M/S INTERSTATE CONSTRUCTIONversusNATIONAL PROJECTS CONSTRUCTION CORPORATION LTD.

                 [2025] 5 S.C.R. 2106 : 2025 INSC 699

                     M/s Interstate Construction
                                  v.
           National Projects Construction Corporation Ltd.
                       (Civil Appeal No. 3461 of 2025)
                                  15 May 2025
                [Abhay S. Oka and Ujjal Bhuyan,* JJ.]


                            Issue for Consideration
       Issue arose whether the Division Bench of High Court was justified
       setting aside the directions related to pendente lite interest, holding
       that it was not open for the arbitral tribunal to have carved out
       three periods for payment of interest: pre-reference, pendente lite
       and future.

                                   Headnotes†
       Arbitration and Conciliation Act, 1996 – s.37 – Arbitral award –
       Award of interest for pre-reference and pendente lite period –
       Respondent engaged services of the appellant for executing a
       contract relating to Power Project – Appellant disputed certain
       recoveries – Arbitration clause invoked – Arbitrator passed
       an award, while arbitral tribunal allowed the claims of the
       appellant under several heads, awarding pre-reference interest,
       pendente lite interest and future interest – In petition u/s.34 by
       the respondent for setting aside the award, the Single Judge
       of the High Court set aside the award with regard to future
       interest at a rate exceeding 9 percent pa from the date of the
       award till the date of payment – However, the Division Bench
       of High Court set aside the directions related to pendente lite
       interest, holding that it was not open for the arbitral tribunal
       to have carved out three periods for payment of interest-pre-
       reference, pendente lite and future when the statute provides
       for only two periods, period being the period between the date
       on which the cause of action arose and the date on which the
       award is made, and the period from the date of the award till
       the date of payment – Sustainability:
       Held: Not sustainable – Reasoning given by the Division Bench
       is fallacious – Arbitral tribunal has the discretion to include in the
       sum awarded, firstly, interest at such rate as it deems reasonable;
* Author
[2025] 5 S.C.R.                                                                  2107

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.

     and secondly, 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 – This would mean that the arbitral tribunal
     can exclude a period from the date on which the cause of action
     arose till the date on which the award is made for the purpose of
     grant of interest as has been done in the instant case – It would
     also mean that the arbitral tribunal can grant interest 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 – It can be
     a composite period or the said period can be further sub-divided,
     as done in the instant case i.e. from the date of cause of action to
     filing of the claim and from the date of filing of the claim till the date
     of the award excluding the period when the appellant was found
     to be remiss – It would also mean that there can be one rate of
     interest for the whole period or one or more rates of interest for the
     sub-divided periods as has been done in the instant case – This
     would be the correct approach to interpret s.31(7)(a), given the
     scheme of the 1996 Act – Division Bench erred by holding that
     the arbitral tribunal had no jurisdiction to award interest for two
     periods-pre-reference and pendente lite when the statute provides
     for only one period, from the date when the cause of action arose
     till the date of the award – View expressed by the High Court
     not the correct interpretation of s.37(1)(a) – Sum awarded in
     s.31(7)(a) would mean principal amount plus the interest awarded
     from the date of cause of action upto the date of the award – As
     per s.31(7)(b) of the 1996 Act, the sum (principal amount + interest)
     would carry further interest at the rate of 2 per cent higher than
     the current rate of interest prevalent on the date of the award to
     the date of payment – Impugned judgment and order passed by
     the Division Bench of the High Court set aside. [Paras 26, 35,
     36, 44, 45]

                                Case Law Cited
     Sayeed Ahmed and Company v. State of Uttar Pradesh [2009]
     10 SCR 841 : (2009) 12 SCC 26; Pam Developments Private
     Limited v. State of West Bengal [2024] 8 SCR 615 : (2024) 10
     SCC 715; North Delhi Municipal Corporation v. S.A. Builders Ltd.
     (2024) SCC Online SC 3768; State of Haryana v. S.L. Arora
     [2010] 2 SCR 297 : (2010) 3 SCC 690; Hyder Consulting (UK)
     Ltd. v. Governor, State of Orissa [2014] 14 SCR 1029 : (2015) 2
     SCC 189; UHL Power Company Ltd. v. State of Himachal Pradesh
2108                                                         [2025] 5 S.C.R.

                         Supreme Court Reports


     [2022] 1 SCR 1 : (2022) 4 SCC 116; Delhi Airport Metro Express
     Private Ltd. v. Delhi Metro Rail Corporation [2022] 3 SCR 716 :
     (2022) 9 SCC 286; Morgan Securities and Credits Private Ltd. v.
     Videocon Industries Limited [2022] 9 SCR 819 : (2023) 1 SCC
     602 – referred to.

                                List of Acts
     Arbitration and Conciliation Act, 1996; Arbitration Act, 1940.

                             List of Keywords
     Pendente lite interest; Pre-reference interest; Future interest;
     Contractual dues; Recoveries; Payment of interest; Cause of action;
     Principal amount plus the interest; Past period; Date on which the
     award is made; Date on which the cause of action arose.

