Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3148 OF 2012

M/S. HYDER CONSULTING (UK) LTD. ... APPELLANT

VERSUS

GOVERNOR, STATE OF ORISSA

THROUGH CHIEF ENGINEER ... RESPONDENT

WITH

CIVIL APPEAL NO. 3147 OF 2012

CIVIL APPEAL NO. 3149 OF 2012

CIVIL APPEAL NO. 1390 OF 2013

S.L.P. (C) NO. 19895 OF 2008

S.L.P. (C) NO. 20282 OF 2008

S.L.P. (C) NO. 21896 OF 2010

S.L.P. (C) NO. 18614 OF 2012

JUDGMENT

H.L. DATTU, CJI.

1. In view of the reference order dated 13.03.2012,

this Civil Appeal and the matters connected therewith are

11

Page 2 placed before a three-Judge Bench of this Court for

consideration and decision. The question before this

Court is, whether the decision of this Court in State of

Haryana and Others v. S.L. Arora and Company ., (2010) 3

SCC 690, wherein it is held that an award of interest on

interest from the date of award is not permissible under

sub- section (7) of section 31 of the Arbitration and

Conciliation Act, 1996 (for short, “the Act, 1996”), is

in consonance with earlier decisions of this Court. A

two-Judge Bench of this Court, by the said reference

order, is of the opinion that the present appeal and

the connected matters would need to be heard by a Bench

of three Judges of this Court.

2. By the referral order dated 13.03.2012, it is

found that the learned counsel for the appellants therein

would doubt the correctness of the decision in the S.L.

Arora case (supra) in light of McDermott International

INC v. Burn Standard Co. Ltd. and Others , (2006) 11 SCC

181; Uttar Pradesh Cooperative Federation Limited v.

22

Page 3 Three Circles, (2009) 10 SCC 374; Oil and Natural Gas

Commission v. M.C. Clelland Engineers S.A. , (1999) 4 SCC

327; and Central Bank of India v. Ravindra and Others ,

(2002) 1 SCC 367. Therein, the appellants would contend

that, in accordance with the decision of this Court in

the aforementioned cases, the interest awarded on the

principal amount upto the date of award, becomes the

principal amount for the purposes of awarding future

interest under the Act, 1996. The appellants would

contend that the decision in the S.L. Arora case (supra)

inadvertently and erroneously assumed that the

aforementioned cases would not be applicable to it. Since

the decision in the S.L. Arora case (supra) negated the

above stated principle, the appellants would contend that

the said case would require reconsideration by a larger

Bench of this Court.

FACTS :

Civil Appeal No.3148 of 2012

33

Page 4 3. The present civil appeal came before a two-Judge

Bench of this Court against a judgment and final order

dated 28.07.2010, passed by the High Court of Orissa at

Cuttack in Writ Petition (Civil) No. 5302 of 2009. The

said Writ Petition was filed challenging the orders dated

19.02.2009 and 26.03.2009, passed by the District Judge,

Khurda in Execution Petition No. 17 of 2006, whereby the

learned District Judge had issued order of attachment in

favour of the appellant herein. The claim in the

execution petition was for the payment of

Rs.8,92,15,993/-. The said claim included in itself post

award interest on the aggregate of the principal amount

awarded by the arbitral award and interest pendente lite

thereon. By virtue of arbitral award dated 26.04.2000,

which was upheld by the Division Bench of the High Court

of Orissa by its order dated 28.06.2006, a principal

amount of Rs.2,30,59,802/- was awarded in favour of the

appellant herein. The said impugned judgment of the High

Court of Orissa dated 28.07.2010, inter alia, relied upon

the decision of this Court in the S.L. Arora case (supra)

44

Page 5 and quashed the orders passed by the learned District

Judge, whereby Rs.8,92,15,993/- was awarded in favour of

the appellant. The learned Judges of the High Court, vide

the impugned judgment, directed the executing court to

re-calculate the total amount payable under the award

keeping in view the principles laid down in the S.L.

Arora case (supra).

4. According to the referral order dated 13.03.2012,

the appellants contended that the S.L. Arora case (supra)

was based on an inadvertent erroneous assumption that

McDermott case (supra) and the Three Circles case (supra)

were per incuriam in holding that interest awarded on the

principal amount upto the date of award becomes the

principal amount and, therefore, award of future interest

thereon would not amount to award of interest on

interest. The S.L. Arora case (supra) held contrary to

the aforementioned principle. To support their

contention, the appellants also made a reference to the

55

Page 6 ONGC case (supra) and the Central Bank of India case

(supra).

ISSUES :

5. The issues that arise for the consideration of

this Court are firstly, whether in light of the Three

Circles case (supra) and McDermott case (supra) there

exists any infirmity in the decision rendered by this

Court in the S.L. Arora case (supra); and secondly to

determine whether sub- section (7) of section 31 of the

Act, 1996 could be interpreted to include interest

pendente lite within the sum payable as per the arbitral

award, for the purposes of awarding post-award interest.

SUBMISSIONS :

6. Shri K.K. Venugopal, learned Senior Counsel

appearing for the appellants herein, in the first

instance, would submit that the decision in the S.L.

Arora case (supra) was incorrect in ignoring the earlier

66

Page 7 decisions of this Court, namely the Three Circles case

(supra), the McDermott case (supra), the ONGC case

(supra) and the Central Bank of India case (supra). In

light of the aforesaid latter cases, it is contended that

the S.L. Arora case (supra) wrongly held that the

interest as envisaged under clause (b) of sub- section

(7) of section 31 of the Act, 1996 would apply only on

the principal amount awarded by the arbitral tribunal.

Shri K.K. Venugopal would further refer to the 246

th

Report

of the Law Commission of India titled as ‘Amendments to

the Arbitration and Conciliation Act, 1996’ in support of

the above contention.

7. The submissions of Shri K.K. Venugopal could be

summarized as follows- firstly, that under clause (a) of

sub- section (7) of section 31 of the Act, 1996, the

award is for money and the sum for which the award is

made would include within it, the interest that may be

awarded for the period from the date of cause of action

to the date of award; secondly, that under clause (b) of

77

Page 8 sub- section (7) of section 31 of the Act, 1996, the sum

directed to be paid by the arbitral award is the sum

awarded, which is inclusive of interest pendente lite;

thirdly, that there may be scenarios wherein an award

would be made only for interest as the claim would relate

only to interest and in such a case 18% per annum

interest would automatically attach to the given award;

fourthly, that the transaction on which the claim is made

and the money is so awarded, merges with the award and

ceases to be the principal amount, so that interest under

clause (b) would be the totality; fifthly, that the

comparison of the amended section 34 of the Code of Civil

Procedure, 1908 would show that unless the phrase

‘principal amount’ is used in clause (a) for ‘sum’ and

again ‘principal amount’ is used in clause (b) for ‘sum’,

the word ‘sum’ would be the aggregate of the principal

amount and interest; sixthly, that the entirety of

commercial transactions would be seriously affected if a

judgment debtor were to delay the payment of interest on

the total amount, as the gain to the judgment debtor on

88

Page 9 that element of interest is a loss to the claimant for

which he has no recourse; seventhly, the S.L. Arora case

(supra) was wrongly decided as the judgment is contrary

to the Act, 1996 on the grounds, inter alia, that it

would be a misnomer to state that interest would not be

applicable on substantive claims as the same finds no

mention in the given provision; and lastly, 18% interest

would be applicable proprio vigore unless stopped by the

award itself.

8. Per contra, Shri L. Nageshwara Rao, learned

Senior Counsel and Additional Solicitor General of India

would submit that there was no infirmity whatsoever in

the S.L. Arora case (supra) and that, therefore, the

present reference was not required. Furthermore, the

learned Additional Solicitor General would submit that

the term “sum” as found in sub- section (7) of section 31

of the Act, 1996 should be read as “principal amount” as

held in the S.L. Arora case (supra).

DISCUSSION :

99

Page 10 9. At the outset, it would be necessary to discuss

the correctness of the reference order in light of the

S.L. Arora case (supra). This Court, in the S.L. Arora

case (supra), was required to adjudicate upon two primary

issues namely- firstly, whether sub- section (7) of

section 31 of the Act, 1996 authorised the arbitral

tribunal to award interest on interest from the date of

award; and secondly, whether the arbitral tribunal could

grant future interest from the date of award.

