M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. versus STATE OF KERALA on 22 April 2021

[2021] 4 S.C.R. 137

M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD.

v.

STATE OF KERALA

(Civil Appeal No. 3454 of 2011)

APRIL 22, 2021

[SURYA KANT AND ANIRUDDHA BOSE, JJ.]

Interest: Interest on delayed payment – Dispute betweenparties as regards entitlement of the contractor to receive intereston delayed payment in relation to local currency component – Awardby the Arbitral tribunal that the interest be paid on delayed paymentin relation to local currency component payable under the agreementsince the contract did not prohibit award of interest – However, thesaid order set aside by the Arbitration court as also the High Court– On appeal, held: In the agreement between the parties, there wasno specific exclusion of payment of interest on delayed payment inrelation to the local currency component – Specific term of theagreement provided for payment of interest on delayed payment asterms of the contract – Rate at which such interest would be paidwas not specifically agreed upon – Blank space in the “appendixto the bid” cannot be construed as cancellation of the clauseproviding for payment of interest of delayed release of funds – Theprinciple guiding award of interest is that interest payment isessentially compensatory in nature – On facts, interest on delayedpayment formed part of the contract itself – Furthermore, it cannotbe inferred that ommission to fill in the blank space gave thecontractor some kind of competitive edge in the bid process –Reasoning of the Arbitral Tribunal is correct and the contrary viewby the Arbitration Court and the High Court breaches the permissibleboundaries for encroaching upon an award – Thus, the view takenby the Tribunal is sustained, however the rate at which interest is tobe paid would be simple interest at the rate of 8% pa.

Allowing the appeal, the Court

HELD:1.1 In the dispute which forms the subject matterof this appeal, being the agreement, there was no specificexclusion of payment of interest on delayed payment in relation

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Ato the local currency component. On the other hand, the specificterm of the agreement entered into by and between the partiesprovided for payment of interest on delayed payment as terms ofthe contract. What was not specifically agreed upon was the rateat which such interest would be paid. The blank space in the“appendix to the bid” cannot be construed as cancellation of theBclause providing for payment of interest of delayed release offunds. The Appellate Court or the Arbitration Court were notright in adopting the approach. To come to such an inference,active exclusion of payment of interest under that head wasnecessary to have been incorporated in the agreement.C[Paras 11, 12][148-G-H; 149-A-C]

Reliance Cellulose Products Ltd. vs. ONGC Ltd. [(2018)9 SCC 266 : [2018] 6 SCR 618; Union of India vs.Bright Power Projects (India) (P) Ltd. (2015) 9 SCC695 : [2015] 6 SCR 488 - referred toD1.2 The underlying principle guiding award of interest isthat interest payment is essentially compensatory in nature. Inthe instant case, interest on delayed payment formed part of thecontract itself. The agreement did not contain any expressexclusion clause on payment of interest on delayed paymentEwhether on component of payment in foreign currency or localcurrency. The reasoning of the Tribunal on the basis of which itrejected the respondents’ plea of waiver is accepted. This was afinding of fact on appreciation of materials placed before theTribunal. One of the reasons behind the decisions of the AppellateCourt and Arbitration Court was that the appellants, while bidding,Fhad given up their claims for interest. In substance, therespondents’ assertion is that the Tribunal went beyond thecontractual terms, and the said two fora sought to invoke theprinciple of law contained in the third subhead of the “patentillegality” principle. [Para 13][149-G-H; 150-A-C]GAssociate Builders vs. Delhi Development Authority[(2015) 3 SCC 49 : [2014] 13 SCR 895 – referred to.

