Delhi High Court
Union Of India vs M/S Varindera Constructions Ltd on 1 April, 2026
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 13.02.2026
Judgment pronounced on: 01.04.2026
+ O.M.P. (COMM) 73/2024 & I.A. 43484/2024 (Seeking
withdrawal of amount deposited by petitioner)
UNION OF INDIA .....Petitioner
Through: Mr. Vikas Kumar Sharma,
Senior Central Government
Counsel.
versus
M/S VARINDERA CONSTRUCTIONS LTD. .....Respondent
Through: Ms. Risha Mittal and Mr. Md.
Adil Alam, Advocates.
CORAM:
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
HARISH VAIDYANATHAN SHANKAR, J.
1. The present Petition under Section 34 of the Arbitration and
Conciliation Act, 1996 1 has been filed impugning the Arbitral
Award dated 27.08.2023 along with the corrigendum dated
20.10.20232, passed by the learned Sole Arbitrator in disputes arising
out of Contract dated 03.11.2014 executed between the parties for the
construction of dwelling units under the Married Accommodation
Project at Jodhpur.
1
A&C Act
2
Arbitral Award
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2. By way of the present proceeding, the Petitioner seeks to assail
the Impugned Arbitral Award, principally on the ground that the
mandate of the learned Arbitrator had expired under Section 29A of
the A&C Act, prior to the pronouncement of the Award, and that the
grant of interest by the learned Arbitral Tribunal is legally
unsustainable.
BRIEF FACTS:
3. Shorn of unnecessary details, the facts germane to the
institution of the present Appeal are as follows:
I. Briefly stated, the disputes between the parties arise out of a
works contract awarded by Union of India3 to the Respondent
for the construction of dwelling units for Officers, JCOs and
ORs under the Married Accommodation Project at Jodhpur.
II. The contract was awarded pursuant to a Letter of Acceptance
dated 03.11.2014 for a total contract value of ₹138,95,30,116/-.
The date of commencement of the work was 27.11.2014 and the
stipulated period for completion of the project was 25 months,
with the original date of completion being 26.12.2016. The
work was eventually completed on 10.03.2017.
III. Upon completion of the work, the Respondent submitted its
final bill on 27.06.2017. The undisputed portion of the final bill
was paid by UOI on 30.11.2019. Certain disputes thereafter
arose between the parties, inter alia, concerning alleged delay
in payment of the final bill, claims relating to prolonged bank
guarantees, delayed or under payments of Running Account3
UOI
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Receipts 4 , and claims pertaining to deviation works and
additional items.
IV. In view of the disputes having arisen between the parties, an
Arbitral Tribunal comprising a learned Sole Arbitrator came to
be constituted pursuant to an Order dated 15.09.2020 passed by
this Court in ARB.P. 378/2020.
V. The learned Arbitrator entered upon reference and arbitral
proceedings commenced under the provisions of the A&C Act.
VI. During the course of the arbitral proceedings, the Respondent
filed its Statement of Claim raising several claims, including
interest on delayed payment of the final bill, losses on account
of prolonged bank guarantees, losses due to delayed and
underpayments of RARs, and claims relating to deviation works
and additional items. UOI filed its Statement of Defence
opposing the claims and also raised a counterclaim.
VII. The Petitioner claims that the pleadings in the arbitral
proceedings were completed on 24.05.2021.
VIII. During the pendency of the arbitral proceedings, UOI filed an
Application dated 10.04.2023 before the learned Arbitrator,
invoking Section 29A of the A&C Act, contending that the
mandate of the learned Arbitrator had expired and seeking
termination of the arbitral proceedings on that ground. The said
Application was heard by the learned Arbitrator and was
ultimately dealt with in the Impugned Award.
IX. The learned Sole Arbitrator thereafter rendered the Arbitral
Award dated 27.08.2023, whereby several claims of the4
RARs
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Respondent were partly allowed. Under the Award, amounts
were granted under different heads, including claims relating to
delayed payment of the final bill, losses arising from delayed
and underpayments of RARs, and certain additional works. In
aggregate, the Respondent was awarded amounts of
approximately ₹6 crores under various claims. The learned
Arbitrator further directed payment of interest at the rate of 12%
per annum on the sums awarded from 18.03.2020 till the date of
payment.
X. Subsequently, on the Petitioner‟s application, a corrigendum
dated 20.10.2023 was issued by the learned Arbitrator.
XI. Aggrieved by the said Award and the corrigendum thereto, UOI
has preferred the present Petition under Section 34 of the A&C
Act, contending that the Impugned Arbitral Award was
rendered after the expiry of the mandate of the learned
Arbitrator under Section 29A of the A&C Act and that the grant
of interest at the rate of 12% per annum is legally unsustainable.
CONTENTIONS ON BEHALF OF THE PETITIONER:
4. Learned counsel appearing on behalf of UOI would contend
that the Impugned Award is liable to be set aside primarily on the
ground that the mandate of the learned Sole Arbitrator had expired
under Section 29A of the A&C Act prior to the pronouncement of the
Arbitral Award. It would be submitted that the scheme of the A&C
Act mandates expeditious adjudication of disputes and prescribes a
strict timeline for rendering an arbitral award. According to the
Petitioner, once the pleadings in the arbitral proceedings stood
completed on 24.05.2021, the learned Arbitrator was required to
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render the Arbitral Award within a period of twelve months
therefrom.
5. Learned counsel for UOI would contend that the statutory
period of twelve months for rendering the Arbitral Award expired on
24.05.2022 and no extension of time was obtained either by mutual
consent of the parties or from the Court as contemplated under Section
29A of the A&C Act. It would thus be urged that upon expiry of the
prescribed period, the mandate of the learned Arbitrator stood
terminated by operation of law and the learned Arbitrator thereafter
became functus officio, and consequently, the Award rendered on
27.08.2023 is without jurisdiction and liable to be set aside.
6. Learned counsel would further submit that UOI had raised the
issue of expiry of mandate before the learned Arbitrator by filing an
Application dated 10.04.2023, invoking Section 29A of the A&C Act.
It would be contended that the said application was argued before the
learned Arbitrator and the matter was reserved for orders; however,
the learned Arbitrator did not adjudicate the said application
independently and instead proceeded to deal with the same while
rendering the Arbitral Award. According to the Petitioner, the
continuation of the arbitral proceedings despite the alleged expiry of
the mandate was contrary to the statutory framework of the A&C Act.
7. Learned counsel for UOI would further contend that the
reliance placed by the learned Arbitrator on the Orders passed by the
Hon‟ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020
for exclusion of the period between 15.03.2020 and 28.02.2022 is
misconceived. It would be submitted that even if the said period is
excluded for the purpose of computing the limitation, the learned
Arbitrator was still required to render the Award within the
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permissible statutory period thereafter. According to the Petitioner,
even on such computation, the Award rendered on 27.08.2023 would
fall beyond the permissible time limit prescribed under Section 29A of
the A&C Act.
8. In support of the aforesaid submission, learned counsel for UOI
would place reliance on the judgment of the Hon‟ble Supreme Court
in NBCC Ltd. v. J.G. Engineering Pvt. Ltd.5, wherein it was held that
an arbitrator is required to render the award within the time prescribed
under law or agreed between the parties and that in the absence of
consent of the parties for enlargement of time, the authority of the
arbitrator would cease upon expiry of the prescribed period.
9. Learned counsel for the Petitioner would further rely upon the
judgment of the Telangana High Court in Roop Singh Bhatty v. M/s
Shriram City Union Finance Limited6, wherein it was held that once
the statutory period prescribed for rendering the award expires, the
arbitrator becomes functus officio and any award passed thereafter
would be a nullity in the eyes of law.
10. Reliance would also be placed on the decision of the Madras
High Court in M/s Satyam Caterers Private Limited v. The Assistant
Commercial Manager7, wherein it was held that the Arbitral Tribunal
must complete the arbitral proceedings within the period stipulated
under Section 29A of the A&C Act and that any award rendered
beyond the permissible period without extension granted by the Court
would be patently illegal and liable to be set aside.
5
2010 (2) SCC 385
6
C.R.P.NO.1354 of 2021
7
O.P. No.592/2018 (Decision Date: 09.08.2018)
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11. Apart from the aforesaid jurisdictional challenge, learned
counsel for UOI would contend that the learned Arbitrator has erred in
awarding interest at the rate of 12% per annum on the sums awarded
to the Respondent. It would be submitted that the rate of interest
awarded by the learned Arbitrator is excessive and contrary to the
prevailing bank rates in the country.
12. Learned counsel would further contend that the learned
Arbitrator has granted interest on certain claims despite the absence of
any contractual stipulation entitling the Respondent to such interest. It
would be submitted that, in terms of Section 3(b) of the Interest Act,
19788, interest could be awarded only if a written demand notice had
been issued by the claimant claiming such interest. According to the
Petitioner, no such notice had been issued by the Respondent, and
therefore, the grant of past interest is legally unsustainable.
13. Learned counsel for UOI would also contend that the learned
Arbitrator has erred in awarding interest on account of the alleged
delay in payment of RARs. It would also be submitted that the learned
Arbitrator has proceeded on the assumption that the RARs were
required to be paid within seven days, which finding is stated to be
contrary to the settled position of law.
14. In this regard, reliance would be placed on the judgment of this
Court in M/s Vascon Engineers Ltd. v. Union of India9, wherein it
was observed that in the absence of any specific contractual
stipulation prescribing a time period for processing of bills, a
reasonable period of forty-five days could be taken as the benchmark
for determining delay. It would be contended that the learned
8
Interest Act
9
2021:DHC:2828
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Arbitrator has ignored the said principle and has erroneously
proceeded on the basis of a seven-day period while awarding interest.
15. Learned counsel for the Petitioner would therefore submit that
the Impugned Award suffers from patent illegality, jurisdictional error
and is contrary to the provisions of the A&C Act. It would
accordingly be prayed that the Impugned Award be set aside.
CONTENTIONS ON BEHALF OF THE RESPONDENT:
16. Per contra, learned counsel appearing on behalf of the
Respondent would contend that the present Petition under Section 34
of the A&C Act is wholly misconceived and is liable to be dismissed
in limine. It would be submitted that the grounds urged by UOI do not
fall within the limited scope of interference permissible under Section
34 of the A&C Act and that the Impugned Award does not suffer from
any patent illegality or jurisdictional error warranting interference by
this Court.
17. Learned counsel for the Respondent would first address the
contention of UOI regarding the alleged expiry of the mandate of the
learned Arbitrator under Section 29A of the A&C Act. It would be
submitted that UOI had filed an Application dated 10.04.2023 before
the learned Arbitrator, invoking Section 29A and alleging that the
mandate of the tribunal had expired on 24.05.2022. According to the
Respondent, the learned Arbitrator considered the said application in
detail and rejected the same in the Impugned Award.
18. Learned counsel would contend that the conduct of UOI itself
demonstrates that the objection relating to the expiry of the mandate is
an afterthought. It would be submitted that even though UOI claims
that the mandate of the tribunal had expired on 24.05.2022, the
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application invoking Section 29A was filed only on 10.04.2023,
nearly one year thereafter. It is urged that during this period, UOI
continued to participate in the arbitral proceedings without demur.
