Supreme Court of India
M/S. HYDER CONSULTING (UK) LTD.versusGOVERNOR, STATE OF ORISSA THROUGH CHIEF ENGINEER
- Citation
- 2014 INSC 807
- Decided
- 25 November 2014
- Disposal
- Reference answered
- Bench
- H L DATTU
Holding
Section 31(7) of the Arbitration and Conciliation Act, 1996 includes pre‑award interest in the "sum" for which the award is made, allowing post‑award interest to be charged on that aggregate amount, i.e., interest on interest is permissible.
Summary
The Supreme Court examined whether Section 31(7) of the Arbitration and Conciliation Act, 1996 permits an arbitral tribunal to include pre‑award interest in the "sum" for which an award is made and thereby allow interest on that interest for the post‑award period. The Court held that the word "sum" includes both principal and any interest accrued up to the date of the award, so post‑award interest is calculated on the aggregate amount, effectively allowing interest on interest. It rejected the view that the provision only applies to the principal sum and affirmed the earlier decision in S.L. Arora. The Court also clarified that the provision is distinct from the CPC provision on interest, which refers only to the principal. Consequently, the reference was answered and the appeal was remanded to a two‑Judge Bench for further adjudication. The judgment emphasized a literal interpretation of the statute and rejected the notion that Parliament intended to prohibit compound interest under the Act.
Issues considered
- Whether Section 31(7) of the Arbitration and Conciliation Act, 1996 requires that interest accrued up to the date of the award be included in the "sum" for calculating post‑award interest.
- Whether the inclusion of pre‑award interest in the "sum" results in the award of interest on interest (compound interest).
- Whether the language of Section 31(7) differs from Section 34 of the CPC and thus permits a different treatment of interest.
Legislation cited
Subjects
ArbitrationInterest on interestSection 31(7)Pre‑award interestPost‑award interestStatutory interpretationCompound interestArbitral award
Judgment
[2014] 14 S.C.R 1029
M/S. HYDER CONSULTING (UK) LTD. A
v.
GOVERNOR, STATE OF ORISSA THROUGH CHIEF
ENGINEER
(Civil Appeal No. 3148 of 2012) B
NOVEMBER 25, 2014
[H. L. DATTU, CJI, S. A. BOBDE AND ..
ABHAY MANOHAR SAPRE, JJ.]
Arbitration and Conciliation Act, 1996 - s.31(7) - c
Interpretation of- Grant ofinterest byarbitral tribunal under
- Whether amounts to granting interest on interest- Held: s.
31 (7) can be interpreted to mean that interest which accrues
till the date of the Award," be included in the "sum" from the
date of Award for calculating the post-award interest- Word D
sum means 'an amount of money' which may include principal
and interest or one of the two - Thus, clause (a) of s.31(7)
provides that the Arbitral Tribunal may include interest while
making an award for payment of money in the sum for which
the Award is made and clause (b) states that the sum so E
directed to be made by the Award shall carry interest at a
certain rate for the post award period - In view thereof, it is
clear that interest, the sum directed to be paid by the Arbitral
Award under clause (b) of sub-section (7) of Section 31 is
inclusive of interest pendent lite. F
Answering the referred question, the Court
HELD : PER S. A. BOBDE, J. (MAJORITY)
1.1 The conclusion in S,L. Arora's case that Section
31 (7) of the Arbitration and Conciliation Act, 1996 does G
not require that interest, which accrues till the date of
the Award, be included in the "sum" from the date of
Award for calculating the post-award interest cannot be
accepted. This conclusion does not seem to be in ·
consooance with the clear language of Section 31(7) of
H
. 1029
1030 SUPREME COURT REPORTS [2014] 14 S.C.R.
A the Act. S.L. Arora's case 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 the
substantive claim does not refer to interest pendente lite
awarded on the "sum directed to be paid upon Award"
B and that in the absence of any provision of interest upon
interest in the contract, the Arbitral Tribunal does riot
)lave 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
c 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 slim adjudged and the interest, and this has
been done by Parliament· in plain language.
D [Paras 2, 15][1072-D-E; 1078-C-F] .
1.2 Clause (a) of sub-section (7) provides that where
an Award is made for the payment of money, the Arbitral
Tribunal may include interest in the sum for which the ·
Award is made. In plain terms, this provision confers a ·
E power upon the Arbitral Tribunal while making an Award
for payment of money, to include interest in the sum for
which the Award is made on either the whole or any part
of the money and for the whole or any part of the period
for the entire pre-award period between the date on
F which the cause of action arose and the date on which
the Award is made. To put it differently, sub-section (7)(a) ·...
contemplates that an Award, inclusive of interest fortlie ·
pre-award period on the entire amount directed to be
paid or part thereof, may be passed. The" sum" awarded
G may be principal amount and such interest as theArbitral
Tribunal deems fit. If no interest is awarded, the "sum"
comprises only the principal. The significant words
occurring in clause (a) of sub"section (7) of Section 31
of the Act are "the sum for which the award is made." On
H
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1031
ORISSA THR. CHIEF ENGR.
a plain reading, this expression refers to the total amount A
or sum for the payment for which the Award is made.
Parliament has not added a qualification like "principal"
to the word "sum," and thus, the word "sum" simply
means "a particular amount of money". In Section 31 (7),
particular amount of money may include interest B
from the date of cause of action to the date of the award.
[Para 4][1073-B-F]
1.3 Once the meaning of the word "sum" is clear,
the same meaning must be ascribed to the word in clause
(b) of sub-section (7) of Section 31 of the Act, where it C
provides that a sum directed to be paid by an Arbitral
Award "shall carry interest ........" from the date of the
Award to the date of the payment i.e. post-award. In other
words, what clause (b) of sub-section (7) of Section 31
of the Act directs is that the "sum," which is directed to D
be paid by the Award, whether inclusive or exclusive of
interest, shall carry interest at the rate of eighteen per
cent per annum for the post-award period, unless
otherwise ordered. Thus, sub-section (7) of Section 31
of the Act provides, firstly, vide clause (a) thatthe Arbitral. E
Tribunal may include interest while making an award for
payment of money in the sum for which the Award is
made and further, vide clause (b) that the suin so directed
to be made by the Award shall carry interest at a certain
rate for the post award period. The purpose of enacting F
this provision is clear, namely, viz. to encourage early
payment of the awarded sum and to discourage. the
usual delay, which accompanies the execution of the
Award in the same manner as if it were a decree of the
court vide Section 36 of the Act. In view thereof, it is clear G
that the interest, the sum directed to be paid by the Arbitral
Award under clause (b) of sub-section (7) of Section 31
. of the Act is inclusive of interest pendent lite.[Para 7-1 O]
[1074-C-H; 1075-A]
H
1032 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 1.4 Section 34 of the CPC confers the same power
upon a court to award interest on an award i.e. post-
award interest. While enacting Section 34, CPC,
Parliament conferred power on a court to order interest
"on the principal sum adjudged" and not on merely the
B "sum" as provided in the Arbitration Act. The departure
from the language of Section 34 CPC in Section 31 (7) of
the Act, 1996 is significant and shows the intention of
Parliament. Where different language is used by
Parliament, it is intended to have a different effect. In the
c Arbitration Act, the word "sum" has deliberately not been
qualified by using the word "principal" before it. In
Section 31 (7) of the Act, Parliament has deliberately used
the word "sum" to refer to the aggregate of the amounts
that may be directed to be paid by the Arbitral Tribunal
o and not merely the "principal" sum without interest.
Thus, it is apparent that vide clause (a) of sub-section
(7) of Section 31 of the Act, Parliament intended that an
award for payment of money may be inclusive of interest,
and the "sum" of the principal amount plus interest may
E be directed fo be paid bytheArbitral Tribunal for the pre-
award period. Thereupon, the Arbitral Tribunal may direct
interest to be paid on such "sum" for the post-award
period vi de clause (b) of sub-section (7) of Section 31 of
the Act, at which stage the amount would be the sum
F arrived at after the merging of interest with the principal;
the two components having lost their separate identities.
This is a case where the language of sub-section 7 clause
(a) and (b) is so plain and unambiguous that no question
of construction of a statutory provision arises.
G [Paras 11, 12, 13,14)(1075-A-H; 1076-A-B]
State of Haryana and Others v. S.L. Arora and
Company 2010 (2) SCR 297 : (2010) 3 SCC 690
- overruled ..
H
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1033
ORISSA THR. CHIEF EN(3R.
Uttar Pradesh Cooperative Federation Limited v. A
Three Circles 2009 (14) SCR 310 : (2009) 10
SCC 374 ; McDermott International INC v. Burn
Standard Co. Ltd., 2006 (2) Suppl. SCR 409 :
(2006) 11 SCC 181 ; ONGC v. M.C. Clelland
Engineers S.A. 1999 (2) SCR 830: (1999) 4 SCC B
327 ; Central Bank of India v. Ravindra and Others
2001 (4) Suppl. SCR 323 : (2002) 1 sec 367 ;
Ganga Prasad Verma (Dr.) v. State of Bihar 1995
. Supp (1) SCC 192; Keshavji Ravji & Co. v. CIT,
1990 (1) SCR 243: (1990) 2 SCC 231 ; Pakala . C
Narayana Swami v. Emperor, AIR 1939 PC 47;
T.N. State Electricity Board v. Central Electricity
Regulatory Commission 2007 (5) SCR 416 :
(~007) 7 SCC 636; Emperorv. Benoarilal Sanna
AIR 1945 PC 48; Nasiruddin v. Sita Ram Agarwal D
2003 (1) SCR 634: (2003) 2 SCC 577- referred
to.
Sussex Peerage [1844] 11CI & F. 85; Caminetti
v. United States 242 U.S. 470, 485 (1917) -
referred to. · E
Oxford Dictionary; Black's Law Dictionary;
Interpretation of statutes by Maxwell- referred to.
PER ABHAY MANOHAR SAPRE, J.
(SUPPLEMENTING) : F
1.1 Section 31 (7)(a) of the Arbitration & Conciliation
Act, 1996 deals with grant of pre-award interest while sub-
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 unnecessa..Y G
delay. Longer the proceedings, would be the period
attracting interest. Similarly, post-award interest is to
ensure speedy payment in compliance of the award. Pre-
award interest is at the discretion of Arbitral Tribunal,
H
1034 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 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 theArbitral Tribunal. In other
. words, if the Arbitral Tribunal has awarded post-award
interest payable from the date of award to the date of
B 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 t_he 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
C intended purpose of grant of interest. [Para 5l
[1079-E~H; 1080-A]
1.2 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"
D 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
atthe time of making the award, the interest component
will not be awarded separately but it shall become part
E 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. Therefore, for the purposes of an
award, there is no distinction between a "sum" with
interest, and a "sum" without interest. Once the interest
F is "included in the sum" for which the award is made,
the original sum and the interest component cannot be
segregated and be seen independent of each other. The ·
interest component then looses its character of an
"interesf' and takes the colour of "sum" for which the
G award is made. [Paras 6, 7][1080-8-E]
1.3 There may arise a situation where, the Arbitral
Tribunal may not award any amount towards principal
claim but award only "interest". This award of interest
would itself then become the "sum" for which an award
H is made under Section 31 (7)(a) of the Act. Thus, in a pre-
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1035
ORISSA THR. CHIEF ENGR.
award stage, the legislation seeks to make no distinction A
between the sum award and the interest component in
it. Thus, the amount award under Section 31 (7)(a) of the
Act, whether with interest or without interest, constitutes
a "sum" for which the award is made. [Para 8, 9]
[1080-E-G] B
1.4 As regards the post-award interest, Section
31(7)(b) of the Act employs the words, "A sum directed
to be paid by an arbitral award... ". Sub-clause (b) uses
the words "arbitral award" and not the "arbitral tribunal".
