M/S HYDER CONSULTING(UK) LTD. Vs. GOVERNER STATE OF ORISSA TR.CHIEF ENG.
Supreme Court of India (Full Bench (FB)- Three Judge)
Appeal (Civil), 3148 of 2012, Judgment Date: Nov 25, 2014
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3148 OF 2012
M/S. HYDER CONSULTING (UK) LTD. ... APPELLANT
VERSUS
GOVERNOR, STATE OF ORISSA THROUGH CHIEF
ENGINEER ... RESPONDENT
WITH
CIVIL APPEAL NO. 3147 OF 2012
CIVIL APPEAL NO. 3149 OF 2012
CIVIL APPEAL NO. 1390 OF 2013
S.L.P. (C) NO. 19895 OF 2008
S.L.P. (C) NO. 20282 OF 2008
S.L.P. (C) NO. 21896 OF 2010
S.L.P. (C) NO. 18614 OF 2012
JUDGMENT
H.L. Dattu, CJI.
1. In view of the reference order dated 13.03.2012, this Civil
Appeal and the matters connected therewith are placed before a three-Judge
Bench of this Court for consideration and decision. The question before
this Court is, whether the decision of this Court in State of Haryana and
Others v. S.L. Arora and Company., (2010) 3 SCC 690, wherein it is held
that an award of interest on interest from the date of award is not
permissible under sub- section (7) of section 31 of the Arbitration and
Conciliation Act, 1996 (for short, "the Act, 1996"), is in consonance with
earlier decisions of this Court. A two-Judge Bench of this Court, by the
said reference order, is of the opinion that the present appeal and the
connected matters would need to be heard by a Bench of three Judges of this
Court.
2. By the referral order dated 13.03.2012, it is found that the
learned counsel for the appellants therein would doubt the correctness of
the decision in the S.L. Arora case (supra) in light of McDermott
International INC v. Burn Standard Co. Ltd. and Others, (2006) 11 SCC 181;
Uttar Pradesh Cooperative Federation Limited v. Three Circles, (2009) 10
SCC 374; Oil and Natural Gas Commission v. M.C. Clelland Engineers S.A.,
(1999) 4 SCC 327; and Central Bank of India v. Ravindra and Others, (2002)
1 SCC 367. Therein, the appellants would contend that, in accordance with
the decision of this Court in the aforementioned cases, the interest
awarded on the principal amount upto the date of award, becomes the
principal amount for the purposes of awarding future interest under the
Act, 1996. The appellants would contend that the decision in the S.L. Arora
case (supra) inadvertently and erroneously assumed that the aforementioned
cases would not be applicable to it. Since the decision in the S.L. Arora
case (supra) negated the above stated principle, the appellants would
contend that the said case would require reconsideration by a larger Bench
of this Court.
FACTS :
Civil Appeal No.3148 of 2012
3. The present civil appeal came before a two-Judge Bench of this
Court against a judgment and final order dated 28.07.2010, passed by the
High Court of Orissa at Cuttack in Writ Petition (Civil) No. 5302 of 2009.
The said Writ Petition was filed challenging the orders dated 19.02.2009
and 26.03.2009, passed by the District Judge, Khurda in Execution Petition
No. 17 of 2006, whereby the learned District Judge had issued order of
attachment in favour of the appellant herein. The claim in the execution
petition was for the payment of Rs.8,92,15,993/-. The said claim included
in itself post award interest on the aggregate of the principal amount
awarded by the arbitral award and interest pendente lite thereon. By virtue
of arbitral award dated 26.04.2000, which was upheld by the Division Bench
of the High Court of Orissa by its order dated 28.06.2006, a principal
amount of Rs.2,30,59,802/- was awarded in favour of the appellant herein.
The said impugned judgment of the High Court of Orissa dated 28.07.2010,
inter alia, relied upon the decision of this Court in the S.L. Arora case
(supra) and quashed the orders passed by the learned District Judge,
whereby Rs.8,92,15,993/- was awarded in favour of the appellant. The
learned Judges of the High Court, vide the impugned judgment, directed the
executing court to re-calculate the total amount payable under the award
keeping in view the principles laid down in the S.L. Arora case (supra).
4. According to the referral order dated 13.03.2012, the
appellants contended that the S.L. Arora case (supra) was based on an
inadvertent erroneous assumption that McDermott case (supra) and the Three
Circles case (supra) were per incuriam in holding that interest awarded on
the principal amount upto the date of award becomes the principal amount
and, therefore, award of future interest thereon would not amount to award
of interest on interest. The S.L. Arora case (supra) held contrary to the
aforementioned principle. To support their contention, the appellants also
made a reference to the ONGC case (supra) and the Central Bank of India
case (supra).
ISSUES :
5. The issues that arise for the consideration of this Court are
firstly, whether in light of the Three Circles case (supra) and McDermott
case (supra) there exists any infirmity in the decision rendered by this
Court in the S.L. Arora case (supra); and secondly to determine whether sub-
section (7) of section 31 of the Act, 1996 could be interpreted to include
interest pendente lite within the sum payable as per the arbitral award,
for the purposes of awarding post-award interest.
SUBMISSIONS :
6. Shri K.K. Venugopal, learned Senior Counsel appearing for the
appellants herein, in the first instance, would submit that the decision in
the S.L. Arora case (supra) was incorrect in ignoring the earlier decisions
of this Court, namely the Three Circles case (supra), the McDermott case
(supra), the ONGC case (supra) and the Central Bank of India case (supra).
In light of the aforesaid latter cases, it is contended that the S.L. Arora
case (supra) wrongly held that the interest as envisaged under clause (b)
of sub- section (7) of section 31 of the Act, 1996 would apply only on the
principal amount awarded by the arbitral tribunal. Shri K.K. Venugopal
would further refer to the 246th Report of the Law Commission of India
titled as 'Amendments to the Arbitration and Conciliation Act, 1996' in
support of the above contention.
7. The submissions of Shri K.K. Venugopal could be summarized as
follows- firstly, that under clause (a) of sub- section (7) of section 31
of the Act, 1996, the award is for money and the sum for which the award is
made would include within it, the interest that may be awarded for the
period from the date of cause of action to the date of award; secondly,
that under clause (b) of sub- section (7) of section 31 of the Act, 1996,
the sum directed to be paid by the arbitral award is the sum awarded, which
is inclusive of interest pendente lite; thirdly, that there may be
scenarios wherein an award would be made only for interest as the claim
would relate only to interest and in such a case 18% per annum interest
would automatically attach to the given award; fourthly, that the
transaction on which the claim is made and the money is so awarded, merges
with the award and ceases to be the principal amount, so that interest
under clause (b) would be the totality; fifthly, that the comparison of the
amended section 34 of the Code of Civil Procedure, 1908 would show that
unless the phrase 'principal amount' is used in clause (a) for 'sum' and
again 'principal amount' is used in clause (b) for 'sum', the word 'sum'
would be the aggregate of the principal amount and interest; sixthly, that
the entirety of commercial transactions would be seriously affected if a
judgment debtor were to delay the payment of interest on the total amount,
as the gain to the judgment debtor on that element of interest is a loss to
the claimant for which he has no recourse; seventhly, the S.L. Arora case
(supra) was wrongly decided as the judgment is contrary to the Act, 1996 on
the grounds, inter alia, that it would be a misnomer to state that interest
would not be applicable on substantive claims as the same finds no mention
in the given provision; and lastly, 18% interest would be applicable
proprio vigore unless stopped by the award itself.
8. Per contra, Shri L. Nageshwara Rao, learned Senior Counsel and
Additional Solicitor General of India would submit that there was no
infirmity whatsoever in the S.L. Arora case (supra) and that, therefore,
the present reference was not required. Furthermore, the learned Additional
Solicitor General would submit that the term "sum" as found in sub- section
(7) of section 31 of the Act, 1996 should be read as "principal amount" as
held in the S.L. Arora case (supra).
DISCUSSION :
9. At the outset, it would be necessary to discuss the correctness
of the reference order in light of the S.L. Arora case (supra). This Court,
in the S.L. Arora case (supra), was required to adjudicate upon two primary
issues namely- firstly, whether sub- section (7) of section 31 of the Act,
1996 authorised the arbitral tribunal to award interest on interest from
the date of award; and secondly, whether the arbitral tribunal could grant
future interest from the date of award.
