2022 (1) TMI 307 - SC - Indian Laws

Supreme Court restores arbitral award interest, upholds merger of agreements, limits judicial intervention

The Supreme Court allowed Civil Appeal No. 10341 of 2011 filed by UHL Power Company Limited, restoring the arbitral award's interest component. The Court ... Validity of arbitration award - Implementation Agreement - Disallowance of the pre-claim interest i.e., interest from the date when expenses were incurred by UHL, till the date of lodging the claim - HELD THAT:- This Court is in agreement with the Appellate Court that Clause 1 of the Implementation Agreement could not have been read in isolation and when read in conjunction with the second recital and Clause 2.2 of the Implementation Agreement, it is apparent that the MoU was made a part and parcel of the Implementation Agreement. In view of the above, the view taken by the learned Sole Arbitrator that the MoU forms a part of the Implementation Agreement - All the points of dispute between the parties regarding performance of the contractual obligations including claims for damages and expenses incurred by UHL either arising from the MoU dated 10th February, 1992, or under the Implementation Agreement dated 22nd August, 1997, were referable to arbitration in accordance with Clause 20 forming a part of the Implementation Agreement. The interpretation of the relevant clauses of the Implementation Agreement, as arrived at by the learned Sole Arbitrator, are both, possible and plausible. Merely because another view could have been taken, can hardly be a ground for the learned Single Judge to have interfered with the arbitral award. In the given facts and circumstances of the case, the Appellate Court has rightly held that the learned Single Judge exceeded his jurisdiction in interfering with the award by questioning the interpretation given to the relevant clauses of the Implementation Agreement, as the reasons given are backed by logic. In the instant case, the State of H.P. had terminated the Implementation Agreement five months prior to the stipulated period by adopting a distorted interpretation of Clause 4 of the Implementation Agreement, which was impermissible - Appeal allowed in part. Issues Involved:1. Disallowance of pre-claim interest.2. Merger of Memorandum of Understanding (MoU) with the Implementation Agreement.3. Premature termination of the Implementation Agreement by the State.4. Jurisdiction of courts under Sections 34 and 37 of the Arbitration Act.Detailed Analysis:1. Disallowance of Pre-Claim Interest:The appellant, UHL Power Company Limited (UHL), challenged the disallowance of pre-claim interest by the High Court of Himachal Pradesh. The Sole Arbitrator had awarded UHL a sum of Rs. 26,08,89,107.35, which included compound interest at 9% per annum until the date of the claim, and future interest at 18% per annum if the amount was not realized within six months. The High Court, relying on the Supreme Court's decision in State of Haryana v. S.L. Arora and Co. (2010), reduced the award to Rs. 9,10,26,558.74 with simple interest at 6% per annum, stating that compound interest could only be awarded if specifically provided for in the contract. However, this was overruled by a three-Judge Bench in Hyder Consulting (UK) Ltd. V. Governor, State of Orissa (2015), which allowed post-award interest on the interest amount awarded. Consequently, the Supreme Court quashed the High Court's findings and restored the arbitral award in favor of UHL regarding the interest component.2. Merger of MoU with the Implementation Agreement:The State argued that the MoU dated 10th February 1992 did not merge into the Implementation Agreement dated 22nd August 1997. The Supreme Court rejected this argument, noting that the Implementation Agreement explicitly mentioned the MoU as an appendix, thereby merging it into the Implementation Agreement. The Court endorsed the High Court's finding that the MoU had merged with the Implementation Agreement, making all disputes under the MoU referable to arbitration under the Implementation Agreement's Clause 20.3. Premature Termination of the Implementation Agreement:The State contended that the Implementation Agreement was terminated prematurely. According to Clause 4 of the Implementation Agreement, UHL was required to start the project within one year from the effective date, contingent upon obtaining necessary clearances. The Supreme Court found that the period could be extended by up to twelve months if there were delays in obtaining clearances, which were not entirely under UHL's control. The Court agreed with the High Court that the State's interpretation of Clause 4 was unreasonable and that the State had indeed terminated the agreement prematurely, five months before the stipulated period.4. Jurisdiction of Courts under Sections 34 and 37 of the Arbitration Act:The Supreme Court emphasized the limited scope of judicial intervention under Sections 34 and 37 of the Arbitration Act. It reiterated that courts should not act as appellate bodies over arbitral awards and should respect the finality of such awards unless there is a violation of public policy or patent illegality. The Court cited several precedents, including MMTC Limited v. Vedanta Limited (2019) and Dyna Technologies (P) Ltd. V. Crompton Greaves Ltd. (2019), to underline that arbitral awards should not be interfered with unless they are perverse or unreasonable.Conclusion:The Supreme Court allowed Civil Appeal No. 10341 of 2011 filed by UHL to the extent of restoring the arbitral award's interest component and dismissed Civil Appeal No. 10342 of 2011 filed by the State of Himachal Pradesh. The Court upheld the High Court's decision that the MoU merged with the Implementation Agreement and that the State had prematurely terminated the agreement. The parties were directed to bear their own costs.