Case Note & Summary
The petitioner, Hindustan Petroleum Corporation Limited (HPCL), challenged an arbitral award dated 21 February 2012 under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute arose from a contract for composite works (mechanical, electrical, and instrumentation) for terminals and stations at Awa, Ajmer, and Jaipur as part of the Mundra Delhi Pipeline Project. The respondent, Offshore Infrastructure Limited, was awarded the contract via a Fax of Acceptance dated 7 July 2006 at a total cost of Rs.19,95,30,359.78 with a completion period of 7 months. The project was delayed, and time extensions were granted. The respondent claimed amounts for work done, and the matter was referred to arbitration. The arbitral tribunal allowed claims 1 to 4 and awarded interest at 18% per annum compounded quarterly from various dates. HPCL challenged the award on the grounds that the interest awarded was contrary to the contract and public policy. The court held that the award of pre-reference interest was not permissible as the contract did not provide for interest prior to the reference. The court also held that the award of compound interest was contrary to the contract which provided for simple interest. The court modified the award to simple interest at 18% per annum from the date of the award till payment. The petition was partly allowed.
Headnote
A) Arbitration - Section 34 Challenge - Public Policy - Interest - The court examined whether the arbitral tribunal's award of interest at 18% per annum compounded quarterly was contrary to the contract and public policy. The court held that the award of pre-reference interest was not permissible as the contract did not provide for interest prior to the reference, and the award of compound interest was contrary to the contract which provided for simple interest. The court modified the award to simple interest at 18% per annum from the date of the award till payment. (Paras 1-16) B) Arbitration - Interest - Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 - The court interpreted Section 31(7)(b) which allows interest from the date of the award unless otherwise agreed. The court held that the tribunal's award of interest from the date of the award at 18% per annum compounded quarterly was not in accordance with the contract which provided for simple interest. The court reduced the interest to simple interest at 18% per annum from the date of the award. (Paras 10-16) C) Arbitration - Unilateral Appointment of Arbitrator - Waiver - The court noted that the petitioner had not objected to the appointment of the arbitrator despite knowing the procedure, and thus waived the right to challenge the award on that ground. (Para 8)
Issue of Consideration
Whether the arbitral award granting pre-reference, pendente lite, and post-award interest at 18% per annum compounded quarterly is contrary to the contract and public policy under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The petition is partly allowed. The arbitral award is modified to the extent that the respondent shall be entitled to simple interest at 18% per annum from the date of the award till payment. The award of pre-reference interest is set aside. The award of pendente lite interest is upheld but modified to simple interest.
Law Points
- Section 34 of the Arbitration and Conciliation Act
- 1996
- Public policy
- Interest under Section 31(7)(b) of the Arbitration Act
- Pre-reference interest
- Pendente lite interest
- Post-award interest
- Compound interest
- Unilateral appointment of arbitrator
- Waiver of right to object
