2023 LiveLaw (SC) 631 : 2023 INSC 708

IN THE SUPREME COURT OF INDIA

Arbitration and Conciliation Act, 1996; Section 34, 37 - The court is powerless to
modify the award and can only set aside partially, or wholly, an award on a finding
that the conditions spelt out under Section 34 have been established - 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. (Para 13-16)
For Appellant(s) Mr. R. K. Singh, Adv. Mrs. Neeraj Singh, Adv. Mr. Kumar Gaurav, Adv. Mr. Aman Rastogi,
Adv. Mr. Sanjay Rastogi, AOR
For Respondent(s) Mr. Vikramjeet Banerjee, A.S.G. Mr. Nachiketa Joshi, Adv. Mr. A K Kaul, Adv. Mr.
Bhuvan Mishra, Adv. Mr. Akshit Pradhan, Adv. Mr. Sachin Sharma, Adv. Mr. Arvind Kumar Sharma, AOR
JUDGMENT
S. RAVINDRA BHAT, J.
1. Aggrieved by the impugned judgment1 of the Allahabad High Court, the appellant
has approached this court with a simple question of law, as to whether the High Court
erred in modifying the arbitral award to the extent of reducing the interest, from compound
interest of 18% to 9% simple interest per annum.
Facts
2. The dispute between the appellant and Union of India (hereafter ‘respondent-state’)
arose from a contract entered into pursuant to being awarded the tender. In the course of
work, certain disputes arose. On 22.04.1997, the respondent-state referred the dispute to
arbitration, and the proceedings closed on 24.10.1998. The tribunal published its award
on 21.01.1999 and directing the first four respondents to pay 18% pendente lite and future
compound interest on the award in respect of Claim Nos. 1-8.
3. The respondent-state challenged the award under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereafter ‘the Act’). The district court2, dismissed the challenge on
the ground that it could not sit in appeal over the award and since the respondent-state
had failed to file any proof of the grounds alleged. Aggrieved, the respondent-state,
preferred an appeal before the High Court in 2003. In the interim, the respondent-state
deposited ₹10,00,000 in the District Court, Kanpur on 06.06.2003 against ₹1,82,878.11
due at the time.
4. Partly allowing the appeal, the High Court disapproved the reasoning in the award
on Claim No. 6; it held that the sum of ₹3 lakhs awarded towards compensation for loss
caused due to non-issue of tender document and paralysing business could not have been
granted. The High Court held that it could not be said that the proceedings (in the present
case) were under the Arbitration Act, 1940, and therefore, the rate of interest granted
should not be 18%. The High Court referred to this court’s judgments in K. Marappan v.