19. It would further be submitted that even after filing the said
application under Section 29A, UOI continued to participate in the
arbitral proceedings and addressed arguments on merits before the
learned Arbitrator. Learned counsel would submit that UOI
participated in the hearings conducted on 12.04.2023 and 21.04.2023
and also participated in the hearing conducted for the Respondent‟s
rejoinder arguments on 08.05.2023. It would therefore be contended
that the participation of UOI in the proceedings clearly indicates that
the mandate of the learned Arbitrator was accepted and cannot now be
challenged.
20. Learned counsel for the Respondent would further submit that
even after the Impugned Award was rendered on 27.08.2023, UOI
filed an application under Section 33 of the A&C Act seeking
correction in the rate of interest awarded by the learned Arbitrator.
According to the Respondent, such conduct on the part of UOI clearly
demonstrates that it accepted the jurisdiction and mandate of the
learned Arbitrator and therefore cannot now be permitted to contend
that the tribunal lacked jurisdiction.
21. Learned counsel would further contend that the objection raised
by UOI regarding the expiry of the mandate under Section 29A is also
untenable in view of the orders passed by the Hon‟ble Supreme Court
in Suo Motu Writ Petition (C) No. 3 of 2020, whereby the period
between 15.03.2020 and 28.02.2022 was directed to be excluded for
the purpose of computing limitation under various statutes, including
the timelines prescribed under the A&C Act.
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22. It would be submitted that in view of the aforesaid orders of the
Hon‟ble Supreme Court, the period between 15.03.2020 and
28.02.2022 stood excluded while computing the period prescribed
under Section 23(4) and Section 29A of the A&C Act. According to
the Respondent, the learned Arbitrator rightly applied the said
exclusion while computing the timeline for rendering the Award.
23. Learned counsel would further place reliance on the judgment
of the Hon‟ble Supreme Court in Arif Azim Co. Ltd. v. Aptech Ltd.10,
wherein it was clarified that the period between 15.03.2020 and
28.02.2022 shall stand excluded for the purpose of computing
timelines under Sections 23(4) and 29A of the A&C Act. It would be
submitted that the said judgment squarely supports the computation
adopted by the learned Arbitrator in the present case.
24. Learned counsel for the Respondent would also rely upon the
judgment of this Court in Chroma-Ator Energy Systems Pvt. Ltd. v.
Indraprastha Gas Ltd. 11 , wherein this Court held that the period
excluded by virtue of the orders passed in Suo Motu Writ Petition (C)
No. 3 of 2020 would have to be excluded while computing the period
of limitation.
25. Reliance is also placed on the decision of this Court in
Drooshba Fabricators v. Indure Pvt. Ltd.12, wherein it was held that
the delay occurring during the period covered by the orders passed in
Suo Motu Writ Petition (C) No. 3 of 2020 would stand excluded while
computing limitation.
10
2024 SCC OnLine SC 215.
11
2024 SCC OnLine Del 2480
12
2022:DHC:3427
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26. Learned counsel would therefore submit that once the exclusion
of the aforesaid period is applied, the timeline for rendering the Award
stood extended and the Award rendered on 27.08.2023 would fall well
within the permissible period. It would thus be contended that the
objection regarding the expiry of the mandate of the learned Arbitrator
is wholly untenable.
27. Learned counsel for the Respondent would next address the
contention of UOI relating to the rate of interest awarded by the
learned Arbitrator. According to the Respondent, the Impugned
Award clearly reflects that interest at the rate of 12% per annum has
been awarded on the sums found due.
28. Learned counsel would submit that the rate of interest awarded
by the learned Arbitrator is reasonable and is in consonance with the
statutory framework of the A&C Act. Reliance in this regard would be
placed on the judgment of the Hon‟ble Supreme Court in Oil and
Natural Gas Corporation Ltd. v. G and T Beckfield Drilling Services
Pvt. Ltd.13, wherein the grant of interest at the rate of 12% per annum
was upheld as reasonable.
29. Learned counsel would further rely upon the judgment of the
Hon‟ble Supreme Court in Sri Lakshmi Hotel Pvt. Ltd. v. Sriram City
Union Finance Ltd.14, wherein it has been held that disputes relating
to the rate of interest awarded by an arbitral tribunal would ordinarily
not fall within the limited scope of challenge under Section 34 of the
A&C Act.
30. Learned counsel for the Respondent would also place reliance
on the judgment of the Hon‟ble Supreme Court in Consolidated
13
2025 INSC 1066
14
2025 INSC 1327
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Construction Ltd. v. Software Technology Parks of India15, wherein
it was reiterated that Section 34 of the A&C Act does not confer
appellate jurisdiction upon the Court and that the Court cannot
reappreciate evidence or substitute its own view merely because
another view is possible.
31. It would therefore be submitted that the Impugned Award
represents a plausible view taken by the learned Arbitrator on the
basis of the material placed on record and does not warrant
interference under Section 34 of the A&C Act.
ANALYSIS:
32. This Court has carefully considered the submissions advanced
on behalf of both sides and, with their able assistance, has perused the
Arbitral Award and the material placed before this Court.
33. At the outset, it is apposite to note that this Court remains
conscious of the limited scope of its jurisdiction while examining an
objection petition under Section 34 of the A&C Act. There is a
consistent and evolving line of precedents whereby the Hon‟ble
Supreme Court has authoritatively delineated and settled the contours
of judicial intervention in such proceedings.
34. In this regard, a three-Judge Bench of the Hon‟ble Supreme
Court, after an exhaustive consideration of a catena of earlier
judgments, in OPG Power Generation (P) Ltd. v. Enexio Power
Cooling Solutions (India) (P) Ltd.16, while dealing with the grounds
of conflict with the public policy of India and patent illegality,
15
(2025) 7 SCC 757
16
(2025) 2 SCC 417
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grounds which have also been urged in the present case, made certain
pertinent observations, which are reproduced hereunder:
“Relevant legal principles governing a challenge to an arbitral
award
30. Before we delve into the issue/sub-issues culled out above, it
would be useful to have a look at the relevant legal principles
governing a challenge to an arbitral award. Recourse to a court
against an arbitral award may be made through an application for
setting aside such award in accordance with sub-sections (2), (2-A)
and (3) of Section 34 of the 1996 Act. Sub-section (2) of Section 34
has two clauses, (a) and (b). Clause (a) has five sub-clauses which
are not relevant to the issues raised before us. Insofar as clause (b)
is concerned, it has two sub-clauses, namely, (i) and (ii). Sub-
clause (i) of clause (b) is not relevant to the controversy in hand.
Sub-clause (ii) of clause (b) provides that if the Court finds that the
arbitral award is in conflict with the public policy of India, it may
set aside the award.
Public policy
31. “Public policy” is a concept not statutorily defined, though it
has been used in statutes, rules, notification, etc. since long, and is
also a part of common law. Section 23 of the Contract Act, 1872
uses the expression by stating that the consideration or object of an
agreement is lawful, unless, inter alia, opposed to public policy.
That is, a contract which is opposed to public policy is void.
*****
37. What is clear from above is that for an award to be against
public policy of India a mere infraction of the municipal laws of
India is not enough. There must be, inter alia, infraction of
fundamental policy of Indian law including a law meant to serve
public interest or public good.
*****
The 2015 Amendment in Sections 34 and 48
42. The aforementioned judicial pronouncements were all prior to
the 2015 Amendment. Notably, prior to the 2015 Amendment the
expression “in contravention with the fundamental policy of Indian
law” was not used by the legislature in either Section 34(2)(b)(ii) or
Section 48(2)(b). The pre-amended Section 34(2)(b)(ii) and its
Explanation read:
*****
44. By the 2015 Amendment, in place of the old Explanation to
Section 34(2)(b)(ii), Explanations 1 and 2 were added to remove
any doubt as to when an arbitral award is in conflict with the public
policy of India.
45. At this stage, it would be pertinent to note that we are dealing
with a case where the application under Section 34 of the 1996 Act
was filed after the 2015 Amendment, therefore the newlySignature Not Verified
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substituted/added Explanations would apply [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131].
46. The 2015 Amendment adds two Explanations to each of the
two sections, namely, Section 34(2)(b)(ii) and Section 48(2)(b), in
place of the earlier Explanation. The significance of the newly
inserted Explanation 1 in both the sections is two-fold. First, it does
away with the use of words : (a) “without prejudice to the
generality of sub-clause (ii)” in the opening part of the pre-
amended Explanation to Section 34(2)(b)(ii); and (b) “without
prejudice to the generality of clause (b) of this section” in the
opening part of the pre-amended Explanation to Section 48(2)(b);
secondly, it limits the expanse of public policy of India to the three
specified categories by using the words “only if”.
Whereas, Explanation 2 lays down the standard for adjudging
whether there is a contravention with the fundamental policy of
Indian law by providing that a review on merits of the dispute shall
not be done. This limits the scope of the enquiry on an application
under either Section 34(2)(b)(ii) or Section 48(2)(b) of the 1996
Act.
47. The 2015 Amendment by inserting sub-section (2-A) in Section
34, carves out an additional ground for annulment of an arbitral
award arising out of arbitrations other than international
commercial arbitrations. Sub-section (2-A) provides that the Court
may also set aside an award if that is vitiated by patent illegality
appearing on the face of the award. This power of the Court is,
however, circumscribed by the proviso, which states that an award
shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
48. Explanation 1 to Section 34(2)(b)(ii), specifies that an arbitral
award is in conflict with the public policy of India, only if:
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law;
or
(iii) it is in conflict with the most basic notions of morality or
justice.
49. In the instant case, there is no allegation that the making of the
award was induced or affected by fraud or corruption, or was in
violation of Section 75 or Section 81. Therefore, we shall confine
our exercise in assessing as to whether the arbitral award is in
contravention with the fundamental policy of Indian law, and/or
whether it conflicts with the most basic notions of morality or
justice. Additionally, in the light of the provisions of sub-section
(2-A) of Section 34, we shall examine whether there is any patent
illegality on the face of the award.
50. Before undertaking the aforesaid exercise, it would be apposite
to consider as to how the expressions:
(a) “in contravention with the fundamental policy of Indian law”;
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(b) “in conflict with the most basic notions of morality or justice”;
and
(c) “patent illegality” have been construed.
In contravention with the fundamental policy of Indian law
51. As discussed above, till the 2015 Amendment the expression
“in contravention with the fundamental policy of Indian law” was
not found in the 1996 Act. Yet, in Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, in the
context of enforcement of a foreign award, while construing the
phrase “contrary to the public policy”, this Court held that for a
foreign award to be contrary to public policy mere contravention of
law would not be enough rather it should be contrary to:
(a) the fundamental policy of Indian law; and/or
(b) the interest of India; and/or
(c) justice or morality.
