State Of U.P. Thru. Addl. Chief Secy. Public Works Deptt. Govt. Of U.P. Lko. And Others vs M/S Apex Construction Co. Mathura Thru. Director/Proprietor Sri Jagdish Chowdhary And Another

HIGH COURT OF JUDICATURE AT ALLAHABAD
LUCKNOW
APPEAL UNDER SECTION 37 OF ARBITRATION AND
CONCILIATION ACT 1996 No. - 62 of 2023
State of U.P. through Additional Chief Secretary, Public Works
Department, Government of U.P., Lucknow and others
…..Appellant(s)
Versus
M/s Apex Construction Company, Mathura through Director/
Proprietor Sri Jagdish Chowdhary and another
…..Respondent(s)
Counsel for Appellant(s) :
Pritish Kumar (A.A.G.), Tushar
Verma (A.C.S.C.)
Counsel for Respondent(s) :
Akshat Kumar, Durgendra Kumar
Tiwari, Sanjay Kumar Srivastava,
K.K. Arora
AFR
Reserved on : 23.09.2026
Delivered on :24.10.2026
Chief Justice Court
HON’BLE ARUN BHANSALI, CJ.
HON'BLE JASPREET SINGH, J.
(Per:- Jaspreet Singh, J.)
1. The instant appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as ‘the Act of 1996’)
challenges the order passed by Commercial Court No. 1, Lucknow dated
09.02.2023, whereby the petition preferred by the appellant under
Section 34 of the Act of 1996 was dismissed, as a consequence, the
arbitral award dated 30.07.2017 was upheld.
(A) BRIEF FACTS:-

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ARPL No. - 62 of 2023
2. The dispute in question arises from a contract entered between the
appellant and the respondent for the purposes of widening and
strengthening of Raya-Math Road in District Mathura.
3. In terms of the contract, the claimant/respondent was required to
widen and strengthen the said Raya-Math Road from 1.00 to 10.00
kilometers. Later, the work was increased to 12 kilometers; thereby, 2
kilometers of work was increased, and as a consequence thereof, the
initial contract price of Rs.737.85 lakhs was enhanced to Rs.1137.29
lakhs. This contract price included the cost of bitumen and the cost of
extra items No. 1 and 2 which was sanctioned on 23.09.2009 by the
Competent Authority.
4. As per the respondent, the contract was awarded on 30.09.2008
initially for 1 to 11.8 km, and this work was enhanced to 12 km; hence,
200 meters of excess work was required to be done by the respondent.
The contract price of Rs.1137.29 lakhs was enhanced to Rs.1279.30
lakhs.
5. As per the claimant/respondent, the work was to be completed by
30.09.2009, but it was completed on 31.08.2009. The claimant submitted
its final bill on 31.08.2009 for Rs.5,31,58,238/-, which was disputed by
the appellant State.
6. Initially, the respondent preferred a writ petition bearing No. 8773
(MB) of 2010, which was disposed on 04.04.2014 with liberty to the
claimant/respondent to invoke the arbitration clause. The claimant
preferred Arbitration Application No. 57 of 2014, which was dismissed
as not maintainable as the arbitration clause was not appropriately

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ARPL No. - 62 of 2023
invoked. Hence, after proper invocation, the respondent preferred a fresh
Arbitration Application No.42 of 2015, which came to be decided on
18.11.2015, which led to the formation of a three-member Arbitral
Tribunal.
7. The claimant submitted its statement of claim on 31.01.2016,
wherein a sum of Rs.23,79,90,727/- was sought to be recovered by the
claimant from the appellant-State. Pendente lite and future interest at the
rate of 18% per annum with quarterly rest was sought on the aforesaid
amount from the date of filing of the statement of claim till the date of its
actual payment. The claimants also prayed for the cost of the arbitration
amounting to Rs.10 lakhs.
8. The aforesaid claims were disputed by the State-appellant, who
filed their statement of defence on 11.11.2016. The primary ground of
defence was that the claimants had breached the conditions of the
contract and the work was not carried out as per the standard
specifications and conditions as contained in the contract. It was also
alleged that the claimant used sub-standard material and this was got
verified through two separate teams comprising of engineers of the PWD
and another by the CRRI (Central Road Research Institute). The said
experts opined that a sum of Rs.4,65,862/- ought to be deducted from the
running bills of the respondent. It also proposed a deduction of
Rs.59,850/- for the sub-standard work.
9. It was also stated that initially the contract was for strengthening
and widening 10 kilometers for a total consideration of Rs.4,72,38,885/-,
which excluded the cost of bitumen. Later, the cost of the contract was

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ARPL No. - 62 of 2023
enhanced to Rs.1137.29 lakhs for the total length of Raya-Math Road,
and this enhanced value included the cost of bitumen and extra items No.
1 and 2. Since the cost of bitumen was to be provided by the appellant
and the enhanced work was only up to 11.8 kilometers, hence the
contract value was Rs.5,96,35,888/-, out of which certain deductions as
suggested by the CRRI were to be made, but the appellant erroneously
paid Rs.5,80,71,340/- out of which the deductions were to be made.
Thus, the defence was that an excess amount under the contract had
already been paid; rather, it was for the appellant to recover some
amount from the respondent. Accordingly, the respondent also set up a
counter-claim to recover some amount from the respondent.
10. The Arbitral Tribunal on 05.03.2017 framed 10 issues on the basis
of the pleadings, and three issues were framed on the counter-claim. The
claimant/respondent examined four witnesses apart from filing
documentary evidence, and the appellant State also examined three
witnesses and filed its documentary evidence.
11. The arbitral tribunal, while making the award, upheld Issue No. 1
in favour of the respondent, while Issues No. 2 and 3 were considered
together, and it was partly allowed and held that the claimant was
entitled to Rs.1,56,79,034.65. Subject to the aforesaid amount, the other
claims were rejected, including the claim for 5% escalation charge.
Issues No. 4 and 5 were also taken up together, and it was held that the
respondent had worked only up to 11.8 kilometers and there was no
evidence regarding 200 meters of extra work. Issues No.7 and 8 were
also decided against the claimant. Issue No. 9, which related to

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ARPL No. - 62 of 2023
limitation, had been decided as a preliminary issue on 30.04.2017, and it
was found that the claims were not time-barred.
12. While dealing with Issue No. 6, which related to grant of interest,
the Arbitral Tribunal awarded 12% interest with annual rest w.e.f.
01.09.2010 till the date of reference (that is, the date of filing of the
statement of claim) and also up to the date of the award. It further
provided that post-award interest at the rate of 14% would be payable
with annual rest till the date of actual payment and the arbitration cost of
Rs.10 lakhs was awarded in favour of the claimant against the State-
appellant.
13. As far as the counter-claims were concerned, Issues No. 1 and 2
were held against the State-appellant, and Issue No. 3 was partly allowed
in favour of the State, and a sum of Rs.1,39,619/- was held to be payable
to the appellant, along with interest at the rate of 14% per annum w.e.f.
01.09.2009, and this amount was to be deducted from the amount
awarded in favour of the claimant.
14. Thus, it would be seen that Issue No. 1 was held in favour of the
claimant; Issue No. 2 was decided against the claimant; Issues No. 3 and
4 were partly allowed in favour of the claimant; Issue No. 6 was partly
allowed; while Issues No. 5, 7, 8, and 9 were held against the claimant.
Similarly, Issues No. 1 and 2 relating to the counter-claim were held
against the State, and Issue No. 3 was partly allowed in favour of the
State.
15. The State-appellant, being aggrieved with the award dated
30.07.2017, preferred a petition under Section 34 of the Act of 1996

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ARPL No. - 62 of 2023
before Commercial Court-1 at Lucknow bearing No. 235 of 2018. The
said petition also came to be dismissed on 09.02.2023, and thus, being
aggrieved, the instant appeal was preferred.
(B) SUBMISSIONS ON BEHALF OF THE APPELLANT :-
16. Shri Pritish Kumar, learned Senior Counsel & Additional
Advocate General for the State of U.P., along with Shri Tushar Verma,
learned Additional Chief Standing Counsel for the State-appellant,
primarily raised two pronged submissions:
(i) Non-issuance of Completion Certificate:-
17. It was submitted that an Arbitral Tribunal is a creature of contract,
and thus it is bound by the terms of the contract. A specific plea had been
raised by the appellant that the entire work was not done by the
contractor/respondent; whatever work was done was not satisfactory, and
sub-standard material was used. It was further submitted that the
appellant had not granted the certificate of completion to the respondent,
and in absence thereof, it was not open for the Arbitral Tribunal to have
held that the work was complete, especially when the completion of
work was defined in the contract itself. In absence of any material or
evidence regarding adherence to Clause 48.1 of the contract relating to
the definition clause as contained in the contract, the finding recorded by
the Arbitral Tribunal that the claimant/respondent had completed the
work was per se bad in the eyes of law.
18. The recording of finding on completion of work, in absence of any
completion certificate given by the appellant amounted to rewriting the
contract by the Arbitral Tribunal, which was not in its domain, and this

