Jammu & Kashmir & Ladakh High Court Upholds 12% Post-Award Interest Despite 18% Rate Under Unamended Arbitration Law

The High Court of Jammu and Kashmir and Ladakh has dismissed an appeal filed by the Union of India challenging an arbitral award that granted 12 percent post-award interest, holding that the statutory 18 percent rate under the unamended law applies only where the award is silent.

A Division Bench of Justice Rajnesh Oswal and Justice Rahul Bharti dismissed an appeal filed by the Union of India challenging and award including the grant of 12 percent future interest in favour of K.K. Enterprises Contractors.

The Court said, "The learned Arbitrator exercised his discretion to grant future interest at the rate of 12% per annum. We find no illegality in this determination.”

The dispute arose from a contract for special repairs to electric wiring and replacement of electric fitments at Domana. Brig. R.S. Sharma was appointed sole arbitrator on March 7, 2014. The contractor raised thirteen claims. The Union of India raised two claims.

By award dated July 16, 2015, the arbitrator allowed eight of the contractor's claims and rejected the rest. Both claims raised by the Union were dismissed. The arbitrator awarded monetary sums with interest at 12 percent per annum from October 16, 2015. He clarified that future interest would not apply to accumulated past and pendente lite interest.

The Union challenged the award before the Commercial Court, Jammu, under Section 34 of the Jammu and Kashmir Arbitration and Conciliation Act, 1997. The Commercial Court dismissed the challenge on January 27, 2025. The Union then filed an appeal against it.

The High Court reiterated that an arbitral award can be set aside only within the narrow confines of the grounds stipulated under Section 34. It emphasised that courts exercising jurisdiction under Sections 34 and 37 do not sit in appeal over arbitral awards.

The Bench agreed with the Commercial Court that the Union had “failed to demonstrate lest substantiate any perversity in the award.” It described the arguments as “superficial.”

On the issue of interest, the Court examined Section 31(7)(b) of the 1997 Act as it stood prior to amendment. The provision states that a sum directed to be paid by an arbitral award shall carry interest at 18 percent per annum from the date of the award until payment, unless the award otherwise directs. Since the arbitrator had expressly granted 12 percent interest, the statutory default of 18 percent did not apply.

Finding no legal infirmity in the award or in the order affirming it, the court dismissed the appeal. It directed the release of the balance of the awarded amount with accrued interest to the contractor. The Court noted that Rs. 5 lakh had already been paid.

For Union of India: Advocates Vishal Sharma and Sumant Sudan

For K.K. Enterprises Contractors: Advocate Jugal Kishore Gupta