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2025 SCC OnLine SC 1127

In the Supreme Court of India

(BEFORE ABHAY S. OKA AND UJJAL BHUYAN, JJ.)

Interstate Construction … Appellant(s);

Versus
National Projects Construction Corporation Ltd. …
Respondent(s).
Civil Appeal No. 3461 of 2025
Decided on May 15, 2025
Advocates who appeared in this case:
Ms. Madhu Moolchandani, AOR for the Appellant(s);
The Judgment of the Court was delivered by
UJJAL BHUYAN, J.:— This appeal by special leave is directed against
the judgment and order dated 01.08.2023 passed by the Division
Bench of the High Court of Delhi in FAO (OS) (Comm) No. 175 of 2021.
2. It may be mentioned that by the aforesaid judgment and order
dated 01.08.2023 (impugned judgment), Division Bench of the High
Court of Delhi (High Court) allowed the appeal of National Projects
Construction Corporation Limited, (NPCC) or the respondent
hereinafter, filed under Section 37 of the Arbitration and Conciliation
Act, 1996 (briefly ‘the 1996 Act’ hereinafter) setting aside that part of
the judgment and order dated 02.08.2021 passed by a learned Single
Judge of the High Court under Section 34 of the 1996 Act upholding
the directions contained in paragraph 58(b) of the award dated
28.10.2020 as well as setting aside the directions of the arbitral
tribunal as contained in paragraph 58(b) of the said award.
3. Relevant facts may be briefly noted.
4. Respondent had engaged the services of the appellant for
executing a contract relating to Ramagundam Super Thermal Power
Project, Ramagundam, District Karimnagar in the then composite State
of Andhra Pradesh. In this regard, two separate work orders were
issued:
(i) Work order No. 917344/838 dated 19.06.1984 in respect of the
work excavation of foundation package work-II 3 × 500 MW of
National Thermal Power Corporation Limited, Ramagundam Super
Thermal Power Project;
(ii) Work Order No. 917344/2382 in respect of the work foundation
package work, stage-II, at Ramagundam Super Thermal Power
Project;
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5. Thereafter, contract agreement was entered into between the

parties. As per clause 4 of the conditions of contract read with clause
15 of the special conditions attached to the work orders, all the
disputes and differences between the parties were to be settled by way
of arbitration.
6. It is stated that appellant had completed the contract work in the
year 1987. Respondent had paid the appellant the contractual dues
after withholding certain sums on account of recoveries. Appellant
disputed such recoveries. Additionally, appellant also raised certain
claims which were not accepted by the respondent.
7. In view of such disputes and differences, appellant invoked the
arbitration clause by issuing notice dated 17.05.1993.
8. Respondent did not take immediate steps for appointment of an
arbitrator. After considerable delay, by communication dated
07.10.1997, respondent appointed Shri Shivamoy Ghosh, Additional
General Manager, NPCC, Madras Sector, Chennai as the sole arbitrator
to arbitrate on the subject dispute.
9. Appellant filed statement of claims before the learned arbitrator
on 20.01.1998 claiming an aggregate amount of Rs. 4,46,29,404.00
along with pendente lite and future interest at the rate of 24 percent
per annum till final realization of the amount.
10. Appellant sought for a direction from the learned arbitrator to
the respondent to supply various documents related to the dispute.
However, learned arbitrator only permitted the appellant an opportunity
to inspect the documents and did not issue any direction to the
respondent for supply of copies.
11. Aggrieved thereby, appellant filed a petition under Section 14 of
the 1996 Act before the High Court seeking termination of the mandate
of the learned arbitrator and for appointment of a new arbitrator in his
place. This petition was registered as OMP No. 214/2002. By order
dated 11.10.2004, learned Single Judge terminated the mandate of
Shri Shivamoy Ghosh and appointed Shri A.S. Chandhiok, Sr. Advocate,
as the sole arbitrator.
12. Respondent challenged the said order of the learned Single
Judge dated 11.10.2004 before the Division Bench of the High Court in
FAO (OS) No. 241/2004. By order dated 02.02.2005, Division Bench
appointed Shri L.R. Gupta, retired Director General of CPWD as the sole
arbitrator.
13. Before Shri L.R. Gupta, the learned arbitrator, respondent while
filing its reply to the statement of claims filed by the appellant, also
challenged the authority of one Shri Jagdish Raj Yadav to file the claim
on behalf of the appellant. In this regard an application dated
23.02.2007 was filed before the learned arbitrator. Learned arbitrator
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dismissed the said application vide the order dated 03.08.2007.