1
Judgment dated 17.07.2019 passed by Allahabad High Court in First Appeal from Order No. 1227/2003.
2
Judgment dated 06.03.2003 passed by the District Judge, Kanpur Nagar in Misc. Case No. 64/70 of 1999.
1
Superintending Engineer TBPHLC Circle Anantapur3, M/s Raveechee & Co. v. Union of
India4 and Ambica Construction v. Union of India5 while deciding this question of pendente
lite interest; it was held that the bar to award interest on the amounts payable under the
contract would not be sufficient to deny the payment of interest pendente lite. The High
Court proceeded to reduce the rate of interest from 18% (as ordered by the arbitrator), to
9% per annum. The remaining amount was directed to be deposited by the appellants as
expeditiously as possible, with the interest accrued, not later than 12 weeks from the date
of the judgment. On other grounds, it was held that there was no scope for interference in
the arbitral award.
Contentions of parties
5. The ground pressed by the appellant in the present proceedings, relates to the
modification of the rate of interest (relating to award in Claim No. 9), and the scope of this
appeal is limited to this question.
6. Mrs. Neeraj Singh, counsel appearing on behalf of the appellant, submitted that
their claim was in fact for 24% pendente lite interest, and the arbitrator had already
reduced it to the 18% granted. Pointing to pre-amended Section 31(7)(b) of the 1996 Act,
it was contended that the High Court erred in reducing the ‘statutory interest rate’; this
provision prescribed that in the event the Arbitrator did not give any specific directions as
regards rate of interest on amount awarded, such amount ‘shall’ carry interest of 18% per
annum. The Arbitrator had properly considered the matter and accordingly granted 18%
past pendente lite and future compound interest on 8 claims, which was affirmed by the
district court. Counsel also pointed out Clause 70 of the General Conditions of Contract
(GCC), which stipulates that the award of the arbitrator shall be final and binding on both
parties. It was urged, therefore, that there was no justification for judicial interference so
as to reduce the statutory interest rate from 18% to 9% per annum. Counsel drew attention
to Shahi v. State of UP & Ors.6 wherein this court, in light of Section 31(7), upheld 18%
per annum as rate of interest, as justifiable.
7. Further, reliance was placed on this court’s judgment in Secretary, Irrigation
Department, State of Orissa v. G.C. Roy7 to argue that when the agreement between the
parties does not prohibit grant of interest and where the party claims interest in the dispute
referred to an arbitrator, then the arbitrator does have the power to award interest
pendente lite.
8. Mr. Vikramjit Banerjee, Additional Solicitor General (ASG), appearing on behalf of
the Respondent-state, argued that the impugned judgment had taken a holistic view of the
matter, and rightfully reduced the interest from 18% compound interest to 9% simple
interest, in addition to disallowing Claim No. 6 of ₹3,00,000 awarded by the arbitrator for
non-issuance of tender. The High Court, it was urged, had considered all the aspects of
the Indian Contract Act, 1872 and the Arbitration and Conciliation Act, 1996 before
deciding to reduce the interest to a more reasonable rate.
9. It was asserted that even the counsel for the appellants at the time, before the High
Court, had agreed that the statutory rate of interest should be 1 or 2% higher or lower than

3
[2019] 5 SCR 152
4
[2018] 5 SCR 138
5
(2017) 14 SCC 323
6
[2019] 11 SCR 640
7
[1991] Supp. 3 SCR 417
2
the bank rate, which in the last decade has been about 7-8%. As a result, 18% compound
rate of interest was completely unjustified, and warranted revision.
10. The ASG relied on several judgments of this court: Municipal Corporation of Greater
Mumbai and Anr v. Pratibha Industries Ltd. & Ors.8 to stress on the scope of the inherent
powers of the High Court as a constitutional court; Oriental Structural Engineers Pvt. Ltd.
v. State of Kerala 9 wherein the contract did not stipulate a rate of interest, and 18%
awarded by the tribunal was held to be excessive and therefore, reduced to 8% simple
interest by this court; and similarly Post Graduate Institute of Medical Education and
Research, Chandigarh v. Kalsi Construction Company10 wherein this court reduced the
rate of interest from 18% awarded by the tribunal, to 9% simple interest, despite 18%
having been the agreed upon rate of interest, given that the award was passed roughly
20 years prior.
Analysis and conclusion
11. Section 31(7)(b) of the 1996 Act, was amended by Act 3 of 2016, w.e.f. 23.10.2015.
The pre-amended provision, empowers the arbitrator to award both pre-award and post-
award interest, and specifies that the awarded sum would carry an interest of 18% per
annum, unless provided otherwise, from the date of award till the date of payment. The
pre-amended section, as it stood on the date of award by the arbitrator (21.01.1999), read
as follows:
“31. Form and contents of arbitral award
[…]
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the
payment of money, the arbitral tribunal may include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole
or any part of the period between the date on which the cause of action arose and the date on
which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry
interest at the rate of eighteen per centum per annum from the date of the award to the date of
payment.”
(emphasis provided)
12. This court in Shahi & Associates (supra), which was relied upon by the appellants,
dealt with a similar situation as the present factual matrix, and is squarely applicable:
“11. Section 31(7)(b) of the 1996 Act clearly mandates that, in the event the arbitrator does not
give any specific directions as regards the rate of interest on the amount awarded, such amount
“shall” carry interest @ 18% p.a. from the date of award till the date of payment. Since the
Arbitration Act, 1940 has been repealed by way of Section 85 of the 1996 Act, the Schedule to
the Arbitration Act, including the State amendment, also stands repealed. The only exception is
provided in sub-section (2)(a) of Section 85 where a proceeding which had commenced when the
Arbitration Act of 1940 was in force and continued even after coming into force of the 1996 Act,
and all parties thereto agreed for application of the old Act of 1940. Therefore, the provisions of
Arbitration Act, 1940 including the State amendment, namely, para 7-A inserted by Section 24 of
the U.P. Amendment Act will have no application to the proceedings commenced after coming
into force of the 1996 Act.

