Supreme Court of India
R. P. Garg vs The Chief General Manager Telecom … on 10 September, 2024
Author: Pamidighantam Sri Narasimha
Bench: Pamidighantam Sri Narasimha
REPORTABLE 2024 INSC 743 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 10472 OF 2024 (Arising out of SLP (C) No. 2792 of 2020) R.P. GARG …APPELLANT(S) VERSUS THE CHIEF GENERAL MANAGER, TELECOM DEPARTMENT & ORS. …RESPONDENT(S) JUDGMENT
PAMIDIGHANTAM SRI NARASIMHA, J.
1. Leave granted.
2. The short question before us is whether the appellant is entitled
to post award interest on the sum awarded by the Arbitrator. The
Arbitrator denied payment of such interest under a misplaced
impression that the contract between the parties prohibited it. The
executing Court1 affirmed the finding of the Arbitrator and rejected the
prayer. However, allowing the appeal, the District Court 2 held that the
Signature Not Verified
appellant will be entitled to post award interest. By the order
Digitally signed by
Rajni Mukhi
Date: 2024.09.27
18:12:11 IST
Reason:
1 Order in M.A No. 19 of 2001 dated 10.10.2002.
2 Order passed by the District Judge in Civil Appeal no.86 of 11.11.2002 dated 04.03.2003
1
impugned before us, the High Court3 allowed the revision and set aside
the District Court order while holding that the contract between the
parties did not permit grant of post award interest.
2.1 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, 19964, 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 to
its realization. The short facts are as under:
3. A contract was executed on 17.10.1997 between the appellant
contractor, and the Telecom Department of Haryana, Respondents 1
and 2 herein, for trenching and laying of underground cables. Terms of
the contract required the appellant to furnish a security of Rs. 10
Lakhs. Disputes that arose with respect to non-payment of bills
submitted by the appellant during execution of the contract were
referred to Arbitrator appointed under Section 11 of the Act on
24.10.2000.
4. The Arbitrator passed the Award on 08.03.2001. In the said
Award, though the claim of the appellant was allowed, his plea for
3 Order dated 14.05.2019 passed by the High Court of Punjab and Haryana in Civil Revision No.
2561 of 2003
4 Hereinafter referred to as ‘the Act’
2
interest was denied on the ground that there is a specific clause in the
Arbitration Agreement prohibiting the same.
5. During execution of the Award, the appellant claimed payment of
post award interest on the Award by raising a specific objection to that
effect. However, the learned Civil Judge, Senior Division vide his order
dated 10.10.2002 dismissed the objection and affirmed the original
award.
6. Aggrieved, the appellant filed an appeal. The District Judge
allowed the appeal and by Order dated 04.03.2003 directed payment of
post award interest at the rate of 18% on the Award amount. The
appellant was also directed to approach the trial court for recovery of
the same.
7. Being aggrieved, the Telecom Department, the respondent herein,
filed a Civil Revision Petition before the High Court which was allowed
by the High Court by the order impugned before us. The High Court
looked into sub-clause (iv) of Clause 1 of the Contract entered between
parties which provides for the scope of the grant of interest on certain
payment. The sub clause is as under:-
“No interest will be payable on the earnest money or
security deposit amount or any amount payable to the
contractor under the contract.”
8. Assuming that the above referred clause of interest is an
agreement between the parties prohibiting the grant of interest, the
3
High Court proceeded to allow the Revision and set aside the grant of
interest. The High court referred to the decision of this Court in
Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation
(India) Ltd.5 and came to the conclusion that the Supreme Court has
laid down a precedent that interest cannot be paid when a contractual
clause specifically prohibits it.
9. We are of the opinion that the judgment of High Court is clearly
erroneous. Firstly, the interest granted by the First Appellate Court
only related to post award period, and therefore, for this period, the
agreement between the parties has no bearing. Section 31(7)(b) deals
with grant of interest for post award period i.e., from the date of the
award till its realization. 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. This is evident from the specific
expression at the commencement of the sub-section which says
“unless otherwise agreed by the parties”.
