In a recent Supreme Court judgment, the court addressed the modification of an arbitral award by the High Court and the reduction of interest rate from 18% to 9%. Learn about the key arguments, legal provisions, and the court’s ruling in this case.

Introduction: A recent Supreme Court case involved an appeal against the Allahabad High Court’s modification of an arbitral award and the subsequent reduction of interest rate from 18% to 9%. The case pertained to a dispute between the appellant and the Union of India arising from a contract awarded based on a previous judgment. The appellant questioned whether the High Court’s modification of the arbitral award was justified.

Key Arguments: The appellant argued that the original arbitral award included a 24% pendente lite interest rate, which was consistent with pre-amended Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. They contended that the High Court erred in reducing the interest rate and referenced earlier judgments to support their claim.

The respondent-state contended that the High Court’s decision was reasonable and balanced, considering the Indian Contract Act, 1872, and the Arbitration and Conciliation Act, 1996. They relied on previous court decisions that had reduced interest rates and argued that the High Court’s modification was in line with those precedents.

Legal Provisions and Court’s Ruling: The court analyzed Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, which mandates an 18% per annum interest rate on arbitral awards, unless specified otherwise. The court pointed out that this provision applies if the arbitrator doesn’t specify a different rate.

The court clarified that the limited scope of Section 34 of the Act permits the court to either set aside or remand an award on specific grounds, without modifying the award. The court emphasized that modifying an award would be inconsistent with the Act’s provisions and international arbitration principles.

In light of these considerations, the court overturned the High Court’s modification and reinstated the original 18% per annum interest rate as awarded by the arbitrator. The respondent-state was directed to pay the dues within 8 weeks from the date of the judgment.

Conclusion: The Supreme Court’s judgment reiterates the limited scope of modifying arbitral awards under the Arbitration and Conciliation Act, 1996. The court’s decision emphasizes the importance of adhering to statutory provisions and established principles of arbitration, thereby maintaining the integrity of arbitral processes.

M/S LARSEN AIR CONDITIONING AND
REFRIGRATION COMPANY …APPELLANT(S)
VERSUS
UNION OF INDIA & ORS. …RESPONDENT(S)
decided by the Supreme Court of India on August 11, 2023.

By aor.sanjivnarang@gmail.com

Sanjiv Narang Adv. is an Advocate on Record in the Supreme Court of India. His qualifications include an LLB from University of Delhi and a Masters degree in Personnel Management from Panjab University,Chandigarh.In his more than 3 decades of experience, he has practiced law at the District, High Court and Supreme Court levels.He also has more than a decade of experience in the field of Management. He is the author of two books namely Laws for Women in India and Innovation, Why What and How.