*****
55. The legal position which emerges from the aforesaid discussion
is that after “the 2015 Amendments” in Section 34(2)(b)(ii) and
Section 48(2)(b) of the 1996 Act, the phrase “in conflict with the
public policy of India” must be accorded a restricted meaning in
terms of Explanation 1. The expression “in contravention with the
fundamental policy of Indian law” by use of the word
“fundamental” before the phrase “policy of Indian law” makes the
expression narrower in its application than the phrase “in
contravention with the policy of Indian law”, which means mere
contravention of law is not enough to make an award vulnerable.
To bring the contravention within the fold of fundamental policy of
Indian law, the award must contravene all or any of such
fundamental principles that provide a basis for administration of
justice and enforcement of law in this country.
56. Without intending to exhaustively enumerate instances of such
contravention, by way of illustration, it could be said that:
(a) violation of the principles of natural justice;
(b) disregarding orders of superior courts in India or the binding
effect of the judgment of a superior court; and
(c) violating law of India linked to public good or public interest,
are considered contravention of the fundamental policy of
Indian law.
However, while assessing whether there has been a contravention
of the fundamental policy of Indian law, the extent of judicial
scrutiny must not exceed the limit as set out in Explanation 2 to
Section 34(2)(b)(ii).
*****
Patent illegality
65. Sub-section (2-A) of Section 34 of the 1996 Act, which was
inserted by the 2015 Amendment, provides that an arbitral award
not arising out of international commercial arbitrations, may also
be set aside by the Court, if the Court finds that the award is visited
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by patent illegality appearing on the face of the award. The proviso
to sub-section (2-A) states that an award shall not be set aside
merely on the ground of an erroneous application of the law or by
reappreciation of evidence.
66. In ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, while
dealing with the phrase “public policy of India” as used in Section
34, this Court took the view that the concept of public policy
connotes some matter which concerns public good and public
interest. If the award, on the face of it, patently violates statutory
provisions, it cannot be said to be in public interest. Thus, an award
could also be set aside if it is patently illegal. It was, however,
clarified that illegality must go to the root of the matter and if the
illegality is of trivial nature, it cannot be held that award is against
public policy.
67. In Associate Builders v. DDA, (2015) 3 SCC 49, this Court
held that an award would be patently illegal, if it is contrary to:
(a) substantive provisions of law of India;
(b) provisions of the 1996 Act; and
(c) terms of the contract [See also three-Judge Bench decision of
this Court in State of Chhattisgarh v. SAL Udyog (P) Ltd.,
(2022) 2 SCC 275].
The Court clarified that if an award is contrary to the substantive
provisions of law of India, in effect, it is in contravention of
Section 28(1)(a) of the 1996 Act. Similarly, violating terms of the
contract, in effect, is in contravention of Section 28(3) of the 1996
Act.
68. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)
15 SCC 131 this Court specifically dealt with the 2015
Amendment which inserted sub-section (2-A) in Section 34 of the
1996 Act. It was held that “patent illegality appearing on the face
of the award” refers to such illegality as goes to the root of matter,
but which does not amount to mere erroneous application of law. It
was also clarified that what is not subsumed within “the
fundamental policy of Indian law”, namely, the contravention of a
statute not linked to “public policy” or “public interest”, cannot be
brought in by the backdoor when it comes to setting aside an award
on the ground of patent illegality [ See Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131]. Further, it
was observed, reappreciation of evidence is not permissible under
this category of challenge to an arbitral award [See Ssangyong
Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131].
Perversity as a ground of challenge
69. Perversity as a ground for setting aside an arbitral award was
recognised in ONGC Ltd. v. Western Geco International Ltd.,
(2014) 9 SCC 263. Therein it was observed that an arbitral decision
must not be perverse or so irrational that no reasonable person
would have arrived at the same. It was observed that if an award is
perverse, it would be against the public policy of India.
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70. In Associate Builders v. DDA, (2015) 3 SCC 49 certain tests
were laid down to determine whether a decision of an Arbitral
Tribunal could be considered perverse. In this context, it was
observed that where:
(i) a finding is based on no evidence; or
(ii) an Arbitral Tribunal takes into account something irrelevant to
the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision
would necessarily be perverse.
However, by way of a note of caution, it was observed that when a
court applies these tests it does not act as a court of appeal and,
consequently, errors of fact cannot be corrected. Though, a possible
view by the arbitrator on facts has necessarily to pass muster as the
arbitrator is the ultimate master of the quantity and quality of
evidence to be relied upon. It was also observed that an award
based on little evidence or on evidence which does not measure up
in quality to a trained legal mind would not be held to be invalid on
that score.
71. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)
15 SCC 131, which dealt with the legal position post the 2015
Amendment in Section 34 of the 1996 Act, it was observed that a
decision which is perverse, while no longer being a ground for
challenge under “public policy of India”, would certainly amount to
a patent illegality appearing on the face of the award. It was
pointed out that an award based on no evidence, or which ignores
vital evidence, would be perverse and thus patently illegal. It was
also observed that a finding based on documents taken behind the
back of the parties by the arbitrator would also qualify as a decision
based on no evidence inasmuch as such decision is not based on
evidence led by the parties, and therefore, would also have to be
characterised as perverse [ See Ssangyong Engg. & Construction
Co. Ltd. v. NHAI, (2019) 15 SCC 131].
72. The tests laid down in Associate Builders v. DDA, (2015) 3
SCC 49 to determine perversity were followed in Ssangyong
Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 and
later approved by a three-Judge Bench of this Court in Patel Engg.
Ltd. v. North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC
167.
73. In a recent three-Judge Bench decision of this Court in DMRC
Ltd. v. Delhi Airport Metro Express (P) Ltd., (2024) 6 SCC 357,
the ground of patent illegality/perversity was delineated in the
following terms: (SCC p. 376, para 39)
“39. In essence, the ground of patent illegality is available
for setting aside a domestic award, if the decision of the
arbitrator is found to be perverse, or so irrational that no
reasonable person would have arrived at it; or the
construction of the contract is such that no fair or
reasonable person would take; or, that the view of the
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arbitrator is not even a possible view. A finding based on
no evidence at all or an award which ignores vital
evidence in arriving at its decision would be perverse and
liable to be set aside under the head of “patent illegality”.
An award without reasons would suffer from patent
illegality. The arbitrator commits a patent illegality by
deciding a matter not within its jurisdiction or violating a
fundamental principle of natural justice.”
Scope of interference with an arbitral award
74. The aforesaid judicial precedents make it clear that while
exercising power under Section 34 of the 1996 Act the Court does
not sit in appeal over the arbitral award. Interference with an
arbitral award is only on limited grounds as set out in Section 34 of
the 1996 Act. A possible view by the arbitrator on facts is to be
respected as the arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon. It is only when an arbitral
award could be categorised as perverse, that on an error of fact an
arbitral award may be set aside. Further, a mere erroneous
application of the law or wrong appreciation of evidence by itself is
not a ground to set aside an award as is clear from the provisions of
sub-section (2-A) of Section 34 of the 1996 Act.
75. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.,
(2019) 20 SCC 1, paras 27-43, a three-Judge Bench of this Court
held that courts need to be cognizant of the fact that arbitral awards
are not to be interfered with in a casual and cavalier manner, unless
the court concludes that the perversity of the award goes to the root
of the matter and there is no possibility of an alternative
interpretation that may sustain the arbitral award. It was observed
that jurisdiction under Section 34 cannot be equated with the
normal appellate jurisdiction. Rather, the approach ought to be to
respect the finality of the arbitral award as well as party’s autonomy
to get their dispute adjudicated by an alternative forum as provided
under the law.”
35. In the present case, the principal questions that arise for
determination are, firstly, whether the mandate of the learned Sole
Arbitrator had lapsed in terms of Section 29A of the A&C Act prior to
the pronouncement of the Impugned Arbitral Award dated
27.08.2023, thereby rendering the said Award without jurisdiction;
and secondly, whether the grant of interest at the rate of 12% per
annum by the learned Arbitral Tribunal on the amounts awarded in
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favour of the Respondent calls for interference in the exercise of this
Court‟s jurisdiction under Section 34 of the A&C Act.
i. Expiry of Arbitral Tribunal’s Mandate under Section 29A
36. Insofar as the first issue is concerned, it becomes apposite to
examine the statutory framework governing the time limit for making
an arbitral award. Section 29A of the A&C Act prescribes the period
within which an arbitral tribunal is required to render its award and the
consequences that ensue upon expiry of such period. For the sake of
completeness, the relevant provision is extracted herein below:
“29-A. Time limit for arbitral award. — (1) The award in
matters other than international commercial arbitration shall be
made by the arbitral tribunal within a period of twelve months
from the date of completion of pleadings under sub-section (4) of
Section 23:
(2) If the award is made within a period of six months from the
date the arbitral tribunal enters upon the reference, the arbitral
tribunal shall be entitled to receive such amount of additional fees
as the parties may agree.
(3) The parties may, by consent, extend the period specified in sub-
section (1) for making award for a further period not exceeding six
months.
(4) If the award is not made within the period specified in sub-
section (1) or the extended period specified under sub-section (3),
the mandate of the arbitrator(s) shall terminate unless the court has,
either prior to or after the expiry of the period so specified,
extended the period:
Provided that while extending the period under this sub-
section, if the court finds that the proceedings have been delayed
for the reasons attributable to the arbitral tribunal, then, it may
order reduction of fees of arbitrator(s) by not exceeding five per
cent for each month of such delay:
Provided further that where an application under sub-
section (5) is pending, the mandate of the arbitrator shall continue
till the disposal of the said application:
Provided also that the arbitrator shall be given an opportunity of
being heard before the fees is reduced.
(5) The extension of period referred to in sub-section (4) may be on
the application of any of the parties and may be granted only for
sufficient cause and on such terms and conditions as may be
imposed by the Court.
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(6) While extending the period referred to in sub-section (4), it
shall be open to the Court to substitute one or all of the arbitrators
and if one or all of the arbitrators are substituted, the arbitral
proceedings shall continue from the stage already reached and on
the basis of the evidence and material already on record, and the
arbitrator(s) appointed under this section shall be deemed to have
received the said evidence and material.
(7) In the event of arbitrator(s) being appointed under this section,
the arbitral tribunal thus reconstituted shall be deemed to be in
continuation of the previously appointed arbitral tribunal.
(8) It shall be open to the Court to impose actual or exemplary
costs upon any of the parties under this section.
(9) An application filed under sub-section (5) shall be disposed of
by the Court as expeditiously as possible and endeavour shall be
made to dispose of the matter within a period of sixty days from
the date of service of notice on the opposite party.”
37. Before proceeding further, this Court deems it apposite also to
extract the findings recorded by the learned Sole Arbitrator on the
issue concerning the subsistence of the mandate under Section 29A of
the A&C Act. The relevant portions of the Arbitral Award read as
under:
“47. Respondent’s Application under S. 29A (3) of Arbitration
Act.
Before I embark upon the merit of the various claims, it would be
appropriate first to deal with an application filed by the Respondent
on 10.04.2023 under S. 29A(3) of Arbitration Act with a prayer for
a declaration that the mandate of the Tribunal gets terminated
w.e.f. 24.05.2022.