10. In the S.L. Arora case (supra), this Court had

sought to clarify whether the arbitral tribunal’s power

to grant post-award interest extended only on the

principal amount or on the aggregate of the principal

amount and the interest, as determined to be payable from

the date of cause of action to the date of award. On

perusal of sub- section (7) of Section 31 of the Act,

1996, this Court observed:

“18. Section 31(7) makes no reference to payment

of compound interest or payment of interest upon

101

Page 11 interest. Nor does it require the interest which

accrues till the date of the award, to be treated

as part of the principal from the date of award

for calculating the post-award interest. The use

of the words " where and insofar as an arbitral

award is for the payment of money " and use of the

words "the Arbitral Tribunal may include in the

sum for which the award is made, interest ... on

the whole or any part of the money " in Clause (a)

and use of the words " a sum directed to be paid by

an arbitral award shall ... carry interest " in

Clause (b) of Sub-section (7) of Section 31

clearly indicate that the section contemplates

award of only simple interest and not compound

interest or interest upon interest. “ A sum

directed to be paid by an arbitral award ” refers

to the award of sums on the substantive claims and

does not refer to interest awarded on the “ sum

directed to be paid by the award ”. In the absence

of any provision for interest upon interest in the

contract, the arbitral tribunals do not have the

power to award interest upon interest, or compound

interest, either for the pre-award period or for

the post-award period.”

(emphasis in original)

111

Page 12 11. In the S.L. Arora case (supra), this Court

highlighted that there was a tendency among contractors

to elevate the claims for interest and costs to the level

of substantive disputes, by categorizing them under

independent heads of claim. Further, it was noticed that,

since arbitrations usually have a high pendency period

owing to prolonged arbitration proceedings or intervening

as well as post arbitral litigations, the interest

payable on the amount awarded often increases to

substantial amounts, sometimes even exceeding the actual

amount awarded. The Court, in the S.L. Arora case

(supra), then sought to set out the legal position on the

award of interest to understand the authority of the

tribunal as envisioned in sub- section (7) of Section 31

of the Act, 1996.

12. The present reference requires this Court to

reconsider the decision in S.L. Arora case (supra), in

light of previous decisions of this Court in the

McDermott case (supra) and the Three Circles case

121

Page 13 (supra). It may be reiterated that the referral order

dated 13.03.2012 takes note of the contention of the

appellants that the S.L. Arora case (supra) erroneously

held the Three Circles case (supra) and the McDermott

case (supra) to be per incuriam in holding that interest

awarded on the principal amount upto the date of award

becomes the principal amount.

13. Before I consider the correctness of the

aforementioned decisions, it would be necessary to

elaborate upon the concept of “ per incuriam”. The latin

expression per incuriam literally means ‘through

inadvertence’. A decision can be said to be given per

incuriam when the Court of record has acted in ignorance

of any previous decision of its own, or a subordinate

court has acted in ignorance of a decision of the Court

of record. As regards the judgments of this Court

rendered per incuriam, it cannot be said that this Court

has “declared the law” on a given subject matter, if the

relevant law was not duly considered by this Court in its

131

Page 14 decision. In this regard, I refer to the case of State of

U.P. v. Synthetics and Chemicals Ltd. , (1991) 4 SCC 139,

wherein Justice R.M. Sahai, in his concurring opinion

stated as follows:

“40. ‘Incuria’ literally means ‘carelessness’. In

practice per incuriam appears to mean per

ignoratium. English courts have developed this

principle in relaxation of the rule of stare

decisis. The ‘quotable in law’ is avoided and

ignored if it is rendered, ‘ in ignoratium of a

statute or other binding authority’. ...”

14. Therefore, I am of the considered view that a

prior decision of this Court on identical facts and law

binds the Court on the same points of law in a later

case. In exceptional circumstances, where owing to

obvious inadvertence or oversight, a judgment fails to

notice a plain statutory provision or obligatory

authority running counter to the reasoning and result

reached, the principle of per incuriam may apply. The

141

Page 15 said principle was also noticed in the case of Fuerst Day

Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356.

15. I would now analyse the decisions noticed by the

referral order dated 13.03.2012, to determine the

correctness or otherwise of the present reference, and

consequently determine the power of an arbitral tribunal

to award interest under section 31 of the Act, 1996.

16. This Court in the Three Circles case (supra),

placing its reliance on earlier decisions, by its

judgment, allowed the arbitral tribunal to pass an award,

enforcing interest on interest. This Court observed that:

“31. Now the question comes which is related to

awarding of 'interest on interest'. According to

the appellant, they have to pay interest on an

amount which was inclusive of interest and the

principal amount and, therefore, this amounts to

a liability to pay 'interest on interest'. This

question is no longer res integra at the present

point of time. This Court in McDermott

International Inc. v. Burn Standard Co. Ltd and

151

Page 16 Ors.,(2006) 11 SCC 181 has settled this question

in which it had observed as follows (SCC p.207,

para 44):

“44. ...The Arbitrator has awarded the

principal amount and interest thereon

upto the date of award and future

interest thereupon which do not amount

to award on interest on interest as

interest awarded on the principal amount

upto the date of award became the

principal amount which is permissible in

law.”

The High Court on this question has also rightly

relied on a decision of this Court in the case of

Oil and Natural Gas Commission v. M.C. Clelland

Engineers S.A. (1999) 4 SCC 327. That being the

position, we are unable to find any ground to set

aside the judgment of the Division Bench of the

High Court while considering the ground of

'interest on interest'.”

17. It would be crucial to note that the reliance

upon the McDermott case (supra) by this Court in the

Three Circles case (supra) is not in consonance with the

doctrine of precedents. On a perusal of the McDermott

161

Page 17 case (supra), it is observed that the substantive

proposition of that case did not address the issue on the

power of the tribunal to award ‘interest on interest’ or

compound interest. The proposition on ‘interest on

interest’ was made only in one of the submissions of the

respondent therein. The ratio decidendi of that decision

merely laid down the discretion of the arbitrator to

decide the rate of interest awarded under sub- section

(7) of section 31 of the Act, 1996, on a part or whole of

the award money. In this regard, the Court observed as

follows:

“154. The power of the arbitrator to award

interest for pre-award period, interest pendent

lite and interest post-award period is not in

dispute. Section 31(7)(a)provides that the

arbitral tribunal may award 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 award is made,

i.e., pre-award period. This, however, is subject

to the agreement as regard the rate of interest

on unpaid sum between the parties. The question

171

Page 18 as to whether interest would be paid on the whole

or part of the amount or whether it should be

awarded in the pre-award period would depend upon

the facts and circumstances of each case. The

arbitral tribunal in this behalf will have to

exercise its discretion as regards (i) at what

rate interest should be awarded; (ii) whether

interest should be awarded on whole or part of

the award money; and (iii) whether interest

should be awarded for whole or any part of the

pre-award period.

155. The 1996 Act provides for award of 18%

interest. The arbitrator in his wisdom has

granted 10% interest both for the principal

amount as also for the interim. By reason of the

award, interest was awarded on the principal

amount. An interest thereon was upto the date of

award as also the future interest at the rate of

18% per annum.

156. However, in some cases, this Court has

resorted to exercise its jurisdiction under

Article 142 in order to do complete justice

between the parties.”

181

Page 19 18. From the above-quoted paragraphs of the McDermott

case (supra), it is abundantly clear that the decision

neither makes any reference to awarding of compound

interest nor does it allow post-award interest to be

imposed on the aggregate of the principal claim and

interest pendente lite. This Court had merely sought to

clarify the position with respect to the rate of interest

awarded and further the power of this Court to invoke

Article 142 of the Constitution of India, 1950 to alter

the said rate of interest in order to do complete

justice. Thus, it is evident from paragraphs 154 to 156

of the McDermott case (supra), that the proposition

surrounding arbitral tribunal’s authority to award of

‘interest on interest’ was not deliberated upon but

merely argued by the respondents therein. However, this

argument was erroneously relied upon in the Three Circles

case (supra) to decide upon the issue related to awarding

of ‘interest on interest’ or compound interest.

191

Page 20 19. This Court, therefore, in the S.L. Arora case

(supra) has disagreed with the reasoning laid down in the

McDermott case (supra) as well as the Three Circles case

(supra). This Court, on perusal of the relevant

paragraphs in the aforesaid decisions, held that the

observations therein must be treated as per incuriam on

the issue around awarding of ‘interest on interest’ or

compound interest. It was observed that:

“28. ...But a careful reading of the decision in

Mcdermott, shows that the portion of Mcdermott

extracted in Three Circles, assuming it to be the

law laid down in Mcdermott, is not a finding or

conclusion of this Court, nor the ratio decidendi

of the case, but is only a reference to the

contention of the respondent in Mcdermott.

