In short. Yes, you can get interest on an arbitral award. Section 31(7) of the Arbitration and Conciliation Act, 1996 deals with it in two parts. Up to the award, counting from when your claim arose, the arbitrator has discretion to give a reasonable rate, though your contract can exclude it. After the award, till you're paid, interest comes by law and no contract can switch it off. If the award fixes no rate, the default is two percent above the current rate of interest. So plead interest period by period, with a rate and reasons for each.
Is this your situation?
- Your lawyer has sent the draft statement of claim. The prayer just says "interest as deemed fit" and you're wondering if that's enough.
- Clause 22 of the work order says no interest is payable on delayed or disputed bills, and the other side's lawyer keeps quoting it.
- You've got the award in hand. It's forty pages long and you still can't tell what happens to interest after the award date.
- The losing side has filed a Section 34 petition at the Delhi High Court, and you want to know whether the meter is still running.
- Your CA asked whether the interest already awarded earns interest itself. You didn't have an answer.
- You lost. Before deciding whether to challenge, you want to know what the award will really cost by the time you pay.
- Your arbitration began before October 2015, and somebody mentioned an 18 percent rate.
Interest on an arbitral award: the short answer
Yes, you can get it. In most money awards, you should. Section 31(7) of the Arbitration and Conciliation Act, 1996 deals with two periods. Clause (a) is about the time before the award, and lets the tribunal add interest, at whatever rate it thinks reasonable, for all or part of the period from the day the cause of action arose to the day of the award. Clause (b) is about the time after. The sum awarded carries interest from the date of the award until it's paid.
The two halves behave very differently. Under clause (a), the tribunal may or may not give interest, and the contract has the last word, because the clause runs "unless otherwise agreed by the parties". A clearly drafted no-interest term can shut it out. Clause (b) is a right given by statute. Parties can't sign it away. The award may fix the rate. If it doesn't, the Act fixes it at two percent above the current rate of interest on the date of the award.
In a long arbitration, interest can get close to the principal. Take a Rs 1 crore claim that takes four years to reach an award and two more to get paid. It can easily grow by half, or more. So interest is one of the biggest parts of the claim. It's also one of the most carelessly drafted.
What does Section 31(7) say, and which other laws matter?
Section 31(7)(a), Arbitration and Conciliation Act, 1996
Unless the parties have agreed otherwise, where the award is for payment of money, the tribunal may include interest at a rate it considers reasonable, on all or part of the money, for all or part of the period between the date the cause of action arose and the date the award is made.
Section 31(7)(b)
A sum the award directs to be paid will, unless the award says otherwise, carry interest at two percent above the current rate of interest prevailing on the date of the award, running from the award to payment. The explanation gives "current rate of interest" the meaning in Section 2(b) of the Interest Act, 1978.
Section 31(7)(b) before the 2015 amendment
For arbitrations that began before 23 October 2015, the default post-award rate was 18 percent a year, unless the award said otherwise. Older awards still stuck in challenge or execution may carry that rate.
Section 2(b), Interest Act, 1978
The current rate of interest is the highest of the maximum rates at which scheduled banks may pay interest on different classes of deposits (leaving out savings and certain institutional deposits) under Reserve Bank of India directions.
Sections 15 to 17, MSMED Act, 2006
Registered micro and small suppliers get compound interest, with monthly rests, at three times the RBI bank rate on payments held back beyond the period Section 15 allows. In an MSME Facilitation Council arbitration, that statutory rate replaces the tribunal's discretion.
What are the three periods of interest in an arbitration?
Lawyers usually talk about three periods, though Section 31(7)(a) mentions only one. First, pre-reference interest. That runs from the day the money fell due to the day the arbitration commenced, meaning the day the respondent received the notice invoking arbitration. Second, pendente lite interest, which is Latin for interest while the case is pending, from commencement to the award. Third, post-award interest, from the award until you're paid.
The first two fall under clause (a). The third falls under clause (b). In M/s Interstate Construction v. National Projects Construction Corporation Ltd. (2025), the Supreme Court confirmed that clause (a) leaves the periods and the rates to the tribunal. It can give interest for the whole period or just part of it, and it can use one rate before the reference and another while the case was pending. So when a tribunal trims the pendente lite rate because the claimant kept seeking adjournments, it's using exactly that discretion.
Keep the three periods apart in your pleading. It helps the tribunal. It also protects the award, because if the award is challenged later, the court can see which rate was applied to which period and why. That's much harder to attack.
