SYMBIOSIS LAW SCHOOL, PUNE

SYMBIOSIS INTERNATIONAL DEEMED UNIVERSITY

ALTERNATE DISPUTE RESOLUTION

SYSTEM
INTERNAL ASSESSMENT-I

IRAC

APPELLANT Hyder Consulting (UK) Ltd.

RESPONDENT Governer State of Orissa Tr. Chief Eng.

CITATION (2013) 2 SCC 719

CORAM R.M. Lodha and H.L. Gokhale,

VAIJAYANTI SHARMA
PRN – 15010125112
DIV –B, B.A LL.B
V YEAR BATCH (2015-2020)
 Alternate Dispute Resolution System, Internal Assessment – I, SYMBIOSIS LAW SCHOOL, PUNE

TABLE OF CONTENTS

I.SUMMARY OF FACTS______________________________________________ 2

Parties To The Dispute 2

The Decision of the Arbitral Tribunal 2

Execution Proceedings in the District Court 2

Quashing Order by the High Court 3

II.ISSUES RAISED_________________________________________________ 4

III.RULES/LAW APPLICABLE________________________________________ 4

Arbitration and Conciliation Act, 1996 4

IV. CASE ANALYSIS________________________________________________ 5

Former Per Incuriam Interpretation and the Dissenting Interpretation by the

CJI 5

Majority Decision – An analysis in light of the Legislative Intent 6

o Parallels from CPC 6
o The Consequent Effect of Compounding Interest 6

The Legislative Affirmation in the Law Commission Report 7

V.CONCLUSION___________________________________________________ 7

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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.
 Alternate Dispute Resolution System, Internal Assessment – I, SYMBIOSIS LAW SCHOOL, PUNE

SUMMARY OF FACTS

PARTIES TO THE DISPUTE This dispute arose between Hyder Consulting Ltd.
Having its registered office in London (U.K)
(“Appellant/Claimant”) and the Governor of Orissa
represented by the Chief Engineer (N.H.) Orissa
(“State”) vide the invocation of the Arbitration Clause
in the contract entered between them on 10.1.1995 for
Technical Consultation services rendered by the
Appellant.

THE DECISION OF THE ARBITRAL The Appellant filed for the following 4 claims before
TRIBUNAL the Arbitral Tribunal:

Claim No. 1: Amount withheld by the Respondent from

the rupee portion or consideration payable under the
contract.
Claim No. 2: Claim for full reimbursement of Income
Tax pertaining to expatriate employees of the claimant.
Claim No. 3: Claim for reimbursement of service tax.
Claim No. 4: Claim for payment of interest.

The Tribunal passed its award on 26.4.2000 whereby

the majority awarded Claims 1, 2 and 4 in the favour of
the Claimant. The award amounted to a total of Rs.
2,30,59,802.

EXECUTION PROCEEDINGS IN The District Judge, during the execution proceedings

THE DISTRICT COURT inter alia ordered interest to be paid on principle
amount and the interest pendant lite thereon for the
calculation of the post award interest amounting to a
total of Rs. 8,92,15,993.

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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.
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QUASHING ORDER BY THE HIGH The High Court of Orissa relying on the decision of the
COURT Apex Court in State of Haryana v. SL Arora and Co .
(“SL Arora Case”) quashed the execution order of the
District Court affirming that “interest on interest” in the
post award phase could not be awarded. This Order was
then came before the Apex Court and is discussed
herewith.

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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.
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ISSUES RAISED

There were two key issues raised in this case:

I. Whether under Section 31(7) of the Act, interest pendent lite is included within the
“sum” payable as per the arbitral award, for the purposes of awarding post-award
interest.
II. Whether the judgment in the SL Arora Case was per incuriam

RULES/LAW APPLICABLE

ARBITRATION AND Section 31(7) (“Provision”) gives the Arbitral Tribunal the
CONCILIATION ACT, power to award reasonable interest on the award on the sum
1996 paid as award. Sub section (a) states that reasonable interest
can be levied on whole or part of the money which between
the date of cause of action arising and date of award made.
Sub Section (b) levies an 18% interest P.A upon the award
until the date of payment, unless the award directs otherwise

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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.
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CASE ANALYSIS

The matter came before the Supreme Court for adjudication of the Question if the Arbitral
Tribunal has the power to levy an ‘interest on interest’ of sorts and if the phrasing of the statute
awards such power to the arbitral tribunal. Overturning the judgement in SL Arora Case the
judgement answers in the affirmative laying the issue to rest.

The issue debated here is of the levying of interest on an arbitral award. Judgement in SL Arora
case took the view that as per the interpretation of the provision the tribunal cannot impose
interest upon the interest awarded on the Pre award interest levied on the arbitral award. The
judgement in the present matter, more particularly under this issue overturned this position and
states that a Post award interest can be awarded not only on the Principle Award amount but
the Principle award and the Interest pendent lite which together are the ‘sum’ under the
provision.

 FORMER PER INCURIAM INTERPRETATION AND THE DISSENTING INTERPRETATION

BY THE CJI

The dissent in the present case, penned by the Honourable CJI HL Dattu is in the line of
interpretation of the SL Arora Case. As per this interpretation the use of the words ‘shall carry
interest’ is an indication that the interest is not to be compounded. The main reasoning behind
this being the fact that interest contemplated is on the act failure of payment of the rightful
compensation and not on the act of withholding of interest.

