M/s Madhava Hytech Engineers Pvt. Ltd vs Superintending Engineer

Sanjaya Kumar Mishra, J

This appeal arises out of an order passed by the learned Additional District Judge (Commercial), Dehradun in Execution Case No.85/2019 (C.G. No.195/2019) dated 16.10.2021 thereby dismissing the application of the appellant on the ground that the said appellant/ decree holder is not entitled to any interest on the interest awarded by the Arbitral Tribunal on the principal amount pendente lite @ 12%.

Facts of the case, at this stage, are not in dispute. The appellant was awarded a contract by the Superintending Engineer, N.H. Circle-10, Uttarakhand P.W.D., Chakrata Road, Yamuna Colony, Dehradun but there was some dispute regarding execution of the same. As per the Arbitral Clause in the contract the matter was referred to an Arbitral Tribunal. On such reference both the sides were heard. Evidences were led, both oral and documentary, and finally the Arbitral Tribunal passed award in favour of the present appellant.

At this stage, the dispute is only regarding payment of interest or in other words entitlement of the appellant with respect to the interest on the sum awarded. First, we take note of the award, with regard to the interest, which appears at page 89 which is as under:-

“For Claim Nos.1 to 12: Interest @ 12% (simple interest) from the date the statement of claims were submitted to the AT i.e., from 11.10.2008 up to the expiry of 30 days from the date of this Award and @ 16% per annum (simple interest) as per AT Act thereafter up to the actual date of payment.

For Claim No.13 Interest @ 12% shall be payable by the Employer on the amount of invoice certified by the Engineer after 32 days from the date of submission of invoice till payment is actually made.

For Claim No.15 Interest at 18% per annum shall be payable on the amount due from 30 days after the date of this Award.”

After the award was passed it was challenged under Section 34 of the Arbitration & Conciliation Act, 1996 before the learned Additional District Judge, Dehradun. The said application was dismissed and the matter was carried to this Court under Section 37 of the aforesaid Act which was also disposed of with certain modifications. Finally, the matter went to the Hon’ble Supreme Court. The Hon’ble Supreme Court disposed of Civil Appeal No.15867 of 2017 by passing the following order:-

“Inspite of service, nobody appears on behalf of the respondent.

Leave granted.

A challenge was made to an Arbitral Award dated 08.02.2013 in which there were 15 claims, claim No.14 being a claim on account of interest. The Arbitrator awarded different rates of interest for different sets of claims, but in the challenge made under Section 34 petition before the High Court, the District Court clearly recorded that no challenge was laid to claim no.14 which is the claim for interest. Despite that, the High Court, in appeal, by the impugned judgment dated 17.03.2016 has, interfered with interest stating that 18% was excessive and only 12% should be granted.

In view of the clear concession on facts made before the District Court, this is clearly unwarranted. The judgment of the High Court is set-aside. The appeal is allowed accordingly.”

Thereafter, the appellant filed execution before the learned Additional District Judge (Commercial), Dehradun for realization of the award amount. The award amount was paid to the appellant but the dispute remained regarding certain interest component of the sum awarded.

The learned Additional District Judge (Commercial), Dehradun while dismissing the claim payment of further interest, as per paragraph no.7, held as follows:-

“7. वर्तमान मामले में बहुमत द्वारा ब्याज के सम्बन्ध में पारित सुसंगत अवार्ड निम्नवत हैः-

For Claim Nos.1 to 12: Interest @ 12% (simple interest) from the date the statement of claims were submitted to the AT i.e. from 11-10-2009 up to the expiry of 30 days from the date of this Award and @ 18% per annum (simple interest) as per AT Act. thereafter up to the actual date of payment.

“माध्यस्थम अधिकरण ने उपरोक्तानुसार अर्वाड पारित करते हुए अवार्ड की धनराशि व इस पर 12 प्रतिशत ब्याज को अग्रिम ब्याज 18 प्रतिशत के लिए अवार्ड की मूल धनराशि नहीं बनाया है, बल्कि अवार्ड के दिनांक के 30 दिन के पश्चात केवल अवार्ड की धनराशि पर ही 18 प्रतिशत ब्याज देने का आदेश पारित किया है। माननीय सर्वोच्च न्यायालय द्वारा पारित उक्त सिद्धान्त के दृष्टिगत प्रत्येक मामले मे अवार्ड के दिनांक पर अवार्ड की धनराशि व इस पर ब्याज को अग्रिम ब्याज जोड़े जाने के लिए मूल धनराशि नहीं माना जा सकता। माध्यस्थम अधिकरण को इस प्रकार ब्याज अदायगी का आदेश पारित करने का अधिकार है, परन्तु यदि अधिकरण द्वारा अवार्ड के दिनांक तक ब्याज को जोड़ते हुए मूल धनराशि मानकर अग्रिम ब्याज के अदायगी का आदेश पारित नहीं किया गया है, तो ऐसी स्थिति में न्यायालय द्वारा निष्पादन कार्यवाही में अवार्ड के दिनांक तक ब्याज की धनराशि पर भी अग्रिम ब्याज नहीं दिलवाया जा सकताष्

(Underlined to provide emphasis)

We find appropriate to quote the same because it is in vernacular and provides exact reason for which the application was rejected.

