In Appeal, Section 37 Of Arbitration Act Grants Narrower Scope To Appellate Court To Review Findings In An Award: Supreme Court
The Supreme Court has observed that in an appeal, Section 37 of the Arbitration and Conciliation Act 1996, grants narrower scope to the Appellant Court to review findings in an award if it has been upheld or substantially upheld under Section 34.
The Bench of Justice S. Ravindra Bhat and Justice Dipankar Datta observed-
"In appeal, Section 37 of the Act grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34. It is important to notice that the old Act contained a provision14 which enabled the court to modify an award. However, that power has been consciously omitted by Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court."
The Bench reinstated an award decided by the arbitrator setting aside the modifications done by the Allahabad High Court stating that High Court should not have interfered with the arbitrator's finding on interest accrued and payable, as the arbitrator's rate of interest was in accordance with Section 31(7)(b) of the 1996 Act.
The Court held:
“given that the arbitration commenced in 1997, i.e., after the Act of 1996 came into force on 22.08.1996, the arbitrator, and the award passed by them, would be subject to this statute. Under the enactment, i.e. Section 31(7), the statutory rate of interest itself is contemplated at 18% per annum. Of course, this is in the event the award does not contain any direction towards the rate of interest. Therefore, there is little to no reason, for the High Court to have interfered with the arbitrator’s finding on interest accrued and payable.”
The appellant had challenged a judgment of the Allahabad High Court in which the court had modified an arbitral award. The dispute arose between the appellant and the Union of India over a contract, and the matter was referred to arbitration. The arbitral award included a provision for compound interest at 18% per annum. The respondent-state challenged this award, and the High Court modified it, reducing the interest rate to 9% simple interest. The appellant's main argument was that the High Court erred in reducing the interest rate based on the provisions of the Arbitration and Conciliation Act, 1996.
Advocate R.K. Singh appeared for the Appellants and Advocate Vikramjeet Banerjee (ASG) appeared for the Respondents.
The appellant's counsel emphasized that the statutory interest rate specified in Section 31(7)(b) of the Act is 18% per annum when the arbitrator does not provide specific directions on the rate of interest. It was also highlighted that the General Conditions of Contract (GCC) in Clause 70 stated that the award of the arbitrator is final and binding on both parties.
On the other hand, the respondent-state argued that the High Court's decision was well-founded and considered various aspects of the Indian Contract Act and the Arbitration and Conciliation Act before reducing the interest rate. The Additional Solicitor General (ASG) representing the respondent pointed out that even the appellant's counsel during the High Court proceedings agreed that the statutory interest rate should be slightly higher or lower than the bank rate, which has been around 7-8% in the last decade.
The Supreme Court found that Section 31(7)(b) of the 1996 Act, as amended by Act 3 of 2016, specified that an awarded sum would carry an interest of 18% per annum from the date of the award to the date of payment unless the award provided otherwise. However, this provision did not apply to the pre-amended situation in this case, where the arbitration began in 1997, before the amendment came into effect.
The Court cited the judgment in Shahi & Associates, (2019) 11 SCR 640 which held that when the arbitrator did not provide specific directions on the rate of interest in the award, the sum awarded "shall" carry interest at 18% per annum from the date of the award until payment. The Court emphasized that the provisions of the Arbitration Act, 1940, including the State amendment (para 7-A inserted by Section 24 of the U.P. Amendment Act), had no application to proceedings that commenced after the 1996 Act came into force.
The Court reiterated that the High Court should not have interfered with the arbitrator's finding on interest accrued and payable, as the arbitrator's rate of interest was in accordance with Section 31(7)(b) of the 1996 Act. The Court pointed out that, unlike the previous Act, the court under the 1996 Act had limited power to modify the award; it could only set aside the award partially or wholly based on the conditions specified under Section 34.
The Court concluded by setting aside the High Court's modification of the interest rate and reinstated the 18% per annum rate of interest awarded by the arbitrator in Claim No. 9. The respondent-state was directed to pay the dues within 8 weeks from the date of the Supreme Court's judgment. The appeal was disposed of accordingly, with no order as to costs.
Cause Title: M/s Larsen Air Conditioning and Refrigeration Company v. Union of India & Ors.
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