Sanchayita Lahkar

The High Court of Delhi Single Bench of Justice Ravinder Dudeja has dismissed a petition filed under Article 227 of the Constitution of India challenging the grant of post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. The Court held that the phrase “unless the award otherwise directs” under the said provision governs the rate of interest and not the entitlement. It recorded that the arbitral award, being silent on the grant of post-award interest for certain claims, would attract statutory interest at 18% per annum. The petition was dismissed accordingly.

The dispute originated from a contract awarded by Northern Railway to the respondent. Owing to differences during execution, the arbitration clause in the agreement was invoked. The High Court, by order dated 16.11.2012, appointed a sole arbitrator to adjudicate the dispute.

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Three issues were framed by the arbitral tribunal: whether time was of the essence of the contract, whether any penalty or liquidated damages had been imposed, and whether the claimant was entitled to the amounts claimed. The first two issues were decided in favour of the respondent. On the third issue, the arbitrator awarded a total of ₹61,48,277 to the respondent, along with interest at 10% per annum on ₹10,84,285 from 18.01.2005 until realization. No interest was awarded on the remaining amount of ₹46,83,892 pertaining to Claims 2, 3, 4, and 5.

The petitioners challenged the award under Section 34 of the Arbitration and Conciliation Act before the District Judge, which was dismissed. An appeal bearing FAO No. 158/2024 was filed before the High Court.

Meanwhile, the respondent filed Execution Petition No. 55/2017 seeking enforcement of the award dated 13.10.2015. The petitioners deposited ₹82,86,547.62 towards satisfaction of the award. Subsequently, the respondent filed an application under Section 151 of the Civil Procedure Code on 20.09.2024 before the executing court, seeking post-award interest on ₹46,83,892—the component of the award that did not carry interest—calculating the amount at ₹77,18,000 from 13.10.2015 to 25.08.2024.

The executing court, by order dated 25.10.2024, directed the petitioners to pay the claimed amount, holding that the award attracted post-award interest under Section 31(7)(b) of the Act. The executing court placed reliance on the judgment of the Supreme Court in R.P. Garg v. The Chief General Manager, Telecom Department & Ors., Civil Appeal No. 10472/2024.

Challenging this order, the petitioners filed a petition under Article 227 before the High Court. It was submitted that the arbitrator had consciously granted interest only in relation to Claims 1 and 8 and had not awarded post-award interest on Claims 2 to 5. It was contended that the award had attained finality, and the executing court could not go beyond its terms.

The petitioners further argued that the power to award interest was discretionary and had been exercised by the arbitrator in a limited manner. It was submitted that Section 31(7)(b) did not require the grant of post-award interest unless so specified, and that the executing court’s action altered the terms of the award.

In response, the respondent argued that the provision imposes a statutory obligation to pay post-award interest unless the arbitrator specifies otherwise. The silence of the award on interest for certain claims was said to trigger the statutory rate of 18% per annum as set out in Section 31(7)(b) of the Act.

The Court examined Section 31(7) of the Arbitration and Conciliation Act, 1996, which comprises two parts. Clause (a) addresses pre-award interest and permits the arbitral tribunal to grant interest at a rate it considers reasonable. Clause (b) pertains to post-award interest, stating that:

“A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per cent per annum from the date of award to the date of payment.”

The Court recorded that Clause (a) grants discretion to the arbitrator to award interest for the pre-award period, and that this discretion is subject to the agreement between the parties. It was further recorded:

“Clause (b) of Section 31(7) of the Act gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract. If such discretion is not exercised by the Arbitral Tribunal, then the statute steps in and mandates the payment of interest at the rate specified for the post-award period.”

The Court cited the three-judge bench decision in Hyder Consulting (UK) Ltd. v. Governor, State of Orissa, AIR 2015 SC 856, where it was observed:

“Post-award interest is to ensure speedy payment in compliance of the award. Pre-award interest is at the discretion of Arbitral Tribunal, while the post-award interest on the awarded sum is mandate of statute—the only difference being that of rate of interest to be awarded by the Arbitral Tribunal.”

In addition, the Court referred to Morgan Securities & Credits Pvt. Ltd. v. Videocon Industries Ltd., Civil Appeal No. 5437/2022, wherein it was noted:

“The phrase ‘unless the award otherwise directs’ in Section 31(7)(b) only qualifies the rate of interest.”

Further, it was stated in the same judgment:

“Section 31(7)(b) does not fetter or restrict the discretion that the arbitrator holds in granting post-award interest. The arbitrator has the discretion to award post-award interest on a part of the sum.”

The Court also relied on R.P. Garg v. The General Manager, Telecom Department & Ors., Civil Appeal No. 10472/2024, wherein the Supreme Court held:

“The expression ‘unless the award otherwise directs’ in Section 31(7)(b) relates to rate of interest and not entitlement of interest. Clause (b) does not give the parties the right to ‘contract out’ interest for the post-award period.”

The Court recorded that where the arbitrator does not exercise discretion to fix a different rate of post-award interest, the statutory rate of 18% would become applicable. It was further stated:

“The grant of post-award interest is a statutory mandate and therefore even if non-grant of interest is not challenged by the petitioners, grant of post-award interest by the executing court would not amount to going beyond the decree.”

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The Court noted that the executing court acted within its jurisdiction in granting post-award interest, as the award had not specified any contrary direction. The challenge to the order was accordingly held to be without merit.

The Court held that the executing court was correct in directing the payment of post-award interest on the awarded sum under Claims 2 to 5 at the rate of 18% per annum. It recorded:

“I, thus find no illegality or perversity in the impugned order dated 25.10.2024, passed by the learned executing court.”

The petition was therefore dismissed.

Advocates Representing the Parties

For the Petitioners: Mr. Jivesh Kumar Tiwari, Standing Counsel with Ms. Samiksha, Advocate

For the Respondent: Mr. Sanjoy Bhaumik, Advocate

Case Title: Union of India & Anr. v. Sudhir Tyagi

Neutral Citation: 2025:DHC:2621

Case Number: CM(M) 4025/2024

Bench: Justice Ravinder Dudeja

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