29. Paras 1 to 27 (of the SCC report) in

Mcdermott state the factual background. Paras 28

and 29 contain the submissions of the learned

Counsel for BSCL, the respondent therein. Paras

30 to 44 contain the submissions made by the

learned Counsel for Mcdermott, the appellant

therein, in reply to the submissions made on

behalf of BSCL. The passage that is extracted in

202

Page 21 Three Circles is part of para 44 of the decision

which contains the last submission of the learned

Counsel for Mcdermott on the question of

interest. The reasoning in the decision starts

from para 45. This Court considered the several

questions seriatum in paras 45 to 160. The

question relating to interest was considered in

paras 154 to 159 relevant portions of which we

have extracted above. Therefore, the observation

in Three Circles that Mcdermott held that

interest awarded on the principal amount upto the

date of award becomes the principal amount and

therefore award of future interest therein does

not amount to award of interest on interest, is

per incuriam due to an inadvertent erroneous

assumption.”

20. I am in agreement with the aforesaid view in the

S.L. Arora case (supra). The decision in the McDermott

case (supra) would not be applicable, since it does not

pertain to the issue of granting compound interest on the

post-award claim. This Court, in the McDermott case

(supra), did not consider the issue pertaining to award

of ‘interest upon interest’ or compound interest. It

212

Page 22 merely held that the interest must be awarded on the

principal amount upto the date of award. Thus, the

McDermott case (supra) would be wholly inapplicable to

the issue for consideration by this Bench.

21. Further, the decision of Three circles case

(supra) did not place reliance on the ratio decidendi of

the McDermott case (supra) but merely re-stated the

contention raised by the respondent therein to decide

upon the issue of ‘interest on interest’ or compound

interest. Therefore, in my considered view, the Three

Cirlces case (supra) would be deemed as per incuriam in

regard to the concept of awarding ‘interest on interest’

or compound interest, due to such an inadvertent

erroneous reliance upon the McDermott case (supra).

22. At this stage, it would be necessary to take into

consideration, the decisions of this Court in the ONGC

case (supra) as well as the Central Bank of India case

(supra). It was argued, as per the referral order, that

these decisions would support the proposition that

222

Page 23 arbitral tribunals have the authority to award ‘interest

on interest’ from the date of the award.

23. On perusal of the ONGC case (supra), I find that

this Court has recognised and accepted the power of

arbitral tribunals to award interest upon interest. This

Court has considered such an award as a requisite

compensatory measure for delayed payment and included

such interest along with the principal amount in the

‘sum’ so awarded. This Court observed as follows:

“4. There cannot be any doubt that the

Arbitrators have powers to grant interest akin to

Section 34 of the CPC which is the power of the

court in view of Section 29 of the Arbitration

Act, 1940. It is clear that interest is not

granted upon interest awarded but upon the claim

made. The claim made in the proceedings is under

two heads - one is the balance of amount claimed

under invoices and letter dated February 10, 1981

and the amount certified and paid by the

appellant and the second is the interest on

delayed payment. That is how the claim for

interest on delayed payment stood crystallized by

232

Page 24 the time the claim was filed before the

Arbitrators. Therefore, the power of the

Arbitrators to grant interest on the amount of

interest which may, in other words, be termed as

interest on damages or compensation for delayed

payment which would also become part of the

principal. If that is the correct position in

law, we do not think that Section 3 of the

Interest Act has any relevance in the context of

the matter which we are dealing with in the

present case. Therefore, the first contention

raised by Shri Datta, though interesting,

deserves to be and is rejected.”

24. However, it would be pertinent to note that the

ONGC case (supra) as well as the Three Circles case

(supra), both pertained to the awards under the

Arbitration Act, 1940 (for short “the Act, 1940”). The

Act, 1940 did not contain any specific provision dealing

with the arbitrator’s power to grant interest. Further,

it is a settled position that the decisions of this Court

regarding award of interest made under the Act, 1940 are

not applicable to arbitration held under the Act, 1996.

In this regard, I place reliance on the decision of this

242

Page 25 Court in Sayeed Ahmed & Co. v. State of U.P. & Ors. ,

(2009) 12 SCC 26, wherein it was observed that:

“14. The decisions of this Court with reference

to the awards under the old Arbitration Act

making a distinction between the pre-reference

period and pendente lite period and the

observation therein that arbitrator has the

discretion to award interest during pendente lite

period inspite of any bar against interest

contained in the contract between the parties are

not applicable to arbitrations governed by the

Arbitration and Conciliation Act 1996.”

25. Pursuant to the enactment of sub- section (7) of

section 31 of the Act, 1996, the difference between pre-

reference period and pendente lite period has been

removed insofar as it relates to the award of interest by

arbitrator, unlike the position as under the Act, 1940.

It would not be appropriate for this Court, in matters

pertaining to the Act, 1996, to rely upon decisions which

interpreted the arbitrator’s power to award interest

under the Act, 1940. This position was further reiterated

252

Page 26 in Sree Kamatchi Amman Constructions v. The Divisional

Railway Manager (Works), Palghat and Ors. , (2010) 8 SCC

767.

26. Furthermore, I take note of the fact that the

aforementioned principle was applied by this Court in the

S.L. Arora case (supra). It was explicitly stated that

since the ONGC case (supra) and Three Circles case

(supra) related to awards under the Arbitration Act,

1940, they can be of no assistance in interpreting sub-

section (7) of section 31 of the Act, 1996. I concur with

the above reasoning to show the inapplicability of the

ONGC case (supra) and the Three Circles case (supra) to

the present case.

27. The last case relied upon by the appellants

herein is the Central Bank of India case (supra). This

Court in the Central Bank of India case (supra), under

Section 34 of the Code of Civil Procedure, 1908 (for

short, “the Code”), sought to determine whether the

liability of the borrower to pay interest on the

262

Page 27 principal sum, would include interest that became merged

with the principal sum adjudged. This aforesaid decision

discussed the scope for charging compound interest under

Section 34 of the Code. The Court sought to determine the

meaning attached to phrases ‘principal sum adjudged’ and

‘such principal sum’, pursuant to the 1956 amendment to

the Code. Further, the Court sought to determine whether

such ‘principal sum’ would include liability to pay

compound interest thereon. However, the issue with

respect to award of interest upon interest under sub-

section (7) of Section 31 of the Act, 1996 was not the

subject matter in the aforesaid decision.

28. In my considered view, the Central Bank of India

case (supra) cannot be relied upon by the appellants

herein in support of their contention that the arbitral

tribunal possessed the power to award interest on

interest. The Central Bank of India case (supra) dealt

with section 34 of the Code, and therefore may not be

said to be wholly applicable to cases under the Act,

272

Page 28 1996. However, even if the principle in the said case is

held to be applicable to the Act, 1996, it would only

support the view endorsed by the S.L. Arora case (supra).

29. Lastly, it would be necessary to highlight the

views of the 246

th

Report of the Law Commission of India,

which suggested amendments to the Act, 1996. On the

question of ‘Interest on Sums Awarded’ at page 33 of the

said Report, the Commission was of the opinion that the

words used in sub- section (7) of Section 31 of the Act,

1996 are of wider import and the scheme of the relevant

provisions indicated that the award of interest on

interest is not only permitted but is also the norm. The

Commission was of the view that the decision in the S.L.

Arora case (supra) required reconsideration on the issue

of awarding future interest on both, the principal sum as

well as the interest accrued till date of the award. In

light of the preceding discussion, I do not agree with

the said view taken by the Commission. It is my

considered opinion that the decision in S.L. Arora case

282

Page 29 (supra) is sound and wholly conclusive on the

interpretation of sub- section (7) of Section 31 of the

Act, 1996 on the issue of awarding ‘interest on

interest’. The Law Commission had erred in relying upon

the ONGC case (supra) as well as the Three Circles case

(supra), since these decisions are not applicable to the

present arbitration held under the Act, 1996.

30. Thus, I am of the considered opinion that, since

the position on the interpretation of sub- section (7) of

Section 31 of the Act, 1996 regarding award of interest

upon interest has been correctly decided in the S.L.

Arora case (supra), the present reference may not be

required. The decision of this Court in the Three Circles

case (supra) was rightly held to be passed on inadvertent

erroneous assumption, as stated in the S.L. Arora case

(supra). The McDermott case (supra) did not deal with the

question pertaining to awarding of ‘interest on interest’

or compound interest. Furthermore, the decision in the

ONGC case (supra) pertained to the Act, 1940, and,

292

Page 30 therefore, in light of the settled principle of law,

would not be applicable to cases under the Act, 1996.