                            Case Arising From
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3461 of 2025
     From the Judgment and Order dated 01.08.2023 of the High Court
     of Delhi at New Delhi in FAO (OS) (COMM) No. 175 of 2021

                         Appearances for Parties
     Advs. for the Appellant:
     Mrs. S. Janani, Sr. Adv., Ms. Madhu Moolchandani, Ms. Sharika Rai.
     Advs. for the Respondent:
     Dhruv Mehta, Sr.Adv., Rajat Arora, Ms. Mariya Shahab, Ms. Nishi
     Sangtani.

                Judgment / Order of the Supreme Court

                                Judgment

     Ujjal Bhuyan, J.

     This appeal by special leave is directed against the judgment and
     order dated 01.08.2023 passed by the Division Bench of the High
     Court of Delhi in FAO (OS) (Comm) No.175 of 2021.
2.   It may be mentioned that by the aforesaid judgment and order
     dated 01.08.2023 (impugned judgment), Division Bench of the
[2025] 5 S.C.R.                                                       2109

                      M/s Interstate Construction v.
             National Projects Construction Corporation Ltd.

     High Court of Delhi (High Court) allowed the appeal of National
     Projects Construction Corporation Limited, (NPCC) or the respondent
     hereinafter, filed under Section 37 of the Arbitration and Conciliation
     Act, 1996 (briefly ‘the 1996 Act’ hereinafter) setting aside that part
     of the judgment and order dated 02.08.2021 passed by a learned
     Single Judge of the High Court under Section 34 of the 1996 Act
     upholding the directions contained in paragraph 58(b) of the award
     dated 28.10.2020 as well as setting aside the directions of the arbitral
     tribunal as contained in paragraph 58(b) of the said award.
3.   Relevant facts may be briefly noted.
4.   Respondent had engaged the services of the appellant for executing
     a contract relating to Ramagundam Super Thermal Power Project,
     Ramagundam, District Karimnagar in the then composite State of
     Andhra Pradesh. In this regard, two separate work orders were issued:
     (i)    Work order No.917344/838 dated 19.06.1984 in respect of the
            work excavation of foundation package work-II 3 X 500 MW
            of National Thermal Power Corporation Limited, Ramagundam
            Super Thermal Power Project;
     (ii)   Work Order No. 917344/2382 in respect of the work foundation
            package work, stage-II, at Ramagundam Super Thermal Power
            Project;
5.   Thereafter, contract agreement was entered into between the parties.
     As per clause 4 of the conditions of contract read with clause 15 of
     the special conditions attached to the work orders, all the disputes
     and differences between the parties were to be settled by way of
     arbitration.
6.   It is stated that appellant had completed the contract work in the
     year 1987. Respondent had paid the appellant the contractual dues
     after withholding certain sums on account of recoveries. Appellant
     disputed such recoveries. Additionally, appellant also raised certain
     claims which were not accepted by the respondent.
7.   In view of such disputes and differences, appellant invoked the
     arbitration clause by issuing notice dated 17.05.1993.
8.   Respondent did not take immediate steps for appointment of
     an arbitrator. After considerable delay, by communication dated
     07.10.1997, respondent appointed Shri Shivamoy Ghosh, Additional
2110                                                       [2025] 5 S.C.R.

                         Supreme Court Reports


     General Manager, NPCC, Madras Sector, Chennai as the sole
     arbitrator to arbitrate on the subject dispute.
9.   Appellant filed statement of claims before the learned arbitrator on
     20.01.1998 claiming an aggregate amount of Rs.4,46,29,404.00
     along with pendente lite and future interest at the rate of 24 percent
     per annum till final realization of the amount.
10. Appellant sought for a direction from the learned arbitrator to the
    respondent to supply various documents related to the dispute.
    However, learned arbitrator only permitted the appellant an opportunity
    to inspect the documents and did not issue any direction to the
    respondent for supply of copies.
11. Aggrieved thereby, appellant filed a petition under Section 14 of the
    1996 Act before the High Court seeking termination of the mandate
    of the learned arbitrator and for appointment of a new arbitrator in his
    place. This petition was registered as OMP No. 214/2002. By order
    dated 11.10.2004, learned Single Judge terminated the mandate
    of Shri Shivamoy Ghosh and appointed Shri A.S. Chandhiok, Sr.
    Advocate, as the sole arbitrator.
12. Respondent challenged the said order of the learned Single Judge
    dated 11.10.2004 before the Division Bench of the High Court in
    FAO (OS) No.241/2004. By order dated 02.02.2005, Division Bench
    appointed Shri L.R. Gupta, retired Director General of CPWD as the
    sole arbitrator.
13. Before Shri L.R. Gupta, the learned arbitrator, respondent while
    filing its reply to the statement of claims filed by the appellant, also
    challenged the authority of one Shri Jagdish Raj Yadav to file the
    claim on behalf of the appellant. In this regard an application dated
    23.02.2007 was filed before the learned arbitrator. Learned arbitrator
    dismissed the said application vide the order dated 03.08.2007.
14. The said order dated 03.08.2007 was challenged by the respondent
    before the learned Single Judge of the High Court by filing a petition
    under Section 34 of the 1996 Act, being OMP No.537/2007.
15. It may be mentioned that Shri L.R. Gupta resigned as the sole
    arbitrator on 23.06.2008.
16. Vide order dated 30.01.2007, learned Single Judge disposed of
    the petition filed under Section 34 of the 1996 Act bearing OMP
    No.537/2007.
[2025] 5 S.C.R.                                                        2111

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.

