Holding

Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 imposes a mandatory entitlement to post‑award interest that cannot be contracted out, so the appellant is entitled to such interest.

Summary

The appellant, a contractor, entered into a 1997 contract with the Telecom Department of Haryana for laying underground cables. Disputes over unpaid bills were referred to arbitration, and the arbitrator awarded the claim but denied interest, citing a contractual clause that prohibited it. The appellant later sought post‑award interest; the District Court granted 18% interest, but the High Court set aside that order, holding the contract barred such interest. On appeal, the Supreme Court examined Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, which mandates post‑award interest unless the award itself directs otherwise and is not subject to party agreement. Relying on the statutory scheme and the Morgan Securities decision, the Court held that the contractual clause could not exclude post‑award interest. Consequently, the Supreme Court allowed the appeal, restored the District Court's order granting interest, and dismissed the High Court's revision.

Issues considered

Whether Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 obliges the award to carry post‑award interest irrespective of a contractual clause prohibiting interest.
Whether a contract between parties can exclude the entitlement to post‑award interest under the Act.

Legislation cited

Arbitration and Conciliation Act, 1996s. 31(7)(a), s. 31(7)(b)

Subjects

post-award interestpre-award interestcontract autonomyArbitration and Conciliation Actinterest entitlementtelecom departmentarbitration agreement

Judgment

[2024] 9 S.C.R. 763 : 2024 INSC 743

R.P. Garg
v.
The Chief General Manager, Telecom Department & Ors.
(Civil Appeal No. 10472 of 2024)
10 September 2024
[Pamidighantam Sri Narasimha* and Sandeep Mehta, JJ.]

Issue for Consideration
Whether the appellant is entitled to post-award interest on the sum
awarded by the Arbitrator.

Headnotes†
Arbitration and Conciliation Act, 1996 – s.31(7)(b) – Grant of
post-award interest, not subject to the contract between the
parties – Appellant claimed payment of post-award interest,
denied on the ground that the contract between the parties
did not permit it – Correctness:
Held: Not correct – By virtue of s.31(7)(b), a sum directed to be
paid by an Arbitral Award shall carry interest – s.31(7)(b) deals
with grant of interest for post award period i.e., from the date of
the award till its realization – The statutory scheme relating to
grant of interest provided in s.31(7) creates a distinction between
post-award and pre-award interest – s.31(7)(a) regulates pre-award
interest and provides that the grant of interest shall be subject to the
agreement between the parties as is evident from the expression
at the commencement of the sub-section “unless otherwise
agreed by the parties” – Whereas, so far as the entitlement of
the post-award interest is concerned, s.31(7)(b) provides that
the sum directed to be paid by the Arbitral Tribunal shall carry
interest – The rate of interest can be provided by the Arbitrator and
in default the statutory prescription will apply – Thus, s.31(7)(b) is
not subject to party autonomy and is in contrast with s.31(7)(a) as
it does not give the parties the right to “contract out” interest for
the post-award period – Further, the expression ‘unless the award
otherwise directs’ in s.31(7)(b) relates to rate of interest and not
entitlement of interest – The only distinction made by s.31(7)(b) is
that the rate of interest granted under the Award is to be given
precedence over the statutorily prescribed rate – Impugned
judgment of the High Court set aside – Judgment of the First
* Author
764 [2024] 9 S.C.R.

Digital Supreme Court Reports

Appellate Court-District Court granting 18% interest from the date
of the award to its realization, restored. [Paras 9, 11, 13]

Case Law Cited
Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation
(India) Ltd. [2019] 2 SCR 41 : (2019) 17 SCC 786 – held
inapplicable.
Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd.
[2022] 9 SCR 819 : (2023) 1 SCC 602 – relied on.

List of Acts
Arbitration and Conciliation Act, 1996.

List of Keywords
Post-award interest; Pre-award interest; Contract/agreement
between the parties; Telecom Department; Arbitration Agreement;
Party autonomy.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10472 of 2024
From the Judgment and Order dated 14.05.2019 of the High Court
of Punjab & Haryana at Chandigarh in CR No. 2561 of 2003 (O&M)

Appearances for Parties
Parikshit Mahipal, Vaibhav Kumar Garg, Ms. Savita Garg,
Ms. Shivani Mahipal, Ms. Bushra Parveen, Advs. for the Appellant.
Pradeep Kumar Mathur, Chiranjeev Johri, M.K. Tiwari, Gurmeet
Singh Makker, Advs. for the Respondents.

