Supreme Court: Power Of Arbitrator To Award Pre-Reference & Pendente Lite Interest Not Restricted When Agreement Is Silent On Whether Interest Can Be Awarded
The Supreme Court allowed an Appeal against the Judgment of the Division Bench of the Delhi High Court that had allowed an Appeal filed under Section 37 of the Arbitration and Conciliation Act.
Justice Abhay S. Oka, Justice Ujjal Bhuyan, Supreme Court
The Supreme Court has reiterated that the power of the arbitrator to award pre-reference and pendente lite interest is not restricted when the agreement is silent on whether such interest can be awarded or not.
The Court allowed an Appeal against the Judgment of the Division Bench of the Delhi High Court that had allowed an Appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (the Act), setting aside parts of an Order passed by the Single Bench under Section 34 of the Act. The Single Bench’s Order had upheld certain directions in an arbitral award. Under the Act, the power of the arbitrator to grant interest is governed by the statutory provision in Section 31(7).
A Bench of Justice Abhay S Oka and Justice Ujjal Bhuyan remarked, “This position has been clarified by a recent decision of this Court in Pam Developments Private Limited Vs. State of West Bengal2. After extracting Section 31(7) of the 1996 Act, this Court held that power of the arbitrator to grant pre-reference interest, pendente lite interest and post award interest under Section 31(7) of the 1996 is now fairly well settled.”
Senior Advocate S Janani represented the Appellants, while Senior Advocate Dhruv Mehta appeared for the Respondents.
Brief Facts
The Division Bench had held that it was not open for the arbitral tribunal to have carved out three periods for payment of interest: pre-reference, pendente lite and future when the statute provides for only two periods: first period being the period between the date on which the cause of action arose and the date on which the award is made and the second period is from the date of the award till the date of payment.
Court’s Reasoning
The Supreme Court remarked that “what Section 31(7)(a) has done is that there is now a statutory recognition of the power of the arbitral tribunal to grant pre-reference interest from the date on which the cause of action arose till the date on which the award is made. There was a vacuum in the Arbitration Act, 1940 as there was no such provision for granting pre-reference interest. It was through judicial pronouncements that such power of the arbitrator to grant pre-reference interest was conferred. Now under Section 31(7)(a) of the 1996 Act, such power is statutorily recognized.”
The Court referred to its judgment in Pam Developments Private Limited v. State of West Bengal, wherein it was held, “The power of the arbitrator to award prereference and pendente lite interest is not restricted when the agreement is silent on whether interest can be awarded or does not contain a specific term that prohibits the same...While pendente lite interest is a matter of procedural law, pre-reference interest is governed by substantive law. Therefore, the grant of prereference interest cannot be sourced solely in Section 31(7)(a) (which is a procedural law), but must be based on an agreement between the parties (express or implied), statutory provision (such as Section 3 of the Interest Act, 1978), or proof of mercantile usage.”
“That being the position, we are of the view that the Division Bench had fallen in error by holding that the arbitral tribunal had no jurisdiction to award interest for two periods i.e. pre-reference and pendente lite when the statute provides for only one period viz. from the date when the cause of action arose till the date of the award. The view expressed by the High Court is not the correct interpretation of Section 37(1)(a) of the 1996 Act as explained by us supra as well as in Pam Developments Private Limited (supra),” the Bench held.
Consequently, the Court ordered, “Thus, having regard to the discussions made above, impugned judgment and order dated 01.08.2023 passed by the Division Bench of the High Court is hereby set aside. Civil appeal is accordingly allowed. However, there shall be no order as to cost.”
Accordingly, the Supreme Court disposed of the Appeal.
Cause Title: M/S. Interstate Construction v. National Projects Construction Corporation Ltd. (Neutral Citation: 2025 INSC 699)
Appearance:
Appellants: Senior Advocate S. Janani; AOR Madhu Moolchandani; Advocate Sharika Rai
Respondents: Senior Advocate Dhruv Mehta; AOR Rajat Arora; Advocates Mariya Shahab and Nishi Sangtani
