Mmtc Limited vs Aust Grain Exports Pty Ltd
- Court
- Delhi High Court
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 05.10.2026
Judgment pronounced on: 28.10.2026
# CNR No. DLHC010375712023
+ FAO(OS) (COMM) 210/2023
MMTC LIMITED .....Petitioner
Through: Mr. Arun Bharadwaj, Sr. Adv.
with Mr. Praveen Kumar Jain,
Ms. Rashmi Kuniari & Mr.
Aditya Rathi, Advs. with Mr.
Abhay Kumar, GM, Mr.
Parthsarthi Gosh, Sr. Manager
& Mr. Dinesh Dangi, Dy. Mgr
Law.
versus
AUST GRAIN EXPORTS PTY LTD .....Respondent
Through: Mr. Puneet Dutt Tyagi, Mr.
Sanjay Bansal, Ms. Swati
Bansal, Ms. Vaishali Gupta,
Mr. Shobhit Garg, Mr. Manoj
Pandey & Ms. Ayushi Bansal,
Advs.
CORAM:
HON'BLE MR. JUSTICE AVNEESH JHINGAN
HON'BLE MS. JUSTICE SHAIL JAIN
J U D G M E N T
AVNEESH JHINGAN, J.:
1. This appeal is filed under Section 37 of the Arbitration and
Conciliation Act, 1996 (for short ‘the Act’) against the judgment dated
12.06.2023 passed by the learned Single Judge dismissing the petition
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under Section 34 of the Act (hereinafter ‘the petition’).
Brief facts
2. The brief facts are that the appellant, M/s MMTC Ltd. (hereinafter
‘MMTC’) is a public sector undertaking. The respondent, M/s Aust Grain
Exports Pty. Ltd. (hereinafter ‘the respondent’) is an Australian company
engaged in the export of agricultural commodities. On 30.03.2009, MMTC
floated a tender for the supply of yellow peas. The respondent was the
successful bidder and the parties entered into a contract on 16.04.2009 for
the supply of 35,000 metric tonnes (MTs) (+/-10%) of yellow peas at USD
259 per MT. The shipment period under the contract was September-
October 2009.
2.1 The respondent initially nominated vessel MV Geeta. On
08.10.2009, the vessel was cancelled and the respondent thereafter
nominated vessel MV Star Lily. The respondent sought extension of the
shipment period. MMTC subject to the contractual terms and applicable
penalty extended the period up to 15.11.2009 and thereafter up to
30.11.2009.
2.2 The vessel started loading on 23.11.2009 after a delay due to weather
and port congestion. The goods were shipped on 27.11.2009 and arrived on
01.01.2010. MMTC under clause 20 of the contract sought compensation
for the delayed shipment and claimed USD 14 per MT on 31,924.572 MTs
amounting to USD 446,943.98. The respondent disputed the claim and
invoked force majeure . On 24.12.2009, MMTC released the payment of
USD 8,268,464.15 in favour of the respondent. On 12.01.2010, MMTC
invoked the performance bank guarantee (for short ‘PBG’) and
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appropriated USD 271,950.
2.3 Disputes arose between the parties regarding the delayed shipment
and the amount appropriated under the PBG. MMTC invoked arbitration
under clause 23 of the contract and the disputes were referred to arbitration
under the aegis of the Indian Council of Arbitration (ICA), before a three-
member arbitral tribunal (for brevity ‘the tribunal’).
2.4 The majority award was signed on 05.03.2021, the dissenting
opinion was signed on 16.06.2021 and both were sent on 22.06.2021 to the
parties by the ICA.
2.5 The majority award rejected claim no.1 of MMTC for compensation
for delayed shipment amounting to USD 861,963. Claim no.2 relating to
despatch money under clause 10(20) was allowed to the tune of USD
30,620 along with interest at 9% per annum from 18.01.2010 till the date of
award. Counter-claim no.1 of the respondent seeking refund of the PBG of
USD 271,950 was allowed with interest at 9% per annum from 12.01.2010
till the date of the award. Counter-claim no.2 for interest on the PBG was
rejected in view of clause 13(2) of the contract. Counter-claim no.3 for
interest on delayed payment of the invoice was allowed to the tune of USD
42,815.