10. In the S.L. Arora case (supra), this Court had sought to
clarify whether the arbitral tribunal's power to grant post-award interest
extended only on the principal amount or on the aggregate of the principal
amount and the interest, as determined to be payable from the date of cause
of action to the date of award. On perusal of sub- section (7) of Section
31 of the Act, 1996, this Court observed:
"18. Section 31(7) makes no reference to payment of compound interest or
payment of interest upon interest. Nor does it require the interest which
accrues till the date of the award, to be treated as part of the principal
from the date of award for calculating the post-award interest. The use of
the words "where and insofar as an arbitral award is for the payment of
money" and use of the words "the Arbitral Tribunal may include in the sum
for which the award is made, interest ... on the whole or any part of the
money" in Clause (a) and use of the words "a sum directed to be paid by an
arbitral award shall ... carry interest" in Clause (b) of Sub-section (7)
of Section 31 clearly indicate that the section contemplates award of only
simple interest and not compound interest or interest upon interest. "A sum
directed to be paid by an arbitral award" refers to the award of sums on
the substantive claims and does not refer to interest awarded on the "sum
directed to be paid by the award". In the absence of any provision for
interest upon interest in the contract, the arbitral tribunals do not have
the power to award interest upon interest, or compound interest, either for
the pre-award period or for the post-award period."
(emphasis in original)
11. In the S.L. Arora case (supra), this Court highlighted that
there was a tendency among contractors to elevate the claims for interest
and costs to the level of substantive disputes, by categorizing them under
independent heads of claim. Further, it was noticed that, since
arbitrations usually have a high pendency period owing to prolonged
arbitration proceedings or intervening as well as post arbitral
litigations, the interest payable on the amount awarded often increases to
substantial amounts, sometimes even exceeding the actual amount awarded.
The Court, in the S.L. Arora case (supra), then sought to set out the legal
position on the award of interest to understand the authority of the
tribunal as envisioned in sub- section (7) of Section 31 of the Act, 1996.
12. The present reference requires this Court to reconsider the
decision in S.L. Arora case (supra), in light of previous decisions of this
Court in the McDermott case (supra) and the Three Circles case (supra). It
may be reiterated that the referral order dated 13.03.2012 takes note of
the contention of the appellants that the S.L. Arora case (supra)
erroneously held the Three Circles case (supra) and the McDermott case
(supra) to be per incuriam in holding that interest awarded on the
principal amount upto the date of award becomes the principal amount.
13. Before I consider the correctness of the aforementioned
decisions, it would be necessary to elaborate upon the concept of "per
incuriam". The latin expression per incuriam literally means 'through
inadvertence'. A decision can be said to be given per incuriam when the
Court of record has acted in ignorance of any previous decision of its own,
or a subordinate court has acted in ignorance of a decision of the Court of
record. As regards the judgments of this Court rendered per incuriam, it
cannot be said that this Court has "declared the law" on a given subject
matter, if the relevant law was not duly considered by this Court in its
decision. In this regard, I refer to the case of State of U.P. v.
Synthetics and Chemicals Ltd., (1991) 4 SCC 139, wherein Justice R.M.
Sahai, in his concurring opinion stated as follows:
"40. 'Incuria' literally means 'carelessness'. In practice per incuriam
appears to mean per ignoratium. English courts have developed this
principle in relaxation of the rule of stare decisis. The 'quotable in law'
is avoided and ignored if it is rendered, 'in ignoratium of a statute or
other binding authority'. ..."
14. Therefore, I am of the considered view that a prior decision of
this Court on identical facts and law binds the Court on the same points of
law in a later case. In exceptional circumstances, where owing to obvious
inadvertence or oversight, a judgment fails to notice a plain statutory
provision or obligatory authority running counter to the reasoning and
result reached, the principle of per incuriam may apply. The said principle
was also noticed in the case of Fuerst Day Lawson Ltd. v. Jindal Exports
Ltd., (2001) 6 SCC 356.
15. I would now analyse the decisions noticed by the referral order
dated 13.03.2012, to determine the correctness or otherwise of the present
reference, and consequently determine the power of an arbitral tribunal to
award interest under section 31 of the Act, 1996.
16. This Court in the Three Circles case (supra), placing its
reliance on earlier decisions, by its judgment, allowed the arbitral
tribunal to pass an award, enforcing interest on interest. This Court
observed that:
"31. Now the question comes which is related to awarding of 'interest on
interest'. According to the appellant, they have to pay interest on an
amount which was inclusive of interest and the principal amount and,
therefore, this amounts to a liability to pay 'interest on interest'. This
question is no longer res integra at the present point of time. This Court
in McDermott International Inc. v. Burn Standard Co. Ltd and Ors.,(2006) 11
SCC 181 has settled this question in which it had observed as follows (SCC
p.207, para 44):
"44. ...The Arbitrator has awarded the principal amount and interest
thereon upto the date of award and future interest thereupon which do not
amount to award on interest on interest as interest awarded on the
principal amount upto the date of award became the principal amount which
is permissible in law."
The High Court on this question has also rightly relied on a decision of
this Court in the case of Oil and Natural Gas Commission v. M.C. Clelland
Engineers S.A. (1999) 4 SCC 327. That being the position, we are unable to
find any ground to set aside the judgment of the Division Bench of the High
Court while considering the ground of 'interest on interest'."
17. It would be crucial to note that the reliance upon the
McDermott case (supra) by this Court in the Three Circles case (supra) is
not in consonance with the doctrine of precedents. On a perusal of the
McDermott case (supra), it is observed that the substantive proposition of
that case did not address the issue on the power of the tribunal to award
'interest on interest' or compound interest. The proposition on 'interest
on interest' was made only in one of the submissions of the respondent
therein. The ratio decidendi of that decision merely laid down the
discretion of the arbitrator to decide the rate of interest awarded under
sub- section (7) of section 31 of the Act, 1996, on a part or whole of the
award money. In this regard, the Court observed as follows:
"154. The power of the arbitrator to award interest for pre-award period,
interest pendent lite and interest post-award period is not in dispute.
Section 31(7)(a)provides that the arbitral tribunal may award 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 award is made, i.e., pre-award
period. This, however, is subject to the agreement as regard the rate of
interest on unpaid sum between the parties. The question as to whether
interest would be paid on the whole or part of the amount or whether it
should be awarded in the pre-award period would depend upon the facts and
circumstances of each case. The arbitral tribunal in this behalf will have
to exercise its discretion as regards (i) at what rate interest should be
awarded; (ii) whether interest should be awarded on whole or part of the
award money; and (iii) whether interest should be awarded for whole or any
part of the pre-award period.
155. The 1996 Act provides for award of 18% interest. The arbitrator in his
wisdom has granted 10% interest both for the principal amount as also for
the interim. By reason of the award, interest was awarded on the principal
amount. An interest thereon was upto the date of award as also the future
interest at the rate of 18% per annum.
156. However, in some cases, this Court has resorted to exercise its
jurisdiction under Article 142 in order to do complete justice between the
parties."
18. From the above-quoted paragraphs of the McDermott case (supra),
it is abundantly clear that the decision neither makes any reference to
awarding of compound interest nor does it allow post-award interest to be
imposed on the aggregate of the principal claim and interest pendente lite.
This Court had merely sought to clarify the position with respect to the
rate of interest awarded and further the power of this Court to invoke
Article 142 of the Constitution of India, 1950 to alter the said rate of
interest in order to do complete justice. Thus, it is evident from
paragraphs 154 to 156 of the McDermott case (supra), that the proposition
surrounding arbitral tribunal's authority to award of 'interest on
interest' was not deliberated upon but merely argued by the respondents
therein. However, this argument was erroneously relied upon in the Three
Circles case (supra) to decide upon the issue related to awarding of
'interest on interest' or compound interest.
