The Three-judge Bench of the Supreme Court consisting of Chief Justice N.V. Ramana, Justices A.S. Bopanna and Hima Kohli opined that as it is, the jurisdiction conferred on Courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an Appellate Court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed.
Facts and Procedural History
The learned senior counsel for UHL confined his grievance to the disallowance of the pre-claim interest i.e., interest from the date when expenses were incurred by UHL, till the date of lodging the claim. It may be noted that in terms of the, the learned Sole Arbitrator had awarded a sum of ₹26,08,89,107.35p. in favour of UHL towards expenses claimed along with pre-claim interest capitalized annually on the expenses so incurred. Further, compound interest was awarded in favour of UHL @ 9% per annum till the date of claim and in the event the awarded amount is not realized within a period of six months from the date of making the award, future interest was awarded @ 18% per annum on the principal claim with interest.
Dissatisfied with the award, when the State of H.P. filed a petition u/s 34 of the Arbitration Act, the learned Single Judge disallowed the entire claim of UHL. The said judgment was challenged by UHL in a petition filed u/s 37 of the Arbitration Act that has been decided by the impugned judgment whereunder, the Division Bench of the High Court has awarded a sum of ₹9,10,26,558.74 (Rupees Nine crores ten lakhs twenty six thousand five hundred fifty eight and seventy four paise) in favour of UHL, being the actual principal amount along with simple interest @ 6% per annum from the date of filing of the claim, till the date of realization of the awarded amount. For declining payment of compound interest awarded by the learned Sole Arbitrator to UHL, the Division Bench relied on the decision of this Court in State of Haryana v. S.L. Arora and Co., wherein it was held that compound interest can be awarded only if there is a specific contract, or authority under a Statute, for compounding of interest and that there is no general discretion vested in courts or tribunals to award compound interest. It was further held that in the absence of any provision for interest upon interest in the contract, the Arbitral Tribunals do not have the power to award interest upon interest, or compound interest, either for the pre-award period or for the post-award period. By now, the aforesaid aspect has been set at rest by a three-Judge Bench of this Court that has overruled the verdict in the case of S.L. Arora (supra). The majority view is that post-award interest can be granted by an Arbitrator on the interest amount awarded.
As the judgment in the case of S.L. Arora (supra), on which reliance has been placed by the Division Bench of the HC of Himachal Pradesh, has since been overruled, the findings returned by the Appellate Court in the impugned judgment to the effect that the Arbitral Tribunal is not empowered to grant compound interest or interest upon interest and only simple interest can be awarded in favour of UHL on the principal amount claimed, is quashed and set aside. As a result, the findings returned in para 54(a) of the impugned judgment insofar as it relates to grant of the interest component, are reversed while restoring the arbitral award on the above aspect in favour of UHL.
Contentions made
Submission was made for the State for assailing the impugned judgment, in two-fold. Firstly, that the Division Bench gravely erred in upsetting the findings returned by the learned Single Judge and has failed to appreciate that the Memorandum of Undertaking did not merge into the Implementation Agreement, as both were distinct documents and that the MoU contained a separate Arbitration clause numbered as Clause 18, whereas the Implementation Agreement contained Clause 20. Secondly, it has been canvassed that the Appellate Court as also the Arbitral Tribunal committed a grave error in arriving at the conclusion that the Implementation Agreement was prematurely terminated by the State much before the expiry of the prescribed period.
Observations of the Court
The Bench observed that:
“This Court agrees with the Appellate Court that Clause 1 of the Implementation Agreement could not have been read in isolation and when read in conjunction with the second recital and Clause 2.2 of the Implementation Agreement, it is apparent that the MoU was made a part and parcel of the Implementation Agreement.”
“This Court also accepts as correct, the view expressed by the Appellate Court that the learned Single Judge committed a gross error in re-appreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant clauses of the Implementation Agreement governing the parties inasmuch as it was not open to the said Court to do so in proceedings under Section 34 of the Arbitration Act, by virtually acting as a Court of Appeal. As it is, the jurisdiction conferred on Courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an Appellate Court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed.”
Judgment
The bench upheld the decision of the Appellate Court that has restored the findings returned in the arbitral award to the effect that the State of Himachal Pradesh had proceeded to terminate the Implementation Agreement before expiry of the prescribed period which could have been extended up to 24 months, reckoned from the “effective date”. Civil Appeal No. 10341 of 2011 preferred by UHL was partly allowed, while Civil Appeal No. 10342 of 2011 filed by the State of Himachal Pradesh was rejected in toto.
Case Name: Uhl Power Company Ltd vs State of Himachal Pradesh
Citation: Civil Appeal No. 10341 of 2011
Bench: Chief Justice N.V. Ramana, Justice A.S. Bopanna, Justice Hima Kohli
Decided on: 7th January 2022
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