2.6 The petition filed by MMTC on 04.10.2021 challenging the award
was dismissed on 12.06.2023. It was held that the procedural irregularities
pointed out by MMTC including the absence of a member on certain dates
and non-signing of certain order sheets were not material and had not
affected the decision-making process of the tribunal. Further that the
majority award dated 05.03.2021 and the dissenting opinion dated
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16.06.2021 received by MMTC on 05.07.2021 were in accordance with
Section 31 of the Act and the view taken by the tribunal was plausible.
Submissions of MMTC
3. Learned counsel for MMTC submits that the arbitral proceedings
suffered from procedural irregularities and the majority award was contrary
to Section 31 of the Act and it was not signed by all the members of the
tribunal. The contention is that material proceedings were conducted in the
absence of one or more members of the tribunal and certain order sheets
were not signed by all the arbitrators. Reliance is on Faze Three Exports
Ltd. v. Pankaj Trading Co. & Ors., 2003 SCC OnLine Bom 1024 to
contend that all the members of a multi-member arbitral tribunal must
participate in the material proceedings. It is further submitted that the
majority award was signed on 05.03.2021 but the dissenting opinion was
signed after a gap of 103 days. Reliance is on Dakshin Haryana Bijli
Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., (2021) 7 SCC 657
to contend that the dissenting opinion must be delivered
contemporaneously with the final award and cannot be delivered
subsequently after the tribunal has become functus officio. The argument is
that this has resulted in two separate awards, one by the two members
constituting the majority and the other by the third member.
3.1 Qua claim no.1 relating to compensation for delayed shipment the
submission is that the tribunal erred in treating the claim under clause 20 of
the contract as a claim under Section 73 of the Indian Contract Act, 1872
(hereinafter ‘Contract Act’). Clause 20 provides for a ‘rebate’ for delay
whereas clause 21 deals with ‘damages’. The submission is that the ‘rebate’
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under clause 20 is not dependent upon proof of actual loss. The grievance
is that the tribunal ignored that the extension of the shipment period was
subject to the contractual terms and applicable penalty. Reliance is on the
decision of the Supreme Court in South East Asia Marine Engineering
and Constructions Ltd. v. Oil India Ltd., (2020) 5 SCC 164 to fortify that
the award contrary to the terms of the contract is unsustainable.
3.2 It is canvassed that there is a contradiction in the award. Counter-
claim no.1 for refund of the PBG of USD 271,950 was allowed but
counter-claim no.2 for interest on the PBG was rejected relying upon
clause 13(2) of the contract. However, while concluding the award interest
at 9% was granted on the PBG amount from 12.01.2010 till the date of the
award.
3.3 Lastly, the contention is that the inordinate and unexplained delay
along with the other defects in the arbitral proceedings renders the award
liable to be set aside. Reliance is on CRPF v. Fibroplast Marine (P) Ltd.,
2022 SCC OnLine Del 1335.
Submissions of the Respondent
4. Per contra, the scope of interference under Section 37 of the Act is
limited and does not permit re-appreciation of the findings of the tribunal.
The submission is that the award is reasoned and the view taken is
plausible. Reliance is on Uttarakhand Purv Sainik Kalyan Nigam Ltd. v.
Northern Coal Field Ltd., 2019 INSC 1292, Delhi Airport Metro Express
Pvt. Ltd. v. DMRC, (2022) 1 SCC 131, Power Grid Corporation of India
Ltd. v. SAP Circle, (2018) 19 SCC 20, MMTC Ltd. v. Vedanta Ltd., 2019
INSC 218 and Ssangyong Engineering & Construction Co. Ltd. v. NHAI,
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(2019) 15 SCC 131.
4.1 Learned counsel for the respondent submits that the objections
regarding the functioning of the tribunal are an afterthought. The
contention is that MMTC participated in the proceedings with knowledge
of the alleged irregularities, raised no objection and therefore waived the
right to object under rule 58 of the ICA Rules of Arbitration (hereinafter
‘ICA Rules’). It is submitted that it is not a case of one member of the
tribunal not signing the award. The majority award was signed by the
presiding arbitrator and a co-arbitrator. Under rule 61 of the ICA Rules, the
decision of the majority prevails and is taken as the decision of the tribunal.
The submission is that the ICA notified the parties regarding the award on
22.06.2021 and delivered the signed copy on 05.07.2021. It is contended
that the dissenting opinion being only an opinion, the gap of 103 days does
not affect the validity of the majority award.
