Case: State Of Haryana  Vs. M/S S.L.Arora &amp; Company

the date of award and future interest thereupon which do not amount to award of interest on interest as interest awarded on the principal amount upto the date of award became the principal amount which is permissible in law." [emphasis supplied] But a careful reading of the decision in Mcdermott, shows that the portion of Mcdermott extracted in Three Circles, assuming it to be the law laid down in Mcdermott, is not a finding or conclusion of this court, nor the ratio decidendi of the case, but is only a reference to the contention of the respondent in Mcdermott. Paras 1 to 27 (of the SCC report) in Mcdermott state the factual background. Paras 28 and 29 contain the submissions of the learned counsel for BSCL, The respondent therein. Paras 30 to 44 contain the submissions made by the learned counsel for Mcdermott, the appellant therein, in reply to the submissions made on behalf of BSCL. The passage that is extracted in Three Circles is part of para 44 of the decision which contains the last submission of the learned counsel for Mcdermott on the question of interest. The reasoning in the decision starts from para 45. This Court considered the several questions seriatum in paras 45 to 160. The question relating to interest was considered in paras 154 to 159 relevant portions of which we have extracted above. Therefore, the observation in Three Circles that Mcdermott held that interest awarded on the principal amount upto the date of award becomes the principal amount and therefore award of future interest therein does not amount to award of interest on interest, is per incuriam due to an inadvertent erroneous assumption. Re : Question (ii) 22. The operative portion of an arbitral award dealing with several claims on which separate decisions have been recorded, is really an abstract of the decisions/awards on eah of the claims. Therefore, the findings/award reached by the Arbitrator on claim No. (8) relating to interest, have to be read with the operative portion to know what is directed by the award. We therefore extract below the reasoning, finding and award on claim No.(8) relating to interest: "Claim 8 : Payment of account of interest at the rate of 30% per annum with effect from 18.8.1990 till final payment. The claimant has claimed interest @30% per annum with effect from 18.8.1990 till final payment of Award. Keeping in view the reasonability of the claim, I allow interest @12% per annum on the total amount of Award i.e. on Rs. 14.94 lacs with effect from 19.12.1990 (date of first reference of Arbitrator) upto the date of making this award. In case the total amount of award together with this interest is not paid within 30 days from the date of making this award, future interest shall be paid @ 18% per annum on the entire Award from the date of Award upto the actual date of payment". The above portion of the award when read with the operative portion of the award shows that the words entire award used in the para dealing interest and the words sums due used in the operative portion of the award refer to the total amount of award referred to earlier in the said two portions relating to interest. 23. The Arbitrator allowed interest at the rate 12% per annum on the total amount of the award, that is Rs. 14,94,000/-, with effect from 19.12.1990 up to the date of the Award. He further directed that in case the "total amount of the award together with this interest" is not paid within 30 days from the date of making the award, future interest shall be paid at the rate 18% per annum on the entire Award from the date of Award upto the actual date of payment. The words "total amount of the Award together with interest" makes it clear that the Arbitrator has used the words "total amount of the Award" as referring to the total or aggregate of the awards on the substantive claims of the contractor (claims 1 to 7) excluding the ancillary claims (claim No. 8) relating to interest. The Arbitrator has also used the words "entire award" and "sums due" synonymous with the words "total amount of the award". Therefore, when the operative portion states that future interest is awarded on the "sums due", it refers to the "total amount of the award", that is total of the amounts awarded on substantive claims (that is claims (1) to (7) of the contractor) excluding the claim relating interest. Therefore, what was awarded by the Arbitrator was future interest at the rate of 18% per annum on the amounts awarded on various claims (that is Claim No. 1 to 7) in all aggregating to Rs. 14,94,000/- and not upon the interest awarded thereon upto to date of the award. It should be noted that the difference in the interest awarded for the pre-award period and post-award period, is only with reference to the rate of interest and not the quantum of principal (that bears interest). Conclusion 24. Thus it is clear that section 31(7) merely authorizes the arbitral tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment. It also provides that if the award is silent about interest from the date of award till date of payment, the person in whose favour the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till date of payment. The calculation that was made in the execution petition as originally filed was correct and the modification by the respondent increasing the amount due under the award was contrary to the Award.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]24. Thus it is clear that section 31(7) merely authorizes the arbitral tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment. It also provides that if the award is silent about interest from the date of award till date of payment, the person in whose favour the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till date of payment. The calculation that was made in the execution petition as originally filed was correct and the modification by the respondent increasing the amount due under the award was contrary to the Award15. There is a tendency among contractors to elevate the claims for interest and costs to the level of substantive disputes by describing them as separate and independent heads of claim. The long pendency of arbitration matters either due to prolonged arbitration proceedings or due to litigations (both intervening and, has the unfortunate effect of swelling the interest payable on the amount awarded and costs to very substantial amounts. In many arbitral awards for money, the interest awarded often exceeds the amount awarded, by several times. Leisurely arbitrations, avoidable judicial interventions, and indecisiveness on the part of decision makers in government and statutory bodies in accepting and settling genuine claims either at the stage when the claim is made or at least at the stage when the award is made have resulted in undue emphasis and importance being bestowed upon interest and costs. However substantial their quantum may be in a given case, interest, in particular interest from the date of the award, and costs are ancillary issues and are not substantive disputesIn a nutshell, in regard tod period, interest has to be awarded as specified in the contract and in the absence of contract as per discretion of the Arbitral Tribunal. On the other hand, in regard to thed period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum19. We will next deal with the three cases relied upon by the learned counsel for the respondent to contend that this Court has recognized and accepted the power of the arbitral tribunals to award interest upon interest: Oil & Natural Gas Commission v. M.C. Clelland Engineers S.A.(1999) (4) SCC 327 , Mcdermott International Inc. vs. Burn Standard Co. Ltd. and Others(2006) 11 SCC 181 , and Uttar Pradesh Cooperative Federation Limited vs. Three Circles(2009) 10 SCC 374.  But out of these three decisions only the decision in Mcdermott relates to an award under the Arbitration and Conciliation Act, 1996. The other two decisions relate to awards under the old Act (Arbitration Act, 1940) and are of no assistance in interpreting section 31(7) of the new Act20. In Mcdermott, paras 154 to 159 of the judgment deal with the issue of interest. Relevant portions thereof are extracted below in entirety:"The power of the arbitrator to award interest ford period, interest pendent lite and interestd period is not in dispute. Section 31(7)(a) provides that the arbitral tribunal may award 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 award is made, i.e.,d period. This, however, is subject to the agreement as regard the rate of interest on unpaid sum between the parties. The question as to whether interest would be paid on the whole or part of the amount or whether it should be awarded in thed period would depend upon the facts and circumstances of each case. The arbitral tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest should be awarded; (ii) whether interest should be awarded on whole or part of the award money; and (iii) whether interest should be awarded for whole or any part of the"The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has granted 10% interest both for the principal amount as also for the interim. By reason of the award, interest was awarded on the principal Amount. An interest thereon was upto the date of award as also the future interest at the rate of 18% per annumHowever, in some cases, this court was resorted to exercise its jurisdiction under Article 142 in order to do complete justice between the parties..........In this case, given the long lapse of time, it will be in furtherance of justice to reduce the rate of interest to 7 1/2%."A careful reading of the same shows that there is no reference to awarding of compound interest or interest from the date of the award on the interest that had accrued due up to the date of award. The decision dealt with the rate of interest and exercise of jurisdiction under Article 142 of the Constitution to set right anomalies in regard to rate of interest. The said decision is therefore, of no assistance