19. This Court, therefore, in the S.L. Arora case (supra) has
disagreed with the reasoning laid down in the McDermott case (supra) as
well as the Three Circles case (supra). This Court, on perusal of the
relevant paragraphs in the aforesaid decisions, held that the observations
therein must be treated as per incuriam on the issue around awarding of
'interest on interest' or compound interest. It was observed that:
"28. ...But a careful reading of the decision in Mcdermott, shows that the
portion of Mcdermott extracted in Three Circles, assuming it to be the law
laid down in Mcdermott, is not a finding or conclusion of this Court, nor
the ratio decidendi of the case, but is only a reference to the contention
of the respondent in Mcdermott.
29. Paras 1 to 27 (of the SCC report) in Mcdermott state the factual
background. Paras 28 and 29 contain the submissions of the learned Counsel
for BSCL, the respondent therein. Paras 30 to 44 contain the submissions
made by the learned Counsel for Mcdermott, the appellant therein, in reply
to the submissions made on behalf of BSCL. The passage that is extracted in
Three Circles is part of para 44 of the decision which contains the last
submission of the learned Counsel for Mcdermott on the question of
interest. The reasoning in the decision starts from para 45. This Court
considered the several questions seriatum in paras 45 to 160. The question
relating to interest was considered in paras 154 to 159 relevant portions
of which we have extracted above. Therefore, the observation in Three
Circles that Mcdermott held that interest awarded on the principal amount
upto the date of award becomes the principal amount and therefore award of
future interest therein does not amount to award of interest on interest,
is per incuriam due to an inadvertent erroneous assumption."
20. I am in agreement with the aforesaid view in the S.L. Arora
case (supra). The decision in the McDermott case (supra) would not be
applicable, since it does not pertain to the issue of granting compound
interest on the post-award claim. This Court, in the McDermott case
(supra), did not consider the issue pertaining to award of 'interest upon
interest' or compound interest. It merely held that the interest must be
awarded on the principal amount upto the date of award. Thus, the McDermott
case (supra) would be wholly inapplicable to the issue for consideration by
this Bench.
21. Further, the decision of Three circles case (supra) did not
place reliance on the ratio decidendi of the McDermott case (supra) but
merely re-stated the contention raised by the respondent therein to decide
upon the issue of 'interest on interest' or compound interest. Therefore,
in my considered view, the Three Cirlces case (supra) would be deemed as
per incuriam in regard to the concept of awarding 'interest on interest' or
compound interest, due to such an inadvertent erroneous reliance upon the
McDermott case (supra).
22. At this stage, it would be necessary to take into
consideration, the decisions of this Court in the ONGC case (supra) as well
as the Central Bank of India case (supra). It was argued, as per the
referral order, that these decisions would support the proposition that
arbitral tribunals have the authority to award 'interest on interest' from
the date of the award.
23. On perusal of the ONGC case (supra), I find that this Court has
recognised and accepted the power of arbitral tribunals to award interest
upon interest. This Court has considered such an award as a requisite
compensatory measure for delayed payment and included such interest along
with the principal amount in the 'sum' so awarded. This Court observed as
follows:
"4. There cannot be any doubt that the Arbitrators have powers to grant
interest akin to Section 34 of the CPC which is the power of the court in
view of Section 29 of the Arbitration Act, 1940. It is clear that interest
is not granted upon interest awarded but upon the claim made. The claim
made in the proceedings is under two heads - one is the balance of amount
claimed under invoices and letter dated February 10, 1981 and the amount
certified and paid by the appellant and the second is the interest on
delayed payment. That is how the claim for interest on delayed payment
stood crystallized by the time the claim was filed before the Arbitrators.
Therefore, the power of the Arbitrators to grant interest on the amount of
interest which may, in other words, be termed as interest on damages or
compensation for delayed payment which would also become part of the
principal. If that is the correct position in law, we do not think that
Section 3 of the Interest Act has any relevance in the context of the
matter which we are dealing with in the present case. Therefore, the first
contention raised by Shri Datta, though interesting, deserves to be and is
rejected."
24. However, it would be pertinent to note that the ONGC case
(supra) as well as the Three Circles case (supra), both pertained to the
awards under the Arbitration Act, 1940 (for short "the Act, 1940"). The
Act, 1940 did not contain any specific provision dealing with the
arbitrator's power to grant interest. Further, it is a settled position
that the decisions of this Court regarding award of interest made under the
Act, 1940 are not applicable to arbitration held under the Act, 1996. In
this regard, I place reliance on the decision of this Court in Sayeed Ahmed
& Co. v. State of U.P. & Ors., (2009) 12 SCC 26, wherein it was observed
that:
"14. The decisions of this Court with reference to the awards under the old
Arbitration Act making a distinction between the pre-reference period and
pendente lite period and the observation therein that arbitrator has the
discretion to award interest during pendente lite period inspite of any bar
against interest contained in the contract between the parties are not
applicable to arbitrations governed by the Arbitration and Conciliation Act
1996."
25. Pursuant to the enactment of sub- section (7) of section 31 of
the Act, 1996, the difference between pre-reference period and pendente
lite period has been removed insofar as it relates to the award of interest
by arbitrator, unlike the position as under the Act, 1940. It would not be
appropriate for this Court, in matters pertaining to the Act, 1996, to rely
upon decisions which interpreted the arbitrator's power to award interest
under the Act, 1940. This position was further reiterated in Sree Kamatchi
Amman Constructions v. The Divisional Railway Manager (Works), Palghat and
Ors., (2010) 8 SCC 767.
26. Furthermore, I take note of the fact that the aforementioned
principle was applied by this Court in the S.L. Arora case (supra). It was
explicitly stated that since the ONGC case (supra) and Three Circles case
(supra) related to awards under the Arbitration Act, 1940, they can be of
no assistance in interpreting sub- section (7) of section 31 of the Act,
1996. I concur with the above reasoning to show the inapplicability of the
ONGC case (supra) and the Three Circles case (supra) to the present case.
27. The last case relied upon by the appellants herein is the
Central Bank of India case (supra). This Court in the Central Bank of India
case (supra), under Section 34 of the Code of Civil Procedure, 1908 (for
short, "the Code"), sought to determine whether the liability of the
borrower to pay interest on the principal sum, would include interest that
became merged with the principal sum adjudged. This aforesaid decision
discussed the scope for charging compound interest under Section 34 of the
Code. The Court sought to determine the meaning attached to phrases
'principal sum adjudged' and 'such principal sum', pursuant to the 1956
amendment to the Code. Further, the Court sought to determine whether such
'principal sum' would include liability to pay compound interest thereon.
However, the issue with respect to award of interest upon interest under
sub- section (7) of Section 31 of the Act, 1996 was not the subject matter
in the aforesaid decision.
28. In my considered view, the Central Bank of India case (supra)
cannot be relied upon by the appellants herein in support of their
contention that the arbitral tribunal possessed the power to award interest
on interest. The Central Bank of India case (supra) dealt with section 34
of the Code, and therefore may not be said to be wholly applicable to cases
under the Act, 1996. However, even if the principle in the said case is
held to be applicable to the Act, 1996, it would only support the view
endorsed by the S.L. Arora case (supra).
29. Lastly, it would be necessary to highlight the views of the
246th Report of the Law Commission of India, which suggested amendments to
the Act, 1996. On the question of 'Interest on Sums Awarded' at page 33 of
the said Report, the Commission was of the opinion that the words used in
sub- section (7) of Section 31 of the Act, 1996 are of wider import and the
scheme of the relevant provisions indicated that the award of interest on
interest is not only permitted but is also the norm. The Commission was of
the view that the decision in the S.L. Arora case (supra) required
reconsideration on the issue of awarding future interest on both, the
principal sum as well as the interest accrued till date of the award. In
light of the preceding discussion, I do not agree with the said view taken
by the Commission. It is my considered opinion that the decision in S.L.
Arora case (supra) is sound and wholly conclusive on the interpretation of
sub- section (7) of Section 31 of the Act, 1996 on the issue of awarding
'interest on interest'. The Law Commission had erred in relying upon the
ONGC case (supra) as well as the Three Circles case (supra), since these
decisions are not applicable to the present arbitration held under the Act,
1996.
30. Thus, I am of the considered opinion that, since the position
on the interpretation of sub- section (7) of Section 31 of the Act, 1996
regarding award of interest upon interest has been correctly decided in the
S.L. Arora case (supra), the present reference may not be required. The
decision of this Court in the Three Circles case (supra) was rightly held
to be passed on inadvertent erroneous assumption, as stated in the S.L.
