Interest For Prereference Period And Pendente Lite Interest Can't Be Claimed Under Arbitration Act, 1940: Jammu & Kashmir High Court

The Jammu & Kashmir High Court bench of Justice Sanjay Dhar held that interest for the prereference period as well as the pendente lite interest cannot be claimed under the Arbitration Act, 1940. The bench held that when pre-suit interest, pendente lite interest and future interest has to be awarded on the principal sum adjudged, the interest can be awarded only on the principal sum and it does not provide for payment of interest on interest. Therefore, it held that there is no scope for the award of interest on the pendente lite interest under the Arbitration Act, of 1940. Brief Facts: The matter pertained to disputes between the Petitioners' predecessor and the Respondents regarding a construction contract for a 2.4 km section of the National Highway bypass starting from Athwajan, Srinagar. These disputes led to arbitration, resulting in an award dated November 13, 1998, which was subsequently submitted to the District Judge of Srinagar. The District Judge made the award the rule of the court but modified it by reducing the interest rate from 18% to 9% per annum and disallowing certain claims. Consequently, the District Judge awarded the Petitioners Rs. 71,91,785 along with 9% per annum interest. Both the Petitioners and the Respondents appealed this judgment. The High Court dismissed the Respondent-State's appeal but allowed the Petitioners' appeal and raised the interest rate from 6% to 9% per annum. The Respondents then approached the Supreme Court which dismissed the appeals on March 26, 2021, but allowed the Respondents to argue in the executing court whether the interest should be simple or compound. Subsequently, during the execution proceedings, the Principal District Judge of Srinagar, through an order decided that the 9% interest per annum awarded should be calculated as simple interest, not compound interest. Based on this, the court determined that Rs. 2,77,58,492.14 was due to the Petitioners. Following this order, the Respondents deposited Rs. 3,50,61,800, which included the calculated interest up to the date of deposition. This amount was released to the Petitioners, and the executing court held that the decree was satisfied and disposed of the execution petition. Feeling aggrieved, the Petitioners approached the High Court. The Petitioners argued argue that the executing court erred in applying the Supreme Court's decision in State of Haryana and others vs. S. L. Arora & Company, (2010) 3 SCC 690, which was overturned by later Supreme Court judgments. They argued that the transaction between the parties was commercial which warranted compound interest on the awarded claims as modified by the District Judge, Srinagar. Additionally, the Petitioners contended that future interest should be calculated not merely on the principal amount but also on the accrued interest up to the award date. Observations by the High Court: The central question before the High Court was whether future interest should be calculated on the claims awarded in favor of the Petitioners, inclusive of the pendente lite interest awarded. The arbitration proceedings were conducted under the Jammu and Kashmir Arbitration Act, 1945, which is substantially similar to the Arbitration Act, 1940. Regarding the award of interest for the pre-reference period and the period during which the arbitration proceedings were pending, the High Court noted that the Arbitration Act, 1940 does not contain specific provisions. However, Section 29 of the Arbitration Act, 1940 addresses the award of interest from the date the decree is made, i.e., when the award is confirmed by the court. This interest is payable on the principal sum adjudged by the award and confirmed by the decree. The Supreme Court, in Hindustan Construction Co. Ltd. vs. State of Jammu & Kashmir, (1992) 4 SCC 217, relying on the Constitution Bench judgment in Secretary, Irrigation Department, Government of Orissa & Ors. vs. G. C. Roy, (1992) 1 SCC 508, clarified the issue regarding the award of pendente lite interest and interest from the date of the award to the date of the decree. The Supreme Court held that while the award of interest for the period before the arbitrator enters upon the reference is a matter of substantive law, the grant of interest for the post-award period is procedural. The principles of Section 34 of the Code of Civil Procedure (CPC), although not directly applicable, were held to be relevant to arbitration proceedings. The High Court noted that under the Arbitration Act, 1940, an arbitrator can award interest from the date of the award to the date of the decree or realization, whichever comes first. The determination of interest for the period before the arbitrator's reference and pendente lite interest should be guided by Section 34 of the CPC, which states that interest can be awarded on the principal sum adjudged from the date of the suit to the ...

Interest For Prereference Period And Pendente Lite Interest Can't Be Claimed Under Arbitration Act, 1940: Jammu & Kashmir High Court

Rajesh Kumar

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