Delhi HC Removes 9% Interest From MMTC’s $271,950 Bank Guarantee Refund, Citing Contractual Bar

MMTC and Aust Grain entered into a contract for the supply of yellow peas, which included a performance bank guarantee (PBG). Disputes over delayed shipment and the PBG were referred to arbitration. The tribunal rejected MMTC’s claim for delay-related damages and allowed the respondent’s counterclaim for refund of the PBG. Although it rejected a separate claim for interest on the PBG under clause 13(2) of the contract, the tribunal’s concluding directions awarded 9% interest on the PBG from 12 January 2010 until the award

MMTC’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed. It appealed under Section 37

Section 31(1)–(2) of the Arbitration and Conciliation Act, 1996 permits an award to be signed by a majority of the tribunal, provided the reason for an omitted signature is stated; under Section 29(1) and Rule 61 of the ICA Rules, the majority’s decision is the tribunal’s award

Section 34(2-A)’s patent-illegality ground is unavailable for international commercial arbitrations seated in India, though the other grounds in Section 34 remain available

Section 31(7) permits interest unless the parties have agreed otherwise; clause 13(2) expressly barred claims for interest on the PBG

An award may be set aside under Section 34(2)(b)(ii) if it conflicts with the most basic notions of morality or justice and shocks the court’s conscience

A severable invalid portion of an award may be set aside without disturbing the valid remainder

The court held that the majority award was signed by two arbitrators, as permitted by Section 31 and Rule 61; the third arbitrator’s dissent did not constitute a separate award, and the later delivery of that opinion did not invalidate the majority award

It found no basis to disturb the tribunal’s rejection of MMTC’s delay-related claims, including its findings on the parties’ rescheduled shipment period and the absence of proved damages

However, the tribunal had rejected the respondent’s interest claim by applying clause 13(2), yet awarded interest on the PBG in its final directions. That award contradicted the parties’ express agreement and the tribunal’s own reasoning; the court found this portion contrary to public policy under Section 34(2)(b)(ii)

Because the interest direction was separable from the refund of the PBG and the other determinations, it could be set aside alone

All pending applications were disposed of