The arbitral award, is made in respect of a "sum" which C
includes the interest. Therefore, what carries uls. 31 (7)(b)
of the Act is the "sum directed to be paid by an arbitral
award" and not any other amount much less by or under
the name "interest". In such situation, it cannot be said
that what is being granted under Section 31(7)(b) of the D
Act is "interest on interest". Interest under sub-clause
(b) is granted on the "sum" directed to be paid by an
arbitral award wherein the "sum" is nothing more than
what is arrived at under sub-clause (a). Thus, the
expression "grant of interest on interest" while E
exercising the power under Section 31 (7) of the Act does
not arise and, therefore, the Arbitral Tribunal is well
empowered to grant interest even in the absence of
clause in the contract for grant of interest. The said
interpretation of s. 31 (7) of the Act is based on three F
golden rules of interpretation. [Para 10, 11,12][1080-H;
1081-A-E] .
PER H.L. DATTU, CJI. (MINORITY)
1.1 There is no infirmity.with the S.L. Arora case, G.
whereby it was held that if the arbitral award is silent
about interest from the date of. award till the date of
payment, the person in whose favour the award is made
would be entitled to interest at 18% pa on the principal
amount awarded, from the date of award till the date of
H
1036 SUPREME COURT REPORTS (2014] 14 S.C.R.
A payment. The decision in S.L. Arora case is sound and
wholly conclusive on the interpretation of Section 31(7)
of the Act, 1996 on the issue of awa~ding 'interest
on interest', thus, the instant reference is not required.
[Para 61, 29, 30][1071-C-D; 1056-A-F]
8 State of Haryana and Others v. S.L. Arora and
Company 2010 (2) SCR 297: (2010) 3 SCC 690
-relied on.
Uttar Pradesh Cooperative 'Federation Limited v.
Three Circles 2009 (14) SCR 310 : (2009) 10
c sec 374- per incuriam.
Mcpermott International INC v. Bum Standard Co. ·
Ltd. and Other 2006 (2) Suppl. SCR 409 : (2006)
11 SCC 181 ; ONGC v. M.C. Clelland Engineers
D S.A. 1999 (2) SCR 830: (1999) 4 sec 327-held
inapplicable.
1.2 Under clause (a) of sub- section (7) of section
31 of the Act, 1996, it relates to the power of the arbitrator
to impose interest in the first stage that is, from the date
E of cause of action to the date of arbitral award. The said
clause begins with "Unless otherwise agreed by the
parties", thereby at the onset of the sub-section itself,
the legislature has provided for a restriction on the
application of the said sub- section. In the eventthere is
F an agreement between the parties to the arbitration,
regarding the payment of interest from the date on which
the cause of action arose till the date on which the award
was made, the terms of the said agreement would prevail
over clause· (a). of section 31 (7) of the Act. [Para 33)
G [1057-G-H; 1058-A-B]
N.S. Nayak & Sons v. State of Goa (2003) 6 SCC
56 - referred to.
1.3 The arbitral tribunal has been given the
discretionary power of not only imposing interest, but
H
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1037
ORISSA THR. CHIEF ENGR.
also for determining the rate of interest that could be A
imposed from the date of cause of action to the date of
the award. However, such discretion is not unfettered
and is not exercisable upon the mere whims and fancies
of the tribunal. [Para 36][1059-D-G]
Principles of Statutory Interpretation, Justice GP B
Singh, Thirteenth Edn, 2012, p.482 - referred
to.
1.4 The word "sum", in its natural meaning and as
pe·r its most common usage, would mean money. The
term "money" has also been used in sub- section (7) of C
section 31 of the Act, 1996. Therefore, the terms "sum"
and "mon~y'' have been used by the legislature, in the
given provision, interchangeably. The said clause states
that interest may be awarded on the "sum" for which
the .arbitral award is made, or the same could be read D
as- interest may be awarded on the "money" for which
· the arbitral award is made. This "money" for which the
award is made, necessarily would refer to the money as
adjudicated by the arbitral tribunal, based on the claims
of the parties, to be paid. under the award. In other words, E
it would simply refer to the principal amount so awarded.
(Para 40)(1061-E-H]
Darshan Singh Ba/want Singh v. State of Punjab,
1953 SCR .319 - referred to.
F
Webster's Third New International Dictionary,
Volume Ill; Black's Law Dictionary, Seventh
Edition, 1999; P Ramanatha Aiyar's Advanced
Law Lexicon, Third Edn; Corpus Juris
Secundum, .Volume L.XXXJ/1- referred to. G
1.5 The term "interest", appears to be distinct from
the i:irincipal amount on which it is imposed.
Furthermore, the impositicm of an interest is stated to be
for the purpose of providing compensation for
H
. 1038 SUPREME COURT REPORTS [2014) 14 S.C.R.
A withholding the said principalamount or, as in the case
of clause (a) of Section 31 (7) of the Act for withholding
the money awarded as per the claim, as determined by
the arbitral tribunal, from the date the cause of action
arose till the date when such award was made. In other
B words, interest is imposed to compensate forthe denial
to one party, by the other party, of the money which
rightfully belongs to the said former party under the
relevant agreement governing the arbitration
proceedings. [Para 48][1065-D-F]
c Bhai Jaspal Singh v. CCT 2010 (14) SCR 41:
(2011) 1 sec 39 - referred to.
Westminster Bank Ltd v. Riches [1947] A.C; 390;
Nicholas Pike v. The Commissioners for Her
Majesty's Revenue and Customs [2013] UKUT
D
0.225 (TCCJ - referred to. '
Wharton's Law Lexicon, Fourteenth Edn; Black's
Law Dictionary, Seventh Edn 1999; Webster's.
Third New International Dictionary,. Volume Ill;
E
Corpus Juris Secundum, Volume XLVll; Stroud's
Judicial Dictionary, Seventh Edn 2008, Volume 2
- referred to.
1.6 Clause (b) is applicable for the period from the
date of award to the date of payment. The said clause
F uses the phrase "unless the award otherwis!! directs",
which would mean that in the event the arbitral tribunal,
in its award, makes a provision for interest to be imposed
in this second stage as envisaged by sub-section (7) of .
section 31 of the Act, 1996, ¢1ause (b) would become
G inapplicable. By the said award, the arbitral tribunal has
the power to impose an interest for the post-award ·
period which may be higher or lower than the rate as
prescribed under clause (b). Even ifthe award states that
no interest shall be imposed in the post-award period,
H
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1039
ORISSA THR. CHIEF ENGR.
clause (b) cannot be invoked. [Para 49)(1065-G-H; A
1066-A-B)
1.7 If the arbitral award is silent on the question of
whether there would be any post- award interest, only
·in that situation could clause (b) be made applicable. In
the said situation, it would be mandatory as per law that B
the award would carry interest at the rate of_ 18% per
annum from the date of the award to the date of payment.
The term used in the given clause is "shall", therefore, if
applicable, the imposition .of interest as per clause (b)
would be mandatory. Clause (b) of section 31(7) further C
states that the interest as envisaged under the said
provision would be on the sum directed to be paid by an
arbitral award. [Para 50, 52)(1066-C-D; 1067-A]
H.P. Housing & Urban Development Authority v.
Ranjit Singh Rana 2012 (2) SCR427: (2012) 4 D
sec 505 - referred to.
1.8 It is a sound rule of construction whereby the
same word appearing in the same section of the same
statute must be given the same meaning, unless there E
is anything to indicate the contrary. The only exception
to this rule of construction, whereby the said principle
may be rebutted, is by making reference to the context
in which the words are used. The word may be
understood in a different sense, if the context so requires F
that to be done. Clause (a) and clause (b) does not
appear to be divergent from one another. The word
"sum" has been used in both clauses in the context of
what is to be paid as . per the arbitral award.
[Para 55)[1068-E-G]
G
1.9 For the purposes of the Act, interest could be
included within the principal amount only when the said
aggregate amount is paid to the party in whose favour
the arbitral award was passed. In other words, once the
H
1040 SUPREME COURT REPORTS (2014] 14 S.C.R.
A interest amount is within the physical and actual
possession of the party so entitled to it, only then could
the· interest amount be said to have merged with the
principal amount. Therefore, the appellants would not
be entitled to claim post-award interest on the aggregate
B of the principal amount and interest pendente lite, since
the said aggregate sum was not in the actual physical
possessron of the appellants. Further, section 31(7)
neither makes reference to compounding of interest, nor
to awarding interest on interest. Therefore, the term
C . "sum" in clause (b) and (a) would refer to the money as
adjudicated by the arbitral tribunal. This money would
be distinct from the interest as may have been awarded
by the arbitral tribunal under clause (a). Therefore, the
interest under clause (b) would be imposed on money
o · awarded by the arbitral tribunal on the basis of the claims
of the parties, and the said money cannot merge within
it any interest as imposed in the period from the date of
cause of action to the date of the award. [Paras 59, 60]
[1070-E-H; 1071-A-C]
E Central Bank of India v. Ravindra and Others 2001
(4) Suppl. SCR 323: (2002) 1 SCC 367; State of
UP v. Synthetics and Chemicals Ltd. (1991) 4
SCC 139 ; Fuerst Day Lawson Ltd. v. Jindal
·Exports Ltd. 2001 (3) SCR 479 : (2001.) 6 sec
F 356 ; Sayeed Ahmed & Co. v. State of U. P & Ors.
2009 (10) SCR 841 : (2009) 12 SCC ·26 ; Sree
KamatchiAmman Constructions v. The Divisional
Railway Manager(Works), Pa/ghat and Ors. 2010
(10) SCR 487 : (2010) 8 SCC 767 ; Union of India
G v. Tata Chemicals Ltd., 2014 (3) SCR 298: (2014)
6 sec 335 - referred to.
Parkside Leasing Ltd v. Smith (Inspector of Taxes)
[1985] 1 WLR 310 ; D&C Builders Ltd. v. Rees
·[1966] 2 Q.B. 617 - referred to.
. ' H
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1041
.ORISSA THR. CHIEF ENGR.