17. Appellant filed a petition under Section 15 of the 1996 Act before the
    High Court being OMP (T) (Comm) No. 30/2018 seeking appointment
    of an arbitrator in place of Shri L.R. Gupta who had resigned. The
    said petition was disposed of by the learned Single Judge of the
    High Court vide order dated 31.05.2018 reconstituting the arbitral
    tribunal by appointing Mr. Justice R.C. Jain, a former Judge of the
    High Court, as the sole arbitrator to arbitrate on the disputes between
    the parties.
18. New arbitrator held the first hearing on 03.05.2019 and finally
    pronounced the award on 28.10.2020. While the arbitral tribunal
    allowed the claims of the appellant under several heads, we are
    concerned with the contentious part of the award relating to payment
    of interest (claim No. 7) contained in paragraph 58 of the award.
    Relevant portion contained in paragraph 58 of the award reads as
    under:
           58.         ***         ***                 ***        ***
           In a nutshell the claimant is held entitled to interest as
           under:

           a) Pre-reference / past period interest:
           @ 18% per annum on a sum of Rs.34,43,490.61 w.e.f.
           July 1987 up-till 19.01.1998.

           b) Pendente lite interest:
           i) @ 12% per annum w.e.f. 20.01.1998 uptill 31.12.2008
           on the total amount (i.e. principal amount + the amount
           of interest on the pre-reference/past period).
           ii) @ 12% per annum w.e.f. 01.01.2017 till the date of
           award on the total amount (i.e. principal amount + the
           amount of interest for the pre-reference period and for
           the period from 20.01.1998 till 31.12.2008).

           c) Future interest:
           @ 18% per annum from the date of the award till the date
           of payment on the total amount (i.e. principal amount +
           amount of interest on the pre-reference/past period+
           amount of interest pendente lite).
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19. Respondent filed a petition under Section 34 of the 1996 Act before
    the Single Bench of the High Court for setting aside the award dated
    28.10.2020. The same was registered as OMP (Comm) No. 78/2021.
    By the judgment and order dated 02.08.2021, learned Single Judge
    partly allowed the petition by setting aside the award with regard to
    future interest at the rate exceeding 9 percent per annum from the
    date of the award till the date of payment.
20. Aggrieved by the judgment and order dated 02.08.2021 passed by
    the learned Single Judge, respondent preferred an appeal under
    Section 37 of the 1996 Act before the Division Bench of the High
    Court which was registered as FAO (OS) (Comm) No. 175/2021. In
    the appeal, learned senior counsel for the respondent (which was
    the appellant before the Division Bench) clarified that the challenge
    would be restricted to the directions issued by the arbitral tribunal
    insofar the issue of interest was concerned. This was further clarified
    by submitting that the challenge was not with respect to the rate
    of interest or award of interest for the pre-reference/past period.
    Grievance highlighted was against the directions contained in sub-
    paragraph (b)(i) of paragraph 58 to the extent of the arbitral tribunal
    stipulating that interest for the period mentioned therein would be
    leviable not merely on the principal amount as awarded but upon
    the said amount inclusive of the amount of interest relating to the
    pre-reference/past period. Likewise, arbitral tribunal awarded interest
    on identical terms in sub-paragraph (b)(ii) of paragraph 58 which was
    objected to. Division Bench of the High Court vide the judgment and
    order dated 01.08.2023 (impugned judgment) allowed the appeal by
    setting aside the directions contained in paragraph 58(b).
21. Aggrieved thereby, appellant filed the related SLP (C) No.23235/2023
    before this Court. By order dated 19.10.2023, this Court issued notice.
    In the hearing held on 25.02.2025, leave was granted.
22. Though there is no challenge by either parties to the award on merit,
    challenge of the respondent being confined only to the interest part,
    nonetheless, to have a complete picture, it would be appropriate to
    mention the claims of the appellant and the corresponding amounts
    awarded by the arbitral tribunal. The following statement in tabular
    form will throw light on the amounts claimed by the appellant and
    the amounts awarded by the arbitral tribunal under sixteen heads
    of claim. The tabular statement is as under:
[2025] 5 S.C.R.                                                           2113

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.


      Claim Particulars                      Amount Claimed    Amount Awarded
      No.
      (a)    Escalation at 10% for work      Rs.20,71,322.00   Rs.20,71,322.00
             order 48/4
      (b)    Escalation at 10% for work      Rs.1,84,418. 77   Rs.1,84,418.77
             order 47/11
      (c)    Refund of panel recovery
             of steel taking 5% of scrap
             wastage in place of 3%
             wastage: -
                I)     Steel difference      Rs.1,75, 132.00
                II)    M.S. Found Steel      Rs. 1,806.42
                III) 12 Dia M.S.             Rs. 68,750.00
                IV) Structural Steel         Rs. 2,513.28
                V) Steel Plates              Rs. 2,649.84
                VI) Scrap made in            Rs.12,000.00
                    labour rates
             Total                           Rs.2,62,850.70    Rs.1,82,463. 70
      d)     Unreasonable recoveries:-
                i)     Cribes                Rs. 3,747.75
                ii)    Shutter plates        Rs. 38,322.65
                iii)   B.F.P. Hire charges   Rs. 15,776.31
                       for shutter plates
                iv) B.F.P. Hire charges      Rs. 64,521.00
                    for shutter plates
                v)     Refund of 28%         Rs. 60,833.00
                       overhead supply for
                       metal
                vi) Dozer recovery for       Rs. 10,676.00
                    work order No. 48/4
                vii) Cubes failure (never    Rs. 34,701.92
                     given in writing of
                     any cube failure of
                     any member)
                viii) Chain pulley block     Rs. 8,000.00
                      (not with us)
                ix) Clamps (already          Rs. 14,990.00
                    returned)
2114                                                          [2025] 5 S.C.R.