1.3 The Appellate Court accepted reasoning of theArbitration Court that the blank portion in the appendix to the H

bid would imply “zero” or “nil”. This reasoning is flawed andsuch an interpretation of the agreement would actually be contraryto and beyond the terms of the contract. The Tribunal had alreadycome to a factual finding on appreciation of evidence that therewas no such implication. Such an exercise on the part of theArbitration Court and the Appellate Court would constituterewriting the contract, which is impermissible. The Tribunalrejected the plea of waiver. The reasoning cannot be held to beperverse or improbable in the factual background of the instantcase. The Tribunal could have awarded interest as a compensatoryor equitable measure, as there was no clause providing forexclusion or ouster of interest payment on delayed payment. TheTribunal determined the rate thereof in sub paragraphs 1.6 to1.8 of the award. [Para 14][150-C-F]

1.4 The Appellate Court’s rationale that such blank interestcolumn might have had resulted in acceptance of the bid of theappellants as their bid could have been more competitive on theassumption that the other bidders might have had pressed forinterest in that column is not acceptable. No material has beenshown from which it can be inferred that omission to fill in theblank space gave the appellants some kind of competitive edgein the bid process. It is also not known if other bidders had leftthe space blank or filled the same with specified rate. TheArbitration Court’s view, sustained by the High Court is taintedwith an element of speculation on this point. [Para 15][151-E-G]

1.5 The reasoning of the Arbitral Tribunal that the contractdid not prohibit the award of interest in respect of delayed paymentin local currency component specified therein is correct. Thecontrary view expressed by the Arbitration Court in a proceedingunder Section 34 of the Act, which view was upheld by theAppellate forum, breaches the permissible boundaries forencroaching upon an award. [Para 16][151-G-H; 152-A]

Oil Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.[(2003) 5 SCC 705 : [2003] 3 SCR 691 - relied on.

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140SUPREME COURT REPORTS

A1.6 The view taken by the Tribunal on consideration of thecontract was both reasonable and possible view. However, therate at which interest has been directed to be paid as containedin paragraphs 1.6 and 1.8 of the award are rather excessive. Asthe agreement is silent on the point of rate of interest but providesfor payment of interest on delayed payment, the Tribunal’sBexercise of fixing the rate should have been on the basis ofapplying the principle laid down in G. C. Roy’s case. The saidprinciple is applicable in a proceeding under the Arbitration andConciliation Act, 1996 as well. This principle has been broadlyincorporated in Section 31(7) (a) of the 1996 Act. The onlyCdifference between the situation contemplated in the saidprovision and the facts of the instant case is that the agreementinvolved is not silent on interest entitlement of the appellants ondelayed payment but the agreement contains provision for suchpayment. Only the rate at which interest would be payableremained unspecified. Simple interest at the rate of 8% would beDjust and equitable on the sum left unpaid, calculated otherwiseon the basis of sub-paragraphs 1.6. to 1.8 of the award. Thejudgment of the Division Bench of the High Court is set aside.As a consequence, judgment of the Additional District Judge,also stands invalidated. The award of the Tribunal is sustained so Efar as direction to pay interest on delayed payment of the localcurrency component of the agreement is concerned, but the rateof interest on the sum would be computed in the mannerprescribed in paragraphs 1.6, 1.7 and 1.8 and would be at 8%simple interest per annum. [Para 17][152-A-F]

FSecretary, Irrigation Department, Government of Orissa& Ors. vs. G.C. Roy (1992) 1 SCC 508 : [1991] 3 Suppl.SCR 417 – relied on.

Case Law Reference

[2018] 6 SCR 618referred toPara 11G[2015] 6 SCR 488referred toPara 11[1991] 3 Suppl. SCR 417relied onParas 12, 17[2014] 13 SCR 895referred toPara 13[2003] 3 SCR 691relied onPara 16H

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3454of 2011.

From the Judgment and Order dated 17.09.2009 of the High Courtof Kerala at Ernakulam in Arbitration Appeal No. 32 of 2007.

Anil Airi, Sr. Adv., Ravi Kishan Chandna, Anant Kumar Vatsya,Devendra Singh, Advs. for the Appellant.

G. Prakash, Ms. Priyanka Prakash, Ms. Beena Prakash, Advs.for the Respondent.

The Judgment of the Court was delivered by ANIRUDDHA BOSE, J.