CASE LAW REFERENCE A
In the Judgment of Justice S.A. Bobde
2009 (14) SCR 310 referred to Para 1
2006 (2) Suppl. SCR 409 referred to Para 1
1999 (2) SCR 830 referred to Para 1 B
2001 (4) Suppl. SCR 323 refer.red to Para 1
2010 (2) SCR 297 overruled Para 2,15
1995 Supp (1) sec 192 referred to Para 14
1990 (1) SCR 243 referred to Para 14 c
AIR 1939 PC 47 referred to Para 14
2007 (5) SCR 416 referred to Para 14
AIR 1945 PC 48 referred to Para 14
2003 (1) SCR634 referred to Para 14 D
In the judgment of H.L. Dattu, CJI ·
2001 (4) Suppl. SCR323 referred to Para 2
2010 (2) SCR 297 relied on Para 20,
• 29,61 E
2006 (2) Suppl. SCR 409 held inapplicable Para 20
2009 (14) SCR 310 . per incuriam Para 21
1999 (2) SCR 830 held inapplicable Para 26
(1991) 4 sec 139 referred to Para 13 F
2001 (3) SCR 479 referred to Para 14
2009 (10) SCR 841 referred to Para 24. ·
2010 (10) SCR 487 referred to Para 25
2003 (1) Suppl. SCR 69 referred to Para 34 G
1953 SCR 319 referred to Para 38
2010 (14) SCR 41 referred to Para 49
2012 (2) SCR 427 referred to Para 51
2014 (3) SCR 298 referred to Para 57 H
1042 SUPREME COURT REPORTS [2014] 14 S.C.R.
A CIVILAPPELLATE JURISDICTION: Civil Appeal No(s).
3148of2012.
From the Judgment and Order dated 28-07-2010 of the
High Court of Orissa at Cuttak in W.P.(C) No. 5302 of2009.
With
B
CivilAppeal Nos. 3147, 3149 of2012 and 1390 of2013,
SLP (C) No. 19895, 20282 of 2008, 21896of2010 and 18614
of2012.
K.K. Venugopal, C.U. Singh, Nidhesh Gupta, Ajay Kapur,
C Sr. Advs., Manu Nair, Ms. Sannjh N. Purohit, Malak Bhatt (For
Mis SureshA. Shroff &Co.), Kamal Mohan Gupta, Tarun Gupta,
Anurag Pandey, Raghav Awasthi, Siddharth N. (For M/s
Karanjawala & Co.), Advs. forthe appearing parties.
L. Nageswara Rao,ASG, Mrs. Kirti Renu Mishra. Shivraj
D Gaonkar,A. Tewari, Ms. Eliza Bar(ForShree Pal Singh),Ashok
Mathur, Advs. for the appearing parties.
The Judgments of the Court was delivered by
H. L. DATTU, CJI.
E 1. In view of the reference order dated 13.03.2012, this
Civil Appeal and the matters connected therewith are placed
before a three-Judge Bench of this Court for consideration
and dedsion. The question before this Court is, whether the
decision of this Court in State of Haryana and Others v. S.L.
F Arora and Company., (2010) 3 SCC 690, wherein it is held
that an award of interest on interest from the date of award is
not permissible under sub- section (7) of section 31 of the
Arbitration and Conciliation Act, 1996 (for short, "theAct, 1996"),
is in consonance with .earlier decisions of this Court. A two-
G Judge Bench of this Court, by the said reference order, is of
the opinion that the present appeal and the connected matters
would need to be heard by a Bench of three Judges of this ·
Court.
H
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1043
ORISSATHR. CHIEF ENGR. [H. L. DATIU, CJI.]
2. By the referral order dated 13. 03.2012, it is found that A
the learned counsel for the appellants therein would doubt the
correctness of the decision in the S.L. Arora case (supra) in
light of McDermott International INC v. Bum Standard Co.
Ltd. and Others, (2006) 11 SCC 181; Uttar Pradesh
Cooperative Federation Limited v. Three Circles, (2009) 10 B
SCC 374; Oil and Natural Gas Commission v. M.C. Clelland
Engineers S.A., (1999) 4 SCC 327; and Central Bank oflndia
v. Ravindra and Others, (2002) 1 SCC 367. Therein, the
appellants would contend that, in accordance with the decision
of this Court in the aforementioned cases, the interest awarded c
on the principal amount upto the date of award, becomes the
principal amount for the purposes of awarding future interest
under the Act, 1996. The appellants would contend that the
decision in the S.L. Arora case (supra) inadvertently and
erroneously assumed that the aforementioned cases would D
not be applicable to it. Since the decision in the S.L. Arora
case (supra) negated the above stated principle, the appellants
would contend that the said case would require reconsideration
by a larger Bench ofthis Court.
FACTS: E
Civil Appeal No.3148 of 2012
3. The present civil appeal came before a two-Judge
Bench of this Court against a judgment and final order dated
28.07.2010, passed by the High Court of Orissa at Cuttack in
Writ Petition (Civil) No. 5302 of 2009. The said Writ Petition F
was filed challenging the orders dated 19.02.2009 and ·
26.03.2009, passed by the District Judge, Khurda in Execution
Petition No. 17 of 2006, whereby the learned District Judge
had issued order of attachment in favour of the appellant herein. G
The claim in the execution petition was for the payment of
Rs.8,92, 15,993/-. The said claim included in itself post award
interest on the aggregate of the principal amount awarded by
the arbitral award and interestpendente lite thereon. By virtue
of arbitral award dated 26.04.2000, which was upheld by the H
1044 SUPREME COURT REPORTS [2014] 14 S.C.R.
A Division Bench of the High Court of Orissa by its order dated
28.06.2006, a principal amount of Rs.2,30,59,802/- was
awarded in favour of the appellant herein. The said impugned
judgment of the High Court of Orissa dated 28.07.2010, inter
alia, relied upon the decision of this Court in the S.L Arora .
B case (supra) and quashed the orders passed by the learned
District Judge, whereby Rs.8,92, 15,993/- was awarded in
favourofthe appellant. The learned Judges of the High Court,
vide the impugned judgment, directed the executing court to
re-calculate the total amount payable under the award keeping
C in view the principles laid down in the S.L. Arora case (supra).
4. According to the referral order dated 13.03.2012, the
appellants contended that the S.L.Arora case (supra) was
based on an inadvertent erroneous assumption that McDermott
case (supra) and the Three Circles case (supra) were per
D incuriam in holding that interest awarded· on the principal
amount upto the date of award becomes the principal amount
and, therefore, award of future interest thereon would not
amount to award of interest on interest. The S.L. Arora case
(supra) held contrary to the aforementioned principle. To
E support their contention, the appeilants also made a reference
· to the ONGC case (supra) and the Central Bank of India case
(supra).·
ISSUES:
F 5. The issues that arise for the consideration of this Court
are firstly, whether in light of the Three Circles case (supra)
and McDermott case (supra) there exists any infirmity in the
decision rendered by this Court in the S.L. Arora case (supra);
and secondly to detentline whether sub- section (7) of section ·
31 of the Act, 1996 could be interpreted to include interest
G pe.ndente lite within the sum payable as per the arbitral award,
for the purposes of awarding post-award interest.
.SUBMISSIONS :
6. Shri K.K. Venugopal, learned Senior Counsel
H appearing for the appellants herein, in the first instance, would
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1045
ORISSA THR. CHIEFENGR. [H. L. DATTU, CJI.]
submit that the decision in the S.L Arora case (supra) was A
incorrect in ignoring the earlier decisions of this Court, namely
the Three Circles case (supra), the McDermott case (supra),
the ONGC case (supra) and the Central Bank of India case ·
(supra). In light of the aforesaid latter cases, it is contended
thatthe S.L Arora case (supra) wrongly held thatthe interest B
as envisaged under clause (b) of sub- section (7) of section
31 of the Act, 1996 would apply only on the principal amount
awarded by the arbitral tribunal. Shri K.K. Venugopal would
further refer to the 246'" Report of the Law Commission of India
titled as 'Amendments to the Arbitration and Conciliation Act, C
1996' in support of the above contention.
7.The submissions of Shri K.K. Venugopal could be
summarized as follows- firstly, that under clause (a) of sub-
section (7) of section 31 of the Act, 1996, the award is for
money and the sum for which the award is.made would include D
within it, the interest that may be awarded for the period from
the date of cause of action to the date of award; secondly, that
under clause (b) of sub- section (7) of section 31 of the Act,
1996, the sum directed to be paid by the arbitral award is the
sum awarded, which is inclusive of interest pendente lite; E
thirdly, that there may be scenarios wherein an award would
be made only for interest as the claim would relate only to
interest and in such a case 18% per annum interest would
automatically attach to the given award; fourthly, that the
transaction on which the claim is made and the money is so F
awarded, merges with the award and ceases to be the principal
amount, so that interest under clause (b) would be the totality;
fifthly, that the comparison of the amended section 34 of the
Code of Civil Procedure, 1908 would show that unless the
phrase 'principal amount' is used in clause (a) for 'sum' and G
again 'principalamount' is used in clause (b) for 'sum', the
word 'sum' would be the aggregate of the principal amount
. and interest; sixthly, that the entirety of commercial transactions
would be seriously affected if a judgment debtor were to delay
the payment of interest on the total amount, as the gain to the H
1046 SUPREME COURT REPORTS (2014] 14 S.C.R.
A judgment debtor on that element of interest is a loss to the
' claimant for which he has no recourse; seventhly, the S.L. Arora
case (supra) was wrongly decided as the judgment is contrary
to the Act, 1996 on the grounds, inter a/ia, that it would be a
misnomer to state that interest would not be applicable on
B substantive claims as the same finds no mention in the given
provision; and lastly, 18% interest would be applicable proprio
vigore unless stopped by the award itself.
8. P~rcontra, Shri L. Nageshwara Rao, learned Senior
Counsel and Additional Solicitor General of India would submit
C that there was no infirmity whatsoever in the S.L. Arora case
(supra) and that, therefore, the present reference was not
required. Furthermore, the learned Additional Solicitor General
would submit that the term "sum" as found in sub- section (7)
of section 31 of the Act, 1996 should be read as "principal
D amount" as held in the S.L. Arora case (supra).
DISCUSSION :
9. At the outset, it would be necessary to discuss the
correctness of the reference order in light of the S.L. Arora
E case (supra): Th is Court, in the S.L. Arora case (supra), was
required to adjudicate upon two primary issues namely- firatly,
whether sub- section (7) of section 31 of the Act, 1996
authorised the arbitral tribunal to award interest on ·interest from
the date of award; and secondly, whether the arbitral tribunal
F could grant future interest from the date of award. ·
10. In the S.L. Arora case (supra), this Court had sought
to clarify whether the arbitral tribunal's power to grant post-
award interest ~xtended only on the principal amount or on the
aggregate of the principal amount and the interest, as
G determined to be payable from the date of cause of action to
the date of award. On perusal of sub- section (7) of Section 31
of the Act, 1996,this Court observed:
"18. Section 31(7) makes no reference to payment of
compound interest or payment of interest upon interest.
H Nor does it require the interest which accrues till the date
M/S. HYDERCONSULTING(UK) LTD. v. GOV., STATE OF 1047
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
of the award, to be treated as part of the principal from A
the date of award for calculating the post-award interest.
The use of the words "where and insofar as an arbitral
award is for the payment of money" and use of the words
"the Arbitral Tribunal may include in the sum for which
the award is made, interest ... on the whole or any part B
of the money" in Clause (a) and use of the words "a sum
directed to be paid by an arbitral award shall ... carry
interesf' in Clause (b) of Sub-section (7) of Section 31
clearly indicate that the section contemplates award of
only simple interest and not compound interest or interest c
upon interest. "A sum directed to be paid by an arbitral
aware!' refers to the award of sums on the substantive
claims and does not refer to interest awarded on the "sum
directed to be paid by the award'. In_ the absence of any
provision for interest upon interest in the contract, the o
arbitral tribunals do not have the power to award interest
upon interest, or compound interest, either for the pre-
award period or for the post-award period."
