Court’s Decision
The Gujarat High Court held that an executing court’s failure to grant post-award interest at 18% per annum as mandated by Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 constituted an error apparent on the face of the record. Justice Maulik J. Shelat observed that “a judgment rendered in ignorance of the applicable law must be reviewed”, setting aside the lower court’s refusal to review its earlier order. The Court accordingly directed correction of the 2005 execution order to bring it in conformity with statutory requirements.
Facts
A work order had been issued to the petitioner by the State for construction-related work. After completion, several payments remained pending, leading to arbitration. The sole arbitrator, by award dated 31 May 2000, directed the respondent to pay ₹80,47,100.30 with 16% interest from 1 October 1997 to the date of the award. No post-award interest was granted.
The petitioner initiated Arbitration Execution Petition No. 359 of 2002, seeking recovery along with interest. On 21 October 2005, the executing court ordered payment of ₹1.84 crores with interest at 16% till realization, omitting the statutory 18% post-award interest. The State’s writ before the High Court (SCA 628/2006) and subsequent SLP were dismissed. The petitioner later moved Applications Exh. 22 and 32 in 2016, seeking correction of the error and payment of 18% interest post-award.
The lower court rejected the review, prompting the petitioner to invoke Article 227 before the High Court.
Issues
- Whether the executing court’s order dated 21.10.2005 merged with the High Court’s 2014 order dismissing the State’s writ petition.
- Whether the rejection of the petitioner’s review application was erroneous.
- Whether the executing court committed a jurisdictional error by not granting post-award interest as per Section 31(7)(b) of the Arbitration Act.
Petitioner’s Arguments
The petitioner contended that the executing court’s 2005 order suffered from a patent legal error as it ignored Section 31(7)(b), which mandates 18% post-award interest unless otherwise directed. Citing Hyder Consulting (UK) Ltd. v. Governor, State of Orissa (2015) 2 SCC 189, counsel argued that “the sum” under Section 31(7)(b) includes both principal and pre-award interest. Therefore, the petitioner was entitled to 18% on the aggregate amount until realization.
It was argued that doctrine of merger did not apply since the earlier writ was filed under Article 227, not an appeal. The High Court, while dismissing the State’s writ, had not adjudicated the question of interest; hence, the issue remained open. The petitioner further emphasized that waiver or estoppel could not override a statutory right to interest.
Reliance was placed on:
- Kunhayammed v. State of Kerala (2000) 6 SCC 359
- Canon India Pvt. Ltd. v. Commissioner of Customs (2025) 4 SCC 509
- Sanjay Kumar Agarwal v. State Tax Officer (I) (2024) 2 SCC 362
- Niyamat Ali Molla v. Sonargon Housing Cooperative Society (2007) 13 SCC 421
- Siddamsetty Infra Projects Pvt. Ltd. v. Katta Sujatha Reddy (2024 SCC OnLine SC 3214)
Respondent’s Arguments
The State opposed the petition, submitting that the 2005 execution order had attained finality since it was not challenged by the petitioner for over a decade. It argued that the order merged with the High Court’s 2014 judgment and the Supreme Court’s dismissal of the SLP, precluding any review. The State also raised the bar of limitation and delay, contending that the petitioner’s claim for interest after eleven years was untenable.
Citing Kunhayammed, Mary Pushpam v. Telvi Curusumary (2024) 3 SCC 224, and Kamlesh Verma v. Mayawati (2013) 8 SCC 320, it argued that review jurisdiction cannot be used to re-agitate settled issues.
Analysis of the Law
The Court carefully examined the doctrine of merger and review jurisdiction. Referring to Kunhayammed, it noted that merger applies only when a higher forum decides the same issue; it does not apply where the issue was neither raised nor decided in earlier proceedings. Since the High Court’s 2014 judgment dealt only with the validity of the arbitral award, not post-award interest, the question remained open for review.
Justice Shelat relied on Canon India Pvt. Ltd. to clarify that when a court ignores a statutory provision, the resulting order is per incuriam and reviewable under Order XLVII Rule 1 CPC.
He reiterated the ratio in Hyder Consulting that:
“The amount awarded under Section 31(7)(a) whether with or without interest constitutes a ‘sum’ for which the award is made, and post-award interest under Section 31(7)(b) applies to that sum.”
Hence, post-award interest at 18% per annum was a statutory entitlement where the arbitrator remained silent.
Precedent Analysis
- Hyder Consulting (2015) 2 SCC 189 – Clarified that “sum” under Section 31(7)(b) includes both principal and pre-award interest; failure to award 18% post-award interest is an error of law.
- Kunhayammed (2000) 6 SCC 359 – Doctrine of merger is not universally applicable; depends on the issue adjudicated.
- Canon India (2025) 4 SCC 509 – Courts must review orders passed in ignorance of statutory law; such orders are per incuriam.
- Radheshyam v. Chhabi Nath (2015) 5 SCC 423 – Orders of civil courts are not amenable to writ jurisdiction under Article 226 but under 227, reinforcing that no merger arises in such supervisory proceedings.
These precedents collectively established that the executing court’s refusal to grant statutory interest was reviewable and void for ignoring binding legal provisions.
Court’s Reasoning
The Court found that the 2005 execution order was contrary to Section 31(7)(b) and therefore erroneous on the face of the record. It ruled that:
“When a court disposes of a case without due regard to a statutory provision, it commits an error analogous to one apparent on the face of record sufficient to bring it within Order 47 Rule 1 CPC.”
The judge further observed that delay cannot defeat a statutory right, especially where both parties were engaged in litigation over the award’s validity until 2015. He held that technical objections of delay and merger could not override substantive justice.
Conclusion
The High Court allowed the petition, holding that:
- The order dated 21.10.2005 did not merge with the High Court’s or Supreme Court’s earlier orders.
- The executing court’s refusal to review its order was illegal and perverse.
- The petitioner was entitled to 18% post-award interest on the total “sum” under Section 31(7)(b) of the Arbitration Act, excluding the period between 2005 and 2016 as waived by the petitioner.
The Court restored the petitioner’s entitlement, reaffirming that judicial oversight must correct errors arising from ignorance of binding law.
Implications
This ruling reinforces that:
- Statutory post-award interest under Section 31(7)(b) is mandatory, unless expressly excluded by the arbitrator.
- Doctrine of merger does not apply where an issue is never adjudicated in supervisory proceedings.
- Review jurisdiction extends to correcting per incuriam orders that disregard statutory mandates.
The judgment strengthens the principle that arbitral award creditors cannot be deprived of post-award interest due to procedural lapses or judicial oversight.
