Case Note & Summary
The judgment arises from two arbitration appeals under Section 37 of the Arbitration and Conciliation Act, 1996, challenging a common order dated 25th January 2020 passed by the learned District Judge, Thane, in Civil Miscellaneous Application (Arbitration) No.35 of 2012 and Civil Miscellaneous Application (Arbitration) No.76 of 2013. The appeals were filed by Upendra Kantilal Thanawala and others (the original claimants) and Shreeram Builders (the original respondent) against the order which partly set aside the arbitral award dated 10th December 2011 passed by the Majority Arbitral Tribunal. The dispute arose from an Agreement for Development dated 11th February 2003, whereby Vyomesh Kantilal Thanawala granted development rights in respect of his 1/9th share in a larger property to Shreeram Builders. The agreement included a bungalow on the property. Disputes arose regarding the performance of the agreement, leading to arbitration. The arbitral tribunal awarded damages in favor of the claimants for breach of contract, including loss of profit and interest. The District Judge set aside the award on the ground that the tribunal had erred in awarding damages and interest. The High Court, after hearing arguments, held that the District Judge exceeded his jurisdiction under Section 34 by re-appreciating evidence. The court restored the award of damages but set aside the award of compound interest, holding that interest on damages is permissible from the date of breach but compound interest requires agreement. The court allowed the appeal of the claimants in part and dismissed the appeal of Shreeram Builders.
Headnote
A) Arbitration - Section 37 of the Arbitration and Conciliation Act, 1996 - Appeal against order setting aside arbitral award - The court considered whether the District Judge exceeded jurisdiction under Section 34 by re-appreciating evidence and substituting its own view. Held that the District Judge's interference was not warranted as the award was not patently illegal or against public policy (Paras 1-10).
B) Contract - Section 73 of the Indian Contract Act, 1872 - Damages for breach of contract - The court examined whether the claimant was entitled to damages for loss of profit and interest. Held that the claimant proved breach and loss, and the award of damages was justified (Paras 11-20).
C) Interest - Section 31(7) of the Arbitration and Conciliation Act, 1996 - Award of interest on damages - The court considered whether the arbitral tribunal could award interest on the amount of damages from the date of breach. Held that interest is permissible from the date of cause of action, but compound interest awarded by the tribunal was set aside as it was not agreed upon (Paras 21-30).
Issue of Consideration
Whether the learned District Judge erred in setting aside the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, and whether the award of interest on damages was permissible.
Final Decision
The High Court allowed Arbitration Appeal (St.) No.93127 of 2020 in part, setting aside the impugned order to the extent it set aside the award of damages and simple interest, and restored the award of damages with simple interest at 12% per annum from the date of the award. The court dismissed Arbitration Appeal (St.) No.5662 of 2020. The award of compound interest was set aside.
Law Points
- Section 37 of the Arbitration and Conciliation Act
- 1996
- Section 34 of the Arbitration and Conciliation Act
- Section 73 of the Indian Contract Act
- 1872
- Section 55 of the Indian Contract Act
- Interest on damages
- Compound interest
- Arbitral award setting aside
- Development agreement
- Breach of contract
Case Details
2024 LawText (BOM) (03) 44
Arbitration Appeal (St.) No.93127 of 2020 and Arbitration Appeal (St.) No.5662 of 2020
Mr. Sanjay Jain, Amrut Joshi, Nakul Jain with Sneha Patil and Vrinda Samdani i/b. Maniar Srivastava Associates for the Appellant in ARA ST No.93127 of 2020 and Respondent in ARAST No.5662 of 2020; Mr. Girish Godbole, Senior Advocate i/b. Parag Tilak, Rahul Soman and Deepashikha Godbole for the Respondents in ARAST No.93127 of 2020 and Appellant in ARAST No.5662 of 2020.
Upendra Kantilal Thanawala & Ors. (in ARA ST No.93127/2020); Shreeram Builders (in ARA ST No.5662/2020)
Shreeram Builders (in ARA ST No.93127/2020); Upendra Kantilal Thanawala & Ors. (in ARA ST No.5662/2020)
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Nature of Litigation
Appeals under Section 37 of the Arbitration and Conciliation Act, 1996 against an order of the District Judge setting aside an arbitral award.
Remedy Sought
The appellants in both appeals sought setting aside of the impugned judgment and order dated 25th January 2020 in so far as it dismissed their respective applications under Section 34 of the Act.
Filing Reason
The District Judge set aside the arbitral award dated 10th December 2011, which had awarded damages and interest to the claimants for breach of a development agreement.
Previous Decisions
The learned District Judge, Thane, by judgment and order dated 25th January 2020, dismissed Civil Miscellaneous Application (Arbitration) No.35 of 2012 and Civil Miscellaneous Application (Arbitration) No.76 of 2013, thereby setting aside the arbitral award.
Issues
Whether the District Judge erred in setting aside the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
Whether the arbitral tribunal's award of damages and interest was patently illegal or against public policy.
Whether the award of compound interest on damages was permissible.
Submissions/Arguments
The appellants (claimants) argued that the District Judge exceeded his jurisdiction by re-appreciating evidence and substituting his own view, which is not permissible under Section 34.
The respondent (Shreeram Builders) argued that the award was patently illegal as the tribunal awarded damages without proper proof of loss and awarded compound interest without agreement.
Ratio Decidendi
The court held that under Section 34 of the Arbitration and Conciliation Act, 1996, the court cannot re-appreciate evidence and substitute its own view unless the award is patently illegal or against public policy. The award of damages for breach of contract under Section 73 of the Indian Contract Act, 1872 is permissible if loss is proved. Interest on damages is allowable from the date of cause of action, but compound interest requires agreement between parties.
Judgment Excerpts
By Arbitration Appeal (St.) No.93127 of 2020, the Appellants have challenged the impugned judgment and order dated 25th January, 2020 passed by the learned District Judge, Thane in Civil Miscellaneous Application (Arbitration) No.35 of 2012.
The Appellants in Arbitration Appeal (St.) No.93127 of 2020 – Upendra Kantilal Thanawala together with his brothers Pankaj and Vyomesh equally own 1/3rd share of their late father Kantilal’s share in the larger property.
Procedural History
The dispute arose from an Agreement for Development dated 11th February 2003. Disputes led to arbitration, and the Majority Arbitral Tribunal passed an award on 10th December 2011. The respondent filed CMA No.35 of 2012 and the claimants filed CMA No.76 of 2013 under Section 34 of the Arbitration Act to set aside the award. Both applications were clubbed and dismissed by the District Judge on 25th January 2020, thereby setting aside the award. Both parties appealed under Section 37 to the High Court.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 37, Section 34, Section 31(7)
- Indian Contract Act, 1872: Section 73, Section 55
