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SUPREME COURT OF INDIA
SURYA KANT, ANIRUDDHA BOSE, JJ.
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. - APPELLANT
VERSUS
STATE OF KERALA - RESPONDENT
CIVIL APPEAL NO. 3454 OF 2011
Decided on : 22-04-2021
Arbitration and Conciliation Act, 1996 – Section 34 – Appeal against arbitral award – Interest on delayed payment – Specific term of agreement entered into by and between parties provided for payment of interest on delayed payment as terms of contract – What was not specifically agreed upon was rate at which such interest would be paid – Majority view of Tribunal was that contract itself provided for payment of interest with regard to local currency and foreign currency – Blank space in “appendix to the bid”, cannot be construed as cancellation of clause providing for payment of interest of delayed release of funds – Interest payment is essentially compensatory in nature – In present case, interest on delayed payment formed part of contract itself – Tribunal in this case could have had awarded interest as a compensatory or equitable measure, as there was no clause providing for exclusion or ouster of interest payment on delayed payment – View taken by Tribunal on consideration of contract was both reasonable and possible view – However, rate at which interest has been directed to be paid are rather excessive – Simple interest at the rate of 8% would be just and equitable on sum left unpaid. (Paras 8, 9, 12, 14 and 17)
Facts of the case:
Appellants were awarded a contract by the State of Kerala for upgradation of a State Highway. Present appeal originates from disputes on certain issues arising between the parties primarily relating to making payment to appellants under certain heads. In the present proceeding, only point of dispute is over entitlement of the appellants to receive interest on delayed payment on the subject heads, which were to be paid by the employer in local currency as per the stipulations in the said agreement. The agreement had provision for resolution of disputes by a Disputes Review Board (DRB) which was to make recommendations at the first instance. If the recommendations were not acceptable to any of the parties, such disagreeing party was required to give notice to commence arbitration within a specified time and thereafter the dispute was to be settled through arbitration.
Findings of Court:
We do not find any flaw in the reasoning of the Arbitral Tribunal that the contract did not prohibit the award of interest in respect of delayed payment in local currency component specified therein. This being the position, contrary view expressed by the Arbitration Court in a proceeding under Section 34 of the Act, which view was upheld by Appellate forum, breaches permissible boundaries for encroaching upon an award.
Result : Appeal allowed.
JUDGMENT :
ANIRUDDHA BOSE, J.
The appellants were awarded a contract by the State of Kerala for upgradation of a State Highway for two stretches, from Muvattupuzha Thodupuzha and Muvattupuzha–Angamaly. The agreement in this regard was executed on 7th November, 2002. This appeal originates from disputes on certain issues arising between the parties primarily relating to making payment to the appellants under certain heads. In the present proceeding, however, the only point of dispute on which arguments have been advanced before us is over entitlement of the appellants to receive interest on delayed payment on the subject-heads, which were to be paid by the employer in local currency as per the stipulations in the said agreement. The agreement had provision for resolution of disputes by a Disputes Review Board (DRB) which was to make recommendations at the first instance. If the recommendations were not acceptable to any of the parties, such disagreeing party was required to give notice to commence arbitration within a specified time and thereafter the dispute was to be settled through arbitration. So far as the controversies out of which this appeal arises are concerned, disputes on three counts arose between the parties, which could not be resolved at the stage of DRB recommendations. Those disputes were referred to a three-member Arbitral Tribunal (the ‘Tribunal’ in short). We have already referred to the scope of controversy involved in this appeal. This controversy shall be henceforth referred to in this judgment as dispute on delayed payment. We shall address that issue only in this judgment.
2. The Tribunal passed the award in favour of the appellants on this point and interest was directed to be paid on delayed payment in relation to local currency component payable under the agreement. This was, however, a majority award and not a unanimous one as one of the members of the Tribunal gave a dissenting view. In the succeeding paragraphs of this judgment, whenever we refer to the expression ‘award’, it shall mean the majority award only. The award of the Tribunal was assailed by the State of Kerala before the District Court at Ernakulam (the Arbitration Court) by taking out an application under Section 34 of the Arbitration and Conciliation Act, 1996 (the 1996 Act). This application was allowed in part. Award of the Tribunal in favour of the appellants on the point of interest on delayed payment was set aside. The Arbitration Court also adjudicated upon two other points, but as these points have not been urged before us, we do not consider it necessary to deal with them here in this judgment. The decision of the Arbitration Court was sustained in appeal by a Division Bench of the Kerala High Court. This appeal is against the said Bench decision of the High Court delivered on 17th September, 2009. The appellants want the award of the Tribunal allowing their claim for interest on delayed payment to be restored.
3. Entitlement of the contractor to interest was provided for in sub-clause 60.8 of the agreement on delayed interim payment. This clause has been reproduced in page 38 of the paper-book and reads:
(a) The amount due to the Contractor under any Interim Payment Certificate issued by the Engineer pursuant to this Clause or to any other term of the Contract shall subject to Clauses be paid by the Employer to the Contractor as follows.
(i) (A) In the case of Interim Payment Certificates within 42 days after the Contractor’s monthly statement has been submitted to the Engineer for certification pursuant to sub-clause 60.1. Provided that if the Engineer’s Interim Certificate has not yet been issued within said 42 days, the Employer shall pay the amount shown in the Contractor’s monthly statement and that any discrepancy shall be added to or deducted from the next payment to the Contractor and
(B) in the case of any monthly statement submitted by the Contractor at a time when the Bank’s loan or credit (f
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