The Supreme Court on September 01, 2022 in the matter of Morgan Securities and Credits Pvt. Ltd. V. Videocon Industries Ltd. held that the arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made i.e. whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award.

In the instant matter, an appeal was filed challenging the award of an arbitrator on the ground that the arbitrator does not have the discretion to determine the ‘sum’ on which the post-award interest is to be granted.

Relying on the earlier judgment of the Hon’ble Apex Court in the matter of Hyder Consulting (UK) Ltd. v. State of Orissa, it was contented that if pre-award interest is awarded on the principal sum, the aggregate of the principal and the pre-award interest is the ‘sum’ on which post-award interest must be granted. However, Section 31(7)(b) of The Arbitration and Conciliation Act, 1996 (“the Act”) is qualified by the phrase “unless the award otherwise directs“, implying that Section 31(7)(b) of the Act would only be applicable where an arbitral award is silent on the component of post-award interest. Thus, the issue before the court was whether the phrase “unless the award otherwise directs” in Section 31(7)(b) of the Act only provides the arbitrator discretion to determine the rate of interest or both the rate of interest and the ‘sum’ it must be paid against?

The Court held that the phrase “unless the award otherwise directs” in Section 31(7)(b) of the Act only qualifies the rate of interest. It does not fetter the discretion of the arbitrator to grant post-award interest. It only contemplates a situation in which the discretion is not exercised by the arbitrator. The Court observed that when a discretion has been conferred on the arbitrator in regard to the grant of pre-award interest, the statute cannot be interpreted to presuppose that the legislative intent was to reduce the discretionary power of the arbitrator for the grant of post-award interest under clause (b) of Section 31(7) of the Act. The discretion of the arbitrator can only be restricted by an express provision to that effect and there is no provision in the Act which restricts the discretion of the arbitrator for the grant of post-award interest which the arbitrator otherwise holds inherent to their authority.

The Court further held that the purpose of granting post-award interest is to ensure that the award debtor does not delay the payment of the award. The arbitrator while granting arbitral award must exercise the discretion in good faith, take into account relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances.