August 8, 2025

Whether Post-Award Interest can be granted by an Arbitrator on sum of Principal amount awarded and Pre-Award Interest Amount – Ananya Pratap Singh

Amit Kapoor016 mins
Necessary Ingredients of an Enforceable Arbitration Agreement – Ananya Pratap Singh

Whether Post-Award Interest can be granted by an Arbitrator on sum of Principal amount awarded and Pre-Award Interest Amount – Ananya Pratap Singh 2

Supreme Court of India: Whether Post-Award Interest can be granted by an Arbitrator on sum of Principal amount awarded and Pre-Award Interest Amount

In M/S. Interstate Construction v. National Projects Constructions Corporation Ltd. 2025 INSC 699, the Supreme Court decided the issue of whether post-award interest can be awarded only on the principal amount or it is to be awarded on the sum of principal amount plus the pre-award interest awarded by the arbitrator.

Factual Matrix

In the facts of the case, National Projects Constructions Corporation Ltd. (‘NPCC’) awarded certain excavation and foundation work to Interstate Construction (‘IC’). IC completed the work and was paid the contractual dues by NPCC. However, NPCC withheld certain amounts from these payments on account of recoveries. This resulted in dispute between the parties and IC invoked arbitration. NPCC delayed appointment of arbitrator and after a series of litigation which is not relevant for the present purpose, finally, the arbitral tribunal was constituted. The arbitrator passed an award in favour of IC. Pertinently, in the award, the arbitrator each other awarded post-award interest on the sum of principal amount awarded and the pre-award interest (‘Interest Analysis’). The details of the interest awarded are reproduced hereunder:-

a) Pre-reference / past period interest:

@ 18% per annum on a sum of Rs.34,43,490.61 w.e.f. July 1987 up-till 19.01.1998.

b) Pending Lite Interest:

(i) @ 12% per annum w.e.f. 20.01.1998 uptill 31.12.2008 on the total amount (i.e. principal amount + the amount of interest on the pre-reference/past period).

(ii) @ 12% per annum w.e.f. 01.01.2017 till the date of award on the total amount (i.e. principal amount + the amount of interest for the pre-reference period and for the period from 20.01.1998 till 31.12.2008).

(c) Future interest

@ 18% per annum from the date of the award till the date of payment on the total amount (i.e. principal amount + amount of interest on the pre-reference/past period+ amount of interest pendente lite).

The award was challenged by NPCC under Section 34 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) before the Delhi High Court. The Section 34 court upheld the Interest Analysis provided in the award. Aggrieved by this decision, NPCC filed an appeal under Section 37 of the Arbitration Act restricted to the Interest Analysis of the arbitrator.

The Section 37 court set aside the Interest Analysis and held that Section 31(7) recognizes only two periods for which interest may be awarded i.e., firstly from the date on which the cause of action arose till passing of the award and secondly from the date of the award till actual payment. Therefore, according to the Section 37 court, the distinction between pre-reference/past period and pendente lite period no longer existed.

The Section 37 court also noted that Arbitral tribunal committed further illegality in forging the principal amount with interest in (b) as due to this, interest awarded for the pre-reference period as well as for the pendente lite period have been subjected to further levy of interest for the said periods by adding the interest amount with the principal amount awarded. This according to court, amounted to levying compound interest which is impermissible. This decision was appealed by IC before the Supreme Court in the present proceedings.

Parties Contentions

Before the Supreme Court, NPCC contended that the Pendente lite interest awarded in (b)(i) cannot be levied on the Principal plus Pre-reference / past period interest awarded in (a). Similar objection was raised in respect of Pendente lite interest awarded in (b)(ii).

Observations of the Supreme Court

The Supreme Court observed as under:-

  • Section 31 of the 1996 Act is the relevant provision.
  • In Sayeed Ahmed and Company Vs. State of Uttar Pradesh (2009) 12 SCC 26 the Supreme Court held that Section 31(7) had carved out two periods, the first period being from the date on which the cause of action arose till the date on which the award is made and the second period being from the date of award till the date of payment.
  • As regards the first period, the Court clarified that it includes the pre-reference period plus pendente lite period.
  • This is also fortified from the Supreme Court judgment in Pam Developments Private Limited Vs. State of West Bengal (2024) 10 SCC 715 wherein the Court each other held that the wording of Section 31(7)(a) does not make an explicit distinction between pre-reference and pendente lite interest as both of them are provided for under this subsection.
  • This position has been further explained in North Delhi Municipal Corporation Vs. S.A. Builders Ltd (2024) SCC Online SC 3768 wherein the Court each other held that an arbitral tribunal has the power to grant – (i) pre-award (ii) pendente lite (iii) post-award interest.
  • Thus, what Section 31(7)(a) has done is that there is now a statutory recognition of the power of the arbitral tribunal to grant pre-reference interest from the date on which the cause of action arose till the date on which the award is made.
  • A careful and minute reading of Section 31(7)(a) will make it clear that the arbitral tribunal has the discretion to include in the sum awarded interest at such rate as it deems reasonable on the whole or any part of the money awarded for the whole or any part of the period from the date on which the cause of action arose till the date on which the award is made.
  • The arbitral tribunal has the discretion to include in the sum awarded: firstly, interest at such rate as it deems reasonable; and secondly, 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.
  • This would mean that the arbitral tribunal can exclude a period from the date on which the cause of action arose till the date on which the award is made for the purpose of grant of interest, as has been done in the present case.
  • It would also mean that the arbitral tribunal can grant interest 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.
  • It can be a composite period or the said period can be further sub-divided, as done in the present case i.e. from the date of cause of action to filing of the claim and from the date of filing of the claim till the date of the award.
  • It would also mean that there can be one rate of interest for the whole period or one or more rates of interest for the sub-divided periods as has been done in the instant case.
  • On the issue of forging of the principal amount with interest while computing the awarded amount on which future interest is to be paid, the Court observed that Section 31(7)(a) states that 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.
  • Similarly, Section 31(7)(b) states that a ‘sum’ directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
  • ‘Sum’ includes the principal as adjudged together with the interest granted. Thus, the sum awarded would mean the principal amount plus the interest awarded from the date of cause of action upto the date of the award.

Decision of the Supreme Court

After observing the above position of law, the Supreme Court held as under:-

  • Though the arbitral tribunal had granted interest for three periods: pre-reference period, pendente lite and post award period, the first two period basically comprises of the period contemplated under clause (a) of sub-section (7) of Section 31.
  • It is another matter that the arbitral tribunal awarded varying degrees of interest for the two sub-periods: 18 percent per annum for the pre-reference period and 12 percent as pendente lite, which is also permissible.

Thus, the Supreme Court concluded that the Section 37 court had fallen in error by holding that the arbitral tribunal had no jurisdiction to award interest for two periods i.e. pre-reference and pendente lite when the statute provides for only one period viz. from the date when the cause of action arose till the date of the award.

On the issue of whether post-award interest can be granted by an arbitrator on sum of principal amount awarded and pre-award interest amount, the Court concluded that the sum awarded in Section 31(7)(a) would mean principal amount plus the interest awarded. Thereafter, as per Section 31(7)(b) of the Arbitration Act, the sum (principal amount + interest) would carry further interest at the rate of 2 per cent higher than the current rate of interest prevalent on the date of the award to the date of payment.

In view thereof, the Supreme Court set aside the decision of the Section 37 Court and upheld the Interest Analysis provided in the award.