Case Note & Summary
The petitioner, Bharat Sanchar Nigam Ltd. (BSNL), a statutory body, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 22nd January 2013. The dispute arose from a contract for displaying route maps in local trains, where BSNL entrusted the work to the respondent, Media Marketing Services (MMS), for a period of one year from December 2007. The contract value was Rs.63 lacs, with payment on a quarterly basis. BSNL alleged that the respondent failed to display correct logos, leading to termination of the contract. The arbitrator awarded Rs.17,07,517/- inclusive of interest and service tax, with further interest at 24% compound per annum from the date of award till realization, and costs of Rs.2,35,000/-. BSNL challenged the award on the ground that the interest rate was exorbitant and contrary to public policy. The court analyzed the award and found that while the arbitrator had discretion to award interest, the rate of 24% compound interest was patently illegal and against public policy. The court reduced the interest to 18% simple interest per annum from the date of award till realization, but upheld the rest of the award including the costs. The petition was partly allowed.
Headnote
A) Arbitration - Section 34 Challenge - Public Policy - Interest Rate - The court examined whether an arbitral award granting 24% compound interest per annum from the date of award till realization is contrary to public policy under Section 34 of the Arbitration and Conciliation Act, 1996. The court held that the rate of interest was exorbitant and reduced it to 18% simple interest per annum, finding that the award of compound interest at 24% was patently illegal and against public policy. (Paras 5-10) B) Arbitration - Section 34 Challenge - Costs - The court considered the challenge to the award of costs of Rs.2,35,000/- in favor of the respondent. The court held that the award of costs was not interfered with as it was within the discretion of the arbitrator and not shown to be perverse or contrary to law. (Para 11)
Issue of Consideration
Whether the arbitral award granting 24% compound interest and costs is contrary to public policy and patently illegal under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court partly allowed the petition. The arbitral award was modified to the extent that the interest rate from the date of award till realization was reduced from 24% compound per annum to 18% simple interest per annum. The rest of the award, including the costs, was upheld.
Law Points
- Section 34 of Arbitration and Conciliation Act
- 1996
- Public policy
- Interest rate
- Compound interest
- Arbitral award
- Reasoned award