Lastly, the decision in the Central Bank of India case

(supra) did not deal with the issue around interpretation

of sub- section (7) of Section 31 of the Act, 1996, nor

did the principle laid down therein hold contrary to the

decision in S.L. Arora case (supra).

31. However, out of sheer deference to the learned

two-Judge Bench of this Court, I would clarify the

apparent controversy around sub- section (7) of section

31 of the Act, 1996. The said provision reads as follows:

“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

303

Page 31 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 eighteen per

centum per annum from the date of the award to

the date of payment.”

32. On a bare perusal of the said section, I find

that in the first instance, it applies only to an

arbitral award which is for the payment of money. The

power to award interest by the arbitral tribunal has been

divided into two stages- firstly, from the date of cause

of action to the date on which the arbitral award is

made, and secondly, from the date of award to the date of

payment. The said classification was also noticed by this

Court in the Sayeed Ahmed case (supra). I will deal with

these stages separately as has been provided under the

said provision itself.

33. Under clause (a) of sub- section (7) of section

31 of the Act, 1996, I find that it relates to the power

313

Page 32 of the arbitrator to impose interest in the first stage

as mentioned hereinabove, that is, from the date of cause

of action to the date of arbitral award. The said clause

begins with “Unless otherwise agreed by the parties” ,

thereby at the onset of the sub-section itself, the

legislature has provided for a restriction on the

application of the said sub- section. In the event there

is an agreement between the parties to the arbitration,

regarding the payment of interest from the date on which

the cause of action arose till the date on which the

award was made, the terms of the said agreement would

prevail over clause (a) of sub- section (7) of section 31

of the Act, 1996. This Court, in the Sree Kamatchi Amman

Constructions case (supra), observed as follows:

“19. Section 37(1)(sic) of the new Act by using

the words “unless otherwise agreed by the

parties” categorically clarifies that the

arbitrator is bound by the terms of the contract

insofar as the award of interest from the date

of cause of action to the date of award.

Therefore, where the parties had agreed that no

interest shall be payable, the Arbitral Tribunal

323

Page 33 cannot award interest between the date when the

cause of action arose to the date of award.”

34. In the context of the Act, 1996, the phrase

“unless otherwise agreed by the parties ” was explained in

the case of N.S. Nayak & Sons v. State of Goa, (2003) 6

SCC 56. This Court observed that:

“14. ...The phrase “unless otherwise agreed by

the parties” used in various sections, namely,

17, 21, 23(3), 24(1), 25, 26, 29, 31, 85(2)(a)

etc. indicates that it is open to the parties to

agree otherwise. During the arbitral

proceedings, right is given to the parties to

decide their own procedure. So if there is an

agreement between the parties with regard to the

procedure to be followed by the arbitrator, the

arbitrator is required to follow the said

procedure. Reason being, the arbitrator is

appointed on the basis of the contract between

the parties and is required to act as per the

contract. However, this would not mean that in

appeal parties can contend that the appellate

procedure should be as per their agreement. ...”

333

Page 34 35. In the event that the terms of the given

contract, as applicable to the parties to the arbitration

proceedings, are silent on the question of interest

payable in the first stage, as given under clause (a) of

sub- section (7) of section 31 of the Act, 1996, only

then would the provisions of the said clause apply. The

said clause thereafter gives the arbitral tribunal the

discretion to include the interest in the sum for which

the award was made. The principles for levying such

interest are found in the said clause itself. They are as

follows:

(1) Interest to be imposed at such rate as the arbitral

tribunal deems reasonable;

(2) The interest may be either on the whole or any part

of the money; and

(3) The interest may be 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.

343

Page 35 36. I take note that the arbitral tribunal has been

given the discretionary power of not only imposing

interest, but also for determining the rate of interest

that could be imposed from the date of cause of action to

the date of the award. The arbitral tribunal has the

discretion to decide whether such interest would be

imposed on the whole or a part of the money awarded, and

further whether it would be imposed for the entire

duration from the date of cause of action to the date of

award, or on a part of it. However, such discretion is

not unfettered and is not exercisable upon the mere whims

and fancies of the tribunal. In Principles of Statutory

Interpretation, Justice G.P. Singh, Thirteenth Edition,

2012, at p.482, it has been stated as follows:

“Even where there is not much indication in the

Act of the ground upon which discretion is to be

exercised it does not mean that its exercise is

dependent upon mere fancy of the Court or

Tribunal or Authority concerned. It must be

exercised in the words of Lord Halsbury,

‘according to the rules of reason and justice,

not according to private opinion; according to

353

Page 36 law and not humour; it is to be not arbitrary,

vague and fanciful, but legal and regular’.”

37. It can be concluded that the discretion, whether

to award interest by the arbitral tribunal under clause

(a), is necessarily to be exercised as per the facts and

circumstances of each case. The said discretion must be

within the parameters of the statute and in accordance

with the rule of law. Furthermore, the said clause states

that the rate of interest, if such interest is awarded by

the arbitral tribunal, must be as the said tribunal deems

reasonable. It is settled law that discretion must always

be exercised lawfully.

38. At this stage, it would be relevant to consider

the meaning of the words “sum” and “interest” as used in

clause (a) of sub- section (7) of section 31 of the Act,

1996. It is settled principle of interpretation of

statutes that while interpreting the words of a statute,

the context in which they appear would be necessary to be

taken into consideration. In support of the said

363

Page 37 principle of contextual interpretation, I refer to a

Constitution Bench decision of this Court in Darshan

Singh Balwant Singh v. State of Punjab, 1953 SCR 319,

wherein it was observed as follows:

“10. ...It is a cardinal rule of interpretation

that the language used by the legislature is the

true depository of the legislative intent, and

that words and phrases occurring in a statute

are to be taken not in an isolated or detached

manner dissociated from the context, but are to

be read together and construed in the light of

the purpose and object of the Act itself.”

39. In the absence of a definition in the Act, 1996,

I would notice that the word “sum”, would simply refer to

money in common parlance. Further, the dictionary meaning

of the word may be taken into consideration. Webster’s

Third New International Dictionary, Volume III defines

“sum” to mean, inter alia, the following:

“Sum: An indefinite or specified amount of

money.”

373

Page 38 Black’s Law Dictionary, Seventh Edition, 1999 , defines

“sum” as:

“sum. 1. A quantity of money.”

P. Ramanatha Aiyar’s Advanced Law Lexicon, Third Edition,

2005, Book 4 , defines “sum”, inter alia, as the

following:

“Sum. When used with reference to values, ‘sum’

imports a sum of money.”

Corpus Juris Secundum, Volume LXXXIII , defines the word

“sum” as follows:

“Sum. While the word ‘sum’ must be construed in

connection with the context, it has a definite

meaning appropriate to use with reference to

dollars and cents, and, except where a different

meaning plainly appears, it is restricted in its

application to money, and in sense it is

lexically defined as meaning money, and this is

said to be the sense in which the word is most

commonly used.”

40. Therefore, I find that the word “sum”, in its

natural meaning and as per its most common usage, would

383

Page 39 mean money. The term “money” has also been used in sub-

section (7) of section 31 of the Act, 1996. Therefore, I

would not hesitate in finding that the terms “sum” and

“money” have been used by the legislature, in the given

provision, interchangeably. In this light, it would be

pertinent to take note of the given clause once again.

The said clause states that interest may be awarded on

the “sum” for which the arbitral award is made, or the

same could be read as- interest may be awarded on the

“money” for which the arbitral award is made. This

“money” for which the award is made, necessarily would

refer to the money as adjudicated by the arbitral

tribunal, based on the claims of the parties, to be paid

under the award. In other words, it would simply refer to

the principal amount so awarded.

41. It would be necessary to understand the meaning

of “interest” as used under the said clause as well.

Again, in the absence of a definition under the Act,

393

Page 40 1996, I would rely upon its meaning in common parlance.

For this, support of dictionaries can be taken.

42. Wharton’s Law Lexicon, Fourteenth Edition ,

defines “interest” as follows:

“Interest. 1. Money paid at a fixed rate per

cent for the loan or use of some other sum,

called the principal.”

Black’s Law Dictionary, Seventh Edition, 1999 , defines

“interest” as:

“interest. 1. Advantage or profit, esp. of a

financial nature.”

Webster’s Third New International Dictionary, Volume

III defines “interest” to mean, inter alia, the

following:

“interest. The price paid for borrowing money

generally expressed as a percentage of the

amount borrowed paid in one year.”

Corpus Juris Secundum, Volume XLVII , explains the word

“interest” as follows:

404

Page 41 “Interest is the compensation allowed by law, or

fixed by the parties, for the use or forbearance

of money, or as damages for its detention.”