14. The said order dated 03.08.2007 was challenged by the
respondent before the learned Single Judge of the High Court by filing a
petition under Section 34 of the 1996 Act, being OMP No. 537/2007.
15. It may be mentioned that Shri L.R. Gupta resigned as the sole
arbitrator on 23.06.2008.
16. Vide order dated 30.01.2007, learned Single Judge disposed of
the petition filed under Section 34 of the 1996 Act bearing OMP No.
537/2007.
17. Appellant filed a petition under Section 15 of the 1996 Act
before the High Court being OMP (T) (Comm) No. 30/2018 seeking
appointment of an arbitrator in place of Shri L.R. Gupta who had
resigned. The said petition was disposed of by the learned Single Judge
of the High Court vide order dated 31.05.2018 reconstituting the
arbitral tribunal by appointing Mr. Justice R.C. Jain, a former Judge of
the High Court, as the sole arbitrator to arbitrate on the disputes
between the parties.
18. New arbitrator held the first hearing on 03.05.2019 and finally
pronounced the award on 28.10.2020. While the arbitral tribunal
allowed the claims of the appellant under several heads, we are
concerned with the contentious part of the award relating to payment of
interest (claim No. 7) contained in paragraph 58 of the award. Relevant
portion contained in paragraph 58 of the award reads as under:
58. *** *** *** ***
In a nutshell the claimant is held entitled to interest as under:
a) Pre-reference/past period interest:
@ 18% per annum on a sum of Rs. 34,43,490.61 w.e.f. July
1987 up-till 19.01.1998.
b) Pendente lite interest:
i) @ 12% per annum w.e.f. 20.01.1998 uptill 31.12.2008 on
the total amount (i.e. principal amount + the amount of
interest on the pre-reference/past period).
ii) @ 12% per annum w.e.f. 01.01.2017 till the date of award
on the total amount (i.e. principal amount + the amount of
interest for the pre-reference period and for the period from
20.01.1998 till 31.12.2008).
c) Future interest:
@ 18% per annum from the date of the award till the date of
payment on the total amount (i.e. principal amount + amount
of interest on the pre-reference/past period+ amount of
interest pendente lite).
19. Respondent filed a petition under Section 34 of the 1996 Act
before the Single Bench of the High Court for setting aside the award
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dated 28.10.2020. The same was registered as OMP (Comm) No.

