Judicial Modification Of Post-Award Interest: Constraints On Arbitral Discretion In India

  Mihir Teja Kalle is a third-year student at National Law Institute University, Bhopal.

Keywords: Post-Award Interest, Arbitration, Arbitral Finality

In its recent judgment in Gayatri Balasamy v ISG Novasoft Technologies Limited, the Supreme Court of India has revisited the contentious issue of whether courts can modify pendente lite and post-award interest (Part IX of the Judgement). The majority decision permitted the modification of the latter while refraining from expanding its powers to the former. In its reasoning, the Court held that such a power to modify stems from Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“Act”), which mandates the application of a standard post-award interest rate where the arbitral award is silent on such interest. Additionally, it sought to limit the discretion of the arbitral tribunal while awarding post-award interest.

This article shall shed light on prior jurisprudence regarding the arbitrator’s discretion under Section (“u/S”) 31(7)(b), while simultaneously pointing out the shortcomings in Balasamy. It shall also conclude with a possible framework to ensure consistency between judicial intervention and arbitral autonomy.

I.  A Jurisprudential Analysis of the Arbitrator’s Discretion to Grant Post-Award Interest

Under Indian law, Section 31(7)(b) of the Act mandates the payment of post-award interest at a statutory rate if the arbitral award is silent, to incentivize timely compliance. It differs from pre-award interest, which permits an exemption in case the agreement specifies otherwise. A plain reading of Section 31(7)(b) would reveal that it proscribes judicial interference where the award provides for said interest.

In Morgan Securities, the Supreme Court held that the phrase, “unless the award otherwise directs” in Section 31(7)(b) means the statutory rate of interest applies only if the arbitrator does not expressly grant post-award interest. It also emphasized that arbitrators should be guided by reason and good faith while determining interest. Hence, the Court prioritised the arbitrators role rather than pursuing an illusion of a power of judicial oversight.

In the case of S.L Arora, the Supreme Court opined that if the legislative intent was to impose statutory rate of post-award interest in all cases u/S 31(7)(b), then the arbitrator’s discretion to impose pendente lite interest would have been unnecessary. By clarifying the distinction between pre-award and post-award interest, the Court reinforced the principle that arbitration remains contractually driven and reflected commercial realities. Together, these cases suggest a judicial inclination that Section 31(7)(b) does not act as a ‘restrictive’ clause that fetters the discretion of an arbitral tribunal.

This position was reaffirmed in R.P Garg, where the Apex Court held that post-award interest is mandatory and is a statutory entitlement, even if the arbitral award is silent. However, if the award specifies an interest, that rate will prevail, as post-award interest is sui generis and distinct from interest u/S 31(7)(a). Hence, the judicial trend affirms the arbitrator’s discretion to impose post-award interest and the statutory rate is merely treated as a ‘fallback’ mechanism.

A seven-judge bench of the same Court in Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, held that the legislative intent behind the Act was to ensure minimal judicial interference respect arbitral autonomy.

II. International Practice: The Norm of Minimal Judicial Intervention

In recent years, India has attempted to portray itself as an arbitration friendly nation in an effort to emerge as a “global arbitration hub”. Achieving this goal requires adherence to established international arbitration principles, making it essential to examine how other arbitration-friendly jurisdictions handle post-award interest such as Singapore and the United Kingdom.

In Singapore, the legislative framework discourages judicial interference and places the onus upon the arbitral tribunal to award an appropriate post-award interest rate. Moreover, in L W Infrastructure, the Singapore Court of Appeal outlined that the legislative intent behind their domestic laws was to ensure conformity with the UNCITRAL Model Law’s doctrine of minimal curial intervention.

In England, Section 49(4) of the Arbitration Act 1996 vests the power to award interest in the hands of the arbitral tribunal as justice requires unless the agreement prescribes otherwise. In the case that an English Court has passed judgment upon an arbitral award while attempting to enforce it, then the Court has the authority to prescribe a statutory interest of 8% under the Judgement Acts, 1838. By applying the doctrine of merger, the award would merge with the judgment and the new post-judgment interest rate would apply.

III. A Divergent Judicial Approach: Balasamy on Post-Award Interest

Up until Balasamy, the Supreme Court has resorted to invoking its power under Article 142 of the Constitution to ‘vary’ the interest awarded by a tribunal, bypassing the limitations prescribed in Section 34 of the Act. Article 142 provides for the power of the Court to pass a decree or order in the interest of achieving ‘complete justice’. It was invoked by the Supreme Court in the case of Mcdermott International, which reduced the rate of interest from 10% per annum to 7.5% per annum on the premise that there had been a significant lapse of time. Similarly, in the Ssangyong Engineer case, the same Court upheld the minority award’s stipulated interest and in the meanwhile set aside the majority award.

In Part IX of its judgment, Balasamy discussed the matter of modifying pendente lite interest and post-award interest by a Court u/S 34 of the Act. In the matter of the former, the Court found its powers to be limited to two circumstances, either setting it aside or remanding it. With respect to the latter, the Court held that it could modify the interest if the circumstances of the case warranted it. Its reasoning was based on three main prongs:

a)    The legislative mandate u/S 31(7)(b) permits the court to grant post award interest and this power is not solely the right of the arbitrator.

b)   The essence of post-award interest is wholly future oriented and the arbitrator, by no means, can act with certainty while providing for post-award interest in an award.

c)    The legislature has provided for a statutory rate of interest u/S 31(7)(b) which must guide the arbitrator’s discretion while discerning the post-award interest rate. Further, that the statutory rate acts as a standard against which the post-award interest granted by the arbitral tribunal can be scrutinized.