Interest in each period: who decides and at what rate
| Period | Provision | Who decides the rate | Can the contract exclude it? |
|---|---|---|---|
| Pre-reference: from the due date to receipt of the Section 21 notice | Section 31(7)(a) | The tribunal, at a reasonable rate, usually looking at the contract rate or what commercial borrowing costs | Yes, if the clause clearly bars interest for this period |
| Pendente lite: from commencement to the award | Section 31(7)(a) | The tribunal, which can pick a different rate from the pre-reference one | Yes, if the clause clearly bars it (Jaiprakash Associates, 2019; Manraj Enterprises, 2021) |
| Post-award: from the award to payment | Section 31(7)(b) | The tribunal can fix it; if it doesn't, two percent above the current rate of interest on the award date | No. It's a statutory right (R.P. Garg, 2024) |
| Delayed payment to an MSME supplier | Sections 16 and 17, MSMED Act | The statute itself: three times the RBI bank rate, compounded monthly | No. Section 16 applies whatever the agreement says |
| Arbitrations from before October 2015, post-award | Old Section 31(7)(b) | The rate in the award, or 18 percent a year by default | No |
Can the contract stop the arbitrator from awarding interest?
For the pre-award period, a clearly worded clause can do it. Look at how clause (a) opens: "unless otherwise agreed by the parties". The contract in Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (2019) said in so many words that no interest would be paid on sums due under it. The Supreme Court held that left the arbitrator with no power to give interest for the period the case was pending. Two years later, in Union of India v. Manraj Enterprises (2021), a contractor ran into the same wall. His contract also shut out interest on money owed to him.
But clauses mean what they say, and no more. A clause barring interest on the security deposit, or on money held back during a dispute, doesn't automatically bar interest on an unpaid final bill. Tribunals and courts read the words, and a narrow bar gets applied narrowly. Read yours carefully before you assume it sinks your claim. And if you're the respondent, before you assume it saves you.
Once the award is made, it's a different story. No clause in any contract can stop interest running from that date. A High Court had once held that a contractual bar reached post-award interest too. The Supreme Court disagreed and reversed it in R.P. Garg v. Chief General Manager, Telecom Department (2024), holding that clause (b) doesn't bend to whatever the parties agreed. Those words "unless the award otherwise directs" let the tribunal choose a rate. They don't let anyone switch interest off. Sri Lakshmi Hotel Pvt Ltd v. Sriram City Union Finance Ltd (2025) repeated it.
What rate will the tribunal award for the period before the award?
If the contract fixes a rate for late payment, tribunals generally start there. A supply contract with 18 percent a year on overdue invoices will often get something close, unless the tribunal sees the rate as a penalty or the parties' conduct justifies less. In Sri Lakshmi Hotel (2025), the Supreme Court refused to disturb an award of 24 percent on a commercial loan. A high contract rate in a commercial deal isn't, on its own, against the public policy of India.
If the contract says nothing, the tribunal picks a reasonable rate. Claimants back their figure with proof of what the money really cost them. The interest on their cash credit or term loan, say, or the rate they borrowed at to cover the hole in their cash flow, or ordinary commercial lending rates. Ask for 24 percent with nothing behind it and you'll probably see it cut. Ask for what you actually paid your bank, with the sanction letter and statements attached, and it's much harder to refuse.
A registered micro or small supplier stands on different ground. Section 16 of the MSMED Act fixes the rate at three times the RBI bank rate, compounded monthly. The tribunal can't reduce it. We've explained that system in our posts on when an MSME can claim interest at three times the bank rate and working out MSME delayed payment interest.
Is post award interest automatic, and at what rate?
Automatic, in the sense that it doesn't depend on the contract and applies even if the award is silent. Section 31(7)(b) says the sum awarded "shall" carry interest, and the Supreme Court treated it as mandatory in R.P. Garg (2024) and Sri Lakshmi Hotel (2025). A losing party can't escape it by waving a no-interest clause.
Fixing the rate is the tribunal's job first. In Morgan Securities and Credits Pvt Ltd v. Videocon Industries Ltd (2022), the Supreme Court held that the tribunal has discretion over the rate of post-award interest, guided by the facts, and the statutory rate applies only where the award doesn't direct otherwise. A lot of tribunals now put a specific rate in the award. It's often somewhere around the commercial lending rates of the day. Sometimes it's the contract rate itself.
