Case Note & Summary
The petitioner, Aero Club, filed two petitions under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 14th December 2015 and a partial final award dated 5th June 2015 passed by the learned arbitrator. The respondent, Solar Creations Pvt. Ltd., was the original claimant in the arbitration proceedings. The respondent was engaged in the business of designing, manufacturing, marketing, distribution and sale of garments, leather accessories and other related products. The dispute arose out of an Agency Agreement dated 20th October 2005, under which the respondent claimed certain amounts for goods supplied and services rendered. The arbitrator allowed some of the claims of the respondent and awarded interest at 18% per annum from the date of each invoice. The petitioner challenged the award on the ground that the interest awarded was contrary to the terms of the contract, which provided for interest only from the date of cause of action. The court examined the relevant clauses of the Agency Agreement and found that the contract expressly stated that interest would be payable from the date of cause of action. The court held that the arbitrator's award of interest from the date of each invoice was patently illegal and against the public policy of India. The court set aside the award to the extent of interest and remitted the matter to the arbitrator for recalculation of interest from the date of cause of action. The court also upheld the other parts of the award, including the claim for outstanding invoices. The petitions were disposed of accordingly.
Headnote
A) Arbitration Law - Section 34 of the Arbitration and Conciliation Act, 1996 - Challenge to Arbitral Award - The petitioner challenged the arbitral award on the ground that the arbitrator awarded interest at 18% per annum from the date of each invoice, which was contrary to the contract that provided for interest only from the date of cause of action. The court held that the award of interest from the date of each invoice was patently illegal and against the terms of the contract, and remitted the matter to the arbitrator for recalculation of interest from the date of cause of action. (Paras 10-15) B) Arbitration Law - Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 - Interest - The court interpreted Section 31(7)(a) to mean that unless otherwise agreed by the parties, interest shall run from the date of cause of action, not from the date of each invoice. The contract between the parties provided for interest from the date of cause of action, and the arbitrator's deviation was held to be patently illegal. (Paras 12-14) C) Contract Law - Agency Agreement - Interpretation of Interest Clause - The Agency Agreement dated 20th October 2005 provided that interest would be payable at 18% per annum from the date of cause of action. The arbitrator's award of interest from the date of each invoice was contrary to this express term and thus liable to be set aside. (Paras 8-11)
Issue of Consideration
Whether the arbitral award granting interest at 18% per annum from the date of each invoice is contrary to the terms of the contract and Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, and whether the award is liable to be set aside under Section 34 of the Act.
Final Decision
The court partially set aside the arbitral award to the extent of interest and remitted the matter to the arbitrator for recalculation of interest from the date of cause of action. The rest of the award was upheld.
Law Points
- Section 34 of the Arbitration and Conciliation Act
- 1996
- Section 31(7)(a) of the Arbitration and Conciliation Act
- Interest Act
- 1978
- Agency Agreement
- Arbitral Award
- Public Policy
- Patent Illegality
