[Arbitration Act] Executing Court Cannot Review Or Add Payment Of Interest While Enforcing Foreign Award: Kerala High Court

Justice T R Ravi held that the executing court cannot add or review the foreign award for providing payment of interest when the arbitral award itself does not mention anything about post-award interest.

“It is settled law that the executing court cannot review the award or add anything to the award which is sought to be executed when it is a foreign award to which Part II applies. Even otherwise, the executing court cannot go behind the decree sought to be executed. The foreign award is a deemed decree and no provision for payment of interest can be read into the award/decree,” the Court said.

Relying upon the Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) (BALCO case), the Court reiterated that Section 31 (7)(b) of Part 1 of the Arbitration Act would not apply to foreign awards and that Part I and Part II of the Arbitration Act were mutually exclusive.

Background Facts

The petitioner, a company in the USA entered into a contract with the respondent for the supply of cashews. Since the cashews supplied by the respondent did not meet the standards of the contract, the petitioner issued a notice demanding arbitration of the dispute by the Association of Food Industries Inc (AFI). Despite the respondent's objection regarding AFI's jurisdiction to hear the dispute, AFI proceeded with the hearing and rendered an arbitral award in the petitioner's favour allowing them to realise money.

The arbitral award was challenged before the District Court for setting aside the award under Section 34 of the Arbitration Act. The Arbitral Award was set aside and an Arbitration Appeal was preferred. The Court allowed the Arbitration Appeal relying upon the BALCO case stating that Part I of the Arbitration Act will only apply to domestic arbitration and dismissed the petition filed under Section 34 of the Act.

Thereafter, the Arbitral Award became final and the petitioner approached the Court for enforcement of the arbitral award. Meanwhile, the respondent filed objections contending that an arbitral award cannot be enforced due to fraud.

During the pendency of the proceedings, the respondent paid the amount given in the arbitral award to the petitioner. The Court has to consider whether the respondent was liable to pay interest for the amount awarded from the date of award till the date of payment despite the absence of any mention of interest payment in the arbitral award.

Arguments

The petitioner contended that the arbitral award was silent about interest payable and hence Section 31 (7)(b) in Part I of the Act will apply. Section 31(7)(b) says that the sum directed to be paid by an arbitral award shall unless the award otherwise directs, carry interest at the rate of 18% per annum from the date of the award to the date of payment.

It was argued that Section 31 (7)(b) in Part I of the Act would apply for payment of interest since it is a general provision that would apply as lex fori while executing foreign awards.

It was also argued that the interest amount was not mentioned in the arbitration award since the right to claim interest may vary from country to country where the award has to be enforced.

On the other hand, the Counsel for respondents contended that the absence of any mention of payable interest in the arbitral award would mean a refusal to grant interest. It was argued that refusal to grant interest for the post-award period should not be challenged during the enforcement of the award before the executing court.

Court Findings

The Court found that the arbitral award does not mention payment of interest.

The Court held that payment of interest ought to have been decided by the arbitrators and should have been given in the arbitral award itself and it cannot be questioned at the stage of enforcement.

Further, the Court relying upon BALCO (supra) held that Part I of the Act applies only to domestic arbitrations and not to arbitrations that take place outside the Indian territory. It said that Section 37 (7)(b) of Part I of the Arbitration Act would not apply to foreign awards.

“Section 31(7)(b) relied on comes in Part I of the Act and the main section 31 deals with the “Form and Contents of an Arbitral Award”, which necessarily means the form and content of a domestic arbitral award. The provision does not and cannot deal with the form and content of a foreign award”, stated the Court.

Referring to Pasl Wind Solutions (P) Ltd. v. GE Power Conversion (India) (P) Ltd. (2021), the Court held that Part I and Part II of the Arbitration Act were mutually exclusive and that Part I cannot be made applicable to foreign awards.

It also referred to the Delhi High Court decision in Jindal Exports Ltd. v. Fuerst Day Lawson Limited (2009), to state that the enforcing or executing court does not have the power to go behind the award and order payment of interest.

The Court further held that Section 31(7)(b) cannot be indirectly introduced for enforcement of a foreign award under the guise that it is the lex fori when it comes to the award of interest.

It noted that the arbitration rules of the Association of Food Industries Inc (AFI) which is lex arbitral contained provisions for payment of interest. It stated that the petitioner should have approached the appropriate forum at the appropriate stage claiming payment of interest. “If the Arbitrators did not award interest despite such a provision being available under the Rules, it was for the petitioner to have approached the appropriate forum for correction of the award”, added the Court.

The Court thus concluded that Section 31 (7)(b) of Part I of the Arbitration Act giving the right to claim interest would apply to domestic awards and would not apply to foreign awards.

Accordingly, the Court held that no further orders were required in the execution petition since there the claim for interest has failed and the award amount has become final.

Counsel for Award Holder: Advocate T R Aswas

Counsel for Award Debtor: Advocates D Ajithkumar, N D Premachandran

Citation: 2024 LiveLaw Ker 276

Case Title: M/S International Nut Alliance LLC v M/S Johns Cashew Co.

Case Number: EP(ICA) NO. 1 OF 2018

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