In CIVIL APPEAL NO.3657 OF 2022-SC- Discretion with regard to grant of interest would be available to Arbitral Tribunal only when there is no agreement to contrary between parties: Supreme Court Justices L. Nageswara Rao & B.R. Gavai [05-05-2022]

Read Judgment: DELHI AIRPORT METRO  EXPRESS PRIVATE LIMITED Vs. DELHI METRO RAIL CORPORATION 

Mansimran Kaur

New Delhi, May 09, 2022: In a case pertaining to a concession agreement entered into between Delhi Airport Metro Express Private Limited(appellant) and Delhi Metro Rail Corporation(respondent), the Supreme Court has held if clause (a) of Section 31(7)  of the Arbitration and Conciliation Act, 1966 is given a plain and literal meaning, the legislative intent would be clear that the discretion with regard to grant of interest would be available to the Arbitral Tribunal only when there is no agreement to the contrary between the parties.

A Division Bench of Justice L. Nageswara Rao and Justice B.R. Gavai opined that the phrase “unless otherwise agreed by the parties” stated in the Arbitration and Conciliation Act, 1996  clearly emphasizes that when the parties have agreed with regard to any of the aspects covered under clause (a) of Section 31(7)  of the 1996 Act, the Arbitral Tribunal would cease to have any discretion with regard to the aspects mentioned in the said provision.

The present appeal was preferred on the question of law as to whether the sum awarded under clause (a) of sub- section (7) of Section 31 of the Arbitration and Conciliation Act, 1966 would include the pendente lite. The factual background of the present case was that on being declared as a successful bidder, a concession agreement dated was entered by the appellant and the respondent. As per the concession agreement, the respondent DMRC was supposed to carry out the civil works and the balance works were to be executed by the appellant.  During the course of operations of the project, a dispute arose between the parties and the respondent referred the dispute to Arbitration under article 36.2 of the concession agreement. In view of the same, an arbitral award was passed and the same was assailed by the respondent in the form of petition under Section 34 of the 1996 Act. 

Thereafter, the Delhi High Court upheld the Arbitral Award and rejected the respondent-DMRC’s petition under Section 34 and later, the Division Bench partly allowed the Appeal.

Being aggrieved by the same, appellant preferred the civil appeal which was allowed by this Court. The appellant therefore immediately instituted an execution petition before the Delhi High Court for enforcement of the Arbitral award. In the said proceedings, the appellant contended that the sum as specified under clause (a) of sub – section (7) of Section 31 of Section 31 of  the 1996 Act, would include interest for a period of from the date on which the cause of action arose to the date on which the award was made. The same was rejected by the High Court by the impugned judgment and order. Being aggrieved by the same, the appellant filed the present appeal by way of special leave. 

After hearing the submissions of both the parties, the Apex Court dealt with the interpretation of clause (a) of sub- section 7 of Section 31 of the 1996 Act.

The Court referred to the majority view of this Court in  Hyder Consulting (UK) Limited vs. Governor, State of Orissa through Chief Engineer wherein it was stated that the sum awarded may include the principal amount and such interest as the Arbitral Tribunal deems fit.  It was further held that, if no interest is awarded, the sum comprises only the principal amount. The majority judgment held that clause (a) of sub-section (7) of Section 31 of the 1996 Act refers to the total amount or sum for the payment for which the award is made. As such, the amount awarded under clause (a) of sub- section (7) of Section 31 of the 1996 Act would include the principal amount plus the interest amount pendente lite.

Further reliance was made on the case of Sree Kamatchi Amman Constructions vs. Divisional Railway Manager (Works), Palghat and others, wherein this Court observed that Section 31(7) of the new Act by using the words unless otherwise agreed by the parties categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to the date of award. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award.

Thus, the Court observed “If clause (a) of sub-section (7) of Section 31 of the 1996 Act is given a plain and literal meaning, the legislative intent would be clear that the discretion with regard to grant of interest would be available to the Arbitral Tribunal only when there is no agreement to the contrary between the parties. The phrase unless otherwise agreed by the parties clearly emphasizes that when the parties have agreed with regard to any of the aspects covered under clause (a) of sub-section (7) of Section 31 of the 1996 Act, the Arbitral Tribunal would cease to have any discretion with regard to the aspects mentioned in the said provision.”

The Bench held that only in the absence of such an agreement, the Arbitral Tribunal would have discretion to exercise its powers under clause (a) of sub-section (7) of Section 31 of the 1996 Act. The discretion is wide enough. It may grant or may not grant interest. It may grant interest for the entire period or any part thereof. It may also grant interest on the whole or any part of the money. If the interpretation, as placed by the appellant-DAMEPL is to be accepted, the phrase unless otherwise agreed by the parties would be reduced to a dead letter or useless lumber. In our considered view, such an interpretation would be wholly impermissible.

Consequently, the Court took into consideration Article 29.8 of the Concession Agreement, according to which the Termination Payment would become due and payable to the Concessionaire by DMRC within thirty days of demand being made by the Concessionaire. It was further stated that if the DMRC fails to disburse the full Termination Payment within 30 days, the amount remaining unpaid shall be disbursed along with interest at an annualized rate of SBI PLR plus two per cent for the period of delay on such amount. It was noted that Article 29.8 of the Concession Agreement dealt with payment of interest on Termination Payment amount.

Thus, the Court asserted that the Arbitral Tribunal passed the award in consonance with the provisions as contained in clause (a) of sub-section (7) of Section 31 of the 1996 Act and specifically, in consonance with the phrase unless otherwise agreed by the parties. Accordingly, it was observed that there was no error in the impugned judgment passed by the Delhi High Court. Thus, the appeal was dismissed on the account of being meritless.