Authority: High Court of Karnataka, Bengaluru

Order Date: 18 September 2026

Case Overview

  • The appeals (MFA Nos. 9565‑9571/2018) were filed by HMT Limited, a wholly‑owned subsidiary of the centrally‑owned Hindustan Machine Tools Ltd, against various claimants who were former employees turned entrepreneurs in the auto‑components sector.
  • The claimants included proprietors of firms such as Ashwini Auto Components, Sri Rama Auto Components, Prashanth Automats, Arun Precision Engineering, Manjunatha Enterprises, Saptagiri Auto Precision Engineering, Narmada Automats Pvt. Ltd., and Jnanakshi Enterprises.
  • The dispute arose from an 1990 scheme where HMT invited its employees to become entrepreneurs supplying spare parts for watch manufacturing. The parties agreed on minimum contract duration (initially 3 years, later extended to 5‑8 years) and minimum workload.
  • The respondents alleged shortfall in the assured workload, claimed damages with interest at 24% p.a., and invoked the arbitration clause. The arbitrator awarded damages and interest at 20% p.a.
  • HMT challenged the award in multiple arbitration suits (A.S. Nos. 63, 64, 65, 69, 70, 71, 81, 82/2002) which were dismissed by the XV Additional City Civil & Sessions Judge, Bangalore (CCH‑3) on 9 August 2018, confirming the arbitrator’s award.
  • The District Court, under Section 34 of the Arbitration Act, ordered HMT to deposit 75 % of the award amount pursuant to the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and the MSME Development Act, 2006. HMT appealed, and the Supreme Court (SLP (C) Nos. 4534‑4541/2015) directed the deposit and later the disbursement of the deposited amount.
  • The present appeals before the High Court sought to set aside the award on grounds of alleged illegality of the 20 % interest rate and other procedural contentions.

Award and Claimant Details

| MFA No. | Claimant (Proprietor & Firm) | Amount Awarded by Arbitrator |

| 9565/2018 | Smt. Rajamma, Proprietor – M/s. Ashwini Auto Components | Rs 32,35,000/- |

| 9564/2018 | Sri C. Ramu – Proprietor – M/s. Sri Rama Auto Components | Rs 23,61,300/- |

| 9566/2018 | Sri Narayana Gowda – Proprietor – M/s. Prashanth Automats | Rs 18,29,000/- |

| 9567/2018 | Sri Siddarajaiah – Proprietor – M/s. Arun Precision Engg | Rs 9,14,500/- |

| 9568/2018 | Sri M.C. Ponnappa – Proprietor – M/s. Manjunatha Enterprises | Rs 13,11,300/- |

| 9569/2018 | Sri H. Rajagopal – Proprietor – M/s. Saptagiri Auto Precision Engineering | Rs 6,86,700/- |

| 9570/2018 | M/s Narmada Automats (Pvt.) Ltd. – MD Sri N. Nagaraja Reddy | Rs 19,37,000/- |

| 9571/2018 | Sri G. Suresh Kumar – Proprietor – M/s. Jnanakshi Enterprises | Rs 16,64,500/- |

Grounds of Appeal (Summarised)

  • Claimants could have terminated the contract for short supply, but they continued to supply parts, thereby waiving the right to claim damages.
  • Alleged waiver of rights under Section 39 of the Contract Act.
  • Invocation of force‑majeure clause was rejected by the arbitrator.
  • The interest rate of 20 % p.a. was contested as excessive and beyond the arbitrator’s jurisdiction.
  • HMT argued that the 1993 Act was repealed and not applicable, and that the interest provision was illegal.

Court’s Reasoning

  • The High Court affirmed that the shortfall in workload was an admitted fact and that claimants had accepted the reduced supply, negating any right to terminate.
  • The Court held that the District Court correctly applied Section 34 of the Arbitration Act; therefore, the appellate court under Section 37 could not re‑examine factual findings.
  • The Court observed that the arbitrator’s award of interest at 20 % p.a. for the entire period (from 28 Feb 2000 to payment) was a patent illegality and contrary to public policy.
  • Citing the Supreme Court’s guidance in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd. (2025), the Court noted that post‑award interest must be reasonable and based on actual circumstances.
  • The Court modified the interest component:

1. Interest at 20 % p.a. applicable only for the period during which claimants were repaying the KSFC loan (from loan sanction date to loan discharge, subject to proof).

2. Interest at 12 % p.a. applicable for the remainder of the period when no loan repayment liability existed, in line with Section 31(7)(b) of the Arbitration Act.

  • The Court directed HMT to calculate each claimant’s entitlement taking into account the amount already deposited and disbursed pursuant to the Supreme Court’s order, and to pay the balance promptly.

Final Outcome

  • All eight Miscellaneous First Appeals (MFA Nos. 9565‑9571/2018) are disposed of.
  • The arbitration award dated 29 July 2002 and the district court judgment/decree dated 9 August 2018 are confirmed, except for the modification of the interest rate as outlined above.
  • Claimants are entitled to 20 % p.a. interest only for the loan‑repayment period and 12 % p.a. interest for the remaining period.
  • HMT Limited must settle the modified award amounts, considering the previously deposited sums, within a time‑bound schedule.

Topics: Arbitration, Interest Modification, Government‑Owned Enterprise