Arbitration Act | Executing Courts Must Pass Well-Reasoned And Articulated Decisions Specially In Disputes Involving Computation Of Due Amount: Telangana High Court

Brief Facts:

The Petitioner and the parties entered into a Memorandum of Understanding under which the Petitioner paid Rs. 15.5 crores as an advance to the Respondent. Subsequently, the Memorandum of Understanding was terminated, leading to a dispute between the parties referred to an arbitral Tribunal. The Tribunal issued an award and directed the Respondent to pay Rs.15.5 crores with interest at 21% per annum. The Respondent filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, which was dismissed, thereby finalizing the award against the Respondent.

The Petitioner then filed an application under Order XXI Rule 54 and Rule 64 of the Code of Civil Procedure, 1908, seeking enforcement of the arbitral award with compound interest. The executing Court, in its order, held that the Petitioner was not entitled to compound interest and that the amount paid by the judgment debtor with 21% interest to the decree-holder, Rs.44,42,05,254.00, fully satisfied the award. Feeling aggrieved, the Petitioner approached the Telangana High Court (“High Court”) and filed a petition under Article 227 of the Constitution.

The Petitioner argued that the executing Court erred in concluding that the term "sum" in Section 31(7) of the Arbitration Act, does not encompass "interest." Additionally, the Petitioner argued that the amount due under the final award was not accurately calculated. Conversely, the Respondent contended that the Petitioner's application for execution of the award sought payment of the principal amount plus interest at the rate of 21% per annum, and the amount paid by the Respondent, Rs. 44,42,05,254.00, completely satisfied the award.

Observations by the High Court:

The High Court referred to Section 31(7)(a) and (b) of the Arbitration Act. This section addresses the form and contents of an arbitral award, specifically concerning the inclusion of interest in the award for payment of money. The High Court referred to the decision of the Supreme Court in Hyder Consulting (UK) Limited v. Governor, State of Orissa [(2015) 2 SCC 189]. The Supreme Court held that the term "sum" in Section 31(7)(b) encompasses the aggregate of amounts directed to be paid by the Arbitral Tribunal, including both principal and interest. It underscored that Parliament deliberately used the word "sum" to refer to the total amount, incorporating both principal and interest, rather than just the principal sum without interest.

Subsequently, the judgment in Hyder Consulting was analysed by a Supreme Court Bench of two Judges in the case of Morgan Securities and Credits Private Limited v. Videocon Industries Limited. The Supreme Court in Morgan Securities examined whether post-award interest could be granted on the aggregate of principal and pre-award interest. It highlighted the issue of whether the phrase "unless the award otherwise directs" in Section 31(7)(b) of the Arbitration Act provides the arbitrator discretion solely over determining the rate of interest or also over determining both the rate of interest and the sum to be paid. The Supreme Court held that while both clauses (a) and (b) are qualified, the placement of phrases is crucial to their interpretation, indicating that the words "unless the award otherwise directs" in clause (b) only qualify the rate of post-award interest. Subsequently, the High Court held that the issue before the Supreme Court wasn't before it in the writ petition.

The High Court that there was a deficiency in the order issued by the executing Court, particularly in paragraph 13. The High Court observed that the finding recorded lacked clarity and thoroughness, appearing cryptic and cavalier in nature. The order merely presented a conclusion without adequate reasoning or explanation. Recognizing that the essential dispute revolves around the computation of the amount due and payable under the award, the High Court emphasized the importance of a well-reasoned and articulated decision by the executing Court.

Consequently, the High Court set aside the order issued by the executing Court. Therefore, the matter was remitted, with a directive to the Executing Court to reconsider the issue of the sum due under the award to the Petitioner.

Case Title: Pbsamp Projects Pvt Ltd vs HLV Limited

Case Number: CIVIL REVISION PETITION No.60 of 2024

Advocate for the Petitioner: Mr. Atul Chitale, learned Senior Counsel representing Mr. Vimal Varma Vasi Reddy, learned counsel for the petitioner.

Advocate for the Respondent: Mr. Srinivas Velagapudi, learned counsel for the respondent

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