The Supreme Court recently comprising of a bench of Justices Sanjiv Khanna and Bela M. Trivedi observed that an Arbitrator has substantial discretion in awarding interest under Section 31(7)(c) of the Arbitration and Conciliation Act, 1996.(Punjab State Civil Supplies Corporation Limited (Punsup) vs. Ganpati Rice Mills)
Facts of the case
In this case, the Arbitrator had granted interest at the rate of 18% per annum from 01.01.2003 till the date of realization. Disposing the petition under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), the rate of interest was reduced by the District Court to 12% per annum.
In an Arbitration appeal, the High Court further reduced the rate of interest to 9% per annum referring to a Supreme Court judgment in A.P. State Trading Corporation Ltd. Vs. G.V. Malla Reddy and Company 2010 AIR SCW 6337. In the said judgment, it was observed that in the absence of any specific contract in regard to rate of interest, pendente lite and future interest should not normally exceed 9% per annum. Therefore the present appeal.
Courts Observation and Judgment
In appeal, the court noted that the judgment relied upon by the High Court pertained to arbitration proceedings under the Arbitration Act of 1940, whereas the present dispute relates to arbitration under the Arbitration Act 1996.
We do not think that the High Court was justified and correct in reducing the rate of interest to 9% per annum. The judgment of this Court in “A.P. State Trading Corporation Ltd. Vs. G.V. Malla Reddy and Company”, 2010 SCC Online SC 1081 relied upon by the High Court, pertained to arbitration proceedings under the Arbitration Act of 1940, whereas the present dispute relates to arbitration under the Arbitration Act 1996.
Per contra, Section 31(7) of the Arbitration Act, 1996 grants substantial discretion to the arbitrator in awarding interest. No reason and grounds have been given to reduce the rate of interest. On fact, the appellants have referred to certain clauses of the agreement, to contend that interest @ 21% per annum could be awarded. We need not examine this aspect, as the appellants had accepted the decision of the District Judge reducing the rate of interest to 12% per annum.
The Court remarked, "in view of the aforesaid position, we restore the rate of interest as awarded by the judgment dated 22.11.2011 passed by the District Judge, Chandigarh, i.e. interest at the rate of 12% per annum w.e.f. 01.01.2003 till realization.
The appeal is partly allowed in the aforesaid terms.
Pending application(s), if any, stand disposed of."
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