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ARPL No. - 62 of 2023
was clearly a patent error which vitiated the award, and this aspect was
raised by the appellant before the Commercial Court which has been
turned down which is also a patent illegality and thus the judgment and
order passed by the Commercial Court also incurs the vice of illegality
and it is a fit case for the Appellate Court to intervene in terms of Section
37 of the Act of 1996.
19. It was further urged that the non-availability of the completion
certificate was important for the reason that unless the work was
complete and final bill was generated and approved, till then, it could not
be ascertained as to how much work had been done by the
claimant/respondent.
20. It was further pointed out that it was alleged by the
claimant/respondent that it had submitted its final bill on 31.08.2009.
However, this fact was denied by the appellant, and the Arbitral Tribunal
recorded a finding that the alleged final bill dated 31.08.2009 submitted
by the respondent was false and misleading, hence, it ignored the final
bill, and even the claim made by the respondent seeking to recover 5%
of escalation charge every year, was rejected.
21. Thus, where the claim of the respondent as well as its final bill
were found to be misleading and false, coupled with the fact that the
claimant could not produce any completion certificate, in such
circumstances, the finding returned by the Arbitral Tribunal upholding
the entitlement of the claimant/respondent for a sum of Rs.
1,56,79,034.65 was patently erroneous, and thus the award was liable to
be set aside.

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22. This aspect was also not considered appropriately by the
Commercial Court, which vitiates the judgment of the Section 34 Court;
hence, the appeal deserves to be allowed, setting aside the findings in
respect of Issues No. 2 and 3.
(ii) INTEREST:-
23. The learned Senior Counsel for the appellant further submitted
that the contract was silent regarding grant of interest. In such
circumstances, the Arbitral Tribunal was not justified in granting interest
for the pre-reference period, and that too compounding the same on
yearly basis.
24. It was further submitted that in absence of any clause or condition
in the contract regarding payment of interest, the Arbitral Tribunal was
not justified in granting the interest from the date when the cause of
action arose, i.e , 01.09.2009 till the date of actual payment, and that too
compounding it annually, it was a jurisdictional error committed by the
Arbitral Tribunal.
25. It was submitted that the Interest Act, 1978, in its definition
clause, encompasses a tribunal and an arbitrator within the meaning of
the word "court". It was further submitted that Section 3(3)(c) of the Act
of 1978 does not empower the court to award interest upon interest. In
other words, it was submitted that since the Arbitral Tribunal falls within
the definition of the word "court" in terms of the Act of 1978,
consequently, it was not empowered to grant interest upon interest (i.e.
compound interest). Hence, the grant of compound interest by the
Arbitral Tribunal was clearly prohibited.

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ARPL No. - 62 of 2023
26. Learned Senior Counsel for the appellant further submitted that
even in terms of Section 31(7) of the Act of 1996 which can be split in
two parts, that is, clause (a) and (b) of Section 31(7) of the Act of 1996.
This provision does give discretion to the Arbitral Tribunal to award
interest, but even the said statutory provision does not permit grant of
compound interest. It was further submitted that there is a difference in
the language employed by the Act of 1996 in context with clause (a) and
(b) of Section 31(7) of the Act of 1996.
27. It was also urged that though the Arbitral Tribunal had awarded a
cost of Rs. 10 lakhs, but that too has been capitalized upon which
compound interest has been awarded, which indicates a jurisdictional
error and patent illegality which was not appreciated by the Commercial
Court.
28. It was submitted that the Arbitral Tribunal granted interest at the
rate of 14% per annum with annual rest which was bad and against the
terms of the contract, including the statutory provisions; hence, the
award dated 30.07.2017 stood vitiated. Even the Commercial Court did
not consider the statutory provisions appropriately, and thus both the
award as well as the judgment passed by the Commercial Court stand
vitiated and deserve to be set aside, and the appeal deserves to be
allowed.
29. The learned Senior Counsel for the appellant has relied upon the
following decisions:-
(a) Gayatri Balasamy v. ISG Novasoft Technologies
Ltimited : (2025) 7 SCC 1,

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ARPL No. - 62 of 2023
(b) State of Haryana v. S.L. Arora & Company : (2010) 3
SCC 690,
(c) Hyder Consulting (UK) Ltd. v. State of Orissa : (2015) 2
SCC 189,
(d) HLV Ltd. v. PBSAMP Projects (P) Ltd. (2025) SCC
OnLine SC 2062
(C) SUBMISSIONS ON BEHALF OF THE RESPONDENTS:-
30. The learned counsel for the respondent, while refuting the
submissions of the learned counsel for the appellant, defended the
award. It was urged that there was ample evidence on record which
indicated that the work had been completed and that too prior to the date
of completion. After perusal of evidence, the Arbitral Tribunal recorded
a finding that the work had been done by the claimant/respondent, and
the appellant could not lead any evidence to indicate that the work was
not done. It also recorded a finding on the basis of the evidence that the
work was satisfactory and in accordance with the standards, and in such
circumstances, there was actually no dispute regarding the work done.
31. It was further submitted that due to political reasons, the work of
the claimant was put to scrutiny, and even the third party who examined
the work did not find any such anomaly which could lead to an inference
that the claimant had not completed the work. It was further submitted
that the reports of the PWD and the CRRI were placed on record, which
indicated that the work had been done, and it also depicted why there
was wear and tear of the road widened and strengthened by the
claimant/respondent. The reason was clearly indicated that there was no
substandard or faulty workmanship; rather, the standards and the criteria

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ARPL No. - 62 of 2023
given by the State was for roads to be plied by light and medium
vehicles, but the said road was put to use by heavy vehicular traffic.
32. In such circumstances, it was for the appellant to have seen that in
case if it chose the road to be widened and strengthened for heavy traffic,
then the contract should have provided the criteria and standard for such
use. The contract standards and criteria was for proposed use by light
and medium vehicular traffic, but the appellant chose to put the road for
different purposes by diverting the route, hence, the wear and tear could
not be ascribed to the claimant.
33. The witnesses of the appellant were cross-examined, and they also
could not point out any deficiency in the work of the claimant, and in
such circumstances, the findings returned by the Arbitral Tribunal are
pure findings of fact based on material evidence available on record,
which are unassailable in proceedings under Section 34 as well as
Section 37 of the Act of 1996.
34. It was further submitted that there was never any dispute that the
work had not been done by the claimant, and this was only raised during
the arbitral proceedings. The work stood completed, which was also
noted during the third-party inspection. There was never any complaint
made by the appellant indicating that the work was not complete or it
was of substandard. However, the completion certificate was to be issued
by the appellant, and despite the work having concluded and there being
no complaint raised by the appellant regarding the workmanship, quality,
or the completion of work, now, during arbitral proceedings, it cannot be
urged that since there was no completion certificate, hence it would be

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ARPL No. - 62 of 2023
assumed that the work was incomplete. Thus, the said findings, which
are based on evidence, cannot be unsettled in an appeal under Section 37
of the Act of 1996, hence, the first limb of submission of the appellant
must fail.
35. The learned counsel for the respondent, while responding to the
second submission relating to grant of interest, submitted that Section
31(7) of the Act of 1996 is a statutory provision which recognizes and
confers power on the Arbitral Tribunal to grant interest both for the pre-
reference period, pendente lite , and future interest. It clearly states that
the Arbitral Tribunal is empowered to do so and grant interest as
aforesaid at the rate which the arbitrator would deem appropriate.
36. It was further submitted that in case if the rate of interest is not
provided, then as per the statutory prescription contained in Section
31(7) of the Act of 1996, the rate of interest would be 2% of the general
lending rates as applicable to the public sector banks.
37. It was urged that in the instant case, the Arbitral Tribunal found
that the work was completed by the claimant, and even though the final
bill was found to be misleading, yet, considering the evidence including
the admission of the appellant, it found that the appellant was entitled to
a sum of Rs.1,56,79,034.65. This amount was payable to the claimant
upon completion of work, which was done by 31.08.2009; thus, from
01.09.2009, interest has been allowed.
38. It was further submitted that on the date when the award was
made, i.e. 30.07.2017, the rights of the claimant/respondent were
crystallized, and thus from that date onwards till the date of actual

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ARPL No. - 62 of 2023
payment, the Arbitral Tribunal has provided 14% interest with annual
rest, which cannot be faulted. It was urged that there is no bar for the
Arbitral Tribunal to grant interest, nor there is any bar on the rate of
interest.
39. Section 31(7) would come into the picture when there is no rate of
interest provided by the Arbitral Tribunal for the post-award interest. In
the instant case, where the Arbitral Tribunal has provided for the post-
award interest, hence Section 31(7)(b) has got no applicability. Evan the
mode as provided by the Arbitral Tribunal does not fall foul of the
banking practice, since the banks, while lending the amount to the
creditors, charge interest with quarterly rest. In the instant case, the
Arbitral Tribunal has provided for interest on yearly rest, which cannot
be said to be arbitrary nor cumbersome. Hence, the submission raised by
the appellant relating to the grant of interest, also has no legs to stand
and must fail.
40. It was urged that the findings returned by the tribunal are based on
proper appreciation of evidence, and once a view has been formed by the
Arbitral Tribunal on evidence, within the domain of the contract, such
findings cannot be assailed either in Section 34 or Section 37 of the Act
of 1996; thus, for the aforesaid reasons, the appeal deserves to be
dismissed.
41. The learned counsel for the respondent has relied upon the
following decision:-
(a) Haryana Tourism Limited v. M/s Kandhari Beverages
Limited : (2022) 4 SCC 116.

