An award of compound interest to one of the parties cannot be a ground to set aside an arbitral award under Section 34(2) of the Arbitration and Conciliation Act, 1996.

In the matter of Steel Authority of India Limited v M/S Jaldhi Overseas PTE Ltd. O.M.P. (COMM.) 168/2021 & IA Nos. 6068/2021 & 6070/2021 decided on 28.05.2021 by the Delhi High Court.

FACTS-

The disputes between the parties arose because of appellant withholding the admitted amounts due to the respondent/claimant. The parties were referred to arbitration. The respondent/claimant filed its statement of claim before the arbitral tribunal claiming a sum of USD 515,739.88 along with interest at the rate of 12% per annum compounded basis at three monthly rests from 30.09.2018 with the date of payment.

The tribunal concluded that appellant was not entitled to withhold any amount from the amounts as admittedly owed by it to the respondent and awarded the claimed sum towards the balance unpaid freight and demurrages. In addition, the Arbitral Tribunal also allowed the respondent/claimant’s claim for interest at the rate of 12% per annum with quarterly rests with effect from 01.10.2018 till the date of payment.

The present petition was filed under Section 34 of the Arbitration and Conciliation Act, 1996 impugning an arbitral award delivered by the Arbitral Tribunal.

ISSUE INVOLVED-

The primary objection raised by the appellant was – whether the impugned award is liable to be set aside to the extent that it awards 12% interest compounded with quarterly rests, on the amount due to Respondent.

HELD-

The High Court noted that the appellant did not contest the respondent/ claimant’s claim for interest at the rate of 12% compounded with three monthly rests before the Arbitral Tribunal. Non-contest amounted to admission. The court further held that there was no requirement for the Arbitral Tribunal to examine a non-existent issue when the Petitioner had not contested the reasonableness of the rate of interest. Relying on the judgment of Associate Builders vs. DDA (2015) 3 SCC 49, the court further held that an arbitral award cannot be held to be contrary to the fundamental policy of Indian law only because one of the parties is awarded compound interest.