Case Note & Summary
The petitioner, M/s P.N. Writer & Co. Pvt. Ltd., challenged an arbitral award dated 13 February 2012 under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute arose from a construction contract for extension of a warehouse at Vandalur, Tamil Nadu, where the respondent, M/s Mesuka Engineering Co. Pvt. Ltd., was the contractor. The contract was for Rs. 2,12,45,500 with a completion date of 31 December 2006. The respondent abandoned work in August/September 2007, leading to disputes. A winding up petition was filed, and by order dated 23 September 2009, the High Court referred all disputes to arbitration. The arbitrator allowed some claims of the respondent and rejected the petitioner's counter claims. The petitioner challenged the award on grounds of patent illegality, specifically the award of interest on interest and pendente lite interest on mobilisation advance, and the rejection of counter claims. The court held that the award of interest on interest was not permissible under the contract and amounted to patent illegality. The award of pendente lite interest on mobilisation advance was contrary to the express terms of the contract. The rejection of counter claims was set aside and remitted for fresh consideration. The petition was partly allowed.
Headnote
A) Arbitration Act - Section 34 - Setting Aside Award - Public Policy - Patent Illegality - The court examined whether the arbitral award granting interest on interest and pendente lite interest on mobilisation advance was contrary to the contract and law. Held that the award of interest on interest was not permissible under the contract and amounted to patent illegality, and the award of pendente lite interest on mobilisation advance was contrary to the express terms of the contract. (Paras 1-30) B) Arbitration Act - Section 31(7)(a) - Interest - Award of Interest on Interest - The arbitrator awarded interest on the amount of interest already accrued, which was not provided for in the contract. Held that such award is contrary to the public policy of India and liable to be set aside. (Paras 15-20) C) Arbitration Act - Section 34 - Counter Claims - Rejection Without Consideration - The arbitrator rejected the counter claims of the petitioner without properly considering the evidence and submissions. Held that the rejection of counter claims was not sustainable and the matter was remitted for fresh consideration. (Paras 25-30)
Issue of Consideration
Whether the arbitral award granting interest on interest and pendente lite interest on mobilisation advance is contrary to the terms of the contract and the law, and whether the rejection of counter claims without proper consideration is sustainable.
Final Decision
The petition is partly allowed. The impugned award is set aside to the extent of award of interest on interest and pendente lite interest on mobilisation advance. The rejection of counter claims is set aside and the matter is remitted to the arbitrator for fresh consideration of counter claims. The rest of the award is upheld.
Law Points
- Arbitral award can be set aside if it is in conflict with the public policy of India
- including patent illegality appearing on the face of the award
- Arbitrator cannot award interest on interest unless contract provides
- Pendente lite interest on mobilisation advance cannot be awarded when contract stipulates interest only after specified period
- Counter claims cannot be rejected without considering evidence
- Section 34 of Arbitration and Conciliation Act
- 1996
- Section 31(7)(a) of Arbitration and Conciliation Act
