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 the arbitration commenced after the 1996 Act came into force, the statutory scheme permitting post-award interest at 18% p.a. applied, and court interference was confined to the narrow grounds in s.34, which allow only setting aside (not modification) and only for illegality going to the root of the matter. As the tribunal's interest direction disclosed no s.34 infirmity, the HC lacked power to reduce it. The SC set aside the HC's modification, reinstated 18% p.a. interest (past, pendente lite, and future), and directed payment within 8 weeks.

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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.

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