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(D) ANALYSIS:-
42. The Court has heard learned counsel for the parties and also
perused the material on record.
43. The first submission of the learned Senior Counsel for the
appellant is focused on the premise that the work was not completed by
the respondent. No completion certificate was issued and whatever work
was done by the respondent was incomplete and substandard. Even
otherwise, the amount paid by the appellant to the respondent was on the
higher side. Upon inspection of the work done by the respondent, there
were reports, which highlighted the deficiencies and it was
recommended that a determined amount as suggested in the report
should be deducted from the bill submitted by the respondent.
44. In this backdrop, the submission was that there was no outstanding
amount payable to the respondent rather the amount which had already
been paid was more than what the respondent deserved and even from
the amount so paid, some deductions were to be made. Thus, the amount
of Rs.1,56,79,034.65/- as held by the Arbitral Tribunal to be paid to the
respondent is erroneous.
45. In order to examine the weight and correctness of the aforesaid
submission, it will be relevant to notice few facts.
(a) In the statement of claim filed by the respondent before the
Arbitral Tribunal, it was pleaded that the respondent was granted the
contract of widening and strengthening of Raya-Math Road. The initial
contract was for 1 kilometer to 11.80 kilometers with initial cost of
Rs.737.85 lakhs. On 21.01.2009, the appellant had informed the

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ARPL No. - 62 of 2023
respondent that the total cost of the project had been enhanced to
Rs.1137.29 lakhs.
(b) According to the respondent, it had completed the entire work
including the extra-work of 200 meters and the entire length of the Raya-
Math Road was not 11.8 kilometers rather it was 12 kilometers.
(c) The appellant, in its statement of defence filed before the Arbitral
Tribunal, specifically pleaded in Paragraphs 5 and 6 that the cost of the
contract was initially Rs.737.85 lakhs and subsequently had been
enhanced to Rs.1137.29 lakhs and this amount included the cost of the
bitumen and the cost of extra-item No.1 and 2 as sanctioned by the
Competent Authority on 23.05.2009.
(d) In Paragraph-9, it was stated by the appellant that the
claimant/respondent herein was to be paid Rs.4,72,38,088/- for the work
excluding the cost of bitumen under the contract for only 10 kilometers
of Raya-Math Road.
(e) It was further pleaded that since the cost of the contract was
enhanced from Rs.737.85 lakhs to Rs.1137.29 lakhs for the entire length
of Raya-Math Road and it included the cost of bitumen and extra-item
No.1 and 2. The appellant in the same paragraph also pleaded that the
respondent had already been paid a sum of Rs.5,80,71,340/-.
(f) In Paragraph-16 of the statement of defence, the same contention
was repeated and it was stated that the total work done by the respondent
under the contract was worth Rs.5,96,35,888/- and from the said amount,
a deduction was to be made, based on the report by CRRI for a sum of
Rs.79,769/-.

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(g) Again in Paragraph-22 of the statement of defence, it was stated
that with the enhancement of the contract value from Rs.737.85 lakhs to
Rs.1137.29 lakhs for the total length of Raya-Math Road inclusive of the
cost of the bitumen and for extra-item No.1 and 2. The contract was
valued at Rs.5,96,35,888/- against which the respondent had been paid a
sum of Rs.5,80,71,340/- from which a sum of Rs.79,769/- was to be
deducted as per the report of CRRI and a sum of rupees Rs.6,70,000/-
was to be deducted as the proportionate share of the respondent for their
liability for the loss caused to the State in not executing the work as per
the specifications and standards as mentioned in the contract.
46. In the aforesaid background of the pleadings, the issues were
framed and for the instant appeal, the following issues are important to
be noted, which read as under:-
(i) Whether the Claimants completed the constructed work as per the
specifications and standards?
(ii) Whether the Claimants were entitled for payment of Rs.1279.30 lacs
alongwith 5% escalation charge per year?
(iii) Whether the balance payment of Rs.5,31,58,238.00 of Claimants
remained due against the opposite parties?
(iv) Whether the actual length of the road constructed by the Claimant is
11.800 Km. or 12.000 Km. as claimed by the Claimant?
(v) Whether the Claimants constructed Km 1 to Km 12 at Raya-Math
Road and thus about 200 meter excess road was constructed by the Claimants
and resultantly the cost of construction exceeded from Rs.1137.29 Lakhs to
Rs.12,79,30,440/- Lakhs?
47. After the evidence was led, the Arbitral Tribunal while dealing
with Issue No.1 as to whether the claimant completed the work as per
specifications, a finding was returned that the claimant had completed
the work as per the contract-bond including completing the extra-items

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ARPL No. - 62 of 2023
No.1 and 2 as per specifications and standards. There was no material to
suggest that there was any defect or incomplete work nor there was any
evidence that the appellant ever put the issue of incomplete and deficient
work to the respondent. No notice was ever issued to the respondent
pointing out any defects or for removal of any defects. Thus, Issue No.1
was decided in favour of the claimants.
48. Issues No.2 and 3 were taken up together by the Arbitral Tribunal.
As far as the Issue No.2 is concerned, it related to whether the
respondent was entitled for payment of Rs.1279.30 lakhs along with 5%
escalation charge per year.
49. The Arbitral Tribunal recorded its findings against the claimant-
respondent. Admittedly, the said finding regarding turning down the
claim of 5% escalation was never assailed or challenged by the
respondent/contractor and it attained finality.
50. As far as Issue No.3 is concerned, whether the claimant was
entitled to recover the balance payment of Rs.5,31,58,238/-. The Arbitral
Tribunal held that the final bill as submitted by the respondent was false
and misleading. However, it found that the claimant-respondent had
revised its claim and confined it to a sum of Rs.1,56,79,034.65/-. This
amount claimed was on the basis of averments in the pleadings. It found
that admittedly the contract-bond issued on 30.09.2008 indicated the
value at Rs.4,72,38,885/-. To the aforesaid amount, the cost of the work
of extra-items No.1 and 2 worth Rs.15025189.65 and Rs.1,14,86,300/-
was added which brought the amount to Rs.7,37,50,374.65 from which
the amount admittedly received by the respondent being

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ARPL No. - 62 of 2023
Rs.5,80,71,340/- if deducted would leads to a balance of
Rs.1,56,79,034.65 which was payable to the respondent.
51. The Arbitral Tribunal also recorded a finding in respect of Issue
No.4 that the respondent had completed the entire work of 11.800
kilometers and not 12 kilometers, as claimed by the respondent.
Accordingly, while dealing with Issue No.5, it held that the claimant-
respondent had completed the work of 11.800 kilometers and the
contract value had not exceeded Rs.1137.29 lakhs.
52. Now, in terms of the General Conditions of Contract, the
definition relating to the completion date is as under:-
"The completion date is the date of completion of works as certified by the
Engineer in accordance with Clause 48.1."
53. Clause 48.1 is also being noticed hereinafter for ease of
reference:-
“48. Completion of Construction and Maintenance:-
48.1 The Contractor shall request the Engineer to issue a certificate of
completion of the construction of works, and the Engineer will do so upon
deciding that the work is completed."
54. In light of the pleadings, contents of the General Conditions of
Contract and the findings returned by the Arbitral Tribunal as noticed
above, the record reveals:-
(a) That the total cost of the contract was admittedly Rs.737.85 lakhs.
(b) That the work was completed on 31.08.2009.
(c) No notice, complaint or any correspondence was initiated/issued
by the appellant to the respondent pointing out non-completion,
deficiency in work, use of substandard material was given by the
appellant to the respondent.