The CJI also examined the word ‘sum’ in its primitive meaning, which does not do justice to
the context of the provision and the nature of dispute it addresses.

The reasoning by the Honourable CJI is considerably narrow as it fails to acknowledge that the
provision actually is punitive in nature and such a penalty does not discriminate between the
specific act of non-payment of award. The fact of the matter is that if an awardee is entitled to
a claim and is not paid so even upon acquiring an execution order then it is infact unjust. The
provision is intended to attack such unjust before it happens and compounding of interest only
safeguards that intention.
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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.
 Alternate Dispute Resolution System, Internal Assessment – I, SYMBIOSIS LAW SCHOOL, PUNE

 MAJORITY DECISION – AN ANALYSIS IN LIGHT OF THE LEGISLATIVE INTENT

The Courts primary interpretation was based on the fact that the statute itself states that ‘The
sum for which award is made interest’ pertinently suggesting the inclusion of interest
tantamounting to the ‘Sum’. Adopting a literal and exclusionary interpretation of the words in
the provision it further deduces legislative intent for not mentioning the ‘sum’ to expressly be
‘Principle sum’ to mean that interest forms a part of the sum. Thus the court clarified that once
the tribunal passes an award, the principle as well as the interest levied all become a part of the
Sum and thus there is no interest applicable on the interest.

o Parallels from CPC

The Court also approached the interpretation of the provision in the context of its legislative
intent by taking a cue from the parallel provision in the Code of Civil Procedure, 1908 (“CPC”)
being Section 34. S.34 empowers the civil court to award interest expressly on the ‘Principle
Sum’ intentionally avoiding the inflation of the awarded amount. The Arbitration Act omits
the same and by supposition interest forms a part of the ambit of the word ‘sum’.

o The Consequent Effect of Compounding Interest

Ultimately any provision and its interpretation must be adjudged with the consequent effect of
its application at the helm of such interpretation. It is not in doubt that execution provisions in
the Arbitration act and cushioning provisions in agreements between the parties are made to
encourage early payment of rightful award.

Analysing the practical aspects of disputes that reach a stage such provisions are being
discussed before courts, it is clear that the respondents in such case escape the liability of
making payments at a stretch and anticipate a favourable outcome at appellate stages of the
litigation, showing a twofold negative motivation. First to delay the process exploiting the time
of the Courts and the opposing party and second to hold on to the ultimate possibility of not
paying the amount.

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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.
 Alternate Dispute Resolution System, Internal Assessment – I, SYMBIOSIS LAW SCHOOL, PUNE

The effect of post award interest being awarded on the Principle plus interest amount is to strike
the iron before it is even hot. Such an interpretation is helpful in maintain a healthy culture of
avoiding frivolous challenges and resituating faith in the Arbitration process and sanctity of
the powers of the Arbitral Tribunal.

 THE LEGISLATIVE AFFIRMATION IN THE LAW COMMISSION REPORT

The judgement stands strong in its reasoning due to the further affirmation by the legislature
upon its intent as provided in the Law Commissions report on Amendments to the Arbitration
and Conciliation Act 19961. The report adds an explanation to the provision to include interest
pendent lite as a part of the word sum, supporting the view of the Honourable Supreme Court
in the present matter overturning the SL Arora Case.

Thus the present judgement, in the opinion of the author is in line with the judicial and
legislative precedent on issue in question as the nature of disputes and the legislatures intent
on the trajectory of these disputes have been held onto to come to a conclusion. It is also
interesting to note that this view does not hold good in international arbitrations as the Provision
does not apply to foreign awards2.

CONCLUSION

The judgement at hand is powerful ammunition in the hands of Claimants with legitimate
unpaid claims and awards. It tackles the issue of mechanical filing of appeals upon arbitral
awards making the act and the ADR mechanism more robust. It more significantly gives the
Tribunal the discretion the legislature vested in it to be reasonable in awarding the sum, which
includes the interest so accrued. The state of affairs in the country is sadly that a majority of
decisions of Arbitral Tribunals become the subject of appeals and thus prolonging litigation
and overburdening the Courts. This is especially true in the case of private parties and disputes

1
The Law Commission in its Report on Amendments to Arbitration and Conciliation Act, 1996Report No. 246
(August 2014).
2
Progetto Grano S.P.A. v. Shri Lal Mahal Limited, (2014) 2 SCC 433
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between them who have the resources to sustain such a risk of litigation with the possibility of
coming out on the winning side, which ends up hurting both parties.

The intention of the Alternate dispute Resolution process to reduce the burden for both parties
and to mitigate circumstances and solves disputes in a way that is not affordable by the Judicial
system and the Litigation process. Bypassing the same is a disgrace to the entire system at
hand. Provisions like Section 31(7) create a sort of check and balance for parties to be think
before opening the floodgates of the Court process, and the decision in the present matter only
furthers that deterrent effect.

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Case Analysis: Hyder Consulting (UK) Ltd v. Governor State Of Orissa Tr. Ch. Eng.