                            Supreme Court Reports



                x)     Pipes (already        Rs. 89,353.00
                       returned)
             Total                           Rs.3,40,921.63   Rs.60,833.00
        e)   Work order by other             Rs.84,447.00     Rs.84,447.00
             agencies but not in our
             scope like plastering etc.
        f)   Held amounts:-
                i)     Amount held on        Rs.3,95,000.00
                       account of grouting
                       T.G.
                ii)    Amount held on        Rs.20,000.00
                       account of grouting
                       C.E.P.
                iii)   Staging held amount   Rs.3,09,203.14
                       of T.G.
                iv) Work order No. 48/4      Rs.43,000.00
                    withheld amount
                v)     Work Order No.        Rs.51,803.00
                       47/11 withheld
                       amount
                vi) Work Order No. 48/4      Rs.23,000.00
                    shutter plates held
                vii) Curing held amount      Rs.3,000.00
                     48/4
                viii) Work order No.48/4     Rs.10,000.00
                      E.S.P. rectification
                      held amount
                ix) Work order No.48/4       Rs.5,000.00
                    T.G. held amount for
                    final shape.
             Total                           Rs.8,60,004.14   Rs.8,60,004.14
        g)   Balance payable in bills
                i)     Payable in bills 47/11 Rs.64,376.76
                ii)    S.D. 47/11 total      Rs.2,02,870.00
                       balance
                iii)   Work order No. 48/4   Rs.84,000.00
                       money payable in
                       bills
             Total                           Rs.3,51,246.76
[2025] 5 S.C.R.                                                         2115

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.


      h)     Difference in excavation      Rs.1,31,464.00
      i)     Booking of C.E.P. in          Rs.17,690.00
             package-IV as agreed by
             E.D.S.R. differences
      j)     Claims of not allotting quarry Rs.2,66,000.00
             as agreed by E.D.S.R.
      k)     1200 M3 of stone aggregate    Rs.13,40,000.00
             from Karim Nagar for rate
             differences of Rs. 70/- M3
             extra and the claim was
             agreed by EDSR referred
             to our letter ISC/ Claims/1
             Dt.14.10.89 para III.
      l)     Idle labour charges refer     Rs.4,81,000.00
             our letter ISC/Claims/1 dt.
             14.10.89, para IV
      m)     2% interest rate difference   Rs.50,000.00
             on mobilization advance.
      n)     Interest on delayed release   Rs.2,40,000.00
             of S.D. refer para 9 of
             our letter ISC/Claims/1 dt.
             14.10.89.
      o)     Mental anguishes, torture     Rs.60,00,000.00
             and loss of social status
             suffered refer Letter No.
             ISC/ Claims/1 dt. 14.10.89
             para II.
      p)     Addl. 24% interest for 10.5   Rs.3,19,57,039.0
             years w.e.f. July 1987 upto
             Dec. 1997.
             Total                         Rs.4,46,38,404.00 Rs.34,43,490.61


23. We have already extracted the nature of interest payment provided in
    the award dated 28.10.2020. However, for ready reference, interest
    awarded to the appellant by the arbitral tribunal may once again be
    noted which is as under:
                (a) Pre-reference/past period interest at the rate of
                18% per annum on the sum of Rs. 34,43,490.61 with
                effect from July 1987 uptill 19.01.1998.
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                         Supreme Court Reports


