Supreme Court Affirms Right To Post-Award Interest Under Section 31(7)(b) Of The Arbitration Act

Supreme Court Affirms Right To Post-Award Interest Under Section 31(7)(b) Of The Arbitration Act

The Supreme Court has ruled that the post-award period must carry interest as prescribed by Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

In a recent judgment, the Court stated, “For the reasons to follow, while allowing the appeal, we have held that as this is a case arising out of the Arbitration and Conciliation Act, 1996, by operation of Section 31(7)(b), the sum directed to be paid under the Arbitral Award shall carry interest. This is a first principle. A sum directed to be paid by an arbitral award must carry interest. In this view of the matter, we have restored the judgment of the District Court granting 18% interest from the date of the award until its realization.”

The bench, comprising Justices P.S. Narasimha and Sandeep Mehta, overturned the High Court’s decision, which had denied post-award interest to the award holder, citing that the contract between the parties did not allow for such interest. The Court clarified that even an agreement between parties to forgo post-award interest cannot negate the statutory right to it.

The judgment elaborated on the distinction between Sections 31(7)(a) and 31(7)(b) of the Arbitration Act, noting that while pre-award interest is contingent on party agreements, post-award interest is a statutory right unaffected by such agreements. The Court emphasized that a party's right to interest for the post-award period cannot be contracted out under Section 31(7)(b).

Justice Narasimha remarked, “The statutory scheme relating to grant of interest provided in Section 31(7) creates a distinction between interest payable before and after the award. So far as the interest before the passing of the award is concerned, it is regulated by Section 31(7)(a) of the Act, which provides that the grant of interest shall be subject to the agreement between the parties.”

Conversely, for post-award interest, Section 31(7)(b) asserts that the sum directed by the Arbitral Tribunal shall carry interest, with the rate determined by the Arbitrator or, failing that, the statutory rate applies. This clause, the Court noted, is distinct from clause (a) and cannot be altered by agreement.

Consequently, the appeal was allowed, restoring the District Court’s decision to award 18% interest from the date of the arbitral award until realization.