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ARPL No. - 62 of 2023
(d) Even the report of the CRRI and U.P. Public Works Department
did not make any observations that the entire work was not completed by
the respondent. All what was indicated in the reports were certain
deficiencies and the cause of the deficiency was not so much regarding
bad workmanship, but was in context with the fact that the road was
proposed to be used not for heavy vehicular traffic, but for light and
medium vehicular traffic, which complemented the specifications with
which the road was to be made. The said deficiency was an outcome of
use of the said road for heavy vehicular traffic. The reports also
suggested certain deductions to be made from the claim of the
respondent, but there was no finding either to the effect that the work
was incomplete or it was substandard.
55. In such circumstances, the contention of the appellant to suggest
that the work was incomplete or was of substandard is not borne out
from the evidence on record. Hence, the finding returned by the Arbitral
Tribunal that the respondent completed the entire work of 11.8 km of
Raya-Math Road being a finding of pure fact based on evidence cannot
be said to be perverse. In this view of the matter, the contention of the
learned Senior Counsel for the appellant that no completion certificate
was issued by the appellant will mean that the work was incomplete is
completely misplaced.
56. The learned Senior Counsel could not dispute the fact that the
appellant never put the respondent to notice regarding incomplete, bad
workmanship or use of substandard material in the contractual work.
Since, the evidence clearly indicated that the work had been done, hence,

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ARPL No. - 62 of 2023
merely because the completion certificate was not issued by the
appellant it would not mean that the work was incomplete. The record
reflects overwhelming evidence against the said contention which was
considered by the Arbitral Tribunal as well as the Section 34 Court.
Hence, the submission of the learned Senior Counsel that absence of
completion certificate would amount to the work not being completed
and the finding returned by the Arbitral Tribunal that the work was
completed amounted to rewriting the contract, is patently misconceived
and it does not find favour with this Court. Consequently, the first
submission advanced on behalf of the appellant is turned down.
57. The second submission of the learned Senior Counsel for the
appellant revolves around the issue of grant of compound interest by the
Arbitral Tribunal.
58. Examining the aforesaid contention, the following undisputed
facts emerge from the record:-
(i) The contract entered between the parties is silent on the issue of
grant of interest irrespective whether simple or compound.
(ii) In absence of any stipulation contained in the contract for grant of
interest, naturally ushers the statutory provision to fill the silence in the
contract.
59. At this stage, it would be gainful to peruse the award to
understand as to how the Arbitral Tribunal has considered the issue of
grant of interest.
60. In this regard, the Arbitral Tribunal had framed Issues No.6 and 8,
which are reproduced hereinafter for ease of reference:-

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“(vi) Whether the Claimants are entitled to interest @ 18% P.A. quarterly
rest comes to the tune of Rs.8,48,32,489.00 (Eight Crore Forty Eight Lakh
Thirty Two Thousand Four Hundred Eighty Nine) as on 31.01.2016 w.e.f.
01.09.2009?
(viii) Whether Claimant is further entitled to interest @ 18% P.A. with
quarterly rest during the pendency of this petition and till the payment of
Rs.23,79,90,727.00 is made to the Claimants by the opposite parties or on
any amount?”
61. While deciding Issue No.6, the Arbitral Tribunal took note of
Section 31(7) of the Act of 1996 and in its award, it held as under:-
“(vi) Whether the Claimants are entitled to interest @ 18% P.A. quarterly
rest comes to the tune of Rs.8,48,32,489.00 (Eight Crore Forty Eight Lakh
Thirty Two Thousand Four Hundred Eighty Nine) as on 31.01.2016 w.e.f.
01.09.2009?
On the discussions and findings on Issue Nos.2 and 3 it has been found that
the claimant is only entitled to an amount of Rs. 1,56,79,034.65. In the
contract bond there is no interest specified, if any part of the amount found
due remains unpaid. We have also not been shown any conditions of payment
of interest in the General Conditions of Contract and thus in accordance with
Section 31 (7)(a) of the A.C. Act the interest unless and otherwise agreed by
the parties, is to be left to be determined by the Arbitral Tribunal. Such
interest should be reasonable, for the whole or any part of the period between
the day of which the cause of action arises and on the date of which award is
made. Sub-Section (b) inserted in Section 31(7) by the Arbitration and
Conciliation Amendment Act, 2015, provides that a sum directed to be paid
by an arbitral award shall, unless the award otherwise directs will carry
interest at the rate of two per cent higher than the current rate of interest
prevalent on the date of award, from the date of award to the date of payment.
The Claimant is thus held entitled to reasonable interest at the rate of 12%
which is average lending rate of nationalized banks, compounded yearly, on
the amount awarded to it w.e.f. 1.9.2010, till the date of reference, and
thereafter upto the date of the Award. The Claimant is also held entitled to the
interest at the same rate after the date of the Award till the amount awarded
by the Arbitral Tribunal is realized from the Respondent.”
62. Similarly, while dealing with Issue No.8, the Arbitral Tribunal in
its award held as under:
“On the findings on Issue Nos.2, 3 and 6 the Claimant is not held entitle to
the payment of claimed amount of Rs.23,79,90,727.00 and thus there is no
question of any payment of interest on this amount during the pendency of
the petition. While deciding Issue No.6 we have already held the Claimant
entitle to 14% interest compounded annually on the amount awarded from

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1.9.2009. No further interest is liable to be paid to the Claimant. The Issue
No.(viii) is thus answered against the Claimant.”
63. Then, in the conclusion drawn by the Arbitral Tribunal in its
award, it held as under:
“29. Conclusion:
The claim petition is allowed to the extent that the Claimant is held entitled to
an amount of Rs.1,56,79,034.65 with 14 % interest w.e.f. 1.9.2009
compounded annually till the date of reference for arbitration and thereafter
during the period of proceedings of the Award, and also thereafter until its
realization. The Claimant is also entitled to Rs.10 Lakhs as cost of the
proceedings. An amount of Rs.1,39,619/- recommended by CRRI and TAC to
be deducted from the final bill alongwith 14% interest from 1.9.2009, shall be
deducted from the amount awarded to the Claimants.
The Arbitrators confirm that they has received the arbitration fees for the
Claims and Counter Claims, and expenses for preparing the Award.
Both the parties were required to and have agreed that this Award may be
delivered at Lucknow.”
64. From a perusal of the aforesaid portion of the award, it indicates
that the respondent were held to be entitled to recover a sum of
Rs.1,56,79,034.65 with 14% interest with effect from 01.09.2009
compounded annually till the date of reference for arbitration and
thereafter for pendente lite and future interest, the same rate of interest
was provided, with annual compounding, till its recovery.
65. The respondent was also to be entitled to the cost of Rs.10.00
lakhs.
66. The award further provided that from the amount awarded to the
claimant, as aforesaid, the appellant was entitled to deduct a sum of
Rs.1,39,619/- along with 14% interest from 01.09.2009.
67. At this stage, it will be worthwhile to refer to certain provisions of
The Interest Act, 1978 (for short, ‘the Act of 1978’), wherein in Section
2, the word ‘Court’ has been defined as under:-

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2. Definition. “ - x x x
(a) “Court” includes a tribunal and an arbitrator.”
68. Section 3 of the Act of 1978 and its relevant sub-section is being
reproduced:-
3. Power of Court to allow interest.(1) “ x x x
(2) x x x
(3) Nothing in this section -
(a) x x x
(b) x x x
(c) shall empower the court to award interest upon interest.”
69. In the very same vein, it will be relevant to refer to Section 31(7)
of the Act of 1996, which reads as under:
“ 31. Form and contents of arbitral award .—x x x
(7)( a ) Unless otherwise agreed by the parties, where and in so far as an
arbitral award is for the payment of money, the arbitral tribunal may include
in the sum for which the award is made interest, at such rate as it deems
reasonable, on the whole or any part of the money, for the whole or any part
of the period between the date on which the cause of action arose and the date
on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award
otherwise directs, carry interest at the rate of two per cent higher than the
current rate of interest prevalent on the date of award, from the date of award
to the date of payment.
Explanation.-The expression “current rate of interest” shall have the same
meaning as assigned to it under clause (b) of section 2 of the Interest Act,
1978 (14 of 1978).”
70. Noting the fact that the contract between the parties is silent
regarding grant of interest, hence, it will be important to examine how
Section 3 of the Act of 1978 and Section 31(7) of the Act of 1996 will
interact. In this context, it will first have to be determined, whether the
Arbitral Tribunal has the power to grant interest, on two fronts:-
(a) interest prior to the arbitral reference; and
(b) the award of interest pendente lite and future.
71. Section 31(7) of the Act of 1996 expresses the legislative
intentions relating to the grant of interest in Arbitral proceedings. Section

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ARPL No. - 62 of 2023
31(7) of the Act of 1996 has two components: Clause (a) and Clause (b).
Clause (a) refers to the discretion conferred upon the Arbitral Tribunal
to grant interest at reasonable rate for the period prior to the reference,
whereas Clause (b) incorporates the legislative mandate (which is not
discretionary) requiring the Arbitral Tribunal to grant interest. It would
further reveal that in case if the rate of interest is not provided then the
rate of interest would be 2% above the lending rates of the nationalised
banks.
72. What is relevant to notice is that Section 31(7) operates only in
those situations, where the contract is silent regarding the grant of
interest. Admittedly, the contract in the instant case does not provide for
grant of interest, hence, Section 31(7) definitely stands attracted.
Therefore, it cannot be said that the Arbitral Tribunal did not have the
jurisdiction or authority to grant interest for two separate periods that is
prior to reference and the other relating to pendente lite and future
interest.
73. Now, the question would be as to whether the Arbitral Tribunal
can grant compound interest and if so, whether for both the periods or in
respect of any one, that is to say, prior to reference and future and
pendente lite . This also needs to be seen from another angle as to
whether the interest as granted by the Arbitral Tribunal amounts to
compound interest or not.
74. As already noticed above, the Arbitral Tribunal has granted 14%
interest with annually rest both for the pre-reference period as well as for
pendente lite and future. It is also an undisputed fact that there is no