Arora case (supra). The McDermott case (supra) did not deal with the
question pertaining to awarding of 'interest on interest' or compound
interest. Furthermore, the decision in the ONGC case (supra) pertained to
the Act, 1940, and, therefore, in light of the settled principle of law,
would not be applicable to cases under the Act, 1996. Lastly, the decision
in the Central Bank of India case (supra) did not deal with the issue
around interpretation of sub- section (7) of Section 31 of the Act, 1996,
nor did the principle laid down therein hold contrary to the decision in
S.L. Arora case (supra).
31. However, out of sheer deference to the learned two-Judge Bench
of this Court, I would clarify the apparent controversy around sub- section
(7) of section 31 of the Act, 1996. The said provision reads as follows:
"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 eighteen per centum per
annum from the date of the award to the date of payment."
32. On a bare perusal of the said section, I find that in the first
instance, it applies only to an arbitral award which is for the payment of
money. The power to award interest by the arbitral tribunal has been
divided into two stages- firstly, from the date of cause of action to the
date on which the arbitral award is made, and secondly, from the date of
award to the date of payment. The said classification was also noticed by
this Court in the Sayeed Ahmed case (supra). I will deal with these stages
separately as has been provided under the said provision itself.
33. Under clause (a) of sub- section (7) of section 31 of the Act,
1996, I find that it relates to the power of the arbitrator to impose
interest in the first stage as mentioned hereinabove, that is, from the
date of cause of action to the date of arbitral award. The said clause
begins with "Unless otherwise agreed by the parties", thereby at the onset
of the sub-section itself, the legislature has provided for a restriction
on the application of the said sub- section. In the event there is an
agreement between the parties to the arbitration, regarding the payment of
interest from the date on which the cause of action arose till the date on
which the award was made, the terms of the said agreement would prevail
over clause (a) of sub- section (7) of section 31 of the Act, 1996. This
Court, in the Sree Kamatchi Amman Constructions case (supra), observed as
follows:
"19. Section 37(1)(sic) of the new Act by using the words "unless otherwise
agreed by the parties" categorically clarifies that the arbitrator is bound
by the terms of the contract insofar as the award of interest from the date
of cause of action to the date of award. Therefore, where the parties had
agreed that no interest shall be payable, the Arbitral Tribunal cannot
award interest between the date when the cause of action arose to the date
of award."
34. In the context of the Act, 1996, the phrase "unless otherwise
agreed by the parties" was explained in the case of N.S. Nayak & Sons v.
State of Goa, (2003) 6 SCC 56. This Court observed that:
"14. ...The phrase "unless otherwise agreed by the parties" used in various
sections, namely, 17, 21, 23(3), 24(1), 25, 26, 29, 31, 85(2)(a) etc.
indicates that it is open to the parties to agree otherwise. During the
arbitral proceedings, right is given to the parties to decide their own
procedure. So if there is an agreement between the parties with regard to
the procedure to be followed by the arbitrator, the arbitrator is required
to follow the said procedure. Reason being, the arbitrator is appointed on
the basis of the contract between the parties and is required to act as per
the contract. However, this would not mean that in appeal parties can
contend that the appellate procedure should be as per their agreement. ..."
35. In the event that the terms of the given contract, as
applicable to the parties to the arbitration proceedings, are silent on the
question of interest payable in the first stage, as given under clause (a)
of sub- section (7) of section 31 of the Act, 1996, only then would the
provisions of the said clause apply. The said clause thereafter gives the
arbitral tribunal the discretion to include the interest in the sum for
which the award was made. The principles for levying such interest are
found in the said clause itself. They are as follows:
(1) Interest to be imposed at such rate as the arbitral tribunal deems
reasonable;
(2) The interest may be either on the whole or any part of the money; and
(3) The 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.
36. I take note that the arbitral tribunal has been given the
discretionary power of not only imposing interest, but also for determining
the rate of interest that could be imposed from the date of cause of action
to the date of the award. The arbitral tribunal has the discretion to
decide whether such interest would be imposed on the whole or a part of the
money awarded, and further whether it would be imposed for the entire
duration from the date of cause of action to the date of award, or on a
part of it. However, such discretion is not unfettered and is not
exercisable upon the mere whims and fancies of the tribunal. In Principles
of Statutory Interpretation, Justice G.P. Singh, Thirteenth Edition, 2012,
at p.482, it has been stated as follows:
"Even where there is not much indication in the Act of the ground upon
which discretion is to be exercised it does not mean that its exercise is
dependent upon mere fancy of the Court or Tribunal or Authority concerned.
It must be exercised in the words of Lord Halsbury, 'according to the rules
of reason and justice, not according to private opinion; according to law
and not humour; it is to be not arbitrary, vague and fanciful, but legal
and regular'."
37. It can be concluded that the discretion, whether to award
interest by the arbitral tribunal under clause (a), is necessarily to be
exercised as per the facts and circumstances of each case. The said
discretion must be within the parameters of the statute and in accordance
with the rule of law. Furthermore, the said clause states that the rate of
interest, if such interest is awarded by the arbitral tribunal, must be as
the said tribunal deems reasonable. It is settled law that discretion must
always be exercised lawfully.
38. At this stage, it would be relevant to consider the meaning of
the words "sum" and "interest" as used in clause (a) of sub- section (7) of
section 31 of the Act, 1996. It is settled principle of interpretation of
statutes that while interpreting the words of a statute, the context in
which they appear would be necessary to be taken into consideration. In
support of the said principle of contextual interpretation, I refer to a
Constitution Bench decision of this Court in Darshan Singh Balwant Singh v.
State of Punjab, 1953 SCR 319, wherein it was observed as follows:
"10. ...It is a cardinal rule of interpretation that the language used by
the legislature is the true depository of the legislative intent, and that
words and phrases occurring in a statute are to be taken not in an isolated
or detached manner dissociated from the context, but are to be read
together and construed in the light of the purpose and object of the Act
itself."
39. In the absence of a definition in the Act, 1996, I would notice
that the word "sum", would simply refer to money in common parlance.
Further, the dictionary meaning of the word may be taken into
consideration. Webster's Third New International Dictionary, Volume III
defines "sum" to mean, inter alia, the following:
"Sum: An indefinite or specified amount of money."
Black's Law Dictionary, Seventh Edition, 1999, defines "sum" as:
"sum. 1. A quantity of money."
P. Ramanatha Aiyar's Advanced Law Lexicon, Third Edition, 2005, Book 4,
defines "sum", inter alia, as the following:
"Sum. When used with reference to values, 'sum' imports a sum of money."
Corpus Juris Secundum, Volume LXXXIII, defines the word "sum" as follows:
"Sum. While the word 'sum' must be construed in connection with the
context, it has a definite meaning appropriate to use with reference to
dollars and cents, and, except where a different meaning plainly appears,
it is restricted in its application to money, and in sense it is lexically
defined as meaning money, and this is said to be the sense in which the
word is most commonly used."
40. Therefore, I find that the word "sum", in its natural meaning
and as per its most common usage, would mean money. The term "money" has
also been used in sub- section (7) of section 31 of the Act, 1996.
Therefore, I would not hesitate in finding that the terms "sum" and "money"
have been used by the legislature, in the given provision, interchangeably.
In this light, it would be pertinent to take note of the given clause once
again. The said clause states that interest may be awarded on the "sum" for
which the arbitral award is made, or the same could be read as- interest
may be awarded on the "money" for which the arbitral award is made. This
"money" for which the award is made, necessarily would refer to the money
as adjudicated by the arbitral tribunal, based on the claims of the
parties, to be paid under the award. In other words, it would simply refer
to the principal amount so awarded.
41. It would be necessary to understand the meaning of "interest"
as used under the said clause as well. Again, in the absence of a
definition under the Act, 1996, I would rely upon its meaning in common
parlance. For this, support of dictionaries can be taken.
42. Wharton's Law Lexicon, Fourteenth Edition, defines "interest"
as follows:
"Interest. 1. Money paid at a fixed rate per cent for the loan or use of
some other sum, called the principal."