4.2 With regard to claim no.1, the submission is that the tribunal rightly
rejected the claim under clause 20 as MMTC sold the consignment at a
higher price and failed to prove the actual loss suffered on account of the
delayed shipment. Reliance is on Fateh Chand v. Balkishan Das, 1963
SCC OnLine SC 49, Maula Bux v. Union of India , (1969) 2 SCC 554,
ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705 and Kailash Nath Associates
v. DDA, (2015) 4 SCC 136. It is further submitted that the shipment period
was extended by mutual consent and the goods were shipped within the
extended period. The finding of the tribunal was based on the terms of the
contract and the evidence adduced and calls for no interference.
4.3 The contention is that there is no inconsistency in the award
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regarding the PBG. Counter-claim no.1 for refund of the PBG was allowed
but counter-claim no.2 was a separate claim for interest on the PBG and
was rejected. The submission is that the interest awarded in the operative
part was consequential to the amount awarded under counter-claim no.1
and is distinct from the interest claim rejected under counter-claim no.2.
4.4 As regards the delay in rendering the award, the submission is that
the tribunal was reconstituted and consequently the proceedings continued
over several years and were delayed due to the COVID-19 pandemic.
5. Heard learned counsel for the parties at length and perused the record
with their able assistance. No submissions other than those noted above
were pressed.
6. Before proceeding further, it would be apposite to reproduce the
relevant clauses of the contract, the relevant ICA Rules and the applicable
provisions of Section 31 of the Act:
Clause No.13 Forfeiture of
1. The Buyer reserves the right to
forfeit the Performance Guarantee
if the Seller-
Performance
Guarantee
a) Fails to supply the goods within
the specified period.
b) Commits any breach of Contract
or fails to fulfil any term(s) or
condition(s) of the Contract.
2. The Performance Guarantee will
be released to the Seller on
successful and satisfactory
execution of the Contract. No
claim shall be admissible against
the Buyer in respect of interest on
Performance Guarantee regardless
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of the time of the release.
Clause No.20 Liquidated
In the event seller fails to effect
shipment as per agreed delivery
schedule the buyer is entitled to a
rebate or US$ 1.00 PMT per day
subject to a maximum of two
weeks . Thereafter buyer will be
free to take legal actions as deemed
fit. In addition, Bid
Guarantee/Performance Guarantee
will be invoked and forfeited.
Damages
Clause No.21 Damages If the goods are not shipped within
the contracted period of shipment,
the seller shall be liable to pay to
the Buyer on demand without any
question whatsoever, damages on
account of extra expenditure, loss
of revenue or loss of industrial
Production in the Buyer’s country
and loss of other benefits to the
buyer. The quantum of such
damages will be determined at the
sole discretion of Buyer.
Clause No. 23 Arbitration &
Any dispute or difference what so
ever arising between the parties out
of or relating to the construction,
meaning, scope, operation or effect
of this contract or the validity or
the breach thereof shall be settled
by arbitrators in accordance with
the rules of arbitration of the Indian
Council of Arbitration and the
award made in pursuance thereof
shall be binding on the parties.
Venue of the arbitration shall be
New Delhi. The contract shall be
Governing
Law
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governed by Indian Laws.
“ ICA RULES
WAIVER OF RULES
Rule 58
Any party who proceeds with the arbitration with the
knowledge that any provision or requirement of these rules
has not been complied with and who fails to state his
objection thereto in writing, shall be deemed to have
waived his right to object.
Rule 61
Whenever there is more than one arbitrator, the award of
the majority shall prevail and be taken as the decision of
arbitral tribunal. Failing a majority, the Presiding
Arbitrator of the arbitral tribunal alone shall make the
award.
Rule 67
The arbitrators constituting the arbitral tribunal or the
Presiding Arbitrator where Rule 61 is applicable, shall sign
the award and the Registrar shall give notice in writing to
the Parties of the making and signing thereof and of the
amount of fees & charges payable in respect of the
arbitration and the award. The arbitrators fee shall be
payable by the Council on receipt of the award and
requisite deposit made by the parties.”
“ Section 31 of the Act
Form and contents of arbitral award.
(1) An arbitral award shall be made in writing and shall be
signed by the members of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral
proceedings with more than one arbitrator, the signatures
of the majority of all the members of the arbitral tribunal
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shall be sufficient so long as the reason for any omitted
signature is stated.
