Award Holder Cannot Seek Compound Interest When Tribunal Grants Only Simple Interest: Meghalaya High Court Quashes Executing Court Order In Arbitral Award Interest Dispute
Isabella Maria
The High Court of Meghalaya Single Bench of Justice B. Bhattacharjee set aside the Commercial Court’s order that had upheld the award holder’s method of computing interest and directed Power Grid Corporation of India Ltd. to pay an additional sum under an arbitral award. The Court held that the Executing Court had effectively altered the award by permitting a calculation that translated simple interest into a compounded figure, even though the arbitral award provided only for simple interest. The dispute related to the execution of an award arising from a contractual claim, with the parties presenting competing interest calculations. The Court clarified that an executing court cannot modify the nature of interest granted in an award and remitted the matter for a fresh assessment strictly in accordance with the award’s terms.
The dispute arose out of a contract awarded on 01-03-2012 for construction work relating to a 400 kV transmission line. Owing to disagreements between the contracting parties, the matter was referred to arbitration, and an arbitral award was issued on 30-12-2016 in favour of the award holder. The award directed payment of specified sums along with simple interest at stated rates from defined dates until payment. The award debtor challenged the award under the Arbitration and Conciliation Act, 1996, but the challenge was dismissed. No further appeal was pursued.
Following this, the award holder initiated execution proceedings seeking recovery of the awarded amount along with continuing interest. The award debtor deposited a portion of the sum and submitted its own calculation sheet claiming that the award stood satisfied. The award holder opposed this, submitting a different calculation sheet reflecting a higher amount, including interest computed on its interpretation of the award’s terms.
In the execution proceedings, both parties advanced contentions on how interest was to be calculated. The award debtor argued that the award permitted only simple interest, that interest could accrue only on the unpaid principal, and that any withdrawn amount could not continue to attract interest. The award holder contended that the awarded sum should include both principal and pre-award interest for the purpose of calculating further interest and disputed the award debtor's exclusion of interest on the portion earlier deposited.
The Court examined the dispute concerning whether interest awarded for the pre-award period merged with the principal for calculating post-award interest. It referred to the legal position recorded in Hyder Consulting, quoting 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.” It also quoted the further principle that once included, “the amount would be the sum arrived at after the merging of interest with the principal; the two components having lost their separate identities.”
The Court then recorded the legal effect of Section 31(7), stating: “the Arbitral Tribunal has the discretion within overall framework of section 31(7) of the Arbitration and Conciliation Act, 1996, to provide interest till the date of payment. Once such discretion is exercised by the Arbitral Tribunal in granting interest, question of additional or compound interest under clause (b) of sub-section (7) of Section 31 would not arise. The principle of Hyder Consulting (supra) would apply when the Arbitral Tribunal leaves a matter unqualified or silent.”
To assess whether such circumstances existed in this case, the Court examined the operative portion of the arbitral award, noting the direction: “We also award and direct that the Respondents shall pay simple interest @12% per annum on the awarded amount… till the date of payment… within 90 (ninety) days of the receipt of this award.” It also recorded the stipulation that interest would increase “@2% p.a. (subject to a maximum of overall simple interest of 18% p.a.) for every quarter of delay.”
The Court stated that the tribunal “had not granted compound interest rather awarded composite interest i.e. simple interest per annum effective from the dates mentioned… till the date of payment.” It further observed that the tribunal had not directed interest on the aggregate of the principal and pre-award interest. The Court then quoted: “there is no indication of grant of any interest upon interest or compound interest on the principal amount awarded by the Arbitral Tribunal. The respondent did not challenge this aspect of the award. The award has since attained finality and now it is not open to the respondent to claim either compound interest or post award interest on the aggregate of the principal amount and pre award interest by applying general principle of law.”
The Court recorded that “the calculation sheet of the respondent was not prepared strictly in accordance with the terms set out in the arbitral award” and that the Executing Court “was not correct in passing the impugned order by accepting the calculation.”
Regarding the award debtor’s earlier deposit of 25 percent of the awarded sum, the Court quoted the principle that “there can be no liability to pay interest on the amount that stands paid/withdrawn” and that interest is payable “only on amount that is not paid.” It concluded that the claim of interest on the entire principal even after the withdrawal of the deposited amount “is not valid in the eye of law.”
As to the award debtor’s own calculation, the Court observed that excluding interest on the deposited portion prior to the date of deposit “appears to be not in accordance with the stipulation made in the arbitral award” and noted that the award holder “is entitled to receive interest on the entire principal amount till 27-08-2019.”
The Court concluded by stating that “the impugned order dated 05-02-2025 cannot be sustained in law and is hereby set aside. The matter is remitted back to the Executing Court for reconsideration of the issue of interest under the arbitral award dated 30-10-2016. The parties are directed to file their respective calculation sheets afresh before the Executing Court in the light of the observations made herein above. The learned Executing Court, thereafter, shall proceed to dispose of the execution proceeding in accordance with law. The revision petition stands disposed of in the aforesaid terms.
Advocates Representing The Parties
For the Petitioners: Mr. A. Kumar, Senior Advocate with Mr. N. Khera, Advocate, and Ms. A. Syiem, Advocate
For the Respondents: Mr. V. K. Jindal, Senior Advocate with Mr. S. Goenka, Advocate
Case Title: Power Grid Corporation of India Ltd. v. M/s Mega Electricals
Neutral Citation: 2025: MLHC:1090
Case Number: CRP No. 7 of 2025
Bench: Justice B. Bhattacharjee
