2023 (8) TMI 985 - SC - Indian Laws

Arbitral award interest rate dispute u/s31(7): court can't reduce 18% interest via s.34, modification set aside

Whether an HC can modify an arbitral award by reducing interest was determined under s.31(7) and s.34 of the Arbitration and Conciliation Act, 1996. Since ... Modification of Arbitral Award - reduction in the rate of interest - whether the High Court erred in modifying the arbitral award to the extent of reducing the interest, from compound interest of 18% to 9% simple interest per annum? - HELD THAT:- Section 31(7)(b) of the 1996 Act, was amended by Act 3 of 2016, w.e.f. 23.10.2015. The pre-amended provision, empowers the arbitrator to award both pre-award and post-award interest, and specifies that the awarded sum would carry an interest of 18% per annum, unless provided otherwise, from the date of award till the date of payment. In the present case, given that the arbitration commenced in 1997, i.e., after the Act of 1996 came into force on 22.08.1996, the arbitrator, and the award passed by them, would be subject to this statute. Under the enactment, i.e. Section 31(7), the statutory rate of interest itself is contemplated at 18% per annum. Of course, this is in the event the award does not contain any direction towards the rate of interest. Therefore, there is little to no reason, for the High Court to have interfered with the arbitrator’s finding on interest accrued and payable. Unlike in the case of the old Act, the court is powerless to modify the award and can only set aside partially, or wholly, an award on a finding that the conditions spelt out under Section 34 of the 1996 Act have been established. The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality, i.e., that “illegality must go to the root of the matter and cannot be of a trivial nature”; and that the tribunal “must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground”. The impugned judgment warrants interference and is hereby set aside to the extent of modification of rate of interest for past, pendente lite and future interest. The 18% per annum rate of interest, as awarded by the arbitrator on 21.01.1999 (in Claim No. 9) is reinstated. The respondent-state is hereby directed to accordingly pay the dues within 8 weeks from the date of this judgment. Issues Involved:1. Whether the High Court erred in modifying the arbitral award by reducing the interest rate from 18% compound interest to 9% simple interest per annum.Summary:1. Background and Facts:The appellant challenged the Allahabad High Court's judgment, which modified an arbitral award by reducing the interest rate from 18% compound interest to 9% simple interest per annum. The dispute arose from a contract awarded to the appellant, leading to arbitration, which concluded with an award on 21.01.1999. The District Court dismissed the respondent-state's challenge to the award, but the High Court partially allowed the appeal, reducing the interest rate and disallowing a compensation claim.2. Contentions of Parties:The appellant contended that the arbitrator had already reduced their claim from 24% to 18% interest, in line with Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. They argued that the High Court had no justification to reduce the statutory interest rate. The respondent-state argued that the High Court's reduction of the interest rate was reasonable and justified, considering the statutory and contractual provisions.3. Analysis and Conclusion:The Supreme Court analyzed Section 31(7)(b) of the 1996 Act, which mandates an 18% interest rate unless otherwise directed by the award. The Court cited previous judgments, emphasizing that the High Court had limited jurisdiction under Section 34 of the Act and could not modify the award. The Court concluded that the High Court's interference with the arbitrator's decision on the interest rate was unwarranted.4. Final Decision:The Supreme Court set aside the High Court's judgment to the extent of modifying the interest rate. The original 18% per annum interest rate awarded by the arbitrator was reinstated, and the respondent-state was directed to pay the dues within 8 weeks. The appeal was disposed of with no order as to costs.