"Supreme Court: Arbitral Awards Must Include Post-Award Interest Under Section 31(7)(b)"

The Supreme Court ruled that the post-award period must include interest as per Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. In its decision, the Court stated, "In allowing the appeal, we have determined that since this case falls under the Arbitration and Conciliation Act, 1996, Section 31(7)(b) requires that any amount specified in the arbitral award must carry interest. This is a fundamental principle. Therefore, we have reinstated the District Court's judgment, which awarded 18% interest from the date of the award until its full realization." A bench of Justices PS Narasimha and Sandeep Mehta overturned the High Court's decision that had denied the award holder post-award interest, citing a contractual clause that did not allow for it. The Supreme Court clarified that even if the parties have agreed not to include post-award interest, this agreement cannot override the legal right to such interest as provided by law. The Court distinguished between Sections 31(7)(a) and 31(7)(b) of the Arbitration Act: Section 31(7)(a) deals with pre-award interest, which is subject to the parties' agreement, while Section 31(7)(b) addresses post-award interest, which is a statutory right and cannot be waived by any agreement. Justice Narasimha, writing the judgment, explained that the law clearly differentiates between interest before and after the award. While pre-award interest under Section 31(7)(a) depends on the agreement between the parties, post-award interest under Section 31(7)(b) is a legal obligation that cannot be contracted out, regardless of what the parties have agreed. The Supreme Court clarified that under Section 31(7)(b) of the Arbitration and Conciliation Act, the amount specified in an arbitral award must include post-award interest. The Arbitrator can set the rate of interest, but if they don't, a default statutory rate will apply. Unlike pre-award interest, which depends on the agreement between the parties (Section 31(7)(a)), post-award interest is mandatory and cannot be waived by any contract between the parties. The Court emphasized that the phrase "unless the award otherwise directs" in Section 31(7)(b) refers only to the rate of interest, not to the entitlement of interest itself. This means the award's specified rate takes precedence over the statutory rate, but the right to interest after the award cannot be eliminated by any contractual agreement. The Supreme Court ruled that the High Court's decision was incorrect in assuming that post-award interest could be excluded based on the contract. This interpretation aligns with the Court's previous ruling in Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd.. www.legalmeet.in