1. The appellants were awarded a contract by the State of Keralafor upgradation of a State Highway for two stretches, from Muvattupuzha-Thodupuzha and Muvattupuzha–Angamaly. The agreement in this regardwas executed on 7th November, 2002. This appeal originates fromdisputes on certain issues arising between the parties primarily relatingto making payment to the appellants under certain heads. In the presentproceeding, however, the only point of dispute on which arguments havebeen advanced before us is over entitlement of the appellants to receiveinterest on delayed payment on the subject-heads, which were to bepaid by the employer in local currency as per the stipulations in the saidagreement. The agreement had provision for resolution of disputes by aDisputes Review Board (DRB) which was to make recommendationsat the first instance. If the recommendations were not acceptable to anyof the parties, such disagreeing party was required to give notice tocommence arbitration within a specified time and thereafter the disputewas to be settled through arbitration. So far as the controversies out ofwhich this appeal arises are concerned, disputes on three counts arosebetween the parties, which could not be resolved at the stage of DRBrecommendations. Those disputes were referred to a three-memberArbitral Tribunal (the ‘Tribunal’ in short). We have already referred tothe scope of controversy involved in this appeal. This controversy shallbe henceforth referred to in this judgment as dispute on delayed payment.We shall address that issue only in this judgment.

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A2. The Tribunal passed the award in favour of the appellants onthis point and interest was directed to be paid on delayed payment inrelation to local currency component payable under the agreement. Thiswas, however, a majority award and not a unanimous one as one of themembers of the Tribunal gave a dissenting view. In the succeedingparagraphs of this judgment, whenever we refer to the expression ‘award’,Bit shall mean the majority award only. The award of the Tribunal wasassailed by the State of Kerala before the District Court at Ernakulam(the Arbitration Court) by taking out an application under Section 34 ofthe Arbitration and Conciliation Act, 1996 (the1996 Act). This applicationwas allowed in part. Award of the Tribunal in favour of the appellants onCthe point of interest on delayed payment was set aside. The ArbitrationCourt also adjudicated upon two other points, but as these points havenot been urged before us, we do not consider it necessary to deal withthem here in this judgment. The decision of the Arbitration Court wassustained in appeal by a Division Bench of the Kerala High Court. Thisappeal is against the said Bench decision of the High Court delivered onD17th September, 2009. The appellants want the award of the Tribunalallowing their claim for interest on delayed payment to be restored.

3. Entitlement of the contractor to interest was provided for insub-clause 60.8 of the agreement on delayed interim payment. This clauseEhas been reproduced in page 38 of the paperbook and reads:- “ Time of Payment and Interest (a) The amount due to the Contractor under any Interim PaymentCertificate issued by the Engineer pursuant to this Clause or toFany other term of the Contract shall subject to Clauses be paid bythe Employer to the Contractor as follows.

(i) (A) In the case of Interim Payment Certificates within 42 daysafter the Contractor’s monthly statement has been submitted tothe Engineer for certification pursuant to sub-clause 60.1. ProvidedGthat if the Engineer’s Interim Certificate has not yet been issuedwithin said 42 days, the Employer shall pay the amount shown inthe Contractor’s monthly statement and that any discrepancy shallbe added to or deducted from the next payment to the Contractorand H

(B) in the case of any monthly statement submitted by theContractor at a time when the Bank’s loan or credit (from whichpart of the payment to the Contractor are being made) issuspended within 14 days after such monthly statement issubmitted. Provided that if the Engineer’s Interim Certificate hasnot yet been issued within said 14 days the Employer shall pay theamount shown in the Contractor’s monthly statement and thatany discrepancy shall be added to or deducted from the nextpayment to the Contractor.

(ii) (A) In the case of the Final Payment Certificate pursuant toSub-clause 60.13 within 84 days after the Final statement andwritten discharge have been submitted to the Engineer forcertification and (B) In the case of the Final Statement submitted by the Contractorat a time when the Bank’s loan or credit from which part of thepayments to the Contractor are being made is suspended or forwhich payment under (ii) (A) becomes due after 63 days of thedate of notification of the suspension notice payment will be madewithin 63 days after the date of notification of the suspensionpursuant to Sub Clause 69.6(d) provided that if the Engineer’sFinal Payment Certificate has not been issued within the said 63days, the Employer shall pay the undisputed amounts shown inthe Final Statement.

(b) In the event of the failure of the Employer to make paymentswithin the time stated the Employer shall pay to the Contractorinterest compounded monthly at the rate(s) stated in the Appendixto Bid upon all sums unpaid from the date upon which the sameshould have been paid in the currencies in which the payment aredue. The provisions of the Sub Clause are without prejudice tothe Contractor’s entitlement under Clause 69 or otherwise.”

