In a recent ruling passed by the Single Bench comprising Justice Jasmeet Singh, the Delhi High Court has set the tone in a Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) seeking to partially set aside an Award passed by the Sole Arbitrator on 20.09.2023. While emphasizing on the importance of contractual terms, the Bench also ruled that the Sole Arbitrator cannot possibly ignore clarifications sought under Section 33 of the Act.

FACTUAL MATRIX:
Pulin Comtrade Limited (“Petitioner”) and Handicrafts and Handlooms Exports Corporation of India Ltd. (“Respondent”) entered into an Agreement on 13.09.2012, wherein the Petitioner was to place orders (“Indents”) and the Respondent would manage the import of bullion either through consignment stock, a letter of credit, a standby letter of credit, or buyer’s credit. Subsequently, both parties signed another Agreement on 25.02.2014. Certain disputes arose when the Respondent failed to pay the Petitioner a sum of Rs. 2,44,50,849/- along with interest, as stipulated in the two Agreements. As per Clause 6.6 of the 2012 Agreement and Clause 9.1 of the 2014 Agreement, the Petitioner was liable to deposit certain amounts with the Respondent, who in turn was to place these amounts in term deposits and credit the interest earned to the Petitioner. When the Respondent failed to meet these terms, the Petitioner initiated arbitration proceedings by sending a Legal Notice on 23.08.2022. Subsequently, a Sole Arbitrator was appointed upon an Application filed under Section 11 of Act by the Petitioner.

PROCEEDINGS BEFORE THE ARBITRAL TRIBUNAL:
The Petitioner raised several claims before the Ld. Sole Arbitrator that the Respondent failed to maintain FDRs for the amounts deposited by the Petitioner, illegally withheld amounts and interest accrued on the deposits and misappropriated the amounts as well, thereby breaching the terms of the agreement.

Consequently, the Ld. Sole Arbitrator ruled in favour of the Petitioner, allowing claims amounting to Rs. 3,44,69,966/- and Rs. 5,57,480/-, along with future interest and pendente lite at a rate of 9%. The Respondent paid the entire amount to the Petitioner accordingly.

However, the Petitioner was not satisfied with the non-grant of interest for the period of 01.04.2015-31.03.2017 and moved an Application under Section 33 of the Act, which was rejected by the Ld. Sole Arbitrator stating that:

“... Between 31.03.2015 and 32.03.2017, the amount lying with the Respondent payable to the Claimant rose from about Rs. 2.44 crores to about Rs. 2.47 crores. Therefore, the pre-litigation interest was found payable from 01.04.2017 onwards, @6.80% p.a. and on the sum of Rs. 2,47,80,709/-.”

Aggrieved by the aforesaid decision, the Petitioner filed a Petition under Section 34 of the Act.

THE COURT’S VIEWPOINT:
The Court addressed the objection regarding the limitation period. Since the Petition was filed on 03.02.2024 within the 90 day window prescribed by Section 34(3) of the Act, the Court held that the Petition was filed within the permitted timeframe.

The Court, upon reviewing the Arbitral Award, observed that the Arbitrator had acknowledged that a sum of Rs. 2.44 crores was credited to the Petitioner as of 31.03.2015, which, after some adjustments, grew to Rs. 2.47 crores by 31.03.2017. The Court, however, clarified that the additional Rs. 3,00,000/- was not “interest” but an internal adjustment by the Respondent.

The Court also examined Clause 8.4 of the Agreement, which clearly stipulated that term deposits and the interest accrued on those deposits has be credited to the Petitioner. The Court criticized the Ld. Sole Arbitrator’s decision for failing to consider or even mention this clause when dealing with the Petitioner's Section 33 Application. This omission led the Court to conclude that the Arbitrator's rejection of the pre-litigation interest for the period between 31-03-2015 and 31-03-2017 was unjustified.

The Court deemed the Arbitrator’s decision to be perverse, noting that the Arbitrator failed to properly appreciate the contractual terms, specifically Clause 8.4, and provided no valid reasoning for rejecting the interest claim related to the period between 31.03.2015 and 31.03.2017. Additionally, reference was made to the decision of the Apex Court in Indian Oil Corporation Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463, wherein it was observed that the learned Sole Arbitrator has to operate within the terms of the Agreement executed between the parties and not ignore specific terms of the Agreement.

CONCLUDING REMARKS:
In conclusion, the Court ruled in favour of the Petitioner and held that the Ld. Sole Arbitrator had erred in failing to consider the applicable contractual terms, particularly in relation to pre-litigation interest. The Court thus set aside the finding in the Arbitral Award dated 20.09.2023 concerning issue no. III. This decision highlights the importance of adhering to the express terms of agreements and the necessity for arbitrators to thoroughly consider all relevant contractual provisions while making an award.

By - Swetalana Rout