[Arbitration Act] Doctrine Of Merger Inapplicable When Superior Forum Has Not Decided Issue In Question: Gujarat High Court
The Gujarat High Court held that the doctrine of merger does not preclude the decree holder from claiming post award interest at 18% under section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The court quashed an order passed by the Principal District Judge by which it rejected the review application. The court directed the State of Gujarat to recalculate and...
The Gujarat High Court held that the doctrine of merger does not preclude the decree holder from claiming post award interest at 18% under section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The court quashed an order passed by the Principal District Judge by which it rejected the review application. The court directed the State of Gujarat to recalculate and pay interest on the sum adjudged in the arbitral award.
A bench led by Justice Maulik J. Shelat held that “there was an error apparent on the face of the record on the part of the Court inasmuch as it passed the order dated 21.10.2005, thereby, directed the respondent to pay the amount with interest as per the arbitral award with 16% interest, which was not in consonance with Section 31(7)(b) of the Act, 1996, thus, the impugned Review Application filed below Exhibit 32 erroneously rejected by the Court.”
Background:
The dispute arose from a work order issued in favor of Shah Enterprises. The petitioner invoked the arbitration clause which resulted in an award in its favor. The arbitrator awarded pre-award interest but did not mention anything regarding post award interest. The petitioner initiated an execution petition in which the principal amount along with post-award interest at 18% plus pre award interest granted by the arbitrator under section 31 of the Arbitration Act was claimed. The claim for the post-award interest was rejected. Thereafter, a Special Civil Application against the order was also dismissed.
The Petitioner has filed the present Review Civil Application against an order passed by the District Judge by which it dismissed applications seeking recalculation and review.
Contentions:
The Petitioner submitted that the executing court committed a gross error by not awarding post award 18% interest rate in the sum already awarded by the arbitrator. It was further submitted that neither the state nor the petitioner raised this before the writ court, the doctrine of merger would not bar review.
Relying on Kunhayammed & Ors, it was submitted that the doctrine of merger is not a universal principle and does not apply to the writ jurisdiction under Article 227 of the Constitution. It was further submitted that there can be no waiver against statutory provisions. The petitioner filed an undertaking by which it sought to waive the interest between 21.10.2005 and 29.08.2016 if the relief was granted.
Per contra, the Respondent submitted that the petitioner slept over its rights and filed the review application after 11 years. Once the order dated 21.05.2005 attained finality upto the Supreme Court, it merged with orders of the Higher Forums. Relying on Kamlesh Verma v. Mayawati (2013) , it was argued that review cannot be used to reopen settled issues.
Findings:
The court held that the merger applies only to issues raised and decided in the higher forum. Since the High Court in its order in 2014 did not decide the claim of the petitioner regarding post award 18% interest, the doctrine of merger did not bar review. The court held that “the doctrine of merger is not a doctrine of universal or unlimited application… The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it.”
Relying on Canon India Pvt. Ltd., the court held that an order passed in contravention of statutory provisions can be reviewed as an error apparent on the face of the record. The court held that “If a court is oblivious to the relevant statutory provisions, the judgment would in fact be per incuriam. In such circumstances, a judgment rendered in ignorance of the applicable law must be reviewed.”
Justice Shelat held that the Executing Court ignored section 31 of the Arbitration Act, and therefore committed an error apparent on the face of the record. The court further relying on Hyder Consulting held that the sum under section 31(7)(b) of the Arbitration Act includes principal sum and pre award interest. It held that “…the Arbitral Tribunal may direct interest to be paid on such 'sum' for the post-award period… at which stage the amount would be the sum arrived at after the merging of interest with the principal; the two components having lost their separate identities.”
Accordingly, it held that the Shah Enterprise was entitled to post award interest on the sum award along with pre award interest. On the petitioner's delay in filing review, the court observed that the Executing Court had not rejected Exhibit 32 on grounds of limitation. However, considering the principle of equities, the court excluded the period between 21.10.2005 and 29.08.2016 for claiming 18% interest rate. This was further supported by the petitioner's affidavit that the interest for the part would not be claimed.
The court concluded that it is the bounden duty of the High Court to correct perverse and erroneous orders of the subordinate courts under Article 227 of the Indian Constitution. Accordingly, the impugned order was quashed and set aside and the respondent State was directed to recalculate and pay interest at 18% on the principal and pre award interest granted by the arbitrator.
Case Title: SHAH ENTERPRISE Versus STATE OF GUJARAT
Case Number: C/SCA/18521/2017
Judgment Date: 23/09/2025