A clause in a contract which bars payment of interest is illegal and has to be ignored.

VALMIKI J. MEHTA, J

CAV No. 689/2017

Since counsel for the caveator has entered appearance, the caveat stands discharged.

CM Nos. 27232/2017 & 27233/2017

Exemptions allowed subject to all just exceptions.

CMs stand disposed of.

FAO No. 324/2017

1. This first appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) impugns the judgment of the Court below dated 30.03.2017 whereby the objections filed by the appellant/objector under Section 34 of the Act have been dismissed.

2. Objections were filed by the appellant against the Arbitral Award of the Arbitrator dated 27.08.2016. By the Award dated 27.08.2016 the Arbitration Tribunal allowed certain claims of the respondent/claimant in terms of paras 120 and 121 thereof and which paras read as under :-

121. In view of the above I hereby pass award in favour of the claimant and against the respondent for Rs.40,60,894.88 (Rupees Forty Lacs Sixty Thousand Eight Hundred and Ninety Four and Eighty Eight Paise) with interest @ 6% per annum from September, 2010 till realization of the awarded amount.”

3. The subject Award dated 27.08.2016 was passed as there arose disputes between the respondent/claimant/contractor and the appellant/owner with respect to construction of an IT Park at C-28 and 29, Sector-62, Noida, U.P. Parties entered into a contract in this regard dated 28.02.2007 which was a contract for a sum of Rs. 31 crores with completion period being of 12 months. As per the respondent/claimant, it completed the entire contract and a virtual completion certificate was issued by the Project Manager of the appellant on 26.08.2008. As per the contract, out of each bill, 5% of the amount of each bill was to be withheld as retention amount. 50% of this retention amount was to be paid to the respondent/contractor within 30 days of giving of the virtual completion certificate and the remaining 50% of the retention money was payable after the expiry of 12 months defect liability period. The basic claim filed by respondent/contractor in the arbitration proceedings was with respect to the return of the second part of 50% of the retention amount payable after 12 months defect liability period.

4. There are three main issues which have been urged before this Court on behalf of the appellant/objector. First issue argued is that the amount awarded to the extent of award of interest and costs is against the contract and once the Award is against the terms of the contract, the Award is argued to be ex facie illegal and liable to be set aside. The second issue which was argued is that the claim petition filed by the respondent/claimant was time barred. The third issue which is argued is in relation to the second issue of the claim petition being time barred inasmuch as it is argued that the Arbitration Tribunal as also the court below has wrongly taken the reply given by the appellant to the winding up petition filed by the respondent in the Company Court as an acknowledgment of liability, whereas there was no acknowledgement of liability but there was only acknowledgement of appellant having with it 50% of the retention amount.

5. On the first aspect as to the Award being against the contract by granting interest for pre-litigation period the appellant relies upon Clause 30.1 of the contract. The respondent in reply relies upon Clause 118.3 of the contract. These two clauses read as under:-

“30.1 No interest shall be payable on any money due to the Contractor against earnest money, secur