                (b) Pendente lite interest at the rate of 12% per
                annum with effect from 20.01.1998 uptill 31.12.2008
                on the total amount (that is, principal amount plus the
                amount of interest for the pre- reference/past period).
                (c) Pendente lite interest at the rate of 12% per annum
                with effect from 01.01.2017 till the date of the award
                on the total amount (that is, principal amount plus
                the amount of interest on the pre- reference period
                and for the period from 20.01.1998 till 31.12.2008).
                (d) Future interest at the rate of 18% per annum from
                the date of the award till the date of payment on the
                total amount (that is, principal amount added to the
                amount of interest for the pre-reference/past period
                and interest pendente lite).
     23.1. While holding that appellant was entitled to award of interest
           for the pre-reference period i.e. from the date on which the
           cause of action arose till filing of the claim before the arbitral
           tribunal as well as for the pendente lite period and also for the
           future period, arbitral tribunal agreed with the respondent that
           no interest should be awarded to the appellant for the period
           when there was absolute laches on the part of the appellant.
           Arbitral tribunal held that for the period from 01.01.2009 till
           31.12.2016, that is for a period of about eight years, there was
           complete laches on the part of the appellant. Therefore, the
           arbitral tribunal declared that appellant would not be entitled
           to any interest for the aforesaid period.
24. Respondent filed a petition under Section 34 of the 1996 Act before the
    High Court impugning the arbitral award dated 28.10.2020. Vide the
    judgment and order dated 02.08.2021, learned Single Judge upheld
    the claims awarded by the arbitral tribunal. On the question of interest,
    learned Single Judge framed the question as to whether interest
    awarded by the arbitral tribunal was exorbitant and unsustainable.
    Learned Single Judge held that arbitral tribunal’s decision to award
    pre-reference interest at the rate of 18 percent per annum did not
    warrant any interference. As regards pendente lite interest, learned
    Single Judge while noting that arbitral tribunal had awarded 12 percent
    interest per annum for the period from 20.01.1998 till 31.12.2008 and
    again from 01.01.2017 till 28.10.2020, justified the decision of the
[2025] 5 S.C.R.                                                         2117

                       M/s Interstate Construction v.
              National Projects Construction Corporation Ltd.

     arbitral tribunal not to award interest for the period from 01.01.2009
     to 31.12.2016 as during this period the appellant was remiss and
     did not pursue its claim before the arbitral tribunal diligently. On the
     rate of interest, learned Single Judge held that interest at the rate of
     12 percent per annum could not by any stretch be considered to be
     exorbitant or unreasonable but held that 18 percent future interest
     from the date of the award till the date of payment granted by the
     arbitral tribunal was ex facie erroneous as according to learned Single
     Judge the interest rate should have been 2 percent higher than the
     current rate of interest prevalent on the date of the award. Therefore,
     this portion of the award was set aside by the learned Single Judge;
     instead learned Single Judge awarded future interest holding that it
     could not have been in excess of 9 percent per annum. Therefore,
     learned Single Judge partly allowed the petition under Section 34 of
     the 1996 Act to the extent of setting aside the award of future interest
     at a rate exceeding 9 percent per annum from the date of the award
     till the date of payment.
25. This brings us to the impugned judgment and order dated 01.08.2023.
    We have already noted about the limited nature of challenge made
    by the respondent during the hearing of the appeal filed under
    Section 37 of the 1996 Act. Learned senior counsel appearing
    for the respondent clarified that the challenge to the award stood
    restricted to the directions issued by the arbitral tribunal insofar the
    issue of interest was concerned. He clarified that the challenge was
    not with respect to either the rate at which interest was awarded or
    the grant of interest for the pre-reference/past period. The grievance
    was confined to the directions contained in paragraph 58(b)(i) of
    the award and the similar nature of interest in paragraph 58(b)(ii)
    inasmuch as the arbitral tribunal proceeded to award interest on
    identical terms: on the principal amount plus the amount of interest
    for the pre-reference/past period. Division Bench referred to Section
    31(7)(a) and (b) of the 1996 Act as well as placed reliance on the
    decision of this Court in Sayeed Ahmed and Company Vs. State of
    Uttar Pradesh1 and came to the following two conclusions:
            i) Section 31(7) recognizes only two periods for which
            interest may be awarded. The two periods are, firstly from


1   (2009) 12 SCC 26
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          the date on which the cause of action arose till passing
          of the award and secondly from the date of the award till
          actual payment. Therefore, the distinction between pre-
          reference/past period and pendente lite period no longer
          existed. The period from the date of cause of action i.e.
          July, 1987 till the date of the award dated 28.10.2020
          would constitute the period contemplated under Section
          31(7)(a) of the 1996 Act. The period commencing from
          the date of award till payment would be the second period
          within the meaning of Section 31(7)(b) of the 1996 Act.
          Therefore, the arbitral tribunal committed an illegality in
          awarding interest for three periods: pre-reference/past
          periods, pendente lite and for the future period.
          ii) Arbitral tribunal committed further illegality in forging
          the principal amount with interest as would be evident
          from paragraph 58(b) of the award. Interest awarded for
          the pre-reference period as well as for the pendente lite
          period have been subjected to further levy of interest
          for the said periods by adding the interest amount with
          the principal amount awarded. This amounted to levying
          compound interest which is impermissible. Accordingly, the
          directions contained in paragraph 58(b) were set aside by
          the Division Bench.
26. In our considered view, the reasonings given by the Division Bench
    are fallacious. We say so for the reasons mentioned hereunder.
27. Section 31 of the 1996 Act is the relevant provision. It deals with the
    form and contents of arbitral award. Section 31 has eight sub-sections.
    Sub-section (7) is central to the debate and after the amendment
    with retrospective effect from 23.10.2015 read as under:
                31. Form and contents of arbitral award -
                *           *             *              *           *
                (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
[2025] 5 S.C.R.                                                           2119

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.