Judgment / Order of the Supreme Court

Judgment

Pamidighantam Sri Narasimha, J.

1. Leave granted.
2. The short question before us is whether the appellant is entitled to post
award interest on the sum awarded by the Arbitrator. The Arbitrator
[2024] 9 S.C.R. 765

R.P. Garg v. The Chief General Manager, Telecom Department & Ors.

denied payment of such interest under a misplaced impression that
the contract between the parties prohibited it. The executing Court1
affirmed the finding of the Arbitrator and rejected the prayer. However,
allowing the appeal, the District Court2 held that the appellant will
be entitled to post award interest. By the order impugned before
us, the High Court3 allowed the revision and set aside the District
Court order while holding that the contract between the parties did
not permit grant of post award interest.
2.1 For the reasons to follow, while allowing the appeal we have
held that as this is a case arising out of the Arbitration and
Conciliation Act, 1996,4 by operation of Section 31(7)(b), the
sum directed to be paid under the Arbitral Award shall carry
interest. This is a first principle. A sum directed to be paid by
an Arbitral Award must carry interest. In this view of the matter,
we have restored the judgment of the District Court granting
18% interest from the date of the award to its realization. The
short facts are as under:
3. A contract was executed on 17.10.1997 between the appellant
contractor, and the Telecom Department of Haryana, Respondents
1 and 2 herein, for trenching and laying of underground cables.
Terms of the contract required the appellant to furnish a security of
Rs. 10 Lakhs. Disputes that arose with respect to non-payment of bills
submitted by the appellant during execution of the contract were referred
to Arbitrator appointed under Section 11 of the Act on 24.10.2000.
4. The Arbitrator passed the Award on 08.03.2001. In the said Award,
though the claim of the appellant was allowed, his plea for interest
was denied on the ground that there is a specific clause in the
Arbitration Agreement prohibiting the same.
5. During execution of the Award, the appellant claimed payment of
post award interest on the Award by raising a specific objection to
that effect. However, the learned Civil Judge, Senior Division vide
his order dated 10.10.2002 dismissed the objection and affirmed
the original award.

1 Order in M.A No. 19 of 2001 dated 10.10.2002.
2 Order passed by the District Judge in Civil Appeal no.86 of 11.11.2002 dated 04.03.2003
3 Order dated 14.05.2019 passed by the High Court of Punjab and Haryana in Civil Revision No. 2561
of 2003
4 Hereinafter referred to as ‘the Act’
766 [2024] 9 S.C.R.

Digital Supreme Court Reports

6. Aggrieved, the appellant filed an appeal. The District Judge allowed
the appeal and by Order dated 04.03.2003 directed payment of
post award interest at the rate of 18% on the Award amount. The
appellant was also directed to approach the trial court for recovery
of the same.
7. Being aggrieved, the Telecom Department, the respondent herein,
filed a Civil Revision Petition before the High Court which was
allowed by the High Court by the order impugned before us. The
High Court looked into sub-clause (iv) of Clause 1 of the Contract
entered between parties which provides for the scope of the grant
of interest on certain payment. The sub clause is as under:-
“No interest will be payable on the earnest money or
security deposit amount or any amount payable to the
contractor under the contract.”
8. Assuming that the above referred clause of interest is an agreement
between the parties prohibiting the grant of interest, the High Court
proceeded to allow the Revision and set aside the grant of interest.
The High court referred to the decision of this Court in Jaiprakash
Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd.5
and came to the conclusion that the Supreme Court has laid down
a precedent that interest cannot be paid when a contractual clause
specifically prohibits it.
9. We are of the opinion that the judgment of High Court is clearly
erroneous. Firstly, the interest granted by the First Appellate Court
only related to post award period, and therefore, for this period, the
agreement between the parties has no bearing. Section 31(7)(b)
deals with grant of interest for post award period i.e., from the date
of the award till its realization. The statutory scheme relating to grant
of interest provided in Section 31(7) creates a distinction between
interest payable before and after the award. So far as the interest
before the passing of the award is concerned, it is regulated by
Section 31(7)(a) of the Act which provides that the grant of interest
shall be subject to the agreement between the parties. This is evident
from the specific expression at the commencement of the sub-section
which says “unless otherwise agreed by the parties”.

