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Post-Award Interest Is Not Advisory But A Mandate Of The A&C Act: Calcutta High Court

Parina Katyal
4 May 2022 6:01 AM GMT
Post-Award Interest Is Not Advisory But A Mandate Of The A&C Act: Calcutta High Court
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The Calcutta High Court has ruled that award of future or post-award interest is not advisory but a mandate of the Arbitration and Conciliation Act, 1996 (A&C Act) and it should be given its due weightage. The Single Bench of Justice Moushumi Bhattacharya reiterated that post award interest is a safeguard against delayed payment of the amount awarded to the award...

The Calcutta High Court has ruled that award of future or post-award interest is not advisory but a mandate of the Arbitration and Conciliation Act, 1996 (A&C Act) and it should be given its due weightage.

The Single Bench of Justice Moushumi Bhattacharya reiterated that post award interest is a safeguard against delayed payment of the amount awarded to the award holder.

An arbitral award was passed in the arbitral proceedings between the parties. The respondent no. 1/ award holder Laxmi Pat Surana filed a petition for execution of the award. The petitioner/award debtor filed an application before the Calcutta High Court for seeking a stay of the arbitral award under Section 36 of the A&C Act.

The petitioner Future Market Networks Limited submitted before the Calcutta High Court that the respondent no. 1/ award holder was already secured and hence there was no further requirement on the part of the petitioner to provide security for stay of the award. The petitioner added that a part of the principal amount awarded by the arbitral tribunal was already secured in the form of the bank guarantees furnished by the petitioner and the respondent no. 2 in accordance with the order passed in an Execution Petition filed by the 1st respondent/ award holder. The petitioner thus averred that the entire awarded sum need not be secured while granting a stay of operation of the arbitral award under Section 36(2) of the A&C Act.

The petitioner also contended that the Arbitrator did not allow pre-award interest and that post-award interest also does not form part of the arbitral award.

The respondent no. 1/ award holder Laxmi Pat Surana submitted before the High Court that the petitioner/award debtor is required to pay the principal amount along with interest of 18% per annum from the date of the award till its realization and that an arbitral award includes interest under Section 31 (7) of the A&C Act. The 1st respondent added that expeditious disposal of the arbitral process and enforcement of the award is an essential aspect of the Arbitration and Conciliation (Amendment) Act, 2015. The 1st respondent relied on the provisions of Order 41 Rule 5 of the Code of Civil Procedure (CPC), 1908 and averred that the execution of a money decree is ordinarily not stayed since satisfaction of the money decree does not amount to irreparable injury. The 1st respondent contended that the petitioner/award debtor must be directed to deposit 100% of the amount covered by the award.

Section 31(7)(a) of the A&C Act provides that unless otherwise agreed by the parties, where an arbitral award is made for the payment of money, the arbitral tribunal may include interest in the sum for which the award is made, at such rate as it deems reasonable, 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. Section 31(7)(b) of the A&C Act provides 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 the award, from the date of award to the date of payment.

The High Court observed that the provisions of Section 31(7)(a) of the A&C Act contemplates pre-award and pendente lite interest at the rate the arbitral tribunal deems reasonable and Section 31(7)(b) provides for post-award interest.

The Court noted that as per the law laid down by the Supreme Court in the case of Hyder Consulting (UK) Limited versus Governor, State of Orissa (2014), the interest component with respect to an arbitral award loses the character of "interest" and takes the colour of a "sum" for which the award is made and a pre-award interest is not independent of the sum awarded.

The High Court ruled that as per the law laid down in Hyder Consulting (UK) (2014), the word "sum" means award plus interest taken as an indivisible whole in respect of Section 31(7)(a) of the A&C Act for grant of pre-award interest. The Court added that the same interpretation can be stretched to cover Section 31(7)(b) for post-award interest.

"Although, Hyder Consulting (UK) interpreted the word "sum" to mean the award plus interest taken as an indivisible whole in respect of section 31(7)(a) for grant of pre-award interest, the same interpretation can be stretched to cover section 31(7)(b) for post-award interest. Expanding the interpretation to post-award or future interest would not be discordant to the context since clause (b) opens with the words "A sum directed to be paid…" and makes it mandatory for the arbitral award to carry interest at a rate higher than the prevalent rate of interest unless the award contains a contrary direction."

The Court added that the arbitral award made by the Arbitral Tribunal carried an interest of 18% from the date of the award to the date of the payment. The Court ruled that the arbitral award was specific since it used the word "sum" indicating the precise amount awarded together with interest at the rate of 18% from the date of the award till the date of its payment to the respondent no. 1/ claimant.

The Court refuted the contentions made by the petitioner with respect to the variable rate of future interest. The Court held that Section 31(7)(b) makes award of future interest mandatory with an added stipulation that the rate should be higher than the prevailing market rate.

The Court held that award of future/post-award interest is not advisory but a mandate of the A&C Act and is to be given its due weightage. The Court reiterated that it is a safeguard against delayed payment of the amount awarded to the award-holder.

"The marked difference in the language between 31(7)(a) – pre-award and pendente lite interest and 31(7)(b) – future interest reflected from the transition from 'may' to 'shall' respectively indicates that award of future/post-award interest is not advisory but a mandate of the Act and is to be given its due weightage. The object of the mandate has also been explained by the Supreme Court in Hyder Consulting (UK) as a safeguard against delayed payment of the amount awarded to the award-holder."

The Court accepted the argument advance by the 1st respondent that the object of the A&C Act as amended in 2015 is expeditious disposal of the arbitral process and enforcement of the award.

The Court thus refuted the contention of the petitioner that the respondent no. 1 was already secured to the extent of Rs. 12 crores by way of bank guarantees furnished by the petitioner in an order passed in an execution petition and thus the petitioner could not be called upon to secure further amounts. The Court ruled that the since the sum of Rs. 12.96 crores were awarded in 2016 and six years had elapsed thereafter, hence the arbitral award could not be restricted to the sum awarded to the respondent no. 1 in 2016 since the order specifically carried interest of 18% per annum from the date of the award till the date of its realization by the claimant/ respondent no. 1.

The Court observed that since all the parties including respondent no. 1/ award-holder had applied for setting aside the arbitral award, the Court thus ruled that it was fit to grant stay of the arbitral award. The Court directed the petitioner to deposit a further amount as security in view of the enhanced sum operating as an arbitral award.

Case Title: Future Market Networks Limited versus Laxmi Pat Surana & Anr

Case Citation: 2022 LiveLaw (Cal) 156

Dated: 28.04.2022 (Calcutta High Court)

Counsel for the Petitioner: Mr. Rishad Medora, Ms. Pooja Chakraborty, Ms. Radhika Misra

Counsel for the Respondent: Mr. Jishnu Chowdhury, Mr. Souradeep Banerjee, Mr. Abhidipto Tarafdar

Click Here To Read/Download Order

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