78/2021. By the judgment and order dated 02.08.2021, learned Single
Judge partly allowed the petition by setting aside the award with regard
to future interest at the rate exceeding 9 percent per annum from the
date of the award till the date of payment.
20. Aggrieved by the judgment and order dated 02.08.2021 passed
by the learned Single Judge, respondent preferred an appeal under
Section 37 of the 1996 Act before the Division Bench of the High Court
which was registered as FAO (OS) (Comm) No. 175/2021. In the
appeal, learned senior counsel for the respondent (which was the
appellant before the Division Bench) clarified that the challenge would
be restricted to the directions issued by the arbitral tribunal insofar the
issue of interest was concerned. This was further clarified by submitting
that the challenge was not with respect to the rate of interest or award
of interest for the pre-reference/past period. Grievance highlighted was
against the directions contained in sub-paragraph (b)(i) of paragraph
58 to the extent of the arbitral tribunal stipulating that interest for the
period mentioned therein would be leviable not merely on the principal
amount as awarded but upon the said amount inclusive of the amount
of interest relating to the pre-reference/past period. Likewise, arbitral
tribunal awarded interest on identical terms in sub-paragraph (b)(ii) of
paragraph 58 which was objected to. Division Bench of the High Court
vide the judgment and order dated 01.08.2023 (impugned judgment)
allowed the appeal by setting aside the directions contained in
paragraph 58(b).
21. Aggrieved thereby, appellant filed the related SLP (C) No.
23235/2023 before this Court. By order dated 19.10.2023, this Court
issued notice. In the hearing held on 25.02.2025, leave was granted.
22. Though there is no challenge by either parties to the award on
merit, challenge of the respondent being confined only to the interest
part, nonetheless, to have a complete picture, it would be appropriate
to mention the claims of the appellant and the corresponding amounts
awarded by the arbitral tribunal. The following statement in tabular
form will throw light on the amounts claimed by the appellant and the
amounts awarded by the arbitral tribunal under sixteen heads of claim.
The tabular statement is as under:
Claim No. Particulars Amount Amount
Claimed Awarded
(a) Escalation at Rs. Rs.
10% for work 20,71,322.00 20,71,322.00
order 48/4
(b) Escalation at Rs. 1,84,418.77 Rs. 1,84,418.77
10% for work
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order 47/11
(c) Refund of panel
recovery of
steel taking 5%
of scrap
wastage in
place of 3%
wastage:—
I) Steel
difference
II) M.S. Found
Steel Rs. 1,75,
III) 12 Dia M.S. 132.00
IV) Structural Rs. 1,806.42
Steel Rs. 68,750.00
V) Steel Plates Rs. 2,513.28
VI) Scrap made Rs. 2,649.84
in labour rates Rs. 12,000.00
Total Rs. 2,62,850.70 Rs. 1,82,463.70
d) Unreasonable Rs. 3,747.75
recoveries:— Rs. 38,322.65
i) Cribes Rs. 15,776.31
ii) Shutter Rs. 64,521.00
plates Rs. 60,833.00
iii) B.F.P. Hire Rs. 10,676.00
charges for Rs. 34,701.92
shutter plates Rs. 8,000.00
iv) B.F.P. Hire Rs. 14,990.00
charges for Rs. 89,353.00
shutter plates
v) Refund of
28% overhead
supply for
metal
vi) Dozer
recovery for
work order No.
48/4
vii) Cubes
failure (never
given in writing
of any cube
failure of any
member)
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viii) Chain
pulley block
(not with us)
ix) Clamps
(already
returned)
x) Pipes
(already
returned)
Total Rs. 3,40,921.63 Rs. 60,833.00
e) Work order by Rs. 84,447.00 Rs. 84,447.00
other agencies
but not in our
scope like
plastering etc.
f) Held amounts: Rs. 3,95,000.00
— Rs. 20,000.00
i) Amount held Rs. 3,09,203.14
on account of Rs. 43,000.00
grouting T.G. Rs. 51,803.00
ii) Amount held Rs. 23,000.00
on account of Rs. 3,000.00
grouting C.E.P. Rs. 10,000.00
iii) Staging held Rs. 5,000.00
amount of T.G.
iv) Work order
No. 48/4
withheld
amount
v) Work Order
No. 47/11
withheld
amount
vi) Work Order
No. 48/4
shutter plates
held
vii) Curing held
amount 48/4
viii) Work order
No. 48/4 E.S.P.
rectification
held amount
ix) Work order
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No. 48/4 T.G.

