s 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) before a Single Judge of the High Court. The Single Judge disallowed the entire claim of UHL. The said judgment of the Single Judge passed u/s 34 of the Arbitration Act was challenged by UHL in a Petition u/s 37 of the Arbitration Act wherein, the Division Bench returned the findings that the Arbitral Tribunal is not empowered to grant compound interest or interest upon interest and only simple interest could be awarded in favour of UHL on the Principal amount claimed. In support of these findings, the Division Bench placed reliance upon the decision of the Supreme Court in State of Haryana V/s S.L Arora and Co. (2010) 3 SCC 690 wherein was held that compound interest can be awarded only if there is a specific contract, or authority under a statute for compounding of interest and that there is no general discretion to award compound interest. It was further held that in the absence of any provision for interest upon interest in the contract, the Arbitral Tribunals do not have the power to award interest upon interest or compound interest, either for the pre-award period or the post-award period. In view thereof, the Division Bench u/s 37 of the Arbitration Act awarded a sum of Rs.9,10,26558.74 being the actual principal amount along with simple interest thereon at 6% P.A. from the date of filing of the claim till payment and/ or realization.
Being dissatisfied by the judgment of the Division Bench u/s 37 of the Arbitration Act, UHL challenged the same before the Supreme Court in a Civil Appeal. The Supreme Court partially allowed the Civil Appeal by reversing the findings rendered by the Division Bench in so far as they related to the grant of interest component thereby restoring the Arbitral Award on that aspect in favour of UHL. While doing so, the Supreme Court held that the Division Bench u/s 37 had wrongly placed reliance upon the decision in State of Haryana V/s S.L Arora and Co. (2010) 3 SCC 690 for declining interest awarded by the learned Sole Arbitrator as the same was overruled by a 3 Judge Bench of the Supreme Court in Hyder Consulting (UK) Ltd. Vs. Governor, State of Orissa (2015) 2 SCC 189. The majority view of the 3 Judge Bench of the Supreme Court was that post- award interest can be granted by the arbitrator on the interest amount awarded.
By - Chaitanyaa Bhandarkar