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clause in the contract relating to grant of interest either simple or
compound.
75. It is now too well settled to be disputed that the compound interest
cannot be granted unless there is a stipulation in the contract. The
Arbitral Tribunal is a creature of the contract and it is bound to act
within the four corners of the contract. In this context, it will be clear
that since the contract does not provide for grant of interest, hence, the
Arbitral Tribunal, in the instant case, did not have the right to grant at
least compound interest. This aspect of the matter was considered by the
Constitution Bench of the Apex Court in Central Bank of India v.
Ravindra : (2002) 1 SCC 367 , wherein tracing the history of banking
practices in Paragraph-15, it held as under:-
“15. In  National Bank of Greece S.A.  v.  Pinios Shipping Co. No. 1  [(1990)
1 All ER 78 (HL) : (1990) 1 AC 637] the House of Lords upheld the
entitlement of the bank to the principal sum due to it, with interest
thereon, as agreed, until payment or judgment in the usual way, and that
the agreement included the term, implied by the usage of bankers, that the
bank was entitled to capitalise interest, which in the case before Their
Lordships, was (by concession) at quarterly rests and that such
entitlement continued until judgment or payment. In the Court of Appeal
[ National Bank of Greece S.A.  v.  Pinios Shipping Co. No. 1 , (1989) 1 All
ER 213 (CA) : (1990) 1 AC 637], Lloyd, L.J., who wrote the leading
order, was of the opinion that an implied agreement to pay compound
interest with quarterly rest based on the banking practice exists during the
currency of the banker-customer relationship but once the banker-
customer relationship ceases the bank cannot charge compound interest
and only simple interest would be payable. His Lordship traced the
history of banking practice as borne out by judicial precedents, and held:
(All ER p. 230 a - c  : AC p. 659)
“( ) there is no right to compound interest save by agreement, express or i
implied, or custom binding on the parties; ( ) there was no express ii
agreement to pay compound interest in the present case; ( ) an iii
agreement to pay compound interest may be implied by virtue of
acquiescence ( Lord Clancarty   v.   Latouche   [(1810) 1 Ball & B 420
(LC)] ); but ( ) such an agreement is not normally implied except as to iv
‘mercantile accounts current for mutual transactions’ ( Deutsche
Bank   v. Banque des Marchands de Moscou     [(1931) 4 Legal Decisions
Affecting Bankers 293 (CA)] , LDB at 295-296, per Greer, L.J.); ( ) it is v
open to question whether the agreement between the bank and Pinios
dated 8-2-1977 was an account current for mutual transactions; but, even
if it was, it ceased to be such an account when the bank closed the

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account and demanded repayment on 13-11-1978; ( ) the bank never vi
pleaded or proved a custom entitling it to continue to charge compound
interest after the account had been closed, or, a fortiori, after it had issued
proceedings for the recovery of debt.””
*
“ Conclusion which follows
36. The English decisions and the decisions of this Court and almost all
the High Courts of the country have noticed and approved long-
established banking practice of charging interest at reasonable rates on
periodical rests and capitalising the same on remaining unpaid. Such a
practice is prevalent and also recognised in non-banking moneylending
transactions. The legislature has stepped in from time to time to relieve
the debtors from hardship whenever it has found the practice of charging
compound interest and its capitalisation to be oppressive and hence
needing to be curbed. The practice is permissible, legal and judicially
upheld excepting when superseded by legislation. There is nothing wrong
in the parties voluntarily entering into transactions, evidenced by deeds
incorporating covenant or stipulation for payment of compound interest at
reasonable rates, and authorising the creditor to capitalise the interest on
remaining unpaid so as to enable interest being charged at the agreed rate
on the interest component of the capitalised sum for the succeeding
period. Interest once capitalised, sheds its colour of being interest and
becomes a part of principal so as to bind the debtor/borrower.”
76. Now, it is to be seen as to whether the manner in which the
interest has been granted by the Arbitral Tribunal amounts to compound
interest or not.
77. In this regard, if Section 2(a) and Section 3(3)(c) of the Act of
1978 is seen, it would indicate that the word ‘Court’ includes an
Arbitrator and Section 3(3)(c) postulates a proscription from granting
interest upon interest. This concept of interest upon interest is something
which in local usage or colloquially is termed as compound interest.
Apparently, compound interest or the interest to be compounded
annually is nothing but a specie of compound interest.
78. In the banking industry generally a lending bank may add the
interest every quarter or annually but that is only a methodology of
charging interest, but nevertheless it still remains under the umbrella of
compound interest.

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79. Thus, where in Section 3(3)(c) of the Act of 1978, there is a clear
stipulation that the Arbitrator may not grant interest upon interest,
accordingly, in absence of any contractual or statutory condition, the
Arbitral Tribunal cannot grant compound interest or interest upon
interest.
80. From a perusal of Section 31(7) of the Act of 1996, it would reveal
that Clause (a) confers discretion on the Arbitral Tribunal to grant
interest at a reasonable rate, which relates to pre-reference stage. Hence,
the grant of 14% interest for pre-reference stage, cannot per-se be held to
be bad, moreso, when Section 31(7)(a) of the Act of 1996 being a default
clause, comes into play and the discretion has been exercised by the
Arbitral Tribunal positively in absence of any contractual condition
prohibiting grant of interest for the pre-reference stage.
81. In the instant case, the Arbitral Tribunal has exercised its
discretion and has awarded interest at 14% per annum upto reference
stage cannot be faulted.
82. Even for the post-reference stage, that is, pendente lite and future
interest, Section 31(7)(b) of the Act of 1996 would come into the picture
as the contract is silent. The Arbitral Tribunal has clearly granted interest
payable at 14% for pendente lite and future and for the period too, it
cannot be said that the Arbitral Tribunal did not have the jurisdiction to
grant the interest and even the rate of 14% interest per annum is not bad
as to be questionable.
83. Now, the difficulty arises to determine as to whether for the two
separate period, that is, upto reference stage and for pendente lite and

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ARPL No. - 62 of 2023
future, the interest could have been granted with annual rest, which is
nothing, but another way of saying that at the end of each year the
interest would stand capitalized with the original amount and for the
subsequent year the interest would be chargeable on the previous year's
capitalized amount (principal + interest) and in a way is interest upon
interest.
84. This controversy has been the subject matter of various decisions
rendered by the Apex Court. Lately, the Apex Court in HLV Limited
(supra) had the occasion to consider this aspect again and by taking note
of its earlier decisions in Hyder Consultant (U.K. Limited) v. Governor,
State of Orissa : (2015) 2 SCC 189; and Morgan Securities and Credit
Private Limited v. Videocon Industries Limited : (2023) 1 SCC 602,
North Delhi Municipal Corporation v. S.A. Builders Limited : (2025) 7
SCC 134, State of Haryana v. S.L. Arora : (2010) 3 SCC 69 and
noticing the provisions of Section 31(7) of the Act of 1996, the Apex
Court clarified the law. The question before the Apex Court was noticed
in HLV Ltd. (supra) in Para-2 is as under:-
“ 2.  Question for consideration in this appeal is whether in the facts and
circumstances of the case, the decree-holder (respondent) would be entitled to
interest upon interest in terms of Section 31(7)( b ) of the Arbitration and
Conciliation Act, 1996 or the interest awarded by the Arbitral Tribunal in the
award dated 8-9-2019 in terms of the memorandum of understanding dated 9-
4-2014 entered into between the parties i.e. between the appellant and the
respondent fulfil the requirement of Sections 31(7)( a ) and ( b ) of the said Act?
85. Then the Apex Court referred and considered the earlier decisions
and noted the same in the following paragraphs:-
“11.  Decree-holder i.e. the respondent filed a calculation sheet before the
executing court claiming compound interest over and above the rate of
interest i.e. 21 per cent as awarded by the Arbitral Tribunal. The executing
court referred to Section 31(7) of the 1996 Act as well as to the decision of
this Court in  Hyder Consulting (UK) Ltd.  v.  State of Orissa  [ Hyder
Consulting (UK) Ltd.  v.  State of Orissa , (2015) 2 SCC 189 : (2015) 2 SCC