Stroud’s Judicial Dictionary, Seventh Edition, 2008,

Volume 2, p. 1385 , defines the term “interest” as

follows:

“Interest is compensation paid by the borrower

to the lender for deprivation of the use of his

money.”

43. Therefore, in light of the above, “interest”

would be the return or compensation for the use or

retention by one person of a sum of money belonging to or

owed to another. It may be understood to mean the amount

which one has contracted to pay for the use of borrowed

money. It is a consideration paid either for the use of

money or for forbearance in demanding it, after it has

fallen due, and thus, it could be said to be a charge for

the use or forbearance of a particular amount of money.

In this sense, it is a compensation allowed in law for

use of money belonging to another or for the delay in

414

Page 42 paying the said money after it has become payable. This

principle has also been noticed in the Central Bank case

(supra).

44. It may be pertinent to take note of the approach

of English Courts to interpret the term “interest”. In

Westminster Bank Ltd v. Riches , [1947] A.C. 390, the

House of Lords elaborated upon the term “interest” for

payment of moneys. Lord Wright observed that:

“The essence of interest is that it is a payment

which becomes due because the creditor has not

had his money at the due date. It may be regarded

either as representing the profit he might have

made if he had had the use of the money, or

conversely the loss he suffered because he had

not that use. The general idea is that he is

entitled to compensation for the deprivation.

From that point of view it would seem immaterial

whether the money was due to him under a contract

express or implied or a statute or whether the

money was due for any other reason in law.”

424

Page 43 45. In the case of Nicholas Pike v. The Commissioners

for Her Majesty's Revenue and Customs , [2013] UKUT 0225

(TCC), the House of Lords observed as follows:

“15. First, interest is calculated by reference

to an underlying debt. As Megarry J put it in

Euro Hotel (supra) at p 1084 b-f:—

“It seems to me that running through the

cases there is the concept that as a

general rule two requirements must be

satisfied for payment to amount to

interest, and a fortiori to amount to

“interest of money”. First, there must

be a sum of money by reference to which

the payment which is said to be interest

is to be ascertained. … Second, those

sums of money must be sums that are due

to the person entitled to the alleged

interest … I do not, of course, say that

in every case these two requirements are

exhaustive, or that they are

inescapable. Thus I do not see why

payments should not be “interest of

money” if A lends money to B and

stipulates that the interest should be

434

Page 44 paid not to him but to X: yet for the

ordinary case I think they suffice”.

...

20. Sixth, the mere fact that the payment by way

of interest may be aggregated with a payment of a

different nature does not “denature” the payment

that is interest. This point was made in Chevron

Petroleum UK Ltd v. BP Petroleum Development Ltd

[1981] STC 689 at p 694 g-j where Megarry VC is

reported as saying:—

“If in its nature a sum is “interest of

money” I think it retains that nature

even if the parties to a contract

provide for it to be wrapped up with

some other sum and the whole paid in the

form of single indivisible sum. The

wrappings may conceal the nature of the

contents, but they do not alter them ...

If the true nature of a sum of money is

that it is “interest of money” that sum

will not be denatured, or transmuted

into something different, simply by

being incorporated into some larger sum

444

Page 45 before being made payable under the

terms of the contract”.

...”

46. It may be inferred from the aforesaid decisions,

that for an amount to be referred as “interest”, it must,

prima facie, fulfill two conditions-

(1) There must be a sum of money by reference to which

the payment of interest may be ascertained.

(2) The sum of money must, generally, be due to the

person entitled to the interest.

Furthermore, it would be gainsaid in stating that the

mere fact that a payment of interest may be aggregated

with a payment of a different nature, the said

aggregation would not alter the distinct nature of

interest from the money on which it is levied.

47. Further, this Court in the case of Bhai Jaspal

Singh v. CCT, (2011) 1 SCC 39, observed that:

454

Page 46 “36. Interest is compensatory in character and is

imposed on an assessee who has withheld payment

of any tax as and when it is due and payable. The

interest is levied on the actual amount of tax

withheld and the extent of delay in paying the

tax on the due date. Essentially, it is

compensatory and different from penalty which is

penal in character [see Pratibha Processors v.

Union of India, (1996) 11 SCC 101].”

48. Therefore, it may be concluded that the term

“interest”, appears to be distinct from the principal

amount on which it is imposed. Furthermore, the

imposition of an interest is stated to be for the purpose

of providing compensation for withholding the said

principal amount or, as in the case of clause (a) of sub-

section (7) of Section 31 of the Act, 1996, for

withholding the money awarded as per the claim, as

determined by the arbitral tribunal, from the date the

cause of action arose till the date when such award was

made. In other words, interest is imposed to compensate

for the denial to one party, by the other party, of the

money which rightfully belongs to the said former party

464

Page 47 under the relevant agreement governing the arbitration

proceedings.

49. Having clarified sub-section (a) of sub- section

(7) of section 31 of the Act, 1996, I would now consider

clause (b) of the said provision. As noticed above,

clause (b) is applicable for the period from the date of

award to the date of payment. The applicability of clause

(b) has also been qualified by the legislature. The said

clause uses the phrase “ unless the award otherwise

directs”, which would mean that in the event the arbitral

tribunal, in its award, makes a provision for interest to

be imposed in this second stage as envisaged by sub-

section (7) of section 31 of the Act, 1996, clause (b)

would become inapplicable. By the said award, the

arbitral tribunal has the power to impose an interest for

the post-award period which may be higher or lower than

the rate as prescribed under clause (b). Even if the

award states that no interest shall be imposed in the

post-award period, clause (b) cannot be invoked.

474

Page 48 50. If the arbitral award is silent on the question

of whether there would be any post- award interest, only

in that situation could clause (b) be made applicable. In

the said situation, it would be mandatory as per law that

the award would carry interest at the rate of 18% per

annum from the date of the award to the date of payment.

The term used in the given clause is “shall”, therefore,

if applicable, the imposition of interest as per clause

(b) would be mandatory.

51. It would be relevant also to take note of the

case of H.P. Housing & Urban Development Authority v.

Ranjit Singh Rana, (2012) 4 SCC 505. In the Ranjit Singh

Rana case (supra), this Court dealt with the meaning of

the word “payment” as under clause (b) of sub- section

(7) of section 31 of the Act, 1996 to ascertain when the

liability to pay post-award interest would come to an

end. After making a reference to the S.L. Arora case

(supra), this Court went into the dictionary meaning of

the word “payment”. The Court explained as follows:

484

Page 49 “15. The word “payment” may have different

meaning in different context but in the context

of Section 37(1)( b); it means extinguishment of

the liability arising under the award. It

signifies satisfaction of the award. The deposit

of the award amount into the court is nothing

but a payment to the credit of the decree-

holder. In this view, once the award amount was

deposited by the appellants before the High

Court on 24-5-2001, the liability of post-award

interest from 24-5-2001 ceased. The High Court,

thus, was not right in directing the appellants

to pay the interest @ 18% p.a. beyond 24-5-

2001.”

52. Clause (b) of sub- section (7) of section 31 of

the Act, 1996 further states that the interest as

envisaged under the said provision would be on the sum

directed to be paid by an arbitral award. As noticed in

the discussion hereinabove, the term “sum”, as in clause

(a), refers simply to the money directed to be paid as

per the award, that is, the money as adjudicated by the

arbitral tribunal.

494

Page 50 53. It is a settled principle of law that if the same

word is used more than once in the same provision of a

statute, the intention of the legislature must be to give

the same meaning to the word at each place where it is

repeated. There would be a presumption that the said word

is used in the same sense throughout the given provision.

According to Bennion on Statutory Interpretation, Fifth

Edition, 2008, p. 1160:

“Same words to be given same meaning . It is

presumed that a word or phrase is not to be

taken as having different meanings within the

same instrument, unless this fact is made clear.

Where therefore the context makes it clear that

the term has a particular meaning in one place,

it will be taken to have that meaning

elsewhere.”

54. In support of this principle, I refer to the

Central Bank case (supra), wherein a Constitution Bench

of this Court observed as follows:

“42. ... Ordinarily, a word or expression used

at several places in one enactment should be

505

Page 51 assigned the same meaning so as to avoid “a

head-on clash” between two meanings assigned to

the same word or expression occurring at two

places in the same enactment. It should not be

lightly assumed that “Parliament had given with

one hand what it took away with the other” (see

Principles of Statutory Interpretation , Justice

G.P. Singh, 7th Edn. 1999, p. 113). That

construction is to be rejected which will

introduce uncertainty, friction or confusion

into the working of the system ( ibid, p. 119).