Notice of the application was accepted and the non-applicant /
Claimant preferred to argue the application without filing any
formal reply.
According to the learned counsel for the Claimant the issue is
covered by a Supreme Court judgment for the Covid-19 period.
Accordingly, the arguments were heard on 11.04.2023 and the
order is being pronounced along with the Award.
Having heard the arguments and perusing the record, I find that the
application merits rejection because the application itself has been
filed on 10.4.2023 after about one year of the claimed date of
termination of the mandate of the Arbitrator i.e. 24.05.2022.
Obviously it is after thought. The earlier counsel did not even raise
any such plea and had acquiesced in extension of time. The
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proceedings after 24.5.2022 and impliedly accepted the mandate of
the arbitrator.
48. At the stage of argument, it is not possible to accept such a
submission because by that time parties may apprehend the results
one way or the other from the record of the proceedings and resort
to such type of applications at the stage of arguments which must
be discouraged. Moreover, Hon’ble Supreme Court in Re-
Cognizance for Extension of Limitation with Mis. Application No.
29 of 2023 in Suo Motu Writ Petition (C) No. 3 of 2020 decided on
10.01.2022 has expressed a categorical view that the whole Covid
period from 15.03.2020 till 28.02.2022 is to be excluded in
computing the period prescribed under Section 23 (4) and 29A of
the Arbitration & Conciliation Act, 1996. Para 5(4) of the
Judgment of the Hon’ble Supreme Court the aforesaid view finds
its expression and the same is set out below verbatim for a ready
reference :
“It is further clarified that the period from 15.03.2020 till
28.02.2022 shall also stand excluded in computing the
periods prescribed under Sections (4) and 29A of the
Arbitration & Conciliation Act, 1996. Section 12A of the
Commercial Courts Act, 2015 and provisos (b) and (c) of
Section 138 of the Negotiable Instruments Act, 1881 and
another laws, which prescribe period(s) of limitation for
instituting proceedings, outer limits (within which the
court or tribunal can delay) termination of proceedings.”
49. When the ratio of the judgment as expressed in the quoted para
is applied to the facts of the present case, it becomes patent that
there is ample time for pronouncement of award and the mandate
of the arbitrator cannot be deemed to have been terminated on the
claimed date of 24.5.2022. The facts in the present case are that the
arbitrator entered reference on 8.12.2020 when Covid 19 was at its
peak. The period up to 28.2.2022 as per the mandate of the Hon’ble
Supreme Court has to be excluded, inter alia, for the purposes of,
Section 23 (4) and Section 29A of the Act. The period of 1 year 6
months would thus commence from 28.2.2022 onwards.
Accordingly, 18 months period added to 28.2.2022 would bring the
date for pronouncement of award as 28.8.2023.
50. Ld. Counsel for the Respondent however, has insisted on
applying Para 5(3) of the Covid-19 judgment of the Supreme Court
(Supra). It is argued-that period of 90 days from 01.03.2022 should
be taken and adopted. The argument suffers from a basic fallacy
because in para 5(4) there is specific reference to sections 23 (4)
and section 29A of the Arbitration Act. Moreover, in the instant
case the limitation does not expire during the period between
15,03.2020 to 28.2.2022 as is required by Para 5(3) of the
Judgment. On facts, it is clear that the arbitrator entered reference
on 8.12.2020 and in the ordinary course, he was supposed to
pronounce the award on 8.6.2022 (6 months + 1 year) whereas the
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limitation period as per the view of the Hon’ble Supreme Court is
required to expire between 15.3.2020 to 28.2.2022 as per para 5(3).
It is further appropriate to mention that in para 8 of the application
it is conceded that the period for arbitral proceedings did not expire
between 15.3.2020 and 28.2.2022.
As a sequal to the above discussion the application fails and it is
accordingly dismissed. It is held that the arbitral Tribunal would be
well within its mandate to pronounce the award on or before
28.08.2023.”
(emphasis supplied)
38. Section 29A of the A&C Act was introduced by way of the
Arbitration and Conciliation (Amendment) Act, 2015, with the
avowed legislative objective of ensuring expedition and efficiency in
arbitral proceedings. The provision, in essence, prescribes that an
arbitral tribunal shall render the award within twelve (12) months
from the date of completion of pleadings, subject to extension by
consent of the parties for a further period not exceeding six months,
and thereafter only by order of the Court upon sufficient cause being
shown. The legislative intent underlying this provision is
unmistakably to discourage protracted arbitral proceedings and to
instil procedural discipline in arbitration. At the same time, the
provision cannot be construed in a manner that defeats the very
purpose of arbitration by encouraging belated jurisdictional objections
or tactical challenges that are raised only after the arbitral process has
substantially progressed.
39. The statutory architecture of Section 29A of the A&C Act must
therefore be understood not as a rigid mechanism intended to
invalidate arbitral proceedings upon a mere lapse of time, but as a
supervisory framework designed to ensure timely completion of
arbitration while preserving the continuity of the adjudicatory process.
The scheme of the provision itself makes this position clear. While
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sub-section (1) prescribes the initial twelve-month period and sub-
section (3) permits extension by consent of the parties, sub-section (4)
expressly empowers the Court to extend the mandate of the arbitral
tribunal either prior to or after the expiry of the stipulated period.
40. The legislature has thus consciously vested a wide discretionary
jurisdiction in the Court so that arbitral proceedings, once
substantially progressed, are not rendered futile merely by efflux of
time. The law in this regard has been succinctly laid down by the
Hon‟ble Supreme Court in the case of C. Velusamy v. K Indhera17,
which reads as under:
“VII. Timelines under the 1996 Act
9. Party autonomy, coupled with minimal intervention of judicial
authorities, has been the guiding principle for the 1996 Act. This is
perhaps the reason for not provisioning a statutory timeline for
delivering awards and prescribing consequences of not delivering
them on time.
9.1. In the event of failure of an arbitrator to act without undue
delay, recourse was provided under Section 14 of the Act of 1996
to dual remedies-by approaching the arbitrator first and then the
Court8. Section 14(1)(a) states that the mandate of an arbitrator
would stand terminated if he either becomes de jure or de
facto unable to perform his functions or, for other reasons, fails to
act without undue delay. Section 14(2) states that, if a controversy
remains concerning any of the grounds referred to in Section
14(1)(a), a party may, unless otherwise agreed with by the parties,
apply to the Court to decide on the termination of the arbitrator’s
mandate. On the other hand, Section 34 of the 1996 Act does not
postulate delay in the delivery of the arbitral award as a ground in
itself, to set it aside, except, as explained in the Lancor
Holdings (supra), where the negative effect of the delay in the
arbitral award is explicit and adversely reflects on the findings of
the award.
VIII. The felt need for the prescription of timelines for making
the award and the recommendation of the law commission
10. The absence of a statutory time limit under the Act of 1996 had
resulted in arbitrations remaining pending for several years, even
without Court intervention, thereby defeating the very object of
arbitration as a speedy dispute resolution mechanism. Accordingly,
the Law Commission proposed the introduction of a structured
17
2026 SCC OnLine SC 142
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timeline, with limited extensions by party consent and supervisory
control by the Court thereafter, not with a view to terminating
arbitral proceedings, but to compel their timely progress. The
emphasis was on continuation of the arbitration, even pending
applications for extension, so that procedural delays do not result
in wastage of time, costs, or evidence already led. The legislative
intent, therefore, was to ensure that an arbitral award is ultimately
passed, with judicial intervention operating as a facilitative and
corrective mechanism to curb delay, rather than as a means to abort
the arbitral process. The relevant extract from the 176th Report of
the Law Commission of India is extracted below:
*****
IX. Introduction of Section 29A & its interpretation:
11. It is in the above-referred background that the Arbitration Act
was amended with retrospective effect from 23.10.2015 to
effectively deal with delays in arbitral proceedings by inserting
Section 29A. The Statement of Objects and Reasons records that
practical difficulties had arisen, necessitating amendments to make
arbitration more user-friendly, cost-effective, and expeditious.
Accordingly, provision was made requiring the arbitral tribunal to
render the award within twelve months from the date it enters upon
the reference, with liberty to the parties to extend the period by a
further six months, any extension thereafter being permissible only
by order of the Court on sufficient cause being shown. Thereafter,
the Act of 1996 was further amended w.e.f. 30-8-2019 to provide,
inter alia, that, where an application seeking extension of time
under sub-section (5) of Section 29A is pending, the mandate of
the arbitrator shall continue until such application is finally
decided.
11.1. Section 29A of the 1996 Act as amended is extracted below
for ready reference;
*****
X. International perspective on the validity of the arbitral
award rendered after the stipulated statutory time limit.
*****
XI. Conclusions
13. Section 29A, as explained in recent decisions of this Court
in Rohan Builders (supra), Lancor Holdings (Supra) and Jagdeep
Chowgule v. Sheela Chowgule15 can be formulated as under:
(I) Sub-section (1) of Section 29A mandates that the award shall be
made within 12 months of the completion of pleadings before the
Arbitral Tribunal16. While sub-section (2) incentivises expeditious
making of the Award, proviso to sub-section (4) and sub-section
(8) authorises the Court to impose penalty for delay in making the
award.
(II) Sub-section (3) enables parties, by consent, to extend the
period of 12 months for making the award by a further period not
exceeding 6 months.
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(III) If the award is not made within the stipulated period of 12
months or the extended period of 6 months, the mandate of the
arbitrator(s) shall terminate17.
(IV) This termination is subject to the power of the Court to extend
the period18.
(V) The „Court‟ under Section 29A shall be the Civil Court of
ordinary original jurisdiction in a district and includes the High
Court in exercise of its original civil jurisdiction under Section
2(1)(e), and shall not be the High Court or the Supreme Court
under Section 11(6) of the Act. Section 42 of the Act relating to
jurisdiction for applications will also not apply to Section 11 of the
Act19.
(VI) There is no statutory prescribed time limit for the Court to
exercise the power under Section 29A(4) for extending the period,
except for its own discretion. The Court can exercise the power
before or after the expiry of the period under sub-sections 29A(1)
or (3)20. Further, there is no prescription of an outer limit for
extending the time for the conclusion of arbitral proceedings.
Given this power, the Court will exercise it with circumspection,
balancing the remedy with the rights of other stakeholders.
(VII) The power of the Court to extend the time under sub-section
(4) may be exercised on an application by any of the parties. Once
such an application for extension of time is pending, the mandate
of the arbitrator shall continue till the disposal of such application
under sub-section (9). The Court shall endeavour to dispose of
such an application within 60 days21.
