Introduction
In a significant Judgment passed by the Hon’ble High Court of Delhi in the matter of Union of India & Anr. v. Sudhir Tyagi [CM(M) No. 4025/2024 – 2025:DHC:2621], decided on April 17, 2025 a crucial legal position regarding post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) has been definitively settled.
This ruling conclusively establishes that every arbitral award directing payment of money shall carry post-award interest as a statutory right, regardless of whether the arbitrator expressly grants such interest.
Facts of the Case
The Petitioner (Northern Railway) had awarded certain contractual work to the Respondent (Sudhir Tyagi), which subsequently led to disputes between the parties. Following arbitration proceedings, an Arbitral Award dated October 13, 2015 was issued, directing the Petitioner to pay INR 61,48,277/- to the Respondent.
Significantly, the award explicitly granted 10% interest per annum on INR 10,84,385/- (for Claims No. 1 & 8) but remained silent regarding post-award interest on the remaining claims totalling to INR 46,83,892/-.
An Execution Petition was filed for execution/ enforcement of the Arbitral Award, subsequent to which the Petitioner even made the payment(s) as per the award. However, the Respondent had filed an Application before the executing court claiming post-award interest on the principal amount for which the Arbitrator had not expressly mentioned any interest. The executing court granted this prayer, awarding post-award interest at 18% per annum. Aggrieved by this decision, the Petitioners challenged it before the Hon’ble Delhi High Court.
Core Legal Issue
The central question before the Hon’ble High Court was whether post-award interest under Section 31(7)(b) of the Arbitration Act is mandatory when an arbitrator’s award is silent on such interest.
Legal Framework: Section 31 of Arbitration Act
To understand the court’s reasoning, it is important to first examine Section 31(7) of the Arbitration Act, which has two distinct parts. Section 31(7)(a) deals with pre-award interest, whereas Section 31(7)(b) deals with post-award interest. Said Section 31(7) is reproduced hereunder for convenience:
“ 31. Form and contents of arbitral award.—
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
Explanation.—The expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).]”
Court’s Analysis
The Hon’ble Court meticulously examined Section 31(7)(b), distinguishing it from pre-award interest under Section 31(7)(a). It was emphasized that Section 31(7)(a) provides an Arbitrator discretion on grant of pre-award interest, subject to party autonomy. The phrase “Unless otherwise agreed by the parties” at the beginning of this section allows parties to contractually exclude such interest.
In contrast, Section 31(7)(b) makes post-award interest mandatory. The critical phrase “unless the award otherwise directs” qualifies only the rate of interest, not the entitlement to interest itself. The Court emphasized that this phrase only modifies the interest rate.
Hence, if an arbitral award remains silent on post-award interest, the statutory default rate becomes automatically applicable.
This interpretation aligns with the purpose of post-award interest; to discourage award debtors from delaying payment and to compensate award holders for the time value of money during the period between the award and actual payment.
Court’s Decision
Affirming the decision of the executing court, the Hon’ble High Court held that Post-award interest is statutory and mandatory under Section 31(7)(b) of the Arbitration Act. If the arbitrator does not specifically define rate of post-award interest, the statutory interest rate under Section 31 of Arbitration Act automatically applies.
After thorough analysis, the Delhi High Court held as under:
- Post-award interest under Section 31(7)(b) is statutory and mandatory.
- The arbitrator’s discretion extends only to determining the rate of interest, not whether interest should be awarded at all.
- If the arbitrator does not specify a rate of post-award interest, the statutory rate applies by default.
- An executing court’s order granting post-award interest where the award is silent on such interest does not amount to going beyond the decree/ award, or challenging the award in execution proceedings.
Conclusion
This Judgment brings added clarity to a contentious area of arbitration law in India. It reinforces the principle that post-award interest is a statutory right of the award holder, which can only be modified in terms of rate, but not denied even if the Award is silent on the said aspect.
This Judgment ensures that award holders are adequately compensated for delays in payment, furthering the objective of efficient enforcement of arbitral awards, and contributing significantly to the predictability and efficiency of India’s Arbitration regime.