Court affirms limited judicial interference in international commercial arbitration; interest awarded on performance bank guarantee contrary to contract and public policy set aside
In a significant judgment delivered on October 28, 2026, the Delhi High Court (Division Bench comprising Justices Avneesh Jhingan and Shail Jain) partly allowed the appeal filed by MMTC Limited against the arbitral award passed in its dispute with Australian company Aust Grain Exports Pty Ltd. The Court upheld the validity of the majority arbitral award signed by two of the three-member arbitral tribunal, rejecting the challenge on grounds of procedural irregularities and delayed dissenting opinion. However, the Court set aside the award of 9% interest on the refunded performance bank guarantee (PBG) as it was contrary to the terms of the contract and public policy of India.
The dispute arose from a contract dated April 16, 2009, for supply of 35,000 metric tonnes of yellow peas by Aust Grain Exports to MMTC at USD 259 per MT, with shipment originally scheduled for September-October 2009. Due to delays caused by weather and port congestion, shipment was extended by mutual consent up to November 30, 2009. MMTC invoked the PBG and claimed compensation for delayed shipment, which was disputed by the respondent invoking force majeure.
The arbitration was seated in New Delhi under the Indian Council of Arbitration (ICA) Rules, constituting an international commercial arbitration under the Arbitration and Conciliation Act, 1996 ("the Act"), as one party was foreign and the seat was in India. The three-member tribunal issued a majority award on March 5, 2021, signed by two members, and a dissenting opinion by the third member on June 16, 2021, both communicated to parties on June 22, 2021.
MMTC challenged the award under Section 34 of the Act alleging procedural irregularities including absence of arbitrators in some hearings, non-signing of order sheets, and invalidity due to the dissenting opinion being signed 103 days after the majority award. The Court rejected these contentions, holding that under Section 31 of the Act and ICA Rules, signatures of the majority arbitrators suffice and dissenting opinions may be separately rendered without invalidating the award. The delay in signing the dissenting opinion did not affect the validity of the majority award.
On the merits, the Court found the tribunal rightly rejected MMTC's claim for liquidated damages (LD) under Clause 20 of the contract and damages under Clause 21 since the shipment was within the mutually extended period and MMTC failed to prove any loss. The award was based on factual findings and contractual interpretation, which the Court declined to interfere with, emphasizing the limited scope of judicial review in international commercial arbitration, especially after the 2015 amendment to Section 34 which excludes the ground of "patent illegality" for setting aside awards in such arbitrations.
However, the Court noted a contradiction in the award concerning the PBG. While the tribunal rejected the respondent's counter-claim for interest on the PBG relying on Clause 13(2) which expressly barred interest on the PBG, the operative part of the award granted 9% interest on the refunded PBG amount. The Court held that granting interest on the PBG was contrary to the clear contractual stipulation and the statutory scheme, amounting to conflict with the public policy of India as per Section 34(2)(b)(ii) of the Act and Supreme Court precedents.
Invoking the doctrine of severability as recognized by the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., the Court set aside only the portion of the award granting interest on the PBG, while maintaining the rest of the award intact. The Court emphasized that partial setting aside is a practical approach that preserves valid portions of an award without nullifying the entire decision.
This landmark ruling reaffirms the principle that in international commercial arbitrations seated in India, judicial interference is limited and majority awards by multi-member tribunals are valid even if dissenting opinions follow later. It also clarifies that arbitral awards must comply with contractual terms and public policy, with courts empowered to sever invalid portions without disturbing the entire award.
Bottom Line:
Arbitration and Conciliation Act, 1996 - International commercial arbitration seated in India - Patent illegality ground under Section 34(2-A) not available - Majority award signed by two of three arbitrators valid - Dissenting opinion delivered later does not invalidate award - However, interest awarded on performance bank guarantee contrary to contract can be severed and set aside as being in conflict with public policy of India.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 2(1)(f), 2(2), 29(1), 31(1), 31(2), 31(5), 31(7), 34, 34(2)(b)(ii), 34(2-A), 37; Indian Council of Arbitration Rules 58, 61, 67; Contract Act, 1872 (Section 73)
MMTC Limited v. Aust Grain Exports Pty Ltd, (Delhi)(DB) : Law Finder Doc Id # 3004957