(VIII) Delay in the delivery of an arbitral award, by itself, is not
sufficient to set aside that award. It is only when the effect of the
undue delay in the delivery of an arbitral award is explicit and
adversely reflects on the findings therein, such delay and, more so,
if it remains unexplained, can be construed to result in the award
being in conflict with the public policy of India.22
(IX) Under Section 29A(6), while exercising the power of
extension, it shall be open to the Court to substitute one or all the
arbitrators. This is a discretionary power that the Court would
exercise in the facts and circumstances of the case. Upon
substitution, the reconstituted tribunal shall be deemed to be in
continuation of the previously appointed tribunal as per Section
29A(7) and shall continue from the stage already reached and on
the basis of evidence already on record. The newly appointed
arbitrators shall be deemed to have received the evidence and
materials.
(X) Vesting of the power of substitution, under Section 29A(6), is
on the “Court” and this Court is the “Court” as defined in Section
2(1)(e). The text, as well as the context for identifying the Court in
Section 29A(6), as well as in Section 29A(4), is the Court in
Section 2(1)(e). The expression „Court‟ in other provisions must be
guided by the meaning given in Section 2(1)(e)23.
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14. Section 29A of the Act does not, in terms, bar an application
for extension of the mandate of an arbitrator in the event of the
delivery of an award. There is no such prescription anywhere in the
section. In the first place, if an award is made after expiry of the
mandate, then there is no doubt about the fact that such an award
is non est. A better expression would be to hold that such an award
would be unenforceable under Section 36. Such an award need not
be challenged under Section 34.
15. Naturally, a unilateral act or the indiscretion of the arbitrator in
making such an award will have no bearing on the power and
jurisdiction vested in the Court under Section 29A. We have more
hesitation in concluding that the Parliament has never intended that
the act of an arbitrator in delivering an award when the mandate
had expired would denude the power and jurisdiction vested in the
Court. This power and jurisdiction stand on its own footing and is
uninfluenced by the act of the arbitrator in passing an award
without mandate.
16. Secondly, the expression, “if an award is not made” in sub-
section (4) is employed in the context of enabling the Court to
extend the mandate of the arbitrator. The context in which the
phrase is used makes it clear that the sub-section is not addressing
a situation where an arbitral award has been rendered after the
mandate of the arbitrator has expired, but rather to declare that the
Court can extend the period before or after the expiry of the
mandate. This is clearly explained in Rohan Builders (supra).
17. Rohan Builders (Supra) also clarifies the context in which the
expression „terminates‟ has been used in the section. It is explained
that it is transitory and is subject to the exercise of power by the
Court.
“14. Accordingly, the termination of the arbitral mandate
is conditional upon the non-filing of an extension
application and cannot be treated as termination stricto
sensu. The word “terminate” in the contextual form does
not reflect termination as if the proceedings have come to
a legal and final end, and cannot continue even on filing
of an application for extension of time. Therefore,
termination under Section 29A(4) is not set in stone or
absolutistic in character.
20. Lastly, Section 29A(6) does not support the narrow
interpretation of the expression “terminate”. It states that
the court – while deciding an extension application under
Section 29A(4) – may substitute one or all the arbitrators.
Section 29A(7) states that if a new arbitrator(s) is
appointed, the reconstituted Arbitral Tribunal shall be
deemed to be in continuation of the previously appointed
Arbitral Tribunal. This obliterates the need to file a fresh
application under Section 11 of the A & C Act for the
appointment of an arbitrator. In the event of substitution
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of arbitrator(s), the arbitral proceedings will commence
from the stage already reached. Evidence or material
already on record is deemed to be received by the newly
constituted tribunal. The aforesaid deeming provisions
underscore the legislative intent to effectuate efficiency
and expediency in the arbitral process. This intent is also
demonstrated in Sections 29A(8) and 29A(9). The court in
terms of Section 29A(8) has the power to impose actual or
exemplary costs upon the parties. Lastly, Section 29A(9)
stipulates that an application for extension under sub-
section (5) must be disposed of expeditiously, with the
endeavour of doing so within sixty days from the date of
filing.”
18. Intention of the Parliament to secure the arbitral proceedings
and to ensure that they are taken to their logical conclusion of a
binding award is evident from provisions such as, enabling Courts
to exercise the power of extension before or after the expiry of the
18 month period [Section 29A(4)], declaring continuation of the
proceedings till the application for extension is pending [proviso to
29A(4)], declaring that upon extension, the existing proceedings
would continue uninterruptedly [Section 29A(6) & (7)]. These
provisions make it evident that the intention of the Parliament is to
safeguard the conduct and conclusion of arbitral proceedings.
19. Though the fact situation that has arisen in our case was not
available in Rohan Builders (Supra) in the sense that the arbitrator
had not passed an award after expiry of the mandate, the following
observation in Rohan Builders is relevant for our consideration;
“21. …The power to extend time period for making of the
award vests with the court, and not with the Arbitral
Tribunal. Therefore, the Arbitral Tribunal may not
pronounce the award till an application under Section
29A(5) of the A & C Act is sub-judice before the court. In
a given case, where an award is pronounced during the
pendency of an application for extension of period of the
Arbitral Tribunal, the court must still decide the
application under sub-section (5), and may even, where an
award has been pronounced, invoke, when required and
justified, sub-sections (6) to (8), or the first and third
proviso to Section 29A(4) of the A & C Act.”
(emphasis supplied)
20. Vesting of power and jurisdiction in the Court, in our opinion,
is a complete answer to any apprehension that extension of time,
even in cases where an „award‟ is passed, could introduce a culture
of indiscipline, as arbitrator(s) and/or counsels could become
indifferent to the mandatory timelines. This apprehension is not
true. There is no automatic extension of time. The Court will and
must exercise its discretion only after evaluating the facts and
circumstances after close scrutiny. Section 29A, in terms, enables
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the court to adopt distinct measures to ensure dynamic and efficient
conduct of arbitral proceedings with integrity and expedition. The
following empowerments are in the nature of instruments in the
toolkit of Section 29A, enabling the courts to deploy them as and
when the factual matrix demands:
i. Court has the power to extend the time before or after
the expiry of the statutorily stipulated period. [Section
29A(4)]
ii. Court is empowered to take measures to reduce the fee
of the arbitrators if the Court is of the opinion that the
proceedings are delayed for the reasons attributable to the
Arbitrators. [Proviso to Section 29A(4)]
iii. Court can grant an extension of the time period upon a
finding that there is sufficient cause for such extension.
[Section 29A(5)]
iv. Court, while extending the mandate even when there is
sufficient cause, is empowered to impose such terms and
conditions as it thinks fit for efficiency and integrity of the
arbitral proceedings. [Section 29A(5)]
v. Courts are specifically empowered to substitute any one
or all the arbitrators, if in the opinion of the Court the facts
demand. This is a discretion that the Court would exercise
with caution and circumspection24. [Section 29A(6)]
vi. The Court is empowered not only to grant costs but
also to impose exemplary and actual costs upon any of the
parties, if the situation so demands. [Section 29A(8)]
21. In view of the above analysis, we are of the opinion that
provisions of the Act, particularly Section 29A, must not be
interpreted to infer a threshold bar for an application under Section
29A(5) for extension of the mandate of the arbitrator even when an
award is passed, though after the expiry of the mandate.
22. While interpreting an enactment providing legal remedies for
the resolution of disputes, a constitutional court has the obligation
to ensure that the provision is: (a) accessible, (b) affordable, (c)
expeditious and (d) cohesive. Accessibility requires the remedy to
be easily available25. Affordability is an aspect that is related to
the cost of availing the remedy, it must be at a reasonable price.
Expeditious nature of a remedy is concerned with the quick
disposal and abhors unreasonable delays. Yet another facet of
effective remedy is in its cohesiveness.
23. In conclusion, we hold that an application under Section
29A(5) for extension of the mandate of the arbitrator is
maintainable even after the expiry of the time under Sections
29A(1) and (3) and even after rendering of an award during that
time. Such an award is ineffective and unenforceable. But the
power of the court to consider extension is not impaired by such an
indiscretion of the arbitrator. While considering the application, the
Court will examine if there is sufficient cause for extending the
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mandate, and in the process, it may impose such terms and
conditions as the situation demands. The Court will also take into
account other factors such as reduction of the fee of the arbitrator
under proviso to Section 29A(4) and also impose costs on parties if
the fact situation so demands. Substitution is an option for the
Court as the provision itself says, “it shall be open for the Court to
substitute”, and it will be exercised carefully. If the mandate is
extended, the arbitral tribunal will pick up the thread from where it
was left, and seamlessly continue the proceeding from the stage at
which the mandate had expired, and conclude within the time
granted.
(emphasis supplied)
41. The nature of such “termination” of mandate under Section 29A
of the A&C Act has been authoritatively clarified in various judicial
precedents. In Rohan Builders (India) Pvt Ltd v. Berger Paints India
Limited18, the Hon‟ble Supreme Court observed that the termination
of mandate under Section 29A is not absolutistic in character but is
conditional and transitory, being subject to the power of the Court to
extend the mandate. The Hon‟ble Supreme Court in Rohan Builders
(supra) has held that an Application for extension of mandate under
Section 29A(4) read with 29A(5) is maintainable even after the expiry
of the 12-month or 6-month extended period.
42. The legislative intent underlying the provision is thus to ensure
that arbitral proceedings culminate in a binding adjudication rather
than being aborted on technical grounds. The same principle has been
reiterated by the Hon‟ble Supreme Court in Lancor Holdings Ltd v.
Prem Kumar Menon 19 and more recently in Jagdeep Chowgule v.
Sheela Chowgule20.
43. Tested against this statutory and doctrinal framework, the
challenge mounted by the Petitioner on the ground of expiry of the
18
2024 SCC OnLine SC 2494
19
2025 SCC OnLine SC 2319
20
2026 INSC 92
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mandate of the learned Sole Arbitrator cannot be sustained. The
Petitioner has contended that the pleadings in the arbitral proceedings
stood completed on 24.05.2021 and, therefore, the learned Arbitrator
was required to render the award within twelve months therefrom.
According to the Petitioner, the mandate of the learned Arbitrator
expired on 24.05.2022 and, in the absence of any extension obtained
from the Court, the learned Arbitrator became functus officio
thereafter. On this basis, it is urged that the Arbitral Award rendered
on 27.08.2023 is without jurisdiction.
44. The aforesaid contention, however, cannot be accepted for more
than one reason. At the outset, the computation of time under Section
29A cannot be undertaken in isolation from the extraordinary
directions issued by the Hon‟ble Supreme Court in wake of the
COVID-19 pandemic in Suo Moto Writ (Civil) No. 3 of 2020. By
virtue of the Order(s) passed therein, the period between 15.03.2020
and 28.02.2022 stood excluded for the purpose of computing
limitation across various statutory regimes, including the timelines
prescribed under Sections 23(4) and 29A of the A&C Act. The
applicability of this exclusion to arbitral timelines has also been
authoritatively reiterated by the Hon‟ble Supreme Court in Arif Azim
Co. Ltd. v. Aptech Ltd. 21 . The relevant portion of the Order dated
10.01.2022 passed in Suo Moto Writ (Civil) No. 3 of 2020 is
reproduced herein below:
“5. …….