5 [2019] 2 SCR 41 : (2019) 17 SCC 786
[2024] 9 S.C.R. 767

R.P. Garg v. The Chief General Manager, Telecom Department & Ors.

10. The relevant extract of Section 31 of the Act is reproduced herein
for ready reference:
“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 money, the
arbitral tribunal may include in the sum for which the award
is made interest, at such rate as it deems reasonable, on
the whole or any part of the money, for the whole or any
part of the period between the date on which the cause
of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the
rate of two per cent, higher than the current rate of interest
prevalent on the date of award, from the date of award to
the date of payment.”
11. So far as the entitlement of the post-award interest is concerned,
sub-Section (b) of Section 31(7) provides that the sum directed
to be paid by the Arbitral Tribunal shall carry interest. The rate of
interest can be provided by the Arbitrator and in default the statutory
prescription will apply. Clause (b) of Section 31(7) is therefore in
contrast with clause (a) and is not subject to party autonomy. In other
words, clause (b) does not give the parties the right to “contract out”
interest for the post-award period. The expression ‘unless the award
otherwise directs’ in Section 31(7)(b) relates to rate of interest and not
entitlement of interest. The only distinction made by Section 31(7) (b)
is that the rate of interest granted under the Award is to be given
precedence over the statutorily prescribed rate. The assumption of
the High Court that payment of the interest for the post award period
is subject to the contract is a clear error.
12. The clear position of law that granting post-award interest is not
subject to the contract between the parties was recently affirmed in
the decision of this Court in Morgan Securities & Credits (P) Ltd. v.
Videocon Industries Ltd.,6 wherein the court observed as follows:

6 [2022] 9 SCR 819 : (2023) 1 SCC 602
768 [2024] 9 S.C.R.

Digital Supreme Court Reports

“24. The issue before us is whether the phrase “unless
the award otherwise directs” in Section 31(7)(b) of the Act
only provides the arbitrator the discretion to determine the
rate of interest or both the rate of interest and the “sum” it
must be paid against. At this juncture, it is crucial to note
that both clauses (a) and (b) are qualified. While, clause
(a) is qualified by the arbitration agreement, clause (b) is
qualified by the arbitration award. However, the placement
of the phrases is crucial to their interpretation. The words,
“unless otherwise agreed by the parties” occur at the
beginning of clause (a) qualifying the entire provision.
However, in clause (b), the words, “unless the award
otherwise directs” occur after the words “a sum directed to
be paid by an arbitral award shall” and before the words
“carry interest at the rate of eighteen per cent”. Thereby,
those words only qualify the rate of post-award interest.
25. Section 31(7)(a) confers a wide discretion upon the
arbitrator in regard to the grant of pre-award interest.
The arbitrator has the discretion to determine the rate of
reasonable interest, the sum on which the interest is to
be paid, that is whether on the whole or any part of the
principal amount, and the period for which payment of
interest is to be made — whether it should be for the whole
or any part of the period between the date on which the
cause of action arose and the date of the award. When a
discretion has been conferred on the arbitrator in regard
to the grant of pre-award interest, it would be against the
grain of statutory interpretation to presuppose that the
legislative intent was to reduce the discretionary power
of the arbitrator for the grant of post-award interest under
clause (b). Clause (b) only contemplates a situation where
the arbitration award is silent on post-award interest, in
which event the award-holder is entitled to a post-award
interest of eighteen per cent.”
13. The High Court, therefore, committed an error in relying on the
decision of this Court in Jaiprakash (supra). The judgement in
Jaiprakash deals with the issue of prohibition of pendente-lite interest
and will have no application to the facts of the present case where
the claim relates to post-award interest.
[2024] 9 S.C.R. 769

R.P. Garg v. The Chief General Manager, Telecom Department & Ors.

14. In view of the above, the appeal is allowed. The judgment of the High
Court in Civil Revision No. 2561 of 2003 (O&M) dated 14.05.2019
is set-aside, and the decision of the First Appellate Court in C.A No.
86 of 11.11.02 dated 04.03.2003 for granting interest @ 18% p.a.
is restored.
15. Parties shall bear their own costs.

Result of the Case: Appeal allowed.

†
Headnotes prepared by: Divya Pandey