(emphasis in original)
11. In the S.L. Arora case (supra), this Court highlighted E
that there was a tendency among contractors to elevate the
claims for interest and costs to the level of substantive disputes,
by categorizing them under independent heads of claim.
Further, it was noticed that, since arbitrations usually have a
high pendency period owing to prolonged arbitration F
proceedings or intervening as well as post arbitral litigations,
the interest payable on the amount awarded often increases
to substantial amounts, l?Ometimes even exceeding the actual
amount awarded. The CTlur(-in the S.L. Arora case (supra),
then sought to set out the legal position on the award of interest G
to understand the authority of the tribunal as envisioned in sub-
section (7) of Section 31 of the Act, 1996.
12. The present reference requires this Court to
reconsider the decision in S.L. Arora case (supra), in light of H
1048 SUPREME COURT REPORTS [2014] 14 S.C.R.
A previous decisions of this Court inthe McDermott case (supra)
and the Three Circles case (supra). It may be reiterated that
the referral order dated 13.03.2012 takes note of the contention
of the appellants that the S.L. Arora case (supra) erroneously
held the Three Circles case (supra) and the McDermott case
B (supra) to be per incuriam in holding that interest awarded on
the principal amount upto the date of award becomes the
principal amount.
13. Before I consider. the correctness of the
aforementioned decisions; it would be necessary to elaborate
C upon the concept of "per incuriam". ---------------The latin
expression perincuriam literally means 'through inadvertence'.
A decision can be said to be given per incuriam when the
Court of record has acted in ignorance of any previous decision
of its own, or a subordinate court has acted in ignorance of a
D decision of the Court of record. As regards the judgments of
this Court rendered per incuriam, it cannot be said that this
Court has "declared the law" on a given subject matter, if the
relevant law was not duly considered by this Court in its
decision. In this regard, I refer to the case of State ofU.P. v.
E Synthetics and Chemicals Ltd., (1991) 4 SCC 139, wherein
Justice R.M. Sahai, in his concurring opinion stated as follows:
"40. 'lncuria' literally means 'carelessness'. In practice
per incuriam appears to mean per ignoratium. English
courts have developed this principle in relaxation of the
F rule of stare decisis. The 'quotable in law' is avoided and
ignored if it is rendered, 'in ignoratium of a statute or
other binding authority'. ... "
14. Therefore, I am of the considered view that a prior
decision of this Court on identical facts and law binds the Court
G on the same points of· law in a iater case. In exceptional
circumstances, where owing to obvious inadvertence or
oversight, a judgment fails to notice a plain statutory provision
or obligatory authority running counter to the reasoning and
result reached, the principle of per incuriam may apply. The
H
•
M/S. HYDER CONSULTING (UK) LTD. v. GOV.. STATE OF 1049
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
said principle was also noticed in the case of Fuerst Day A
Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356.
15. I would now analyse the decisions noticed by the
referral order dated 13.03.2012, to determine the correctness
or otherwise of the present reference, and consequently
determine the power of an arbitral tribunal to award interest B
under section 31 of the Act, 1996.
16. This Court in the Three Circles case (supra), placing
its reliance on earlier decisions, by its judgment, allowed the
arbitral tribunal to pass an award, enforcing interest on interest. C
This Court observed that:
"31. Now the question comes which is related to
awarding of 'interest on interest'. According to th·e
appellant, they have to pay interest on an amount which
was inclusive of interest and the principal amount and, D
therefore, this amounts to a liability to pay 'interest on
interest'. This question is no longer res integra at the
present point of time. This Court in McDermott
International Inc. v. Burn Standard Co. Ltd and Ors.,(2006)
11 SCC 181 has settled this question in which it had E
observed as follows (SCC p.207, para 44):
"44 .... TheArbitrator has awarded the principal amount
and interest thereon upto the d,ate of award and future
· interest thereupon which do not amount to award on
interest on interest as interest awarded on the principal F
amount upto the date of award became the principal
amount which is permissible in law."
The High Court on this question has also rightly relied on
a decision of this Court in the case of Oil and Natural
Gas Commission v. M.C. Clelland Engineers S.A. (1999) G
4 SCC 327. That being the position, we are unable to
find any ground to set aside the judgment of the Division
Bench of the High Court while considering the ground of
'interest on interest'."
H
1050 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 17. It would be crucial to note thatthe reliance upon the
McDermott case (supra) by this Court in the Three Circles
case (supra) is not in consonance with the doctrine of
precedents. On a perusal of the McDermott case (supra), it is
observed that the substantive proposition of that case did not
B address the issue on the power of the tribunal to award 'interest
on interest' or compound interest. The proposition on 'interest
on interest' was made only in one of the submissions of the
respondent therein. The ratio decidendi of that decision merely
laid down the discretion of the arbitrator to decide the rate of
C interest awarded under sub- section (7) of section 31 of the
Act, 1996, on a part or whole of the award money. In this regard,
the Court observed as follows:
"154. The power of the arbitratorto award interest for
pre-award period, interest pendent lite and interest post-
D award 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
E on which award is made, i.e., pre-award 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
.F awarded in the pre-award 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 .
••
I-
G
awarded for whole or any part of the pre-award period.
155. 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
H reason of the award, interest was awarded on the
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1051
ORISSATHR. CHIEF ENGR. [H. L. DATTU, CJI.]
principal amount. An interest thereon was. upto the date A
of award as.also the future interest at the rate of 18% per
annum.
156. H_owever, in some cases, this Court has resorted to
exercise its jurisdiction under Article 142 in order to do
complete justice between the parties." B
18. From the above-quoted paragraphs of the McDermott
case (supra), it is abundantly clear that the decision neither
makes any reference to awarding of compound interest nor
does it allow post-award interest to be imposed on the
aggregate of the principal claim and interest pendente lite. C
This Court had merely sought to clarify the position with respect
to the rate of interest awarded and further the power of this
Court to invoke Article 142 of the Constitution of India, 1950 to
alter the said rate of interest in order to do complete justice. D
Thus, it is evident from paragraphs 154 to 156 of the
McDermott case (supra), that the proposition surrounding
arbitral tribunal's authority to award of 'interest on interest' was ·
not deliberated upon but merely argued by the respondents
therein. However, this argument was erroneously relied upon
in the Three Circles case (supra) to decide upon the issue E
related to awarding of 'interest on interest' or compound
interest.
19. This Court, therefore, in the S.L. Arora case (supra)
has disagreed with the reasoning laid down in the McDermott F
case (supra) as well as the. Three Circles case (supra). This ·
Court, on perusal of the relevant paragraphs in the aforesaid
decisions, held that the observations therein must be treated
as per incuriam on the issue around awarding of 'interest on
interest' or compound interest. It was observed that:
• G
"28 ... .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 H
contention of the respondent in Mcdermott.
1052 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 29. 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,
B the appellant therein, in reply to the subniissions 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
c 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
o 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."
E 20. I am in agreement with the aforesaid view in the S.L.
Arora case (supra). The· decision in the McDermott case
(supra) would not be applicable, since it does not pertain to
the issue of granting compound interest on the post-award
claim. This Court, in the McDermott case (supra), did not
F consider the issue pertaining to award of 'interest upon interest'
or compound interest. It merely held that the interest must be
awarded on the principal amount upto the date of award. Thus,
the McDermott case (supra) would be wholly inapplicable to
the issue for consideration by this Bench.
G 21. Further, the decision of Tbree circles case (supra)
did not place reliance on the ratio decidendi of the McDennott
case (supra) but merely re-stated the contention raised by the
respondent therein to decide upon the issue of 'interest on
interest' or compound interest. Therefore, in my considered
H view, the Three Cirlces case (supra) would be deemed as
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1053
ORISSA THR. CHIEF ENGR. [H. L. DATIU, CJI.]
per incuriam in regard to the concept of awarding 'interest on A
interest' or compound interest, due to such an .inadvertent
erroneous reliance upon the McDermott case (supra).
22. At this stage, it would be necessary to take into
consideration, the decisions of this Court in the ONGC case
(supra) as well as the Central Bank of India case (supra). It B
was argued, as per the referral order, that these decisions would
support the proposition that arbitral tribunals have the authority
to award 'interest on interest' from the date of the award.
23. On perusal of the ONGC case (supra), I find that this
Court has recognised and accepted the power of arbitral C
tribunals to award interest upon interest. This Court has
considered such an award as a requisite compensatory
measure for delayed payment and included such interest along
with the principal amount in the 'sum' so awarded. This Court D
observed as follows:
"4. There cannot be any doubt that the Arbitrators have
powers to grant interest akin to Section 34 of the CPC
which is the power of the court in view of Section 29 of
the Arbitration Act, 1940. It is clear that interest is not E
granted upon interest awarded but upon the claim made.
The claim made in the proceedings is under two heads - ·
.one is the balance of amount claimed under invoices and
letter dated February 10, 1981 and the amount certified
and paid by the appellant and the second is the interest . F
bn delayed payment. That is how the claim for interest
on delayed payment stood crystallized by the time the
claim was filed before the Arbitrators. Therefore, the
power of the Arbitrators to grant interest on the amount
of interest which may, in other words, be termed as G
interest on damages or compensation for delayed
payment which would also become part of the principal.
If that is the correct position in law, we do not think that
Section 3 of the Interest Act has any relevance in the
context of the matter which we are dealing with ih the H
1054 SUPREME COURT REPORTS [2014] 14 S.C.R.
A present case. Therefore, the first contention raised by
Shri Datta, though interesting, deserves to be and is
rejected."
24. However, it would be pertinent to note that the ONGC
case (supra) as well as the Three Circles case (supra), both
B pertained to the awards under the Arbitration Act, 1940 (for
short "the Act, 1940"). The Act, 1940 did not contain any
specific provision dealing with the arbitrator's power to grant
interest. Further, it is a settled position that the decisions of
this Court regarding award of interest made under the Act;
C 1940 are not applicable to arbitration held under the Act, 1996.
In this regard, I place reliance on the decision of this Court in
Sayeed Ahmed & Co. v. State of U.P & Ors., (2009) 12 SCC
26,wherein it was observed that:
"14. The decisions of this Court with reference to the
D awards under the old Arbitration Act making a distinction
between the pre-reference period and pendente lite
period and the observation therein that arbitrator has the
discretion to award interest during pendente lite period
inspite of any bar against interest contained in the
E contract between the parties are not applicable to
arbitrations governed by the Arbitration and Conciliation ·
Act 1996."
25. Pursuant to the enactment of sub- section (7) of
F section 31 of the Act, 1996, the difference between pre-
reference period and pendente lite period has been removed
insofar as it relates to the award of interest by arbitrator, unlike
the position as under the Act, 1940. It would not be appropriate •
for this Court, in matters pertaining to the Act, 1996, to rely •
G upon de.cisions which interpreted the arbitrator's power to
award interest under the Act, 1940. This position was further
reiterated in Sree KamatchiAmman Constructions v. The
Divisional Railway Manager (Works), Pa/ghat and Ors.,
(2010) a sec 767.
H
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1055
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
26. Furthermore, I take note of the fact that the A
aforementioned principle was applied by this Court in the S.L.
