Case Note & Summary
The dispute arose from a contract awarded by the North Delhi Municipal Corporation (appellant) to M/s. S.A. Builders Ltd. (respondent) in 1983 for construction of approaches to a flyover. The work could not be completed due to non-availability of site and was closed in March 1990. The respondent's final bill was not paid, leading to arbitration under the Arbitration Act, 1940, but proceedings were conducted under the Arbitration and Conciliation Act, 1996. The sole arbitrator passed an award on 16.12.1997, awarding Rs. 1,70,70,720.80 with simple interest at 18% per annum from 01.04.1990 till payment, later corrected to Rs. 1,70,40,720.80. The appellant's challenge under Section 34 was dismissed on 08.01.2002, and the appeal under Section 37 was dismissed on 14.03.2002. The SLP against that was dismissed on 03.02.2010. In execution proceedings, the Single Judge framed an issue on whether post-award interest under Section 31(7) should be calculated on the principal sum or on the principal plus pre-award interest. The matter was referred to the Division Bench, which permitted the respondent to seek clarification from the arbitrator. The arbitrator clarified on 15.03.2005 that post-award interest is payable on the awarded sum including pre-award interest. The appellant challenged this clarification, and the Single Judge set it aside on 19.02.2008, holding the arbitrator functus officio. The respondent appealed, but the Division Bench on 23.02.2012 dismissed the appeal relying on State of Haryana v. S.L. Arora, which held that compound interest is not payable. The respondent appealed to the Supreme Court, which tagged the matter with Hyder Consulting (UK) Ltd. v. Governor, State of Orissa. On 12.03.2015, the Supreme Court overruled S.L. Arora and held that post-award interest is payable on the entire sum awarded including pre-award interest. The matter was remanded to the High Court for computation. The Division Bench on 01.07.2019 set aside the Single Judge's order on calculations and directed the Single Judge to decide the quantum. The appellant then appealed to the Supreme Court. The Supreme Court dismissed the appeal, holding that the Division Bench correctly followed the law laid down in Hyder Consulting and that the award had attained finality. The Court directed the executing court to compute the amount payable in accordance with Hyder Consulting.
Headnote
A) Arbitration Law - Post-Award Interest - Section 31(7)(b) Arbitration and Conciliation Act, 1996 - Calculation of Interest - The issue was whether post-award interest under Section 31(7)(b) is payable on the principal sum only or on the entire sum awarded including pre-award interest. The Supreme Court held that the sum directed to be paid by the award includes both principal and interest, and post-award interest is payable on that entire sum, following Hyder Consulting (UK) Ltd. v. Governor, State of Orissa, (2015) 2 SCC 189, and overruling State of Haryana v. S.L. Arora, (2010) 3 SCC 690. (Paras 20-22) B) Arbitration Law - Arbitrator's Clarification - Section 31(7) and Section 32 Arbitration and Conciliation Act, 1996 - Functus Officio - The Arbitrator issued a clarification on 15.03.2005 regarding the nature of interest awarded, after being permitted by the High Court. The Single Judge set aside the clarification holding the Arbitrator functus officio. The Supreme Court did not disturb that part as the appeal was confined to the interest calculation issue. (Paras 14-16) C) Arbitration Law - Execution of Award - Section 36 Arbitration and Conciliation Act, 1996 - Finality of Award - The award dated 16.12.1997 had attained finality after dismissal of the appellant's challenge under Section 34 and subsequent appeals. The only issue left was computation of interest in execution. (Paras 8-10, 20)
Issue of Consideration
Whether post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 is to be calculated on the principal sum adjudged or on the principal sum plus interest accrued from the date of cause of action to the date of award?
Final Decision
The Supreme Court dismissed the appeal, holding that the Division Bench correctly followed the law laid down in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa. The Court directed the executing court to compute the amount payable to the respondent in accordance with the principles stated in Hyder Consulting, i.e., post-award interest under Section 31(7)(b) is payable on the entire sum awarded including principal and pre-award interest.
Law Points
- Post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act
- 1996 is payable on the entire sum awarded including principal and pre-award interest
- Arbitrator's clarification on interest is valid if within scope of reference
- functus officio principle does not bar clarification sought with court permission