4. The relevant provision of the appendix to the bid, the content ofwhich came for interpretation before the Tribunal and thereafter beforethe two judicial fora stipulated:- AB

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“ANNEXURE- P-3

Kerala State Transport Project

Volume III

Section 6: Appendix to BidPage 7.8

The above of interest for foreign currencies shall be supplied by the EBidder, and these rates are subject to clarification/negotiation before formalizing the Contract.

5. In their bid document, the appellants had left the space forrecording the rate of interest for payment to be made in local currencyblank. The agreement contemplated payment to the contractor in foreigncurrency as also in local currency. So far as payment by foreign currencyFwas concerned, as would be evident from the appendix to the bid quotedin the preceding paragraph, the London Interbank On-lending Rate(LIBOR) plus two per cent was the specified norm. It was on this basisthe State’s stand has been that the rate of interest on delayed payment(as contemplated in Clause 60.8) in local currency had to be treated asG“zero” or “nil”. It has also been the position of the State, referring tocertain communications made by the appellants that there was waiverof the claim of interest by the appellants. In the award, the Tribunal hadrepelled the argument of the State that the words “zero” or “nil” couldbe read into the said column of the “appendix to bid”. Relying on theConstitution Bench judgment of this Court in the case of Secretary,H

Irrigation Department, Government of Orissa & Ors. vs. G.C.Roy [(1992) 1 SCC 508], the Tribunal held that a person deprived of theuse of money to which he is legitimately entitled has a right to becompensated and such compensation may be called interest,compensation or damages. Two documents originating from the appellantsin the form of written communications were relied upon by the Statebefore the Tribunal to contend that claim for interest, in any event, stoodwaived by claimants on delayed payment of the sum which was to bemade in local currency. First of these two documents was a letter of theappellant dated 14th July, 2004 (Exhibit R-1 before the Tribunal) and thenext was another written communication dated 3rd August, 2004 (ExhibitC-72 before the Tribunal). The first letter issued by the appellantsaddressed to the Chief Executive Officer, Kerala State Transport Projectreads :- “Dear Madam, As discussed on the above subject we confirm that there is noprovision of interest on delayed payment in the Contract andhence interest will not be claimed.”

6. The next communication dated 3rd August, 2004 was addressedto the same officer of the respondents. The text of this communication is:- “Dear Sir, We wish to invite your kind attention to the issue of release ofpayment against IPC-1 General Items as recommended byDRB. As a pre-condition for release of the said payment, wewere made to issue the above referred letter dated 14.7.2004.Our commitment not to claim any interest on the said amountreleased by you be treated purely as a goodwill gesture so thatour future payments are released to us without any delay. Thesaid letter is restricted to the subject claim/item only.”

7. Before the Tribunal, the appellants had taken a point that thesaid letter of 14th July, 2004 was issued under coercion or duress. Theirsecond plea on this count was that the content of the first letter wasrestricted to release of withheld amount recommended by the Review A

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ABoard in respect of Interim Payment Certificate-I (IPC-I). The Tribunalaccepted the stand of the appellants (claimants before it). It was, inter-alia, observed in the award:-

“The essential element of waiver is intentional relinquishment ofknown right. The claimant has stated that the said letter was givenBby them under coercion. This holds goods in view of the fact andcircumstances of the case. It is also noted that the said letterdated 14.7.04 (ext. R1) is not even mentioned in the defencestatement dated 29.1.05. Nor has this issue been raised beforethe DRB. So the argument of the respondent that the letter dated14.7.04 (ext. R1) is a waiver of the rights of the claimant does notCstand. The fact that this letter was issued at the time of receivingpayment in respect of IPC. I suggests that this was given undercoercion. The waiver does not apply to the instant case. This iscorroborated by the fact that the claimant has been continuallyagitating for the payment of interest before and after the issuanceDof the said letter. As discussed earlier, payment of interest onunpaid sums was due under the terms of the contract and underthe law. The recommendation of the DRB made after duedeliberations and discussions with the parties has relevance in thematter.”

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The Tribunal directed interest on delayed payment in paragraphs1.6 to 1.8 of the award. Extract from the award containing theseparagraphs would appear later in this judgment.