                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.
     27.1. Before substitution and prior to 23.10.2015, clause (b) of sub-
           section (7) of Section 31 stood thus:
                (b) A sum directed to be paid by an arbitral award
                shall, unless the award otherwise directs, carry
                interest at the rate of eighteen per centum per annum
                from the date of the award to the date of payment.
28. We now come to the analysis of Section 31(7), both clauses (a)
    and (b). For the time being we concentrate on clause (a) insofar it
    deals with the period for which interest may be awarded. A reading
    of clause (a) reveals that interest may be 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. In real terms it means the
    period from the date on which the cause of action arose till filing of
    the claim petition by the claimant and from the date of filing of the
    claim petition till the date of the award. Division Bench of the High
    Court relied upon Sayeed Ahmed and Company (supra) wherein this
    Court analyzed Section 31(7) of the 1996 Act and opined that the
    difference between pre-reference period and pendente lite period has
    disappeared insofar award of interest by the arbitrator is concerned.
    The said section now recognizes only two periods and makes the
    following provision:
           i) In regard to the period between the date on which the
           cause of action arose and the date on which the award is
           made (pre-reference period + pendente lite), the arbitral
           tribunal may award interest at such rate as it deems
           reasonable for the whole or any part of the period unless
           otherwise agreed by the party;
           ii) For the period from the date of award to the date of
           payment, interest at the rate of 18 percent per annum
           (this is in reference to the pre 23.10.2015 position) if no
2120                                                         [2025] 5 S.C.R.

                          Supreme Court Reports


            specific order is made in regard to interest; however, the
            arbitrator may award interest at a different rate for the
            period between the date of award and the date of payment.
29. Based on the aforesaid decision, the Division Bench held that it was
    not open for the arbitral tribunal to have carved out three periods for
    payment of interest: pre-reference, pendente lite and future when the
    statute provides for only two periods: first period being the period
    between the date on which the cause of action arose and the date
    on which the award is made and the second period is from the date
    of the award till the date of payment.
30. We are unable to agree with the view expressed by the Division
    Bench. Even in Sayeed Ahmed and Company (supra) relied upon by
    the Division Bench, the Bench held that Section 31(7) had carved out
    two periods, the first period being from the date on which the cause
    of action arose till the date on which the award is made and the
    second period being from the date of award till the date of payment.
    As regards the first period, the Bench clarified that it includes the
    pre-reference period plus pendente lite period. Though the arbitral
    tribunal had granted interest for three periods: pre-reference period,
    pendente lite and post award period, the first two period basically
    comprises of the period contemplated under clause (a) of sub-section
    (7) of Section 31. It is another matter that the arbitral tribunal awarded
    varying degrees of interest for the two sub-periods: 18 percent per
    annum for the pre-reference period and 12 percent as pendente lite,
    excluding from the said period, the period of eight years when the
    appellant was found to be remiss in pursuing its claims before the
    arbitral tribunal. This is also permissible as we shall explain.
31. Therefore, Sayeed Ahmed and Company (supra) does not exclude or
    does not say that interest should not be granted for the pre-reference
    period. All that it explains is that Section 31(7)(a) has joined the two
    periods of interest: pre-reference and pendente lite.
32. This position has been clarified by a recent decision of this Court
    in Pam Developments Private Limited Vs. State of West Bengal2.
    After extracting Section 31(7) of the 1996 Act, this Court held that
    power of the arbitrator to grant pre-reference interest, pendente lite


2   (2024) 10 SCC 715
[2025] 5 S.C.R.                                                           2121

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.

     interest and post award interest under Section 31(7) of the 1996 is
     now fairly well settled. The Bench, thereafter, culled out the following
     legal propositions in this regard highlighting the difference in the
     position of law qua the Arbitration Act, 1940 vis-à-vis the 1996 Act:
           23. The power of the arbitrator to grant pre-reference
           interest, pendente lite interest, and post-award interest
           under Section 31(7) of the Act is fairly well-settled. The
           judicial determinations also highlight the difference in
           the position of law under the Arbitration Act, 1940. The
           following propositions can be summarised from a survey
           of these cases:
                23.1. Under the Arbitration Act, 1940, there was no
                specific provision that empowered an arbitrator to grant
                interest. However, through judicial pronouncements,
                this Court has affirmed the power of the arbitrator to
                grant pre-reference, pendente lite, and post-award
                interest on the rationale that a person who has
                been deprived of the use of money to which he is
                legitimately entitled has a right to be compensated
                for the same. When the agreement does not prohibit
                the grant of interest and a party claims interest, it
                is presumed that interest is an implied term of the
                agreement, and, therefore, the arbitrator has the
                power to decide the same.
                23.2. Under the 1940 Act, this Court has adopted a
                strict construction of contractual clauses that prohibit
                the grant of interest and has held that the arbitrator
                has the power to award interest unless there is
                an express, specific provision that excludes the
                jurisdiction of the arbitrator from awarding interest
                for the dispute in question.
                23.3. Under the 1996 Act, the power of the arbitrator
                to grant interest is governed by the statutory provision
                in Section 31(7). This provision has two parts. Under
                clause (a), the arbitrator can award interest for the
                period between the date of cause of action to the
                date of the award, unless otherwise agreed by the
                parties. Clause (b) provides that unless the award
2122                                                           [2025] 5 S.C.R.

