Bench
Hon’ble Mr. Justice Maulik J. Shelat
Date of Judgment
23 September 2025
Parties Involved
Shah Enterprise (Petitioner) v. State of Gujarat (Respondent)
Provisions Involved
Arbitration and Conciliation Act, 1996
Section 31(7)(a):
"The arbitral tribunal may, in the award, direct that interest shall be paid on the whole or any part of the amount awarded, at such rate as it considers reasonable, from the date of the commencement of the arbitral proceedings until the date of the award."
Section 31(7)(b):
"The sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen percent per annum from the date of the award to the date of payment."
Code of Civil Procedure, 1908
Order 47, Rule 1:
"Any judgment or order from which an appeal is allowed may be reviewed by the Court which passed it, on the application of any of the parties to the suit or proceeding, on the ground of:
(a) an error apparent on the face of the record;
(b) discovery of new and important matter or evidence which, after the exercise of due diligence, was not within the knowledge of the party; or
(c) any other sufficient reason."
Facts of the Case
Shah Enterprise, a contractor, entered into an agreement with the State of Gujarat for the construction of some works. Disputes over payments arose after the completion due to Shah Enterprise.
The dispute was submitted to arbitration, and on 31 May 2000, the sole arbitrator passed an award ordering the State to pay a principal amount of about ₹80,47,130 along with interest at 16% per annum from 1 October 1997 till the date of the award. But the award did not touch the question of post-award interest.
Thereafter, execution petition was filed by Shah Enterprise before the District Court, Bharuch, which on 21 October 2005 ordered the State to pay the principal amount and pre-award interest but not the post-award interest.
Shah Enterprise, in 2017, had filed a review application, arguing that the executing court had not considered the statutory requirement of post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. The review application was rejected by the executing court, to which Shah Enterprise went to the Gujarat High Court under Article 227 of the Constitution.
Petitioner's Arguments
Shah Enterprise contended that the default of the executing court in awarding post-award interest was a contravention of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, which requires that any amount ordered to be paid by an arbitral award shall, unless the award otherwise provides, bear interest at the rate of 18% per annum from the date of the award until payment.
The petitioner argued that the statutory provision works automatically and does not need explicit direction in the award. Furthermore, Shah Enterprise had urged that the implementing court had erred apparent on the face of the record in ignoring the statutory mandate, thus making it right to file a review application.
The petitioner had based its argument on the decision of the Supreme Court in Canon India Private Limited v. Commissioner of Customs, to the effect that the failure to take into account a statutory mandate amounts to an error apparent on the face of the record.
Respondent’s Arguments
The State of Gujarat argued that the order of execution in 2005 had reached finality and that the petitioner was not entitled to a review of the same. The respondent placed reliance on the principle of merger, waiver, and res judicata and contended that the petitioner had waived the right to challenge the earlier order by not challenging it in time.
The State also alleged that the petitioner had lost valuable time in filing the review application and, therefore, any right to claim post-award interest was extinguished.
Court's Analysis
Statutory Mandate of Post-Award Interest
Justice Shelat considered Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, and noted that the provision makes it mandatory to pay post-award interest at 18% per annum except if the award otherwise requires. The Court underlined that the statutory provision acts automatically and is not required specifically in the award.
Such an interpretation has the support of the Supreme Court's ruling in Hyder Consulting (UK) Ltd. v. State of Orissa, which held that Section 31(7)(b) "sum" would also encompass not just the amount of the principal but any pre-award interest awarded under Section 31(7)(a). Thus, the "sum" is a composite one and the statutory post-award interest rate applies to it from the date of the award until the actual payment.
Review Jurisdiction
The Court examined whether the non-application of the statutory provision of post-award interest by the executing court was an error apparent on the face of the record, thus warranting the filing of a review application.
Justice Shelat also cited the Supreme Court's judgment in Canon India Private Limited v. Commissioner of Customs, where it was held that an error apparent on the face of the record is committed where a statutory mandate or a binding precedent is not taken into account.
Based on the above principle, the Court held that the executing court's failure to award post-award interest was a substantive legal error that can be corrected in review.
Doctrines of Merger, Waiver, and Res Judicata
The Court considered the respondent's contentions in terms of the doctrines of merger, waiver, and res judicata. Justice Shelat made it clear that the doctrine of merger would apply only where an upper court has considered and determined the same issue upon which the subsequent proceeding is based.
As no higher forum had decided the issue of post-award interest under Section 31(7)(b), the doctrine could not terminate the petitioner's statutory right. In addition, the Court ruled that a litigant will not be considered to have waived a statutory right unless such waiver is intentional and clear; silence or inactivity cannot constitute surrender of a right given by law.
Quantification of Interest
The Court reviewed computation of interest and ruled that the petitioner was also entitled to post-award interest at 18% per annum on the total "sum" — the principal plus pre-award interest — from 1 June 2000 (the day succeeding the award) to realization.
But recognising that certain payments and deposits had been made by the State during the continuance of proceedings, the Court did not include the interval between 21 October 2005 and 29 August 2016 in the running of interest.
This balanced treatment provided both compliance with statutory entitlement and justice in consideration of partial satisfaction of the award.
Conclusion
The Gujarat High Court judgment in Shah Enterprise v. State of Gujarat reiterates the mandatory application of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, requiring post-award interest at 18% per annum unless the award specifically provides otherwise.
The decision emphasizes that statutory provisions establishing obligations of compensation cannot be avoided by neglect, and the failure to enforce such provisions is an error apparent on the face of the record, warranting review.
In awarding the petitioner post-award interest on the composite "sum" from 1 June 2000 until realization, the Court not only rectified a long-standing legal anomaly but also reasserted the judiciary's responsibility to ensure legislative intent, so that arbitral awards are used to their very purpose — to deliver effective, full, and timely compensation to the entitled party under law.
