LexSTATE OF HARYANA & ORS. versus S. L. ARORA & COMPANY
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2010] 2 S.C.R. 297
STATE OF HARYANA & ORS.
v.
S.L. ARORA & COMPANY
(Civil Appeal No.1094 of 2010).
JANUARY 29, 2010
[R.V. RAVEENDRAN AND K.S. RADHAKRISHNAN, JJ.]
Interest Act, 1978:
A
B
s. 3 - Interest - Compound interest or Interest upon c
interest - HELD: Section 3 enables the courts and arbitral
tribunals to award interest from the date of cause of action to
the date of institution of legal proceedings or initiation of
arbitration proceedings - It does no deal with either pendente
lite or future interest- Sub-section (3)(c) of s.3 makes it clear
that nothing in the said section shall empower the court or .D
arbitrator to award interest upon interest -Interest is usually
quantified in terms of a percentage of the 'principal' or the
'investment' or the 'amount of liability' - Interest unless
otherwise specified, refers to simple interest, that is interest
E
paid on only the principal and not on any accrued interest -
Compound interest refers to a method of charging interest
where interest is computed not only on the principal, but also
the accrued interest - For this purpose, periodical rests are
provided for computation of interest, say yearly, or quarterly
or monthly - Compound interest can be awarded only if there
F
is a specific contract, or authority under a Statute, for
compounding of interest - There is no general discretion in
courts or tribunals to award compound interest or interest upon
interest-Arbitration and Conciliation Act, 1996- s.31(7). {Para
~1cy
G
State Bank of India vs. Ganjam District Tractor Owners
Association, 1994 (5) SCC 238, :-elied on.
297
H
·A
B
. 298
SUPREME COLRT REPORTS
[2010] 2 S.C.R.
Renusagar Power Co. Ltd v. General Electric Co. 1993(3)
Suppl. SCR 22 = 1994 Supp.(1) SCC 644; and· Central
Bank of India vs. Ravindra 2001(4) Suppl. SCR 323 = 2002
(1) sec 367 - referred to.
Arbitration and Conciliation Act, 1996:
ss.31 (7)(a) and (b) - Awar.d of interest - Interest upon
interest- Clauses (a) and (b) of sub-section(?) of s.31 clearly
indicate that the section contemplates award of only simple
interest and not compound interest or interest upon interest
C - s.31(7) makes no reference to compound interest - Nor
does it require the interest which accrues till the date of award,
to be treated as part of the principal from the date of award
for calculating the post-award interest - In the absence of any
provision for interest upon interest in the contract, the arbitral
D tribunals do not have the power to award interest upon interest
or compound· interest either for the pre-award period or for the
post-award period - However, substantial the quantum of
interest and costs may be in a given case, interest, in
particular, interest from the date of the award, and costs arf:
E ancillary issues and are not substantive disputes - If the
contract provides for cpmpounding of interest, or provides for
payment of interest upon interest, or provides for interest
payable on the principal upto any specified stage/s being
treated as part of principal for the purpose of charging of
F
interest during ·any subsequent period, the arbitraltribunal will
have to give effect to it - But when the award is challenged u/
s 34 of the Act, if the court finds that the interest awarded is
in conflict with, or violating the public policy of India,. it may
set aside that part of the award - In the instant case, the award
G ·of interest upon the total amount of award refers to the total
of the amounts awarded on substantive claims excluding the
claim relating to interest - The contractor was entitled only to
simple interest on the principal amount as per original
calculation shown in the execution petition - Judgment. [Para
14-15, 17, 18.3 and 21]
H
STATE OF HARYANA & ORS. v. S.L.ARORA &
299
COMPANY
s. 31 (7) - Legal position regarding award of interest by A
arbitral tribunals, as emerging from s.31 (7) - Explained -
Interest for pre-award period and interest for post-award period
-
Difference between clauses (a) and (b) of s.31(7) -
Relevancy of contract in awarding interest - Discretion of
arbitral tribunal -
Purpose of post-award interest -
B
Applicability of 18% interest - Explained. [para 18 to 18. 6]
Judgment - Interpretation of - The observation in Three
Circles* that Mcdermott** held that interest awarded on the
principal amount upto the date of award becomes the principal C
amount and therefore award of future interest therExcerpt shown. Read the full judgment & AI analysis in Lexace.