*
(5) After the arbitral award is made, a signed copy shall be
delivered to each party.
*
(7) (a) Unless otherwise agreed by the parties, where
and insofar as an arbitral award is for the payment of
money, the arbitral tribunal may include in the sum
for which the award is made interest, at such rate as
it deems reasonable, on the whole or any part of the
money, for the whole or any part of the period
between the date on which the cause of action arose
and the date on which the award is made.”
ANALYSIS
7. Section 2(1)(f) of the Act defines ‘international commercial
arbitration’ and includes a commercial legal relationship where at least one
of the parties is a body corporate incorporated in a country other than India.
In the case in hand, the respondent is a company incorporated under the
laws of Australia and the arbitration is an international commercial
arbitration. Clause 23 of the contract provides that the venue of arbitration
shall be New Delhi and the contract shall be governed by Indian laws.
Section 2(2) of the Act provides that Part I shall apply where the place of
arbitration is in India. Reference in this regard may be made to the
following judgments of the Supreme Court:
7.1 In Balaji Steel Trade v. Fludor Benin S.A. , (2026) 5 SCC 802 it was
held:
“25.Section 2(1)(f) of the 1996 Act defines ‘international
commercial arbitration’ as arbitration relating to disputes
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arising out of legal relationships, whether contractual or
not, considered as commercial under the law in force in
India and where at least one of the parties is a foreign
national, whether that party is an individual, a body
corporate, an association or body of individuals or a
foreign Government. Respondent 1 being a company
incorporated under the laws of Benin, the present dispute
squarely falls within the ambit of international commercial
arbitration. Once this characterisation is made, Section
2(2) of the Act becomes immediately relevant, for it
stipulates that Part I shall apply only where the place of
arbitration is in India, thereby mandating that Part I stands
excluded where the parties have chosen a foreign seat.”
7.2 In Amway (India) Enterprises (P) Ltd. v. Ravindranath Rao
Sindhia , (2021) 8 SCC 465 held:
“In this view of the matter, the argument that there is no
international flavour to the transaction between the parties
has no legs to stand on. Indeed, an analysis of Section
2(1)(f) would show that whatever be the transaction
between the parties, if it happens to be entered into
between persons, at least one of whom is either a foreign
national, or habitually resident in, any country other than
India; or by a body corporate which is incorporated in any
country other than India; or by the Government of a
foreign country, the arbitration becomes an international
commercial arbitration notwithstanding the fact that the
individual, body corporate, or government of a foreign
country referred to in Section 2(1)(f) carry on business in
India through a business office in India…...”
(emphasis supplied)
8. The scope of interference with an arbitral award in an international
commercial arbitration is limited. The 2015 amendment to Section 34 of
the Act is to the effect that the ground of patent illegality under Section
34(2-A) is not available for setting aside an award in an international
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commercial arbitration seated in India. Reference in this regard be made to
the following decisions of the Supreme Court:
8.1 In Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd. ,
(2020) 7 SCC 167 it was held:
“18. The Law Commission in its 246th Report
recommended the insertion of the ground of “patent
illegality” for setting aside a domestic award by the
insertion of sub-section (2-A) in Section 34 of the Act. The
relevant extract from the Report of the Law Commission is
extracted hereinbelow:
“35. It is for this reason that the Commission has
recommended the addition of Section 34(2-A) to
deal with purely domestic awards, which may also
be set aside by the court if the court finds that such
award is vitiated by “patent illegality appearing on
the face of the award”. In order to provide a
balance and to avoid excessive intervention, it is
clarified in the proposed proviso to the proposed
Section 34(2-A) that such “an award shall not be set
aside merely on the ground of an erroneous
application of the law or by reappreciating
evidence”. The Commission believes that this will
go a long way to assuage the fears of the judiciary
as well as the other users of arbitration law who
expect, and given the circumstances prevalent in our
country, legitimately so, greater redress against
purely domestic awards. This would also do away
with the unintended consequences of the decision of
the Supreme Court in ONGC v. Saw Pipes Ltd.
[ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705],
which, although in the context of a purely domestic
award, had the unfortunate effect of being extended
to apply equally to both awards arising out of
international commercial arbitrations as well as
foreign awards, given the statutory language of the
Act.”
