Case Note & Summary
The Jawahar Nehru Port Trust (petitioner) filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 20 December 2017. The award allowed a claim of Rs.74,16,707/- in favor of Starlog Enterprises Ltd. (respondent), which amount had been deducted by the petitioner from the respondent's bills under Clause (23) of the contract for maintenance charges. The arbitrator found that the deduction was permissible under the contract but held that the petitioner's right to deduct was barred by limitation, thus ordering refund. The arbitrator also awarded interest at 15% per annum from the date of deduction to the date of award and continuing. The petitioner argued that the arbitrator's finding on limitation was erroneous and that the interest award was contrary to Clause (42) of the contract which expressly prohibited interest on delayed payments. The respondent supported the award, submitting that the deduction was made in April 2002 and the claim was not time-barred. The court examined the submissions and held that the award of interest was patently illegal as it contradicted the express contractual prohibition in Clause (42). Accordingly, the court set aside the interest portion of the award. However, the court dismissed the challenge to the refund of the deducted amount, finding that the arbitrator's view on limitation was a plausible interpretation and not open to interference under Section 34. The petition was partly allowed, with the interest award set aside and the rest of the award upheld.
Headnote
A) Arbitration Law - Section 34 of Arbitration and Conciliation Act, 1996 - Challenge to Arbitral Award - The court considered whether the arbitral award allowing refund of deducted maintenance charges and awarding interest was patently illegal. The court held that the award of interest was contrary to the express contractual clause (Clause 42) which prohibited interest, and thus set aside the interest portion. However, the challenge to the refund of maintenance charges was dismissed as the arbitrator's finding on limitation was a plausible view. (Paras 2-6) B) Contract Law - Clause 42 of Contract - Prohibition of Interest - The contract between the parties expressly provided that no interest shall be payable on delayed payments. The arbitral tribunal awarded interest at 15% per annum from the date of deduction to the date of award. The court held that such award was in the teeth of the contractual provision and thus patently illegal, setting aside the interest award. (Paras 3-4) C) Limitation Act - Counterclaim - Time Barred - The petitioner's counterclaim was rejected by the arbitrator as time barred. The court did not interfere with this finding as it was a plausible view based on the facts. (Para 5)
Issue of Consideration
Whether the arbitral tribunal erred in allowing the claim for refund of deducted maintenance charges despite finding the deduction permissible under the contract, and whether the award of interest at 15% per annum was contrary to the contractual clause prohibiting interest.
Final Decision
The petition is partly allowed. The impugned award insofar as it awards interest at 15% per annum from the date of deduction to the date of award and from the date of award till payment is set aside. The rest of the award is upheld.
Law Points
- Arbitral award can be set aside under Section 34 of Arbitration and Conciliation Act
- 1996 if it is in conflict with public policy or patently illegal
- Interest cannot be awarded contrary to express contractual prohibition
- Limitation for counterclaim runs from date of cause of action