held amount for
final shape.
Total Rs. 8,60,004.14 Rs. 8,60,004.14
g) Balance payable
in bills
i) Payable in
bills 47/11
ii) S.D. 47/11
total balance
iii) Work order Rs. 64,376.76
No. 48/4 money Rs. 2,02,870.00
payable in bills Rs. 84,000.00
Total Rs. 3,51,246.76
h) Difference in Rs. 1,31,464.00
excavation
i) Booking of Rs. 17,690.00
C.E.P. in
package-IV as
agreed by
E.D.S.R.
differences
j) Claims of not Rs. 2,66,000.00
allotting quarry
as agreed by
E.D.S.R.
k) 1200 M3 of Rs.
stone aggregate 13,40,000.00
from Karim
Nagar for rate
differences of
3
Rs. 70/-M
extra and the
claim was
agreed by EDSR
referred to our
letter
ISC/Claims/1
Dt.14.10.89
para III.
l) Idle labour Rs. 4,81,000.00
charges refer
our letter
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ISC/Claims/1
dt. 14.10.89,
para IV
m) 2% interest Rs. 50,000.00
rate difference
on mobilization
advance.
n) Interest on Rs. 2,40,000.00
delayed release
of S.D. refer
para 9 of our
letter
ISC/Claims/1
dt. 14.10.89.
o) Mental Rs.
anguishes, 60,00,000.00
torture and loss
of social status
suffered refer
Letter No.
ISC/Claims/1
dt. 14.10.89
para II.
p) Addl. 24% Rs.
interest for 10.5 3,19,57,039.0
years w.e.f. July
1987 upto Dec.
1997.
Total Rs. Rs.
4,46,38,404.00 34,43,490.61
23. We have already extracted the nature of interest payment
provided in the award dated 28.10.2020. However, for ready reference,
interest awarded to the appellant by the arbitral tribunal may once
again be noted which is as under:
(a) Pre-reference/past period interest at the rate of 18% per annum
on the sum of Rs. 34,43,490.61 with effect from July 1987 uptill
19.01.1998.
(b) Pendente lite interest at the rate of 12% per annum with effect
from 20.01.1998 uptill 31.12.2008 on the total amount (that is,
principal amount plus the amount of interest for the pre-
reference/past period).
(c) Pendente lite interest at the rate of 12% per annum with effect
from 01.01.2017 till the date of the award on the total amount
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(that is, principal amount plus the amount of interest on the pre-
reference period and for the period from 20.01.1998 till
31.12.2008).
(d) Future interest at the rate of 18% per annum from the date of
the award till the date of payment on the total amount (that is,
principal amount added to the amount of interest for the pre-
reference/past period and interest pendente lite).
23.1. While holding that appellant was entitled to award of interest
for the pre-reference period i.e. from the date on which the cause of
action arose till filing of the claim before the arbitral tribunal as well as
for the pendente lite period and also for the future period, arbitral
tribunal agreed with the respondent that no interest should be awarded
to the appellant for the period when there was absolute laches on the
part of the appellant. Arbitral tribunal held that for the period from
01.01.2009 till 31.12.2016, that is for a period of about eight years,
there was complete laches on the part of the appellant. Therefore, the
arbitral tribunal declared that appellant would not be entitled to any
interest for the aforesaid period.
24. Respondent filed a petition under Section 34 of the 1996 Act
before the High Court impugning the arbitral award dated 28.10.2020.
Vide the judgment and order dated 02.08.2021, learned Single Judge
upheld the claims awarded by the arbitral tribunal. On the question of
interest, learned Single Judge framed the question as to whether
interest awarded by the arbitral tribunal was exorbitant and
unsustainable. Learned Single Judge held that arbitral tribunal's
decision to award pre-reference interest at the rate of 18 percent per
annum did not warrant any interference. As regards pendente lite
interest, learned Single Judge while noting that arbitral tribunal had
awarded 12 percent interest per annum for the period from 20.01.1998
till 31.12.2008 and again from 01.01.2017 till 28.10.2020, justified the
decision of the arbitral tribunal not to award interest for the period from
01.01.2009 to 31.12.2016 as during this period the appellant was
remiss and did not pursue its claim before the arbitral tribunal
diligently. On the rate of interest, learned Single Judge held that
interest at the rate of 12 percent per annum could not by any stretch
be considered to be exorbitant or unreasonable but held that 18
percent future interest from the date of the award till the date of
payment granted by the arbitral tribunal was ex facie erroneous as
according to learned Single Judge the interest rate should have been 2
percent higher than the current rate of interest prevalent on the date of
the award. Therefore, this portion of the award was set aside by the
learned Single Judge; instead learned Single Judge awarded future
interest holding that it could not have been in excess of 9 percent per
annum. Therefore, learned Single Judge partly allowed the petition
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under Section 34 of the 1996 Act to the extent of setting aside the
award of future interest at a rate exceeding 9 percent per annum from
the date of the award till the date of payment.
25. This brings us to the impugned judgment and order dated
01.08.2023. We have already noted about the limited nature of
challenge made by the respondent during the hearing of the appeal
filed under Section 37 of the 1996 Act. Learned senior counsel
appearing for the respondent clarified that the challenge to the award
stood restricted to the directions issued by the arbitral tribunal insofar
the issue of interest was concerned. He clarified that the challenge was
not with respect to either the rate at which interest was awarded or the
grant of interest for the pre-reference/past period. The grievance was
confined to the directions contained in paragraph 58(b)(i) of the award
and the similar nature of interest in paragraph 58(b)(ii) inasmuch as
the arbitral tribunal proceeded to award interest on identical terms : on
the principal amount plus the amount of interest for the pre-
reference/past period. Division Bench referred to Section 31(7)(a) and
(b) of the 1996 Act as well as placed reliance on the decision of this
1
Court in Sayeed Ahmed and Company v. State of Uttar Pradesh and
came to the following two conclusions:
i) Section 31(7) recognizes only two periods for which interest may
be awarded. The two periods are, firstly from the date on which
the cause of action arose till passing of the award and secondly
from the date of the award till actual payment. Therefore, the
distinction between pre-reference/past period and pendente lite
period no longer existed. The period from the date of cause of
action i.e. July, 1987 till the date of the award dated 28.10.2020
would constitute the period contemplated under Section 31(7)(a)
of the 1996 Act. The period commencing from the date of award
till payment would be the second period within the meaning of
Section 31(7)(b) of the 1996 Act. Therefore, the arbitral tribunal
committed an illegality in awarding interest for three periods : pre
-reference/past periods, pendente lite and for the future period.
ii) Arbitral tribunal committed further illegality in forging the
principal amount with interest as would be evident from
paragraph 58(b) of the award. Interest awarded for the pre-
reference period as well as for the pendente lite period have been
subjected to further levy of interest for the said periods by adding
the interest amount with the principal amount awarded. This
amounted to levying compound interest which is impermissible.
Accordingly, the directions contained in paragraph 58(b) were set
aside by the Division Bench.
26. In our considered view, the reasonings given by the Division
Bench are fallacious. We say so for the reasons mentioned hereunder.
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27. Section 31 of the 1996 Act is the relevant provision. It deals

