Partial Settlement On Interest In Arbitration Not Binding On All Claims: Delhi High Court

The Delhi High Court on 26 May held that a partial settlement reached during arbitral proceedings fixing interest for specific claims cannot bind all pending claims and counter-claims, and the Arbitral Tribunal retains full discretion under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.

A Bench of Justice Jasmeet Singh dismissed cross petitions under Section 34 of the Act arising from a dispute between Atlanta Infra Assets Ltd. and the National Highways Authority of India (NHAI), and upheld the arbitral award. It observed:

“As regards the argument of Atlanta for applying separate rates of interest on claims and counterclaims is concerned, the said argument is misconceived. On 24.02.2020, the parties agreed to the rates of interest for Counter Claim Nos. 2 and 6 only, the same is not an agreement of parties qua the binding rate of interest for all claims and counter claims. Hence, the AT was very much within its discretion to award interest at the rate of 10%”.

NHAI entered into a concession agreement dated 9 December 2005 with Atlanta Infra Assets Ltd. for widening of NH-6. Disputes arose between the parties, and Atlanta invoked arbitration in August 2017. The Arbitral Tribunal passed its award on 16 November 2021.

Both parties then filed cross petitions under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the award. During proceedings before the High Court, the parties recorded a partial settlement on 2 December 2022, leaving three issues for adjudication.

Atlanta challenged the Tribunal's findings on Claim No. 1 relating to damages for delay in handing over land and Claim No. 6 concerning interest rates. NHAI challenged the Tribunal's finding on Counter Claim No. 4(c) relating to damages for failure to carry out bituminous overlay work.

Atlanta contended that the parties had agreed on 24 February 2020 to a uniform interest rate of 12% per annum, and that the Tribunal erred by awarding 12% interest on NHAI's counter-claim while restricting Atlanta's claim to 10% per annum. It argued that this amounted to an error apparent on the face of the record.

NHAI, however, submitted that the 12% rate was agreed only for Counter Claim Nos. 2 and 6, which were specifically settled on that date, and could not be extended to all pending disputes. It further argued that the Tribunal's award of 10% interest was a reasoned exercise of discretion, especially given Atlanta's repeated amendments to its claims.

The Court examined the Tribunal's order sheet dated 24 February 2020 and held that no uniform or omnibus rate of interest was agreed for all claims and counter-claims. It found that the settlement was limited and applied only to specific claims resolved on that date.

It further held that the Tribunal has wide discretion under Section 31(7)(b) of the Arbitration and Conciliation Act to award interest, and such discretion cannot be interfered with under Section 34 unless it is shown to be perverse or illegal.

Finding the Tribunal's reasoning to be plausible, the Bench held that the award of 10% interest, after considering relevant factors such as claim amendments and prevailing interest rates, did not warrant interference.

Accordingly, the High Court dismissed the petitions and upheld the arbitral award.