While embarking upon interpretation of words and

expressions used in a statute it is possible to

find a situation when the same word or

expression may have somewhat different meaning

at different places depending on the subject or

context. This is however an exception which can

be resorted to only in the event of repugnancy

in the subject or context being spelled out. It

has been the consistent view of the Supreme

Court that when the legislature used same word

or expression in different parts of the same

section or statute, there is a presumption that

the word is used in the same sense throughout

(ibid, p. 263). More correct statement of the

rule is, as held by the House of Lords in

Farrell v. Alexander All ER at p. 736 b, “where

515

Page 52 the draftsman uses the same word or phrase in

similar contexts, he must be presumed to intend

it in each place to bear the same meaning”. The

court having accepted invitation to embark upon

interpretative expedition shall identify on its

radar the contextual use of the word or

expression and then determine its direction

avoiding collision with icebergs of

inconsistency and repugnancy.”

55. It can be concluded that it is a sound rule of

construction whereby the same word appearing in the same

section of the same statute must be given the same

meaning, unless there is anything to indicate the

contrary. The only exception to this rule of

construction, whereby the said principle may be rebutted,

is by making reference to the context in which the words

are used. The word may be understood in a different

sense, if the context so requires that to be done. The

context herein, that is, under clause (a) and under

clause (b) of sub- section (7) of section 31 of the Act,

1996, does not appear to be divergent from one another.

525

Page 53 The word “sum” has been used in both clauses in the

context of what is to be paid as per the arbitral award.

56. Before I conclude, it would be profitable to take

note of the Central Bank of India case (supra) with

regard to the limited issue of imposition of compound

interest. While describing the role of the legislature to

relieve burdened debtors from being charged with

oppressive compound interest rates, this Court in the

Central Bank of India case (supra), stated that the

practice of imposing such interest was permissible, legal

and judicially correct, if it was a consequence of a

voluntary agreement between the parties, except when the

same was superseded by legislation. Furthermore, this

Court observed that the interest would be included as

part of the principal amount only once it is capitalised.

This Court, in the Central Bank of India case (supra),

observed as follows:

“36. ...There is nothing wrong in the parties

voluntarily entering into transaction, evidenced

by deeds incorporating covenant or stipulation

535

Page 54 for payment of compound interest at reasonable

rates, and authorising the creditor to capitalise

the interest on remaining unpaid so as to enable

interest being charged at the agreed rate on the

interest component of the capitalised sum for the

succeeding period. Interest once capitalised,

sheds its colour of being interest and becomes a

part of principal so as to bind the

debtor/borrower.”

57. To support the above principle, whereby it is

stated that compound interest is permissible only as a

consequence of an explicit statutory provision, I take

note of the case of Union of India v. Tata Chemicals

Ltd., (2014) 6 SCC 335 wherein this Court observed as

follows:

“38. Providing for payment of interest in case of

refund of amounts paid as tax or deemed tax or

advance tax is a method now statutorily adopted

by fiscal legislation to ensure that the

aforesaid amount of tax which has been duly paid

in prescribed time and provisions in that behalf

form part of the recovery machinery provided in a

taxing statute. Refund due and payable to the

545

Page 55 assessee is debt-owed and payable by the Revenue.

The Government, there-being no express statutory

provision for payment of interest on the refund

of excess amount/tax collected by the Revenue,

cannot shrug off its apparent obligation to

reimburse the deductors lawful monies with the

accrued interest for the period of undue

retention of such monies. ...”

58. I may also take note of the decision in Parkside

Leasing Ltd v. Smith (Inspector of Taxes) [1985] 1 WLR

310, wherein the Chancery Division, while discussing the

difference between the receipt of proceeds by cash or by

cheque, was of the view that it would be the actual

“receipt” of the proceeds, in either case, that places

such proceeds at the disposal of the payee. The said

decision relied upon D&C Builders Ltd. v. Rees [1966] 2

Q.B. 617, wherein Lord Denning observed that:

“...The cheque, when given, is conditional payment. When

honoured, it is actual payment. ... ”

555

Page 56 In other words, the Parkside Leasing Ltd. case (supra)

was of the view that money would be “paid” only when the

recipient would have the option to utilise the said money

and exercise willful discretion.

59. For the purposes of the Act, 1996, interest could

be included within the principal amount only when the

said aggregate amount is paid to the party in whose

favour the arbitral award was passed. In other words,

once the interest amount is within the physical and

actual possession of the party so entitled to it, only

then could the interest amount be said to have merged

with the principal amount. Therefore, in the present

scenario, the appellants would not be entitled to claim

post-award interest on the aggregate of the principal

amount and interest pendente lite , since the said

aggregate sum was not in the actual physical possession

of the appellants herein. Further, I take note that sub-

section (7) of section 31 of the Act, 1996, neither makes

565

Page 57 reference to compounding of interest, nor to awarding

interest on interest.

60. Therefore, in my considered view, the term “sum”

as used in clause (b) of sub- section (7) of section 31

of the Act, 1996 would have the same meaning as assigned

to the word under clause (a) of the same provision. It

would refer to the money as adjudicated by the arbitral

tribunal based on the claim of the parties to the

arbitral proceedings. It has already been noticed that

this money would be distinct from the interest as may

have been awarded by the arbitral tribunal under clause

(a) of sub- section (7) of section 31 of the Act, 1996.

Therefore, the interest under clause (b) would be imposed

on money awarded by the arbitral tribunal on the basis of

the claims of the parties, and the said money cannot

merge within it any interest as imposed in the period

from the date of cause of action to the date of the

award.

575

Page 58 61. In light of the above discussion, the reference

is answered in the following terms-

I find no infirmity with the S.L. Arora case (supra),

whereby it was held that if the arbitral award is silent

about interest from the date of award till the date of

payment, the person in whose favour the award is made

will be entitled to interest at 18% per annum on the

principal amount awarded, from the date of award till the

date of payment.

62. In view of the above, while answering the

referral order, Civil Appeal No. 3148 of 2012, along with

all connected matters, is remanded back to an appropriate

two-Judge Bench of this Court for adjudication.

..............CJI.

[H.L. DATTU]

NEW DELHI,

NOVEMBER 25, 2014.

585

Page 59 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 3148 OF 2012

M/S. HYDER CONSULTING (UK) LTD. …. APPELLANT

VERSUS

GOVERNOR STATE OF ORISSA TH. CHIEF ENG. .. RESPONDENT

WITH

SLP (C) No. 19895/2008

SLP (C) No. 20282/2008

CIVIL APPEAL No. 3149 OF 2012

CIVIL APPEAL No. 3147 OF 2012

SLP (C) No. 18614/2012

CIVIL APPEAL No. 1390 OF 2013

SLP (C) No. 21896/2010

JUDGMENT

S. A. BOBDE, J.

1. I have had the advantage of reading the Judgment of

my Lord, the Chief Justice. I entirely agree that the findings

59

Page 60 of this Court in State of Haryana and Others v. S.L. Arora

and Company, (2010) 3 SCC 690 that Uttar Pradesh

Cooperative Federation Limited v. Three Circles, (2009) 10

SCC 374 was incorrectly founded upon the decision in

McDermott International INC v. Burn Standard Co. Ltd.,

(2006) 11 SCC 181 and that such reliance was not in

consonance with the doctrine of precedent. The McDermott

case is not an authority on the question whether the

Arbitrator may award compound interest nor does that

decision sanction post-award interest be imposed on the

aggregate sum and interest pendent lite. The Arbitral

Tribunal’s authority to award “interest on interest” was not

discussed therein. This Court, therefore, while deciding

State of Haryana and Others v. S.L. Arora and Company,

(2010) 3 SCC 690, rightly refused to treat the McDermott

case as well as the Three Circles case as authorities for

awarding “interest on interest” and held that both were

wrongly decided. Further, the decisions in ONGC v. M.C.

Clelland Engineers S.A., (1999) 4 SCC 327 as well as the

Three Circles case pertain to an Award under the Arbitration

Act, 1940, which did not contain a specific provision dealing

60

Page 61 with the arbitrator’s power to grant interest. Likewise, the

Central Bank of India v. Ravindra and Others, (2002) 1 SCC

367 case arose under Section 34 of the Code of Civil

Procedure, 1908 (hereinafter referred to as “the CPC”), and

cannot be treated as an authority for award of interest

under clause (7) of Section 31 of the Arbitration Act, 1996

(hereinafter referred to as “the Act”).

2. It is not possible to agree with the conclusion in S.L.

Arora’s case that Section 31(7) of the Act does not require

that interest, which accrues till the date of the Award, be

included in the “sum” from the date of Award for calculating

the post-award interest. In my humble view, this conclusion

does not seem to be in consonance with the clear language

of Section 31(7) of the Act.