Arora case (supra). It was explicitly stated that since the ONGC
case (supra) and Three Circles case (supra) related to awards
under the Arbitration Act, 1940, they can be of no assistance
in interpreting sub-section (7) of section 31 of the Act, 1996. I B
concur with the above reasoning to show the inapplicability of
the ONGC case (supra) and the Three Circles case (supra)
to the present case. ·
27. The last case relied upon by the appellants herein is
the Central Bank of India case (supra). This Court in the C
Central Bank of India case (supra), under Section 34 of the
Code of Civil Procedure, 1908 (for short, "the Code"), sought
to determine whether the liability of the borrower to pay interest
. on the principal sum, would include interest that became
merged with the principal sum adjudged. This aforesaid D
decision discussed the scope for charging compound interest
under Section 34 of the Code. The Court sought to determine
the meaning attached to phrases 'principal sum adjudged' and
'such principal sum', pursuant to the 1956 amendment to the
Code. Further, the Court sought to determine whether such E
'principal sum' would include liability to pay compound interest
thereon. However, the issue with respect to award of interest
upon interest under sub-section (7) of Section 31 of the Act,
1996 was not the subject matter in the aforesaid decision.
28. In my considered view, the Central Bank oflndia case ·F
(supra) cannot be relied upon by the appellants herein in
support of their contention that the arbitral tribunal possessed
the power to award interest on interest. The Central Bank of
India case (supra) dealt with section 34 of the Code, and
therefore may not be said to be wholly applicable to cases G
under the Act, 1996. However, even if the principle in the said
case is held to be applicable to the Act, 1996, it would only
support the view endorsed by the S.L. Arora case (supra).
H
1056 SUPREME COURT REPORTS (2014] 14 S.C.R.
A 29. Lastly, it would be necessary to highlight the views of
the 246'" Report of the Law Commission of India, which
suggested amendments to the Act, 1996. On the question of
'Interest on Sums Awarded' at page 33 of t~e said Report, the
Commission was of the opinion that the words used in sub-
B section (7) of Section 31 of the Act, 1996 are of wider import
and the scheme of the relevant provisions indicated that the
award of interest on interest is not only permitted but is also
the norm. The Commission was of the view thatthe decision
in the S.L. Arora case (supra) required reconsideration on the
C issue of awarding future interest on both, the principal sum as
well as the interest accrued till date of the award. In light of the
preceding discussion, I do not agree with the said view taken
by the Commission. It is my considered opinion that the
decision in S.L. Arora case (supra) is sound and wholly
o conclusive on the interpretation of sub- section (7) of Section
31 of the Act, 1996 on the issue of awarding 'interest on
interest'. The Law Commission had erred in relying upon the
ONGCcase (supra) as well as the Three Circles case (supra),
since these decisions are not applicable to the present
E arbitration held undertheAct, 1996.
30. Thus, I am of the considered opinion that, since the
position on the interpretation of sub- section (7) of Section 31
of the Act, 1996 regarding award of interest upon interest has loo
been correctly decided in the S.L. Arora case (supra), the •
F present reference may not be required. The decision of this
Court in the Three Circles case (supra) was rightly held to be 1-
passed on inadvertent erroneous assumption, as stated in the
S.L. Arora case (supra). The McDermott case (supra) did not
deal with the question pertaining to awarding of 'interest on
G interest' or compound interest. Furthermore, the decision in
the ONGC case (supra) pertained to the Act, 1940, and,
therefore, in light of the settled principle of law, would not be
applicable to cases under the Act, 1996. Lastly, the decision
in the Central Bank of India case (supra) did not deal with the
H issue around interpretation of sub- section (7) of Section 31 of
- ' -·
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1057
ORISSA THR. CHIEF ENGR. [H. L. DATIU, CJI.]
the Act, 1996, nor did the principle laid down therein hold A
contrary to the decision in S.L. Arora case (supra) ..
31. However, out of sheer. deference to the learned two-
Judge Bench of this Court, I would clarify. the apparent
controversy around sub- section (7) of section 31 of the Act,
1996. The said provision reads as follows: B
"31. Form and contents of arbitral award.-
(7) (a) Unless otherwise agreed by the parties, where
and in so far as an arbitral award is for the payment of C
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 D
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." E
32. On a bare perusal of the said section, I find that in the
first instance, it applies only to an arbitral award which is for
the payment of money. The power to award interest by the
arbitral tribunal has been divided into two stages- firstly, from F
the date of cause of action to the date on which the arbitral
award is made, and secondly, from the date of award to the
date of payment. The said classification was also noticed by
this Court in the Sayeed Ahmed case (supra). I will deal with
these stages separately as has been provided under the said
provision itself. G
33. Under clause (a) of sub- section (7) of section 31 of
the Act, 1996, I find that it relates to the power of the arbitrator
to impose interest in the first stage as mentioned hereinabove, .
that is, from the date of cause of action to the date of arbitral H
1058 SUPREME COURT REPORTS [2014] 14 S.C.R
A award. The said clause begins with·"Unless otherwise agreed
by the parties", thereby at the onset of the sub-section itself,
the legislature has provided for a restriction on the application
of the said sub- section. In the event there is an agreement
between the parties tci the arbitration, regarding the payment
B of interest from the date on which the cause of action arose till
the date on which the award was made, the terms of the said
agreement would prevail over clause (a) of sub- section (7) of
section 31 of the Act, 1996. This Court, in the Sree Kamatchi
Amman Constructions case (supra), observed as follows:
C "19. Section 37(1)(sic) of the new Act by using the words
"unless otherwise agreed by the parties" categorically
clarifies that the arbitrater is bound by the terms of the
contract insofar as the award of interest from the date of
cause of action to the date of award. Therefore, where
D the parties had agreed that no interest shall be payable,
theArbitral Tribunal cannot award interest between the
date when the cause of action arose to the date of award."
34. In the context of the Act, 1996, the phrase "unless
otherwise agreed by the parties" was explained in the case of
E N.S. Na yak & Sons v. State of Goa, (2003) 6 SCC 56. This
Court observed that:
"14 .... The phrase "unless otherwise agreed by the
parties" used in various sections, namely, 17, 21, 23(3),
24(1), 25, 26, 29, 31, 85(2)(a) etc. indicates that it is
F
open to the parties to agree otherwise. During the arbitral
proceedings, right is giveri to the parties to decide their
own procedure.. So ifthere ·is an agreement between the
parties with regard to the procedure to be followed by
the arbitrator, the arbitrator is required to follow the said
G
procedure. Reason being, the arbitrator is appointed on
the basis of the contract between the parties and is
required to act as per the contract. However, this would
not mean that in appeal parties can contend that the
appellate procedure should be as per their agreement.
H "
. M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1059
ORISSATHR. CHIEF ENGR. [H. L. DATTU, CJI.]
35. In the event that the terms of the given contract, as A
applicable to the parties to the arbitration proceedings, are
silent on thequestion of interest payable in the first stage, as
given under clause (a) of sub- section (7) of section 31 of the
Act, 1996, only then would the provisions of the said clause
apply. The said clause thereafter gives the arbitral tribunal the B
discretion to include the interest in the sum for which the award
was made. The principles for levying such interest are found
in the said clause itself. They are as follows:
(1) Interest to be imposed at such rate as the arbitral
·tribunal deems reasonable; C
(2) The interest may be either on the whole or any part of
the money; and
(3) The interest may be for the whole or any part of the
period between the date on which the cause of action arose · D
and the date on which the award is made.
36. I take note that the arbitral tribunal has been given
the discretionary power of not only imposing interest, but also
for determining the rate of interest that could be imposed from
the date of cause of action to the date of the award. The arbitral E
tribunal has the discretion to decide whether such interest
would be imposed on the whole or a part of the money
awarded, and further whether it would be imposed forthe entire
duration from the date of cause of action to the date of award,
or on a part of it. However, such discretion is not unfettered F
and is not exercisable upon the mere whims and fancies of
the tribunal. In Principles of Statutory Interpretation, Justice
GP. Singh, Thirteenth Edition, 2012, at p.482, it has been
stated as follows:
"Even where there is not much indication in the Act of the G
ground upon which discretion is to be exercised it does
not mean that its exercise is dependent upon mere fancy
of the Court or Tribunal or Authority concerned. It must
- be exercised ih the words of Lord Halsbury, 'according
to the rules of reason and justice, not according to private H ·
1060 SUPREME COURT REPORTS [2014] 14 S.C.R.
A opinion; according to law and not humour; it is to be not
arbitrary, vague and fanciful, but legal and regular'."
37. It can be concluded that the discretion, whether to
award interest by the arbitral tribunal under clause (a), is
necessarily to be exercised as per the facts and circumstances
B of each case. The said discretion must be within the
parameters of the st?tute and in accordance with the rule of
law. Furthermore, the said clause states that the rate ofinterest,
if such interest is awarded by the arbitral tribunal, must be as
the said tribunal deems reasonable. It is settled law that
C discretion must always be exercised lawfully.
38. At this stage, it would be relevant to consider the
meaning of the words "sum" and "interest" as used in clause
(a) of sub- section (7) of section 31 of the Act, 1996. It is settled
principle of interpretation of statutes that while interpreting the
0
words of a statute, the context in which they appear would be
necessary to be taken into consideration. In support of the said
principle of contextual interpretation, I refer to a Constitution
Bench decision of this Court in Darshan Singh Ba/want Singh
v. State of Punjab, 1953 SCR 319. wherein it was observed
E as follows:
"10 .... It is a cardinal rule of interpretation that the
language used by the legislature is the true depository
of the legislative intent, and that words and phrases
occurring in a statute are to .be taken not in an isolated
F
or detached manner dissociated from the context, but
are to be read together and construed in the light of the
purpose and object of the Act itself."
39. In the absence of a definition in the Act. 1996, I would
G notice that the word "sum". would simply refer to money in
common parlance. Further, the dictionary meaning of the word
may be taken into consideration. Webster's Third New
International Dictionary, Volume Ill defines "sum" to mean,
inter alia, the following:
H
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1061
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
"Sum: An indefinite or specified amount of money." A
Black's Law Dictionary, Seventh Edition, 1999, defines
'.'sum" as:
"sum. 1. A quantity of money."
P. Ramanatha Aiyar's Advanced Law Lexicon, Third B
Edition, 2005, Book 4, defines "sum", inter alia, as the
following:
"Sum. When used with reference to values, 'sum' imports
a sum of money."
Corpus Juris Secundum, Volume LXXXll/, defines the C
word "sum" as follows:
"Sum. While the word 'sum' must be construed in
connection with the context, it has a definite meaning
appropriate to use with reference to dollars and cents, D
and, except where a different meaning plainly appears,
it is restricted in its application to money, and in sense it
is lexically defined as meaning money, and this is said
to be the sense in which the word is most commonly
used."
E
40. Therefore, I find that the word "sum", in its natural
meaning and as per its most common.usage, would mean
money. The term "money" has also been used in sub- section
(7) of section 31 of the Act, 1996. Therefore, I would not hesitate
·in finding that the terms "sum" and "money" have been used by F
the legislature, in the given provision, interchangeably. In this
light, it would be pertinent to take note of the given clause once
again. The said clause states that interest may be awarded
on the "sum" for which the arbitral award is made, or the same
could be read as- interest may be awarded on the "money" for G
which the arbitral award is made. This "money" for which the
award is made, necessarily would refer to the money as
adjudicated by the arbitral tribunal, based on the claims of the
parties, to be paid under the award. In other words, it would
simply refer to the principal amount so awarded.
