Reduction Of Awarded Interest Under Section 34 Of Arbitration Act Is Impermissible: Delhi High Court

Brief Facts

This is a petition filed under section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the Arbitral Award dated 18.02.2019 passed in favour of respondent no. 1.

Respondent No. 1 began investing in sale and purchase of shares through M/s. Gupta Associates through its proprietor Mr. K.C. Gupta. Respondent no. 1 through Mr. K.C. Gupta deposited security amount time and time again with M/s. Gupta Associates, totalling to about Rs. 20.00 lacs as on 24.02.2001.

Thereafter, M/s. Gupta Associates merged with the petitioner company merged and the security deposit of Rs 20 lakhs was transferred to the books of the petitioner company with effect from 01.04.2004. The same was confirmed by the petitioner company vide letter dated 01.04.2004.

In the year 2006, the shares of respondent No. 1 with the petitioner company totalled to about Rs. 24,49,322/-. It is alleged that neither were the shares delivered to the respondent no. 1 nor were the sale proceeds from selling the said shares (on request of respondent no.1) were paid to the respondent no.1.

The arbitration proceedings began once again and the present Arbitral Award dated 18.02.2019 came to be passed, whereby the tribunal allowed part claim filed by the respondent No. 1 to the tune of Rs 2,86,16,282.29 and rejected the other part of the claim on the ground that the same is time barred.

During the pendency of the above proceedings, Respondent No. 1 also challenged the Award dated 18.02.2019 before the Appellate Arbitral Tribunal, NSE only to the extent of the Award rejected by the Arbitral Tribunal. The appeal was dismissed by the Appellate Arbitral Tribunal, NSE vide order dated 30.09.2019.

Contentions

The petitioner submitted that the impugned award is devoid of any reasoning and in this regard has relied upon the judgment of the Hon'ble Supreme Court in M/s Dyna Technologies Pvt. Ltd. vs. M/s Crompton Greaves Ltd. (2019).

It was further submitted that the award is unintelligible since it has been passed without duly appreciating the fact that the respondent no.1 failed to show that any amount was deposited with the petitioner company.

It was further submitted that the grant of interest @18% is not justified and it is excessive and has been passed without any due reasons.

Per contra, the respondents submitted that challenge cannot be entertained by this court under the narrow scope under section 34 of the Arbitration and Conciliation Act, 1996. The judgment of the Hon'ble Supreme Court in Associate Builders v. DDA, (2015) was relied upon.

Court's Analysis

The court at the outset rejected the contention of the petitioner that it was not liable to refund security deposit and observed that the impugned award took note of the findings of the Hon'ble High Court of Bombay wherein the Bombay High Court has categorically held that the petitioner had received ₹ 20 lakhs from respondent No. 1 and was liable to return it along with interest.

The court further referred to the Supreme Court judgment in M/s Dyna Technologies Pvt. Ltd. vs. M/s Crompton Greaves Ltd. (2019) wherein it was held that the jurisdiction of this Court under Section 34 of the Arbitration and Conciliation Act, 1996 is narrow and limited. It does not sit as a Court of Appeal, if there is any other possible view based upon the documents/evidence available as taken by the Arbitrator, the Court should refrain from interfering in the findings of the Arbitral Tribunal.

The court further noted that the petitioners have failed to show any grounds of perversity in the findings of the Arbitral Tribunal. The findings of the Bombay High Court relied upon by the Arbitral Tribunal are integral part of the Award. The petitioner has failed to show any variation or modification of the judgment passed by the Hon'ble High Court of Bombay, and hence there is no infirmity in the reliance of the Arbitral Tribunal on the judgment of the Hon'ble High Court of Bombay.

The court further disagreed with the contention of the petitioner that the interest was excessive and referred to the supreme court judgment in Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd. (2023) wherein it was established that it is settled that the arbitral tribunal under section 31(7)(a) and 31(7)(b) of the Arbitration and Conciliation Act, 1996 has the discretion to grant pre-award interest and/or post-award interest, on either whole or part of the principal amount.

The court further referred to the Delhi High Court judgment in Anil Kumar Gupta v. MCD (2023) wherein it was held that reduction of interest by the court under section 34 of the Arbitration and Conciliation Act, 1996 amounts to modification of the Award and in view of judgment of Hon'ble Supreme Court in NHAI v. M. Hakeem, (2021) the same is impermissible.

The court concluded that the Arbitral Tribunal has awarded interest reasonably and after duly appreciating evidence before it. The same does not warrant any interference by this court under the limited jurisdiction under section 34 of the Arbitration and Conciliation Act, 1996.

For the said reasons, the petition is without merit and was dismissed.

Case Title: M/S STAR SHARES & STOCK BROKERS LTD. V. PRAVEEN GUPTA & ANR.

Case Reference: O.M.P. (COMM) 516/2019, I.A. 17466/2019, I.A. 1618/2023, I.A. 9134/2023

Court: Delhi High Court

Judgment Date: 30/09/2024

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