10. The relevant extract of Section 31 of the Act is reproduced herein
for ready reference:
“31 Form and contents of arbitral award.
5 (2019) 17 SCC 786.
4
“…
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.
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the
rate of two per cent, higher than the current rate of
interest prevalent on the date of award, from the date of
award to the date of payment.”
11. So far as the entitlement of the post-award interest is concerned,
sub-Section (b) of Section 31(7) provides that the sum directed to be
paid by the Arbitral Tribunal shall carry interest. The rate of interest
can be provided by the Arbitrator and in default the statutory
prescription will apply. Clause (b) of Section 31(7) is therefore in
contrast with clause (a) and is not subject to party autonomy. In other
words, clause (b) does not give the parties the right to “contract out”
interest for the post-award period. The expression ‘unless the award
otherwise directs’ in Section 31(7)(b) relates to rate of interest and not
entitlement of interest. The only distinction made by Section 31(7)(b) is
that the rate of interest granted under the Award is to be given
precedence over the statutorily prescribed rate. The assumption of the
High Court that payment of the interest for the post award period is
subject to the contract is a clear error.
12. The clear position of law that granting post-award interest is not
subject to the contract between the parties was recently affirmed in
5
the decision of this Court in Morgan Securities & Credits (P) Ltd. v.
Videocon Industries Ltd.,6 wherein the court observed as follows:
“24. The issue before us is whether the phrase “unless the
award otherwise directs” in Section 31(7)(b) of the Act only
provides the arbitrator the discretion to determine the rate of
interest or both the rate of interest and the “sum” it must be
paid against. At this juncture, it is crucial to note that both
clauses (a) and (b) are qualified. While, clause (a) is qualified
by the arbitration agreement, clause (b) is qualified by the
arbitration award. However, the placement of the phrases is
crucial to their interpretation. The words, “unless otherwise
agreed by the parties” occur at the beginning of clause (a)
qualifying the entire provision. However, in clause (b), the
words, “unless the award otherwise directs” occur after the
words “a sum directed to be paid by an arbitral award shall”
and before the words “carry interest at the rate of eighteen
per cent”. Thereby, those words only qualify the rate of post-
award interest.
25. Section 31(7)(a) confers a wide discretion upon the
arbitrator in regard to the grant of pre-award interest. The
arbitrator has the discretion to determine the rate of
reasonable interest, the sum on which the interest is to be
paid, that is whether on the whole or any part of the
principal amount, and the period for which payment of
interest is to be made — whether it should be for the whole or
any part of the period between the date on which the cause
of action arose and the date of the award. When a discretion
has been conferred on the arbitrator in regard to the grant of
pre-award interest, it would be against the grain of statutory
interpretation to presuppose that the legislative intent was to
reduce the discretionary power of the arbitrator for the grant
of post-award interest under clause (b). Clause (b) only
contemplates a situation where the arbitration award is silent
on post-award interest, in which event the award-holder is
entitled to a post-award interest of eighteen per cent.”
13. The High Court, therefore, committed an error in relying on the
decision of this Court in Jaiprakash (supra). The judgement in
Jaiprakash deals with the issue of prohibition of pendente-lite interest
and will have no application to the facts of the present case where the
6 (2023) 1 SCC 602.
6
claim relates to post-award interest.
14. In view of the above, the appeal is allowed. The judgment of the
High Court in Civil Revision No. 2561 of 2003 (O&M) dated
14.05.2019 is set-aside, and the decision of the First Appellate Court
in C.A No. 86 of 11.11.02 dated 04.03.2003 for granting interest @
18% p.a. is restored.
15. Parties shall bear their own costs.
……………………………….J.
PAMIDIGHANTAM SRI NARASIMHA]
…..………………………….J.
[SANDEEP MEHTA]
NEW DELHI;
SEPTEMBER 10, 2024
7