Failure to Object to the Expired Mandate of the Arbitrator Shall Estop Parties from Raising Such a Challenge to the Arbitral Award

The Supreme Court recently rejected the objection concerning the lack of a valid mandate of the Arbitrator, notwithstanding the fact that the Arbitrator's mandate had been unilaterally extended without the express consent of one of the parties, and at the same time, holding that the Claimant's conduct in participating in the proceedings without objection amounted to a tacit extension of the mandate and estopped it from later challenging the award on that ground.

Background

Between 1998 and 2000, the Gujarat Water Supply and Sewerage Board ("Respondent") awarded several contracts to Saryu Plastics Pvt. Ltd. ("Claimant") for the supply of PVC pipes. Acting on the findings of an audit report that revealed excess payments made by each division of the Respondent to the Claimant, the Claimant was blacklisted by the Respondent on 29.08.2003.

On 03.04.2012, the parties executed an Arbitration Agreement to resolve their disputes concerning the supply of PVC pipes for the period 1998 to 2002. The Arbitrator's mandate commenced on 19.04.2012 and was originally set to expire six months later i.e., 18.10.2012. This period was mutually extended by the parties up to 30.09.2014. Thereafter, the Arbitrator unilaterally extended the mandate up to 30.09.2015 and on 29.09.2015, sought a further extension up to 15.11.2015.

A meeting was scheduled by the Arbitrator for 15.10.2015. The Respondent responded on 14.10.2015, expressing its inability to attend, but did not address the Arbitrator's request for extension of its mandate. On 27.10.2015, the Arbitrator passed the Arbitral Award, partly allowing the claims and awarding a sum of approximately ₹1.01 crores, comprising ₹79,98,361 towards outstanding payments and ₹21,99,157 towards price escalation, along with simple interest at 21.675% per annum for the pendente lite period, and compound interest from the date of the Award till realisation.

The following day, the Respondent sent an email asserting that it had never agreed to the extension of the Arbitrator's mandate and that it would proceed under Section 14 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). Para 54(c) of the Arbitral Award was later corrected by the Ld. Arbitrator on 08.11.2015, although the interest awarded remained the same. On 03.12.2015, the Respondent preferred an Application under Section 34 of the Arbitration Act before the Hon'ble Commercial Courts. On 07.12.2015, the Claimant preferred an Application under Section 33 of the Arbitration Act seeking substitution of "simple interest" with "compound interest".

The Ld. Arbitrator held on 01.02.2016 that, since the proceedings under Section 34 were already pending before the Commercial Court, the matter ought to be placed before that Court for adjudication. On 25.09.2018, the Commercial Court modified the Arbitral Award and granted compound interest for the pendente lite period, and on 17.10.2018, the Commercial Court rejected the Respondent's application under Section 34. The appeals preferred by the Respondent before the Hon'ble High Court stood rejected, leading to the present appeals before the Supreme Court.

Submissions

The Respondent contended that it had never consented to the extension of the Arbitrator's mandate beyond 30.09.2015, and no extension had been mutually agreed. It was submitted that the email dated 14.10.2015 could neither be construed as consent for extension of the mandate nor as indicating any extended date. Consequently, the Arbitrator became functus officio well before the Award was passed on 27.10.2015.

The Respondent also contended that the Commercial Court lacked jurisdiction to entertain and allow the Review Petition under Section 33 of the Arbitration Act, in light of the decisions of the Hon'ble Court in NBCC Limited v. J.G. Engineering Pvt. Ltd. (2010) 2 SCC 385 and Jayesh H. Pandya and Anr. v. Subhtex India Limited and Ors. (2020) 17 SCC 383.

The Claimant contended that the Respondent had never objected to the extended mandate of the Arbitrator. Moreover, in its email dated 14.10.2015, the Respondent never asserted that the mandate of the Arbitrator had expired. The Claimant further argued that the language of the Award made it evident that the Arbitrator intended to grant compound interest and that the reference to "simple interest" in the operative portion was merely inadvertent; accordingly, the Commercial Court rightly exercised review jurisdiction in correcting the error.

Court's Analysis

The Supreme Court reiterated that party autonomy, coupled with minimal judicial intervention, remains the guiding principle underlying the Arbitration and Conciliation Act, 1996. The Court noted that at the time the present dispute arose, Section 29A of the Arbitration Act, which now statutorily prescribes timelines for completion of arbitral proceedings, had not been introduced. The Respondent's challenge could not, therefore, rest on the breach of any statutory provision governing the duration of an arbitrator's mandate.

Examining the Respondent's email of 14.10.2015, the Court observed that it raised no objection whatsoever to the expiry of the Arbitrator's mandate or to the pending request for extension, despite being the appropriate opportunity to do so. This silence, the Court held, amounted to a tacit acceptance of the extension sought by the Arbitrator.

The Court further held that in the absence of a statutory provision governing the point at the relevant time, the question of the mandate's expiry was a matter governed by the contract between the parties and not by Statute. Since the Respondent had continued to participate in the proceedings before the Arbitrator and had acquiesced in the alleged invalidity, it could not be permitted to turn around after receiving an adverse award and challenge it on the ground of expiry of mandate. The Respondent was accordingly held estopped from raising this ground.

With respect to the contention regarding the change in the nature of interest, the Hon'ble Court held that Section 33(1)(a) of the Arbitration Act confers upon the Arbitrator the limited power to correct any computational, clerical, or typographical errors in an Award. The provision is neither designed nor intended to serve as a vehicle for the substantive modification of an Award or the review of the merits of the findings recorded therein. The power vested in the Tribunal under that provision is confined strictly to the correction of typographical, arithmetic, and clerical errors, and cannot be stretched to re-examine or revise the substantive findings of the Award.

Consequently, it was held that the change in the nature of interest from "simple interest" to "compound interest" was not to be considered a correction of a computational, clerical, or typographical error by any means whatsoever. The choice of nature of interest was based on the Arbitrator's assessment of the equities of the case and reflects a substantive determination on the merits.

Ruling

The Supreme Court rejected the contention of invalidity of the Award for the lack of a valid mandate. However, it ruled that the Commercial Court had exceeded its jurisdiction under Section 33(1)(a) of the Arbitration Act and erred in substituting the words "compound interest" in place of "simple interest" in the Arbitral Award dated 27.10.2015 passed by the Arbitrator.