Where the award says nothing, the default is two percent above the current rate of interest prevailing on the date of the award. That rate is fixed once, on the award date. Later changes in bank rates don't move it. For arbitrations that began before 23 October 2015, the old default of 18 percent a year applies instead.
Why is the default current rate of interest hard to work out?
Because the definition was written for a regulated deposit market that doesn't exist any more. Section 2(b) of the Interest Act, 1978 defines the current rate as the highest of the maximum rates scheduled banks may pay on deposits under RBI directions. Deposit rates were deregulated long ago. Banks set their own. There's no single published maximum to look up, so courts and parties have had to work it out from bank deposit rates on the award date. That invites argument. Lots of it.
The fix is easy. Ask the tribunal to write the post-award rate into the award. As claimant, plead a specific post-award rate with reasons. As respondent, if you think the claimed rate is too high, offer an alternative. An award that says "interest at 10 percent per annum from the date of the award until payment" saves everyone a fight in the execution court over what the default rate was.
In October 2024, the Union government put out a consultation draft of an amendment bill. It reportedly proposed tying the default post-award rate to the RBI repo rate plus a margin. As of the latest reports in 2026, that draft hadn't been introduced in Parliament, and Section 31(7)(b) still reads as described above. Check the current position before you rely on any change.
Can you get interest on interest under an arbitral award?
In one particular sense, yes. Post-award interest runs on the "sum directed to be paid". What goes into that sum? The Supreme Court answered it in Hyder Consulting (UK) Ltd v. Governor, State of Orissa (2015). It's the principal together with whatever pre-award interest the tribunal added. Post-award interest is then calculated on that combined figure. The Court took the same view later in North Delhi Municipal Corporation v. S.A. Builders Ltd (2024), and again in Interstate Construction (2025).
This isn't bank-style compounding during the arbitration. The tribunal can give compound interest for the pre-award period only where the contract or trade usage supports it, or where a statute like the MSMED Act demands it. What Hyder Consulting allows is one capitalisation on the award date. After that, simple interest runs on the bigger figure, unless the award says otherwise.
There's a limit, though. In HLV Ltd v. PBSAMP Projects Pvt Ltd (2025), the award itself had fixed the interest rate and run it until repayment. The Supreme Court held the award holder couldn't then claim extra, or compounded, post-award interest in execution. Hyder Consulting fills a gap where the award is silent. It doesn't let an executing court rewrite an award that already dealt with interest.
How to claim interest properly in your arbitration
Weak interest awards usually come from weak interest pleadings. These steps are written for claimants, but a respondent can run the same checks on the claim it's facing.
Read the interest and payment clauses
Find the due date for each payment, any contract rate, and any clause that bars or caps interest. Copy down the exact words. Tribunals read them literally.
Raise interest in the Section 21 notice
List interest as one of the disputes in your notice invoking arbitration, with the rate you're claiming. Our post on invoking arbitration under Section 21 explains why everything you want decided needs to be in that notice.
Break the claim up by period
In the statement of claim, show pre-reference interest from each due date to the notice, pendente lite interest from the notice to the award, and post-award interest from the award to payment. Give a rate for each.
Prove the rate
Use the clause in the contract if there is one. Otherwise show the sanction letter and loan account from your bank, or proof of what commercial borrowers were paying. When Advocate B.K. Singh builds an interest claim, he asks the client's accountant for the cash credit statements for the whole default period. Tribunals are far more comfortable giving a rate the claimant actually paid than one it simply asked for.
Attach a calculation sheet
One line per invoice, showing principal, due date, rate, period and amount. Keep it to simple interest unless the contract or the MSMED Act allows compounding. Say which.
Ask for a stated post-award rate
Ask that the award fix a post-award rate and that it run on the full sum awarded, pre-award interest included, until payment. That shuts down later arguments about the default rate.
Can a court reduce or change the interest in an award?
Only within tight limits. A court hearing a Section 34 challenge isn't an appeal court for the tribunal's choice of rate. In Sri Lakshmi Hotel (2025), the Supreme Court held that a quarrel over the interest rate doesn't usually fall within the public policy ground for setting aside an award. The court will step in only where the rate is so unreasonable that it shocks the conscience, or where the tribunal gave pre-award interest in the teeth of a clear contractual bar.
Since the Constitution Bench ruling in Gayatri Balasamy v. ISG Novasoft Technologies (2025), courts have a limited power to modify an award instead of setting the whole thing aside. The Court expressly accepted that post-award interest can be modified where the facts justify it. So an award with an unjustifiably high post-award rate may now be corrected rather than lost. That's better for both sides, frankly. Our post on whether a court can modify an arbitral award looks at that ruling, and the wider grounds are in our post on challenging an award under Section 34.
