Arbitration, Mediation and Conciliation · Preparation and Execution of Arbitral Award

Interest and Costs in an Arbitral Award

Updated 11 October 2026 · Fact-checked

Under Section 31(7), a tribunal can add interest to a money award for the period from the cause of action to the award date, unless the parties agreed otherwise. After the award, interest runs at 2% above the current rate unless the award says otherwise. Under Section 31A, costs are at the tribunal's discretion, and the loser normally pays.

Understand Interest and Costs in an Arbitral Award

An award for money is not just a number. The tribunal must also decide whether the winner gets interest for the time the money was held back, and who bears the cost of the arbitration. Section 31(7) deals with interest and Section 31(8) with costs. Section 31A sets out the costs regime.

Interest has two periods. The first is pre-award interest, from the date the cause of action arose to the date of the award. The second is post-award interest, from the date of the award to the date of payment. They work differently, so keep them apart in your answer.

For pre-award interest, the tribunal may include interest in the award sum, at a rate it considers reasonable, on the whole or any part of the money, for the whole or any part of that period. This applies unless the parties have agreed otherwise. If the contract fixes a rate or excludes interest, the tribunal follows the agreement.

For post-award interest, the default is automatic. A sum directed to be paid carries interest at 2% higher than the current rate of interest prevalent on the date of the award, from the date of award to the date of payment. The tribunal can change this only if the award otherwise directs. "Current rate of interest" has the meaning given in clause (b) of section 2 of the Interest Act, 1978.

Costs mean reasonable costs of arbitrator, witness and court fees and expenses, legal fees, institution administration fees, and other expenses linked to the proceedings and the award. The tribunal (or court) has discretion on whether costs are payable, how much, and when. The general rule is that the unsuccessful party pays the successful party's costs. A different order needs reasons recorded in writing.

Key rules to remember

Pre-award interest (Section 31(7)(a)): Interest period = date cause of action arose → date of award; rate = what the tribunal deems reasonable; Applies unless the parties have otherwise agreed. It may cover the whole or any part of the money and of the period.
Post-award interest (Section 31(7)(b)): Rate = current rate of interest on date of award + 2% ; period = date of award → date of payment; Applies unless the award otherwise directs. Current rate is as in section 2(b) of the Interest Act, 1978.
Simple interest calculation: Interest = Principal × Rate ÷ 100 × Time (in years); A calculation aid for exam numbers. Section 31(7) does not itself state simple or compound, so state your assumption in the answer.
General rule on costs (Section 31A(2)): Unsuccessful party pays successful party's costs, unless a different order is made for reasons recorded in writing; Applies once the tribunal or court decides to make an order as to costs.
Factors for deciding costs (Section 31A(3)): All circumstances, including: conduct of parties; partial success; frivolous counterclaim causing delay; reasonable settlement offer made and refused; Use these four as a checklist in case answers.
Agreement on costs (Section 31A(5)): Agreement that a party pays all or part of costs in any event is valid only if made after the dispute has arisen; A clause in the original contract to this effect is not valid.

How to solve Interest and Costs in an Arbitral Award questions

Use this order for any problem on interest or costs in an award. Keep the provision, the facts and the conclusion separate.

1Identify what is asked: pre-award interest, post-award interest, costs, or a mix.
2Check for any agreement between the parties on interest or costs. Interest under Section 31(7)(a) applies only unless otherwise agreed.
3For pre-award interest, fix the period: date the cause of action arose to date of award. Note that the tribunal may cover the whole or any part of the sum and period.
4For post-award interest, check whether the award directs otherwise. If not, apply current rate + 2% from award date to payment date.
5For costs, state the Section 31A discretion, then the general rule that the loser pays. Apply the Section 31A(3) factors to the facts.
6If the tribunal departs from the general rule, state that reasons must be recorded in writing.
7Check the timing of any costs agreement under Section 31A(5). Valid only if made after the dispute arose.
8Write a clear conclusion with the amount or the order, and state any assumption, such as simple interest.

Quickest way: Two clocks and one rule

When to use it: Use this when you have limited time and the question mixes interest with costs.

Draw two clocks: Clock 1 runs from cause of action to award (tribunal's reasonable rate, subject to agreement). Clock 2 runs from award to payment (current rate + 2%, subject to the award).
Ask: did the parties agree otherwise for Clock 1, or does the award direct otherwise for Clock 2?
For costs, write: discretion, loser pays, reasons in writing if different.
Run the four Section 31A(3) factors against the facts.
Check whether any costs agreement was made before or after the dispute arose.

