M/S. D. Khosla And Company vs The Union Of India

2024 INSC 587 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION SPECIAL LEAVE PETITION (CIVIL) NO.812 OF 2014

M/S D. KHOSLA AND COMPANY …PETITIONER(S)

VERSUS

THE UNION OF INDIA …RESPONDENT(S)

JUDGMENT

PANKAJ MITHAL, J.

1. Heard Smt. Jyoti Mendiratta, learned counsel for the

petitioner and Smt. Aishwarya Bhati, learned A.S.G. for

the Union of India.

2. In connection with a contract of 1984-85 between the

petitioner and the respondent, an award came to be

passed by the Arbitrator on 17.09.1997 under the Indian

Signature Not Verified Arbitration Act, 19401. It was made the rule of the court Digitally signed by Indu Marwah Date: 2024.08.07 17:21:57 IST Reason: 1 hereinafter referred to as ‘the Act’

1 under Section 14 read with Section 17 of the Act and a

decree was accordingly drawn.

3. The award vide its paragraph 12 provided for the interest

on the amount awarded. The interest was awarded for

two periods viz. (i) from the date of completion of the work

up to the date of the award @ 12% per annum (simple

interest); and (ii) @ 15% per annum from the date of the

award till the date of its payment or the date of the court

decree, whichever is earlier.

4. The portion of the award which is relevant for our

purpose concerning interest is reproduced hereinbelow:

“12. Interest:- The Union of India shall pay to M/s D Khosla & Company simple interest @ 12% per annum on the amount awarded from the date of completion of work ·upto the date of award and 15% from the date of award to the date of its payment or date of court decree whichever is earlier.” (emphasis supplied)

5. The decree of the court that was drawn according to the

award reads as under:

“02) Decree for Rs.21,56,745 (Rupees Twenty One Lac Fifty Six thousands seven hundred and forty five) in terms of Arbitration Award to be drawn on payment of the Court Fees by the

2 Opponent no.1. Opponent no.2- Union of India is hereby ordered to pay interest @ 12% p.a. on the awarded amount up to the date of the award and interest @ 15% p.a. from the date of award till the realization of the decreetal amount as per the terms of award.” (emphasis supplied)

6. A simple reading of the aforesaid decree reveals that

interest has been awarded in two parts on the amount

of Rs.21,56,745/- i.e. (i) 12% per annum on the

awarded amount up to the date of award; and (ii) 15%

per annum from the date of award till the realization of

the decretal amount.

7. It appears that the petitioner was paid the principal

amount of compensation awarded and interest of 12%

and 15% for the two periods i.e. pre-award and post-

award on the principal amount awarded. However,

petitioner was not satisfied and he moved execution for

the realization of certain amount as shortfall of the

interest. The petitioner contended that insofar as 15%

interest is concerned, it is payable on the principal

amount of compensation awarded plus 12% simple

interest on the said amount. In other words, petitioner

3 sought to include 12% interest in the principal amount

of compensation awarded for the purposes of claiming

15% simple interest for the post-award period.

8. The Principal Senior Civil Judge, Khambhalia, in

Execution Petition No.9 of 2006 preferred by the

petitioner, refused to accept the contention of the

petitioner so as to award 15% interest on the principal

amount of compensation awarded plus 12% simple

interest thereof. In a way, he declined to grant interest

upon interest for the reason that the Arbitrator has not

awarded it in so many words.

9. In the petition preferred by the petitioner before the

High Court, the same view was adopted by the High

Court vide its judgment and order dated 06.09.2013. It

held that as the Arbitrator had used word ‘simple

interest’ and had not specifically awarded compound

interest, therefore, the petitioner is only entitled to

simple interest @ 12% per annum on the amount

awarded as compensation for the pre-award period and

simple interest @ 15% per annum for the post-award

period only on the amount of compensation awarded.

4

10. Aggrieved by the judgment and order of the High Court

dated 06.09.2013 and that of the Principal Senior Civil

Judge, Khambhalia, dated 29.08.2008, the petitioner

has preferred this Special Leave Petition.

11. Ms. Mendiratta, learned counsel for the petitioner

argued that 12% interest per annum awarded for the

pre-award period is part of the principal sum and it has

lost its character as separate interest. Therefore, 15%

interest per annum awarded for the post-award period

is both on the principal sum and the 12% interest

inclusive.

12. In contrast, Ms. Aishwarya Bhati, learned Additional

Solicitor General appearing on behalf of the respondent,

has argued that though there is no controversy with

regard to the power of the arbitrator to award interest

on interest or compound interest in a given case.

However, it cannot be paid to the claimant until and

unless it is specifically granted by the award or the

order of court.

13. In the instant case, the arbitrator had granted interest

for two separate periods on the principal sum adjudged

5 only and there is no direction that the interest for the

subsequent period would be payable on the principal

sum adjudged including interest for the first period.

14. The sole simple issue herein for our opinion is whether

interest is payable on interest or whether 15% interest

per annum awarded would be on the principal sum

award plus 12% per annum interest on it for the pre-

award period.

15. Section 29 of the Act provides that the court may in the

decree order interest at the rate deemed reasonable to

be paid on the principal sum as adjudged by the award

meaning thereby in drawing the decree, the court may

order for payment of interest on the principal sum as

adjudged by the award. In other words, the court

cannot order for payment of interest on interest but only

on the principal sum adjudged.

16. Since the award under the Act is in the nature of a

decree in terms of Section 17 of the aforesaid Act, it

attracts the provisions of the Code of Civil Procedure2

also to a limited extent namely insofar as award of

2 hereinafter referred to as “CPC”

6 interest is concerned and for the execution of the decree

drawn pursuant to the award.