A Section 34 petition doesn't stop post-award interest. It keeps running until payment. A losing party that challenges a sound award just to buy time is only adding to its own bill.
How is interest collected when the award is enforced?
Under Section 36, an award is enforced like a court decree once the time for challenge is over, or the challenge has failed, or no stay has been granted. In the execution petition you claim the principal, the pre-award interest, post-award interest worked out to the filing date, and continuing interest until payment. The procedure is in our post on how to enforce an arbitral award in India. For attachment and the other execution tools, see the commercial court site's page on execution of decrees.
The losing side will usually want enforcement stayed while its Section 34 petition is heard. Courts tend to grant that only against a deposit of the award money, often with interest, or some security. Order XXI Rule 1 of the Code of Civil Procedure stops decree interest on money lodged in court, from the point the decree holder is served notice of it. Is a stay deposit treated the same? That depends on how the order is worded. Raise the point when the order is being made, not later. Our post on getting a stay against enforcement covers the conditions courts usually set.
In execution files that come to Advocate B.K. Singh, the usual interest fight isn't about the rate at all. It's about the base. Does post-award interest run on the principal alone, or on principal plus pre-award interest? And do part payments go to interest first or to principal? File the execution petition with a clear running calculation and a per-day interest figure. It saves several hearings.
Collecting interest after the award: steps, time and costs
| Step | Time, as a range | Costs (no lawyer fees shown) |
|---|---|---|
| Ask the tribunal to correct an arithmetic slip in the interest figure (Section 33) | Within 30 days of receiving the award | Usually nothing beyond the tribunal's time |
| Let the challenge period run out (Section 34) | 3 months from receiving the award, plus up to 30 days if there's sufficient cause | Nothing, unless you're opposing a petition |
| Oppose any stay application and press for a deposit with interest (Section 36(3)) | A few weeks to a few months, depending on the court's board | Court fee on applications; certified copies |
| File execution with an updated interest calculation | Any time within 12 years of the award becoming enforceable | Execution court fee and process fees under the state schedule; check the current figure |
| Attachment, garnishee orders or sale to recover principal and interest | Several months to a few years, depending on what the debtor owns and how hard it objects | Process fees, publication charges, valuation and auction costs |
Documents to support an interest claim
- The contract, with its payment, interest and dispute clauses flagged
- Every invoice, bill or demand letter that shows a due date
- Any email or letter where they admitted the delay, or said they'd pay interest
- Your bank sanction letters, and cash credit or term loan statements for the months you were unpaid
- RBI bank rate history for the relevant periods, if you're claiming under the MSMED Act
- For an MSME claim, your Udyam registration certificate
- A calculation sheet with principal, due date, rate, period and amount for each invoice
- The Section 21 notice, showing interest was raised as a disputed claim
- Once the award is out, a running statement of post-award interest with a per-day figure and any part payments
A made-up example: a Mayapuri machine maker and a Ghaziabad food processor
This one's invented, though the arithmetic is real. A packaging-machine maker in Mayapuri sells a full line to a Ghaziabad food processor. Price, Rs 1.5 crore. Rs 90 lakh comes in. The remaining Rs 60 lakh never does, because the buyer says the line is faulty. Overdue sums carry 18 percent a year under the contract, and nothing in it rules out interest. The seller is a medium enterprise. The MSMED Act's interest scheme is no use to it.
Payment was due on 1 April 2024. The buyer gets the arbitration notice on 1 June 2025. The award is passed on 1 February 2027. The arbitrator thinks the faults were small and gives the seller its Rs 60 lakh. Those first fourteen months, before the reference, attract 18 percent, or about Rs 12.6 lakh. The next twenty months get only 12 percent, since the seller itself kept asking for dates, which works out to about Rs 12 lakh. Add it up and the award is for roughly Rs 84.6 lakh.
From the award onwards the arbitrator sets 11 percent a year, on everything awarded, till the buyer pays. Hyder Consulting means the base is Rs 84.6 lakh, not the original Rs 60 lakh. That's roughly Rs 9.3 lakh every year. About Rs 77,500 a month. Suppose the buyer runs a Section 34 petition for two years and loses. The post-award interest by then is near Rs 19 lakh. Numbers like that bring people to the settlement table faster than any argument.