with the form and contents of arbitral award. Section 31 has eight sub-
sections. Sub-section (7) is central to the debate and after the
amendment with retrospective effect from 23.10.2015 read as under:
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 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.
27.1. Before substitution and prior to 23.10.2015, clause (b) of sub-
section (7) of Section 31 stood thus:
(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.
28. We now come to the analysis of Section 31(7), both clauses (a)
and (b). For the time being we concentrate on clause (a) insofar it
deals with the period for which interest may be awarded. A reading of
clause (a) reveals that 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. In real terms it means the period
from the date on which the cause of action arose till filing of the claim
petition by the claimant and from the date of filing of the claim petition
till the date of the award. Division Bench of the High Court relied upon
Sayeed Ahmed and Company (supra) wherein this Court analyzed
Section 31(7) of the 1996 Act and opined that the difference between
pre-reference period and pendente lite period has disappeared insofar
award of interest by the arbitrator is concerned. The said section now
recognizes only two periods and makes the following provision:
i) In regard to the period between the date on which the cause of
action arose and the date on which the award is made (pre-
reference period + pendente lite), the arbitral tribunal may award
interest at such rate as it deems reasonable for the whole or any
part of the period unless otherwise agreed by the party;
ii) For the period from the date of award to the date of payment,
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interest at the rate of 18 percent per annum (this is in reference

