India: HSA | Dispute Resolution & Arbitration Monthly Update | September 2023

Larsen Air Conditioning & Refrigeration Company v. Union of India & Ors

Supreme Court of India | 2023 SCC Online SC 98

Background facts

• The dispute in this case arose from a contract entered into between the Appellant and the Union of India & Ors, pursuant to a tender. During the course of the work to be carried out under the contract, disputes arose between the parties and on April 22, 1997, the Union of India referred the matter to arbitration, where the proceedings closed on October 24, 1998. The Arbitral Tribunal issued its award on January 21, 1999, thereby directing the Respondent to pay 18% pendente lite and future compound interest rates on claims.
• The Union of India challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (Act) before the District Court, which vide its judgment dated March 06, 2003 rejected the challenge, stating that the Union of India failed to provide any proof on their alleged grounds. Aggrieved, the Union of India preferred an appeal to the Allahabad High Court in 2003.
• Vide judgment dated July 17, 2019, the High Court partially allowed the appeal, disagreeing with the award on one claim 'impugned judgment'. It also ruled that the proceedings were not governed by the Arbitration Act, 1940 and reduced the interest rate from 18% to 9%.
• Aggrieved by the impugned judgment passed by the High Court, the Appellant approached the Supreme Court by way of the present appeal.

Issue at hand?

• Whether the High Court erred in modifying the arbitral award to the extent of reducing the interest from compound interest of 18% to 9% simple interest per annum?

Decision of the Court

• At the outset, the Supreme Court examined the provisions of the amended Section 31(7)(b) of the Act which came into effect on October 23, 2015. Before the amendment, the provision allowed the Arbitrator to award interest both before and after the award was made and specified that the awarded sum would carry an interest rate of 18% per annum, unless provided otherwise, from the date of the award till the date of payment.
• In furtherance of the aforesaid, the Court placed its reliance on the decision in the matter of Shahi & Associates v. State of UP¹ , which had a similar factual context to the present case. In the said decision, the Court emphasized that the amended Section 31(7)(b) of the Act clearly mandated that in cases where the Arbitrator did not specify the interest rate, the amount awarded would automatically carry interest at a rate of 18% per annum from the date of the award until payment. It was further clarified that the Act had expressly repealed the Arbitration Act, 1940, including any state amendments, except for cases where proceedings had already commenced thereunder, and all parties agreed to its application.
• In the current case, given that the arbitration commenced in 1997, i.e., after the Act of 1996 came into force on August 22, 1996, the Arbitrator, and the award passed by them, would be subject to this statute. Under this Act, specifically Section 31(7), the statutory rate of interest was set at 18% per annum in cases where the award did not specify a different interest rate. Therefore, there was little reason for the High Court to interfere with the Arbitrator's decision regarding interest accrued and payable.
• Unlike the previous Arbitration Act of 1940, the Court is powerless to modify the award and can only set aside an award, partially or wholly, on a finding that the conditions under Section 34 of the Act have been established. The scope of the Court's interference in arbitration awards was well-defined and established in legal precedents such as Associate Builders v. Delhi Development Authority² , SsangYong Engineering Construction Co Ltd v. National Highways Authority of India (NHAI)³ , and Delhi Airport Metro Express Pvt Ltd v. Delhi Metro Rail Corporation Ltd⁴.
• With regards to the Union of India's reliance placed on the decision in the matter of Post Graduate Institute of Medical Education and Research, Chandigarh v. Kalsi Construction Company⁵, given that the Supreme Court had exercised its Article 142 jurisdiction in light of 3 pertinent factors - the award had been passed 20 years prior, related to construction of a Pediatrics Centre in a medical institute, and that the parties in that case had left the matter to the discretion of the Court. Similarly, in the matter of Oriental Structural Engineers Pvt Ltd v. State of Kerala⁶ , the Court determined that because the contract did not specify the interest rate for delayed payments, the tribunal should have applied the principles established in GC Roy. In this case, the Court, exercising its Article 142 jurisdiction, reduced the interest rate awarded by the tribunal on the unpaid sum.
• In summary, it was held that a Court's jurisdiction under Section 34 of the Act is limited and tightly circumscribed. It allows interference with an award only on grounds of patent illegality or denial of natural justice. Section 37 of the Act further narrows the scope of appellate review if the award has been upheld or substantially upheld under Section 34.
• Accordingly, the impugned judgment was set aside to the extent that it modified the rate of interest. The Supreme Court reinstated the 18% per annum rate of interest, as originally awarded by the Arbitrator on January 21, 1999.
• As a result, the present appeal and any pending applications were disposed of accordingly, with no order regarding costs.

