Delhi High Court Upholds 18% Interest On Arbitral Award, Says Tribunals Free To Grant Such Rates Under Pre-2015 Law

The Delhi High Court has upheld an arbitral award granting 18% interest on the awarded sum to a contractor, holding that tribunals have wide discretion to fix interest rates under the pre-2015 arbitration law.

Justice Harish Vaidyanathan Shankar, in a dispute between the Municipal Corporation of Delhi (MCD) and Anil Gupta, however, modified the award to direct that interest would run only from July 6, 2008, the date of invocation of arbitration, instead of March 8, 2004.

“Under the statutory framework prevailing prior to the 2015 amendment, Section 31(7)(a) of the the A&C Act, conferred a wide and substantive discretion upon the learned Arbitral Tribunal to award pre-reference as well as pendente lite interest at such rate as it deemed reasonable, unless the parties had expressly agreed otherwise. The provision, in its plain terms, recognised the autonomy of the Arbitral forum to determine the appropriate rate of interest having regard to the factual matrix of the dispute, the conduct of the parties, and the period during which the claimant was deprived of monies found due,” the court observed.

The dispute arose from a contract awarded by the MCD to Gupta for completing a zonal office building in Narela, after an earlier contractor abandoned the project after constructing only the basement. The work order was issued on August 28, 2004, for Rs 4.29 crore, with a completion deadline of September 3, 2006.

Disputes later arose over escalation, watch and ward expenses, and interest. An arbitral award dated April 1, 2011 allowed certain claims in Gupta's favour and granted interest at 18% per annum.

The MCD challenged the award, arguing that the interest rate was excessive, contrary to bank rates, and amounted to interest on compensation, effectively amounting to interest on interest. It also contended that interest could not run from March 8, 2004, as this predated the work order and accrual of cause of action.

Gupta opposed the challenge, saying the rate was consistent with the law applicable at the time and within the arbitrator's discretion.

The Court agreed, noting that the law prior to 2015 allowed tribunals to award interest at reasonable rates and that 18% was not excessive, especially since the statute itself prescribed 18% as the default post-award interest rate.

It also emphasised that courts cannot re-examine the merits of arbitral awards under Section 34.

However, the Court found that the arbitrator had wrongly treated March 8, 2004 as the starting point for interest, even though it preceded the work order. It held that interest could only run from July 6, 2008, when arbitration was invoked.

The petition was accordingly disposed of, with the rate of interest upheld but the starting date modified.

For Petitioner (Municipal Corporation of Delhi): Advocates Sunil Goel, Dimple Aggarwal, Himanshu Goel, Varsha.

For Respondent (Anil Gupta): Advocate Aditya Chhibber.