[Arbitration Act] Awarding Interest Rate Is Discretion Of Arbitrator, Can't Be Claimed As Matter Of Right: Delhi High Court

The bench held that:

“whether to grant or refuse the interest on the principle amount, is the absolute discretion of the learned Arbitrator.”

Brief Facts:

The Petitioner was awarded a tender by the Respondent and the work was duly executed. The work completed amounted to Rs. 2,31,30,326/-, of which only Rs. 1,80,91,192/- was released, which left an outstanding balance of Rs. 50,39,134/-. As the matter could not be resolved, the Petitioner issued a Legal Notice which was followed by a Notice of Invocation of Arbitration.

Subsequently, the Petitioner filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in the Delhi High Court (“High Court”). The petition was allowed and the High Court referred the matter to the Secretary, of Revenue, to provide the parties an opportunity to resolve their disputes within six weeks. If unresolved, the Secretary, Revenue, was to appoint an Arbitrator. Since the Secretary, Revenue, failed to appoint the Arbitrator, the Petitioner filed another petition. The Delhi International Arbitration Centre (DIAC) was directed to appoint an Arbitrator.

A Sole Arbitrator was appointed who delivered the Award on October 24, 2017. Although there was a proposal for settlement between the parties for Rs. 52,23,401/-, this proposal did not result in a settlement. Despite this, the Sole Arbitrator passed the Award for the sum. The Petitioner challenged the award before the District & Sessions Judge under Section 34 of the Arbitration Act. The District t& Sessions Judge set aside the award.

Thereafter, the Petitioner applied to the DIAC in December 2019 for the appointment of an Arbitrator to decide the dispute afresh. The application remained pending, and the Petitioner approached the High Court for appointment of the arbitrator.

The Respondent argued that the entire amount of Rs. 52,23,401/- due to the Petitioner has already been paid. The Respondent argued that the petition didn't disclose any cause of action and was barred by limitation.

Observations by the High Court:

The High Court noted that the award was set aside on November 2, 2018, and the Petitioner had the opportunity to seek the appointment of an Arbitrator within three years as per Section 43 of the Arbitration Act. Section 43 specifies that the Limitation Act, of 1963, applies to arbitrations as it does to court proceedings and allows for the exclusion of the period between the commencement of arbitration and the date of the court order setting aside the award when computing the limitation period for commencing new arbitration proceedings.

Moreover, the High Court emphasized that the same procedure of Section 11(6) should have been followed after the previous appointment of an Arbitrator. The Petitioner's approach to the DIAC for the direct appointment of an Arbitrator without a court order under Section 11(6) was procedurally incorrect. The Petitioner's negligence or ignorance in approaching the wrong forum does not absolve him of the consequences. The High Court clarified that the Petitioner cannot be given the benefit of Section 14 of the Limitation Act, 1963, which allows the exclusion of time spent in prosecuting with due diligence another civil proceeding, as DIAC is not an alternate forum with the power to appoint Arbitrators under Section 11(6).

The High Court further noted that the Petitioner had initially claimed Rs. 50,39,134/- plus 18% interest per annum, which totaled Rs. 86,67,310/-. Although the parties negotiated a settlement for Rs. 52,23,401/-, it was not finalized. The Arbitrator awarded Rs. 52,23,401/-, a sum slightly above the principal amount, based on the Respondent's admission of outstanding liability. The High Court held that the decision to grant or refuse interest on the principal amount lies within the Arbitrator's discretion.

Consequently, the High Court dismissed the petition.

Case Title: M/S Space 4 Business Solution Pvt Ltd Vs The Divisional Commissioner Principal Secretary And Anr.

Citation: 2024 LiveLaw (Del) 676

Case Number: ARB.P. 360/2024

Advocate for the Petitioner: Mr. Durgesh Gupta, Advocate.

Advocate for the Respondent: Mr. Tushar Sannu, Mr. Sahaj Karan Singh, and Mr. Shobhan Sachdeva, Advocates.

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