M/S D. KHOSLA AND COMPANYversusTHE UNION OF INDIA

                  [2024] 8 S.C.R. 113 : 2024 INSC 587

                      M/s D. Khosla and Company
                                   v.
                           The Union of India
              (Special Leave Petition (Civil) No. 812 of 2014)
                                07 August 2024
   [Pamidighantam Sri Narasimha and Pankaj Mithal,* JJ.]

                            Issue for Consideration
       Arbitrator passed award granting interest for two periods-(i) Pre-
       award period, from the date of completion of the work up to the
       date of the award @ 12% per annum (simple interest); and (ii) Post-
       award, from the date of the award till the date of its payment or the
       date of the court decree @ 15% per annum. Whether interest was
       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.

                                  Headnotes†
       Arbitration Act, 1940 – ss.29, 17 – Interest Act, 1978 – s.3 –
       Code of Civil Procedure, 1908 – s.34 – Court /Arbitrator if can
       award compound interest or interest upon interest unless
       specifically provided under the statute or the terms and
       conditions of the contract:
       Held: No – Though, 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 –
       Neither the Act specifically empowers the Arbitrator or the Court
       to award interest upon interest or compound interest nor there is
       any other provision which provides for grant of compound interest
       or interest upon interest – s.34, CPC is also silent in this regard
       whereas s.3(3) of the Interest Act specifically prohibits the same –
       In the present case, the award and the decree nowhere awarded 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 – The interest awarded under
       the award in the first part, was simple interest @ 12% per annum
* Author
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       on the ‘amount awarded’ whereas in the second part, interest @
       15% per annum was awarded referring to the ‘amount awarded’ –
       The amount awarded in both the situations referred to the principal
       amount of compensation awarded i.e. Rs.21,56,745/- and was same
       and cannot be two distinct amounts – Concurrent judgments of the
       courts below not interfered with. [Paras 23, 24, 27, 28]

                               Case Law Cited
       Oil and Natural Gas Commission v. M.C. Clelland Engineers S.A.
       [1999] 2 SCR 830 : (1999) 4 SCC 327; State of Haryana and
       Others v. S.L. Arora and Company [2010] 2 SCR 297 : (2010)
       3 SCC 690; Hyder Consulting (UK) Limited v. Governor, State
       of Orissa [2014] 14 SCR 1029 : (2015) 2 SCC 189; UHL Power
       Company Limited v. State of Himachal Pradesh [2022] 1 SCR 1 :
       (2022) 4 SCC 116 – referred to.
                                  List of Acts
       Arbitration Act, 1940; Interest Act, 1978; Code of Civil Procedure,
       1908.
                               List of Keywords
       Award of interest; Interest upon interest; Compound interest;
       Interest on the amount awarded; Interest awarded in two parts;
       Pre-award interest and post-award interest on the principal
       amount; Simple interest; Simple interest on the amount awarded;
       Amount awarded; Principal amount; Principal amount awarded;
       Principal amount of compensation awarded; Principal sum.
                              Case Arising From
       CIVIL APPELLATE JURISDICTION: Special Leave Petition (Civil)
       No.812 of 2014
       From the Judgment and Order dated 06.09.2013 of the High Court
       of Gujarat at Ahmedabad in SCA No.3036 of 2009
                           Appearances for Parties
       Ms. Jyoti Mendiratta, Sourabh Malhotra, Ms. Ananya Basudha, Advs.
       for the Petitioners.
       Ms. Aishwarya Bhati, A.S.G., Ms. Sthavi Asthana, Akshaja Singh,
       Nitesh Shrivastav, Dr. N. Visakamurthy, Chitrangada Rastravara,
       Mukul Singh, Amit Sharma Ll, Kartikeya Asthana, Mukesh Kumar
       Maroria, Advs. for the Respondent.
[2024] 8 S.C.R.                                                                115

                M/s D. Khosla and Company v. The Union of India


                        Judgment / Order of the Supreme Court

                                            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 Arbitration Act, 1940.1 It was made the
       rule of the court 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 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



1    hereinafter referred to as ‘the Act’
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            @ 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 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.
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.
[2024] 8 S.C.R.                                                         117

              M/s D. Khosla and Company v. The Union of India


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 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 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,



2   hereinafter referred to as “CPC”
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       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 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 Company,4
    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 with the courts or tribunals to award compound interest
    or interest upon interest.
21. In Hyder Consulting (UK) Limited vs. Governor, State of Orissa,5
    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’



3   [1999] 2 SCR 830 : (1999) 4 SCC 327
4   [2010] 2 SCR 297 : (2010) 3 SCC 690
5   [2014] 14 SCR 1029 : (2015) 2 SCC 189
[2024] 8 S.C.R.                                                       119

             M/s D. Khosla and Company v. The Union of India


     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.
22. The case of UHL Power Company Limited vs. State of Himachal
    Pradesh,6 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 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.


6   [2022] 1 SCR 1 : (2022) 4 SCC 116
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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 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
    courts below. Therefore, the Special Leave Petition is dismissed.

       Result of the case: SLP dismissed.



       †
           Headnotes prepared by: Divya Pandey