Section 37 Court Cannot Interfere When Award Is Not Against Public Policy, SC Holds

The Supreme Court of India recently held that a Court under Section 37 of Arbitration and Conciliation Act 1996 cannot interfere when the Award is not against public policy, but only where the contract does not require the interpretation. It was also held that Interest is the domain of the Arbitrator

The instant Civil Appeals arose out of the Petitioner’s challenge to Calcutta High Court’s Impugned Judgement dated 03.06.2021 u/S 37 of A&C Act, 1996, where the High Court has set aside/modified the following amounts which were awarded by Arbitrator by Arbitral Award dated 30.01.2018 and upheld under Section 34 by Section 34 Judgement dt. 08.03.2019. Counsel for Petitioner – Mr Saurav Agrawal, Advocate i/b Adv Priyankar Saha, AOR Sarad Kumar Singhania, Adv Anshuman Chowdhury, Adv Rashmi Singhania, & Adv Yash Singhania. Counsel for Respondent - AOR Madhumita Bhattacharjee, Adv Debarati Sadhu, Adv Srija Choudhury, Adv Anant & Adv Sajal.

Facts

The Petitioner is a small contractor. The terms and conditions are contained in Respondent’s Notice Inviting Tender for widening and strengthening of Egra Bajkul Road 30.00 Kmp to 43.00 Kmp under Tamluk Highway Division in the District of Purbo Medinipur in a period of 18 month, where the total estimated value was Rs.10.47 Cr. The work was to be completed within 18 months, but got delayed till 09.11.2012 due to reasons attributable to the Respondent. RA Bills were to be prepared as basis of measurement by Respondent as soon as the work crossed Rs. 1 Cr. The Respondent did not measure the work or pay for the work done in a timely manner. The Petitioner invoked arbitration on 20.05.2016 claiming Rs. 4.71 Cr but was awarded Rs. 1.37 Cr.

The Supreme Court upheld the Section 37 Court’s setting aside of the award of the claim. The Court also held that the Section 37 Court did what the Arbitrator should have done. Arbitrator did not refer to the contractual provisions and the Section 34 Court dismissed the objections with a standard phrase as extracted hereinabove.

The Section 37 Court also erred in its approach in holding that the Arbitrator neither established nor discussed the questions posed by it is not a ground to set aside the Award. The reasoning of the Arbitrator was reflected in the Award. Such conclusion was no against public policy.

Supreme Court quashed the Section 37 Court’s interference with grant of pre-reference interest. While the Tribunal awarded @12% p.a. from the date of Claim Notice (as upheld by Court u/S 34), the Section 37 Court modified the period of interest for Claim 2 from date of Award and for other claims to  date of SOC. Supreme Court held that under the 1996 Act, the power of the Arbitrator to award pre-reference and pendente lite interest is not restricted when the agreement is silent on whether interest can be awarded or does not contain a specific term that prohibits the same.

While pendente lite interest is a matter of procedural law, pre- reference interest is governed by substantive law. Therefore, the grant of pre-reference interest cannot be sourced solely in Section 31(7)(a) (which is a procedural law), but must be based on an agreement between the parties (express or implied), statutory provision (such as Section 3 of the Interest Act, 1978), or proof of mercantile usage.

The Court opined that Award of interest (rate and period) are within the domain of the arbitrator under Section 31(7) and ought not be substituted by the Court u/S 34 or 37.