Section 31(7) of the Arbitration and Conciliation Act, 1996 deals with interest in two stages. Clause (a) covers interest up to the date of the award, which is subject to the parties' agreement. Clause (b) covers interest after the award until payment.
Under Section 31(7)(b), a sum directed to be paid by an award carries interest from the date of the award to the date of payment at the rate directed by the award. If the award does not direct a rate, the statute provides a default: two per cent higher than the current rate of interest prevailing on the date of the award, as defined under the Interest Act, 1978.
Post-award interest serves an important purpose: it discourages the losing party from delaying payment by filing challenges without merit. Over the months or years that a challenge takes, post-award interest can add substantially to the amount payable.
From a strategic perspective, the award-debtor must weigh the realistic prospects of a Section 34 challenge against the interest accruing in the meantime. Paying or depositing the amount can stop the interest clock in appropriate cases.
For award-holders, it is important to ensure the award clearly states the post-award interest rate. Where it is silent, the statutory default applies, but a clearly stated rate avoids later arguments.