Award Of Interest Contrary To Express Terms Of Agreement Susceptible To Challenge Under S.34 Of Arbitration Act: Delhi High Court

However, Justice Vibhu Bakhru added, if there is no such agreement proscribing award of interest, the award of interest cannot be faulted.

The observation was made while dealing with an application filed by the National Seeds Corporation Limited under Section 34 of the Act, impugning an arbitral award rendered by a Sole Arbitrator.

Background

NSCL had entered into a Distributorship Agreement with the Respondent. In terms of the Agreement, the respondent had agreed to sell seeds at subsidized rates to farmers, and in consideration for the same, NSCL had agreed to provide a trade discount to the respondent.

The Respondent quantified the outstanding commission/trade discount against the seeds distributed as on the date of the filing of the Statement of Claims at ₹1,46,40,005.02/-. It also claimed interest on the said amount.

The Arbitrator allowed the claims. NSCL had challenged the award on two counts: Claim was barred by limitation; respondent's claim was not in terms of the Agreement.

Findings

At the outset, the Court noted that claims made by the respondent included claims for certified seeds sold to the farmers during the years 2010-11 to 2014-15. The respondent had filed its Statement of Claims on 13.03.2018 and thus, concededly, part of the claim pertains to amounts due three years prior to filing of the Statement of Claims.

However, the Arbitral Tribunal found that NSCL had acknowledged the amounts as outstanding and payable to the respondent in its letters and other communications.

The Court said that such finding of the Arbitral Tribunal that NSCL had acknowledged its liability is a finding of fact and there is no ground to fault the same.

On the contention that the impugned award is vitiated on account of ex facie erroneous interpretation of Clause 8 of the Agreement pertaining to trade discount, the Court held,

"The Arbitral Tribunal had considered the aforesaid contention and rejected the contention that in terms of Clause 8 of the Agreement disbursal of trade discount to the respondent was contingent on receipt of subsidy. On the contrary, the Arbitral Tribunal found that in terms of Clause 8 of the Agreement, the trade discount disbursed would be recovered in the event it was found that the respondent had breached its obligations to supply the seeds in the notified districts. The decision of the Arbitral Tribunal cannot be faulted."

Reliance was placed on Punjab State Civil Supplies Corporation Limited (PUNSUP) and Anr. v Ganpati Rice Mills, SLP (C) 36655 of 2016, decided on 20.10.2021, which held that the Arbitral Tribunal has wide discretion in awarding interest under Section 31(7)(a) of the Act and the impugned award cannot be interfered with except on the ground as set out in Section 34 of the Act.

In the instant case, the Court noted that there is no provision in the Agreement which prohibits award of interest. It held,

"Clearly, award of interest contrary to the express terms of the agreement between the parties would be susceptible to challenge under Section 34 of the A&C Act. But since there is no agreement proscribing award of interest, the award of interest cannot be faulted."

Accordingly, the petition under Section 34 was dismissed.

Case Title: National Seeds Corporation Ltd. v. National Agro Seeds Corporation (India), OMP (COMM) 432/2019

Citation: 2022 LiveLaw (Del) 71