Is interest received under an award taxable?
Generally, yes. Interest received under an award is taxable as income in the year it's received or accrues, depending on how you keep your accounts, and the payer may have to deduct tax at source. The Income-tax Act, 2025 has applied from 1 April 2026, so the section numbers aren't the ones most accountants grew up with. Talk to your CA before you agree on any figure, especially if a settlement splits principal and interest.
That split matters in negotiation as well. A respondent will often offer the full principal if you drop the interest. Before you say yes, work out what the interest is really worth on the award as it stands, post-award interest to the likely payment date included, and treat the waiver as the price of getting paid early. If there's no award yet, it's different. The tribunal decides pre-award interest and may cut it, so a discount on interest might be sensible.
Mistakes that cost claimants their interest
Not claiming it clearly. That's the first. A statement of claim asking for the principal "with interest as deemed fit" gives the tribunal no rate, no period and no evidence. You may get a small rate. You may get nothing. Interest on an arbitral award is a claim like any other, and it has to be pleaded and proved.
Second, ignoring the contract until the respondent quotes the no-interest clause in its defence. Read the clause first, and plead around it if you can. If it clearly bars pre-award interest, put your energy into post-award interest, which it can't touch. Third, letting limitation run. Interest claims are part of the money claim and share its limitation, as our post on when limitation applies to arbitration claims explains.
Respondents get it wrong too. The costliest mistake is challenging a sound award only to delay payment, while post-award interest runs at a higher rate than the respondent earns on the money it's holding. Close behind is not arguing for a lower post-award rate before the award, then trying to talk a Section 34 court into changing it. For how courts handle interest in suits rather than arbitrations, the commercial court site has a guide on interest on recovery suits.
What to do this week about interest on your claim or award
If the arbitration hasn't started, get the contract out and mark the interest clause, the payment clause and any bar on interest. Ask your accountant for loan statements covering the time since the money fell due. Then put together a simple sheet, invoice by invoice and period by period. The interest figure in your notice and claim should be one you can defend line by line.
Award already in hand? Look for two things in it. Is a post-award rate stated, and does it apply to the principal alone or to everything awarded? Then calculate what's accrued so far, and what each extra day adds. Has the losing side gone to court? If so, consider pressing for the amount plus interest to be deposited before any stay is granted.
If you'd like your contract, claim or award checked for the interest you can recover, or want to keep up with how courts are reading Section 31(7), you can send your papers to Advocate B.K. Singh's team through the contact page.
Frequently asked questions
Is interest on an arbitral award simple or compound?
Simple, unless the contract, trade usage or a statute like the MSMED Act allows compounding. Post-award interest does run on the whole sum awarded, pre-award interest included. That works much like a single capitalisation on the award date.
What if the award does not mention interest at all?
If the tribunal simply didn't deal with pre-award interest, it's gone, unless within 30 days you ask under Section 33 for an additional award on the claim it left undecided. Post-award interest still applies by law, at two percent above the current rate of interest on the award date.
Can the tribunal award interest higher than the contract rate?
Where there's a contract rate, the tribunal usually works from it, and going higher needs strong reasons. If the contract is silent, the tribunal fixes a reasonable rate on the evidence.
Does interest stop if I deposit the award amount in court?
Under the CPC's execution rules, interest on money paid into court stops once the decree holder is served notice of the deposit. If the deposit was a condition of a stay, read the wording of the court's order.
Is interest payable on costs awarded by the tribunal?
Post-award interest runs on the sum the award directs to be paid, and that can include costs awarded under Section 31A. Ask the tribunal to spell this out in the award, so there's no argument later.
Can an MSME supplier get more interest in arbitration than under the MSMED Act?
For registered micro and small suppliers, the MSMED Act sets a statutory minimum of three times the RBI bank rate, compounded monthly, and it overrides any agreement to the contrary. A higher contract rate would be unusual and would depend on the contract.
Does a government department have to pay post-award interest?
Yes. Section 31(7)(b) applies to awards against government departments and public sector undertakings just the same, and the Supreme Court has enforced it against them.
Can parties settle and give up interest?
Yes. You can settle at any stage and have it recorded as a consent award under Section 30, with or without interest. After the award, the award holder can also agree to give up part of the interest in return for quick payment.
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M. More than twenty years in practice before the Supreme Court, the Delhi High Court, district and commercial courts in Delhi NCR, and tribunals.
This guide explains the law in general terms and is not legal advice. For advice on your own papers, contact the team.