Mandatory Entitlement to Post-Award Interest under Section 31(7)(b) of the Arbitration & Conciliation Act, 1996

Introduction

This commentary examines the judgment of the Delhi High Court in Union of India & Anr. v. Sudhir Tyagi, delivered on April 17, 2025 by Justice Ravinder Dudeja. The case arose out of contractual disputes between Northern Railway (petitioner No. 1) and Sudhir Tyagi (respondent), leading to an arbitral award and subsequent execution proceedings. The principal question was whether the phrase “unless the award otherwise directs” in Section 31(7)(b) of the Arbitration & Conciliation Act, 1996, qualifies only the rate of post-award interest or also entitles the tribunal to withhold post-award interest altogether.

Parties and chronology:

Petitioners: Union of India (Northern Railway) and another
Respondent: Sudhir Tyagi
Arbitration Appointment: High Court order dated November 16, 2012
Award: October 13, 2015 (interest granted only on part of the claims)
Section 34 Challenge: Petition under Section 34 dismissed July 7, 2023
Execution Petition: Execution initiated in 2017; partial payment made
Impugned Order: Executing court directed 18% post-award interest on un-covered claims, October 25, 2024
Present Writ: Petition under Article 227 challenging the execution court’s order

Summary of the Judgment

The Delhi High Court dismissed the petition under Article 227, upholding the executing court’s direction that post-award interest at the statutory rate of 18% per annum applies on those sums on which the Arbitrator did not expressly award post-award interest. The Court held that:

Section 31(7)(b) mandates post-award interest on the award sum unless the Award otherwise directs.
The phrase “unless the award otherwise directs” qualifies only the rate of interest, not the entitlement.
The Arbitrator’s discretion is limited to fixing the rate of post-award interest; non-exercise of that discretion triggers the statutory rate.
Grant of post-award interest is a statutory entitlement and cannot be “contracted out.”

On this basis, the Court found no error in the executing court’s decision to apply 18% per annum on the un-covered claims and dismissed the writ.

Analysis

Precedents Cited

State of Haryana & Ors. v. S.L. Arora & Co. (2010) 3 SCC 690 – earlier two-judge view on interest.
M/s. Hyder Consulting (UK) Ltd. v. Governor, State of Orissa AIR 2015 SC 856 – three-judge bench overruled S.L. Arora and clarified distinction between pre-award and post-award interest.
Morgan Securities & Credits Pvt. Ltd. v. Videocon Industries Ltd. Civil Appeal No. 5437/2022 – held that “unless the award otherwise directs” qualifies only the rate, and Arbitrator has discretion to award post-award interest on part of the sum.
R.P. Garg v. The General Manager, Telecom Dept. & Ors. Civil Appeal No. 10472/2024 – reaffirmed mandatory nature of post-award interest entitlement and clarified that parties cannot contract it out.

Legal Reasoning

The Court’s interpretative approach focused on statutory text and legislative intent:

Textual Placement: In Section 31(7)(a), the qualifier “unless otherwise agreed by the parties” appears at the beginning, covering the entire pre-award interest provision. In Section 31(7)(b), “unless the award otherwise directs” is placed immediately before “carry interest at the rate of eighteen per cent,” showing it relates solely to the rate and not to the entitlement.
Purpose of Interest Provisions:
- Pre-award interest (Clause a) discourages delay in concluding arbitral proceedings and compensates for the period from cause of action to award date.
- Post-award interest (Clause b) discourages delay in payment after award date.
Discretion vs. Mandate: Clause (a) permits parties to agree on rate and scope; Clause (b) confers only rate-fixing discretion on the tribunal. If the tribunal abstains, the statute’s 18% rate automatically applies.
Authority of Executing Court: The executing court, while enforcing the arbitral award as a decree under Section 36, may apply statutory post-award interest even if the tribunal omitted it. This does not amount to re-opening the Award but only enforces a statutory right.

Impact on Future Cases

The judgment settles an important point of law and will guide tribunals, parties, and courts:

Tribunal Practice: Arbitrators will be mindful to expressly award or disclaim post-award interest and specify the rate; otherwise the default 18% applies.
Party Autonomy: Parties cannot stipulate against post-award interest; they may only negotiate the rate within the Award.
Executing Courts: Will apply mandatory statutory interest on award sums omitted by the tribunal without treating it as a collateral challenge.
Legal Certainty: Clarifies the differing scopes of Clauses (a) and (b) in Section 31(7) and prevents inconsistent enforcement of awards.

Complex Concepts Simplified

Pre-award vs. Post-award Interest:

Pre-award interest: Compensation for delay between dispute arising and Award date; discretionary and subject to party agreement.
Post-award interest: Compensation for delay from Award date to payment date; statutory entitlement unless Award fixes a different rate.

“Unless the award otherwise directs”: This phrase in Clause (b) relates only to the rate of interest, not whether interest is due.
Role of Executing Court: Under Section 36, an arbitral award is treated like a court decree. The executing court enforces statutory mandates (such as default interest) without re-examining merits.

Conclusion

The Delhi High Court in Union of India & Anr. v. Sudhir Tyagi has firmly established that post-award interest under Section 31(7)(b) of the Arbitration & Conciliation Act, 1996, is a mandatory entitlement. The only discretion left to the arbitral tribunal is the rate at which post-award interest will run. Where the tribunal remains silent, the statutory 18% per annum rate automatically applies. This decision aligns with Supreme Court precedents and brings clarity and uniformity to the enforcement of arbitral awards. It underscores the dual objectives of arbitration—expediency and certainty—and reinforces that arbitrators must explicitly deal with post-award interest or face application of the statutory default rate by executing courts.