Common mistakes in Interest and Costs in an Arbitral Award

Saying post-award interest is at the tribunal's reasonable rate.
Students merge clauses (a) and (b) of Section 31(7).
Fix: Reasonable rate is for the pre-award period. After the award the default is the current rate + 2%, unless the award otherwise directs.
Ignoring a contract clause on interest.
Students focus on the tribunal's power and forget the words 'unless otherwise agreed'.
Fix: Always check the agreement first for pre-award interest under Section 31(7)(a).
Saying the rate is current rate × 2 or 2% flat.
Careless reading of 'two per cent. higher'.
Fix: Add 2 percentage points to the current rate. If the current rate is 9%, the post-award rate is 11%.
Stating that costs must always follow the event.
Students remember the general rule but not the exception.
Fix: The loser pays as a general rule, but the tribunal may make a different order for reasons recorded in writing.
Treating a pre-dispute clause making one party pay all costs as valid.
Students overlook Section 31A(5).
Fix: Such an agreement is valid only if made after the dispute in question has arisen.
Mixing up costs of arbitration with the arbitrator's lien under Section 39.
Both deal with costs.
Fix: Section 31A decides who bears costs between parties. Section 39 gives the tribunal a lien on the award for unpaid costs. Cite each for its own point.

Worked examples

Example 1

Sundaram Traders Pvt. Ltd. supplied goods to Kaveri Foods Ltd. The cause of action arose on 1 April 2025. The contract says nothing about interest. The tribunal awards ₹10,00,000 on 1 April 2026 and includes interest at 8% per year for the pre-award period. The award is silent on post-award interest. Assume the current rate of interest on the date of award is 9% and the award is paid on 1 October 2026 (6 months later). Calculate the amount payable, assuming simple interest. Is the tribunal's approach valid?

Show the solution

Pre-award interest: no agreement to the contrary, so under Section 31(7)(a) the tribunal may include interest at a rate it deems reasonable from the cause of action to the date of award.
Period: 1 April 2025 to 1 April 2026 = 1 year.
Pre-award interest = ₹10,00,000 × 8 ÷ 100 × 1 = ₹80,000.
Sum for which the award is made = ₹10,00,000 + ₹80,000 = ₹10,80,000.
Post-award interest: the award is silent, so Section 31(7)(b) applies by default. Rate = 9% + 2% = 11% per year.
Post-award interest for 6 months on ₹10,80,000 = ₹10,80,000 × 11 ÷ 100 × 6/12 = ₹59,400.
Total payable on 1 October 2026 = ₹10,80,000 + ₹59,400 = ₹11,39,400.

Answer: The tribunal's approach is valid. The amount payable on 1 October 2026 is ₹11,39,400 (assuming simple interest and that post-award interest runs on the whole award sum including pre-award interest).

Example 2

Rahul Engineering Ltd. and Meenakshi Infra Ltd. had a contract clause saying that Rahul Engineering would bear all costs of any arbitration in any event. A dispute arose and the tribunal ruled fully in favour of Rahul Engineering. Meenakshi Infra had also made a frivolous counterclaim that delayed the proceedings, and had refused a reasonable settlement offer. Advise on costs.

Show the solution

Provision: Section 31A gives the tribunal discretion on whether costs are payable, the amount, and when. Costs are reasonable costs of arbitrator and witness fees, legal fees, institution fees and other expenses.
Clause in the contract: under Section 31A(5), an agreement that a party pays all or part of the costs in any event is valid only if made after the dispute has arisen. This clause was made in the original contract, before the dispute, so it is not valid.
General rule: under Section 31A(2)(a), the unsuccessful party pays the successful party's costs. Meenakshi Infra lost, so it would normally pay.
Section 31A(3) factors: the frivolous counterclaim leading to delay and the refusal of a reasonable settlement offer both support a costs order against Meenakshi Infra. Rahul Engineering succeeded fully.
The tribunal may also fix the manner of payment, such as a proportion, a stated amount or interest on costs, under Section 31A(4).

Answer: The contract clause is invalid for costs purposes. The tribunal should apply the general rule and order Meenakshi Infra Ltd. to pay Rahul Engineering Ltd.'s reasonable costs, with the frivolous counterclaim and refused offer supporting that order.

Exam tips

Write pre-award and post-award interest as two separate headings. Examiners look for the two clocks.
Quote the exact default: current rate of interest on the date of award plus 2%, from date of award to date of payment.
In every costs answer, state the discretion, the loser-pays rule and the need for written reasons for a departure.
In numerical questions, state whether you assume simple interest and what base the post-award interest runs on. Show each step and the final total.
Check the facts for the timing of any costs agreement. The words 'after the dispute has arisen' are a common case-study trap.

Practice questions from Preparation and Execution of Arbitral Award

Interest and Costs in an Arbitral Award: frequently asked questions

What is the rate of interest on an arbitral award from date of award to payment?

Unless the award otherwise directs, the sum carries interest at 2% higher than the current rate of interest prevalent on the date of the award. It runs from the date of award to the date of payment. The current rate has the meaning given in section 2(b) of the Interest Act, 1978.

Can parties exclude interest on an arbitral award?

For the period before the award, yes. Section 31(7)(a) applies unless otherwise agreed by the parties. So an agreement on the rate or on no interest binds the tribunal for that period.

Who pays the costs of arbitration?

The tribunal or court has discretion on whether costs are payable, how much and when. The general rule is that the unsuccessful party pays the successful party's costs. A different order needs reasons recorded in writing.

What counts as costs under Section 31A?

Costs are reasonable costs relating to the fees and expenses of arbitrators, courts and witnesses, legal fees and expenses, administration fees of the supervising institution, and other expenses linked to the proceedings and the award.