Black's Law Dictionary, Seventh Edition, 1999, defines "interest" as:
"interest. 1. Advantage or profit, esp. of a financial nature."
Webster's Third New International Dictionary, Volume III defines "interest"
to mean, inter alia, the following:
"interest. The price paid for borrowing money generally expressed as a
percentage of the amount borrowed paid in one year."
Corpus Juris Secundum, Volume XLVII, explains the word "interest" as
follows:
"Interest is the compensation allowed by law, or fixed by the parties, for
the use or forbearance of money, or as damages for its detention."
Stroud's Judicial Dictionary, Seventh Edition, 2008, Volume 2, p. 1385,
defines the term "interest" as follows:
"Interest is compensation paid by the borrower to the lender for
deprivation of the use of his money."
43. Therefore, in light of the above, "interest" would be the
return or compensation for the use or retention by one person of a sum of
money belonging to or owed to another. It may be understood to mean the
amount which one has contracted to pay for the use of borrowed money. It is
a consideration paid either for the use of money or for forbearance in
demanding it, after it has fallen due, and thus, it could be said to be a
charge for the use or forbearance of a particular amount of money. In this
sense, it is a compensation allowed in law for use of money belonging to
another or for the delay in paying the said money after it has become
payable. This principle has also been noticed in the Central Bank case
(supra).
44. It may be pertinent to take note of the approach of English
Courts to interpret the term "interest". In Westminster Bank Ltd v. Riches,
[1947] A.C. 390, the House of Lords elaborated upon the term "interest" for
payment of moneys. Lord Wright observed that:
"The essence of interest is that it is a payment which becomes due because
the creditor has not had his money at the due date. It may be regarded
either as representing the profit he might have made if he had had the use
of the money, or conversely the loss he suffered because he had not that
use. The general idea is that he is entitled to compensation for the
deprivation. From that point of view it would seem immaterial whether the
money was due to him under a contract express or implied or a statute or
whether the money was due for any other reason in law."
45. In the case of Nicholas Pike v. The Commissioners for Her
Majesty's Revenue and Customs, [2013] UKUT 0225 (TCC), the House of Lords
observed as follows:
"15. First, interest is calculated by reference to an underlying debt. As
Megarry J put it in Euro Hotel (supra) at p 1084 b-f:-
"It seems to me that running through the cases there is the concept that as
a general rule two requirements must be satisfied for payment to amount to
interest, and a fortiori to amount to "interest of money". First, there
must be a sum of money by reference to which the payment which is said to
be interest is to be ascertained. ... Second, those sums of money must be
sums that are due to the person entitled to the alleged interest ... I do
not, of course, say that in every case these two requirements are
exhaustive, or that they are inescapable. Thus I do not see why payments
should not be "interest of money" if A lends money to B and stipulates that
the interest should be paid not to him but to X: yet for the ordinary case
I think they suffice".
...
20. Sixth, the mere fact that the payment by way of interest may be
aggregated with a payment of a different nature does not "denature" the
payment that is interest. This point was made in Chevron Petroleum UK Ltd
v. BP Petroleum Development Ltd [1981] STC 689 at p 694 g-j where Megarry
VC is reported as saying:-
"If in its nature a sum is "interest of money" I think it retains that
nature even if the parties to a contract provide for it to be wrapped up
with some other sum and the whole paid in the form of single indivisible
sum. The wrappings may conceal the nature of the contents, but they do not
alter them ... If the true nature of a sum of money is that it is "interest
of money" that sum will not be denatured, or transmuted into something
different, simply by being incorporated into some larger sum before being
made payable under the terms of the contract".
..."
46. It may be inferred from the aforesaid decisions, that for an
amount to be referred as "interest", it must, prima facie, fulfill two
conditions-
(1) There must be a sum of money by reference to which the payment of
interest may be ascertained.
(2) The sum of money must, generally, be due to the person entitled to the
interest.
Furthermore, it would be gainsaid in stating that the mere fact that a
payment of interest may be aggregated with a payment of a different nature,
the said aggregation would not alter the distinct nature of interest from
the money on which it is levied.
47. Further, this Court in the case of Bhai Jaspal Singh v. CCT,
(2011) 1 SCC 39, observed that:
"36. Interest is compensatory in character and is imposed on an assessee
who has withheld payment of any tax as and when it is due and payable. The
interest is levied on the actual amount of tax withheld and the extent of
delay in paying the tax on the due date. Essentially, it is compensatory
and different from penalty which is penal in character [see Pratibha
Processors v. Union of India, (1996) 11 SCC 101]."
48. Therefore, it may be concluded that the term "interest",
appears to be distinct from the principal amount on which it is imposed.
Furthermore, the imposition of an interest is stated to be for the purpose
of providing compensation for withholding the said principal amount or, as
in the case of clause (a) of sub- section (7) of Section 31 of the Act,
1996, for withholding the money awarded as per the claim, as determined by
the arbitral tribunal, from the date the cause of action arose till the
date when such award was made. In other words, interest is imposed to
compensate for the denial to one party, by the other party, of the money
which rightfully belongs to the said former party under the relevant
agreement governing the arbitration proceedings.
49. Having clarified sub-section (a) of sub- section (7) of section
31 of the Act, 1996, I would now consider clause (b) of the said provision.
As noticed above, clause (b) is applicable for the period from the date of
award to the date of payment. The applicability of clause (b) has also been
qualified by the legislature. The said clause uses the phrase "unless the
award otherwise directs", which would mean that in the event the arbitral
tribunal, in its award, makes a provision for interest to be imposed in
this second stage as envisaged by sub- section (7) of section 31 of the
Act, 1996, clause (b) would become inapplicable. By the said award, the
arbitral tribunal has the power to impose an interest for the post-award
period which may be higher or lower than the rate as prescribed under
clause (b). Even if the award states that no interest shall be imposed in
the post-award period, clause (b) cannot be invoked.
50. If the arbitral award is silent on the question of whether
there would be any post- award interest, only in that situation could
clause (b) be made applicable. In the said situation, it would be mandatory
as per law that the award would carry interest at the rate of 18% per annum
from the date of the award to the date of payment. The term used in the
given clause is "shall", therefore, if applicable, the imposition of
interest as per clause (b) would be mandatory.
51. It would be relevant also to take note of the case of H.P.
Housing & Urban Development Authority v. Ranjit Singh Rana, (2012) 4 SCC
505. In the Ranjit Singh Rana case (supra), this Court dealt with the
meaning of the word "payment" as under clause (b) of sub- section (7) of
section 31 of the Act, 1996 to ascertain when the liability to pay post-
award interest would come to an end. After making a reference to the S.L.
Arora case (supra), this Court went into the dictionary meaning of the word
"payment". The Court explained as follows:
"15. The word "payment" may have different meaning in different context but
in the context of Section 37(1)(b); it means extinguishment of the
liability arising under the award. It signifies satisfaction of the award.
The deposit of the award amount into the court is nothing but a payment to
the credit of the decree-holder. In this view, once the award amount was
deposited by the appellants before the High Court on 24-5-2001, the
liability of post-award interest from 24-5-2001 ceased. The High Court,
thus, was not right in directing the appellants to pay the interest @ 18%
p.a. beyond 24-5-2001."
52. Clause (b) of sub- section (7) of section 31 of the Act, 1996
further states that the interest as envisaged under the said provision
would be on the sum directed to be paid by an arbitral award. As noticed in
the discussion hereinabove, the term "sum", as in clause (a), refers simply
to the money directed to be paid as per the award, that is, the money as
adjudicated by the arbitral tribunal.
53. It is a settled principle of law that if the same word is used
more than once in the same provision of a statute, the intention of the
legislature must be to give the same meaning to the word at each place
where it is repeated. There would be a presumption that the said word is
used in the same sense throughout the given provision. According to Bennion
on Statutory Interpretation, Fifth Edition, 2008, p. 1160:
"Same words to be given same meaning. It is presumed that a word or phrase
is not to be taken as having different meanings within the same instrument,
unless this fact is made clear. Where therefore the context makes it clear
that the term has a particular meaning in one place, it will be taken to
have that meaning elsewhere."
