The Delhi High Court, through Justice Ravinder Dudeja, has ruled that granting post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, is mandatory. The arbitrator’s discretion is confined solely to determining the rate of interest, not whether to grant the interest itself.
This came up in the case Union of India & Anr. vs. Sudhir Tyagi, where Northern Railway awarded a contract to the respondent. After disputes arose, arbitration was invoked, and an award was passed granting ₹61,48,277 to the respondent. Interest was only allowed on ₹10.84 lakhs, leaving out post-award interest on claims worth over ₹46 lakhs.
Later, the respondent sought post-award interest under Section 151 of CPC. The executing court, citing R.P. Garg v. CGM, Telecom Dept., awarded 18% interest as per Section 31(7)(b) of the Act. The petitioners challenged this under Article 227, arguing that arbitrators have full discretion.
However, the High Court disagreed. Justice Dudeja clarified:
“The expression ‘unless the award otherwise directs’ in Section 31(7)(b) relates only to the rate of interest, not the entitlement. If the arbitrator is silent on post-award interest, 18% per annum becomes applicable by default.”
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The Court also referenced Hyder Consulting (UK) Ltd. v. Governor, State of Orissa and Morgan Securities v. Videocon Industries Ltd. to affirm that post-award interest is a statutory right, not subject to party agreement or arbitrator omission.
“Clause (a) allows the parties to contract out of interest, but Clause (b) does not. The law mandates post-award interest unless the rate is explicitly mentioned.”
Further, the High Court emphasized that executing courts can award post-award interest even if not expressly granted by the arbitrator, and doing so doesn’t violate the arbitral award.
“Granting post-award interest by the executing court does not amount to going beyond the decree.”
In conclusion, the Court upheld the executing court’s order directing payment of ₹77,18,000 at 18% post-award interest on the unpaid claim components and dismissed the petition.
Case Title: Union of India & Anr. vs. Sudhir Tyagi
Case Number: CM(M) 4025/2024
For Petitioner: Mr. Jivesh Kumar Tiwari, SPC with Ms. Samiksha, Adv.
For Respondent: Mr. Sanjoy Bhaumik, Adv.
Date of Judgment: 17.04.2025