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(Civ) 38] , and thereafter held that claim of the decree-holder for compound
interest on the awarded amount was not sustainable. The executing court
cannot go beyond the award passed by the Arbitral Tribunal. The decree-
holder is not entitled for compound interest as claimed. The amount paid by
the judgment-debtor to the decree-holder i.e. Rs 44,42,05,254.00 was in full
satisfaction of the arbitral award. Accordingly, by the order dated 2-11-2023
executing court closed CEP No. 5 of 2021.
12.  This order came to be assailed by the respondent before the High Court in
a proceeding under Article 227 of the Constitution of India which was
registered as Civil Revision Petition No. 60 of 2024. By the impugned
judgment and order dated 22-4-2024 [ PBSAMP Projects (P) Ltd.  v.  HLV Ltd. ,
2024 SCC OnLine TS 632] , the High Court was of the view that the
executing court had reached the conclusion in a cryptic and cavalier manner.
Therefore, the order dated 2-11-2023 was set aside and the matter was
remitted back to the executing court to reconsider the issue of interest under
the award dated 8-9-2019 to the respondent though clarifying that it had not
expressed any opinion on the merit of the claim.
*
14.6.  Placing reliance on a subsequent decision of this Court in  Morgan
Securities & Credits (P) Ltd.  v.  Videocon Industries Ltd. , the learned Senior
Counsel submits that this judgment has clarified the proposition laid down
in  Hyder Consulting  by holding that an Arbitral Tribunal has the discretion to
grant post-award interest either on the whole ‘sum’ or part of it. The decision
in  Hyder Consulting  would only be applicable when the award is silent about
payment of interest and not when the award clearly spells the method of
paying interest including future interest. In fact,  Morgan Securities  has
clarified the law laid down in  Hyder Consulting  by holding that when the
award specifies the method of paying future interest, then  Hyder
Consulting  would have no application. Therefore, the High Court clearly fell
in error when it held that  Morgan Securities  would not apply to the facts of
the case and remanding the matter back to the executing court for fresh
decision placing reliance on  Hyder Consulting .
*
18.  From a perusal of the aforesaid provision, it is seen that Section 31(7) has
got two clauses: clause ( a ) and clause ( b ). Clause ( a ) starts with the
expression ‘unless otherwise agreed by the parties’. Thereafter, it says that
where an award is for payment of money, the Arbitral Tribunal may include
in the sum for which the award is made interest at such rate as it deems
reasonable on the whole or any part of the money and for the whole or any
part of the period from the date when the cause of action arose to the date
when the award is made. In other words, clause ( a ) empowers the Tribunal to
include interest in the ‘sum’ for which the award is made.
*
20.  Clause ( a ) of Section 31(7) of the 1996 Act was examined by this Court
in  S.A. Builders  [ North Delhi Municipal Corpn.  v.  S.A. Builders Ltd. , (2025)
7 SCC 132 : (2025) 3 SCC (Civ) 388] whereafter it was held as under: (SCC
pp. 155-56, para 36)
“ 36 . …  36.1 . From a minute reading of sub-section (7), it is seen that it has
got two parts: the first part i.e. clause ( a ) deals with passing of award which
would include interest up to the date on which the award is made. The second
part i.e. clause ( b ) deals with grant of interest on the “sum” awarded by the
Arbitral Tribunal.
36.2.  Let us now discuss in detail the contours of the two clauses. As per
clause ( a ), when an award is made by the Arbitral Tribunal for payment of
money, the “sum” which is awarded may include interest at such rate as the

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ARPL No. - 62 of 2023
Arbitral Tribunal deems appropriate, on the whole or any part of the money
and for the whole or any part of the period. The period for which the interest
may be granted would be between the date on which the cause of action arose
and the date on which the award is made. The expression which needs to be
noticed in this part is the following:  the Arbitral Tribunal  may  include in the
sum for which the award is made interest at such rate as it deems reasonable .
36.3 . The word “may” appearing in the above expression is quite significant.
It implies that the Arbitral Tribunal has the discretion to grant interest at a
reasonable rate. In other words, it may grant interest or it may not grant
interest; but if it grants interest, it would be included in the “sum” which is
awarded by the Arbitral Tribunal.”
(emphasis in original)
21.  Insofar clause ( b ), as it stood at the relevant time is concerned, it provides
for award of interest by the Arbitral Tribunal on the ‘sum’ adjudged under
clause ( a ). It says that ‘unless the award otherwise directs’, a sum directed to
be paid by an award shall carry interest at the rate of 18% per annum from
the date of the award to the date of payment. In other words, clause ( b ) is
subject to the interest that may be awarded by the Arbitral Tribunal. This
provision was explained in  S.A. Builders  [ North Delhi Municipal
Corpn.  v.  S.A. Builders Ltd. , (2025) 7 SCC 132 : (2025) 3 SCC (Civ) 388] in
the following manner: (SCC p. 156, para 36)
“ 36 . …  36.4 . This brings us to the second part i.e. clause ( b ) which deals with
post-award interest. The “sum” directed to be paid by the Arbitral Tribunal
shall, unless the award otherwise directs, carry interest @ 18% p.a. from the
date of the award to the date of payment. Thus, what clause ( b ) provides for
is that the Arbitral Tribunal may award interest on the “sum” adjudged under
clause ( a ). But if no such interest is awarded, then there shall be interest @
18% on the “sum” awarded by the Arbitral Tribunal from the date of the
award to the date of payment. The two crucial words in this part
are  sum  and  shall . As seen from clause ( a ), the “sum” awarded by the Arbitral
Tribunal would include interest if it is granted by the Arbitral Tribunal.
Therefore, the “sum” as awarded by the Arbitral Tribunal may or may not
include interest. Whether the “sum” so awarded includes or does not include
interest, it would carry further interest @ 18% from the date of the award to
the date of payment unless another rate of interest is granted by the Arbitral
Tribunal. While granting of interest under clauses ( a ) and ( b ) by the Arbitral
Tribunal is discretionary, the interest contemplated under clause ( b ) in the
event of failure of the Arbitral Tribunal to award interest is mandatory.
Therefore, the legislature has consciously used the word  shall .”
(emphasis in original)
22.  Thus, from a conjoint analysis of Section 31(7)( a ) and Section 31(7)( b ) of
the 1996 Act, what is discernible is that insofar award of interest from the
date on which the cause of action arose till the date of the award is
concerned, the legislative intent is that the parties possess the autonomy to
determine the interest and the rate of interest for the aforesaid period. Clause
( a ) i.e. discretion of the Arbitral Tribunal to award interest is subject to
agreement by and between the parties. Therefore, party autonomy takes
precedence over the discretion of the Arbitral Tribunal. However, clause ( b ) is
subject to award of interest by the Arbitral Tribunal.
23.  In other words, as per clause ( ), the ‘sum’ directed to be paid under an b
arbitral award shall carry interest at the rate of 18% per annum from the date
of the award to the date of payment ‘unless the award otherwise directs’.
Therefore, this provision is subject to award of interest by the Arbitral

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Tribunal. If it awards interest, then the same shall be applicable from the date
of the award till the date of payment; if not, then the ‘sum’ as adjudged under
clause ( ) shall carry interest at the rate of 18% a .
*
25.  The aforesaid clause in the MoU gave discretion to the respondent to
terminate the MoU in which event it would be entitled to refund of the
advance paid together with interest at the rate of 21% per annum from the
respective dates of disbursement of the advances till the actual date of
repayment.
26.  The Arbitral Tribunal in the award dated 8-9-2019 applied the aforesaid
clause of the MoU while declaring that the claimant was entitled to Rs 15.5
crores with interest at the rate of 21% per annum from the date it was given
to the date it is paid. Therefore, it is evident that the Arbitral Tribunal was
guided by the rate of interest provided in the MoU and it clarified while
passing the award that this rate of interest would be available to the
respondent from the dates of disbursement till the actual date of repayment.
27.  A two-Judge Bench of this Court in  State of Haryana  v.  S.L. Arora &
Co.  considered the question as to whether Section 31(7) of the 1996 Act
authorises and enables Arbitral Tribunals to award interest on interest from
the date of the award? In the facts of that case, the consequential question
formulated was as to whether the arbitral award granted future interest from
the date of award, only on the principal amount found due to the respondent
or on the aggregate of the principal and interest up to the date of the award?
After an analysis of the aforesaid provision, the Bench observed that Section
31(7) makes no reference to payment of compound interest or payment of
interest upon interest. It was held that in the absence of any provision for
interest upon interest in the contract, the Arbitral Tribunals do not have the
power to award interest upon interest or compound interest either for the pre-
award period or for the post-award period. It was held thus: (SCC p. 698,
para 18)
“ 18 . Section 31(7) makes no reference to payment of compound interest or
payment of interest upon interest. Nor does it require the interest which
accrues till the date of the award, to be treated as part of the principal from
the date of award for calculating the post-award interest. The use of the words
“ where and insofar as an arbitral award is for the payment of money ” and
use of the words “ the Arbitral Tribunal may include in the sum for which the
award is made, interest … on the whole or any part of the money ” in clause
( a ) and use of the words “ a sum directed to be paid by an arbitral award
shall … carry interest ” in clause ( b ) of sub-section (7) of Section 31 clearly
indicate that the section contemplates award of only simple interest and not
compound interest or interest upon interest. “ A sum directed to be paid by an
arbitral award ” refers to the award of sums on the substantive claims and
does not refer to interest awarded on the “ sum directed to be paid by the
award ”. In the absence of any provision for interest upon interest in the
contract, the Arbitral Tribunals do not have the power to award interest upon
interest, or compound interest, either for the pre-award period or for the post-
award period.”
(emphasis in original)
28.  Thereafter the Bench upon a threadbare analysis concluded that Section
31(7) merely authorises the Arbitral Tribunal to award interest in accordance
with the contract and in the absence of any prohibition in the contract and in
the absence of specific provision relating to interest in the contract, to award
simple interest at such rates as it deems fit from the date on which the cause
of action arose till the date of payment. The Bench further clarified that if the