H
I
- SUPREME COURT REPOR11S [2014) 14 S.C.R.
j j.
I
A··- . 41. It would be necessary to udderstand the meaning of
"interest" as used under the said cl~use as well.Again, in the
absence of a definition under the Act, 1996, I would rely upon
its meaning in common parlance. For this, support of
dictionaries can be taken .
B 42. Wharton's Law Lexicon, Fourtee'fjlth Edition, defines •
"interest" as follows: · '·
"Interest.· 1. Money paid at a fixed rate per cent for the
loan or use of some other sum, called gie prihcipaL" .
. ' .
c Black's Law Dictionary, Seventh Edition, 1999, defines1
"interesf' as: . .I
"interest. 1. Advantage or profit, esp. of a financial naturJ ."
Webster's Third New International Dictionary, VG!ume
Ill defines "interest" to mean, inter alia, the following:
D
"interest. The price paid for borrowing money generally
expressed as a percentage of the amount borrowed paid
in one year."
Corpus Juris Secundum, Volume XLVll, explains the
E word "interest" as follows:
"Interest is the compensation allowed by law, or fixed by
the parties, for the use or forbearance of money, or as
damages for its detention."
Stroud's Judicial Dictionary, Seventh Edition, 2008,.
F Volume 2, p. 1385, defines the term "interest'? as follows:
"Interest is compensation paid by the borrower to the
lender for deprivation of the use of his money."
43. Therefore, in light of the above, "interest" would be
G the return or compensation for the use or retention by one
person of a sum of money belonging to or owed to another. It
may be understood to mean the amount which one has
contracted to pay for the use of borrowed money. It is a
consideration paid either for the use of money or for
H forbearance in demanding it, after it has fallen due, and thus, it
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1063
ORISSA THR. CHIEF ENGR. [H. L. DATIU, CJI.]
could be said to be a charge for the use or forbearance of a A
particular amount of money. In this sense, it is a compensation
allowed in law for use of money belonging to another or for the
delay in paying the said money after it has become payable.
This principle has also been noticed in the Central Bank case
(supra). B
44. It may be pertinent.to take note of the approach of
English Courts to interpret the term "interest". In Westminster ·
Bank Ltd v: Riches, [1947] A.C. 390, the House of Lords
elaborated upon the term "interest" for payment of moneys.
· Lord Wright observed that: C
"The essence of interest is that it is a payment which
becomes due because the creditor has not had his
money at the due date. It may be regarded either as
representing the profit he might have made if he had had
the use of the money, or conversely the loss he suffered D
because he had not that use. The general idea is that he
is entitled to compensation for the deprivation. From that
point of view it would seem immaterial whether the money
was due to him under a contract express or implied or a
statute or whether the money was due for any other E
reason in law."
45. In the case of Nicholas Pike v. The Commissioners
for Her Majesty's Revenue and Customs, [2013] UKUT 0225
(TCC), the House of Lords observed as follows:
F
"15. First, interest is calculated by reference to an
underlying debt.As Megarry J put it in Euro Hotel (supra)
at p 1084 b-f:-
"lt seems to me that running through the cases there
is the concept that as a general rule two requirements G
must be satisfied for payment to amount to interest, ·
and a fortiori to amount to "interest of money". First,
there must be a sum of money by reference to which
the payment which is said to be interest is to be
ascertained .... Second, those sums of money must H
1064 SUPREME COURT REPORTS [2014) 14 S.C.R.
A be sums that are due to the person entitled to the
alleged interest ... I do not, of course, say that in every
case these two requirements are exhaustive, or that
they are inescapable. Thus I do not see why payments
should not be "interest of money" if A lends money to
B B and stipulates that the interest should be paid not to
him but to X: yet for the ordinary case I think they
suffice". · • ·
20. Sixth, the mere fact that the payment by way of interest
c may be aggregated with a payment of a different nature
does not "denature" the payment that is interest. This point
was made in Chevron Petroleum UK Ltd v. BP Petroleum
·Development Ltd [1$81) STC 689 at p 694 g-j where
Megarry VG is reported as saying:-
D
"lf in its nature a sum is "interest of money" I think it
retains that nature even if the parties to a contract
provide for it to be wrapped up with some other sum
· and the whole paid in the form of single indivisible sum.
The wrappings may conceal the nature of the contents,
E
but they do not alter them ... lfthetrue nature of a sum
of money is that it is "interest of money" that sum will
not be denatured, or transmuted into something
different, simply by being incorporated into some
larger sum before being made payable under the
F
terms of the contract".
"
46. It may be inferred from the aforesaid decisions, that
for anamount to be referred as "interest", it must, prima facie,
G fulfill two conditions-
(1) There must be a sum of money by reference to which
the payment of interest may be ascertained.
(2) The sum of money must, generally, be due to the
H person entitled to the interest.
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1065
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
Furthermore, it would be gainsaid in stating that the mere A
fact that a payment of interest may be aggregated with a
payment of a different nature, the said aggregation would not
alter the distinct nature of interest from the money on which it
. is levied.
47. Further, this Court in the case of Bhai Jaspal Singh B
v. CCT, (2011) 1 SCC 39, observed that:·
"36. Interest is compensatory in character and is imposed
on an assessee who has withheld payment of any tax as
and when it is due and payable. The interest is levied on C
the actual amount of tax withheld and the extent of delay
in paying the tax on the due date. Essentially, it is
compensatory and different from penalty which is penal
in character [see Pratibha Processors v. ·Union of India,
(1996) 11sec1011."
D
48. Therefore, it may be concluded that the term "interest",·
appears to be distinct from the principal amount on which it is
imposed. Furthermore, the imposition of an interest is stated
to be forthe purpose of providing cornpensation for withholding
the said principal amount or, as in the case of clause (a) of E
sub- section (7) of Section 31 of the Act, 1996, for withholding
the money awarded as per the claim, as determined by the
arbitral tribunal, from. the date the cause of action arose till the
date when such award was made. In other words, interest is
imposed to compensate for the denial to one party, by the other F
party, of the money which rightfully belongs to the said former
party under the relevant agreement governing the arbitration
proceedings.
49. Having clarified sub-section (a) of sub- section (7) of
section 31 of the Act, 1996, I would now consider clause (b) of G
the said provision. As noticed above, clause (b) is applicable
for the period from the date of award to the date of payment.
The applicability of clause (b) has also been qualified by the
legislature. The said clause uses the phrase "unless the award
otherwise directs", which would mean that in the event the H
1066 SUPREME COURT REPORTS [20.14) 14 S.C.R.
A arbitral tribunal, in its award, makes a provision for interest to
be imposed in this second stage as envisaged by sub- section
(7) of section 31 of the Act, 1996, clause (b) would become
inapplicable. By the said award, the arbitral tribunal has the
power to impose an interest for the post-award period which
B may be higher or lower than the rate as prescribed under clause
(b). Even ifthe award states that no interest shall be imposed
in the post-award period, clause (h) cannot be invoked.
50. If the arbitral award is silent on the question of whether
there would be any post- award interest, only in that situation
C could clause (b) be made applicable. In the said situation, it
would be mandatory as per law that the award would carry
interest at the rate of 18% per annum from the date of the award
to the date of payment. The term used in the given clause is
"shall", therefore, if applicable, the imposition of interest as
D ·per clause (b) would be mandatory.
51. It would be relevant also to take note of the case of
H.P f:!ousing & Urban Development Authority v. Ranjit Singh
Rana, (2012) 4 SCC 505. In the Ranjit Singh Rana case
(supra), this Court dealt with the meaning of the word "payment"
E as under clause (b) of sub- section (7) of section 31 of the Act,
1996 to ascertain when the liability to pay post-award interest
would come to an end. After making a reference to the S.L. .
Arora case (supra), this Court went into the dictionary meaning
of the word "paymenf'. The Court explained as follows:
F
"15. The word "payment" may have different meaning in
different context but in the context of Section 37(1 )(b); it
means extinguishment of the liability arising under the
award. It signifies satisfaction of the award. The deposit
of the award amount into the court is nothing but a
G
payment to the credit of the decree-holder. In this view,
once the award amount was deposited by the appellants
before the High Court on 24-5-2001, the liability of post-
award interest from 24-5-2001 ceased. The High Court,
thus, was not right in directing the appellants to pay the
H interest@ 18% p.a. beyond 24-5-2001."
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1067
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
52. Clause (b) of sub- section (7) of section 31 of the A
Act, 1996 further states that the interest as envisaged under
the said provision would be on the sum directed to be paid by
an arbitral award. As noticed in the discussion hereinabove,
the term "sum", as in 'Clause (a), refers simply to the money
directed to be paid as per the award, that is, the money as B
adjudicated by the arbitral tribunal.
53. It is a settled principle of law that if the same word is
us~d more than once in the same provision of a statute, the
intention of the legislature must be to give the same meaning
to the word at each place where it is repeated. There would C
be a presumption that the said word is used in the same sense
throughout the given provision'. According to Bennion on
Statutory Interpretation, Fifth Edition, 2008, p. 1160:
"Same words to be given same meaning. It is presumed
that a word or phrase is not to be taken as having different D
meanings within Nle same instrument, unless this fact is
made clear. Where therefore the context makes it clear
that the term has a particular meaning in one place, it will
be taken to have that meaning elsewhere."
Jf
54. In support this principle, I refer to the Central Bank E
case (supra), w e/ein a Constitution Bench of this Court
observed ows:
"42 ... Ordinarily, a word or expression used at .several
aces in one enactment should be assigned the same F
meaning so as to avoid "a head-on clash" between two
meanings assigned to the same word or expression
occurring at two places in the same enactment. It should
not be lightly assumed that "Parliament had given with
one hand what it took away with the other'' (see Principles G
of Statutory Interpretation, Justice G.P. Singh, 7th Edn.
1999, p. 113). That construction is to be rejected which
"-j will introduce uncertainty, friction or confusion into the
working of the system (ibid, p. 119). While embarking
upon interpretation of words and expressions used in a H
1068 SUPREME COURT REPORTS [2014] 14 S.C.R.
A statute it is possible to find a situation when the same
word or expression may have somewhat different .
meaning at different places depending on the subject or
context This is however an exception which can be
resorted to only in the event of repugnancy in the subject
B or context being spelled oui. It has been the consistent
view of the Supreme Court that when the legislature used
same word or expression in different parts of the same
section or statute, there is a presumption that the word
· is used in the same sense throughout (ibid, p. 263). More
C correct statement of the rule is, as held by the House of
Lords in Farrell v. Alexander All ER at p. 736b, "where
the draftsman uses the same word or phrase in similar
contexts, he must be presumed to intend it in each place
to bear the same meaning". The court having. accepted
o invitation to embark upon interpretative expedition shall
identify on its radar the contextual use of the word or
expression and then determine·its direction avoiding
collision with icebergs of inconsistency and repugnancy."
