Interest Of 18% Can't Be Claimed In Arbitrations Commencing Before 2015 Amendment, When Award Specifies Particular Rate: Jharkhand HC

The Jharkhand High Court bench of Chief Justice M. S. Ramachandra Rao and Justice Deepak Roshan has held that interest at the default rate of 18% under unamended Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) cannot be claimed when the arbitral proceedings commenced before the 2015 amendment and the parties have not agreed to apply the amended provision. In such cases, the unamended provision applies, and only the interest specified in the award is payable. The default rate of 18% applies only if the award is silent on interest component. Brief Facts: Central Coalfields Limited (Respondent) issued a tender on 27.05.2002 for coal extraction and material transfer without drilling and blasting, specifying that the broken materials should not exceed 100 MM in size. C.I.S.C.-S.R.S.C. (Joint Venture)(Petitioner) was selected as the successful bidder and received a Letter of Intent on 26.10.2002 to begin the work. The work started on 29.11.2002 and the agreement/contract between the parties was signed on 12.04.2003. Disputes arose between the parties. The Arbitrator, by award dated 22.12.2007, allowed certain claims of the petitioner and rejected the respondent's counterclaims, awarding Rs.2,62,02,434/-. Regarding interest, the Arbitrator held that it was payable at prevailing rates from the date due until payment. This revision concerns only the issue of interest. The respondent challenged the arbitral award under Sections 34, 16(b), and 17 of the Arbitration Act before the Sub-Judge VIII, Ranchi in Arbitration Misc. Case No. 24 of 2008, which was dismissed on 30.01.2015. The respondent's subsequent Arbitration Appeal No. 4 of 2015 before the High Court was also dismissed on 06.07.2020. Meanwhile, the petitioner filed Commercial Execution Case No. 40 of 2015 before the Commercial Court, Ranchi, seeking payment of the decretal amount with interest, claiming 18% per annum under Section 31(7)(b) of the unamended Arbitration Act. The respondent objected, contended that the amended Section 31(7)(b) applied, and that only the "current rate of interest" under the Interest Act, 1978 was payable. The Commercial Court referred to Section 87 of the Arbitration Act, noting that the 2015 amendments would not apply to arbitral proceedings commenced before 23.10.2015 unless otherwise agreed by the parties, which they had not. Accordingly, the unamended Section 31(7)(b) applied. However, since the arbitrator in Para 25 of the award had specified the applicable interest and its period, the Court held that the petitioner could not claim interest at 18% per annum from the date of award to payment. Against the above order, the present Civil Revision Petition has been filed under Article 227 of the Indian Constitution. Contentions: The Petitioner submitted that while directing that interest would be computed in terms of section 2 (b) of the Interest Act, 1978, the Commercial Court had completely failed to appreciate that the Interest Act, 1978 is a general enactment and cannot override the specific statutory provision contained under the Arbitration Act. It was further submitted that in the absence of any specific rate of interest having been provided in the Arbitral Award, interest was payable at the rate of 18% per cent per annum in terms of unamended section 31 (7) (b) of the Arbitration Act. Observations: The court at the outset noted that the Commercial Court rightly applied the unamended Section 31(7)(b) in the absence of any agreement between the parties to adopt the amended provision introduced by the 2015 Amendment Act, as mandated by Section 87, which states that the 2015 amendments do not apply to arbitral proceedings commenced before 23.10.2015 unless the parties otherwise agree. It further opined that Clause (b) of Section 31(7) of the Act, prior to its amendment by Act 3 of 2016, provided for 18% interest from the date of award to the date of payment unless the award directed otherwise. Since the Award in para 25 specifies the interest to be paid, the petitioner cannot claim 18% interest by default and is entitled only to the interest expressly awarded. It further noted that in the Arbitral Award dated 22.12.2007, the Arbitrator did not specify a fixed rate of interest but merely directed that interest at prevalent rates be paid on the claim, without clarifying that the prevalent rate referred to the lending rates set by banks for borrowers. Based on the above, it held that only if there was no direction in the arbitral award regarding the rate of interest would the petitioner be entitled to the rate at the rate of 18% per cent per annum. While agreeing with the Commercial Court, it held that the Arbitrator interpreted the words 'prevalent rate of interest' as 'current rate of interest', since it is a probable view it cannot therefore be said that the said view is ...

Interest Of 18% Can't Be Claimed In Arbitrations Commencing Before 2015 Amendment, When Award Specifies Particular Rate: Jharkhand HC

Mohd Malik Chauhan

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Mohd Malik Chauhan

Interest Of 18% Can't Be Claimed In Arbitrations Commencing Before 2015 Amendment, When Award Specifies Particular Rate: Jharkhand HC

Mohd Malik Chauhan

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Mohd Malik Chauhan

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