8. The majority view of the Tribunal was that the contract itselfFprovided for payment of interest with regard to local currency and foreigncurrency. The plea of the appellants has been that there was no waiverand in any event the communication of 14th July, 2004 followed by thatof 3rd August, 2004 related to IPC-I only. This stand had been broadlyaccepted by the Tribunal. The Tribunal had also accepted the appellants/Gclaimants’ stand that there was no waiver on claim of interest in respectof all sums due for which Interim Payment Certificates had been issued.The Tribunal’s finding on that aspect was buttressed by the fact that theappellants/claimants had continued to raise demand for interest subsequentto the issue of those two communications. These were essentially findingson facts.H

9. The Arbitration Court and the Appellate Court in sustaining theState’s application for setting aside the award were of the view that thecontract could not be construed to contain provisions for interest ondelay in payment with regard to the local currency component containedin the agreement, as the appellants did not fill up the blank space withthe rate of interest. Opinion of the Appellate Bench was that in theevent it was intention of the claimants to retain their entitlement to intereston delayed payment under that head, they ought to have had filled in theblank space in the “appendix to bid”. Another facet of the High Court’sreasoning was that the respondents might have had been persuaded toaccept the appellants’ bid on the basis that the appellants would claim nointerest on delayed payment in such situation, as this factor could havemade their bid more competitive.

10. This appeal, in substance, is an extension of a proceedingunder Section 34 of the 1996 Act. To go into the question of legality ofthe decisions made by the two judicial fora, we need to test first if thegrounds of challenge to the award met the test laid down by this Court inthe case of Oil Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.[(2003) 5 SCC 705]. Contention of the respondents has been that theArbitral Tribunal’s order stood vitiated under the “patent illegality” principlespelt out in that judgment. This principle came under the broad headingof “Public Policy” test, applying which an arbitral award could be setaside. What would constitute patent illegality has been elaborated bythis Court in a later judgment, Associate Builders vs. DelhiDevelopment Authority [(2015) 3 SCC 49]. An award would beinvalidated, as per this authority, if the same was in contravention ofsubstantive law of the country or contravention of the “Arbitration Actitself”. In paragraph 42.3 of the Report (in the case of AssociateBuilders), it has been held:- “42.3 (c) Equally, the third subhead of patent illegality is reallya contravention of Section 28(3) of the Arbitration Act, whichreads as under:

“28. Rules applicable to substance of dispute.-(1)-(2)* **

(3) In all cases, the Arbitral Tribunal shall decide in accordancewith the terms of the contract and shall take into account theusages of the trade applicable to the transaction.”

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AThis last contravention must be understood with a caveat. AnArbitral Tribunal must decide in accordance with the terms ofthe contract, but if an arbitrator construes a term of the contractin a reasonable manner, it will not mean that the award can beset aside on this ground. Construction of the terms of a contractis primarily for an arbitrator to decide unless the arbitratorBconstrues the contract in such a way that it could be said to besomething that no fair-minded or reasonable person could do.”

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11. The High Court in the appeal concurred with the ArbitrationCourt and concluded that omission to include the rate of interest in thebid document, the “appendix to bid” to be specific, had resulted in creationCof contractual term that there would not be any claim for interest ondelayed payment (as per Clause 60.8) so far as payment in local currencycomponent contained in the agreement is concerned. In our opinion,however, the interference with the award by the Arbitration Court onthis ground was unwarranted. The underlying reasoning of the AppellateDCourt and earlier, the Arbitration Court on this point is that the Tribunal went beyond the contractual term in awarding interest. The case ofG.C. Roy (supra) and a later decision of this Court, Reliance CelluloseProducts Ltd. vs. ONGC Ltd. [(2018) 9 SCC 266], were relied uponbefore us by the appellants to sustain the Tribunal’s findings. Thesedecisions are sought to be distinguished on behalf of the respondents onEthe ground that the former decision related to interest pendente lite andboth these cases were under the Arbitration Act, 1940. Under the saidstatute, an arbitrator had power or jurisdiction to grant pre-referenceinterest under the Interest Act, 1978 as also pendente lite and futureinterest. Such jurisdiction stood curbed only if express terms of theFcontract precluded payment of interest. Referring to another authority,the Union of India vs. Bright Power Projects (India) (P) Ltd. [(2015)9 SCC 695], this Court highlighted the position of law on grant of interestunder Section 31(7) of the 1996 Act. In the case of Bright PowerProjects (supra), it has been opined by this Court that unless otherwise agreed by the parties, the Arbitral Tribunal can award interest atGreasonable rate for a period commencing from that date when the causeof action arises till the date of the award. In the dispute which forms thesubject-matter of this appeal, being the agreement, there was no specificexclusion of payment of interest on delayed payment in relation to thelocal currency component.

