Home

Power of Arbitral Tribunal to award interest is discretionary and subject to agreement between parties

May 31, 2022
arbitration red green people icon

By Nihit Nagpal and Devika Mehra

Introduction

The Division Bench of the Hon’ble Supreme Court consisting of Justice L. Nageshwar Rao and Justice B.R. Gavai vide its order dated May 05, 2022 in Delhi Airport Metro Express Private Limited Vs Delhi Metro Rail Corporation[1] has held that the Arbitrator is empowered to allow future interest on interest pendente lite. The Hon’ble Supreme Court has held that the sum of the award would include both the principal amount as well as the interest component for the purpose of future interest. However, this power of the Arbitrator is subject to an Agreement executed between the parties. The Hon’ble Supreme Court has held that in cases where the parties have an Agreement between themselves that governs the issue of interest, the Arbitrator will necessary have to forego his discretion and must be guided by such Agreement established between the parties.

Brief facts

A Concession Agreement had been executed between the parties (namely, DAMEPL and DMRC) wherein the Respondent had been responsible for carrying out certain civil works. A dispute had arisen between the parties which had been referred to Arbitration. The Arbitrator had partly allowed the claims of the Appellant. The Award had been confirmed by (Single Judge Bench of) the Hon’ble Supreme Court upon appeal by the present Appellant (against an adverse order of the Division Bench, High Court of Delhi).

Thereafter, the Appellant had immediately filed for the execution of the Award and sought future interest on the entire amount of the sum awarded by the Arbitrator. The executing court had dismissed the submission of the Appellant on the ground that the Arbitrator had allowed future interest only on the principal amount. Aggrieved by the order of the executing court rejecting its claim for future interest on the amount of interest awarded alongside the principal amount, the Appellant has preferred the present Appeal before the Hon’ble Supreme Court.

 

Arbitral Tribunal to award interest is subject to an Agreement between the parties

The Hon’ble Supreme Court has held that the power of the Arbitral Tribunal to award interest is subject to an Agreement between the parties to the contrary and the Arbitral Tribunal cannot award interest if the parties have agreed otherwise. The Hon’ble Supreme Court examined the words ‘unless otherwise agreed by the parties’ and held that when the parties have an Agreement on the grant of interest, the Arbitrator shall be bound by such an Agreement. The Hon’ble Supreme Court held that party-autonomy is the cornerstone of the Arbitration and Conciliation Act, 1996 and the discretion available with the Arbitrator would cease to have effect if the parties have exercised their autonomy under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996.

The Hon’ble Supreme Court further held that the power vested in the Arbitrator is discretionary. The Arbitrator can allow interest on any part of the claim and can Award interest for any period between the date on which the cause of action arose and the date on which the Award is passed by the Arbitral Tribunal, or it may not award any interest at all. The Hon’ble Supreme Court further held that the Arbitrator is well within its power to award any rate of interest as it deems reasonable.

The Hon’ble Supreme Court also held that ordinarily the total amount of sum awarded on which the future interest is to be given would include the principal amount as well as the amount awarded as interest pendente lite. The Hon’ble Supreme Court has held that the word ‘sum’ under Section 31(7(a) of the Arbitration and Conciliation Act, 1996 includes both the principal amount and the interest allowed on such claims. However, this is upon the discretion of the Arbitrator who may or may not include the interest component in the sum of the award for the purpose of future interest.

The Hon’ble Supreme Court held the parties have an Agreement between themselves that squarely covers the issue of interest, therefore, there was no infirmity in the impugned order which rejected the claim of the Petitioner to include in the sum of the award, the component of pendente lite interest. The Hon’ble Supreme Court clarified its judgment in Hyder Consulting (UK) Limited vs. Governor, State of Orissa through Chief Engineer[2] stating that in that case, the parties had not had an Agreement between themselves governing the question of interest, therefore, the Hon’ble Supreme Court had had no occasion to consider the effect of the words ‘unless otherwise agreed by the parties’ on the power of the Arbitrator.

Conclusion

The power vested in the Arbitrator is a discretionary power, therefore, the Arbitrator is not bound to award interest. The Arbitrator can allow interest on any component to the party for the entire or any period thereof, or it may not award any interest at all to either party. However, when there is an Agreement between the parties that governs the issue of interest, then the Arbitrator must necessarily be guided by such Agreement between the parties and forego his discretion and pass the Award accordingly.

[1] CIVIL APPEAL NO .3657 OF 2022 [Arising out of Special Leave Petition (Civil) No.4901 of 2022]

[2] (2015) 2 SCC 189

Related Posts

Arbitral Tribunal have same Power as Court to grant Interim Relief

 

For more information please contact us at : info@ssrana.com