The Arbitral Award: Form, Contents, Reasons, Interest and Costs

Section 31(6): interim awards

The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

Read with section 2(1)(c), under which "arbitral award" includes an interim award. So an interim award is an award for all purposes: it must comply with section 31, it can be challenged under section 34, and it can be enforced under section 36.

Do not confuse an interim award under section 31(6) with an interim measure under section 17. An interim award finally decides some part of the dispute; an interim measure is protective and provisional, and decides nothing.

Section 31(7): interest, in two periods

Clause (a), pre-award interest: unless otherwise agreed, where and in so far as an award is for the payment of money, the tribunal may include 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 between the date on which the cause of action arose and the date on which the award is made.

Clause (b), post-award interest: a sum directed to be paid by an 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.

Clause (b) was substituted by the 2015 amendment and the change is one students get wrong. The earlier provision fixed a flat eighteen per cent per annum. The present rule is current rate plus two per cent, and the Explanation takes "current rate of interest" from section 2(b) of the Interest Act 1978.

Three points to hold together. Pre-award interest is a discretion, at a rate the tribunal thinks reasonable, over a period it chooses. Post-award interest is a default that runs automatically unless the award directs otherwise. And both yield to the parties' agreement, since clause (a) opens with "unless otherwise agreed" and clause (b) with "unless the award otherwise directs".

Section 31(8) and 31A: the costs regime

Section 31(8), as substituted in 2015: the costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.

Section 31A is a complete costs code, and it was one of the more ambitious parts of the 2015 amendment.

31A(1): in relation to any arbitration proceeding, or a proceeding under any provision of the Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure 1908, shall have the discretion to determine (a) whether costs are payable by one party to another, (b) the amount, and (c) when they are to be paid.

The Explanation defines costs as reasonable costs relating to (i) the fees and expenses of the arbitrators, Courts and witnesses, (ii) legal fees and expenses, (iii) any administration fees of the institution supervising the arbitration, and (iv) any other expenses incurred in connection with the arbitral or Court proceedings and the award.

31A(2), the general rule: (a) the unsuccessful party shall be ordered to pay the costs of the successful party; or (b) the Court or tribunal may make a different order for reasons to be recorded in writing.

This is loser pays, stated as a general rule, with any departure requiring written reasons. Indian civil litigation had never really achieved that, and section 31A is the Act trying to change the economics of bringing a hopeless claim or defence.

31A(3), what is taken into account: all the circumstances, including (a) the conduct of all the parties; (b) whether a party has succeeded partly; (c) whether a party made a frivolous counterclaim leading to delay; and (d) whether any reasonable offer to settle was made by a party and refused by the other.

Clause (d) is worth noticing. A party who refuses a reasonable settlement offer and then does no better at the award can be penalised in costs. That is a direct incentive towards the settlement Module III is about, written into the arbitration Part.

31A(4): the order may include that a party pay (a) a proportion of another's costs; (b) a stated amount; (c) costs from or until a certain date only; (d) costs incurred before proceedings began; (e) costs relating to particular steps; (f) costs relating only to a distinct part of the proceedings; and (g) interest on costs.

31A(5): an agreement that a party is to pay the whole or part of the costs of the arbitration in any event shall be valid only if made after the dispute has arisen.

Compare the proviso to section 12(5) in chapter 280. The Act uses the same technique twice: a clause imposed in the original contract is void, but the parties may agree the same thing once a dispute exists and they can see what they are giving up. The mischief is the stronger party's standard form.

A worked example

A three-member tribunal decides that a contractor must pay Rs. 90 lakhs. One arbitrator disagrees and refuses to sign. The award is signed by the other two on 8 April at a hearing held in Pune, the seat being Mumbai. A copy reaches the contractor's advocate on 12 April and the contractor himself on 25 April. The award says nothing about interest.

Is the award valid without three signatures? Yes, under section 31(2), the signatures of the majority of all the members suffice, so long as the reason for the omitted signature is stated in the award.

Where was it made? At Mumbai. Section 31(4) requires the award to state the place of arbitration as determined under section 20 and deems the award made at that place, whatever the physical venue of signing.

When does the section 34 period start? From the receipt of the award by the party, so the 25 April date is the one to examine, not the advocate's receipt on 12 April. Chapter 400 works through section 34(3).

What interest runs? The award is silent, so no pre-award interest was awarded, that being a discretion under section 31(7)(a). But post-award interest runs automatically under clause (b), at two per cent above the current rate of interest prevalent on the date of the award, from the date of the award to payment, because the award has not directed otherwise.

Who pays the costs? Under section 31(8) the tribunal fixes them in accordance with section 31A, and under section 31A(2)(a) the general rule is that the unsuccessful party pays the successful party's costs, any different order requiring written reasons.

The contractor had offered Rs. 85 lakhs six months ago and it was refused. That is expressly relevant under section 31A(3)(d), and it may reduce or reverse the costs order even though the contractor lost.

What beginners get wrong

A reasoned award is the default, not the exception, under section 31(3).

Post-award interest is not eighteen per cent. Since 2015 it is the current rate of interest plus two per cent, taking the meaning from section 2(b) of the Interest Act 1978.

The place stated under section 31(4) is the seat, and the award is deemed made there wherever it was signed.

Delivery under section 31(5) is to the party. Limitation under sections 33 and 34 runs from that receipt.

An interim award is not an interim measure. Section 31(6) against section 17.

A costs clause imposed in the original contract is not valid. Section 31A(5) requires it to be made after the dispute has arisen.

Quick revision

• 31(1) and (2): in writing, signed by the members; a majority's signatures suffice if the reason for an omitted signature is stated.
• 31(3): reasons required unless the parties agreed otherwise or it is an award on agreed terms under section 30.
• 31(4): state the date and the place of arbitration under section 20; the award is deemed made at that place.
• 31(5): a signed copy delivered to each party. 31(6): an interim award may be made on any matter on which a final award could be made.
• 31(7)(a): pre-award interest at a reasonable rate, on the whole or part, for the whole or part of the period from the cause of action to the award, unless otherwise agreed. (b): post-award interest at two per cent above the current rate from award to payment unless the award directs otherwise; Interest Act 1978 section 2(b) supplies the meaning.
• 31A: loser pays as the general rule, departure needing written reasons; regard to conduct, partial success, frivolous counterclaims and a refused reasonable settlement offer; a wide menu of costs orders; and a costs-in-any-event agreement is valid only if made after the dispute arose.

Test yourself

1. Two of three arbitrators sign the award. Is it valid? Yes, under section 31(2), provided the reason for the omitted signature is stated in the award. The signatures of the majority of all the members are sufficient.

2. Must an award give reasons? Yes, under section 31(3), unless the parties have agreed that no reasons are to be given or the award is an arbitral award on agreed terms under section 30.

3. The award is silent about interest. Does any interest run after it? Yes. Section 31(7)(b) provides that a sum directed to be paid shall, unless the award otherwise directs, carry interest at two per cent above the current rate of interest prevalent on the date of the award, from the date of the award to the date of payment.

4. What is the general rule on costs, and can it be departed from? Under section 31A(2)(a) the unsuccessful party shall be ordered to pay the costs of the successful party. The Court or tribunal may make a different order under clause (b), but must record its reasons in writing.

5. A standard form contract says the contractor bears all arbitration costs whatever the outcome. Is that clause effective? No. Section 31A(5) makes an agreement that a party is to pay the whole or part of the costs in any event valid only if it was made after the dispute in question had arisen.