                                Supreme Court Reports


                   directs otherwise, the sum directed to be paid by
                   an arbitral award shall carry interest @ 2% higher
                   than the current rate of interest, from the date of the
                   award to the date of payment (referring to the post
                   23.10.2015 position).
                   23.4. The wording of Section 31(7)(a) marks a
                   departure from the Arbitration Act, 1940 in two ways :
                   first, it does not make an explicit distinction between
                   pre-reference and pendente lite interest as both of
                   them are provided for under this sub-section; second,
                   it sanctifies party autonomy and restricts the power
                   to grant pre-reference and pendente lite interest the
                   moment the agreement bars payment of interest,
                   even if it is not a specific bar against the arbitrator.
                   23.5. The power of the arbitrator to award pre-
                   reference and pendente lite interest is not restricted
                   when the agreement is silent on whether interest can
                   be awarded or does not contain a specific term that
                   prohibits the same.
                   23.6. While pendente lite interest is a matter of
                   procedural law, pre-reference interest is governed by
                   substantive law. Therefore, the grant of pre-reference
                   interest cannot be sourced solely in Section 31(7)(a)
                   (which is a procedural law), but must be based on an
                   agreement between the parties (express or implied),
                   statutory provision (such as Section 3 of the Interest
                   Act, 1978), or proof of mercantile usage.
            24. In view of the above, the High Court had no reason
            to interfere with the arbitral award with respect to grant
            of pre-reference interest, since the contract between the
            parties does not prohibit the same.
33. This position has been further explained by a recent decision of
    this Bench in North Delhi Municipal Corporation Vs. S.A. Builders
    Ltd.3. After adverting to Section 31(7) of the 1996 Act, this Court
    explained as under:


3   (2024) SCC Online SC 3768
[2025] 5 S.C.R.                                                             2123

                     M/s Interstate Construction v.
            National Projects Construction Corporation Ltd.

                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.
     33.1. Thereafter the Bench observed that under Section 31(7) of
           the 1996 Act, an arbitral tribunal has the power to grant –
           (i) pre-award (ii) pendente lite (iii) post-award interest. The
           Bench explained the reason for award of such interest in the
           following manner:
                39. Generally, going by the provisions contained in
                Section 31(7) of the 1996 Act, it is evident that an
                arbitral tribunal has the power to grant (i) pre-award
                (ii) pendente lite (iii) post-award interest. Intention
                behind awarding pre-award interest is primarily to
                compensate the claimant for the pecuniary loss
                suffered from the time the cause of action arose till
                passing of the arbitral award. Further, this is also to
                ensure that the arbitral proceeding is concluded within
                a reasonable period to minimise the impact of the
                pre-award interest as well as interest pendente lite;
                thereby promoting efficiency in the arbitration process.
                Similarly, grant of post-award interest also serves a
                salutary purpose. It primarily acts as a disincentive to
                the award debtor not to delay payment of the arbitral
                amount to the award holder.
34. Thus, what Section 31(7)(a) has done is that there is now a statutory
    recognition of the power of the arbitral tribunal to grant pre-reference
    interest from the date on which the cause of action arose till the date
    on which the award is made. There was a vacuum in the Arbitration
    Act, 1940 as there was no such provision for granting pre-reference
    interest. It was through judicial pronouncements that such power
    of the arbitrator to grant pre-reference interest was conferred. Now
    under Section 31(7)(a) of the 1996 Act, such power is statutorily
    recognized.
35. Let us revert back to clause (a) of sub-section (7) of Section 31
    of the 1996 Act. A careful and minute reading of this provision will
2124                                                         [2025] 5 S.C.R.

                         Supreme Court Reports


     make it clear that the arbitral tribunal has the discretion to include
     in the sum awarded interest at such rate as it deems reasonable on
     the whole or any part of the money awarded for the whole or any
     part of the period from the date on which the cause of action arose
     till the date on which the award is made. We may exclude that part
     of the sentence ‘on the whole or any part of the money’ from our
     analysis since this is not relevant to the controversy. If we exclude
     this portion, what then becomes discernible is that the arbitral tribunal
     has the discretion to include in the sum awarded : firstly, interest
     at such rate as it deems reasonable; and secondly, 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. This would
     mean that the arbitral tribunal can exclude a period from the date on
     which the cause of action arose till the date on which the award is
     made for the purpose of grant of interest, as has been done in the
     present case. It would also mean that the arbitral tribunal can grant
     interest 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. It can be a composite period or the said period can be further
     sub-divided, as done in the present case i.e. from the date of cause
     of action to filing of the claim and from the date of filing of the claim
     till the date of the award excluding the period when the appellant
     was found to be remiss. It would also mean that there can be one
     rate of interest for the whole period or one or more rates of interest
     for the sub-divided periods as has been done in the instant case. In
     our opinion, this would be the correct approach to interpret Section
     31(7)(a), given the scheme of the 1996 Act.
36. That being the position, we are of the view that the Division Bench had
    fallen in error by holding that the arbitral tribunal had no jurisdiction
    to award interest for two periods i.e. pre-reference and pendente
    lite when the statute provides for only one period viz. from the date
    when the cause of action arose till the date of the award. The view
    expressed by the High Court is not the correct interpretation of
    Section 37(1)(a) of the 1996 Act as explained by us supra as well
    as in Pam Developments Private Limited (supra) and S.A. Builders
    Ltd. (supra).
37. This brings us to the second issue on which the High Court set aside
    the directions of the arbitral tribunal contained in paragraph 58(b) of
    the award. According to the Division Bench, the arbitral tribunal had
[2025] 5 S.C.R.                                                          2125

