The Calculation of Post-Award Interest in Arbitration - A Case Study on the Exclusion of Pendente Lite Sums

Background and Prior Proceedings

The case centered on the execution of an Arbitral Award dated September 26, 2000, which had undergone a complex series of judicial modifications³. Initially, the Award directed the Judgment Debtor (BSNL) to pay the Decree Holder (BWL Limited) a sum of Rs. 6,07,56,342/-, inclusive of interest at 18.5% per annum compounded quarterly.

The Award was subsequently set aside by a Single Judge of the Calcutta High Court under Section 34 of the Act. Following an appeal under Section 37 of the Act, the Division Bench of the Calcutta High Court partly allowed the appeal, setting aside the Single Judge's order and upholding the Award as modified. The significant modification was that the Award was modified to the extent that the principal sum awarded would carry a lump sum of Rs. 67,62,366/- in full and final settlement of the interest claim (pendente lite interest). The Division Bench then directed that if the modified amount was not paid within two months, the principal sum of Rs. 48,23,819/- and Rs. 8,11,486/- would carry further post-award interest at 18% per annum from the expiry of the two-month period. Crucially, the Division Bench only directed post-award interest on the principal amount, effectively excluding the lump sum pendente lite interest from the post-award interest calculation.

The matter was further appealed to the Supreme Court. The Supreme Court, in its order dated April 12, 2023, primarily addressed the period for which post-award interest was to be paid. The Court observed that the Division Bench's direction to calculate post-award interest only after its judgment date (June 29, 2010) was not justified, given that the Award was in force from September 26, 2000, to October 15, 2004 (the date it was set aside by the Single Judge). The Supreme Court, therefore, modified the judgment to hold that the Decree Holder was also entitled to statutory interest on a simple interest basis for the period September 26, 2000, to October 15, 2004. Significantly, the Supreme Court did not interfere with the Division Bench’s direction that interest under Section 31(7) would be calculable from the date of the impugned judgment (June 29, 2010) onwards, and critically, did not modify the direction passed by the Division Bench directing payment of interest only on the principal amount. The modification was confined to the period for which post-award interest was payable.

The Core Legal Question

Upon filing the execution petition, the awarded amount was paid, leaving the calculation of post-award interest as the sole outstanding issue. The Decree Holder contended that the post-award interest should be calculated on the aggregated amount, including the principal and the lump sum pendente lite interest. The Judgment Debtor maintained that interest was payable only on the principal amount, as explicitly directed by the Division Bench.

The question for adjudication was: Whether post-award interest, in terms of the modified award, is to be calculated on the principal amount as well as pendente lite interest or only on the principal amount

Precedent and Interpretation of Section 31(7) of the Act

The determination rested on the interpretation of Section 31(7) of the Act:

• Section 31(7)(a): Confers discretion on the Arbitral Tribunal to "include in the sum for which the award is made interest" for the pre-award period.

  
  

• Section 31(7)(b): Mandates that "A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest" for the post-award period.

  
  

The Decree Holder heavily relied on the Supreme Court's authoritative pronouncement in Hyder Consulting (UK) Limited v. Governor, State of Orissa [(2015) 2 SCC 189]. In this precedent, the Supreme Court clarified that the word "sum" in Section 31(7) is unqualified by the word "principal". On a plain reading, the "sum for which the award is made" refers to the total amount awarded, and therefore, the "sum directed to be paid" under clause (b) shall carry post-award interest, "whether inclusive or exclusive of interest, shall carry interest" for the post-award period, unless otherwise ordered.

In applying this precedent, the High Court observed that the Hyder Consulting principle is subject to the crucial proviso in Section 31(7)(b): "unless the award otherwise directs". The Division Bench's judgment, which modified the Award, was clear: it directed post-award interest only on the principal amount (Rs. 48,23,819/- and Rs. 8,11,486/-) and not on the lump sum pendente lite amount (Rs. 67,62,366/-).

The High Court affirmed that this specific direction by the Division Bench was a valid exercise of the discretion available under Section 31(7)(a) and constituted an "otherwise direct[ion]" under Section 31(7)(b). Since the pendente lite interest was specifically not added to the principal sum on which post-award interest was directed, it was excluded from the 'sum directed to be paid' for the purpose of carrying post-award interest. The Supreme Court's subsequent modification was limited to the period and did not disturb this fundamental calculation basis.

 

Conclusion and Author's Opinion

The Delhi High Court ultimately found that based on the explicit language of the Division Bench’s modifying judgment, which was not overturned by the Supreme Court on this specific point, the Decree Holder was not entitled to post-award interest on the lump sum pendente lite amount. The decree was thus deemed satisfied.

From a legal perspective, this judgment reinforces a fundamental principle of the Arbitration Act: the paramountcy of the tribunal’s (or modifying court's) directions regarding interest. The ruling demonstrates that while the definition of "sum" under Section 31(7) is inclusive of both principal and interest (Hyder Consulting), this comprehensive definition is not an automatic mandate for compound interest or interest-on-interest post-award. The power of the Arbitral Tribunal (or the High Court exercising modification powers) to provide an "otherwise direct[ion]" under Section 31(7)(b) acts as a crucial check. The authors opine that this decision is a well-reasoned application of the statute. It maintains the integrity of the judicial process by respecting the clear terms of the modified award, providing essential clarity for parties involved in arbitration execution proceedings. It serves as a potent reminder for parties and tribunals to be meticulously specific about whether pendente lite interest is consolidated into the principal 'sum' for the purpose of mandatory post-award interest.