Reduction Of Rate Of Interest Awarded By The Arbitral Tribunal Amounts To Modification Of The Award: Delhi High Court

The bench of Justices Yashwant Varma and Ravinder Dudeja held that the modulation of the terms of the award by reducing the rate of interest awarded by the arbitral tribunal is impermissible within the limited power conferred on the Court under Section 34 of the A&C Act.

The Court also held the judgment of Supreme Court in M. Hakeem would also apply to award and judgments passed before the date of the said judgment.

Facts

The case involved a Section 34 petition where, on 12.12.2018, the learned Single Judge partially allowed the petition, reducing the interest rate awarded by the Arbitral Tribunal from 18% to 12%. The court also restricted the application of interest from the date of the accrual of the cause of action to the date of the invocation of arbitration. But no appeal was preferred against this order by the appellant.

After the disposal of the Section 34 petition, the respondent filed an application for modification of the earlier order dated 12.12.2018 by which the petition was disposed of. The Court admitted the application for modification. The court, vide the order dated 08.08.2019, again modified the award and denied the claim of interest. Aggrieved thereby, the appellant preferred an appeal under Section 37 of the A&C Act.

Grounds of Appeal

The appellant challenged the impugned orders on the following grounds:

• That the learned Single Judge wrongly assumed that the appellant misled the Arbitral Tribunal (AT) into granting interest at 18%. The claim for interest at 18% was accepted by the AT based on communications between the parties, and none of these communications were questioned by the respondent.
• The appellant contested the modulation of the award's terms, both in the judgment dated December 12, 2018, and subsequently in the order dated August 8, 2019. It was argued that, as per M. Hakem, the learned Judge was forbidden from modifying the interest rate awarded by the AT.
• The Ld. Single Judge fell in error by entertaining the application for modification seven weeks after the Section 34 petition's disposal.
• That the exercise by the Ld. Single Judge reducing the rate of interest amounts to modification of the award.

Analysis by the Court

The court observed that the Section 34 petition was conclusively decided on December 12, 2018. The subsequent application by the respondent, labeled as a modification plea, was deemed inappropriate once the petition had reached a final decision. The court concluded that the order of August 8, 2019, could not be considered a review but rather a decision reached through a new hearing.

The Court held that once a petition under Section 34 of the A&C Act has been disposed of by a final order, the Court cannot admit an application seeking to modify such an order. Accordingly, the Court held that the impugned order deserves to get set aside on this count alone.

Next, the Court examined the aspect of modification of the award. Addressing the power to modify the terms of an award, the court referred to the principles outlined by the Supreme Court in M. Hakeem, emphasizing that the power to modify an award does not fall within the scope of "setting aside."

The court highlighted the shift in statutory position from the Arbitration Act, 1940, and the specific language of Section 34. It affirmed that, as per the legal position, the order of December 12, 2018, breached this injunction, rendering it unsustainable. The court noted that the decisions in M. Hakeem and Larsen Airconditioning reiterated the impermissibility of modifying the interest rate awarded by the Arbitral Tribunal.

The court rejected the notion that awards and decisions rendered before M. Hakeem should remain untouched, emphasizing the declaratory nature of judgments and the absence of prospective overruling in M. Hakeem.

Consequently, the court allowed the appeal, setting aside the orders of December 12, 2018, and August 8, 2019. The Section 34 petition was restored and placed back on the board of the learned Single Judge for reconsideration.

Case Title: Anil Kumar Gupta v. MCD, FAO(OS) (COMM) 315 of 2019.

Date: 30.11.2023

Counsel for the Appellant: Dr. Amit George, Mr. Aditya Chibber, Mr. Rayadurgam Bharat & Mr. Arkaneil Bhaumik, Advs.

Counsel for the Respondent: Mr. Sunil Goel, SC with Ms. Akshita jain, Mr. Himanshu Goel, Advocates with Mr. Bhanu Pratap Yadav, A.E. (Project), Narela Zone.

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