Power To Correct Clerical Errors In Arbitral Awards Can't Be Used To Substantially Modify Them: Supreme Court

The Supreme Court on Tuesday reiterated that the limited power to correct clerical, computational, or typographical errors in an arbitral award cannot be used to substantially modify it by replacing simple interest with compound interest.

Setting aside Gujarat High Court and Commercial Court orders, the Court held that Saryu Plastics Pvt. Ltd. was entitled only to simple interest at 21.675% during the pendency of arbitration, reversing a modification that had increased Gujarat Water Supply and Sewerage Board's liability from about ₹30.38 crore to ₹144.93 crore.

A Division Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that the corrective power available in arbitral proceedings cannot be converted into a mechanism for revisiting the merits of an award.

Explaining why the Commercial Court could not substitute simple interest with compound interest, the Bench observed:

“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 observed.

The dispute arose out of supply contracts awarded by Gujarat Water Supply and Sewerage Board to Saryu Plastics Pvt. Ltd. between 1998 and 2002 for the supply of PVC pipes.

Following an audit report alleging excess payments to suppliers, the Board blacklisted the company on August 29, 2003. More than a decade later, the parties entered into an arbitration agreement on April 3, 2012 and appointed a sole arbitrator to adjudicate their disputes.

On October 27, 2015, the arbitrator partly allowed Saryu Plastics' claims. It awarded ₹1,01,97,518 along with simple interest at 21.675% for the pendente lite period and compound interest from the date of the award till realisation.

Saryu Plastics later sought correction of the award on December 7, 2015. It sought replacement of the words “simple interest” with “compound interest” in the operative portion.

The arbitrator declined to adjudicate the plea in view of pending proceedings before the Commercial Court. The Commercial Court, however, on September 25, 2018 modified the award and granted compound interest for the pendente lite period as well.

Gujarat Water Supply and Sewerage Board challenged the modification before the Gujarat High Court. The High Court dismissed its appeals on November 11, 2022, following which the Board approached the Supreme Court.

The Board argued that the Commercial Court had no jurisdiction to substantially alter the award by changing the nature of interest awarded. It contended that the modification drastically escalated its financial liability.

Saryu Plastics contended that the arbitrator had intended to award compound interest. It argued that the reference to simple interest in the operative portion was merely inadvertent.

Rejecting this stand, the Supreme Court held that substituting simple interest with compound interest was not a clerical or arithmetic correction but a substantive change to the award.

Explaining why the nature of interest formed part of the arbitrator's merits determination, the Court observed:

“The characterisation of the mode of interest – whether simple or compound - goes to the very 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 that could be remedied under Section 33(1)(a),” the Court observed.

The bench also rejected the Board's objections regarding the expiry of the arbitrator's mandate and alleged violation of natural justice.

Holding that the Board could not challenge the arbitrator's mandate after participating in the proceedings without timely objection, the Court observed:

“The Board participated in the proceeding before the Arbitrator and had acquiesced with the alleged invalidity and cannot be allowed to turn around after the Award was passed and is estopped from challenging the Award on the ground that the mandate of the Arbitrator had expired,” the Court observed.

On the allegation of denial of natural justice, the Court held that the Board's own conduct had delayed the proceedings.

“The Board's failure to avail itself of these opportunities in a timely and effective manner cannot now be converted into a grievance about denial of natural justice,” the bench observed.

For Appellant (Gujarat Water Supply and Sewerage Board): Advocate Shamik Shirishbhai Sanja

For Respondent (Saryu Plastics Pvt. Ltd.): Advocate Chanchal Kumar Ganguli [Caveator].