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(emphasis supplied)
To give effect to the said recommendation, it was
suggested that:
“ 18. … (iii) After the Explanation in sub-section (2),
insert sub-section “(2-A) An arbitral award arising
out of arbitrations other than international
commercial arbitrations, may also be set aside by
the court if the court finds that the award is vitiated
by patent illegality appearing on the face of the
award:
Provided that an award shall not be set aside merely
on the ground of an erroneous application of the law
or by reappreciating evidence”.
[ Note .—The proposed Section 34(2-A) provides an
additional, albeit carefully limited, ground for
setting aside an award arising out of a domestic
arbitration (and not an international commercial
arbitration). The scope of review is based on the
patent illegality standard set out by the Supreme
Court in ONGC v. Saw Pipes Ltd. [ONGC v. Saw
Pipes Ltd., (2003) 5 SCC 705] The proviso creates
exceptions for erroneous application of the law and
reappreciation of evidence, which cannot be the
basis for setting aside awards.]”
(emphasis supplied)
19. Pursuant to the recommendations of the Law
Commission, the 1996 Act was amended by Act 3 of 2016,
which came into force w.e.f. 23-10-2015. The ground of
“patent illegality” for setting aside a domestic award has
been given statutory force in Section 34(2-A) of the 1996
Act. The ground of “patent illegality” cannot be invoked in
international commercial arbitrations seated in India. Even
in the case of a foreign award under the New York
Convention, the ground of “patent illegality” cannot be
raised as a ground to resist enforcement, since this ground
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is absent in Section 48 of the 1996 Act. The newly inserted
sub-section (2-A) in Section 34, reads as follows:
“34. (2-A) An arbitral award arising out of
arbitrations other than international commercial
arbitrations, may also be set aside by the Court, if the
Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely
on the ground of an erroneous application of the law
or by reappreciation of evidence.”
8.2 In Ssangyong Engineering (supra) it was held:
“ 42. Given the fact that the amended Act will now apply,
and that the “patent illegality” ground for setting aside
arbitral awards in international commercial arbitrations
will not apply, it is necessary to advert to the grounds
contained in Sections 34(2)( a )( iii ) and ( iv ) as applicable to
the facts of the present case.”
(emphasis supplied)
9. In Ssangyong Engineering (supra) it was held that the amended
provisions of Section 34 shall apply to petitions filed after 23.10.2015
irrespective of the date of commencement of arbitration. In the present
case, the award was passed on 05.03.2021 and the petition under Section 34
was filed after October 2015, on 04.10.2021. The relevant paragraph is as
under:
“19. There is no doubt that in the present case,
fundamental changes have been made in the law. The
expansion of “public policy of India” in ONGC v. Saw
Pipes Ltd. [ ONGC v. Saw Pipes Ltd. , (2003) 5 SCC 705]
[“ Saw Pipes ”] and ONGC v. Western Geco International
Ltd. [ ONGC v. Western Geco International Ltd. , (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] [“ Western Geco ”] has
been done away with, and a new ground of “patent
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illegality”, with inbuilt exceptions, has been introduced.
Given this, we declare that Section 34, as amended, will
apply only to Section 34 applications that have been made
to the Court on or after 23-10-2015, irrespective of the fact
that the arbitration proceedings may have commenced
prior to that date.”
10. The challenge that the impugned award is in violation of Section 31
of the Act for not bearing the signatures of all the three members on the
majority award, lacks merit. Section 31(1) stipulates that an arbitral award
shall be made in writing and signed by the members of the arbitral tribunal.
Sub-section (2) contemplates that the signatures of the majority of the
members shall suffice so long as the reason for the omitted signature is
stated. In the present case, the majority award was signed by two members
and the third member signed a separate dissenting opinion. The case is not
one of a missing signature of a member.
11. The argument of the learned counsel for MMTC that the minority
opinion states that ‘I have gone through the majority award’ and that there
were two awards, is misconceived. The majority and minority views are
opinions of the members of the tribunal and a difference of opinion among
the members does not tantamount to the passing of two awards. The
majority award shall be the award of the arbitral tribunal in terms of
Section 29(1) of the Act.
