Morgan Securities And Credits Pvt Ltd. Vs. Videocon Industries Ltd. - (Supreme Court) (01 Sep 2022)

Arbitrator has the inherent discretion to grant post-award interest

MANU/SC/1084/2022

Arbitration

Present appeal arises from a judgment of the High Court by which the appeal under Section 37 of the Arbitration and Conciliation Act 1996 against a judgment of the Single Judge has been dismissed. The issue is whether the arbitrator has the discretion to grant post-award interest only on the principal sum due under Section 31(7)(b) of the Arbitration Act.

The arbitrator has the discretion to grant post-award interest. Clause (b) does not fetter the discretion of the arbitrator to grant post-award interest. It only contemplates a situation in which the discretion is not exercised by the arbitrator. There is nothing in the provision which restricts the discretion of the arbitrator for the grant of post-award interest which the arbitrator otherwise holds inherent to their authority.

The purpose of granting post-award interest is to ensure that the award-debtor does not delay the payment of the award. The arbitrator takes note of various factors such as the financial standing of the award-debtor and the circumstances of the parties in dispute before awarding interest. The discretion of the arbitrator can only be restricted by an express provision to that effect. Clause (a) subjects the exercise of discretion by the arbitrator on the grant of pre-award interest to the arbitral award. However, there is no provision in the Act which restricts the exercise of discretion to grant post-award interest by the arbitrator. The arbitrator must exercise the discretion in good faith, must take into account relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances.

The phrase ‘unless the award otherwise directs’ in Section 31(7)(b) of Arbitration Act only qualifies the rate of interest. According to Section 31(7)(b) of Arbitration Act, if the arbitrator does not grant post-award interest, the award holder is entitled to post-award interest at eighteen percent. Section 31(7)(b) of Arbitration Act does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the discretion to award post-award interest on a part of the sum. The arbitrator must exercise the discretionary power to grant post-award interest reasonably and in good faith, taking into account all relevant circumstances.

The arbitrator has the discretion to award post-award interest on a part of the ‘sum’; the ‘sum’ as interpreted in Hyder Consulting (UK) Limited v. Governor, State of Orissa. Thus, the award of the arbitrator granting post award interest on the principal amount does not suffer from an error apparent. The appeal against the judgment of the High Court is dismissed.

Tags : DISCRETION AWARD INTEREST