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Synopsis

A division bench of the Supreme Court on Thursday held that an Arbitrator has the discretion to grant post-award interest only on the principal sum due under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.

Section 31(7)(b) reads as follows:

"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."

The parties in the instant case had entered into an agreement under which Videocon Industries Ltd, the respondent, availed a bill discounting facilities from Morgan Securities And Credits Pvt. Ltd, the appellant.

Morgan disbursed Rs. 5,00,32,656 pursuant to the agreement. When the dues remained unpaid, a notice was issued to Videocon on 10th January 2006 demanding the payment of the principal amount of Rs. 5,00,32,656 as on 17th April 2003, which is the date of default, along with an overdue interest. 

After the arbitration clause was invoked, the arbitrator in the arbitral award granted post-award and pre-award interest. This was challenged by Videocon before the Delhi High Court under Section 34.

Morgan, on the other hand, urged before the High Court that the post-award interest of eighteen percent per annum should be granted on the total sum awarded, inclusive both of principal and pre-award interest. This came to be dismissed.

When the matter came up before the Supreme Court, it was noted that Section 31(7)(b) provided for post-award interest, between the date of award to the date of payment.

A bench of Justices DY Chandrachud and AS Bopanna also noted that the issue before it was whether the phrase ‘unless the award otherwise directs’ in Section 31(7)(b) of the Act only provides the arbitrator the discretion to determine the rate of interest or both the rate of interest and the ‘sum’ it must be paid against.

"The purpose of granting post-award interest is to ensure that the award-debtor does not delay the payment of the award. With the proliferation of arbitration, issues involving both high and low financial implications are referred to arbitration. The arbitrator takes note of various factors such as the financial standing of the award-debtor and the circumstances of the parties in dispute before awarding interest. The discretion of the arbitrator can only be restricted by an express provision to that effect....", further noted the court.

Thus, while stressing that Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest, court held that the arbitrator has the discretion to award post-award interest on a part of the sum.

"Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the discretion to award post-award interest on a part of the sum...the arbitrator has the discretion to award post-award interest on a part of the ‘sum’...the award of the arbitrator granting post award interest on the principal amount does not suffer from an error apparent," the court observed. 

Case Title: Morgan Securities And Credits Pvt. Ltd. vs. Videocon Industries Ltd.