54. In support of this principle, I refer to the Central Bank case
(supra), wherein a Constitution Bench of this Court observed as follows:
"42. ... Ordinarily, a word or expression used at [pic]several places in
one enactment should be assigned the same meaning so as to avoid "a head-on
clash" between two meanings assigned to the same word or expression
occurring at two places in the same enactment. It should not be lightly
assumed that "Parliament had given with one hand what it took away with the
other" (see Principles of Statutory Interpretation, Justice G.P. Singh, 7th
Edn. 1999, p. 113). That construction is to be rejected which will
introduce uncertainty, friction or confusion into the working of the system
(ibid, p. 119). While embarking upon interpretation of words and
expressions used in a statute it is possible to find a situation when the
same word or expression may have somewhat different meaning at different
places depending on the subject or context. This is however an exception
which can be resorted to only in the event of repugnancy in the subject or
context being spelled out. It has been the consistent view of the Supreme
Court that when the legislature used same word or expression in different
parts of the same section or statute, there is a presumption that the word
is used in the same sense throughout (ibid, p. 263). More correct statement
of the rule is, as held by the House of Lords in Farrell v. Alexander All
ER at p. 736b, "where the draftsman uses the same word or phrase in similar
contexts, he must be presumed to intend it in each place to bear the same
meaning". The court having accepted invitation to embark upon
interpretative expedition shall identify on its radar the contextual use of
the word or expression and then determine its direction avoiding collision
with icebergs of inconsistency and repugnancy."
55. It can be concluded that it is a sound rule of construction
whereby the same word appearing in the same section of the same statute
must be given the same meaning, unless there is anything to indicate the
contrary. The only exception to this rule of construction, whereby the said
principle may be rebutted, is by making reference to the context in which
the words are used. The word may be understood in a different sense, if the
context so requires that to be done. The context herein, that is, under
clause (a) and under clause (b) of sub- section (7) of section 31 of the
Act, 1996, does not appear to be divergent from one another. The word "sum"
has been used in both clauses in the context of what is to be paid as per
the arbitral award.
56. Before I conclude, it would be profitable to take note of the
Central Bank of India case (supra) with regard to the limited issue of
imposition of compound interest. While describing the role of the
legislature to relieve burdened debtors from being charged with oppressive
compound interest rates, this Court in the Central Bank of India case
(supra), stated that the practice of imposing such interest was
permissible, legal and judicially correct, if it was a consequence of a
voluntary agreement between the parties, except when the same was
superseded by legislation. Furthermore, this Court observed that the
interest would be included as part of the principal amount only once it is
capitalised. This Court, in the Central Bank of India case (supra),
observed as follows:
"36. ...There is nothing wrong in the parties voluntarily entering into
transaction, evidenced by deeds incorporating covenant or stipulation for
payment of compound interest at reasonable rates, and authorising the
creditor to capitalise the interest on remaining unpaid so as to enable
interest being charged at the agreed rate on the interest component of the
capitalised sum for the succeeding period. Interest once capitalised, sheds
its colour of being interest and becomes a part of principal so as to bind
the debtor/borrower."
57. To support the above principle, whereby it is stated that
compound interest is permissible only as a consequence of an explicit
statutory provision, I take note of the case of Union of India v. Tata
Chemicals Ltd., (2014) 6 SCC 335 wherein this Court observed as follows:
"38. Providing for payment of interest in case of refund of amounts paid as
tax or deemed tax or advance tax is a method now statutorily adopted by
fiscal legislation to ensure that the aforesaid amount of tax which has
been duly paid in prescribed time and provisions in that behalf form part
of the recovery machinery provided in a taxing statute. Refund due and
payable to the assessee is debt-owed and payable by the Revenue. The
Government, there-being no express statutory provision for payment of
interest on the refund of excess amount/tax collected by the Revenue,
cannot shrug off its apparent obligation to reimburse the deductors lawful
monies with the accrued interest for the period of undue retention of such
monies. ..."
58. I may also take note of the decision in Parkside Leasing Ltd v.
Smith (Inspector of Taxes) [1985] 1 WLR 310, wherein the Chancery Division,
while discussing the difference between the receipt of proceeds by cash or
by cheque, was of the view that it would be the actual "receipt" of the
proceeds, in either case, that places such proceeds at the disposal of the
payee. The said decision relied upon D&C Builders Ltd. v. Rees [1966] 2
Q.B. 617, wherein Lord Denning observed that:
"...The cheque, when given, is conditional payment. When honoured, it is
actual payment. ..."
In other words, the Parkside Leasing Ltd. case (supra) was of the view that
money would be "paid" only when the recipient would have the option to
utilise the said money and exercise willful discretion.
59. For the purposes of the Act, 1996, interest could be included
within the principal amount only when the said aggregate amount is paid to
the party in whose favour the arbitral award was passed. In other words,
once the interest amount is within the physical and actual possession of
the party so entitled to it, only then could the interest amount be said to
have merged with the principal amount. Therefore, in the present scenario,
the appellants would not be entitled to claim post-award interest on the
aggregate of the principal amount and interest pendente lite, since the
said aggregate sum was not in the actual physical possession of the
appellants herein. Further, I take note that sub- section (7) of section 31
of the Act, 1996, neither makes reference to compounding of interest, nor
to awarding interest on interest.
60. Therefore, in my considered view, the term "sum" as used in
clause (b) of sub- section (7) of section 31 of the Act, 1996 would have
the same meaning as assigned to the word under clause (a) of the same
provision. It would refer to the money as adjudicated by the arbitral
tribunal based on the claim of the parties to the arbitral proceedings. It
has already been noticed that this money would be distinct from the
interest as may have been awarded by the arbitral tribunal under clause (a)
of sub- section (7) of section 31 of the Act, 1996. Therefore, the interest
under clause (b) would be imposed on money awarded by the arbitral tribunal
on the basis of the claims of the parties, and the said money cannot merge
within it any interest as imposed in the period from the date of cause of
action to the date of the award.
61. In light of the above discussion, the reference is answered in
the following terms-
I find no infirmity with the S.L. Arora case (supra), whereby it was
held that if the arbitral award is silent about interest from the date of
award till the date of payment, the person in whose favour the award is
made will be entitled to interest at 18% per annum on the principal amount
awarded, from the date of award till the date of payment.
62. In view of the above, while answering the referral order, Civil
Appeal No. 3148 of 2012, along with all connected matters, is remanded back
to an appropriate two-Judge Bench of this Court for adjudication.
..............CJI.
[H.L. DATTU]
NEW DELHI,
NOVEMBER 25, 2014.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 3148 OF 2012
M/S. HYDER CONSULTING (UK) LTD. .... APPELLANT
VERSUS
GOVERNOR STATE OF ORISSA TH. CHIEF ENG. .. RESPONDENT
WITH
SLP (C) No. 19895/2008
SLP (C) No. 20282/2008
CIVIL APPEAL No. 3149 OF 2012
CIVIL APPEAL No. 3147 OF 2012
SLP (C) No. 18614/2012
CIVIL APPEAL No. 1390 OF 2013
SLP (C) No. 21896/2010
1
2 JUDGMENT
S. A. BOBDE, J.
1. I have had the advantage of reading the Judgment of my Lord, the
Chief Justice. I entirely agree that the findings of this Court in State
of Haryana and Others v. S.L. Arora and Company, (2010) 3 SCC 690 that
Uttar Pradesh Cooperative Federation Limited v. Three Circles, (2009) 10
SCC 374 was incorrectly founded upon the decision in McDermott
International INC v. Burn Standard Co. Ltd., (2006) 11 SCC 181 and that
such reliance was not in consonance with the doctrine of precedent. The
McDermott case is not an authority on the question whether the Arbitrator
may award compound interest nor does that decision sanction post-award
interest be imposed on the aggregate sum and interest pendent lite. The
Arbitral Tribunal's authority to award "interest on interest" was not
discussed therein. This Court, therefore, while deciding State of Haryana
and Others v. S.L. Arora and Company, (2010) 3 SCC 690, rightly refused to
treat the McDermott case as well as the Three Circles case as authorities
for awarding "interest on interest" and held that both were wrongly
decided. Further, the decisions in ONGC v. M.C. Clelland Engineers S.A.,
(1999) 4 SCC 327 as well as the Three Circles case pertain to an Award
under the Arbitration Act, 1940, which did not contain a specific provision
dealing with the arbitrator's power to grant interest. Likewise, the
Central Bank of India v. Ravindra and Others, (2002) 1 SCC 367 case arose
under Section 34 of the Code of Civil Procedure, 1908 (hereinafter referred
to as "the CPC"), and cannot be treated as an authority for award of
interest under clause (7) of Section 31 of the Arbitration Act, 1996
(hereinafter referred to as "the Act").
