“SUPREME COURT REITERATES THAT IF THERE IS NO BAR UNDER CONTRACT THEN AN ARBITRATOR CAN AWARD PENDENTE LITE INTEREST”
BEFORE THE HON’BLE SUPREME COURT
CIVIL APPEAL NO. 8460 / 2022
(SLP (C) No.32002 OF 2018)
Indian Railway Construction Compnay Limited…Appellant(s)
Versus
M/s National Buildings Construction Corporation Limited…Respondent(s)
In this case Indian Railway Construction Company Ltd. (IRCON) entered into an agreement with National Buildings Construction Corporation Ltd. (NBCC) for construction of Railway station cum commercial complex at Vashi, Navi Munbai at a cost of Rs. 3042.91 lakh.
The work of construction was to be completed by NBCC within 30 months from 5.04.1990.
Further parties entered into a supplementary agreement on 17.12.1991 providing special advance of Rs. 68 lakhs with an interest @ 18% p.a. to NBCC on furnishing of Bank Guarantee.
There was delay in completion of work by NBCC and work was practically abandoned by NBCC. Therefore IRCON served a notice dated 21.02.1994 terminating the contract in terms of cl. 60.1 of the contract.
NBCC invoked arbitration and arbitration award was passed on 4.11.2011 which rejected the claims of NBCC for refund of security deposits. The Arbitral Tribunal although held that the termination of contract as per cl. 60.1 was bad in law but it was justified in terms of clause 17.4
Further the Arbitral Tribunal allowed the counter claim of IRCON to the tune of Rs. 3,65,38, 906/- which was towards interest on various advances given to NBCC.
NBCC challenged the above award before Delhi High Court under section 34 of the Arbitration and Conciliation Act. The single judge of Delhi High Court set aside the award of the Arbitral Tribunal which rejected the claim of NBCC for refund of security deposit.
It was held by the High Court that once the Arbitral Tribunal found that the contract was wrongly terminated under cl. 60.1 it was not open for Tribunal to justify termination under cl. 17.4
The single bench of the High Court also set aside the counter claim allowed by the tribunal in favor of IRCON since there was no provision in the contract awarding 18% interest p.a. on special advance.
The above judgment of single judge of the Delhi High Court was appealed before the division bench of the high court under section 37 of the Arbitration and Conciliation Act whereby the division bench affirmed the order passed by the single judge except not allowing the interest on special advances of IRCON which was also awarded by the Tribunal.
IRCON filed an appeal against the above order of the division bench of the Delhi High Court before the Hon’ble Supreme Court.
The Hon’ble Supreme Court after considering the documents and evidence on record besides the submissions made by both the parties and precedence in law held that neither the single judge nor the division bench of the High Court set aside the tribunal’s findings with respect to applicability of clause 17.4 of the contract. Therefore the Arbitral Tribunal’s finding attained finality.
It was held that the Tribunal was justified while considering the termination of the Contract by IRCON either under clause 60.1 or 17.4 because the material on records placed proved that IRCON issued a notice on NBCC since work could not be completed even within further extension to time.
Therefore IRCON was justified in forfeiting the security deposits of NBCC and the claim of NBCC was rightly rejected by the Tribunal.
As far as the counter claim for interest @ 18% on advance awarded by the Tribunal to IRCON was concerned, it was held by the Supreme Court that Section 31 (7) (a) of the Arbitration Act empowers an Arbitrator to include in the sum for which the award is made interest, at such rate as it deems reasonable.
The Hon’ble Supreme Court therefore found that interest @ 18% pendente lite on advance awarded by the Tribunal was on a higher side and therefore reduced it @ 12%.
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