Delhi High Court: In a case wherein, an appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996 (‘the Act'), to challenge the impugned judgment dated 2-8-2021 and to set aside the award dated 28-10-2020, the Division Bench of Yashwant Varma* and Dharmesh Sharma, JJ., opined that as per Section 31(7) of the Act, the principal amount should be static, and accordingly set aside the directions of the arbitral award wherein, pre-reference interest was added to the principal amount while determining pendente-lite interest.
Background
In the instant case, an appeal was filed by the appellants being aggrieved by the directions contained in paragraph 58(b)(i) of the arbitral award wherein the Arbitral Tribunal (‘Tribunal') stipulated that the interest would be levied on the principal amount inclusive of the pre-reference interest amount. Thus, the Tribunal had added the pre-reference interest to the principal amount while determining the pendente-lite interest.
The Tribunal in the award had identified the pre-reference period to commence from July 1987 up to 19-1-1998. Further, the pendente-lite period was bifurcated into two parts – the first period commenced from 20-1-1998 up to 31-12-2008 and the second period from 1-1-2017 till the date of the award.
Consequently, the Tribunal had awarded the pre-reference interest at the rate of 18% from July 1987 up to 19-1-1998. However, as per para 58(b) of the arbitral award, the pre-reference interest was awarded pendente-lite.
Thus, the appellant asserted that the Tribunal had committed a manifest illegality and awarded interest contrary to the provisions of Section 31(7) of the Act.
Analysis, Law, and Decision
The Court opined that the Tribunal had committed a manifest illegality by adding the pre-reference interest amount to the principal amount during which the proceedings remained pending before the Tribunal, as this amounted the Tribunal to levy interest on compounded basis and as per Section 31(7) of the Act, the principal amount should remain static.
The Court held that Section 31(7) of the Act recognized only two periods for which interest might be awarded. These are:
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period falling between the date on which the cause of action arose till the Award was made;
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period starting from the date of the Award till the actual payment of the sums that the tribunal might have found the respondent liable to pay.
The Court relied on Sayeed Ahmed and Company v. State of U.P., (2009) 12 SCC 26, wherein it was held that the distinction between the pre-reference and pendente-lite period had clearly vanished and was inapplicable to the arbitrations governed by the Act.
Therefore, the Court opined that it was not open for the Tribunal to frame the directions for interest payment in accordance with Para 58(b) of the arbitral award as the same was contrary to Section 31(7) of the Act.
The Court opined that, thus in the present case, the period for which interest might be awarded would start from July 1987 up to 28-10-2020 and the period between 1-1-2009 and 31-12-2016 should be excluded.
Thus, the Court set aside the directions contained in Para 58(b) of the arbitral award.
Accordingly, considering the aforesaid terms, the Court allowed the appeal.
[National Projects Constructions Corporation v. Interstate Construction, 2023 SCC OnLine Del 4537, decided on 1-8-2023]
Advocates who appeared in this case :
For the Appellant: Dhruv Mehta, Senior Advocate; Rajat Arora, Shyam Agarwal and Mariya Shahab, Advocates;
For the Respondent: M. Lall, Rahul Yadav and Rajat Sharma, Advocates
*Judgment by- Justice Yashwant Varma
Buy Arbitration and Conciliation Act, 1996 HERE