2. It is not possible to agree with the conclusion in S.L. Arora's
case that Section 31(7) of the Act does not require that interest, which
accrues till the date of the Award, be included in the "sum" from the date
of Award for calculating the post-award interest. In my humble view, this
conclusion does not seem to be in consonance with the clear language of
Section 31(7) of the Act.
3. Sub-section (7) of Section 31 of the Act, which deals with the power
of the Arbitral Tribunal to award interest, reads as follows:
"Sub-section (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 eighteen per centum per
annum from the date of the award to the date of payment."
4. Clause (a) of sub-section (7) provides that where an Award is made
for the payment of money, the Arbitral Tribunal may include interest in the
sum for which the Award is made. In plain terms, this provision confers a
power upon the Arbitral Tribunal while making an Award for payment of
money, to include interest in the sum for which the Award is made on either
the whole or any part of the money and for the whole or any part of the
period for the entire pre-award period between the date on which the cause
of action arose and the date on which the Award is made. To put it
differently, sub-section (7)(a) contemplates that an Award, inclusive of
interest for the pre-award period on the entire amount directed to be paid
or part thereof, may be passed. The "sum" awarded may be principal amount
and such interest as the Arbitral Tribunal deems fit. If no interest is
awarded, the "sum" comprises only the principal. The significant words
occurring in clause (a) of sub-section (7) of Section 31 of the Act are
"the sum for which the award is made." On a plain reading, this expression
refers to the total amount or sum for the payment for which the Award is
made. Parliament has not added a qualification like "principal" to the
word "sum," and therefore, the word "sum" here simply means "a particular
amount of money." In Section 31 (7), this particular amount of money may
include interest from the date of cause of action to the date of the award.
5. The Oxford Dictionary gives the following meaning to the word "sum":
Sum, 'if noun':- A particular amount of money.
Sum, 'if verb':- The total amount resulting from the addition of two or
more numbers, amounts, or items.
6. In Black's Law Dictionary, the word "sum" is given the following
meaning:-
"SUM. In English law- A summary or abstract; a compendium; a collection.
Several of the old law treatises are called "sum." Lord Hale applies the
term to summaries of statute law. Burrill. The sense in which the term is
most commonly used is "money"; a quantity of money or currency; any amount
indefinitely, a sum of money, a small sum, or a large sum. U.S. v. Van
Auken, 96 U.S. 368, 24 L.Ed. 852; Donovan v. Jenkins, 52 Mont. 124, 155 P.
972, 973."
7. Thus, when used as a noun, as it seems to have been used in this
provision, the word "sum" simply means "an amount of money"; whatever it
may include - "principal" and "interest" or one of the two. Once the
meaning of the word "sum" is clear, the same meaning must be ascribed to
the word in clause (b) of sub-section (7) of Section 31 of the Act, where
it provides that a sum directed to be paid by an Arbitral Award "shall
carry interest ........" from the date of the Award to the date of the
payment i.e. post-award. In other words, what clause (b) of sub-section
(7) of Section 31 of the Act directs is that the "sum," which is directed
to be paid by the Award, whether inclusive or exclusive of interest, shall
carry interest at the rate of eighteen per cent per annum for the post-
award period, unless otherwise ordered.
8. Thus, sub-section (7) of Section 31 of the Act provides, firstly,
vide clause (a) that the Arbitral Tribunal may include interest while
making an award for payment of money in the sum for which the Award is made
and further, vide clause (b) that the sum so directed to be made by the
Award shall carry interest at a certain rate for the post award period.
9. The purpose of enacting this provision is clear, namely, viz. to
encourage early payment of the awarded sum and to discourage the usual
delay, which accompanies the execution of the Award in the same manner as
if it were a decree of the court vide Section 36 of the Act.
10. In this view of the matter, it is clear that the interest, the sum
directed to be paid by the Arbitral Award under clause (b) of sub-section
(7) of Section 31 of the Act is inclusive of interest pendent lite.
11. At this juncture, it may be useful to refer to Section 34 of the CPC,
also enacted by Parliament and conferring the same power upon a court to
award interest on an award i.e. post-award interest. While enacting
Section 34, CPC, Parliament conferred power on a court to order interest
"on the principal sum adjudged" and not on merely the "sum" as provided in
the Arbitration Act. The departure from the language of Section 34 CPC in
Section 31 (7) of the Act, 1996 is significant and shows the intention of
Parliament.
12. It is settled law that where different language is used by
Parliament, it is intended to have a different effect. In the Arbitration
Act, the word "sum" has deliberately not been qualified by using the word
"principal" before it. If it had been so used, there would have been no
scope for the contention that the word "sum" may include "interest." In
Section 31(7) of the Act, Parliament has deliberately used the word "sum"
to refer to the aggregate of the amounts that may be directed to be paid by
the Arbitral Tribunal and not merely the "principal" sum without interest.
13. Thus, it is apparent that vide clause (a) of sub-section (7) of
Section 31 of the Act, Parliament intended 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. Thereupon, the Arbitral Tribunal may direct interest to
be paid on such "sum" for the post-award period vide clause (b) of sub-
section (7) of Section 31 of the Act, at which stage the amount would be
the sum arrived at after the merging of interest with the principal; the
two components having lost their separate identities.
14. In fact this is a case where the language of sub-section 7 clause (a)
and (b) is so plain and unambiguous that no question of construction of a
statutory provision arises. The language itself provides that in the sum
for which an award is made, interest may be included for the pre-award
period and that for the post-award period interest up to the rate of
eighteen per cent per annum may be awarded on such sum directed to be paid
by the Arbitral Award.
In such a situation one is reminded of the decision in Ganga Prasad Verma
(Dr.) v. State of Bihar, 1995 Supp (1) SCC 192 Para 5, where this Court
held that, "Where the language of the Act is clear and explicit, the court
must give effect to it, whatever may be the consequences, for in that case
the words of the statute speak the intention of the Legislature."
Similarly, in Keshavji Ravji & Co. v. CIT, (1990) 2 SCC 231, a three-Judge
Bench of this Court explained the rule of literal interpretation as under
(SCC p.242, Para 11): "If the intendment is not in the words used it is
nowhere else. The need for interpretation arises when the words used in the
statute are, on their terms, ambivalent and do not manifest the intention
of the legislature."
We may also refer to the decision of the Privy Council in Pakala Narayana
Swami v. Emperor, AIR 1939 PC 47, wherein Lord Atkin observed that, "when
the meaning of words is plain, it is not the duty of courts to busy
themselves with supposed intentions." This view was upheld recently by
this Court in T.N. State Electricity Board v. Central Electricity
Regulatory Commission, (2007) 7 SCC 636.
In fact the settled view on this subject has been to admit results of
construction even if they be strange or surprising[1], unreasonable or
unjust or oppressive[2]. The Privy Council in Emperor v. Benoarilal Sarma,
AIR 1945 PC 48 (p. 53), emphasised, "Again and again, this Board has
insisted that in construing enacted words we are not concerned with the
policy involved or with the results, injurious or otherwise which may
follow from giving effect to the language used."
In the case of Nasiruddin v. Sita Ram Agarwal, (2003) 2 SCC 577 (Para 37),
a three-Judge Bench of this Court, made it clear that the Court's
jurisdiction cannot be invoked to interpret a statute so as to add or
subtract words or read something into a provision which is not there.