IV. It is further clarified that the period from 15.03.2020 till
28.02.2022 shall also stand excluded in computing the periods
prescribed under Sections 23 (4) and 29A of the Arbitration and
Conciliation Act, 1996, Section 12A of the Commercial Courts
Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable21
2024 SCC OnLine SC 215
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Instruments Act, 1881 and any other laws, which prescribe
period(s) of limitation for instituting proceedings, outer limits
(within which the court or tribunal can condone delay) and
termination of proceedings.”
45. When the aforesaid exclusion is applied to the facts of the
present case, the timeline for completion of the arbitral proceedings
necessarily shifts. The arbitral proceedings commenced on
08.12.2020, a date which itself falls squarely within the period
excluded by the Hon‟ble Supreme Court. Consequently, the statutory
timeline for rendering the award must necessarily be computed by
excluding the pandemic period. Once the said exclusion is applied, the
award rendered on 27.08.2023 cannot be said to have been delivered
beyond the permissible statutory timeframe.
46. This interpretation also finds support from decisions of this
Court which have consistently applied the exclusion directed in Suo
Motu Writ Petition (C) No. 3 of 2020 to arbitration-related timelines.
In Chroma-Ator Energy Systems Pvt Ltd (supra), this Court held that
the limitation period would recommence after excluding the pandemic
period in accordance with the Hon‟ble Supreme Court‟s directions.
Similarly, in Drooshba Fabricators (supra), it was reiterated that
delays occurring during the excluded period would stand condoned in
view of the extraordinary directions issued by the Hon‟ble Supreme
Court.
47. Even otherwise, the conduct of the Petitioner during the arbitral
proceedings renders the present challenge wholly untenable. The
Petitioner asserts that the mandate of the learned Arbitrator expired on
24.05.2022. Yet, the Application invoking Section 29A of the A&C
Act was filed only on 10.04.2023, nearly eleven months thereafter.
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48. The chronology of the proceedings, which emerges from the
record, may be summarised as under:
Event Date Observation
Commencement of arbitral 08.12.2020 Arbitrator entered upon
proceedings reference
Completion of pleadings 24.05.2021 Petitioner‟s computation
(as alleged by Petitioner) of the timeline
Alleged expiry of mandate 24.05.2022 No objection raised
(as per Petitioner) contemporaneously
Application under Section 10.04.2023 Filed nearly one year
29A of the A&C Act filed after the alleged expiry
by Petitioner
(Objection to the mandate
under Section 29A)
Arguments on merits April-May Petitioner actively
continued before the 2023 participated
Tribunal
Award pronounced 27.08.2023 Impugned Award
Application under Section Post-award Seeking correction of
33 of the A&C Act filed by the interest component
Petitioner
49. The above chronology clearly demonstrates that, despite having
raised an objection under Section 29A of the A&C Act, the Petitioner
continued to actively participate in the arbitral proceedings without
pursuing any further remedial steps in that regard. Notably, the
Petitioner advanced substantive arguments on merits before the
learned Arbitrator on 12.04.2023 and 21.04.2023, and thereafter also
participated in the hearing held on 08.05.2023 concerning the
Respondent‟s rejoinder submissions. Such conduct clearly
demonstrates that the Petitioner continued to recognise the authority
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of the learned Arbitrator and elected to participate in the adjudicatory
process without reservation.
50. The position becomes even more significant when it is noticed
that, subsequent to the pronouncement of the Arbitral Award on
27.08.2023, the Petitioner itself invoked the jurisdiction of the tribunal
under Section 33 of the A&C Act, seeking correction of the interest
awarded. The filing of such an application necessarily proceeds on the
premise that the Arbitral Award is valid and that the tribunal
possessed the authority to render it. Having availed of the statutory
remedy available under Section 33 of the A&C Act, the Petitioner
cannot now be permitted to approbate and reprobate by
simultaneously contending that the tribunal lacked mandate to
pronounce the Arbitral Award.
51. In this regard, reference may also be made to the judgment of
the Himachal Pradesh High Court in Balak Ram v. National
Highways Authority of India 22 , wherein it was observed that
continued participation in arbitral proceedings without raising a timely
objection may, in appropriate circumstances, amount to an extension
of the mandate by conduct of the parties. The relevant portions of the
said judgment read as follows:
“20. As per Section 29A(1) of the Arbitration and Conciliation Act,
the award has to be made within a period of 12 months from the
date the Arbitral Tribunal enters upon the reference. Section
29A(3) provides for extension of the period specified in sub section
(1) for a further period not exceeding six months by the consent of
the parties.
21. An arbitral award, therefore, can be made within a period of 12
months from the date the Arbitrator enters upon the reference. The
parties can extend this period by consent for a further period not
exceeding six months. An award made beyond 12 months under22
2023 SCC OnLine HP 944
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Section 29A(1) or 18 months under Section 29A(3) shall not be
valid.
22. The court can extend the mandate of the Arbitral Tribunal as
per Section 29A(4). In the instant case, the Arbitrator entered upon
the reference on 08.07.2016. Permissible period of 12 months
within which the award could have been validly pronounced under
Section 29A(1) lapsed on 07.07.2017. However, both the
contesting parties continued with the proceedings. None of the
parties objected to the arbitration proceedings conducted by the
Arbitrator beyond 07.07.2017. From the conduct of the parties, a
tacit consent on their part for extending the period of arbitration
can be inferred. Under Section 29A(3), parties by consent can
extend the period of arbitration not exceeding six months. In the
instant case, the Arbitral Tribunal passed the award within 2
months after the expiry of 12 months. The fact that respondent-
NHAI had consented to the continuation of proceedings beyond 12
months is apparent from the fact that even while agitating against
the award passed by the Arbitrator, it had not taken any such
ground before the learned District Judge that the award passed by
the Arbitrator was bad in the eyes of law on the count that mandate
of the Arbitral Tribunal had lapsed on 07.07.2017. It was a case of
implied consent on part of respondent-NHAI. In this regard, it
would be appropriate to refer to (2002) 3 SCC 175 : AIR 2002 SC
1157 (Inder Sain Mittal v. Housing Board, Haryana). Relevant
para from the judgment is as follows:–
“13. In the case on hand, it cannot be said that
continuance of the proceedings and rendering of awards
therein by the Arbitrator after his transfer was in
disregard of any provision of law much less mandatory
one but, at the highest, in breach of agreement. Therefore,
by their conduct by participating in the arbitration
proceedings without any protest the parties would be
deemed to have waived their right to challenge validity of
the proceedings and the awards, consequently, the
objections taken to this effect did not merit any
consideration and the High Court was not justified in
allowing the same and setting aside the award.”
*****
24. In view of above discussion on facts & law, it has to be held
that consent of the parties envisaged under Section 29A(3) of the
2015 Arbitration & Conciliation Act for extending the arbitral
period need not necessarily be either express or in writing. There
can be a deemed consent, an implied consent of the parties, which
can be gathered from their acts and conduct. Their acquiescence in
proceeding with the arbitration case beyond twelve months without
raising any objection to the continuation of proceeding does
amount to consent. On the basis of such consent, the arbitral award
if passed within a further period of six months would be a valid
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award. In the given facts, consent of the parties to continue the
arbitral proceedings beyond the period of one year (12 months)
from the date the Arbitrator entered upon the reference, is writ
large. The award was passed by the Arbitrator within further period
of two months. The award was thus saved by Section 29A(3) of the
Act as it was passed within the period permitted under Section 29A
(3) of the Act. The conclusion drawn by learned District Judge
about the award being illegal having been passed beyond the
mandated period, therefore, being illegal, cannot be justified.
Under Section 29A(3) of the Arbitration and Conciliation Act,
there is no requirement that consent of the parties has to be
expressed and that too, in writing.”
(emphasis added)
52. Arbitration rests fundamentally upon principles of party
autonomy, procedural fairness and good faith participation in the
adjudicatory process. A party cannot be permitted to participate in
arbitral proceedings, invite adjudication on merits, and thereafter
challenge the very jurisdiction of the tribunal only after the outcome
proves unfavourable. To permit such conduct would undermine the
finality, efficiency and credibility that the arbitral process seeks to
achieve.
53. In this context, it also merits emphasis that once the exclusion
directed by the Hon‟ble Supreme Court in the Suo Motu proceedings
concerning extension of limitation during the COVID-19 pandemic is
applied, the statutory timeline under Section 29A of the A&C Act
must necessarily be reckoned only from 01.03.2022, i.e., upon the
expiry of the period directed to be excluded. In terms of Section
29A(1) read with Section 29A(3) of the A&C Act, the Arbitral
Tribunal is permitted to render the award within twelve months, with a
further six months‟ extension by consent of the parties, thereby
permitting a cumulative period of eighteen months for completion of
the arbitral proceedings. When the statutory timeline is computed
from 01.03.2022, the outer limit of the permissible period would
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extend to 31.08.2023. The Impugned Arbitral Award, having been
pronounced on 27.08.2023, unmistakably falls within the said period
of one and a half years from the expiry of the pandemic exclusion
period. Consequently, the contention advanced by the Petitioner that
the mandate of the learned Arbitrator had lapsed prior to the
pronouncement of the Arbitral Award is devoid of merit and cannot be
sustained.
54. It must also be borne in mind that the jurisdiction of this Court
under Section 34 of the A&C Act is supervisory and not appellate in
nature. The Hon‟ble Supreme Court in catena of judgments has
reiterated that a court exercising jurisdiction under Section 34 of the
A&C Act cannot re-appreciate evidence or substitute its own view
merely because another interpretation may appear possible. So long as
the arbitral tribunal has adopted a plausible view based on the material
placed before it, judicial interference would be wholly unwarranted.
55. In the present case, the learned Arbitrator has considered the
objection raised by the Petitioner under Section 29A of the A&C Act
and has rejected the same upon examining the statutory framework
and the chronology of events. The reasoning adopted by the learned
Arbitrator is both plausible and legally sustainable. No prejudice
whatsoever has been demonstrated by the Petitioner arising from the
alleged delay in rendering the Arbitral Award, nor has it been shown
that such delay has in any manner affected the reasoning or findings
recorded in the award.
56. Viewed in the aforesaid perspective, this Court is unable to
accept the contention that the mandate of the learned Sole Arbitrator
had expired prior to the pronouncement of the Impugned Arbitral
Award. The interpretation urged by the Petitioner would defeat the
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legislative purpose underlying Section 29A of the A&C Act and
would encourage belated technical challenges aimed at frustrating the
arbitral process.
57. Consequently, the challenge mounted by the Petitioner on the
ground of alleged expiry of the mandate of the learned Arbitrator is
devoid of merit and stands rejected.
ii. Validity of Interest Awarded by the Tribunal
58. The second limb of challenge raised by the Petitioner pertains to
the grant of interest by the learned Arbitral Tribunal on the sums
awarded in favour of the Respondent.
59. Before adverting to the merits of the rival submissions, it would
be appropriate to extract the findings recorded by the learned Sole
Arbitrator on the question of interest. The relevant observations
forming part of the Impugned Arbitral Award, wherein the learned
Arbitrator determined the entitlement of the Respondent to interest
and the rate thereof, are reproduced hereinbelow for ready reference:
“51. Issue No. 1
Whether the Claimant is entitled to interest on the delayed
payment of the final bill @ 12% per annum.