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12. On the other hand, the specific term of the agreement enteredinto by and between the parties provided for payment of interest ondelayed payment as terms of the contract. What was not specificallyagreed upon was the rate at which such interest would be paid. Theblank space in the “appendix to the bid”, in our opinion, cannot beconstrued as cancellation of the clause providing for payment of interestof delayed release of funds. We do not think the Appellate Court or theArbitration Court was right in adopting the approach that by not specifyingthe blank space provided for filling in the interest rate. We are of theview that to come to such an inference, active exclusion of payment ofinterest under that head was necessary to have been incorporated in theagreement. Though the case of G.C. Roy (supra) was delivered in adispute to which the 1940 Act was applicable, the Constitution Bench ofthis Court has laid down certain general proposition or principle on theaspect of grant of interest. This general proposition was referred to bythe Tribunal. It has been held in paragraph 43.1 of the Report (in thecase of G.C. Roy):- “43. The question still remains whether arbitrator has the powerto award interest pendent lite, and if so on what principle. Wemust reiterate that we are dealing with the situation where theagreement does not provide for grant of such interest nor doesit prohibit such grant. In other words, we are dealing with acase where the agreement is silent as to award of interest. Ona conspectus of aforementioned decisions, the followingprinciples emerge:

(i) A person deprived of the use of money to which he islegitimately entitled has a right to be compensated for thedeprivation, call it by any name. It may be called interest,compensation or damages. This basic consideration is as validfor the period the dispute is pending before the arbitrator as itis for the period prior to the arbitrator entering upon thereference. This is the principle of Section 34, Civil ProcedureCode and there is no reason or principle to hold otherwise inthe case of arbitrator.....”

13. The underlying principle guiding award of interest is that interestpayment is essentially compensatory in nature. But as we have alreadyobserved, in the case before us, interest on delayed payment formedpart of the contract itself. The agreement did not contain any express AB

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Aexclusion clause on payment of interest on delayed payment whether oncomponent of payment in foreign currency or local currency. We acceptthe reasoning of the Tribunal on the basis of which it rejected therespondents’ plea of waiver. This was a finding of fact on appreciationof materials placed before the Tribunal. One of the reasons behind thedecisions of the Appellate Court and Arbitration Court was that theBappellants, while bidding, had given up their claims for interest. Insubstance, the respondents’ assertion is that the Tribunal went beyondthe contractual terms, and the said two fora sought to invoke the principleof law contained in the third sub-head of the “patent illegality” principleelaborated in the case of Associate Builders (supra).C

14. The Appeal Court accepted reasoning of the Arbitration Courtthat the blank portion in the appendix to the bid would imply “zero” or“nil”. This reasoning, in our opinion, is flawed and such an interpretationof the agreement would actually be contrary to and beyond the terms ofthe contract. The Tribunal in this case had already come to a factualDfinding on appreciation of evidence that there was no such implication.Such an exercise on the part of the Arbitration Court and the AppellateCourt would constitute rewriting the contract, which is impermissible.The Tribunal rejected the plea of waiver and we have reproduced itsreasoning on that point. We cannot hold such reasoning to be perverseor improbable in the factual background of the present case. The Tribunal Ein this case could have had awarded interest as a compensatory orequitable measure, as there was no clause providing for exclusion orouster of interest payment on delayed payment. The Tribunal determinedthe rate thereof in sub-paragraphs 1.6 to 1.8 of the award. This part ofthe award specifies:- F

“1.6It is, therefore, held that the Claimants are entitled tointerest on the amount as due under any IPCs issued by theEngineer or failing which, on the amounts as shown in theClaimants monthly statements submitted to the Engineer forcertification and when were not paid or had been withheld byGthe Respondents and such interest shall be paid by theRespondents for the period as 42 days after the claimants’respective monthly statements had been submitted to theEngineer for certification to the date of payment thereof infull. The arbitral tribunal further holds that on the unpaid sumsand for the period of delay in the payment thereof as stated H

hereinabove, the Respondents shall pay to the claimants interestat the rate of 1% per month compounded monthly such ratebeing representative of the prevalent rate of access to moneythat the claimants were deprived of.

