The Madras High Court recently made pertinent observations on the scope of Court interference when it comes to modifying arbitral awards, as well as the authority of arbitral tribunals to award interest on the payment of awards in the absence an agreement to that effect.
Justice PT Asha noted that there were limits to how far a Court can interfere under Section 34 and cited the case of SG Novasoft Technologies Limited v. Gayathri Balusamy, wherein it was held,
“A reasonable interpretation to Section 34 would only lead to an irresistible conclusion that the Court can modify or vary the Award of the Arbitrator if it is contrary to the material evidence adduced by the parties.”
Senior Counsel R Murari argued for the claimant, appeared for Advocate Preeti Mohan.Senior Counsel TR Rajagopalan argued for respondent, appeared for Advocate N Nithianandam in case focusing on arbitral award.
The Court found that there were reasons to modify parts of the arbitral award under challenge before it. This was particularly with respect to the arbitral tribunal’s decision not to award interest on an amount found by it to be payable to the original claimant.
In this case, the claimant had set up a lignite handling and storage system (LHS) for a thermal plant. Disputes arose when the claimant sought payment for the work done under various heads.
The claimant had set up a lignite handling and storage system (LHS) for a thermal plant. Disputes arose when the claimant sought payment for the work done under various heads.
As per the agreement between the two parties, the “After successful completion of performance test for equipment (LHS) and Certification of results by the purchases/Consultant – 10% to be paid.”
After some delays, the LHS set up by the claimant was eventually taken over by the respondent provisionally in March 2004. However, the 10% refund of Rs.3,42,89,930 was withheld by the respondents, stating that the claimant had failed to complete the performance guarantee test on the scheduled date as per the contract.
As such, a mere failure on the part of the respondent to issue a certificate could not stand in the way of the respondent refunding the retention money, it was held.
Therefore as arbitral award , the tribunal directed the refund to be paid to the claimant.
The tribunal declined to grant interest on the ground that the amount became payable only on the date of award.
On challenge, however, the High Court found that the tribunal’s finding on this count was patent illegality. As noted in the judgment,
“The denial of interest post 01.03.2004 to the claimant on the ground that the retention amount became payable only on account of the award is a patently erroneous observation and contrary to the payment terms stipulated in the contract.”
In this regard of arbitral award , reference was made to the cases of Secretary Irrigation Department, Government of Orissa and others v. G.C. Roy, Executive Engineer, Dhenkanal vs N.C.Budharaj (Dead), Bhagawathi Oxygen Limited vs. Hindustan Copper Limited, Indian Hume Pipe Co. Limited vs. State of Rajasthan, Union of India vs Saraswat Trading Agency and others and Hyder Consulting (UK) Limited Vs. Governor, State of Orissa.
Summing up the position of law on this aspect, Justice Asha reasoned,
“The underlying principle conferring power on the arbitrator to grant interest for a pre-reference period in cases where there is no prohibition in the arbitration agreement is on account of the fact that the forum of arbitration is created by the consent of parties and is a substitute for a conventional civil court. Therefore by implication the Arbitrator would have the same power to award interest in the same way and same manner as a court. “
The Court added while highlighting arbitral award ,
“It is also surprising that having observed that the claimant is entitled to the amount on and from the date of the award, the learned Arbitrators have failed to grant interest post the award till date of payment. “
The Court added that this order (regarding payment of interests) is being passed, “particularly in the light of the learned Arbitrators after examining the evidence on record coming to the conclusion that the retention was wrong. Therefore, this Court is not called upon to once again appreciate the evidence.”