State of Punjab & Ors v. Jaswant Singh

Supreme Court of India | 2023 SCC OnLine SC 1111

Background facts

• The Respondent in the present case was recruited as a constable with Punjab Police and was appointed on probation. During training, he was sent for special duty along with other trainee or recruited constables. After the completion of the deputation, while the other 7 trainee constables reported back to the Training Centre and joined, the Respondent-Plaintiff neither reported back nor gave any intimation for his non-reporting. During probation, he was discharged from the services by Senior Superintendent of Police, Amritsar (SSP) in the exercise of power under Rule 12.21 of Punjab Police Rules, 1934 (PPR).
• Challenging the same, the Respondent-Plaintiff filed a suit which was partly decreed by the Trial Court. The discharge order was held to be illegal on the grounds that it was passed in violation of the principles of natural justice. Against the decree, the Appellants and State preferred an appeal before the Additional District Judge, Amritsar.
• The Respondent-Plaintiff also filed a first appeal and sought relief of mandatory injunction on the ground that since the order discharging him from services was not found legally sustainable, he should be allowed to join duty and should be granted all the consequential benefits.
• The First Appellate Court by common judgment dismissed the appeal filed by the State and allowed the appeal of the Respondent-Plaintiff holding him entitled to receive all service benefits as accrued. Against the order of the First Appellate Court, two regular second appeals were filed before the High Court by the State Government. The first one was against the judgment dismissing its appeal passed by the First Appellate Court and the second was against the grant of mandatory injunction granting all service benefits to the Respondent-Plaintiff. Both the appeals were dismissed by the impugned judgment, against which the present appeals were filed.
• Submission on behalf of the Appellant:
  • The order of discharge against the Respondent was simpliciter and not punitive or stigmatic in nature. The High Court committed a grave error in law by affirming the judgment and decree of the lower Courts. Reliance was placed on the judgments in the cases of State of Punjab & Ors v. Sukhwinder Singh⁷ and State of Punjab & Ors v. Constable Avtar Singh⁸ to support their contention.
  • They argued that the discharge order was based on the recommendation of the supervisory authority of the Training Centre due to prolonged absence from training without any intimation, and not on any serious allegation or act of misconduct.
• Submission on behalf of the Respondent:
  • The Respondent contended that the impugned order of discharge is not simpliciter, but it is punitive. It is urged that a recommendation made by SP, Training Centre, indicates that the foundation of such recommendation is based on an allegation of misconduct. Therefore, it was mandatory to conduct an inquiry following the procedure contemplated under Rule 16.24 of PPR, and for the said reason, the Courts below have rightly set aside the order of discharge.

Issues at hand?

• Whether the SSP Chandigarh rightly exercised his power of discharging the respondent in accordance with power under Rule 12.21 of the PPR?
• Whether the discharge was in accordance with Rule 16.24 of the PPR which mandates the conduct of an enquiry following the procedure contemplated under the said Rules?

Decision of the Court

• The Respondent was discharged from service under Rule 12.21 of PPR as the Appellants were of the opinion that the probationer constable was not likely to become an efficient police officer. Under the said Rule, it is apparent that in case a probationary constable is found unlikely to prove an efficient police officer, he may be discharged by the Senior Superintendent of Police at any time within 3 years from the date of enrolment. There is no foundation of misconduct alleged in the order and it is an order of simpliciter discharge of a probationer constable.
• While relying on the judgment of Ravindra Kumar Misra 12 v. UP State Handloom Corporation Ltd & Anr⁹ , the Apex Court enunciated the difference between simpliciter termination and punitive termination applying the test of motive and foundation. It was held that in simpliciter termination, the order of termination is based on the assessment of the employee's suitability for a particular job or the need to determine whether the employee should be confirmed in their appointment. The motive behind the termination is not to find any misconduct on the part of the employee. Whereas in punitive termination, the order of termination is founded upon the employee's misconduct. The purpose of the enquiry is to find out if the employee is guilty of any misconduct, negligence, inefficiency, or other disqualification. The termination is considered punitive in nature when the misconduct is the motive or foundation of the termination.
• It was held that the allegation of serious misconduct is common, unlike in the instant case, wherein the foundation of discharge is not on any serious allegation or act of misconduct. The discharge order was passed on the recommendation of the concerned supervisory authority of the Training Centre due to prolonged absence from training without any intimation. The authority found that the probationer constable has no interest in training, and no sense of responsibility, hence, he cannot prove himself a good and efficient police officer. As such, the view taken by the High Court and the Lower Courts was completely erroneous in law and therefore set aside.

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Footnotes

1. (2019) 11 SCR 640

2. (2014) 13 SCR 895

3. (2019) 7 SCR 522

4. (2021) 5 SCR 984

5. (2019) 8 SCC 726

6. (2021) 4 SCR 137

7. Appeal (crl.) 1 of 1994

8. Appeal (crl.) 2082 of 1996

9. 1987 (Supp) SCC 739

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