Indian Oil Corp. Ltd v. U.B. Engineering Ltd and Anr. SLP(C) Nos. 24912-24913 of 2013
The Supreme Court in a recent judgment observed that the arbitral tribunal can grant post-award interest on the sum of the award which also includes the interest component.
Facts
In an arbitration proceeding between Indian Oil Corp. and U.B. Engineering, the learned Arbitrator awarded interest @18 % p.a. amounting to Rs.3,08,32,448.30 and further, interest on the interest amounting to Rs. 2,27,58,137.08. Thus, the learned Arbitrator awarded a total sum of Rs. 5,35,91,262.00.
The respondent in the present appeal, challenged the order in front of the Punjab and Haryana High Court wherein the court held that the appellant-original Claimant shall be entitled to the interest only upon the principal amount so awarded and shall not be entitled to the interest on the interest that is interest @ 18% p.a. on Rs. 2,27,58,137.08 (the interest component). Moreover, the court also o reduced the rate of interest from 18% p.a. to 9% p.a. even concerning the principal amount so awarded by the Arbitral Tribunal.
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court the Claimant approached the Supreme Court through Special Leave Petition.
1. Whether the learned Arbitrator could have awarded the interest on the interest of Rs. 2,27,58,137.08 from the date of award till realization?
2. Whether the same can be said to be interest on interest?
3. Whether the High Court was justified in reducing the interest from 18% to 9%?
In the case of Hyder Consulting (UK) Limited v. Governor, State of Orissa, (2015) 2 SCC 189, the court overruled the judgment of State of Haryana & Others v. S.L. Arora & Company and settled the law concerning interest on interest in an arbitral award. The court specifically held that there is nothing in the law that prevents the arbitrator from awarding post-award interest on the interest component. Further, the arbitrator is entitled to award interest in respect of the entire sum of the award which necessarily includes both the principal award and interest awarded on such principal amount.
Applying the law laid down by the court in Hyder Consulting, the court, in this case, concluded that the impugned judgment and order passed by the High Court denying the interest on the interest of Rs. 2,27,58,137.08 from the date of award till realization is unsustainable and the same deserves to be quashed and set aside and the award passed by the learned Arbitrator on the aforesaid aspect is required to be restored.
Moreover, in Bharat Heavy Electricals Limited v. Globe Hi-fabs Limited (2015) 5 SCC 718, the court with similar facts as the case at hand, noted that:
“We cannot see how a lesser interest can be awarded when the statute specifically provides that the rate of interest will be 18% p.a. and the arbitrator has accepted and awarded this rate of interest. Judges cannot legislate or amend the law by judicial decisions. They have to maintain judicial discipline and give their decisions in accordance with law. Hence the lesser rate of interest cannot be awarded because that would be amending the law which is not within the powers of the judiciary.”
The court on this basis concluded that the High Court was not justified in reducing the interest from 18% to 9% is concerned. As per Section 31(7)(b) of the Act, the sum directed to be paid by the arbitral award shall, unless the award otherwise directs, carry interest @ 18% p.a. from the date of the award to the date of payment.
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