Case Name: MMTC Limited v. Aust Grain Exports Pty. Ltd.
Case Number: FAO (OS) (COMM) 210/2023 (CNR No. DLHC010375712023)
Date: Wednesday, Twenty-Eighth of October, Two Thousand and Twenty-Six
Court: In The High Court of Delhi at New Delhi
Quorum: Justice Avneesh Jhingan and Justice Shail Jain
FACTS
MMTC Limited, a public sector undertaking had entered into an agreement with Aust Grain Exports Pty. Ltd. on 16.4.2009 regarding the supply of yellow peas from Australia. Since there were issues with bad weather and port congestion, the shipment was delayed till 30.11.2009 and shipped on 27.11.2009.
MMTC claimed compensation and received USD 271,950 under performance bank guarantee (PBG) on 12.1.2010. The matter was referred to arbitration under clause 23 for delay. The majority of the arbitral tribunal denied the main claim of MMTC for compensation for delayed shipments but awarded the refund of PBG with 9% interest per annum. However the minority award was passed on 16.6.2021. The award was challenged by MMTC under section 34 of Arbitration and Conciliation Act, 1996 on 4.10.2021. But the single judge did not entertain the petition filed on 12.6.2023. Thus, MMTC filed an appeal before the Delhi High Court under section 37 of the said act.
ISSUES
- Whether the delayed minority award and the procedural flaws rendered the arbitral award invalid under section 31 of Arbitration and Conciliation Act, 1996?
- Whether MMTC was entitled to compensation for the delayed shipment under clauses 20 and 21?
- Whether awarding 9% interest on the PBG was a violation of clause 13(2) and can be struck down?
LAW
- Section 29(1) – Arbitration and Conciliation Act, 1996 – Decision of arbitral tribunal with more than one member shall be taken by majority unless agreed otherwise.
- Section 31(1) & 31(2) – Arbitration and Conciliation Act, 1996 – The award shall be in written form and signed by the arbitrator(s). A majority of the arbitrators may sign the award provided they state the reason(s) for any missing signature.
- Section 31(7) – Arbitration and Conciliation Act, 1996 – Interest before and after award.
- Section 34 – Arbitration and Conciliation Act, 1996 – Awards can be set aside by courts on certain grounds. One of those grounds include conflict with public policy. Patently illegal awards are available for certain awards within country.
- Section 73 – Indian Contract Act, 1872 – Compensation for loss or damage due to breach.
- Rule 61 – Indian Council of Arbitration (ICA) Rules – Majority decision shall be considered as decision of the tribunal.
- Clause 13(2), 20 and 21 – Clause 13(2) states that interest on PBG cannot be claimed. Clause 20 states that a rebate shall be given for delays in shipment but not exceeding 2 weeks. Clause 21 deals with damages for delayed shipment.
ARGUMENTS
APPELLANT (MMTC Ltd.) -The Appellant submitted that as only two arbitrators had signed the Award, the award was vitiated owing to the minority award being signed 103 days later. This was based on Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., (2021) 7 SCC 657 and CRPF v. Fibroplast Marine (P) Ltd., 2022 SCC OnLine Del 1335. The Appellant also submitted that their claim for liquidated damages was incorrectly denied. This was based on South East Asia Marine Engineering and Constructions Ltd. v. Oil India Ltd., (2020) 5 SCC 164. Lastly, it was submitted that awarding 9% interest on the PBG breached clause 13(2).
RESPONDENT – The respondent Aust Grain says that the court does not have any power beyond what’s given in section 37 of the Act to examine the Award for its fairness and to review the facts again. In Delhi Airport Metro Express Pvt. Ltd. V. DMRC, (2022) 1 SCC 131 and SsangYong Engineering & Construction Co. Ltd. V. National Highways Authority of India (2019) 15 SCC 131, the court also decided that the respondents could not prove that the appellant had a right to ask for compensation. Furthermore, the Apex Court has stressed that there is no right to claim compensation in cases, for example, Fateh Chand v. Balkishan Das, 1963 SCC OnLine SC 49; Maula Bux v. Union of India (1969) 2 SCC 554; ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705; and Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136. Lastly, the goods had to be shipped within a time frame. The delay in arbitration proceedings was caused due to re-constitution of the tribunal and the impact of the pandemic of COVID-19.
ANALYSIS
It was held that the dispute was international commercial arbitration and the award could not be set aside under section 34(2-A) as the award was not patently illegal. It was held that the majority award was valid under section 31 and rule 61 of ICA rules. The minority award was not an award on its own and there is no statutory requirement for the minority award to be submitted within a set time frame. The procedural issues do not amount to setting aside the award.
It was observed that the shipment deadline was mutually agreed upon and thus clause 20 was not applicable. The claim under clause 21 failed as damages were not properly plead and proven. However, it was held that awarding 9% interest on the PBG was in violation of clause 13(2). As clause 13(2) explicitly states that interest on PBG cannot be claimed. Thus, this goes against the terms of the contract and public policy (section 34(2)(b)(ii)). They cited Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1 and held that the award can be separated.
JUDGMENT
The Delhi High Court partially upheld the appeal. The arbitral award was set aside insofar as it awarded 9% interest per annum on the PBG.
CONCLUSION
This judgment brings forth that the court does not have wide powers in international commercial arbitration. It also highlights that if a part of the award goes against an explicit contractual term, the court may set aside the award.
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