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SUPREME COURT OF INDIA
(From the High Court of Himachal Pradesh at Shimla)
N.V. RAMANA, CJI., A.S. BOPANNA, HIMA KOHLI, JJ.
UHL Power Company Ltd. – Appellant
Versus
State of Himachal Pradesh – Respondent
With
State of Himachal Pradesh – Appellant
Versus
UHL Power Company Ltd. – Respondent
Civil Appeal Nos. 10341, 10342 of 2011
Decided On : 07-01-2022
(A) Arbitration and Conciliation Act, 1996 – Section 37 – Appeal against arbitral award – Post-award interest can be granted by Arbitrator on interest amount awarded – Findings returned in impugned judgment insofar as it relates to grant of interest component, reversed while restoring arbitral award on above aspect in favour of UHL – Single Judge committed gross error in re-appreciating findings returned by Arbitral Tribunal and taking an entirely different view in respect of interpretation of relevant clauses of Implementation Agreement governing parties inasmuch as it was not open to said Court to do so in proceedings under Section 34 of Arbitration Act, by virtually acting as a Court of Appeal. (Paras 4, 6 and 14)
(B) Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Petition/Appeal against arbitral award – Jurisdiction conferred on Courts under Section 34 of Arbitration Act is fairly narrow, when it comes to scope of an appeal under Section 37 of Arbitration Act, jurisdiction of Appellate Court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed – If there are two plausible interpretations of terms and conditions of contract, then no fault can be found, if Arbitrator proceeds to accept one interpretation as against other – In instant case, interpretation of relevant clauses of Implementation Agreement, as arrived at by Sole Arbitrator, are both, possible and plausible – Merely because another view could have been taken, can hardly be a ground for Single Judge to have interfered with arbitral award – In given facts and circumstances of case, Appellate Court has rightly held that Single Judge exceeded his jurisdiction in interfering with award by questioning interpretation given to relevant clauses of Implementation Agreement, as reasons given are backed by logic – Decision of Appellate Court that has restored findings returned in arbitral award, upheld. (Paras 15, 17, 21 and 22)
Facts of the case:
Both the present appeals arise from a common judgment dated 24th May, 2011, passed by High Court of Himachal Pradesh partly allowing Arbitration Appeal No. 2 of 2009 filed by UHL Power Company Limited1 under Section 37 of the Arbitration and Conciliation Act, 1996. UHL has filed Civil Appeal No. 10342 of 2011 and the State of Himachal Pradesh has filed Civil Appeal No. 10342 of 2011, as both the parties are aggrieved by the impugned judgment.
Findings of Court:
Civil Appeal No. 10341 of 2011 preferred by UHL is partly allowed to the extent mentioned in para 6 above, while Civil Appeal No. 10342 of 2011 filed by the State of Himachal Pradesh is rejected in toto. Parties are left to bear their own costs.
Result : Appeals Partly allowed.
Certainly. Based on the provided legal document, the key points are as follows:
Post-award interest can be awarded by the Arbitrator on the amount awarded, including interest components (!) .
When there are two plausible interpretations of contractual terms and conditions, the court or tribunal should not find fault if the Arbitrator chooses one interpretation over the other, provided both are reasonable and supported by the evidence (!) (!) .
The jurisdiction of courts under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, is limited. Courts do not sit as appellate bodies over arbitral awards and should only interfere on specific grounds such as perversity or violations of public policy (!) (!) (!) .
Interference by courts with arbitral awards is only justified if the award demonstrates perversity or contravenes fundamental policies or statutes, not merely because another interpretation could be plausible (!) (!) .
The interpretation of contractual clauses by the Arbitrator, if both plausible, should be respected by courts, and the courts should avoid re-evaluating factual or contractual interpretations unless there is clear perversity or illegality (!) (!) .
The scope of judicial review is narrow, emphasizing respect for the arbitral tribunal's expertise and reasoning, especially when the reasoning is logical and supported by evidence (!) (!) .
The courts have consistently held that they should not interfere with arbitral awards based on alternative interpretations of facts or contractual provisions, unless such interpretations are unreasonable or unsupported by the evidence (!) (!) .
In cases of ambiguity or multiple plausible interpretations, the Arbitrator’s choice is to be upheld, and courts should refrain from substituting their judgment unless there is a clear legal or logical error (!) .
The validity of contractual merger clauses and the integration of earlier agreements with subsequent ones depend on clear recitals and definitions within the contractual documents. If the documents explicitly or implicitly incorporate earlier agreements, they are considered merged (!) (!) .
The timing and conditions for the commencement of contractual obligations, including project start dates and related extensions, should be interpreted in accordance with the specific clauses, definitions, and recitals, giving effect to the parties' intentions (!) (!) .
The arbitral award and the interpretation of contractual clauses should be given deference, especially when the reasoning is backed by logic and evidence, and courts should avoid re-interpretation unless necessary (!) .
The courts' role is to ensure that arbitral procedures and awards comply with legal standards, not to re-assess factual findings or contractual interpretations that are within the Arbitrator's expertise (!) (!) .
Please let me know if you need further clarification or assistance.
JUDGMENT :
HIMA KOHLI, J.
1. Both the present appeals arise from a common judgment dated 24th May, 2011, passed by the High Court of Himachal Pradesh partly allowing Arbitration Appeal No. 2 of 2009 filed by UHL Power Company Limited1 [for short ‘UHL’] under Section 37 of the Arbitration and Conciliation Act, 19962 [for short ‘the Arbitration Act’]. UHL has filed Civil Appeal No. 10342 of 2011 and the State of Himachal Pradesh 3 [for short ‘the State’] has filed Civil Appeal No. 10342 of 2011, as both the parties are aggrieved by the impugned judgment.
2. Though several grounds have been taken by UHL in its appeal to assail the impugned judgment, Mr. Jaideep Gupta, learned senior counsel for UHL has 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 award dated 05th June, 2005, the learned Sole Arbitrator had awarded a sum of Rs. 26,08,89,107.35 paise (Rupees Twenty six crores eight lakhs eighty nine thousand one hundred and seven and thirty five paise) 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.
3. Dissatisfied with the award, when the State of H.P. filed a petition under Section 34 of the Arbitration Act, vide judgment dated 16th December, 2008, the learned Single Judge disallowed the entire claim of UHL. The said judgment was challenged by UHL in a petition filed under Section 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 Rs. 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 vs. S.L. Arora and Co. (2010) 3 SCC 690, 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.
4. By now, the aforesaid aspect has been set at rest by a three-Judge Bench of this Court in Hyder Consulting (UK) Ltd. vs. Governor, State of Orissa through Chief Engineer, (2015) 2 SCC 189 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. Writing for the majority, Justice Bobde (as His Lordship then was) has held thus:
Section 31(7)(a) of Act deals with grant of pre-award interest.
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An arbitral award can only be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 if the appellant establishes that the award is in conflict with the public policy of India, is p....
The court confirmed that judicial interference in arbitral awards is limited to cases of patent illegality or perverse findings, respecting the finality of arbitration.
The judgment emphasizes the limited scope of interference with arbitral awards and the principle that courts should not interfere with arbitral awards unless there is a patent illegality or violation....
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