A careful examination of this order reveals that the learned Additional District Judge (Commercial), Dehradun has come to the conclusion that the interest of 12% from the date of award till completion of 30 days and 18% thereafter cannot be realized on the 12% interest granted on the principal amount pendente lite between 11.10.2009 upto 08.02.2013.

We are of the view that the observations made by the learned Additional District Judge (Commercial), Dehradun is definitely contrary to the ratio decided by the Hon’ble Supreme Court in three judges Bench case i.e. Hyder Consulting (UK) Limited Vs. Governor, State of Orissa, (2015) 2 SCC 189. In the said judgment the Hon’ble Supreme Court has come to the conclusion that the view of the Supreme Court in the case of State of Haryana Vs. S.L. Arora and Co., (2010) 3 SCC 690 is not correct. The Hon’ble Supreme Court has held that the view taken by the Hon’ble Supreme Court in the case of S.L. Arora (supra) is wrongly decided, in that it holds that a sum directed to be paid by an Arbitral Tribunal and the reference to the award on substantive claim does not refer to interest pendente lite awarded on the “sum directed to be paid upon award” and that in the absence of any provision of interest upon interest in the contract, the Arbitral Tribunal does not have the power to award interest upon interest, or compound interest either for the pre-award period or for the post-award period. Parliament has the undoubted power to legislate on the subject and provide that the Arbitral Tribunal may award interest on the sum directed to be paid by the award, meaning a sum inclusive of principal sum adjudged and the interest, and this has been done by Parliament in plain language.

These observations were made in the judgment by Hon’ble Justice S.A. Bobde as his lordship was then and it was concurred by A.M. Sapre, Judge.

We find it appropriate to take note of the exact words used by the Hon’ble Supreme Court in the aforesaid judgment which are as under:-

“25. The aforesaid question can be answered by a plain and simple reading of Section 31(7) of the Act which reads as under:

“31(7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the Arbitral Tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.”

Section 31(7)(a) of the Act deals with grant of pre-award interest while clause (b) of Section 31(7) of the Act deals with grant of post-award interest. Pre-award interest is to ensure that arbitral proceedings are concluded without unnecessary delay. Longer the proceedings, would be the period attracting interest. Similarly, post-award interest is to ensure speedy payment in compliance with the award. Pre-award interest is at the discretion of Arbitral Tribunal, while the post-award interest on the awarded sum is mandate of statute—the only difference being that of rate of interest to be awarded by the Arbitral Tribunal. In other words, if the Arbitral Tribunal has awarded post-award interest payable from the date of award to the date of payment at a particular rate in its discretion then it will prevail else the party will be entitled to claim post-award interest on the awarded sum at the statutory rate specified in clause (b) of Section 31(7) of the Act, i.e., 18%. Thus, there is a clear distinction in time period and the intended purpose of grant of interest.

Section 31(7)(a) employs the words "...the Arbitral Tribunal may include in the sum for which the award is made interest...". The words "include in the sum" are of utmost importance. This would mean that pre-award interest is not independent of the "sum" awarded. If in case, the Arbitral Tribunal decides to award interest at the time of making the award, the interest component will not be awarded separately but it shall become part and parcel of the award. An award is thus made in respect of a "sum" which includes within the "sum" component of interest, if awarded.”

(Underlined to provide emphasis)

This would mean that pre-award interest is not independent of the "sum" awarded. If in case, the Arbitral Tribunal decides to award interest at the time of making the award, the interest component will not be awarded separately but it would become part and parcel of the award. An award is thus made in respect of a "sum" which includes within the "sum" component of interest, if awarded.

So following the aforesaid principles and based upon the discussions made in the preceding paragraphs, we are inclined to allow the appeal. Hence, the appeal is allowed. The impugned order is hereby set aside. The execution case is restored to file. We hereby direct the Executing Court to secure payment of interest, as per award either 12% for the first 30 days and 18% thereafter, on the 12% interest awarded pendent lite, i.e., between the date of submission of statement of claim and the date of award and dispose of the execution case.