55. It can be concluded that it is a sound rule of
E construction whereby the same word appearing in the same
section of the same statute must be given the·same meaning,
ur1less there is anything to indicate the contrary. The only
exception to this rule of construction, whereby the said principle
may be rebutted, is by making reference to the context in which
F the words are used. The word may be understood in a different
sense, if the context so requires that to be done. The context
herein, that is, under clause (a) and under clause (b) of sub-
f-
section (7) of section 31 of the Act, 1996, does not appear to
be divergent from one another. The word "sum" has been used •
G ih both clauses in the context of what is to be paid as per the
arbitral award. •
56. Before I conclude, it would be profitable to take note
of the Central Bank of India case (supra) with regard to the
limited issue of imposition of compound interest. While
H describing the role of the legislature to relieve burdened
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1069
ORISSA THR. CHIEF ENGR. [H. L. DATTU, CJI.]
debtors from being charged with oppressive compound A
interest rates, this Court in the Central Bank of India case
(supra), stated that the practice of imposing such interest was
permissible, legal and judicially correct, if it was a consequence
of a voluntary agreement between the parties, except when
the same was superseded by legislation. Furthermore, this B
Court observed that the interest would be included as part of
the principal amount only ohce it is capitalised. This Court, in
the Central Bank of India case (supra), observed as follows:
"36 .... There is nothing wrong in the parties voluntarily
entering into transaction, evidenced by deeds C
incorporating covenant or stipulation for payment of
compound interest at reasonable rates, and authorising
the creditor to capitalise the interest on remaining unpaid
so as to enable interest being charged at the agreed
rate on the interest component of the capitalised sum for D
the succeeding period. Interest once capitalised, sheds
its colour of being interest and becomes a part of
principal so as to bind the debtor/borrower."
57. To support the above principle, whereby it is stated
that compound interest is permissible only as a consequence · E
of an explicit statutory provision, I take note of the case of
Union of India v. Tata Chemicals Ltd., (2014) 6 SCC 335
wherein this Court observed as follows:
"38. Providing for payment of interest in case of refund F
of amounts paid as tax or deemed tax or advance tax is
a method now statutorily adopted by fiscal legislation to
ensure that the aforesaid amount of tax which has been
duly paid in prescribed time and provisions in that behalf
form part of the recovery machinery provided in a taxing G
statute. Refund due and payable to the assessee is debt-
owed and payable by the Revenue. The Government,
there-being no express statutory provision for payment
of interest on the refund of excess amount/tax collected
by the Revenue, cannot shrug off its apparent obligation H
1070 SUPREME COURT REPORTS [2014] 14 S.C.R.
A to reimburse the deductors lawful monies with the
accrued interest for the period of undue retention of such
rnonies .... "
58. I may also take note of the decision in Parkside
Leasing Ltd v. Smith (Inspector of Taxes) [1985] 1WLR310,
B wherein the Chancery Division, while discussing the difference
between the receipt of proceeds by cash or by cheque, was of
the view that it would be the actual "receipt" of the proceeds, in
either case, that places such proceeds at the disposal of the
payee. T.he said decision relied. upon D&C Builders Ltd. v.
C Rees[1966] 2 Q.B. 617, wherein Lord Denning observed that:
" ... The cheque, when given, is conditional payment.
When honoured, it is actual payment. ... "
In other words, the Parkside Leasing Ltd. case (supra)
0 was of the view that money would be "paid" only when the
recipient would have the option to utilise the said money and
exercise willful discretion.
59. For the purposes of the Act, 1996, interest could be
included within the principal amount only when the said
E . aggregate amount is paid to the party in whose favour the
arbitral award was passed. In other words, once the interest
amount is within the physical and actual possession of the party
so entitled to it, only then could the interest amount be said to
have merged with the principal amount. Therefore, in the
F present scenario, the appellants would not be erititled to claim
post-award interest on the aggregate of the principal amount
and interest pendente lite, since the said aggregate sum was
not in the actual physical possession of the appellants herein.
Further, I take note that sub- section (7) of section 31 of the
G Act, 1996, neither makes reference to compounding of interest,
nor to awarding interest on interest.
60. Therefore, in my considered view, the term "sum" as
used in clause (b) of sub- section (7) of section 31 of the Act,
1996 would have the same meaning as assigned to the word
H under clause (a) of the same provision. It would refer to the
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1071
ORISSA THR. CHIEF ENGR. [H. L. DATIU, CJI.)
money as adjudicated by the arbitral tribunal based on the claim A
of the parties to the arbitral proceedings. It has already been
noticed that this money would be distinct from the interest as
may have been awarded by the arbitral tribunal under clause .
(a) of sub- section (7) of section 31 of the Act, 1996. Therefore,
the interest under clause (b) would be imposed on money B
awarded by the arbitral tribunal on the basis of the claims of
the parties, and the said money cannot merge within it any
interest as imposed in the period from the date of cause of
action to the date of the award.
61. In light of the above discussion, the reference is C
answered in the following terms-
! find no infirmity with the S.L. Arora case (supra),
whereby it was held that if the arbitral award is silent about
interest from the date of award till the date of payment, the
person in whose favour the award is made will be entitled to D
interest at 18% per annum on the principal amount awarded,
from the date of award till the date of payment.
62. In view of the above, while answering the referral order,
Civil Appeal No. 3148 of 2012, along with all connected E
matters, is remanded back to an appropriate two-Judge Bench
of this Court for adjudication.
S. A. BOBDE, J.
1. I have had the advantage of reading·the Judgment of
my Lord, the Chief Justice. I entirely agree thatthe findings of F
this Court in State of Haryana and Others v. S.L. Arora and ·
Company, (2010) 3 SCC 690 that Uttar Pradesh Cooperative
Federation Limited v. Three Circles, (2009) 10 SCC 37 4 was
incorrectly founded upon the decision in McDermott
International INC v. Burn Standard Co. Ltd., (2006) 11 SCC G
181 and that such reliance was not in consonance with the
doctrine ofprecedent. The Mc;Dermott case is not an authority
on the question whether the Arbitrator may award compound
interest nor does that decision sanction post-award interest
be imposed on the aggregate sum and interest pendent lite. H
1072 SUPREME COURT REPORTS [2014) 14 S.C.R.
A The Arbitral Tribunal's authority to award "interest on interest"
was not discussed therein. This Court, therefore, while deciding
State of Haryana and Others v. S.L. Arora and Company,
(2010) 3 SCC 690, rightly refused to treat the McDermott case
as well as the Three Circles case as authorities for awarding
B "interest on interest" and held that both were wrongly decided.
Further, the decisions in ONGC v. M. c. Clelland Engineers
S.A., (1999) 4 sec 327 as well as the Three Circles case
pertain to an Award under the Arbitration Act, 1940, which did
not contain a specific provision dealing with the arbitrator's
c power to grant interest. Likewise, the Central Bank of India v.
Ravindra and Others, (2002) 1 sec 367 case arose under
Section 34 of the Code of Civil Procedure, 1908 (hereinafter
referred to as "the CPC"), and cannot be treated as an authority
for award of interest under clause (7) of Section 31 of the
o Arbitration Act, 1996 (hereinafter referred to as "the Act").
2. It is not possible to agree with the conclusion in S.L
Arora's case that Section 31(7) of the Act does not require
that interest, which accrues till the date of the Award, be
included in the "sum" from the date of Award for calculating
E the post-award interest. In my humble view, this conclusion does
n9t seem to be in consonance with the clear language of
Section 31 (7) of the Act.
3. Sub-section {7) of Section 31 of the Act, which deals
with the power of the Arbitral Tribunal to award interest, reads
F as follows:
"Sub-section (7)
(a) Unless otherwise agreed by the parties, where and
in so far as an arbitral award is for the payment of money,
G theArbitral 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
H the award is made.
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1073
ORISSATHR. CHIEF ENGR. [S.A. BOBDE, J.]
(b) A sum directed to be paid by an arbitral award shall, A
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."
4. Clause (a) of sub-section (7) provides that where an
Award is made for the payment of money, the Arbitral Tribunal B
may include interest in the sum for which theAwardJs made.
In plain terms, this provision confers a power upon the Arbitral
Tribunal while making an Award for payment of money, to
include interest in the sum for which the Award is made on
either the whole or any part of the money and for the whole or c
any part of the period for the entire pre-award period between
the date on which the cause of action arose and the date on
which the Award is made. To put itdiffereritly, sub-section (7)(a)
contemplates that an Award, inclusive of interest for the pre-
award period on the entire amount directed to be paid or part D
thereof, may be passed. The "sum" awarded may be principal
amount and such interest as the Arbitral Tribunal deems fit. If
no interest is awarded, the "sum" comprises only the principal.
The significant words occurring in clause (a) of sub-section - '
(7) of Section 31 of the Act are "the sum for which the award is E
made." On a plain reading, this expression refers to the total
amount or sum for the payment for which the Award is made.
Parliament has not added a qualification like "principal" to the
word "sum," and therefore, the word "sum" here simply means
"a particular amount of money." In Section 31 (7), this particular F
amount of money may include interest from the date of cause
of action to the date of the award.
5. The Oxford Dictionary gives the following meaning to
the word "sum":
G
Sum, 'if noun':-Aparticular amount of money.
Sum, 'if verb':- The total amount resulting from the addition
of two or more numbers, amounts, or items.
6. In Black's Law Dictionary, the word "sum" is given the
following meaning:- . H
1074 SUPREME COURT REPORTS (2014] 14 S.C.R.
A "SUM. In English law- A summary or abstract; a
compendium; a collection. Several of the old law
·treatises are called "sum." Lord Hale applies the term to
summaries of statute law. Burrill. The sense in which the
term is most commonly used is "money"; a quantity of
B money or currency; any amount indefinitely, a sum of
money, a small sum, or a large sum. U.S. v. VanAuken,
96 U.S. 368, 24 L.Ed. 852; Donovan v. Jenkins, 52
Mont. 124, 155 P. 972, 973."
7. Thus, when used as a noun, as it seems to have been
C used in this provision, the word "sum" simply means "an amount
of money"; whatever it may include - "principal" and "interesf'
or one of the two. Once the meaning of the word "sum" is
clear, the same meaning must be ascribed to the word in clause
(b) of sub-section (7) of Section 31 ·of the Act, where it provides
D thata sum directed to be paid by anArbitralAward "shall carry
interest ........ " from the date of the Award to the date of the
payment i.e. post-award. ln'other words, what clause (b) of
sub-section (7) of Section 31 of the Act directs is thatthe "sum,"
which is directed to be paid by the Award, whether inclusive or
E exclusive of interest, shall carry interest at the rate of eighteen
per cent per annum for the post-award period, unless otherwise
ordered.
8. Thus, sub-section (7) of Section 31 of the Act provides,
firstly, vide clause (a) that the Arbitral Tribunal may include
F interest while making an award for payment of money in the
sum for which the Award is made and further, vide clause (b)
that the sum so directed to be made by the Award shall carry
interest at a certain rate for t_he post award period.
G 9. The purpose of enacting this provision is clear, namely,
viz. to encourage early payment of the awarded sum and to
discourage the usual delay, which accompanies the execution
of the Award in the same manner as if it were a decree of the
courtvide Section 36 of the Act.
H
MIS. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1075
ORISSA THR. CHIEF ENGR. [S. A. BOBDE, J.]
10. In this view of the matter, it is clear that the interest, A
the sum directed to be paid by theArbitralAward under clause
(b) of sub-section (7) of Section 31 of the Act is inclusive of
interest pendent lite.