12. Rule 61 of the ICA Rules provides that in case of a multi-member
tribunal the award of the majority members shall be the decision of the
arbitral tribunal and in the absence of a majority, the presiding arbitrator
alone shall make the award. The majority award in the present case bears
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the signatures of two members and is the decision of the tribunal. There is
no requirement that the majority award be signed by all three members and
the dissenting member is not barred from giving a separate opinion. This
position is supported by Russell on Arbitration (21st Edition, page 271,
paragraph 6-059) which states:
“If, however, there is no chairman, then decisions,
orders and awards must be made by all or a majority of
the tribunal. Any member of the tribunal who does not
assent to an award need not sign it and may set out his
own views of the case in a ‘dissenting opinion’. This is
for the parties’ information only and does not form part
of the award, but it may be useful in terms of adding
weight to the arguments of a party wishing to appeal
against the award.”
(emphasis supplied)
13. The reliance on the decision of the Supreme Court in Dakshin
Haryana Bijli Vitran Nigam (supra) to contend that the dissenting opinion
had to be delivered contemporaneously with the majority award, does not
enhance the case of MMTC. The decision was rendered in a case governed
by Section 29A of the Act, inserted by the 2015 amendment. In the case in
hand, the arbitration is an international commercial arbitration and Section
29A (1) by its express terms does not apply to an international commercial
arbitration. Moreover, the tribunal would become functus officio only upon
passing of the award. The opinion of the two members would mature into
an award only after the opinion of the third member which would
determine whether the award is unanimous or by majority.
14. The majority award was signed by two members on 05.03.2021 and
the dissenting opinion was signed by the third member on 16.06.2021. Both
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were sent by the ICA on 22.06.2021 and received by MMTC on
05.07.2021. The opening page of the award records it as the “majority
award by two members” indicating that there was a discussion amongst the
members and that one member dissented from the other two. There is no
period prescribed under the statute for recording a dissenting opinion. A
reasonable time is expected to be taken by a member in the minority to give
a dissenting opinion.
15. The reliance on the decision of the Division Bench of this court in
CRPF v. Fibroplast Marine (P) Ltd., (supra) to argue that inordinate delay
in making the award renders it liable to be set aside as opposed to public
policy, is not applicable to this case. In that case the court was dealing with
a matter where a stipulated period was fixed for rendering the award and
the proceedings continued thereafter with the parties participating. In the
present case, during the arbitral proceedings the tribunal was reconstituted
more than once and sittings during the COVID-19 pandemic were
conducted through video conferencing with the consent of the parties.
16. The grievance of MMTC that in some of the hearings all members of
the tribunal were not present and zimini orders were passed in their
absence, was rightly rejected by learned Single Judge in consonance with
the limited scope of interference in an international commercial arbitration
wherein the ground of patent illegality is not available. Moreover, it was
considered that these irregularities had no bearing on the ultimate outcome
of the arbitration. The law is well-settled that every procedural irregularity
and illegality does not warrant interference.
17. The claim of MMTC for liquidated damages (for short ‘LD’) under
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clause 20 of the contract on account of a delay of fourteen days in shipping
the goods and for damages under clause 21 on account of a delay of
thirteen days was rejected by the tribunal. A factual finding was recorded
that the shipment period was rescheduled to 30.11.2009 by mutual consent
of the parties consequently, no loss or damage was caused by the change in
schedule and clause 20 was not triggered. Vis-à-vis the claim under clause
21, the tribunal recorded that the claim for damages was neither pleaded
nor proved and the terms ‘damages/LD’ were used vaguely in the statement
of claim. Further that in the absence of breach by the respondent no case
for LD or rebate was made out. The findings recorded suffer from no legal
or factual error, much less perversity though these are not even grounds
available in an international commercial arbitration.
18. The counter-claim no.1 of the respondent seeking refund of the PBG
was allowed and is not under challenge. The tribunal considered that sub-
clause (2) of clause 13 of the contract provided that “no claim shall be
admissible against the buyer in respect of interest on the PBG irrespective
of the time of release” and rejected the claim for interest on the PBG. The
limited grievance of MMTC is that in conclusion the tribunal directed that
the PBG be refunded along with interest at the rate of 9% per annum from
12.01.2010 till the date of the award.
19. At this stage, learned counsel for the respondent fairly contended that
there was no explanation for this contradiction in the award however,
contended that the relief of interest was severable.
