Case Citation
Court Name: Supreme Court of India
Case Title: North Delhi Municipal Corporation v. M/s. S.A. Builders Ltd.
Case No.: Civil Appeal No. 1878 of 2024 (Special Leave Petition (Civil) No. 3421 of 2024)
Date of Judgment: 17th December 2024
Judge(s) Name: Hon’ble Mr. Justice Ujjal Bhuyan
Facts of the Case
The respondent, M/s. S.A. Builders Ltd., was awarded a contract by the appellant, North Delhi Municipal Corporation, for construction work, including flyovers and roads. The contract began in 1983 but was incomplete by 1990 due to non-availability of the site. After disputes arose regarding non-payment, arbitration proceedings were initiated under the Arbitration and Conciliation Act, 1996. The sole arbitrator awarded ₹1,70,40,720.80 with simple interest at 18% per annum from 1st April 1990 until actual payment. During execution, a dispute emerged about whether post-award interest should apply to the principal amount alone or include interest accrued pre-award, leading to litigation over the interest calculation.
Contentions of the Appellant
The appellant argued that the arbitrator became functus officio after passing the award in 1997 and lacked jurisdiction to issue clarifications in 2005. It was contended that the arbitrator’s clarification fundamentally altered the original award by introducing post-award interest on pre-award interest, thereby creating a financial burden. The appellant claimed that the clarification was outside the scope of Section 33 of the Arbitration Act, which allows only minor corrections. Additionally, the appellant emphasized that compound interest was not awarded initially, so it could not be implied or retrospectively introduced.
Contentions of the Respondent
The respondent argued that the arbitrator’s clarification adhered to Section 31(7) of the Arbitration Act and the principles laid down in Hyder Consulting (UK) Ltd. v. State of Orissa. The respondent emphasized that the clarification merely reaffirmed that post-award interest could be calculated on the aggregate amount (principal plus pre-award interest). It was contended that the appellant had multiple opportunities to challenge the clarification, but prior rulings, including by the Supreme Court, affirmed its validity. The respondent also cited res judicata, barring the appellant from raising the same jurisdictional issues again.
Issues of this Judgment
- Whether the arbitrator had jurisdiction to issue a clarification after becoming functus officio?
- Whether post-award interest under Section 31(7)(b) of the Arbitration Act can include pre-award interest?
- Whether the clarification issued by the arbitrator was valid and in conformity with Hyder Consulting principles?
Observations/Findings by the Supreme Court
The Supreme Court upheld the principle in Hyder Consulting (UK) Ltd. that the term “sum” under Section 31(7)(b) of the Arbitration Act includes both the principal amount and interest awarded up to the date of the award. The Court observed that the arbitrator’s clarification aligned with statutory provisions and prior Supreme Court rulings. Regarding the appellant’s contention of functus officio, the Court noted that the Division Bench permitted clarification, and the appellant had earlier failed to challenge this permission effectively. Thus, the clarification was not nullified. The Court rejected the appellant’s claim of undue financial burden, holding that the clarification did not modify but merely clarified the award.
Principle of the Case
The judgment reaffirms that under Section 31(7) of the Arbitration and Conciliation Act, 1996, post-award interest can be calculated on the aggregate of the principal amount and pre-award interest. This principle discourages delayed payment of arbitral awards and ensures full compensation for the award holder.
Final Order
The Supreme Court dismissed the appeal, holding that the arbitrator’s clarification was valid and consistent with the law. The amount payable to the respondent, including post-award interest on pre-award interest, would be computed accordingly. The Court directed the learned Single Judge of the High Court to finalize the quantum after hearing both parties.
Importance of This Judgment to Society
This judgment is significant for arbitration law in India as it clarifies the scope of post-award interest under Section 31(7) of the Arbitration Act. It ensures timely enforcement of arbitral awards and prevents award debtors from exploiting procedural ambiguities to delay payments. The ruling reinforces the principle of finality in arbitration, promoting confidence in India’s arbitration regime and reducing litigation over interest calculations.