11. At this juncture, it may be useful to refer to Section 34
of the CPC, also enacted by Parliament and conferring the B
same power upon a court to award interest on an award i.e.
post-award interest. While enacting Section 34, CPC,
Parliament conferred power on a court to order interest "on
the principal sum adjudged" and not on merely the "sum" as
provided in the Arbitration Act. The departure from the C
language of Section 34 CPC in Section 31 (7) of the Act, 1996
is significant and shows the intention of Parliament.
12. It is settled law that where different language is used
by Parliament, it is intended to have a different effect. In the D
Arbitration Act, the word "sum" has deliberately not been
qualified by using the word "principal" before it. If it had been
so used, there would have been no scope for the contention
that the word "sum" may include "interest." In Section 31 (7) of
the Act, Parliament has deliberately used the word "sum" to
refer to the aggregate of the.amounts that may be directed to E
be paid by theArbitral Tribunal and not merely the "principal"
sum without interest.
13. Thus, it is apparent that vide clause (a) of sub-section
(7) of Section 31 of the Act, Parliament intended that an award F
for payment of money may be inclusive of interest, and the
"sum" of the principal amount plus interest may be directed to
be paid by the Arbitral Tribunal for the pre-award period.
Thereupon, theArbitral Tribunal may direct interest to be paid
on such "sum" for the post-award period vide clause (b) of G
sub-section (7) of Section 31 of the Act, at which stage the
· amount would be the sum arrived at after the merging of interest
with the principal; the two components having lost their separate
identities.
H
1076 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 14. In fact this is a case where the language of sub-
section 7 clause (a) and (b) is so plain and unambiguous that
no question of construction of a statutory provision arises. The
language itselfprovides that in the sum for which an award is
made, interest may be included forthe pre-award period and
B that for the post-award period interest up to the rate of eighteen
per cent per annum may be awarded on such sum directed to
be paid bytheArbitralAward.
In such a situation one is reminded of the decision in
Ganga Prasad Verma (Dr.) v. State of Bihar, 1995 Supp (1)
C SCC 192 Para 5, where this Court held that, "Where the
language of the Act is clear and explicit, the court must give
effect to it, whatever may be the consequences, for in that case
the words of the statute speak the intention of the Legislature."
Similarly, in Keshavji Ravji & Co. v. CIT, (1990) 2 SCC 231, a
•
D three-Judge Bench of this Court explained the rule of literal
interpretation as under (SCC p.242, Para 11 ): "If the intendment
is not in the words used it is nowhere else. The need for
interpretation arises when the words used in the statute are,
on their terms, ambivalent and do not manifest the intention of
E the legislature."
We may also refer to the decision of the Privy Council in
Pakala Narayana Swamiv. Emperor, AIR 1939 PC 47,
wherein Lord Atkin observed that, "when the meaning of words
is plain, it is not the duty of courts to busy themselves with
F supposed intentions." This view was upheld recently by this
Court in T.N. State Electricity Board v. Central Electricity
Regulatory Commission, (2007) 7 SCC 636.
In fact the settled view on this subject has been to admit
G results of construction even if they be strange or surprising',
unreasonable or unjust or oppressive 2 • The Privy Council in
Emperor v. Benoarilal Sarma, AIR 1945 PC 48 (p. 53),
'London Brick Company Ltd. v. Robinson, [1943] 1 ALL ER 23, p. 26
(HL).
H 2 IRC v. Hinchy, [1960] 1 ALL ER 505, pp. 508, 512 (HL).
M/S. HYDERCONSULTING(UK) LTD. v. GOV., STATE OF 1077
ORISSATHR. CHIEF ENGR. [S.A. BOBDE, J.]
emphasised, "Again and again, this Board has insisted that in A
construing enacted words we are not concerned with the policy
involved or with the results, injurious or otherwise which may
follow from giving effect to the language used."
In the case of Nasiruddin v. Sita Ram Agarwal, (2003) 2
SCC 577 (Para 37), a three-Judge Bench of this Court, made B
it clear that the Court's jurisdiction cannot be invoked to interpret
a statute so as to add or subtract words or read s9mething
into a provision which is not there.
Intact, Maxwell on the Interpretation of Statutes, states,
"where the language is plain and admits of but one meaning, C
the task of interpretation can hardly be said to arise. "The
decision in this case," said Lord Morris of Borth-y-Gest in a
revenue case, "calls for a full and fair application of particular
statutory language to particular facts as found. The desirability
or the undesirability of one conclusion as compared with
0
another cannot furnish a guide in reaching a decision." 3 Whe'te,
by the use of clear and unequivocal language capable of only
one meaning, anything is enacted by the legislature, it must
be enforced however harsh or absurd or contrary to common
sense the result may be. 4 The interpretation of a statute is not E
to be collected from any notions which may be entertained by
the court as to what is just and expedient: 5 words are not to be
construed, contrary to their meaning, as embracing or excluding
cases merely because no good reason appears why they
should not be embraced or excluded. 6 F
3
Shop and Store Developments Ltd. v. l.R.C. [1967] 1 A.G. 472, per Lord
Morris of Borth-y-Gest at p. .493. But see l.R.C. v. Bates [1965] I W.L.R.
1133, per Lord Denning M.R., affirmed in H.L. at[1967] 2 W. L. R. 60 sub.
Norn. Bates v. l.R.C.; Luke v.1.R.C. [1963]A.C. 557, per Lord Reid.
'Cartledgev. E. Jopling & Sons, Ltd. [1963]AC. 758. Cf. Millerv. Salomons G
[1853] 7 Ex. 475, per Pollock C.B.; Re British Farmers', etc., Co. (1878)
48 L.J. Ch. 56, per Jessel M. R.; Magar and St. Mellons R.D.C. v. Newport
Corporation [1952]A.C. 189.
'Gwynne v. Burnell (1840) 7 Cl. & F. 572 per Coleridge J..
. 'Whitehead v. James Stott Ltd. [1949] 1 K.B. 358; Galashiels Gas Co.,
Ltd. v. O'Donell [1949] A.G. 275. H
1078 SUPREME COURT REPORTS [2014] 14 S.C.R.
A Tindal, C.J. in the Sussex Peerage' case, summarised
this principle as follows: "If the words of the Statute are in
themselves precise and unambiguous then no more can be
necessary than to expound those words in their natural and
ordinary sense. The words themselves do alone in such cases
B best declare the intent of the law giver." This cardinal principle
of construction was first stated by the United States Supreme
Court in its landmark decision of Caminetti v. United States,
242 U.S'. 470, 485 (1917), whereby Justice Day observed,
"where the language is plain and admits of no more than one
c meaning the duty of interpretation does not arise:"
15. In the resul~. I am of the view that S.L. Afora'scase is
wrongly decided in that it holds that a sum directed to be paid
by anArbitral Tribunal and the reference to the Award on the
substantive claim does not. refer to interest pendente lite
D 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
E has the undoubted power to legislate on the subject and provide
thattheArbitral 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:
F ABHAY MANOHAR SAPRE, J.
1. I have had the benefit of reading the scholarly
Judgments of My Lord the Chief Justice as also my learned
brother Bobde J.
G 2. With great respect, I find myself in complete agreement
with the reasoning and the eventual conclusion arrived at by
brother Bobde J. Even though, the judgment delivered by
brother Bobde J. encapsulates everything of what is required
to be said, I', however, looking to the point involved and very
H 7
(1844] 11 Cl & F 85, p. 143.
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1079
ORISSA THR. CHIEF ENGR. [ABHAY MANOHAR SAPRE, J.]
ably argued by all learned senior counsel, wish to record my A
own reasons, in addition to what has already been laid down.
3. Reiteration of facts is unnecessary. The only question
that arises for determination in the instant /is is, "Whether grant
of interest by the Arbitral Tribunal under Section 31 (7) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to B
as 'the Act") amounts to granting "interest on interest"?
4. The aforesaid question can be answered by a plain·
and simple reading of Section 31 (7) of the Act which reads as
under:
c
"31 (7)(a) Unless otherwise agreed by the parties, where
and iri 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 D
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 E
rate of eighteen per centum per annum from the date of
the award to the date of payment."
5. Section 31(7)(a) of the Act deals with grant of pre-
award interest while sub-clause (b) of Section 31 (7) of the Act
deals with grant of post-award interest. Pre-award interest is F
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 of the award. Pre-
award interest is at the discretion of Arbitral Tribunal, while the G
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 H
1080 SUPREME COURT REPORTS (2014] 14 S.C.R.
A 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.
B 6. 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
C 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.
D 7. Therefore, for the purposes of an award, there is no
distinction between a "sum" with interest, and a "sum" without
interest. Once the interest is "included in the sum" for which
the award is made, the original sum and the interest component
cannot be segregated apd be seen independent of each other.
E The interest component then looses its character of an
"interest" and takes the colour of "sum" for which the award
is made.
8. There may arise a situation where, theArbitral Tribunal
may not award any amount towards principal claim but award
F only "interesf'. This award of interest would itself then become
the "sum" for which an award is made under Section 31 (7)(a)
of the Act. Thus, in a pre-award stage, the legislation seeks to
make no distinction between the sum award and the interest
component in it.
G 9. Therefore, I am inclined to hold that ihe amount award
under Section 31 (7)(a) of the Act, whether with interest or
without interest, constitutes a "sum" for which the award is
made.
10. Coming now to the post-award interest, Section
H 31 (7)(b) of the Act employs the words, "A sum directed to be
M/S. HYDER CONSULTING (UK) LTD. v. GOV., STATE OF 1081
ORISSATHR. CHIEF ENGR. [ABHAY MANOHAR SAPRE, J.]
paid by an arbitral award... ". Sub-clause (b) uses the words A
"arbitral award" and not the "arbitral tribunal". The arbitral award,
as held above, is made in respect of a "sum" which includes
the interest. It is, therefore, obvious that what carries under
Section 31 (7)(b) of the Act is the "sum directed to be paid
by an arbitral award" and not any other amount much less B
by or under the name "interesf'. In such situation, it cannot be
said thatwhatis being granted under Section 31(7)(b) of the
Act is ".interest on interest". Interest un_der sub-clause (b) is
granted on the "sum" directed to be paid by an arbitral award
wherein the "s.um" is nothing more than what is arrived at under C
sub-clause (a).
11. Therefore, in my view, the expression "grant of
interest on interest" while exercising the power under Section
31(7) of the Act does not arise and, therefore, the Arbitral
Tribunal is well empowered to grant interest even in the D
absence of clause in the contract for grant of interest.
· 12·. My aforesaid interpretation of Section 31 (7) of the
Act is based on three golden rules of interpretation as
explained by Justice G.P. Singh - Interpretation of Statute (13th
Edition- 2012) where the learned author has said that while E
interpreting any Statue, language of the provision should be
read as it is and the intention of the legislature should be
. gathered primarily from the language used in the provision
meaning thereby that attention should be paid to what has been
said as also to what has not been said; second, in selecting F
out of different interpretations "the Court will adopt that which
is just, reasonable, and sensible rather than that which is none
of those things"; and third, when the words of the Statute are
clear, plain or unambiguous, i.e., they are reasonably
susceptible to only one meaning , the Courts are bound to give
effect to that meaning irrespective of the consequence (see G
pages 50, 64, and 132). I have kept these principles in mind
while interpreting Section 31 (7) of the Act.
Nidhi Jain Referred questions answered.
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