to the pre 23.10.2015 position) if no specific order is made in
regard to interest; however, the arbitrator may award interest at a
different rate for the period between the date of award and the
date of payment.
29. Based on the aforesaid decision, the Division Bench held that it
was not open for the arbitral tribunal to have carved out three periods
for payment of interest : pre-reference, pendente lite and future when
the statute provides for only two periods : first period being the period
between the date on which the cause of action arose and the date on
which the award is made and the second period is from the date of the
award till the date of payment.
30. We are unable to agree with the view expressed by the Division
Bench. Even in Sayeed Ahmed and Company (supra) relied upon by the
Division Bench, the Bench held that Section 31(7) had carved out two
periods, the first period being from the date on which the cause of
action arose till the date on which the award is made and the second
period being from the date of award till the date of payment. As
regards the first period, the Bench clarified that it includes the pre-
reference period plus pendente lite period. Though the arbitral tribunal
had granted interest for three periods : pre-reference period, pendente
lite and post award period, the first two period basically comprises of
the period contemplated under clause (a) of sub-section (7) of Section
31. It is another matter that the arbitral tribunal awarded varying
degrees of interest for the two sub-periods : 18 percent per annum for
the pre-reference period and 12 percent as pendente lite, excluding
from the said period, the period of eight years when the appellant was
found to be remiss in pursuing its claims before the arbitral tribunal.
This is also permissible as we shall explain.
31. Therefore, Sayeed Ahmed and Company (supra) does not
exclude or does not say that interest should not be granted for the pre-
reference period. All that it explains is that Section 31(7)(a) has joined
the two periods of interest : pre-reference and pendente lite.
32. This position has been clarified by a recent decision of this Court
in Pam Developments Private Limited v. State of West Bengal2. After
extracting Section 31(7) of the 1996 Act, this Court held that power of
the arbitrator to grant pre-reference interest, pendente lite interest and
post award interest under Section 31(7) of the 1996 is now fairly well
settled. The Bench, thereafter, culled out the following legal
propositions in this regard highlighting the difference in the position of
law qua the Arbitration Act, 1940 vis-à-vis the 1996 Act:
23. The power of the arbitrator to grant pre-reference interest,
pendente lite interest, and post-award interest under Section 31(7)
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of the Act is fairly well-settled. The judicial determinations also

highlight the difference in the position of law under the Arbitration
Act, 1940. The following propositions can be summarised from a
survey of these cases:
23.1. Under the Arbitration Act, 1940, there was no specific
provision that empowered an arbitrator to grant interest. However,
through judicial pronouncements, this Court has affirmed the power
of the arbitrator to grant pre-reference, pendente lite, and post-
award interest on the rationale that a person who has been deprived
of the use of money to which he is legitimately entitled has a right to
be compensated for the same. When the agreement does not
prohibit the grant of interest and a party claims interest, it is
presumed that interest is an implied term of the agreement, and,
therefore, the arbitrator has the power to decide the same.
23.2. Under the 1940 Act, this Court has adopted a strict
construction of contractual clauses that prohibit the grant of interest
and has held that the arbitrator has the power to award interest
unless there is an express, specific provision that excludes the
jurisdiction of the arbitrator from awarding interest for the dispute in
question.
23.3. Under the 1996 Act, the power of the arbitrator to grant
interest is governed by the statutory provision in Section 31(7). This
provision has two parts. Under clause (a), the arbitrator can award
interest for the period between the date of cause of action to the
date of the award, unless otherwise agreed by the parties. Clause (b)
provides that unless the award directs otherwise, the sum directed
to be paid by an arbitral award shall carry interest @ 2% higher than
the current rate of interest, from the date of the award to the date of
payment (referring to the post 23.10.2015 position).
23.4. The wording of Section 31(7)(a) marks a departure from the
Arbitration Act, 1940 in two ways : first, it does not make an explicit
distinction between pre-reference and pendente lite interest as both
of them are provided for under this subsection; second, it sanctifies
party autonomy and restricts the power to grant pre-reference and
pendente lite interest the moment the agreement bars payment of
interest, even if it is not a specific bar against the arbitrator.
23.5. The power of the arbitrator to award pre-reference and
pendente lite interest is not restricted when the agreement is silent
on whether interest can be awarded or does not contain a specific
term that prohibits the same.
23.6. While pendente lite interest is a matter of procedural law,
pre-reference interest is governed by substantive law. Therefore, the
grant of pre-reference interest cannot be sourced solely in Section 31
(7)(a) (which is a procedural law), but must be based on an
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agreement between the parties (express or implied), statutory