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award is silent about interest from the date of award till the date of payment,
the person in whose favour the award is made will be entitled to interest at
18% per annum on the principal amount awarded from the date of award till
the date of payment. In the facts of that case, the Bench declared that the
calculation that was made in the execution petition as originally filed was
correct and that the modification sought for by the respondent increasing the
amount due under the award was contrary to the award. It was concluded as
under: (SCC p. 704, para 34)
“ 34 . Thus it is clear that Section 31(7) merely authorises the Arbitral Tribunal
to award interest in accordance with the contract and in the absence of any
prohibition in the contract and in the absence of specific provision relating to
interest in the contract, to award simple interest at such rates as it deems fit
from the date on which the cause of action arose till the date of payment. It
also provides that if the award is silent about interest from the date of award
till the date of payment, the person in whose favour the award is made will be
entitled to interest at 18% per annum on the principal amount awarded, from
the date of award till the date of payment. The calculation that was made in
the execution petition as originally filed was correct and the modification by
the respondent increasing the amount due under the award was contrary to
the award.”
29.  The correctness of the view taken in   S.L. Arora   came up for consideration
before a three-Judge Bench of this Court in   Hyder Consulting . The majority
held that the conclusion reached in   S.L. Arora   was not in consonance with the
clear language of Section 31(7) of the Act. After extracting Section 31(7) of
the 1996 Act, the Bench explained clause ( ) of sub-section (7) of Section 31 a
in the following manner:
“ . Clause ( 4 ) of sub-section (7) provides that where an award is made for the a
payment of money, the Arbitral Tribunal may include interest in the sum for
which the award is made. In plain terms, this provision confers a power upon
the Arbitral Tribunal while making an award for payment of money, to
include interest in the sum for which the award is made on either the whole or
any part of the money and for the whole or any part of the period for the
entire pre-award period between the date on which the cause of action arose
and the date on which the award is made. To put it differently, sub-section (7)
( ) contemplates that an award, inclusive of interest for the pre-award period a
on the entire amount directed to be paid or part thereof, may be passed. The
“ sum ” awarded may be the principal amount and such interest as the Arbitral
Tribunal deems fit. If no interest is awarded, the “ sum ” comprises only the
principal. The significant words occurring in clause ( ) of sub-section (7) of a
Section 31 of the Act are “ the sum for which the award is made ”. On a plain
reading, this expression refers to the   total amount   or   sum   for the payment for
which the award is made. Parliament has not added a qualification like
“principal” to the word “sum”, and therefore, the word “sum” here simply
means “a particular amount of money”. In Section 31(7), this particular
amount of money may include interest from the date of cause of action to the
date of the award.”
(emphasis in original)
30.  On the above analysis, the Bench explained clause ( ) of sub-section (7) b
of Section 31 of the 1996 Act to mean that the ‘sum’ which is directed to be
paid by the award, whether inclusive or exclusive of interest, shall carry
interest at the rate of 18% per annum for the post-award period unless
otherwise ordered. The above provision was explained as under:

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“ 7 . Thus, when used as a noun, as it seems to have been used in this
provision, the word “sum” simply means “an amount of money”; whatever it
may include — “principal” and “interest” or one of the two. Once the
meaning of the word “sum” is clear, the same meaning must be ascribed to
the word in clause ( b ) of sub-section (7) of Section 31 of the Act, where it
provides that a  sum  directed to be paid by an arbitral award “ shall … carry
interest  …” from the date of the award to the date of the payment i.e. post-
award. In other words, what clause ( ) of sub-section (7) of Section 31 of the b
Act directs is that the “sum”, which is directed to be paid by the award,
whether inclusive or exclusive of interest, shall carry interest at the rate of
eighteen per cent per annum for the post-award period, unless otherwise
ordered.”
(emphasis in original)
31.  Finally,  Hyder Consulting  arrived at the following conclusion: (SCC p.
202, para 13)
“ 13 . Thus, it is apparent that vide clause ( a ) of sub-section (7) of Section 31
of the Act, Parliament intended that an award for payment of money may be
inclusive of interest, and the “sum” of the principal amount plus interest may
be directed to be paid by the Arbitral Tribunal for the pre-award period.
Thereupon, the Arbitral Tribunal may direct interest to be paid on such “sum”
for the post-award period vide clause ( ) of sub-section (7) of Section 31 of b
the Act, at which stage the amount would be the sum arrived at after the
merging of interest with the principal; the two components having lost their
separate identities.”
32.  The question as to whether the ‘sum’ awarded under clause ( a ) of sub-
section (7) of Section 31 of the 1996 Act would include interest  pendente
lite  or not again came up for consideration before a two-Judge Bench of this
Court in  Delhi Airport Metro Express (P) Ltd.  v.  DMRC . The Bench
analysed  Hyder Consulting in the following manner:
“ 15 . It could thus be seen that the majority view of this Court in  Hyder
Consulting (UK)  is that the sum awarded may include the principal amount
and such interest as the Arbitral Tribunal deems fit. It is further held that, if
no interest is awarded, the “sum” comprises only the principal amount. The
majority judgment held that clause ( a ) of sub-section (7) of Section 31 of the
1996 Act refers to the total amount or sum for the payment for which the
award is made. As such, the amount awarded under clause ( a ) of sub-section
(7) of Section 31 of the 1996 Act would include the principal amount plus the
interest amount pendente lite. It was held that the interest to be calculated as
per clause ( b ) of sub-section (7) of Section 31 of the 1996 Act would be on
the total sum arrived as aforesaid under clause ( a ) of sub-section (7) of
Section 31 of the 1996 Act. S.A. Bobde, J. in his judgment, has referred to
various authorities of this Court as well as  Maxwell on the Interpretation of
Statutes . He emphasised that the Court must give effect to the plain, clear and
unambiguous words of the legislature and it is not for the courts to add or
subtract the words, even though the construction may lead to strange or
surprising, unreasonable or unjust or oppressive results.”
*
34.  Thus, this Court was of the view that power of the Tribunal to award
interest would operate if it is not otherwise agreed by the parties. If there is
an agreement between the parties to the contrary, the Arbitral Tribunal would
lose its discretion to award interest and will have to be guided by the
agreement between the parties. Thus, the expression ‘unless otherwise agreed
by the parties’ assumes significance and concluded as under:

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“ 20 . If clause ( a ) of sub-section (7) of Section 31 of the 1996 Act is given a
plain and literal meaning, the legislative intent would be clear that the
discretion with regard to grant of interest would be available to the Arbitral
Tribunal only when there is no agreement to the contrary between the parties.
The phrase “unless otherwise agreed by the parties” clearly emphasises that
when the parties have agreed with regard to any of the aspects covered under
clause ( a ) of sub-section (7) of Section 31 of the 1996 Act, the Arbitral
Tribunal would cease to have any discretion with regard to the aspects
mentioned in the said provision. Only in the absence of such an agreement,
the Arbitral Tribunal would have a discretion to exercise its powers under
clause ( a ) of sub-section (7) of Section 31 of the 1996 Act. The discretion is
wide enough. It may grant or may not grant interest. It may grant interest for
the entire period or any part thereof. It may also grant interest on the whole or
any part of the money.”
35.  From the above, the view of the court is clearly discernible in that the
discretion to grant interest would be available to the Arbitral Tribunal under
clause ( ) of sub-section (7) of Section 31 only when there is no agreement to a
the contrary between the parties. When the parties agree with regard to any of
the aspects covered under clause ( ) of sub-section (7) of Section 31, the a
Arbitral Tribunal would cease to have any discretion with regard to the
aspects mentioned in the said provision. Only in the absence of such an
agreement, the Arbitral Tribunal would have the discretion to exercise its
powers under clause ( ) of sub-section (7) of Section 31 of the 1996 Act a .
36.  In the facts of that case it was held that in view of the specific agreement
between the parties, the interest quotient prior to the date of the award so also
after the date of the award will be governed by Article 29.8 of the concession
agreement which was also directed by the Arbitral Tribunal. This view was
accordingly affirmed by this Court.
37.  In  Morgan Securities & Credits (P) Ltd.  v.  Videocon Industries Ltd. , a
two-Judge Bench of this Court again examined the decision in  Hyder
Consulting . After an extensive analysis, the Bench was of the view that the
decision in   Hyder Consulting   was on the limited issue of whether post-award
interest could be granted on the aggregate of the principal and the pre-award
interest. The opinion authored by Bobde, J. was limited to this aspect of post-
award interest. Thereafter, the Bench noted that the issue before it was
whether the phrase ‘unless the award otherwise directs’ in Section 31(7)( b ) of
the 1996 Act only provides the arbitrator the discretion to determine the rate
of interest or both the rate of interest and the ‘sum’ it must be paid against.
Thereafter it was noted that both clauses ( a ) and ( b ) of sub-section (7) of
Section 31 are qualified. While clause ( a ) is qualified by the arbitration
agreement between the parties, clause ( b ) is qualified by the arbitration
award. The words ‘unless otherwise agreed by the parties’ occurring at the
beginning of clause ( a ) qualifies the entire provision. However, the words
‘unless the award otherwise directs’ occurring in clause ( b ) only qualifies the
rate of post-award interest. Thereafter, this Court summarised the findings
and we extract only those portions which are relevant for our present
purpose: ( Morgan Securities & Credits case , SCC pp. 615-16, para 28)
“ 28 . …  28.3 . The phrase “unless the award otherwise directs” in Section
31(7)( ) only qualifies the rate of interest b .
28.4 . According to Section 31(7)( ), if the arbitrator does not grant post- b
award interest, the award holder is entitled to post-award interest at eighteen
per cent.
28.5 . Section 31(7)( ) does not fetter or restrict the discretion that the b
arbitrator holds in granting post-award interest. The arbitrator has the
discretion to award post-award interest on a part of the sum.

