Case Note & Summary
The petitioners, Ashwin Crane & Construction and Ashwin Virji Dhame, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 7 July 2011. The dispute arose from a hire purchase agreement dated 11 October 2000 between the petitioners and L & T Finance Ltd. Under the agreement, the respondent provided machinery to the petitioner on hire purchase basis for a total hire charge of Rs.88,42,392/- payable in 36 monthly installments of Rs.2,45,622/-. Clause 12 of the agreement provided for additional finance charges at 3% per month (36% per annum) on delayed payments. The petitioners defaulted, and the respondent invoked arbitration. The arbitrator awarded Rs.56,44,422/- with delayed payment charges at 36% per annum from 30 November 2001 to 3 June 2002 and at 24% per annum thereafter. The petitioners challenged the award on the ground that the interest rate of 36% per annum was penal and contrary to public policy. The court analyzed the terms of the agreement and the arbitrator's reasoning. It noted that the agreement itself provided for 36% per annum as additional finance charges, but after 4 June 2002, the respondent had agreed to 24% per annum. The court held that the rate of 36% per annum was penal and excessive, and reduced it to 24% per annum for the entire period, as being reasonable and not contrary to public policy. The court partially allowed the petition, modifying the award to reduce the interest rate to 24% per annum from the date of default till payment.
Headnote
A) Arbitration Law - Challenge to Arbitral Award - Section 34 of the Arbitration and Conciliation Act, 1996 - Public Policy - The court considered whether an arbitral award granting interest at 36% per annum on delayed hire charges under a hire purchase agreement was contrary to public policy. The court held that the rate of 36% per annum was penal and excessive, and reduced it to 24% per annum, which was the rate agreed after a certain date, as being reasonable and not contrary to public policy (Paras 1-28).
Issue of Consideration
Whether the arbitral award granting interest at 36% per annum on delayed hire charges is contrary to public policy and liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court partially allowed the petition and modified the arbitral award to reduce the interest rate from 36% per annum to 24% per annum for the period from 30 November 2001 to 3 June 2002, and confirmed the rate of 24% per annum thereafter. The award was otherwise upheld.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 34
- Public Policy
- Interest Rate
- Penal Interest
- Hire Purchase Agreement
