Unreasoned Denial Of Pre-Reference Interest, Failure To Decide Claims Vitiate Arbitral Award U/S 34 Arbitration Act: Delhi High Court

Clarifying the scope of judicial review, the Court held that while arbitral tribunals retain discretion in awarding interest and assessing evidence, such discretion must be exercised with reasons. Absence of reasons or failure to decide pleaded claims violates Section 31(3) of the Act and constitutes patent illegality warranting interference.

Justice Mini Pushkarna observed, “…it is clear that an arbitral award has to necessarily contain reasons upon which it is based. Further, in the absence of any agreement to the contrary, the arbitral tribunal has the discretion to award interest. However, in the case at hand, when the learned Arbitrator has recorded clear findings that there was prolonged and unjustified delay in processing the claim of the petitioner and there was persistent refusal to settle the claim, the learned Arbitrator was enjoined upon to give reasons for non-grant of interest for the pre-reference period. Absence of reasons violates Section 31(3) of the Arbitration Act, and constitutes a recognized ground of patent illegality under Section 34(2A) of the Arbitration Act”.

Senior Advocate Manish K. Jha appeared for the petitioner and Advocate Abhishek Gola appeared for the respondent.

The dispute arose from a fire insurance claim filed by Panchanan International Pvt. Ltd. under a Standard Fire and Special Perils Policy issued by The Oriental Insurance Company Ltd. Following a fire incident in April 2017, the petitioner claimed over Rs. 37 crores, while the insurer ultimately offered a substantially reduced amount. Arbitration was invoked, culminating in an award granting approximately ₹20.65 crores with interest from the date of filing of the statement of claim.

Aggrieved, the petitioner challenged the award under Section 34 of the Act, primarily on four grounds: denial of pre-reference interest, double deductions in loss assessment, undervaluation of stock, and failure to adjudicate the claim for taxes and duties.

The Bench noted that the arbitral tribunal had acknowledged inordinate delay by the insurer in settling the claim but failed to provide any reasoning for denying pre-reference interest. This omission, despite a specific claim and framed issue, was held to violate Section 31(3), which mandates reasoned awards.

On the issue of double deduction, the Court found that the tribunal failed to address the petitioner’s actual grievance regarding an additional 5% deduction beyond the contractual excess clause, thereby misdirecting itself and omitting adjudication on a material issue.

However, the Court upheld the tribunal’s findings on stock valuation, observing that the surveyor’s report, being expert evidence, was based on detailed verification and could not be interfered with in Section 34 proceedings absent perversity.

On the taxation component, the Court held that failure to adjudicate a specifically pleaded claim amounted to a clear violation of the statutory mandate to give reasons, vitiating the award to that extent.

Accordingly, the Court set aside the award insofar as it related to denial of pre-reference interest, double deduction, and non-adjudication of tax claims, granting liberty to the petitioner to re-agitate these issues in accordance with law.

Cause Title: Panchanan International Private Limited v. The Oriental Insurance Company Limited (Neutral Citation: 2026:DHC:3010)

Appearances:

Petitioner: Manish K. Jha, Senior Advocate, Rajat Joneja and Himanshu Mishra, Advocates.

Respondent: Abhishek Gola, Advocate.

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