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19. We will next deal with the three cases relied upon by the learned counsel for the respondent to contend that this Court has recognized and accepted the power of the arbitral tribunals to award interest upon interest:

Oil & Natural Gas Commission v. M.C. Clelland Engineers S.A. - (1999) (4) SCC 327, Mcdermott International Inc. vs. Burn Standard Co. Ltd and Others
- (2006) 11 SCC 181, and Uttar Pradesh Cooperative Federation Limited vs. Three Circles - (2009) 10 SCC 374. But out of these three decisions only the decision in Mcdermott relates to an award under the Arbitration and Conciliation Act, 1996. The other two decisions relate to awards under the old Act (Arbitration Act, 1940) and are of no assistance in interpreting section 31(7) of the new Act.

20. In Mcdermott, paras 154 to 159 of the judgment deal with the issue of interest. Relevant portions thereof are extracted below in entirety:

"The power of the arbitrator to award interest for pre-award period, interest pendent lite and interest post-award period is not in dispute. Section 31(7) (a) provides that the arbitral tribunal may award 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 award is made, i.e., pre- award period. This, however, is subject to the agreement as regard the rate of interest on unpaid sum between the parties. The question as to whether interest would be paid on the whole or part of the amount or whether it should be awarded in the pre- award period would depend upon the facts and circumstances of each case. The arbitral tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest should be awarded; (ii) whether interest should be awarded on whole or part of the award money; and (iii) whether interest should be awarded for whole or any part of the pre-award period."

A careful reading of the same shows that there is no reference to awarding of compound interest or interest from the date of the award on the interest that had accrued due up to the date of award. The decision dealt with the rate of interest and exercise of jurisdiction under Article 142 of the Constitution to set right anomalies in regard to rate of interest. The said decision is therefore, of no assistance.

21. Learned counsel for the respondent submitted that in Three Circles, this Court has observed that Mcdermott recognized that interest awarded on the principal amount upto the date of the award becomes part of the principal from the date of the award. We extract below the relevant portion of Three Circles relied upon by the respondent :

The Arbitrator has awarded the principal amount and interest thereon upto the date of award and future interest thereupon which do not amount to award of interest on interest as interest awarded on the principal amount upto the date of award became the principal amount which is permissible in law."

[emphasis supplied] But a careful reading of the decision in Mcdermott, shows that the portion of Mcdermott extracted in Three Circles, assuming it to be the law laid down in Mcdermott, is not a finding or conclusion of this court, nor the ratio decidendi of the case, but is only a reference to the contention of the respondent in Mcdermott. Paras 1 to 27 (of the SCC report) in Mcdermott state the factual background. Paras 28 and 29 contain the submissions of the learned counsel for BSCL, the respondent therein. Paras 30 to 44 contain the submissions made by the learned counsel for Mcdermott, the appellant therein, in reply to the submissions made on behalf of BSCL. The passage that is extracted in Three Circles is part of para 44 of the decision which contains the last submission of the learned counsel for Mcdermott on the question of interest. The reasoning in the decision starts from para 45. This Court considered the several questions seriatum in paras 45 to 160. The question relating to interest was considered in paras 154 to 159 relevant portions of which we have extracted above. Therefore, the observation in Three Circles that Mcdermott held that interest awarded on the principal amount upto the date of award becomes the principal amount and therefore award of future interest therein does not amount to award of interest on interest, is per incuriam due to an inadvertent erroneous assumption.