provision (such as Section 3 of the Interest Act, 1978), or proof of
mercantile usage.
24. In view of the above, the High Court had no reason to
interfere with the arbitral award with respect to grant of pre-
reference interest, since the contract between the parties does not
prohibit the same.
33. This position has been further explained by a recent decision of
3
this Bench in North Delhi Municipal Corporation v. S.A. Builders Ltd. .
After adverting to Section 31(7) of the 1996 Act, this Court explained
as under:
36.1. From a minute reading of sub-section (7), it is seen that it
has got two parts : the first part i.e. clause (a) deals with passing of
award which would include interest up to the date on which the
award is made. The second part i.e. clause (b) deals with grant of
interest on the ‘sum’ awarded by the arbitral tribunal.
33.1. Thereafter the Bench observed that under Section 31(7) of the
1996 Act, an arbitral tribunal has the power to grant - (i) pre-award (ii)
pendente lite (iii) post-award interest. The Bench explained the reason
for award of such interest in the following manner:
39. Generally, going by the provisions contained in Section 31(7)
of the 1996 Act, it is evident that an arbitral tribunal has the power
to grant (i) pre-award (ii) pendente lite (iii) post-award interest.
Intention behind awarding pre-award interest is primarily to
compensate the claimant for the pecuniary loss suffered from the
time the cause of action arose till passing of the arbitral award.
Further, this is also to ensure that the arbitral proceeding is
concluded within a reasonable period to minimise the impact of the
pre-award interest as well as interest pendente lite; thereby
promoting efficiency in the arbitration process. Similarly, grant of
post-award interest also serves a salutary purpose. It primarily acts
as a disincentive to the award debtor not to delay payment of the
arbitral amount to the award holder.
34. Thus, what Section 31(7)(a) has done is that there is now a
statutory recognition of the power of the arbitral tribunal to grant pre-
reference interest from the date on which the cause of action arose till
the date on which the award is made. There was a vacuum in the
Arbitration Act, 1940 as there was no such provision for granting pre-
reference interest. It was through judicial pronouncements that such
power of the arbitrator to grant pre-reference interest was conferred.
Now under Section 31(7)(a) of the 1996 Act, such power is statutorily
recognized.
35. Let us revert back to clause (a) of sub-section (7) of Section 31
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of the 1996 Act. A careful and minute reading of this provision will
make it clear that the arbitral tribunal has the discretion to include in
the sum awarded interest at such rate as it deems reasonable on the
whole or any part of the money awarded for the whole or any part of
the period from the date on which the cause of action arose till the date
on which the award is made. We may exclude that part of the sentence
‘on the whole or any part of the money’ from our analysis since this is
not relevant to the controversy. If we exclude this portion, what then
becomes discernible is that the arbitral tribunal has the discretion to
include in the sum awarded : firstly, interest at such rate as it deems
reasonable; and secondly, 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. This would mean that the arbitral tribunal
can exclude a period from the date on which the cause of action arose
till the date on which the award is made for the purpose of grant of
interest, as has been done in the present case. It would also mean that
the arbitral tribunal can grant interest 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. It can be a composite period or the
said period can be further sub-divided, as done in the present case i.e.
from the date of cause of action to filing of the claim and from the date
of filing of the claim till the date of the award excluding the period
when the appellant was found to be remiss. It would also mean that
there can be one rate of interest for the whole period or one or more
rates of interest for the sub-divided periods as has been done in the
instant case. In our opinion, this would be the correct approach to
interpret Section 31(7)(a), given the scheme of the 1996 Act.
36. That being the position, we are of the view that the Division
Bench had fallen in error by holding that the arbitral tribunal had no
jurisdiction to award interest for two periods i.e. pre-reference and
pendente lite when the statute provides for only one period viz. from
the date when the cause of action arose till the date of the award. The
view expressed by the High Court is not the correct interpretation of
Section 37(1)(a) of the 1996 Act as explained by us supra as well as in
Pam Developments Private Limited (supra) and S.A. Builders Ltd.
(supra).
37. This brings us to the second issue on which the High Court set
aside the directions of the arbitral tribunal contained in paragraph 58
(b) of the award. According to the Division Bench, the arbitral tribunal
had committed an illegality in forging the principal amount with
interest while computing the awarded amount on which future interest
is to be paid. Interest awarded for the past period could not have been
subjected to further levy of interest during the pendente lite or post
award period on merger with the principal amount as this would
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amount to levy of compound interest.

