Court says it cannot reappreciate facts in Section 37 appeal; modifies post-award interest, holding 20% applicable only during KSFC loan repayment period and 12% thereafter.
In a significant arbitration ruling, the Karnataka High Court has largely upheld an arbitral award directing HMT Limited to pay damages to a group of former employees who had left the company under a special entrepreneurship scheme and later complained of short supply of assured workload.
A Division Bench comprising Justice Anu Sivaraman and Justice T.P. Vivekananda dismissed HMT’s challenge to the arbitral award and the order of the Section 34 court, holding that the company could not seek a fresh reappraisal of evidence in an appeal under Section 37 of the Arbitration and Conciliation Act, 1996. The court reiterated that its jurisdiction in such appeals is narrow and that it cannot function as a regular appellate court on facts.
The dispute arose from a 1990 scheme under which HMT invited its employees to become entrepreneurs for off-loading auto component work. The employees accepted voluntary retirement or resigned, set up units with financial assistance from the Karnataka State Financial Corporation (KSFC), and were assured minimum workload by HMT. According to the claimants, HMT supplied the assured workload for only about a year and then persistently reduced the volume of work, causing them financial loss.
An arbitral tribunal accepted the claimants’ case and awarded damages for the shortfall in workload. HMT challenged the award, arguing that the claimants had waived their rights by continuing to work despite reduced supply, that the shortfall was due to market competition and financial difficulty, and that the award of 20% interest was illegal.
The High Court rejected these objections on the merits. It noted that the short supply of material was an admitted fact and that both the arbitral tribunal and the Section 34 court had already found HMT’s explanations unacceptable. The court also held that it was unreasonable to expect small entrepreneurs, already burdened with loans and family obligations, to terminate the contract and seek work in the open market.
However, the court found fault with the award of 20% interest for the entire period till payment. It held that the damages awarded were not a fixed sum due for supplied goods, but a presumptive assessment of loss of profit caused by short supply. Therefore, the statutory provisions under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and the MSMED Act, 2006 could not be used to justify 20% interest on such damages.
Relying on the Supreme Court’s decision in Gayatri Balaswamy v. M/s ISG Novasoft Technologies Ltd., the High Court said post-award interest can be modified where facts justify it. It accordingly held that 20% interest would apply only for the period during which the claimants were repaying their KSFC loans, subject to proof, and 12% interest would apply for the remaining period under Section 31(7)(b) of the Arbitration Act.
The court also directed that the amounts already deposited by HMT pursuant to earlier proceedings and disbursed to the claimants must be adjusted while calculating the final dues. With this modification limited to interest, all the appeals were disposed of.
Bottom Line :
Arbitration - Appeal under Section 37 of Arbitration and Conciliation Act - High Court cannot reappreciate evidence or upset concurrent factual findings of Arbitral Tribunal and Section 34 Court merely on merits - Award of damages for shortfall in assured workload upheld - However, grant of 20% interest for entire post-claim period held patently illegal and against public policy - Interest modified to 20% only for period during which claimants were repaying KSFC loan and 12% for remaining period.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 31(7)(b), 34, 37, Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 Sections 3, 4, 5, 6, Micro, Small and Medium Enterprises Development Act, 2006 Sections 15, 16, Contract Act, 1872 Sections 39, 63
HMT Limited v. C. Rajamma, (Karnataka)(DB) : Law Finder Doc id # 2983534
