UHL Power Company Ltd. vs The State of Himachal Pradesh Multi Purpose Projects and Power Department Secretary
Background
UHL Power Company had entered into a Memorandum of Understanding (1992) and later an Implementation Agreement (1997) with the Himachal Pradesh government to develop a 100 MW hydroelectric project. After the State terminated the Agreement (allegedly prematurely, before the permissible extension period expired), an Arbitral Tribunal awarded UHL over Rs. 26 crore, including compound interest. The State's challenge under Section 34 of the Arbitration Act succeeded before a Single Judge, who disallowed UHL's entire claim, but on appeal under Section 37, a Division Bench of the High Court partly restored the award, allowing the principal sum with only simple interest, relying on a since-overruled Supreme Court precedent (State of Haryana v. S.L. Arora) that barred compound interest without express contractual authorization. Both UHL and the State separately appealed to the Supreme Court.
Decision Breakdown
The Supreme Court held that S.L. Arora had been overruled by a three-judge bench in Hyder Consulting (UK) Ltd. v. State of Orissa, which clarified that post-award interest can be awarded on the interest component too, since the "sum directed to be paid" under an arbitral award includes principal plus interest. It therefore restored the Arbitral Tribunal's original interest award in UHL's favour. On the State's separate appeal, the Court rejected the argument that the 1992 MoU was a distinct document from the 1997 Implementation Agreement, holding that the MoU had merged into the Agreement (as an appendix expressly referenced in it). The Court reaffirmed that under Sections 34 and 37 of the Arbitration Act, courts have a narrow, limited jurisdiction and cannot act as an appellate court re-appreciating the arbitrator's interpretation of contract terms where that interpretation is a plausible one, so the Single Judge had exceeded his jurisdiction by second-guessing the Tribunal's finding that the State prematurely terminated the Agreement.
Lesson Learnt
Courts reviewing arbitral awards under Sections 34/37 of the Arbitration Act cannot substitute their own interpretation of a contract for a plausible one already reached by the arbitrator: interference is justified only for genuine illegality or perversity, not merely because a different reading of the contract was possible.