38. This aspect of the matter is no longer res integra.
39. In State of Haryana v. S.L. Arora4, a two-Judge Bench of this
Court observed that as regards pre-award period, interest has to be
awarded as specified in the contract and in the absence of any contract,
as per the discretion of the arbitral tribunal. However, with regard to
the post-award period, the interest is payable as per the discretion of
the arbitral tribunal and in the absence of exercise of such discretion, at
the mandatory statutory rate of 18 percent per annum. Award of
interest like award of cost are ancillary matters. Therefore, the
expressions sum for which the award is made and the sum directed to
be paid by an arbitral award contextually refers to the award on the
substantive claims and not ancillary or consequential directions relating
to interest or cost. It was held that arbitral tribunals did not have the
power to award interest upon interest or compound interest either for
the pre-award period or for the post-award period.
40. A three-Judge Bench of this Court in Hyder Consulting (UK) Ltd.
v. Governor, State of Orissa5, opined that it was not possible to agree
with the conclusion in S.L. Arora (supra) that Section 31(7) of the 1996
Act does not require that interest which accrues till the date of the
award be included in the sum from the date of the award for calculating
the post-award interest. Justice Bobde (as His Lordship then was)
authoring the majority opinion was of the view that the conclusion
reached in S.L. Arora (supra) did not seem to be in consonance with the
clear language of Section 31(7) of the 1996 Act. Hyder Consulting (UK)
Ltd. (supra) declared that S.L. Arora (supra) was wrongly decided in
that it held that a sum directed to be paid by an arbitral tribunal and
the reference to the award on the substantive claim did 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 did not have the power to award
interest upon interest or compound interest either for the pre-award
period or for the post-award period. It has been clarified that the ‘sum’
includes the principal as adjudged together with the interest granted.
41. A three-Judge Bench of this Court in UHL Power Company Ltd. v.
6
State of Himachal Pradesh declared that the judgment in S.L. Arora
(supra) has since been overruled by a three-Judge Bench of this Court
in Hyder Consulting (UK) Ltd. (supra). The majority view in Hyder
Consulting (UK) Ltd. (supra) is that post-award interest can be granted
by an arbitrator on the interest amount awarded.
42. This view was reiterated by this Court in subsequent decisions
(please see Delhi Airport Metro Express Private Ltd. v. Delhi Metro Rail
7
Corporation and Morgan Securities and Credits Private Ltd. v. Videocon
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Industries Limited8).
43. Finally, in S.A. Builders (supra), this Bench after a thorough
analysis of Section 31(7)(a) and Section 31(7)(b) of the 1996 Act came
to the following conclusion:
38. Natural corollary to the above analysis would be that the ‘sum’
so awarded by the arbitral tribunal which may include interest from
the date when the cause of action arose to the date of the award,
would carry further interest of 18 percent from the date of the award
to the date of payment unless the arbitral award otherwise directs
(referring to the pre 23.10.2015 position). Thus, the legislative
intent is that the awarded sum whether inclusive of interest or not,
in case included, then from the date of cause of action to the date of
award, would carry further interest from the date of the award to the
date of payment.
44. It has been held that the sum awarded would mean the principal
amount plus the interest awarded from the date of cause of action upto
the date of the award. The sum awarded in Section 31(7)(a) would
mean principal amount plus the interest awarded. Thereafter, as per
Section 31(7)(b) of the 1996 Act, the sum (principal amount +
interest) would carry further interest at the rate of 2 per cent higher
than the current rate of interest prevalent on the date of the award to
the date of payment.
45. Therefore, in view of the clear legal position delineated as above,
impugned judgment of the Division Bench dated 01.08.2023 cannot be
sustained.
46. Thus, having regard to the discussions made above, impugned
judgment and order dated 01.08.2023 passed by the Division Bench of
the High Court is hereby set aside. Civil appeal is accordingly allowed.
However, there shall be no order as to cost.
———
1
(2009) 12 SCC 26

2
(2024) 10 SCC 715

3
2024 SCC OnLine SC 3768

4
(2010) 3 SCC 690

5
(2015) 2 SCC 189

6
(2022) 4 SCC 116

7
(2022) 9 SCC 286
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8
(2023) 1 SCC 602

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