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Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

in part

Judges
  • Justice Bela M. Trivedi
  • Justice Sanjiv Khanna
Acts
  • Section 31(7) of the Arbitration Act, 1996
  • Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

in part

Judges
  • Justice Bela M. Trivedi
  • Justice Sanjiv Khanna
Acts
  • Section 31(7) of the Arbitration Act, 1996
  • Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act)
See more information ...
Smart Summary

Punjab State Civil Supplies Corporation Ltd. (PUNSUP) & Another
v.
Ganpati Rice Mills & Another

Factual and Procedural Background

An arbitral award dated prior to 01-01-2003 granted interest at 18% per annum on the amount due to the claimants (respondents) from 01-01-2003 until realisation. The respondents invoked Section 34 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”) before the District Judge, Chandigarh, who by judgment dated 22-11-2011 reduced the interest rate to 12% per annum. In a first appeal (FAO No. 5622/2012) the High Court of Punjab & Haryana further reduced the rate to 9% per annum by order dated 22-07-2016. Aggrieved, PUNSUP and its co-appellant filed a Special Leave Petition (C) No. 36655/2016 before the Supreme Court. Leave was granted, and the present judgment dated 20-10-2021 decides the appeal solely on the issue of interest.

Legal Issues Presented

  1. Whether the High Court was justified in reducing the post-award interest rate from 12% per annum (as fixed by the District Judge) to 9% per annum in an arbitration governed by the Arbitration and Conciliation Act, 1996.

Arguments of the Parties

Appellants (PUNSUP & Another)

  • Section 31(7) of the 1996 Act confers broad discretion on an arbitrator to award interest, and the District Judge had already exercised judicial oversight by fixing 12% per annum; the High Court had no compelling basis to interfere further.
  • Reference was made to clauses in the underlying contract indicating that interest up to 21% per annum could be awarded, demonstrating that 12% was reasonable.

Respondents (Ganpati Rice Mills & Another)

  • Filed objections under Section 34 and pursued appeals seeking a further reduction of the interest rate, which culminated in the High Court’s order fixing the rate at 9% per annum.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
A.P. State Trading Corporation Ltd. v. G.V. Malla Reddy & Company, 2010 SCC OnLine SC 1081 Extent of court’s power to modify interest awarded in arbitration under the Arbitration Act, 1940. The Supreme Court held that the High Court’s reliance on this decision was misplaced because it concerned the 1940 Act. The present case is governed by the 1996 Act, which provides wider discretion to arbitrators under Section 31(7).

Court's Reasoning and Analysis

1. The Court noted that Section 31(7) of the 1996 Act explicitly vests “substantial discretion” in arbitrators to award interest.
2. The High Court offered no concrete reasons for reducing the rate from 12% to 9% and relied on a decision rendered under the repealed Arbitration Act, 1940. That precedent was held to be inapposite.
3. Given the contractual clauses—cited by the appellants—permitting even higher rates (up to 21% per annum), the District Judge’s figure of 12% was found fair and within judicial discretion.
4. Because the appellants had accepted the District Judge’s reduction to 12%, the Supreme Court saw no reason to revisit the question of whether an even higher rate might have been warranted. The focus remained on correcting the High Court’s unwarranted interference.

Holding and Implications

Holding: The appeal is PARTLY ALLOWED. The interest rate of 12% per annum from 01-01-2003 until realisation, as fixed by the District Judge on 22-11-2011, is restored. All pending applications stand disposed of.

Implications: The decision reinstates the District Judge’s determination without setting new precedent; it clarifies that courts should exercise caution when altering interest rates fixed under the 1996 Act and should not rely on jurisprudence developed under the repealed 1940 Act absent compelling reasons.

Show full summary ...

    Punjab State Civil Supplies Corporation Limited (punsup) And Another (s) v. Ganpati Rice Mills And Another (s).

    1. Heard learned counsel for the parties.

    2. Leave granted.

    3. The issue in the present appeal is limited to rate of interest.

    4. The Arbitrator had granted interest at the rate of 18% per annum from 01.01.2003 till the date of realization.

    5. On consideration of the objections under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) filed by the respondent(s), the rate of interest was reduced to 12% per annum.

    6. In the first appeal preferred by the respondent(s) before the High Court, vide the impugned order dated 22.07.2016, the rate of interest has been reduced to 9% per annum.

    7. We do not think that the High Court was justified and correct in reducing the rate of interest to 9 % per annum. The judgment of this Court in “A.P. State Trading Corporation Ltd. v. G.V. Malla Reddy and Company”, 2010 SCC OnLine SC 1081 relied upon by the High Court, pertained to arbitration proceedings under the Arbitration Act of 1940, whereas the present dispute relates to arbitration under the Arbitration Act 1996. Per contra, Section 31(7) of the Arbitration Act, 1996 grants substantial discretion to the arbitrator in awarding interest. No reason and grounds have been given to reduce the rate of interest. On fact, the appellants have referred to certain clauses of the agreement, to contend that interest @ 21% per annum could be awarded. We need not examine this aspect, as the appellants had accepted the decision of the District Judge reducing the rate of interest to 12% per annum.

    8. In view of the aforesaid position, we restore the rate of interest as awarded by the judgment dated 22.11.2011 passed by the District Judge, Chandigarh, i.e. interest at the rate of 12% per annum w.e.f. 01.01.2003 till realization.

    9. The appeal is partly allowed in the aforesaid terms.

    10. Pending application(s), if any, stand disposed of.

    SUPREME COURT OF INDIA

    RECORD OF PROCEEDINGS

    Petition(s) for Special Leave to Appeal (C) No(s). 36655/2016

    (Arising out of impugned final judgment and order dated 22-07-2016 in FAO No. 5622/2012 passed by the High Court of Punjab & Haryana at Chandigarh)

    Punjab State Civil Supplies Corporation Limited (PUNSUP) and Another.….Petitioner(s)
    Versus
    Ganpati Rice Mills and Another.….Respondent(s)

    Date : 20-10-2021 This petition was called on for hearing today.

    (Before Sanjiv Khanna and Bela M. Trivedi, JJ.)

    For Petitioner(S) Mr. Sanchar Anand, Adv.

    Mr. Anant Kumar Vatsya, Adv.

    Mr. Shiv Kumar, Adv.

    Mr. Ashish Kumar Sinha

    Mr. Devendra Singh, AOR

    For Respondent(s) Mr. Arun K. Sinha, AOR

    UPON hearing the counsel the Court made the following

    11. Leave granted.

    12. The appeal is partly allowed in the aforesaid terms.

    13. Pending application(s), if any, stand disposed of.

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    Comments

    Punjab State Civil S... v. Ganpati Rice Mills A...
    (Oct 20, 2021)