20. Section 31(7) of the Act provides that the tribunal may grant
pendente-lite interest unless the parties have otherwise agreed. It is an
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undisputed fact that under clause 13(2) of the contract, the parties agreed
that the amount of the PBG shall not carry interest irrespective of the
period of release. The grant of interest on the PBG is not a mere
contradiction in the award but is contrary to the statutory provisions and the
terms agreed between the parties.
21. The international commercial arbitration award in conflict with the
public policy of India can be interfered with. The explanation to Section
34(2)(b)(ii) of the Act clarifies that an award shall be in conflict with the
public policy of India only in the three eventualities stipulated therein. The
third one is where the award is in conflict with the most basic notions of
morality or justice. The Supreme Court in Associate Builders v. Delhi
Development Authority, (2015) 3 SCC 49 held that morality and justice are
two different expressions in law and an award can be said to be against
justice only when it shocks the conscience of the court. The illustration
given therein is an award granting more than the claim made without any
reason or justification. The relevant paragraph is reproduced below:
“36. The third ground of public policy is, if an award is
against justice or morality. These are two different
concepts in law. An award can be said to be against
justice only when it shocks the conscience of the court.
An illustration of this can be given. A claimant is content
with restricting his claim, let us say to Rs. 30 lakhs in a
statement of claim before the arbitrator and at no point
does he seek to claim anything more. The arbitral award
ultimately awards him 45 lakhs without any acceptable
reason or justification. Obviously, this would shock the
conscience of the court and the arbitral award would be
liable to be set aside on the ground that it is contrary to
"justice".
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22. In the present case, the tribunal rejected counter-claim no.2 for
interest on the PBG but without reason or justification ultimately in
concluding part of the award granted interest. In the peculiar facts of this
case, without revisiting the facts or re-appreciating the evidence, the award
of interest on the PBG is in conflict with the public policy of India and falls
within the ambit of Section 34(2)(b)(ii) of the Act.
23. In an international commercial arbitration, Section 34(2-A) is not
applicable but the remaining provisions of Section 34 are applicable in the
full force. The Supreme Court in Gayatri Balasamy v. ISG Novasoft
Technologies Ltd., (2025) 7 SCC 1 held that severable portions of an
award can be set aside provided that the invalid portion is capable of being
severed. The relevant paragraphs are quoted below:
“32. In the present controversy, the proviso to Section
34(2)(a)(iv) is particularly relevant. It states that if the
decisions on matters submitted to arbitration can be
separated from those not submitted, only that part of the
arbitral award which contains decisions on matters non-
submitted may be set aside. The proviso, therefore,
permits courts to sever the non-arbitrable portions of an
award from arbitrable ones. This serves a two fold
purpose. First, it aligns with Section 16 of the 1996 Act,
which affirms the principle of kompetenz- kompetenz , that
is, the arbitrators' competence to determine their own
jurisdiction. Secondly, it enables the Court to sever and
preserve the “valid” part(s) of the award while setting
27
aside the “invalid” ones. Indeed, before us, none of the
parties have argued that the Court is not empowered to
undertake such a segregation.
33. We hold that the power conferred under the proviso to
Section 34(2)(a)(iv) is clarificatory in nature. The
authority to sever the “invalid” portion of an arbitral
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award from the “valid” portion, while remaining within
the narrow confines of Section 34, is inherent in the
Court's jurisdiction when setting aside an award.
34. To this extent, the doctrine of omne majus continet in
se minus —the greater power includes the lesser— applies
squarely. The authority to set aside an arbitral award
necessarily encompasses the power to set it aside in part,
rather than in its entirety. This interpretation is practical
and pragmatic. It would be incongruous to hold that
power to set aside would only mean power to set aside
the award in its entirety and not in part. A contrary
interpretation would not only be inconsistent with the
statutory framework but may also result in valid
determinations being unnecessarily nullified.”
(emphasis supplied)
24. The award of interest on the PBG is not intricately connected with
the other claims and counter-claims dealt with by the tribunal and is
severable, even from the direction to refund the PBG.
25. In view of the above discussion, the appeal is partly allowed. The
impugned award is set aside to the limited extent of awarding interest at 9%
per annum on the PBG.
26. All pending applications stand disposed of.
AVNEESH JHINGAN, J
SHAIL JAIN, J
OCTOBER 28, 2026
‘TL’
Reportable:- Yes
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