17. Section 34 of the CPC provides that where the decree is

for payment of money, the court may order interest at

such rate as the court deems reasonable to be paid on

the principal sum adjudged. Again, the reading of the

aforesaid Sub-Section (1) of Section 34 CPC would

reveal that the interest is payable on the principal sum

adjudged and not on interest part of the award.

18. The Interest Act, 1978 vide Sub-Section (3) of Section 3

specifically lays down that nothing in Section 3 which

permits the court to award interest shall empower the

court to award interest upon interest. It means that

ordinarily the courts are not entitled to award interest

upon interest unless specifically provided either under

any statute or under the terms and conditions of the

contract.

19. In Oil and Natural Gas Commission vs. M.C. Clelland

Engineers S.A.3 which was also a case under the Act,

this Court observed that there cannot be any doubt that

3 (1999) 4 SCC 327

7 the Arbitrators have power to grant interest akin to

Section 34 CPC and it is clear that interest is not

permissible upon interest awarded but only upon the

claim made. In the aforesaid case, the claim made was

in two parts, and in the second part, interest on delayed

payment was also claimed. In that situation, the court

held that the interest awarded would form part of the

damages or compensation for delayed payment and

would become part of the principal amount and thus, in

that circumstances, Arbitrator has the power to grant

interest on interest which partakes the compensation

awarded.

20. In State of Haryana and Others vs. S.L. Arora and

Company4, it was observed that interest, unless

otherwise specified, refers to simple interest and that

interest is payable only on principal amount and not on

any accrued interest. It was further held that the

compound interest can be awarded if there is a specific

provision under the statute or in the contract for

compounding of interest but no general discretion lies

4 (2010) 3 SCC 690

8 with the courts or tribunals to award compound interest

or interest upon interest.

21. In Hyder Consulting (UK) Limited vs. Governor,

State of Orissa5, this Court was dealing with Section

31(7) of the Arbitration and Conciliation Act, 1996,

wherein for the purposes of payment of post-award

interest, the phrase ‘sum directed to be paid by award’

was used and it was held that it includes the pre-award

interest and, therefore, post-award interest is payable

on the sum awarded which includes pre-award interest.

However, a distinction was made between Section 31(7)

which simply uses the word ‘sum’ and Section 34 CPC

wherein the phrase ‘on principal sum adjudged’ has

been used. The departure in the use of the language in

the two provisions was held to be of great significance

which clearly showed that the term ‘sum’ under Section

31(7) refers to aggregate amount of the award and the

pre-award interest whereas ‘principal sum adjudged’

under Section 34 CPC refers only to the amount

awarded.

5 (2015) 2 SCC 189

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22. The case of UHL Power Company Limited vs. State of

Himachal Pradesh6, is again in relation to

interpretation of Section 31(7) of the Arbitration and

Conciliation Act, 1996, wherein the principal laid down

in Hyder Consulting (UK) Limited (supra) has been

accepted.

23. In the light of the above legal provisions and the case

law on the subject, it is evident that ordinarily courts

are not supposed to grant interest on interest except

where it has been specifically provided under the

statute or where there is specific stipulation to that

effect under the terms and conditions of the contract.

There is no dispute as to the power of the courts to

award interest on interest or compound interest in a

given case subject to the power conferred under the

statutes or under the terms and conditions of the

contract but where no such power is conferred

ordinarily, the courts do not award interest on interest.

24. Neither the Act specifically empowers the Arbitrator or

the court to award interest upon interest or compound

6 (2022) 4 SCC 116

10 interest nor there is any other provision which provides

for grant of compound interest or interest upon interest.

Even Section 34 CPC is silent in this regard whereas

Sub-Section (3) of Section 3 of the Interest Act

specifically prohibits the same.

25. In view of the above legal position, we have to examine

the award in question and the decree drawn in

pursuance thereof to find out if compound interest or

interest upon interest has been awarded.

26. The relevant part of the award pertaining to the interest

and that of the decree has been reproduced

hereinbefore.

27. A plain reading of the aforesaid award and decree

reveals that interest awarded under the award has been

dissected into two parts. The first part relates to the

pre-award period from the date of the completion of the

work till the passing of the award whereas the second

part is the post-award period commencing from the date

of the award till the satisfaction of the award. In the

first part, simple interest @ 12% per annum has been

awarded on the ‘amount awarded’ whereas in the

11 second part, interest @ 15% per annum has been

awarded referring to the ‘amount awarded’. The amount

awarded in both the situations have to be the same and

cannot be two distinct amounts. The ‘amount awarded’

refers to the principal amount of compensation awarded

that is Rs.21,56,745/-. The award and the decree

nowhere specifically contemplate for awarding 15%

interest per annum on the amount awarded including

the interest component i.e. the pre-award interest. This

could not have been done even otherwise as there is no

provision to that effect under the relevant statutes or

the contract. No material has been placed before us or

as a matter of fact before any court below to show that

the terms and conditions of the contract contained any

such provision.

28. In the light of the above discussion, we do not deem it

appropriate under the facts and circumstances of the

case to exercise our discretionary jurisdiction under

Article 136 of the Constitution of India so as to interfere

with the opinion expressed concurrently by the two

12 courts below. Therefore, the Special Leave Petition is

dismissed.

....................………………………….. J. (PAMIDIGHANTAM SRI NARASIMHA)

.............……………………………….. J.

(PANKAJ MITHAL) NEW DELHI;

AUGUST 7, 2024.

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