Recently, the Meghalaya High Court has held that an executing court cannot enlarge, vary, or re-interpret an arbitral award by allowing computation of compound interest when the award itself directs only simple interest. Justice B. Bhattacharjee set aside the Commercial Court’s order, finding that the court had travelled far beyond the contours of the award by accepting a calculation method that introduced interest upon interest, contrary to the terms settled by the tribunal.
Brief facts:
The case stemmed from a contract awarded in March 2012 by Power Grid Corporation of India Ltd. to M/s Mega Electricals for the construction of a pile foundation on a transmission line. When disputes surfaced, the matter was referred to arbitration, culminating in an award, by which the tribunal granted Rs. 1.31 crore along with simple interest @12%, subject to escalation up to 18% if payment was delayed beyond 90 days. Power Grid’s challenge to this award under Section 34 of the Arbitration and Conciliation Act, 1996, was dismissed in December 2023, and no appeal under Section 37 was pursued thereafter.
Following the award attaining finality, the contractor initiated execution proceedings seeking Rs. 3.87 crore, while Power Grid deposited Rs. 2.98 crore and objected to the contractor’s method of computation. It argued that the award holder had erroneously treated pre-award interest as part of the principal for calculating post-award interest. The Commercial Court rejected these objections, prompting the revision before the High Court.
Contentions of the Petitioner:
The Petitioner contended that the Executing Court had exceeded its jurisdiction by allowing the award holder to compute interest on a sum never contemplated in the arbitral award. It was argued that the tribunal had clearly directed simple interest on specific principal amounts, and there was no mandate permitting interest on the aggregate of principal and pre-award interest. The Petitioner submitted that an executing court must adhere strictly to the terms of the award and cannot, under any circumstance, convert simple interest into compound interest or enlarge the award’s scope. It was further urged that 25% of the awarded amount had been deposited in 2019 in compliance with an interim order and subsequently withdrawn by the claimant, and therefore, no interest could lawfully accrue on that portion once it stood satisfied.
Contentions of the Respondent:
The Respondent argued that the Executing Court had not altered the arbitral award but had rightly construed the “amount awarded” as comprising both the principal and the pre-award interest. The Respondent contended that, under Section 31(7) of the Arbitration and Conciliation Act, 1996, pre-award interest merges with the principal and forms part of the “sum” for purposes of post-award interest, and that the tribunal’s silence on this aspect permitted calculation of interest on the entire aggregate. It was further submitted that the earlier deposit of 25% was a conditional deposit made solely to secure the stay of the award and therefore did not extinguish the petitioner’s liability to pay interest on the whole awarded amount.
Observation of the Court:
Justice Bhattacharjee conducted a granular examination of the arbitral award and concluded that the tribunal did not grant compound interest and had instead stipulated a single continuum of simple interest, applicable from dates specified until payment. The Court noted, “there is no indication of grant of any interest upon interest or compound interest on the principal amount awarded by the Arbitral Tribunal. The respondent did not challenge this aspect of the award. The award has since attained finality and now it is not open to the respondent to claim either compound interest or post award interest on the aggregate of the principal amount and pre award interest by applying general principle of law.”
The Court emphasised that the Executing Court misapplied Hyder Consulting (UK) Ltd. v. State of Orissa, by treating pre-award interest as merged with principal despite the award’s clear stipulations. The Court observed, while referring to the case of Nepa Limited v. Manoj Kumar Agarwal, that, “interest is payable only on amount that is not paid and it will be incongruous to hold that person would be liable to pay interest even in respect of amount which has been paid and handed over to decree holder.”
The Court held that interest could not continue on the 25% amount withdrawn by the claimant after the deposit in August 2019, though interest prior to that date remained payable. Neither the calculation sheet of the award holder nor that of Power Grid was found to be in compliance with the arbitral award.
The decision of the Court:
In light of the foregoing discussion, the Court set aside the Commercial Court’s order, holding that it could not be sustained in law. The matter was remitted to the Executing Court for a fresh determination of the interest payable, strictly in line with the arbitral award and the legal principles highlighted by the Court. The Court further directed both parties to submit revised calculation sheets, following which the Executing Court shall proceed to dispose of the execution proceedings in accordance with the law.
Case Title: Power Grid Corporation of India Ltd. Vs. M/S Mega Electricals
Case No: CRP No.7 of 2025
Coram: Hon’ble Mr. Justice B. Bhattacharjee
Advocate for Appellant: Sr. Adv. A. Kumar, Advs. N. Khera, and A. Syiem
Advocate for Respondent: Sr. Adv. V. K. Jindal, Adv. S. Goenka
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