*****
56. It is true that the final bill was required to be submitted within
3 months of the date of completion of work. The work was
completed on 31.3.2017 and the final bill was actually submitted
on 28.6.2017. It is also clear from Condition No. 56 of GCC that
from the date of submission of the final bill the undisputed part
was required to be paid within 6 months i.e. on or before
28.12.2017. Therefore, the delay is patent from the fact that
approval to D.Os was granted between 16.11.2017 and 04.10.2019
as depicted in the above table.
57. The claim of the Claimant is sought to be defeated on the
ground that the accompanying documents were not submitted and
there was no notice in terms of Section 3(b) of the Interest Act,
1978. Respondent submitted that Claimant caused delay in the
processing of various D.Os. In that regard reliance has been placed
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on the correspondence between the parties. Annexure R-29, 30, 33
to 44 and 44 to 46. A casual glance at Annexure 29 dated 20th
July, 2017 would reveal that Respondent sought modification of
bill by reducing the amount of disputed D.O. in respect of RCC
Solar Water Heater Platform which is a separate claim in these
proceedings. Likewise a perusal of Annexure R-31 dated 19th
March, 2018 would show that either the measurements were
awaited or approved D.Os. was not received by the Respondent.
Vide Annexure R-35 dated 10th January 2019 some defects of
leakage / seepage were pointed out. Similar position obtain in other
documents Clause 56 of GCC (Supra) in categorical terms state
that undisputed amount of final bill must be paid within six months
from the date of receipt. by the Project Manager. The period for
removal of defects is separately provided which was to expire on
31.03.2019 (sub clause 40 GCC) and the amount of the Claimant is
retained to ensure that Defendants are removed. The Respondent
has thus remained unsuccessful to show that there was any serious
deficiency in submitting the final bill in Form F as per the
provisions of Condition No. 55 of GCC. I am in agreement with
the Ld. Counsel for the Claimant that on these excuses payment of
undisputed amount could not be withheld nor the delay in
approving the D.Os. was justified. Likewise measurement did not
need to even wait for association of the Claimant or its
representative as last para of clause 52 of GCC provides that
Respondent was fully within its right to have measurement done in
his absence. The cost could be recovered from the Claimant. The
preponderance of evidence indicates to the casual dealing with the
approval concerning D.Os. and measurement which caused
abnormal delay. Therefore, I find that extraordinary delay in
approving D.Os. and measurement has been caused by Respondent
which resulted in delay of payment of final bill. Regarding other
argument it is not mandatory that a notice under Section 3(b) of the
Interest Act is a sine qua non for awarding the amount of interest.
There is ample power with the Arbitrator to award interest in the
form of compensation given by Section 31 of the Arbitration Act
for which no notice is required. Once a person is legitimately
entitled to payment of final bill, any delay in making payment
would make him entitled for compensation for deprevation of the
use of money due to him. In the detailed cross-examination, the
witness of the Claimant has stated that the claim of 12% interest
has been fixed in respect of Claim No. 1 on the basis of market rate
of interest. The interest has been claimed as compensation because
of loss of use of money in other business on time, although nothing
has been placed on record to prove any such loss. In that regard
Shri Parveen Chauhan Ld. Counsel for the – Claimant has rightly
placed reliance on para 47 of a judgment of the Supreme Court by
5-Judge Bench in the case of Secretary Irrigation Deptt. V. G.C.
Roy & others. It has been held that if a person is deprived of use of
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money to which he is legitimately entitled then he has a right to be
compensated for deprivation, call it by any name like interest,
damages or compensation. The observations have also been quoted
verbatim in the other part of this Award (infra). The witness denied
the suggestion that Claim No. 1 was unnecessary excessive.
However, on checking Commercial Rate of Interest of SBI I find
that there is substance in the argument of Shri Parveen Jain Ld.
Counsel for the Respondent. The rate of interest claimed by
Claimant at 12% needs to be reduced. However, the sum total has
not been disputed Accordingly, I am inclined to award interest
from 01.01.2018 to 30.11.2019 i.e. for a period of 23 months on
the sum of Rs.2,04,36889.00 @ 10% P.A. which works out to be
Rs.39,17,071.30. Issue No. 1 related to claim No. 1 is accordingly
decided.
58. It is true that during cross-examination CW-1 Shri Sanjay
Kumar Katare admitted the contents of document Ex.CW-1/R-48
(R-5) and similar other documents making claim for extra work.
The claim made through D.Os. was rejected but it cannot be
termed as a sole reason for delay. Moreover rejection of all such
D.Os. is also subject matter of claim in these proceedings.
59. Another argument based on clause 52 of the GCC (at P. 576) is
that the Contractor is to assist in measurement of the work
executed. He is also expected to assist PM/DEPMC for preparation
of D.Os. As far as measurement etc. are concerned the Respondent
is free to move forward in case the Claimant fails to turn up as per
clause. Regarding D.Os. the Claimant tried to project that it was
extra work which was not included in the lump sum part yet its
claim was rejected which is also subject matter of one of the claim.
Therefore, I do not find any merit in submissions advanced by the
Ld. Counsel for the Respondent and the same is rejected.”
60. Upon perusal of the extracted findings, this Court finds that the
learned Arbitral Tribunal has arrived at its conclusion on the question
of interest only after undertaking a detailed scrutiny of the contractual
framework and the evidentiary material placed on record. The tribunal
examined the relevant clauses of the contract governing submission
and payment of the final bill and thereafter analysed the documentary
exhibits and oral testimony adduced by the parties. The Arbitral
Award reflects that the Ld. Arbitral Ttribunal considered the sequence
of events, the approvals of deviation orders, and the explanations
offered by the parties before determining that the delay in payment
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was not attributable to the contractor. Such an appreciation of
contractual stipulations and evidence lies squarely within the
adjudicatory domain of the Arbitral Tribunal.
61. The learned Tribunal has also correctly addressed the legal
basis for awarding interest by invoking the statutory power conferred
under Section 31(7) of the A&C Act, which empowers an arbitral
tribunal to grant interest as compensation for the deprivation of
monies lawfully due. The reasoning recorded in the Arbitral Award
demonstrates that the learned Arbitrator did not grant interest
mechanically but evaluated the commercial context and moderated the
rate claimed by the contractor, thereby exercising a measured and
judicious discretion.
62. A perusal of the Arbitral Award reveals that the learned
Arbitrator has granted interest at the rate of 12% per annum on the
sums found due and payable to the Respondent, commencing from
18.03.2020 until the date of payment. The learned Arbitrator has
recorded detailed reasons for awarding such interest, taking into
account the fact that the Respondent had been deprived of the use of
monies legitimately due under the contract and that the delay in
payment was attributable to the Petitioner.
63. The power of an arbitral tribunal to award interest is firmly
embedded in the statutory framework of the A&C Act. Section 31(7)
expressly recognises the authority of the tribunal to grant interest for
the pre-award as well as post-award period unless the parties have
agreed otherwise. The provision embodies the well-settled principle
that a party who has been unjustifiably deprived of the use of money
to which it is legitimately entitled must be compensated by way of
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interest. Interest, in such circumstances, is not punitive in nature but
compensatory, representing the time value of money.
64. The jurisprudence governing the grant of interest in arbitral
proceedings consistently emphasises that the determination of the
appropriate rate of interest lies primarily within the domain of the
arbitral tribunal. Courts exercising jurisdiction under Section 34 of the
A&C Act do not ordinarily interfere with such determination unless
the rate awarded is demonstrably arbitrary, unconscionable or in
conflict with the fundamental policy of Indian law.
65. At this stage, this Court considers it appropriate to advert to the
judgment of a Co-ordinate Bench of this Court in M.A. Zahid v.
Jindal SAW Ltd.23 wherein the grant of interest at the rate of 12% by
an arbitral tribunal was examined in the context of the statutory
framework governing arbitral interest both prior to and subsequent to
the 2015 amendment to the A&C Act. The Court, upon undertaking
such analysis, upheld the grant of interest as falling squarely within
the powers conferred upon an arbitral tribunal under Section 31(7) of
the A&C Act. The relevant observations from the said judgment are
reproduced herein below:
“16. Under the 1996 Act, power of the Arbitrator to grant interest
is governed by Section 31(7). This provision is in two parts. Under
Clause (a), in the absence of an agreement between the parties to
the contrary, an Arbitrator can award interest for the period
between the date of cause of action to the date of the award, either
for the whole or part of the said period. Clause (b) provides that
unless the award otherwise directs, the sum directed to be paid by
the Arbitrator shall carry interest @ 2% higher than current rate of
interest from the date of the award to the date of payment. This
amendment was brought about from 23.10.2015 by virtue of
Amendment Act No. 3 of 2016. Be it noted that this Court is not
delving into the pre-reference and pendente lite interest as the23
2025 SCC OnLine Del 5227
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contest in the present case is only with respect to post-award
interest.
17. Read simply and as observed by the Supreme Court in Morgan
Securities and Credits Private Limited v. Videocon Industries
Limited, 2022 SCC OnLine SC 1127, both clauses (a) and (b) of
Section 31(7) are qualified. While clause (a) is qualified by the
arbitration agreement, clause (b) is qualified by the arbitration
award and placement of the phrases is crucial to their
interpretation. As can be seen from the amended Section, the
phrase „unless otherwise agreed by the parties’, occurs at the
beginning of clause (a) qualifying the entire provision while phrase
„unless the award otherwise directs‟, occurs after the words „a sum
directed to be paid by an arbitral award shall‟ and before the words
„carry interest at the rate of two per cent‟, and therefore, the phrase
qualifies the rate of post-award interest. It is settled that the
Arbitrator has a wide discretion to grant: (a) pre-reference;
(b) pendente lite; and (c) post-award interest. In North Delhi
Municipal Corporation v. S.A. Builders Ltd., 2024 SCC OnLine
SC 3768, the Supreme Court held that grant of post award interest
serves a salutary purpose and primarily acts as a disincentive to the
award-debtor not to delay payment of arbitral amount to the award-
holder.
18. In Morgan Securities (supra), albeit the Supreme Court was
dealing with unamended Section 31(7)(b), it was held that Section
31(7)(a) confers a wide discretion on the Arbitrator to grant pre-
award interest and determine the rate of interest, the sum on which
it is to be paid and the period and when a discretion has been
conferred in regard to grant of pre-award interest, it would be
against the grain of statutory interpretation to presuppose that
legislative intent was to reduce the discretionary power of the
Arbitrator for grant of post-award interest under clause (b). It was
observed that clause (b) only contemplates a situation where the
arbitral award is silent on the post-award interest, in which event
the award-holder is entitled to the post-award interest @ 18%
stipulated in Section 31(7)(b), the unamended provision. It was
held that the Arbitrator has the discretion to grant post-award
interest and this discretion is not fettered by clause (b) albeit it is
open to the Arbitrator to decline interest in its discretion. It was
highlighted that purpose of granting post-award interest is to
ensure that the award-debtor does not delay the payment of the
awarded amount. With proliferation of arbitration, issues involving
both high and low financial implications are referred to arbitration
and Arbitrator takes note of various factors such as financial
standing of the award-debtor and circumstances of the parties in
dispute before awarding interest. No provision under the 1996 Act
restricts the exercise of discretion to grant post-award interest by
the Arbitrator though Arbitrator must exercise the discretion in
good faith taking into account relevant considerations and must act
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reasonably and rationally. It was concluded by the Supreme Court
that according to Section 31(7)(b) only where the Arbitrator does
not grant post-award interest, provisions of second part of sub-
clause (b) will come into play.