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28.6 . The arbitrator must exercise the discretionary power to grant post-award
interest reasonably and in good faith, taking into account all relevant
circumstances.”
38.  Though the learned Senior Counsel for the respondent placed heavy
reliance on  S.A. Builders , we are of the view that  S.A. Builders  is a continuum
of what was held by this Court in  Delhi Airport Metro Express  and in  Morgan
Securities and Credits . We have already noted as to how a two-Judge Bench
of this Court in   S.A. Builders   (of which I was also a member) had analysed
clauses ( a ) and ( b ) of sub-section (7) of Section 31 of the 1996 Act. We have
also noted that this Court had observed that the provision in Section 31(7)( ) a
of the 1996 Act begins with the expression ‘unless otherwise agreed by the
parties’, thereby highlighting the legislative stance that the parties possess the
autonomy to determine pre-award interest on the payment of money that may
be awarded by the Arbitral Tribunal. However, no such discretion is available
to the parties under Section 31(7)( b ) of the 1996 Act though such discretion is
available to the Arbitral Tribunal. It was in that context this Court in the facts
of that case noted that it was not the case of the appellant that the interest
portion is covered by the contract agreement between the parties. In the
absence thereof, Section 31(7)( a ) as well as Section 31(7)( b ) of the 1996 Act
would have their full effect. Therefore, it was concluded as under:
“ 70 . That apart, it is not the case of the appellant that the interest portion is
covered by the contract agreement between the parties. In the absence
thereof, Section 31(7)( a ) as well as Section 31(7)( b ) of the 1996 Act would
have their full effect. The sum awarded would mean the principal amount
plus the interest awarded from the date of cause of action up to the date of the
award. Thereafter, as per Section 31(7)( ) of the 1996 Act, the sum (principal b
plus interest) would carry interest @ 18% from the date of the award to the
date of payment. This would be consistent with the law laid down by this
Court in   Hyder Consulting .”
*
41.  Therefore, reliance placed by the respondent on   Hyder Consulting   to
claim post-award interest is misplaced. That principle would apply only when
the Arbitral Tribunal leaves a matter unqualified or is silent. In the present
case the Arbitral Tribunal bound by the MoU and exercising its statutory
discretion had already specified the interest rate (21% per annum) and the
duration (until repayment). As held in   Morgan Securities and Credits ,
reaffirmed in   Delhi Airport Metro Express   and explained in   S.A. Builders ,
once parties agree on the interest regime, the arbitrator's role is confined to
enforcing it and the courts would not rewrite or enlarge the award by
introducing further interest at the execution stage.
42.  The MoU did not stipulate compounding of interest; the Arbitral Tribunal
did not award compound interest; therefore, the respondent cannot at the
stage of execution seek to introduce claim of compound interest by drawing
on general principles. Allowing such a claim would amount to rewriting the
award at the stage of execution which is impermissible.”
86. In light of the law as propounded and clarified by the Apex Court
and applying the principles to the instant case, it would be clear that the
power of the Arbitral Tribunal to grant interest for pre-reference and
post-reference stage is preserved, however, in absence of any specific

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stipulation, compounding of interest/interest on interest is not
permissible. Thus, the amount of Rs.1,56,79,034.65 has to be treated
under two specific stages (i) for the pre-reference period, (ii) for
pendente lite and future.
87. The rate of interest as awarded is actually not under challenge nor
does this Court find that the rate of interest of 14% is on the higher side
noting that the contract was commercial in nature. However, the
aforesaid amount of Rs.1,56,79,034.65 would attract interest at 14% per
annum for the pre-reference stage, that is, from 01.09.2009 till the date
of filing of the claim petition, that is, 31.1.2016 and the aggregate
amount which is crystallized on 31.01.2016 (principal + 14% simple
interest), this crystallized amount shall then attract 14% interest per
annum simple interest, till the date of actual recovery. The interest
cannot be compounded on annual basis, by the Arbitral Tribunal, in
absence of any contractual stipulation, hence, it did not have the power
to provide interest to be compounded annually.
88. The entire amount as aggregated above would be treated as the
amount payable to the respondent and from the said amount
Rs.1,39,619/- along with 14% interest per annum simple interest would
be calculated from 01.09.2009, till the date the amount is paid by the
appellant to the respondent and this amount would be deducted as
provided in the award.
89. It is only the issue of the interest payment compounded on yearly
basis which is the cause of concern and which has been dealt with by

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this Court above and to that extent, the award dated 30.07.2017 is liable
to be modified.
90. Now, whether for this aspect of interest charge-ability can the
award should be set aside as a whole. For this limited purpose, this Court
does not deem fit to set aside the entire award and is of the opinion that
the ends of justice can be met by correcting and modifying only part of
the award relating to grant of interest.
91. This Court draws strength from the decision of the Apex Court in
the case of Gayatri Balasamy (supra) , wherein the Constitution Bench
of the Apex Court has held as under:-
“(i) Only severable awards are amenable to modification;
A composite or indivisible arbitral award cannot be modified.
Modification is permissible only where the claims, or parts of the
award, are legally and pragmatically severable from the valid
portion. In such cases, the court may sever the invalid part while
preserving the remainder of the award. This constitutes one of the
essential guardrails laid down by the Supreme Court for the
exercise of the limited power to modify an arbitral award;
(ii) The error sought to be corrected must be patent and apparent on
the face of the record;
The Supreme Court has clarified that modification is confined to
the correction of obvious and self-evident errors, such as clerical,
computational, or typographical mistakes. Modification is
permissible only where the court has no uncertainty or doubt as to
the correction; if the alleged error is debatable or not apparent on

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the face of the record, the court lacks jurisdiction to modify the
award;
(iii) Modification is permissible for correcting or adjusting post-
award interest;
Courts may modify an arbitral award where such modification is
confined to the correction or adjustment of post-award interest,
without disturbing the substantive findings of the Arbitral Tribunal;
(iv) Where modification is impermissible, the matter must be
remanded;
In cases where the error cannot be corrected within the aforesaid
guardrails and if it would require a review on merits or re-
adjudication, the court must refrain from modifying the award and
where permissible in law, remand the matter to the Arbitral
Tribunal.”
92. In light of the aforesaid discussions, this Court modifies the award
dated 30.07.2017 only in respect of the manner in which the interest
would be chargeable and all other findings will stand preserved. Hence,
exercising powers under Section 37 of the Act of 1996 and in light of the
principles laid down by the Apex Court in Gayatri Balasamy (supra) ,
this Court modifies the award dated 30.07.2017 to the extent that the
respondent shall be entitled to a sum of Rs.1,56,790,34.65 alongwith
14% per annum simple interest w.e.f. 01.09.2009 till 31.01.2016 and the
amount so crystallized on 31.01.2026 (principal + 14% per annum
simple interest) shall attract interest from 01.02.2016 till the date of

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actual payment @ 14% per annum simple interest and also clarified in
Para-87 and 88 above.
93. Subject to the aforesaid modification relating to interest, the award
dated 30.07.2017 with all its findings including the rate of interest shall
stand affirmed.
94. With the aforesaid, the appeal is partly allowed. In the facts and
circumstances, there shall be no order as to costs.
(Jaspreet Singh,J.) (Arun Bhansali, CJ.)
October 24, 2026
Asheesh/Rakesh/-
Digitally signed by :-
RAKESH PRAJAPAT
High Court of Judicature at Allahabad,
Lucknow Bench