The Court determined that it had the power to both increase and decrease the post-award interest rate. The Court also sought to set up a guardrail by urging future courts to use this power of modification judiciously, and only for  compelling and well-founded reason to do so. Moreover, it would do away with the necessity to invoke Article 142.

By treating the statutory rate of interest as a benchmark for determining post-award interest, the Court has encroached upon the domain of arbitral discretion, effectively narrowing the scope of an arbitrator’s authority to independently assess and award post-award interest.

IV. Contextualising Balasamy Within Existing Jurisprudential Frameworks

i. Legislative mandate does not provide sole discretion to the arbitrator

Balasamy interpreted Section 31(7)(b) of the Act to grant courts the power to award post-award interest. Moreover, this interpretation pre-supposes that the legislative mandate never intended for this to be the arbitrator’s sole discretion. This view is erroneous, to say the least. It fails to reconcile with Morgan and S L Arora, both of which upheld the centrality of arbitral discretion, emphasizing that Section 31(7)(b) operates only when the arbitrator has not exercised this discretion.

Therefore, Section 31(7)(b) should be understood as a default mechanism, which permits the statutory rate to be invoked only when the award is silent. The legislative mandate prescribes for the arbitrator’s discretion to guide the court’s power, and not the other way around. In the case of R P Garg, the Court also declared that the statutory rate would apply even if the contract was to the contrary. The nature of post-award interest is thereby mandatory. Hence, the role of the Court is diminished to only being an ‘enforcer’ of the post-award interest, rather than an authority that can award post-award interest by itself.

This limited role for courts is consistent with the legislative intent behind the Act, which is aimed at promoting party autonomy and minimizing judicial interference in arbitration.

ii. The arbitrator cannot foresee the future with certainty

In Balasamy, the Court addressed practical inconsistencies within Section 31(7)(b) of the Arbitration and Conciliation Act by viewing post-award interest as a forward-looking mechanism, contingent on future developments after the award is issued. It held that a Section 34 Court should have the authority to modify post-award interest if later changes in facts or circumstances warrant it. While the Court’s reasoning is pragmatic, it overlooks existing resources available under the Act such as remitting the matter or setting aside the award.

The Supreme Court rightly laid down in M/s Patel Brothers, that “In the task of interpreting and applying a statue, Judges have to be conscious that in the end the statue is the master not the servant of the judgment and no judge has a choice between implementing it and disobeying it.”. By applying this line of thought, one can be certain, the Court in Balasamy should have reconsidered the statutory resources before jumping to the conclusion that modification is permissible.

A possible solution would be to introduce a legislative amendment to the Act, explicitly empowering arbitrators to revisit and vary post-award interest in narrowly defined circumstances. This amendment would act as a qualified exception to the doctrine of functus officio, which ordinarily prevents an arbitral tribunal from exercising further authority after rendering its final award. Practically, this would be permissible because it would rectify the issues noted in Balasamy while ensuring party autonomy. To ensure consistency and prevent abuse, the revised provision should allow reconsideration of post-award interest only upon a written application by either party, and only in situations where the award remains otherwise final and enforceable. This mechanism should not be available where the award has been set aside or remitted by a court, as such cases already fall within judicial oversight or the tribunal’s renewed jurisdiction.

iii. The arbitrator must be guided by the statutory rate of interest

The Court in Balasamy has sought to influence an arbitrator’s decision in awarding post-award interest by mandating that along with the facts and circumstances, the statutory rate of interest must also be considered while determining post-award interest.

While this may seem reasonable, it undermines the flexibility intended under the Act. By treating the statutory rate as a benchmark, the Court has introduced a ground for judicial scrutiny, which could deter arbitrators from exercising independent judgment.

Moreover, the statutory rate itself has evolved. Prior to the 2015 amendment, it was fixed at 18%, it is now pegged at 2% above the current rate u/S 31(7)(b). The T.K. Viswanathan Committee even recommended a further increase to 3% above the repo rate. These changes reflect the legislature’s intent for the statutory rate to function as a fallback, not a binding reference.

In R.P. Garg, the Court rightly held that the statutory rate of post-award interest u/S 31(7)(b) applies only when the arbitral award is silent. In contrast, Balasamy risks recharacterizing this provision as a ‘restrictive’ mandate, thereby curtailing the arbitrator’s discretion. This interpretation not only departs from the permissive framework affirmed in Morgan Securities and S.L. Arora, but also undermines the principle that arbitral autonomy should prevail unless clearly excluded by the statute.

V. Conclusion

The Balasamy judgment marks a paradigm shift in India’s arbitration framework by broadening judicial authority to modify post-award interest u/S 31(7)(b). While the Court’s reasoning was grounded in practical concerns, it risks diluting well-established principles such as arbitral discretion and party autonomy that have been upheld in Morgan Securities, S.L. Arora, and R.P. Garg. The Court committed a grave error by treating the statutory rate as a benchmark and granting courts the power to modify awards. This departs from the Act’s foundational aim of minimum judicial interference. This move also contrasts with practices observed in arbitration-friendly jurisdictions like Singapore and the UK. To balance judicial oversight with arbitral autonomy, a targeted legislative amendment would offer a more coherent solution.