Allahabad High Court Rules Reduction of Interest Amounts to Modification of Original Arbitration Award

LI Network

Published on: January 25, 2024 at 17:00 IST

In a recent verdict, the Allahabad High Court clarified that a District Judge, operating under Section 34 of the Arbitration and Conciliation Act, 1996, lacks the authority to modify an arbitration award.

Justice Shekhar B. Saraf emphasized that while certain portions of an award can be severed and set aside, any reduction of interest constitutes an illegal modification of the original award, contrary to established Supreme Court principles.

The judgment, delivered in the case of Sushil Kumar Mishra v. State Of U.P. And Another, highlighted that the power vested in the court under Section 34(2) of the Act allows for the severance of parts of an award and complete annulment if such severance doesn’t impact the remaining upheld award.

The legal dispute stemmed from an appeal filed by the claimant/award holder against the District Judge’s order, which partially allowed the appeal by reducing the interest rate awarded by the Arbitrator from 14% to 6% per annum.

Citing relevant precedents, the appellant’s counsel argued that the court below lacked the authority to modify an award, pointing to cases like Project Director v. M. Hakeem and S.V. Samudram v. State of Karnataka & Anr.

The respondent’s counsel defended the District Judge’s decision, asserting that the reduction in the interest rate was justified.

Justice Saraf referred to the Supreme Court’s decision in Larsen Air Conditioning and Refrigeration Company Vs. Union of India and others, emphasizing that the Arbitration Act, 1996, does not confer any court with the power to modify an arbitrator’s award.

The Court highlighted the legislative intent to exclude any such modification power, stating, “This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court.”

Consequently, the Allahabad High Court set aside the District Judge’s order that reduced the interest rate awarded by the arbitrator. The case was titled “Sushil Kumar Mishra v. State Of U.P. And Another [Appeal Under Section 37 Of Arbitration And Conciliation Act 1996 No. – 874 of 2023].”

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