S.33(1)(a) Arbitration Act Only To Correct Clerical Errors In Award; Can't Be Invoked To Change Nature Of Interest : Supreme Court

Holding that substance of an arbitral award cannot be altered under the guise of correcting errors, the Supreme Court has ruled that changing the nature of interest awarded from simple interest to compound interest amounts to a substantive modification that falls outside the limited scope of Section 33(1)(a) of the Arbitration and Conciliation Act, 1996.

A bench of Justice PS Narasimha and Justice Alok Aradhe passed the ruling while allowing appeals filed by the Gujarat Water Supply and Sewerage Board against a Gujarat High Court judgment that upheld a Commercial Court's decision modifying an arbitral award in favour of Saryu Plastics Pvt. Ltd.

The Court held that the Commercial Court had exceeded its jurisdiction by substituting simple interest awarded for the pendente lite period with compound interest, a change that dramatically increased the Board's liability from approximately Rs.30.38 crore to Rs.144.93 crore.

Writing for the bench, Justice Alok Aradhe observed that the nature of interest awarded is a substantive aspect of the arbitrator's adjudication and not a clerical mistake capable of correction.

“The characterisation of the mode of interest, whether simple or compound, goes to the very core of the Arbitrator's assessment of the equities of the case and reflects a substantive determination on the merits. It is neither a slip of the pen, nor an inadvertent arithmetical mistake, nor a clerical oversight,” the Court observed.

The Court further said Section 33 of the Arbitration Act is narrowly confined to correcting computational, typographical, or clerical errors and cannot be converted into a mechanism for reviewing or rewriting an arbitral award.

“Section 33(1)(a) of the Act confers upon the arbitral tribunal the limited power to correct any computational, clerical, or typographical errors in an Award. The provision is neither designed nor intended to serve as a vehicle for the substantive modification of an Award or the review of the merits of the findings recorded therein,” the bench said.

Background

The dispute arose from contracts awarded by the Gujarat Water Supply and Sewerage Board between 1998 and 2002 to Saryu Plastics Pvt. Ltd. for supply of PVC pipes. An internal audit later flagged irregularities and alleged excess payments to PVC suppliers, following which the Board blacklisted the company in 2003.

More than a decade later, the parties entered into an arbitration agreement in April 2012 to resolve their disputes. After prolonged arbitral proceedings spanning over three years, the sole arbitrator, in October 2015, partly allowed the company's claims and awarded Rs.1.01 crore comprising outstanding dues and escalation claims. The award granted simple interest at 21.675% per annum for the pendente lite period, while awarding compound interest only from the date of the award until actual payment.

Thereafter, Saryu Plastics took the position that the arbitrator had intended to grant compound interest even for the pendente lite period and that the reference to simple interest in the operative portion was an error requiring correction under Section 33 of the Arbitration and Conciliation Act, which permits correction of computational, clerical, or typographical mistakes.

However, the arbitral tribunal did not adjudicate this request. By that stage, the Gujarat Water Supply Board had already filed proceedings under Section 34 challenging the award before the Commercial Court. In February 2016, the arbitrator declined to entertain the company's Section 33 application, observing that since proceedings under Section 34 were already pending before the Commercial Court, the issue ought to be considered there.

The company then moved the Commercial Court, effectively seeking the same relief. The Commercial Court ultimately invoked its review jurisdiction and modified the arbitral award by replacing simple interest with compound interest for the pendente lite period as well, treating it as a correctable error. This substantially altered the financial consequences of the award, escalating the Board's liability from approximately Rs.30.38 crore to Rs.144.93 crore. The Gujarat High Court later upheld that course of action, which was challenged before the Supreme Court.

Disapproving the course adopted by the Commercial Court, the Supreme Court observed :

"The Commercial Court, therefore, manifestly exceeded its jurisdiction in purporting to exercise powers under Section 33(1) (a) of the Act to direct such a substitution. The review jurisdiction of the Commercial Court could not have been employed to achieve a result that was impermissible even under the limited corrective power expressly conferred by Section 33(1) (a). To hold otherwise would be to render Section 33 an instrument of review and appellate correction, which is plainly contrary to the scheme of the Act and the consistent judicial interpretation placed upon it."

Also from the judgment - Party Estopped From Challenging Award On The Ground Of Mandate Expiry After Accepting Extension Of Arbitrator's Mandate: Supreme Court

Cause Title: GUJARAT WATER SUPPLY AND SEWERAGE BOARD VERSUS SARYU PLASTICS PVT. LTD.