                       M/s Interstate Construction v.
              National Projects Construction Corporation Ltd.

     committed an illegality in forging the principal amount with interest
     while computing the awarded amount on which future interest is to
     be paid. Interest awarded for the past period could not have been
     subjected to further levy of interest during the pendente lite or post
     award period on merger with the principal amount as this would
     amount to levy of compound interest.
38. This aspect of the matter is no longer res integra.
39. In State of Haryana Vs. S.L. Arora4, a two-Judge Bench of this
    Court observed that as regards pre-award period, interest has to
    be awarded as specified in the contract and in the absence of any
    contract, as per the discretion of the arbitral tribunal. However, with
    regard to the post-award period, the interest is payable as per the
    discretion of the arbitral tribunal and in the absence of exercise of
    such discretion, at the mandatory statutory rate of 18 percent per
    annum. Award of interest like award of cost are ancillary matters.
    Therefore, the expressions sum for which the award is made and the
    sum directed to be paid by an arbitral award contextually refers to the
    award on the substantive claims and not ancillary or consequential
    directions relating to interest or cost. It was held that arbitral tribunals
    did not have the power to award interest upon interest or compound
    interest either for the pre-award period or for the post-award period.
40. A three-Judge Bench of this Court in Hyder Consulting (UK) Ltd. Vs.
    Governor, State of Orissa5, opined that it was not possible to agree
    with the conclusion in S.L. Arora (supra) that Section 31(7) of the
    1996 Act does not require that interest which accrues till the date
    of the award be included in the sum from the date of the award for
    calculating the post-award interest. Justice Bobde (as His Lordship
    then was) authoring the majority opinion was of the view that the
    conclusion reached in S.L. Arora (supra) did not seem to be in
    consonance with the clear language of Section 31(7) of the 1996
    Act. Hyder Consulting (UK) Ltd. (supra) declared that S.L. Arora
    (supra) was wrongly decided in that it held that a sum directed to
    be paid by an arbitral tribunal and the reference to the award on the
    substantive claim did not refer to interest pendente lite awarded on
    the sum directed to be paid upon award and that in the absence of


4   (2010) 3 SCC 690
5   (2015) 2 SCC 189
2126                                                          [2025] 5 S.C.R.

                           Supreme Court Reports


     any provision of interest upon interest in the contract, the arbitral
     tribunal did 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 has been clarified that the ‘sum’ includes the principal
     as adjudged together with the interest granted.
41. A three-Judge Bench of this Court in UHL Power Company Ltd. Vs.
    State of Himachal Pradesh6 declared that the judgment in S.L. Arora
    (supra) has since been overruled by a three-Judge Bench of this
    Court in Hyder Consulting (UK) Ltd. (supra). The majority view in
    Hyder Consulting (UK) Ltd. (supra) is that post-award interest can
    be granted by an arbitrator on the interest amount awarded.
42. This view was reiterated by this Court in subsequent decisions
    (please see Delhi Airport Metro Express Private Ltd. Vs. Delhi Metro
    Rail Corporation7 and Morgan Securities and Credits Private Ltd. Vs.
    Videocon Industries Limited 8).
43. Finally, in S.A. Builders (supra), this Bench after a thorough analysis
    of Section 31(7)(a) and Section 31(7)(b) of the 1996 Act came to
    the following conclusion:
            38. Natural corollary to the above analysis would be that the
            ‘sum’ so awarded by the arbitral tribunal which may include
            interest from the date when the cause of action arose to
            the date of the award, would carry further interest of 18
            percent from the date of the award to the date of payment
            unless the arbitral award otherwise directs (referring to the
            pre 23.10.2015 position). Thus, the legislative intent is that
            the awarded sum whether inclusive of interest or not, in
            case included, then from the date of cause of action to
            the date of award, would carry further interest from the
            date of the award to the date of payment.
44. It has been held that the sum awarded would mean the principal
    amount plus the interest awarded from the date of cause of action
    upto the date of the award. The sum awarded in Section 31(7)(a)
    would mean principal amount plus the interest awarded. Thereafter,


6   (2022) 4 SCC 116
7   (2022) 9 SCC 286
8   (2023) 1 SCC 602
[2025] 5 S.C.R.                                                      2127

                        M/s Interstate Construction v.
               National Projects Construction Corporation Ltd.

     as per Section 31(7)(b) of the 1996 Act, the sum (principal amount +
     interest) would carry further interest at the rate of 2 per cent higher
     than the current rate of interest prevalent on the date of the award
     to the date of payment.
45. Therefore, in view of the clear legal position delineated as above,
    impugned judgment of the Division Bench dated 01.08.2023 cannot
    be sustained.
46. Thus, having regard to the discussions made above, impugned
    judgment and order dated 01.08.2023 passed by the Division Bench
    of the High Court is hereby set aside. Civil appeal is accordingly
    allowed. However, there shall be no order as to cost.

     Result of the case: Appeal allowed.




     †
         Headnotes prepared by: Nidhi Jain