8
[2018] 14 SCR 1143
9
[2021] 4 SCR 137
10
(2019) 8 SCC 726
3
12. In the instant case, though the agreement was earlier to the date of coming into force of the
1996 Act, the proceedings admittedly commenced on 27-101999 and were conducted in
accordance with the 1996 Act. If that be so, para 7-A inserted by Section 24 of the U.P.
Amendment Act has no application to the case at hand. Since the rate of interest granted by the
arbitrator is in accordance with Section 31(7)(b) of the 1996 Act, the High Court and the District
Judge were not justified in reducing the rate of interest by following the U.P. Amendment Act.”
13. In the present case, 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. Unlike in the case of the old Act, the court is powerless to modify
the award and can only set aside partially, or wholly, an award on a finding that the
conditions spelt out under Section 34 of the 1996 Act have been established. The scope
of interference by the court, is well defined and delineated [refer to Associate Builders v.
Delhi Development Authority11, Ssangyong Engineering Construction Co. Ltd v. National
Highways Authority of India (NHAI) 12 and Delhi Airport Metro Express Pvt. Ltd. v Delhi
Metro Rail Corporation Ltd13].
14. The reliance on Kalsi Construction Company (supra) by the respondentstate, is
inapt, given that this court had exercised its Article 142 jurisdiction in light of three pertinent
factors – the award had been passed 20 years prior, related to construction of a
Paediatrics Centre in a medical institute, and that the parties in that case had left the
matter to the discretion of the court. Similarly, in Oriental Structural Engineers (supra) this
court held that since the contract stipulated interest entitlement on delayed payments, but
contained no mention of the rate of interest applicable – the Tribunal ought to have applied
the principles laid down in G.C. Roy (supra), and therefore, in exercise of Article 142, this
court reduced the rate of interest awarded by the tribunal on the sum left unpaid. The
judgment in Municipal Corporation of Greater Mumbai (supra) no doubt discusses the
inherent powers of the High Court as a superior court of record, but relates specifically to
the jurisdiction to recall its own orders, and offers little assistance in the present dispute.
15. The limited and extremely circumscribed jurisdiction of the court under Section 34
of the Act, permits the court to interfere with an award, sans the grounds of patent illegality,
i.e., that “illegality must go to the root of the matter and cannot be of a trivial nature”; and
that the tribunal “must decide in accordance with the terms of the contract, but if an
arbitrator construes a term of the contract in a reasonable manner, it will not mean that
the award can be set aside on this ground” [ref: Associate Builders (supra)]. The other
ground would be denial of natural justice. 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

11
[2014] 13 SCR 895
12
[2019] 7 SCR 522
13
[2021] 5 SCR 984
14
“15. Power of court to modify award.—The court may by order modify or correct an award—
(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from
the other part and does not affect the decision on the matter referred; or
(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such
decision; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.”
4
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.
This position has been iterated decisively by this court in Project Director, National
Highways No. 45E and 220 National Highways Authority of India v M. Hakeem15:
“42. It can therefore be said that this question has now been settled finally by at least 3 decisions
[McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v.
Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli
Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even
otherwise, to state that the judicial trend appears to favour an interpretation that would read into
Section 34 a power to modify, revise or vary the award would be to ignore the previous law
contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the
Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out
in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial
interference on extremely limited grounds not dealing with the merits of an award, the “limited
remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an
award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration
Act, 1996.”
16. In view of the foregoing discussion, the impugned judgment warrants interference
and is hereby set aside to the extent of modification of rate of interest for past, pendente
lite and future interest. The 18% per annum rate of interest, as awarded by the arbitrator
on 21.01.1999 (in Claim No. 9) is reinstated. The respondent-state is hereby directed to
accordingly pay the dues within 8 weeks from the date of this judgment.
17. The present appeal, and pending application(s) if any, stand disposed of in the
above terms, with no order as to costs.

© All Rights Reserved @LiveLaw Media Pvt. Ltd.

15
[2021] 5 SCR 368
5