Infact, Maxwell on the Interpretation of Statutes, states, "where the
language is plain and admits of but one meaning, the task of interpretation
can hardly be said to arise. "The decision in this case," said Lord Morris
of Borth-y-Gest in a revenue case, "calls for a full and fair application
of particular statutory language to particular facts as found. The
desirability or the undesirability of one conclusion as compared with
another cannot furnish a guide in reaching a decision." [3] Where, by the
use of clear and unequivocal language capable of only one meaning, anything
is enacted by the legislature, it must be enforced however harsh or absurd
or contrary to common sense the result may be. [4] The interpretation of a
statute is not to be collected from any notions which may be entertained by
the court as to what is just and expedient:[5] words are not to be
construed, contrary to their meaning, as embracing or excluding cases
merely because no good reason appears why they should not be embraced or
excluded.[6]
Tindal, C.J. in the Sussex Peerage[7] case, summarised this principle as
follows: "If the words of the Statute are in themselves precise and
unambiguous then no more can be necessary than to expound those words in
their natural and ordinary sense. The words themselves do alone in such
cases best declare the intent of the law giver." This cardinal principle of
construction was first stated by the United States Supreme Court in its
landmark decision of Caminetti v. United States, 242 U.S. 470, 485 (1917),
whereby Justice Day observed, "where the language is plain and admits of no
more than one meaning the duty of interpretation does not arise."
15. In the result, I am of the view that S.L. Arora's case is wrongly
decided in that it holds that a sum directed to be paid by an Arbitral
Tribunal and the reference to the Award on the substantive claim does 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 does not have the power to
award interest upon interest, or compound interest either for the pre-award
period or for the post-award period. Parliament has the undoubted power to
legislate on the subject and provide that the Arbitral Tribunal may award
interest on the sum directed to be paid by the Award, meaning a sum
inclusive of principal sum adjudged and the interest, and this has been
done by Parliament in plain language.
..................................................J.
[S.A. BOBDE]
NEW DELHI,
NOVEMBER 25th, 2014
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.3148 OF 2012
M/s Hyder Consulting (UK) Ltd. Appellant(s)
VERSUS
Governor State of Orissa
through Chief Engineer Respondent(s)
WITH
Special Leave Petition (C) No.19895 of 2008
Special Leave Petition (C) No.20282 of 2008
Civil Appeal No.3149 of 2012
Civil Appeal No.3147 of 2012
Special Leave Petition (C) No.18614 of 2012
Civil Appeal No.1390 of 2013
Special Leave Petition (C) No.21896 of 2010
J U D G M E N T
Abhay Manohar Sapre, J.
1. I have had the benefit of reading the scholarly Judgments of My Lord
the Chief Justice as also my learned brother Bobde J.
2. With great respect, I find myself in complete agreement with the
reasoning and the eventual conclusion arrived at by brother Bobde J. Even
though, the judgment delivered by brother Bobde J. encapsulates everything
of what is required to be said, I, however, looking to the point involved
and very ably argued by all learned senior counsel, wish to record my own
reasons, in addition to what has already been laid down.
3. Reiteration of facts is unnecessary. The only question that arises
for determination in the instant lis is, "Whether grant of interest by the
Arbitral Tribunal under Section 31(7) of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as 'the Act") amounts to granting
"interest on interest"?
4. The aforesaid question can be answered by a plain and simple reading
of Section 31(7) of the Act which reads as under:
"31(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 eighteen per centum per
annum from the date of the award to the date of payment."
5. Section 31(7)(a) of the Act deals with grant of pre-award interest
while sub-clause (b) of Section 31(7) of the Act deals with grant of post-
award interest. Pre-award interest is to ensure that arbitral proceedings
are concluded without unnecessary delay. Longer the proceedings, would be
the period attracting interest. Similarly, 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 other words, if the
Arbitral Tribunal has awarded post-award interest payable from the date of
award to the date of payment at a particular rate in its discretion then it
will prevail else the party will be entitled to claim post-award interest
on the awarded sum at the statutory rate specified in clause (b) of Section
31(7) of the Act, i.e., 18%. Thus, there is a clear distinction in time
period and the intended purpose of grant of interest.
6. Section 31(7)(a) employs the words "...the arbitral tribunal may
include in the sum for which the award is made interest...". The words
"include in the sum" are of utmost importance. This would mean that pre-
award interest is not independent of the "sum" awarded. If in case, the
Arbitral Tribunal decides to award interest at the time of making the
award, the interest component will not be awarded separately but it shall
become part and parcel of the award. An award is thus made in respect of a
"sum" which includes within the "sum" component of interest, if awarded.
7. Therefore, for the purposes of an award, there is no distinction
between a "sum" with interest, and a "sum" without interest. Once the
interest is "included in the sum" for which the award is made, the original
sum and the interest component cannot be segregated and be seen independent
of each other. The interest component then looses its character of an
"interest" and takes the colour of "sum" for which the award is made.
8. There may arise a situation where, the Arbitral Tribunal may not
award any amount towards principal claim but award only "interest". This
award of interest would itself then become the "sum" for which an award is
made under Section 31(7)(a) of the Act. Thus, in a pre-award stage, the
legislation seeks to make no distinction between the sum award and the
interest component in it.
9. Therefore, I am inclined to hold that the amount award under Section
31(7)(a) of the Act, whether with interest or without interest, constitutes
a "sum" for which the award is made.
10. Coming now to the post-award interest, Section 31(7)(b) of the Act
employs the words, "A sum directed to be paid by an arbitral award...".
Sub-clause (b) uses the words "arbitral award" and not the "arbitral
tribunal". The arbitral award, as held above, is made in respect of a "sum"
which includes the interest. It is, therefore, obvious that what carries
under Section 31(7)(b) of the Act is the "sum directed to be paid by an
arbitral award" and not any other amount much less by or under the name
"interest". In such situation, it cannot be said that what is being
granted under Section 31(7)(b) of the Act is "interest on interest".
Interest under sub-clause (b) is granted on the "sum" directed to be paid
by an arbitral award wherein the "sum" is nothing more than what is arrived
at under sub-clause (a).
11. Therefore, in my view, the expression "grant of interest on interest"
while exercising the power under Section 31(7) of the Act does not arise
and, therefore, the Arbitral Tribunal is well empowered to grant interest
even in the absence of clause in the contract for grant of interest.
12. My aforesaid interpretation of Section 31 (7) of the Act is based on
three golden rules of interpretation as explained by Justice G.P. Singh -
Interpretation of Statute (13th Edition- 2012) where the learned author has
said that while interpreting any Statue, language of the provision should
be read as it is and the intention of the legislature should be gathered
primarily from the language used in the provision meaning thereby that
attention should be paid to what has been said as also to what has not been
said; second, in selecting out of different interpretations "the Court
will adopt that which is just, reasonable, and sensible rather than that
which is none of those things" ; and third, when the words of the Statute
are clear, plain or unambiguous, i.e., they are reasonably susceptible to
only one meaning , the Courts are bound to give effect to that meaning
irrespective of the consequence (see pages 50, 64, and 132). I have kept
these principles in mind while interpreting Section 31(7) of the Act.
........................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
November 25, 2014.
-----------------------
[1]
[2] London Brick Company Ltd. v. Robinson, [1943] 1 ALL ER 23, p. 26
(HL).
[3]
[4] IRC v. Hinchy, [1960] 1 ALL ER 505, pp. 508, 512 (HL).
[5]
[6] Shop and Store Developments Ltd. v. I.R.C. [1967] 1 A.C. 472, per
Lord Morris of Borth-y-Gest at p. 493. But see I.R.C. v. Bates [1965] I
W.L.R. 1133, per Lord Denning M.R., affirmed in H.L. at [1967] 2 W.L.R. 60
sub. Nom. Bates v. I.R.C.; Luke v. I.R.C. [1963] A.C. 557, per Lord Reid.
[7]
[8] Cartledge v. E. Jopling & Sons, Ltd. [1963] A.C. 758. Cf. Miller
v. Salomons [1853] 7 Ex. 475, per Pollock C.B.; Re British Farmers', etc.,
Co. (1878) 48 L.J.Ch. 56, per Jessel M.R.; Magor and St. Mellons R.D.C. v.
Newport Corporation [1952] A.C. 189.
[9]
[10] Gwynne v. Burnell (1840) 7 Cl. & F. 572 per Coleridge J.
[11]
[12] Whitehead v. James Stott Ltd. [1949] 1 K.B. 358; Galashiels Gas
Co., Ltd. v. O'Donell [1949] A.C. 275.
[13]
[14] [1844] 11 Cl & F 85, p. 143.
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58