D. Khosla and Company Vs. The Union of India (Neutral Citation: 2024 INSC 587) - (Supreme Court) (07 Aug 2024)

Courts are not supposed to grant interest on interest except where it has been specifically provided under the statute

MANU/SC/0846/2024

Arbitration

The sole issue before present Court is whether interest is payable on interest or whether 15% interest per annum awarded would be on the principal sum award plus 12% per annum interest on it for the pre- award period.

In the petition preferred by the Petitioner before the High Court, it held that as the Arbitrator had used word 'simple interest' and had not specifically awarded compound interest, therefore, the Petitioner is only entitled to simple interest @ 12% per annum on the amount awarded as compensation for the pre-award period and simple interest @ 15% per annum for the post-award period only on the amount of compensation awarded. Aggrieved by the judgment and order of the High Court and that of the Principal Senior Civil Judge, the Petitioner has preferred this Special Leave Petition.

It is evident that, ordinarily courts are not supposed to grant interest on interest except where it has been specifically provided under the statute or where there is specific stipulation to that effect under the terms and conditions of the contract. There is no dispute as to the power of the courts to award interest on interest or compound interest in a given case subject to the power conferred under the statutes or under the terms and conditions of the contract but where no such power is conferred ordinarily, the courts do not award interest on interest.

Neither the Act specifically empowers the Arbitrator or the court to award interest upon interest or compound interest nor there any other provision which provides for grant of compound interest or interest upon interest. Even Section 34 of Code of Civil Procedure, 1908 (CPC) is silent in this regard whereas Sub-section (3) of Section 3 of the Interest Act specifically prohibits the same.

A plain reading of the award and decree reveals that interest awarded under the award has been dissected into two parts. The first part relates to the pre-award period from the date of the completion of the work till the passing of the award whereas the second part is the post-award period commencing from the date of the award till the satisfaction of the award. In the first part, simple interest @ 12% per annum has been awarded on the 'amount awarded' whereas in the second part, interest @ 15% per annum has been awarded referring to the 'amount awarded'. The amount awarded in both the situations has to be the same and cannot be two distinct amounts.

The award and the decree nowhere specifically contemplate for awarding 15% interest per annum on the amount awarded including the interest component i.e. the pre-award interest. This could not have been done even otherwise as there is no provision to that effect under the relevant statutes or the contract. No material has been placed or as a matter of fact before any court below to show that the terms and conditions of the contract contained any such provision.

Present Court do not deem it appropriate under the facts and circumstances of the case to exercise our discretionary jurisdiction under Article 136 of the Constitution of India so as to interfere with the opinion expressed concurrently by the two courts below. Petition dismissed.

Tags : INTEREST AWARD POWER