Awarding of 'Interest on interest' by Arbitral Tribunal, CJI says, it is impermissible; Justice Bobde and Justice Sapre say, yes it is permissible. Decoding Section 31 (7) of the Arbitration and...

Three Judges of the Supreme Court have delivered three Judgments on an interesting question of law. The ratio decidendi of that decision merely laid down the discretion of the arbitrator to decide the rate of interest awarded under sub- section of section 31 of the Act, 1996, on a part or whole of the award money" And after an elaborate discussion touching various aspects of the issue, CJI read sub -section of section 31 of the Act, 1996 as follows : "Therefore, in my considered view, the term "sum" as used in clause of sub- section of section 31 of the Act, 1996 would have the same meaning as assigned to the word under clause of the same provision. According to Justice Bobde"Clause of sub-section provides that where an Award is made for the payment of money, the Arbitral Tribunal may include interest in the sum for which the Award is made. Arora's case is wrongly decided in that it holds that a sum directed to be paid by an Arbitral Tribunal and the reference to the Award on the substantive claim does not refer to interest pendente lite awarded on the "sum directed to be paid upon Award" and that in the absence of any provision of interest upon interest in the contract, the Arbitral Tribunal does not have the power to award interest upon interest, or compound interest either for the pre-award period or for the post-award period. Parliament has the undoubted power to legislate on the subject and provide that the Arbitral Tribunal may award interest on the sum directed to be paid by the Award, meaning a sum inclusive of principal sum adjudged and the interest, and this has been done by Parliament in plain language" Justice A. M Sapre, the third judge on the Bench found himself in agreement with Justice Bobde and not with CJI, thus forming the majority opinion.