Reduction Of Interest Is Nothing But Modification Of Original Arbitration Award: Allahabad High Court Quashes Section 34 Order

The Allahabad High Court has held that the District Judge exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 does not have the power to modify an award. The Court held that though parts of an award can be severed and set aside, provided such severance does not affect the remaining award.

“Reduction of interest is nothing but a modification of the original arbitration award, and accordingly, the same is illegal and against the principles established by the Supreme Court,” held Justice Shekhar B. Saraf relying on the decision of Supreme Court in on Larsen Air Conditioning and Refrigeration Company Vs. Union of India and others.

Quashing the order of the District Judge reducing the rate of interest awarded by the Arbitrator, the Court held

“It is trite law, settled by a catena of Supreme Court judgements that the Court does not have the power under Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") to modify an award. The Court under Section 34(2) of the Act has the power to sever parts of the award and set aside the same in toto, if the severance does not impact the remaining award that is upheld under Section 34 of the Act.”

Claimant/award holder approached the High Court against the order passed by the District Judge, Kaushambi partly allowing the appeal. The rate of interest awarded by the Arbitrator was reduced from 14% to 6% per annum.

Relying on the decisions of Supreme Court in Project Director v. M. Hakeem and S.V. Samudram v. State of Karnataka & Anr., counsel for appellant argued that the Court below did not have the power to modify an award.

Defending the order of the District Judge, counsel for respondent submitted that the reduction in the rate of interest was done with reasons.

The Court placed reliance on Larsen Air Conditioning and Refrigeration Company Vs. Union of India and others wherein the Supreme Court set aside the order of the High Court modifying the rate of interest awarded by the Arbitrator on grounds that the Arbitration Act, 1940 specifically provided for modification of award. The Act of 1996 did not provide any Court with the power to modify an award passed by an Arbitrator. The Supreme Court held

“This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court.”

Justice Saraf held that while exercising powers under Section 34 of the Act of 1996, the Court below does not have the power to modify an arbitration award. The Court held that though the award can be severed in parts but that severed part has to be dealt with in totality provided such severance does not impact the remaining award.

Accordingly, the Court set aside the order of the District Judge reducing the rate of interest awarded by the arbitrator.

Case Title: Sushil Kumar Mishra vs. State Of U.P. And Another 2024 LiveLaw (AB) 44 [Appeal Under Section 37 Of Arbitration And Conciliation Act 1996 No. - 874 of 2023]

Case Citation: 2024 LiveLaw (AB) 44

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