1.7 The Arbitral Tribunal therefore directs that the Respondentsshall pay to the claimants interest on the unpaid sum of Rs.2,15,72,150/- for the period of the due dates of payment till theactual dates of full payment of such amount at the rate statedin para 1.6 above in respect of IPCs No. 2 & IPC No. 4.

1.8 The Respondents shall further pay to the claimants suchinterest on the unpaid sums in respect of other IPCs No. 5 to14 issued by the Engineer or the Claimants monthly statementssubmitted to the Engineer for certification for the period fromthe due dates of payment till the actual dates of full payment atthe rate as stated in hereinabove.

The respondents are also directed to pay further interest at therate of 12% per annum on the interest amount determined pursuant topara 1.7 and 1.8 hereinabove from such dates of payment of the principalamount to the date of award.”

15. The Appellate Court’s rationale that such blank interest columnmight have had resulted in acceptance of the bid of the appellants astheir bid could have been more competitive on the assumption that theother bidders might have had pressed for interest in that column is notacceptable to us. We do not find any material from which such aconclusion could be reached. No material has been shown to us fromwhich it can be inferred that omission to fill in the blank space gave theappellants some kind of competitive edge in the bid process. We also donot know if other bidders had left the space blank or filled the same withspecified rate. The Arbitration Court’s view, sustained by the High Courtis tainted with an element of speculation on this point.

16. We do not find any flaw in the reasoning of the Arbitral Tribunalthat the contract did not prohibit the award of interest in respect ofdelayed payment in local currency component specified therein. Thisbeing the position, in our opinion, the contrary view expressed by theArbitration Court in a proceeding under Section 34 of the Act, whichview was upheld by the Appellate forum, breaches the permissible A

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Aboundaries for encroaching upon an award as laid down in Saw Pipescase (supra).

17. In our opinion, the view taken by the Tribunal on considerationof the contract was both reasonable and possible view. We, however,are of the opinion that the rate at which interest has been directed to beBpaid as contained in paragraphs 1.6 and 1.8 of the award, which wehave reproduced above, are rather excessive. As the agreement is silenton the point of rate of interest but provides for payment of interest ondelayed payment, the Tribunal’s exercise of fixing the rate should havebeen on the basis of applying the principle laid down in paragraph 43.1.in the case of G.C. Roy (supra). The said principle is applicable in aCproceeding under the 1996 Act as well. This principle has been broadlyincorporated in Section 31(7) (a) of the 1996 Act. The only differencebetween the situation contemplated in the aforesaid provision and thefacts of this case is that the agreement involved is not silent on interestentitlement of the appellants on delayed payment but the agreementDcontains provision for such payment. Only the rate at which interestwould be payable remained unspecified. In our view, simple interest atthe rate of 8% would be just and equitable on the sum left unpaid,calculated otherwise on the basis of sub-paragraphs 1.6. to 1.8 of theaward. We, accordingly, set aside the judgment of the Division Bench ofthe High Court of Kerala impugned in this appeal on the point of entitlementEof the appellants to receive interest on delayed payment in relation tolocal currency component of the contract. As a consequence, judgmentof the Sixth Additional District Judge, Ernakulam, shall also standinvalidated. The award of the Tribunal shall stand sustained so far asdirection to pay interest on delayed payment of the local currency Fcomponent of the agreement is concerned, but the rate of interest on thesum shall be computed in the manner prescribed in paragraphs 1.6, 1.7and 1.8 and shall be at 8% simple interest per annum.

18. The appeal is allowed in the above terms.

19. There shall be no order as to costs.G

Nidhi Jain

Appeal allowed.

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