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Hyder Consulting (Uk) Limited v. Governer, State Of Orissa Through Chief Engineer .
Factual and Procedural Background
The appeals arise from a judgment of the High Court which, relying on State of Haryana v. S.L. Arora & Co. (2010) 3 SCC 690, quashed two orders dated 19-2-2009 and 26-3-2009 passed by the District Judge, Khurda, Bhubaneswar. The petitioners sought leave to appeal to the Supreme Court. Upon hearing Mr. C.A. Sundaram, Senior Counsel for the petitioners, and Ms. Kirti Renu Mishra for the respondents, the Supreme Court granted leave and ordered that the hearing of the appeals be expedited. Owing to the legal questions raised, the Court considered it appropriate to refer the matter to a Bench of three Judges.
Legal Issues Presented
- Whether, under Section 31(7) of the Arbitration and Conciliation Act, 1996, an arbitral tribunal is empowered to award post-award interest on accrued interest (i.e., “interest on interest”).
- Whether Section 31(7) permits the award of interest on costs imposed by the arbitral tribunal.
- Whether the observations in S.L. Arora & Co. (2010) 3 SCC 690—treating earlier decisions such as McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 and U.P. Cooperative Federation Ltd. v. Three Circles (2009) 10 SCC 374 as per incuriam—are sustainable.
Arguments of the Parties
Petitioners’ Arguments
- The characterization in S.L. Arora & Co. that McDermott International and Three Circles are per incuriam is erroneous and unjustified.
- Decisions in Oil & Natural Gas Commission v. M.C. Clelland Engineers S.A. (1999) 4 SCC 327 and Central Bank of India v. Ravindra (2002) 1 SCC 367 support the view that Section 31(7) does allow an arbitral tribunal to grant post-award interest on accrued interest.
- The ruling in S.L. Arora & Co. that interest on costs is impermissible under Section 31(7) conflicts with the holding in Three Circles (2009) 10 SCC 374.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Haryana v. S.L. Arora & Co. (2010) 3 SCC 690 |
Held that Section 31(7) does not authorise award of interest on interest or on costs after the date of the award. | The High Court relied on this decision; petitioners challenge its correctness, prompting the Supreme Court to consider reference to a larger Bench. |
| McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 |
Earlier view that interest awarded up to the date of award becomes principal and future interest thereon is permissible. | Described in S.L. Arora as decided on an “erroneous assumption”; petitioners argue that this characterisation is incorrect. |
| U.P. Cooperative Federation Ltd. v. Three Circles (2009) 10 SCC 374 |
Allowed award of interest on costs and treated accrued interest as part of principal. | Petitioners rely on this case to contend that interest on costs is permissible and that S.L. Arora is inconsistent with it. |
| Oil & Natural Gas Commission v. M.C. Clelland Engineers S.A. (1999) 4 SCC 327 |
Supports grant of compound or interest-on-interest in arbitration contexts. | Cited by petitioners to counter the restrictive interpretation of Section 31(7) in S.L. Arora. |
| Central Bank of India v. Ravindra (2002) 1 SCC 367 |
Discusses legal characterization of interest and circumstances permitting interest-on-interest. | Relied upon by petitioners to argue that post-award interest can be levied on accrued interest amounts. |
Court's Reasoning and Analysis
The Court noted the petitioners’ detailed challenges to the reasoning in S.L. Arora & Co., particularly on the interpretation of Section 31(7) regarding post-award interest and interest on costs. Considering the breadth and importance of these submissions—and their potential to affect existing precedent—the Court concluded that a comprehensive examination by a larger Bench was warranted. Accordingly, it exercised its procedural discretion to refer the matter to a Bench of three Judges.
Holding and Implications
REFERRED TO A BENCH OF THREE JUDGES; LEAVE GRANTED AND HEARING EXPEDITED.
Immediate Effect: The present appeals will be listed before an appropriate three-Judge Bench as directed by the Chief Justice of India. No final determination on the substantive questions of interest under Section 31(7) has been made at this stage.
Broader Implications: While no new precedent is set, the reference signals the Supreme Court’s willingness to reconsider the correctness of S.L. Arora & Co. and to clarify the scope of arbitral power to award interest, potentially impacting arbitration practice nationwide.
Order
1. We have heard Mr C.A Sundaram, learned Senior Counsel for the petitioners, and Ms Kirti Renu Mishra, learned counsel for the respondents. Leave granted. Hearing of the appeals is expedited.
2. The High Court has relied upon the decision of this Court in State of Haryana v. S.L Arora and Co. (2010) 3 SCC 690, and quashed the orders dated 19-2-2009 and 26-3-2009 passed by the District Judge, Khurda, Bhubaneswar.
3. Mr C.A Sundaram, learned Senior Counsel for the petitioners, submits that the observations in S.L Arora and Co. (2010) 3 SCC 690 that the decisions of this Court in McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181, and U.P Coop. Federation Ltd. v. Three Circles (2009) 10 SCC 374 were passed on inadvertent erroneous assumption and these judgments are per incuriam in holding that interest awarded on the principal amount up to the date of award becomes the principal amount and, therefore, award of future interest thereon does not amount to award of interest on interest are not justified.
4. Mr C.A Sundaram, learned Senior Counsel, referred to the decisions of this Court in Oil & Natural Gas Commission v. M.C Clelland Engineers S.A (1999) 4 SCC 327 and Central Bank of India v. Ravindra (2002) 1 SCC 367 in support of his argument that the view taken by this Court in S.L Arora and Co. (2010) 3 SCC 690 that Section 31(7) of the Arbitration and Conciliation Act, 1996 (for short “the Act”) does not authorise and enable the Arbitral Tribunals to award interest on interest from the date of the award is not the correct view.
5. The learned Senior Counsel for the appellants also submitted that the view taken by this Court in S.L Arora and Co. (2010) 3 SCC 690 that the award of interest on cost was not permissible under Section 31(7) of the Act is inconsistent with the decision of this Court in Three Circles (2009) 10 SCC 374.
6. Having regard to the above submissions, we are of the view that it would be appropriate if these appeals are heard by a Bench of three Judges.
7. Let the papers be placed before the Hon'ble the Chief Justice of India for directions for placing the matters before the appropriate Bench.
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