3. Sub-section (7) of Section 31 of the Act, which deals

with the power of the Arbitral Tribunal to award interest,

reads as follows:

“Sub-section (7)

(a) Unless otherwise agreed by the parties, where and

in so far as an arbitral award is for the payment

61

Page 62 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 eighteen per centum per annum

from the date of the award to the date of payment.”

4. Clause (a) of sub-section (7) provides that where an

Award is made for the payment of money, the Arbitral

Tribunal may include interest in the sum for which the

Award is made. In plain terms, this provision confers a

power upon the Arbitral Tribunal while making an Award for

payment of money, to include interest in the sum for which

the Award is made on either the whole or any part of the

money and for the whole or any part of the period for the

entire pre-award period between the date on which the

cause of action arose and the date on which the Award is

made. To put it differently, sub-section (7)(a) contemplates

that an Award, inclusive of interest for the pre-award period

62

Page 63 on the entire amount directed to be paid or part thereof,

may be passed. The “ sum” awarded may be principal

amount and such interest as the Arbitral Tribunal deems fit.

If no interest is awarded, the “sum” comprises only the

principal. The significant words occurring in clause (a) of

sub-section (7) of Section 31 of the Act are “the sum for

which the award is made. ” On a plain reading, this

expression refers to the total amount or sum for the

payment for which the Award is made. Parliament has not

added a qualification like “principal” to the word “sum,” and

therefore, the word “sum” here simply means “a particular

amount of money.” In Section 31 (7), this particular amount

of money may include interest from the date of cause of

action to the date of the award.

5. The Oxford Dictionary gives the following meaning to

the word “sum”:

Sum, ‘if noun’:- A particular amount of money.

Sum, ‘if verb’:- The total amount resulting from the

addition of two or more numbers, amounts, or items.

63

Page 64 6. In Black’s Law Dictionary, the word “sum” is given the

following meaning:-

“SUM. In English law- A summary or abstract; a

compendium; a collection. Several of the old law

treatises are called “sum.” Lord Hale applies the term

to summaries of statute law. Burrill. The sense in

which the term is most commonly used is “money”; a

quantity of money or currency; any amount

indefinitely, a sum of money, a small sum, or a large

sum. U.S. v. Van Auken, 96 U.S. 368, 24 L.Ed. 852;

Donovan v. Jenkins, 52 Mont. 124, 155 P. 972, 973.”

7. Thus, when used as a noun, as it seems to have been

used in this provision, the word “sum” simply means “an

amount of money”; whatever it may include - “principal”

and “interest” or one of the two. Once the meaning of the

word “sum” is clear, the same meaning must be ascribed to

the word in clause (b) of sub-section (7) of Section 31 of the

Act, where it provides that a sum directed to be paid by an

Arbitral Award “shall carry interest ……..” from the date of

the Award to the date of the payment i.e. post-award. In

64

Page 65 other words, what clause (b) of sub-section (7) of Section 31

of the Act directs is that the “sum,” which is directed to be

paid by the Award, whether inclusive or exclusive of

interest, shall carry interest at the rate of eighteen per cent

per annum for the post-award period, unless otherwise

ordered.

8. Thus, sub-section (7) of Section 31 of the Act

provides, firstly, vide clause (a) that the Arbitral Tribunal

may include interest while making an award for payment of

money in the sum for which the Award is made and further,

vide clause (b) that the sum so directed to be made by the

Award shall carry interest at a certain rate for the post

award period.

9. The purpose of enacting this provision is clear,

namely, viz. to encourage early payment of the awarded

sum and to discourage the usual delay, which accompanies

the execution of the Award in the same manner as if it were

a decree of the court vide Section 36 of the Act.

10.In this view of the matter, it is clear that the interest,

the sum directed to be paid by the Arbitral Award under

65

Page 66 clause (b) of sub-section (7) of Section 31 of the Act is

inclusive of interest pendent lite.

11.At this juncture, it may be useful to refer to Section 34

of the CPC, also enacted by Parliament and conferring the

same power upon a court to award interest on an award i.e.

post-award interest. While enacting Section 34, CPC,

Parliament conferred power on a court to order interest “on

the principal sum adjudged” and not on merely the “sum”

as provided in the Arbitration Act. The departure from the

language of Section 34 CPC in Section 31 (7) of the Act,

1996 is significant and shows the intention of Parliament.

12.It is settled law that where different language is used

by Parliament, it is intended to have a different effect. In

the Arbitration Act, the word “sum” has deliberately not

been qualified by using the word “principal” before it. If it

had been so used, there would have been no scope for the

contention that the word “sum” may include “interest.” In

Section 31(7) of the Act, Parliament has deliberately used

the word “sum” to refer to the aggregate of the amounts

66

Page 67 that may be directed to be paid by the Arbitral Tribunal and

not merely the “principal” sum without interest.

13.Thus, it is apparent that vide clause (a) of sub-section

(7) of Section 31 of the Act, Parliament intended that an

award for payment of money may be inclusive of interest,

and the “sum” of the principal amount plus interest may be

directed to be paid by the Arbitral Tribunal for the pre-

award period. Thereupon, the Arbitral Tribunal may direct

interest to be paid on such “sum” for the post-award period

vide clause (b) of sub-section (7) of Section 31 of the Act, at

which stage the amount would be the sum arrived at after

the merging of interest with the principal; the two

components having lost their separate identities.

14. In fact this is a case where the language of sub-section

7 clause (a) and (b) is so plain and unambiguous that no

question of construction of a statutory provision arises. The

language itself provides that in the sum for which an award

is made, interest may be included for the pre-award period

and that for the post-award period interest up to the rate of

67

Page 68 eighteen per cent per annum may be awarded on such sum

directed to be paid by the Arbitral Award.

In such a situation one is reminded of the decision in Ganga

Prasad Verma (Dr.) v. State of Bihar, 1995 Supp (1) SCC 192

Para 5, where this Court held that, “Where the language of

the Act is clear and explicit, the court must give effect to it,

whatever may be the consequences, for in that case the

words of the statute speak the intention of the Legislature.”

Similarly, in Keshavji Ravji & Co. v. CIT, (1990) 2 SCC 231, a

three-Judge Bench of this Court explained the rule of literal

interpretation as under (SCC p.242, Para 11): “If the

intendment is not in the words used it is nowhere else. The

need for interpretation arises when the words used in the

statute are, on their terms, ambivalent and do not manifest

the intention of the legislature.”

We may also refer to the decision of the Privy Council in

Pakala Narayana Swami v. Emperor , AIR 1939 PC 47,

wherein Lord Atkin observed that, “when the meaning of

words is plain, it is not the duty of courts to busy

themselves with supposed intentions.” This view was

68

Page 69 upheld recently by this Court in T.N. State Electricity Board

v. Central Electricity Regulatory Commission, (2007) 7 SCC

636.

In fact the settled view on this subject has been to admit

results of construction even if they be strange or

surprising

1

, unreasonable or unjust or oppressive

2

. The Privy

Council in Emperor v. Benoarilal Sarma, AIR 1945 PC 48 (p.

53), emphasised, “Again and again, this Board has insisted

that in construing enacted words we are not concerned with

the policy involved or with the results, injurious or otherwise

which may follow from giving effect to the language used.”

In the case of Nasiruddin v. Sita Ram Agarwal, (2003) 2 SCC

577 (Para 37), a three-Judge Bench of this Court, made it

clear that the Court’s jurisdiction cannot be invoked to

interpret a statute so as to add or subtract words or read

something into a provision which is not there.

1

London Brick Company Ltd. v. Robinson, [1943] 1 ALL ER 23, p. 26 (HL).

2

IRC v. Hinchy, [1960] 1 ALL ER 505, pp. 508, 512 (HL).

69

Page 70 Infact, Maxwell on the Interpretation of Statutes, states,

“where the language is plain and admits of but one

meaning, the task of interpretation can hardly be said to

arise. “The decision in this case,” said Lord Morris of

Borth-y-Gest in a revenue case, “calls for a full and fair

application of particular statutory language to particular

facts as found. The desirability or the undesirability of one

conclusion as compared with another cannot furnish a

guide in reaching a decision.”

3

Where, by the use of clear

and unequivocal language capable of only one meaning,

anything is enacted by the legislature, it must be enforced

however harsh or absurd or contrary to common sense the

result may be.