19. In the present case, the learned Arbitrator has exercised his
discretion to grant post-award interest @ 12% per annum for 90
days from 23.05.2016 and 16% per annum from expiry of 90 days
till actual payment. The post-award interest is based on a sound
reasoning which precedes the grant. Arbitrator has observed that in
the various documents executed on 22.07.2013 between the parties,
there was acknowledgement of liability by the Petitioner and there
was no mention of interest. Parties entered into settlement in the
spirit of goodwill, bonhomie and to maintain long term business
relations. Respondent was satisfied with the Petitioner paying the
principal amount on lifting of the attachment by Income Tax
Authorities and/or selling properties. There was no intent of
charging interest in the settlement. On this ground, Arbitrator
declined interest from 01.06.2011, as sought by the Respondent.
Thereafter, the Arbitrator refers to the legal notice dated
23.05.2016 from which date Respondent started demanding the
admitted payment expressing its intention to the Petitioner to
charge interest. Admittedly, Petitioner made no effort to pay the
admitted amount and constrained by circumstances, Respondent
invoked arbitration. Arbitrator notes the provisions of the 1996 Act
and judgments relating to grant of interest cited by the Respondent
as also the fact that the transaction between the parties was
undoubtedly a commercial one and the Petitioner though not
denying its liability to pay the principal sum even in the reply dated
07.08.2016 to Respondent’s legal notice, did not make good his
obligation and commitment to pay. In light of the fact that
Respondent was denied of the amount admittedly due to the
Respondent for several years, Arbitrator in his discretion awarded
interest. The question is whether any interference is warranted in
the award to the extent of grant of dual rate of interest for two
separate periods.
20. It needs no reiteration that jurisdiction of the Court under
Section 34 of the 1996 Act is extremely circumscribed and is
limited to the grounds enumerated therein. Petitioner urges that by
awarding exorbitant and dual interest, the award is vitiated by
„patent illegality appearing on the face of the award‟. The Supreme
Court and High Courts have time and again affirmed that „patent
illegality‟ is an illegality which goes to the root of the matter and
cannot be of a trivial nature. [Ref.: Associate Builders v. Delhi
Development Authority, (2015) 3 SCC 49 and Larsen Air
Conditioning and Refrigeration Company v. Union of
India, (2023) 15 SCC 472]. Proviso to Section 34(2A) itself
stipulates that an award shall not be set aside merely on erroneous
application of law. Division Bench of this Court in Aksh Optifibre
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Limited v. Nantong Siber Communication Co. Ltd., 2024 SCC
OnLine Del 4011, has held that it is well-settled that fundamental
policy of Indian law does not refer to violation of any Statute but
fundamental principles on which Indian law is founded. Any
difference or controversy as to rate of interest clearly falls outside
the scope of challenge on the ground of conflict with the public
policy of India unless it is evident that the rate of interest awarded
is so perverse and so unreasonable so as to shock the conscience of
the Court sans which no interference is warranted in the award,
whereby interest is awarded by the Arbitrator. Against the said
judgment, the Supreme Court dismissed the SLP (C) No.
22495/2024 on 21.10.2024.
21. On a plain reading of the impugned award in the instant case
and applying the settled law, the reasoning adopted by the learned
Arbitrator for awarding the rate of interest cannot be faulted with.
Arbitrator has considered all relevant factors such as: (a)
Petitioner’s admission of his liability to pay the principal amount to
the Respondent; (b) violation of the terms of settlement in the Deed
of Settlement and related documents executed on the same day; (c)
financial loss caused to the Respondent; and (d) the admitted fact
of the Respondent being deprived of its right to enjoy the monies
due to it for several years, etc. Arbitrator has exercised the
discretion vested in him judiciously, taking into consideration
relevant facts/factors and eschewing irrelevant considerations.
22. It is a settled law that in the absence of an express bar in the
contract between the parties, it is the Arbitrator who enjoys
absolute discretion and has the jurisdiction to award interest
including post-award interest. [Ref.: State of Rajasthan v. Ferro
Concrete Construction Private Limited, (2009) 12 SCC 1;
and Indian Railway Construction Company Limited v. National
Buildings Construction Corporation Limited, (2023) 7 SCC 390].
Clearly, the Deed of Settlement contains no express bar regarding
interest and it was thus open to the Arbitrator to award the interest.
Once interest is awarded by the Arbitrator, Section 37(1)(b) comes
into play where the phrase „unless the award otherwise
directs‟, qualifies the rate of post-award interest, which means that
once the award grants interest, award-debtor cannot claim any
other rate of interest, save and except, where the rate of interest is
so excessive or unreasonable that it shocks the conscience of the
Court, which is not the case here.
23. Counsel for the Petitioner laid much stress on the judgment of
the Supreme Court in Vedanta Limited (supra), to argue that
awarding dual interest and that too at an exorbitant rate of 15% was
held to be unjustified by the Supreme Court. In my view, this
argument is misconceived and need not detain this Court in light of
the judgment of the Supreme Court in Reliance Infrastructure
Limited v. State of Goa, 2023 SCC OnLine SC 604, as also
judgments of the Bombay High Court and this Court, to which I
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shall advert later. In Reliance Infrastructure (supra), the Supreme
Court was examining the legality of the award including the issue
of grant of pre-reference and post-award interest. Insofar as the
post-award interest is concerned, the High Court had reduced the
rate of interest from 15 to 10% following the decision in Vedanta
Limited (supra) and principle of proportionality. The Supreme
Court observed that the reduction of rate of interest by the High
Court was unjustified. Referring to provisions of Section 31(7)(b),
more particularly, the phrase „unless the award otherwise
directs‟, and distinguishing the decision in Vedanta
Limited (supra), the Supreme Court held that the observation of the
High Court that Court may reduce interest awarded by the
Arbitrator when such interest does not reflect the prevailing
economic condition or where it is not found reasonable or where it
promotes interest of justice, based on the decision in Vedanta
Limited (supra), was without any basis since in the case
of Vedanta Limited (supra), the Supreme Court was dealing with
an International Commercial Arbitration involving Rupee as well
Euro components and moreover, the rate of interest was reduced in
respect of foreign currency component to bring the interest rate in
line with international rate on the ground that rate of interest
prevailing on the rupee debt in India and on international currency
in abroad were different and international rates were lower, which
was not the case before the Supreme Court in Reliance
Infrastructure (supra). It was further held that the Arbitral Tribunal
was well within its jurisdiction under Section 31 to award interest
at the rate of 15% per annum and no justification was found to
reduce the same. Significantly, it was also observed that the High
Court was not exercising any equity jurisdiction to re-settle the rate
of interest as deemed fit by it as this was a matter relating to an
award made by an Arbitral Tribunal in a commercial dispute. ***
*****
27. For all the aforesaid reasons, I am of the view that the
impugned award calls for no interference in exercise of jurisdiction
under Section 34 of the 1996 Act.
(emphasis added)
66. To augment, the Hon‟ble Supreme Court has repeatedly
underscored the limited scope of judicial review in matters relating to
interest awarded by arbitral tribunals. In Sri Lakshmi Hotel Pvt. Ltd.
(supra), the Hon‟ble Supreme Court reiterated that disputes
concerning the rate of interest ordinarily fall outside the narrow
confines of judicial review under Section 34 of the A&C Act. The
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Court held that a difference of opinion regarding the appropriate rate
of interest does not, by itself, constitute a ground to interfere with an
arbitral award on the touchstone of public policy.
67. It is also pertinent to note that arbitral tribunals, while
determining the rate of interest, are entitled to take into account the
commercial nature of the transaction, the conduct of the parties, and
the period for which the successful party has been deprived of monies
legitimately due to it. The grant of interest thus serves as a
restitutionary mechanism ensuring that the party wrongfully
withholding payment does not derive an undue advantage from the
delay.
68. In the present case, as noted earlier, the learned Arbitrator has
carefully considered the factual matrix and has recorded a categorical
finding that the Respondent was deprived of the legitimate use of
monies due under the contract for a considerable period of time. The
award of interest at the rate of 12% per annum is therefore intended to
compensate the Respondent for the financial detriment suffered on
account of such delay.
69. This Court is therefore of the considered opinion that the rate of
12% per annum awarded in the present case cannot, by any stretch of
imagination, be described as exorbitant or unconscionable. On the
contrary, it falls well within the range of rates that have been
repeatedly upheld by courts in arbitral matters. The rate awarded is
thus neither arbitrary nor disproportionate and does not warrant
interference in the exercise of jurisdiction under Section 34 of the
A&C Act.
70. It must also be emphasised that the Court, while exercising
jurisdiction under Section 34, does not sit in appeal over the
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conclusions of the arbitral tribunal. As reiterated by the Supreme
Court in OPG Power Generation (supra) and Consolidated
Construction Limited (supra), the Court cannot substitute its own
view merely because another interpretation of facts or law may appear
possible. So long as the arbitral tribunal has adopted a plausible view
based on the material before it, the award must be allowed to stand.
71. Applying the aforesaid principles to the present case, this Court
finds that the determination of interest by the learned Arbitrator
represents a reasoned exercise of discretion grounded in the
contractual relationship between the parties and the factual
circumstances of the dispute. The Petitioner has failed to demonstrate
that the award of interest suffers from any illegality, perversity or
violation of public policy.
72. Consequently, this Court finds no justification to interfere with
the award of interest granted by the learned Arbitral Tribunal. The
challenge raised by the Petitioner on this ground is therefore devoid of
merit and stands rejected.
CONCLUSION:
73. In view of the foregoing discussion and the findings returned
hereinabove, this Court finds no merit in the challenge mounted by the
Petitioner to the Impugned Arbitral Award, passed by the learned Sole
Arbitrator. Consequently, the present Petition, being O.M.P. (COMM)
73/2024, stands dismissed.
74. Insofar as I.A. 43484/2024, filed by the Respondent seeking
withdrawal of the amount deposited by the Petitioner pursuant to the
Order dated 07.02.2024, is concerned, the same is allowed. The
Registry is directed to release the amount of ₹3,44,13,536/-, along
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with accrued interest, to the Respondent, subject to the Corporate
Guarantee furnished on behalf of the Respondent being taken on
record.
75. Pending Application(s), if any, stands disposed of.
76. No order as to costs.
HARISH VAIDYANATHAN SHANKAR, J.
APRIL 01, 2026/kr
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