Delhi High Court: A Single Judge Bench of Chandra Dhari Singh, J.* held that the impugned Award with regards to the rate of interest was liable to be set aside, as the Sole Arbitrator had erred in decreeing the award w.r.t. the rate of interest by granting an interest at the rate of 14%, when it was expressly stipulated and agreed upon by the parties in the Agreement that the respondent should not be entitled to any interest on arrears of payments.
Background
The petitioner and the respondent entered into a Contract Agreement for the construction of four circular head race tunnels leading to bottoms of four underground surge tanks for the underground powerhouse of Tehri Dam Project. In 1897, the respondent submitted a claim of Rs. 568.4 lakhs which was rejected by the Engineer-in-charge, after which the claimant invoked the Arbitration Clause. A Statement of Claim was filed by the respondent before the Arbitral Tribunal and the impugned Award was passed and received by the petitioner in 2020, aggrieved by which, the petitioner had approached this Court with the present petition.
Analysis, Law, and Decision
The Court noted that the challenge to the impugned Award had been on the ground that the Award was ex-facie erroneous and suffered from patent illegality and was contrary to the fundamental policy of Indian Law. The Court relied on Ssangyong Engineering & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 and Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, wherein the supreme Court had clarified the meaning and scope of ‘Fundamental Policy of Indian Law’ in the context of Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’). The Court thus opined that the decisive test was that first, the Arbitrator had to adopt a judicial approach; second, the principles of natural justice had to be upheld; third, the decision must not have been egregious, or rather, perverse.
The Court opined that the grounds to examine whether the impugned Award was liable to be set aside on patently illegality as per Section 34 of the Act were as follows:
1. Whether the Arbitrator adjudicated the dispute disregarding the facts and evidence pertaining to the matter?
The Court noted that the ground raised by the petitioner was that the findings of the Arbitrator were illegal as they were based on no evidence as held by the Supreme Court in State of Rajasthan v. Ferro Concrete Construction (P) Ltd., (2009) 12 SCC 1. The Court, after relying on the impugned Award, inferred that the Arbitrator had given careful thought before framing the Award and had considered all the relevant documents on record to reach his decision. The Court noted that the Arbitrator verified the contentions by perusing the books of accounts to make the Award. Therefore, the Court opined that the Petitioner could not have the benefit of ground of patent illegality to assail the impugned Award under Section 34 of the Act.
2. Whether the interest rate was patently illegal and contrary to the contract?
The Court noted that the ground raised by the petitioner was that the Sole Arbitrator had wrongly interpreted Section 31(7)(a) of the Act, in awarding 14% interest to the respondent which was barred under Section 31(7)(a) of the Act. The Court observed that Section 31(7)(a) was applicable only where there was no previous agreement as to the rate of interest to be awarded. Thus, the Court opined that the Arbitral Tribunal had gone beyond the contract and awarded an interest rate of 14% when it was previously decided by the contract that the respondent would not be entitled to interest on any arrears.
The Court observed that the powers of an Arbitral Tribunal were those conferred upon it by the parties within the limits allowed by the applicable law, together with any additional powers that may be conferred automatically by the operation of law. The Court relied on Associate Engineering Company v. Govt. of Andhra Pradesh, (1991) 4 SCC 93, wherein the Supreme Court held that the Arbitrator could not simply overlook the provisions in the Contract. In Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463, the Supreme Court reiterated that the Arbitrator was a creature of the Contract. The Court further relied on Morgan Securities and Credits (P) Ltd. v. Videocon Industries Ltd., (2023) 1 SCC 602, wherein it was held that the Arbitrator must exercise the discretion in good faith, must consider relevant and not irrelevant considerations, and must act reasonably and rationally taking cognizance of the surrounding circumstances.
The Court opined that where it was evident that the Sole Arbitrator had worked well within its limits and there had not been any arbitrary exercise of power, there was no scope of interference of this Court with respect to the change in the rate of interest of an award. Further, the Court relied on Executive Engineer v. Gokul Chandra Kanungo, 2022 SCC OnLine SC 1336, wherein the Supreme Court held that if the Arbitral Tribunal had the discretion to award a rate of interest, it must be reasonable. The Court thus opined that the Arbitral Tribunal might not grant a different interest rate when a specific rate of interest had been decided by the parties, bound by an agreement. The Court observed that in the present case, the agreement specified that no interest should be granted, so this took away the Arbitrator’s power to deviate and grant his own rate of interest. The Court further relied on NHAI v. M. Hakeem, (2021) 9 SCC 1, wherein the Supreme Court held that the power of the Court under Section 34 of the Act to “set aside” the Arbitral Award did not include the power to modify such an award. Thus, this Court opined that it had no power to modify the rate of interest in the impugned Award.
The Court thus held that the impugned Award with regards to the rate of interest was liable to be set aside, as the Arbitral Tribunal granted an interest at the rate of 14%, when it was expressly stipulated and agreed upon by the parties in the Agreement that the respondent should not be entitled to any interest on arrears of payments.
3. Can the Arbitrator give out issue-wise findings without any issues addressed by the parties during Arbitration proceedings?
The Court noted that ground invoked by the petitioner was that the Sole Arbitrator gave out issue-wise findings without issues being addressed by the parties during arbitration proceedings. The Court opined that Arbitral Award could not be vitiated merely because the Arbitral Tribunal decided to give issue-wise findings in the Arbitral Award when no such issue was made out by the parties during the Arbitration. The Court relied on Union of India v. J.P. Sharma and Sons, 1967 SCC OnLine Raj 44 and opined that the Arbitrator had the power to draft the Award in the manner that seemed suitable to him. Moreover, the Court opined that the Arbitral Tribunal giving out issue-wise findings when no issues were specifically made out, was not a procedural illegality, or irregularity.
The Court thus held that there was patent illegality with respect to the rate of interest awarded by the Arbitrator and therefore, the Sole Arbitrator had erred in decreeing the award with respect to the rate of interest. Hence, the Award with respect to the rate of interest was liable to be set aside and the entire impugned Award did not be set aside due to the perversity in one specific aspect of the Award.
[Tehri Hydro Development Corpn. India Ltd. v. C.E.C. Ltd., 2023 SCC OnLine Del 2354, decided on 26-4-2023]
Advocates who appeared in this case:
For the Petitioner: Puneet Taneja, Prity Sharma, Laxmi Kumari, and Manmohan Singh Narula, Advocates;
For the Respondent: Ratan Kumar Singh, Senior Advocate and Rajeev Gurung, Advocate.
*Judgment authored by: Justice Chandra Dhari Singh