4

The interpretation of a statute is not to be

collected from any notions which may be entertained by

the court as to what is just and expedient:

5

words are not

3

Shop and Store Developments Ltd. v. I.R.C. [1967] 1 A.C. 472, per Lord Morris

of Borth-y-Gest at p. 493. But see I.R.C. v. Bates [1965] I W.L.R. 1133, per Lord

Denning M.R., affirmed in H.L. at [1967] 2 W.L.R. 60 sub. Nom. Bates v. I.R.C.; Luke v.

I.R.C. [1963] A.C. 557, per Lord Reid.

4

Cartledge v. E. Jopling & Sons, Ltd. [1963] A.C. 758. Cf. Miller v. Salomons

[1853] 7 Ex. 475, per Pollock C.B.; Re British Farmers’, etc., Co. (1878) 48 L.J.Ch. 56,

per Jessel M.R.; Magor and St. Mellons R.D.C. v. Newport Corporation [1952] A.C. 189.

5

Gwynne v. Burnell (1840) 7 Cl. & F. 572 per Coleridge J.

70

Page 71 to be construed, contrary to their meaning, as embracing

or excluding cases merely because no good reason

appears why they should not be embraced or excluded.

6

Tindal, C.J. in the Sussex Peerage

7

case, summarised this

principle as follows: “If the words of the Statute are in

themselves precise and unambiguous then no more can be

necessary than to expound those words in their natural and

ordinary sense. The words themselves do alone in such

cases best declare the intent of the law giver.” This cardinal

principle of construction was first stated by the United

States Supreme Court in its landmark decision of Caminetti

v. United States, 242 U.S. 470, 485 (1917), whereby Justice

Day observed, “where the language is plain and admits of

no more than one meaning the duty of interpretation does

not arise.”

15.In the result, I am of the view that S.L. Arora’s case is

wrongly decided in that it holds that a sum directed to be

6

Whitehead v. James Stott Ltd. [1949] 1 K.B. 358; Galashiels Gas Co., Ltd. v.

O’Donell [1949] A.C. 275.

7

[1844] 11 Cl & F 85, p. 143.

71

Page 72 paid by an Arbitral Tribunal and the reference to the Award

on the substantive claim does not refer to interest

pendente lite awarded on the “sum directed to be paid

upon Award” and that in the absence of any provision of

interest upon interest in the contract, the Arbitral Tribunal

does not have the power to award interest upon interest, or

compound interest either for the pre-award period or for the

post-award period. Parliament has the undoubted power to

legislate on the subject and provide that the Arbitral

Tribunal may award interest on the sum directed to be paid

by the Award, meaning a sum inclusive of principal sum

adjudged and the interest, and this has been done by

Parliament in plain language.

.........................................………J.

[S.A. BOBDE]

NEW DELHI,

NOVEMBER 25

th

, 2014

72

Page 73 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3148 OF 2012

M/s Hyder Consulting (UK) Ltd. Appellant(s)

VERSUS

Governor State of Orissa

through Chief Engineer Respondent(s)

73

Page 74 WITH

Special Leave Petition (C) No.19895 of 2008

Special Leave Petition (C) No.20282 of 2008

Civil Appeal No.3149 of 2012

Civil Appeal No.3147 of 2012

Special Leave Petition (C) No.18614 of 2012

Civil Appeal No.1390 of 2013

Special Leave Petition (C) No.21896 of 2010

J U D G M E N T

Abhay Manohar Sapre, J.

1.I have had the benefit of reading the scholarly

Judgments of My Lord the Chief Justice as also my

learned brother Bobde J.

2.With great respect, I find myself in complete

agreement with the reasoning and the eventual

conclusion arrived at by brother Bobde J. Even though,

the judgment delivered by brother Bobde J.

encapsulates everything of what is required to be said,

74

Page 75 I, however, looking to the point involved and very ably

argued by all learned senior counsel, wish to record my

own reasons, in addition to what has already been laid

down.

3.Reiteration of facts is unnecessary. The only

question that arises for determination in the instant lis

is, "Whether grant of interest by the Arbitral Tribunal

under Section 31(7) of the Arbitration and Conciliation

Act, 1996 (hereinafter referred to as ‘the Act”) amounts

to granting "interest on interest"?

4.The aforesaid question can be answered by a plain

and simple reading of Section 31(7) of the Act which

reads as under:

“31(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.

75

Page 76 (b) A sum directed to be paid by an arbitral award shall,

unless the award otherwise directs, carry interest at the

rate of eighteen per centum per annum from the date of

the award to the date of payment.”

5.Section 31(7)(a) of the Act deals with grant of pre-

award interest while sub-clause (b) of Section 31(7) of

the Act deals with grant of post-award interest. Pre-

award interest is to ensure that arbitral proceedings are

concluded without unnecessary delay. Longer the

proceedings, would be the period attracting interest.

Similarly, post-award interest is to ensure speedy

payment in compliance of the award. Pre-award

interest is at the discretion of Arbitral Tribunal, while

the post-award interest on the awarded sum is mandate

of statute - the only difference being that of rate of

interest to be awarded by the Arbitral Tribunal. In other

words, if the Arbitral Tribunal has awarded post-award

interest payable from the date of award to the date of

76

Page 77 payment at a particular rate in its discretion then it will

prevail else the party will be entitled to claim post-

award interest on the awarded sum at the statutory

rate specified in clause (b) of Section 31(7) of the Act,

i.e., 18%. Thus, there is a clear distinction in time

period and the intended purpose of grant of interest.

6.Section 31(7)(a) employs the words "...the arbitral

tribunal may include in the sum for which the award is

made interest...". The words "include in the sum" are

of utmost importance. This would mean that pre-award

interest is not independent of the "sum" awarded. If in

case, the Arbitral Tribunal decides to award interest at

the time of making the award, the interest component

will not be awarded separately but it shall become part

and parcel of the award. An award is thus made in

respect of a "sum" which includes within the "sum"

component of interest, if awarded.

77

Page 78 7.Therefore, for the purposes of an award, there is

no distinction between a "sum" with interest, and a

"sum" without interest. Once the interest is "included

in the sum" for which the award is made, the original

sum and the interest component cannot be segregated

and be seen independent of each other. The interest

component then looses its character of an "interest"

and takes the colour of "sum" for which the award is

made.

8.There may arise a situation where, the Arbitral

Tribunal may not award any amount towards principal

claim but award only "interest”. This award of interest

would itself then become the "sum" for which an award

is made under Section 31(7)(a) of the Act. Thus, in a

pre-award stage, the legislation seeks to make no

distinction between the sum award and the interest

component in it.

78

Page 79 9.Therefore, I am inclined to hold that the amount

award under Section 31(7)(a) of the Act, whether with

interest or without interest, constitutes a "sum" for

which the award is made.

10.Coming now to the post-award interest, Section

31(7)(b) of the Act employs the words, "A sum directed

to be paid by an arbitral award...". Sub-clause (b) uses

the words "arbitral award" and not the "arbitral

tribunal”. The arbitral award, as held above, is made in

respect of a "sum" which includes the interest. It is,

therefore, obvious that what carries under Section 31(7)

(b) of the Act is the "sum directed to be paid by an

arbitral award" and not any other amount much less

by or under the name "interest". In such situation, it

cannot be said that what is being granted under Section

31(7)(b) of the Act is "interest on interest". Interest

79

Page 80 under sub-clause (b) is granted on the "sum" directed

to be paid by an arbitral award wherein the "sum" is

nothing more than what is arrived at under sub-clause

(a).

11.Therefore, in my view, the expression “grant of

interest on interest ” while exercising the power

under Section 31(7) of the Act does not arise and,

therefore, the Arbitral Tribunal is well empowered to

grant interest even in the absence of clause in the

contract for grant of interest.

12.My aforesaid interpretation of Section 31 (7) of the

Act is based on three golden rules of interpretation as

explained by Justice G.P. Singh - Interpretation of

Statute (13th Edition- 2012) where the learned author

has said that while interpreting any Statue, language of

the provision should be read as it is and the intention of

80

Page 81 the legislature should be gathered primarily from the

language used in the provision meaning thereby that

attention should be paid to what has been said as also

to what has not been said; second, in selecting out of

different interpretations "the Court will adopt that

which is just, reasonable, and sensible rather than that

which is none of those things" ; and third, when the

words of the Statute are clear, plain or unambiguous,

i.e., they are reasonably susceptible to only one

meaning , the Courts are bound to give effect to that

meaning irrespective of the consequence (see pages

50, 64, and 132). I have kept these principles in mind

while interpreting Section 31(7) of the Act.

……..................................J.

[ABHAY MANOHAR SAPRE]

New Delhi;

November 25, 2014.

81

Page 82 82