‘Interest on Interest’ Not a Taboo in Arbitration: P&H High Court Upholds Composite “Sum” Under Section 31(7)

Case Name: State of Haryana & Ors. v. KCC Buildcon Pvt. Ltd.

Date of Judgment: 16 January 2026

Citation: CR-6263-2025

Bench: Justice Jasgurpreet Singh Puri

Held: The Punjab & Haryana High Court held that once interest is awarded up to the date of the arbitral award, it merges with the principal and forms part of the “sum” under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996. Consequently, post-award interest on such composite sum does not amount to impermissible “interest on interest.”

Summary: The State of Haryana challenged an order passed by the executing court directing payment of over ₹11.27 crore, contending that the calculation wrongly included “interest on interest,” which was contrary to the arbitral award granting only simple interest at 12% per annum.

The State argued that post-award interest should be calculated only on the principal amount and not on the accumulated sum (principal + pre-award interest), as that would amount to compound interest.

On the other hand, the respondent relied upon the Supreme Court judgment in Hyder Consulting (UK) Ltd. v. State of Orissa, contending that pre-award interest becomes part of the principal “sum” and therefore post-award interest can be levied on the entire amount.

The High Court noted that the issue is no longer res integra and has been conclusively settled by the Supreme Court. It observed that Section 31(7)(a) permits inclusion of interest in the “sum” awarded, and once included, the interest component loses its independent identity and becomes part of the principal sum.

The Court further clarified that post-award interest under Section 31(7)(b) is to be calculated on this composite “sum,” and such calculation cannot be termed as “interest on interest.”

Rejecting the State’s contention, the Court held that the executing court had correctly applied the law and that the challenge was based on a misconception of the statutory framework and settled precedent.

Decision: The High Court dismissed the civil revision petition, holding that no illegality was committed in calculating interest on the composite sum as per Section 31(7) of the Arbitration and Conciliation Act, 1996.