Delhi High Court Partly Sets Aside Arbitration Award Against MMTC, Rules That Contractual Prohibition Bars Nine Percent Interest on Previously Forfeited Performance Bank Guarantee
Delhi High Court Upholds Majority Arbitral Award Against MMTC but Strikes Down Nine Percent Interest on Performance Guarantee as Contrary to Contract and Public Policy
Facts
MMTC Ltd. contracted with Australian exporter Aust Grain Exports Pty Ltd. on 16 April 2009 to buy 35,000 metric tonnes (±10%) of yellow peas at USD 259 per tonne. Shipment was delayed amid vessel changes, weather and port congestion, but the parties extended the deadline to 30 November 2009. MMTC claimed delay compensation and encashed a performance bank guarantee (PBG) of USD 271,950. In an ICA arbitration, the majority award rejected MMTC’s major delay claim, awarded it USD 30,620 in despatch money, ordered the PBG refund with 9% interest, and allowed USD 42,815 for delayed invoice-payment interest. A Single Judge dismissed MMTC’s Section 34 challenge.
Issues
Whether a three-member tribunal’s majority award was invalid because the dissent followed 103 days later or due to alleged procedural irregularities; whether the rejection of contractual delay damages was open to appellate interference; whether 9% interest on the refunded PBG conflicted with an express no-interest clause; and whether the offending portion was severable under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
Petitioner’s Arguments
MMTC, the appellant, argued that hearings without all arbitrators, unsigned order sheets and the delayed dissent violated Section 31 and compromised the tribunal’s composition. It relied on contractual clause 20 to assert an automatic USD 1-per-tonne-per-day rebate for late shipment, without proof of actual loss, and said the tribunal wrongly applied ordinary damages principles. It also identified an internal inconsistency: the tribunal rejected a separate PBG-interest counterclaim under clause 13(2), yet awarded 9% interest on the very same guarantee in the operative directions.
Respondent’s Arguments
Aust Grain submitted that Section 37 review is narrowly confined and cannot reopen plausible findings of contractual interpretation. Under ICA Rules 58 and 61, unprotested procedural defects were waived and a majority award was binding notwithstanding a separate dissent. Shipment occurred within the mutually extended deadline, while MMTC demonstrated no loss. The exporter defended the distinction between the rejected standalone interest counterclaim and interest awarded consequentially with PBG repayment; it alternatively maintained that any defective interest component could be severed without disturbing the remainder.
Analysis of the Law
Because Aust Grain is incorporated in Australia and the arbitration was seated in New Delhi, the dispute was an India-seated international commercial arbitration under Section 2(1)(f). Section 34(2-A)’s patent-illegality ground is unavailable in such proceedings; the grounds in Section 34(2), including a narrowly construed public-policy challenge, remain available. Sections 29(1) and 31 permit a majority decision; a separately signed dissent need not invalidate it. Section 31(7) allows pre-award interest unless the parties agree otherwise. A contractually prohibited, independently severable interest award may therefore be set aside without vacating the substantive directions.
Precedent Analysis
Patel Engineering and Ssangyong Engineering exclude patent illegality as a ground against India-seated international commercial awards. Amway (India) Enterprises and Balaji Steel Trade address their international character. The Court distinguished Dakshin Haryana Bijli Vitran Nigam on the timing of dissent and the inapplicability here of Section 29A(1). Associate Builders explains that an unjustified award conflicting with basic notions of justice may offend public policy. Relying on Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1, the Court held that invalid, separable parts of an arbitral award can alone be set aside.
Court’s Reasoning
The majority award signed on 5 March 2021 and dissent signed on 16 June 2021 were notified together; the 103-day interval did not create two awards or invalidate the majority. Procedural complaints were immaterial to the result. The extension of shipment to 30 November 2009 was consensual, and the tribunal’s findings that no actionable delay loss or pleaded damages were established were not reviewable. Crucially, clause 13(2) expressly barred interest on the PBG. Having rejected the interest counterclaim, the tribunal nonetheless granted 9% interest without justification. This conflict with the agreed prohibition and the award’s own reasoning offended public policy and was independently severable.
Conclusion
The Division Bench partly allowed MMTC’s Section 37 appeal and set aside the majority award solely insofar as it granted 9% annual interest on the refunded PBG of USD 271,950. The direction to refund the PBG principal, the remaining claims and counterclaims, and the arbitral award otherwise survived. The judgment confirms that limited judicial review of international commercial awards does not permit reappreciation of evidence or a general patent-illegality challenge, but permits severance of a distinct monetary direction incompatible with an express contractual restriction and public policy.
Case: MMTC Limited v. Aust Grain Exports Pty Ltd.
Court: High Court of Delhi at New Delhi, Commercial Appellate Jurisdiction
Case Number: FAO(OS) (COMM) 210/2023; CNR DLHC010375712023
Judge: Justices Avneesh Jhingan and Shail Jain (judgment by Avneesh Jhingan, J.)
Date: 28 October 2026 (reserved 5 October 2026)
Result: Appeal partly allowed; 9% PBG interest alone set aside; remaining majority arbitral award upheld.
