INDIAN RAILWAY CONSTRUCTION COMPANY LIMITED versus M/S NATIONAL BUILDINGS CONSTRUCTION on 17 March 2023

[2023] 2 S.C.R. 713

INDIAN RAILWAY CONSTRUCTION COMPANY LIMITED

v.

M/S NATIONAL BUILDINGS CONSTRUCTIONCORPORATION LIMITED

(Civil Appeal No. 8460 of 2022)

MARCH 17, 2023

[M. R. SHAH AND M. M. SUNDRESH, JJ.]

Arbitration & Conciliation Act, 1996 – ss. 34, 37 – Appellant-IRCON and the respondent-NBCC entered into an agreement underwhich NBCC was awarded the work of construction of railwaystation cum commercial complex – NBCC failed to carry out thework within the time stipulated and the work was practicallyabandoned – IRCON served notice upon the NBCC for terminationof the contract relying upon clause 60.1 of the agreement – NBCCinvoked the arbitration clause – Arbitral Tribunal rejected theNBCC’s claim for refund of two security deposits i.e. claim nos.33and 34 – Tribunal held termination with reference to clause 60.1bad in law, but justified the termination with reference to clause17.4 and consequently rejected NBCC’s claim for refund of twosecurity deposits – Tribunal also allowed counter claim no.3 (towardsinterest at rate of 18% p.a. on various advances given to NBCC,particularly (1) special advance and (2) advance againsthypothecation of equipment) in favour of IRCON – Single Judge ofthe High Court set aside the rejection by the Arbitral Tribunal ofclaim nos. 33 and 34 of NBCC to the extent it concerned the returnof security deposit amounts concluding that once the ArbitralTribunal found that the termination with regard to Clause 60.1 wasnot justified, it was not open for the Arbitral Tribunal thereafter toconsider the termination under Clause 17.4 justifying forfeiture ofthe security deposits – Single Judge also set aside the award passedby the Tribunal on counter claim no.3, observing that there is noclause in the contract awarding 18% interest p.a. on special advance– Division Bench of the High Court partly allowed the said appealand allowed the interest in favour of IRCON at the rate of 18% sofar as special advance is concerned – On appeal, held : The findingrecorded by the Arbitral Tribunal on applicability of Clause 17.4

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Aand/or rescinding of the contract under Clause 17.4 was not setaside either by the Single Judge or by the Division Bench of theHigh Court and therefore, the findings recorded by the ArbitralTribunal on applicability of Clause 17.4 has attained the finality –Both, under Clause 17.4 and 60.1, on failure of the contractor tocomplete the work, the IRCON was justified in rescinding theBcontract and forfeit the security deposit – Award passed by theTribunal rejecting the claim nos.33 and 34 restored – However, atthe same time award of interest @ 18% on advance for hypothecationof equipment by the Tribunal can be said to be on a higher side andtherefore in the facts and circumstances of the case, if the interest isCawarded @ 12% on advance for the hypothecation of equipment,the same can be said to be reasonable interest.

Allowing the appeal, the Court

HELD: 1. It is required to be noted that as such the findingDrecorded by the Arbitral Tribunal on applicability of Clause 17.4and/or rescinding of the contract under Clause 17.4 has not beenset aside either by the Single Judge or by the Division Bench ofthe High Court and therefore, the findings recorded by the ArbitralTribunal on applicability of Clause 17.4 has attained the finality.The Arbitral Tribunal as such was absolutely justified inEconsidering whether IRCON was justified in rescinding thecontract, may be either under Clause 60.1 or under Clause 17.4.[Para 7.2][724-E-F]

2. Both, under Clause 17.4 and 60.1, on failure of thecontractor to complete the work, the IRCON is justified inFrescinding the contract and forfeit the security deposit. At thecost of repetition it is observed that the Arbitral Tribunal onappreciation of entire evidence on record, had specificallyobserved that the contractor failed to complete the work evenwithin the stipulated extended period of time and even abandonedGthe work and therefore, the IRCON was justified in rescindingthe contract. The said finding as observed hereinabove hasattained finality. Therefore, the IRCON was absolutely justifiedin forfeiting the security deposits and therefore, the ArbitralTribunal was absolutely justified in rejecting Claim Nos.33 and H

34, which were with respect to forfeiture of security deposits bythe IRCON. Both, the Single Judge as well as Division Bench ofthe High Court have seriously erred in setting aside the awardpassed by the Arbitral Tribunal rejecting Claim Nos.33 and 34.The Single Judge, therefore, exceeded in its jurisdiction underSection 34 of the Arbitration Act quashing and setting aside thewell-reasoned award passed by the Arbitral Tribunal on rejectingClaim Nos.33 and 34, which the Division Bench of the High Courthas wrongly affirmed. [Para 7.3][725-E-H]

3. Under the circumstances, the impugned judgment andorder passed by the learned Single Judge as well as the DivisionBench of the High Court quashing and setting aside the awardpassed by the Arbitral Tribunal rejecting Claim Nos.33 and 34deserve to be quashed and set aside and the award passed by theArbitral Tribunal rejecting Claim Nos.33 and 34 is required to berestored and upheld. [Para 7.4][726-A-B]

4. Applying the law laid down by this Court in Raveecheeand Company to the facts of the case on hand, once it was foundthat the advance amount was paid for hypothecation of equipmentand thereafter when the Arbitral Tribunal awarded the intereston advance for hypothecation of equipment, the same was notrequired to be interfered with by the Single Judge in exercise ofthe powers under Section 34 of the Arbitration Act and even bythe Division Bench of the High Court while exercising the powersunder Section 37 of the Arbitration Act. However, at the sametime to award the interest @ 18% can be said to be on a higherside. In the facts and circumstances of the case, if the interest isawarded @ 12% on advance for the hypothecation of equipment,the same can be said to be reasonable interest. [Para 7.5][726-G-H; 727-A-B]

Raveechee and Company Vs. Union of India (2018) 7SCC 664 : [2018] 5 SCR 138 – referred to.

Case Law Reference

[2018] 5 SCR 138

referred toPara 7.5

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ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 8460of 2022.

From the Judgment and Order dated 14.08.2018 of the High Courtof Delhi at New Delhi in FAOOS No. 112 of 2018.

R. S. Hegde, Farhat Jahan Rehmani, Krishna Sharma, Advs. forBthe Appellant.

Arvind Minocha, Sr. Adv., Mayank Kshirsagar, Ms. Aabha,Randhir Singh, Advs. for the Respondent.

The Judgment of the Court was delivered byCM. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 14.08.2018 passed by the High Court of Delhi at NewDelhi in FAO(OS) No.112 of 2018 by which the High Court has partlyallowed the said appeal, the Indian Railway Construction CompanyDLimited (hereinafter referred to as “IRCON”) has preferred the presentappeal.

2. The brief facts leading to filing of the present appeal in nut-shell are as under:

2.1 That, an Agreement was entered into between IRCON andEthe respondent – M/s. National Buildings Construction CorporationLimited (hereinafter referred to as “NBCC”), whereby the respondentwas awarded the work of construction of Railway Station cumCommercial Complex at Vashi, Navi Mumbai at a cost of Rs.3042.91lakh, to be constructed within a period of 30 months from 05.04.1990.FNBCC failed to complete the work in time. Thereafter, the supplementaryagreements were entered into between the parties. As the provision forgrant of advances had exhausted, NBCC approached IRCON withmodified programme for completion of works and sought for additionalfinancial aid on certain terms and conditions. IRCON in consultationwith CIDCO, agreed to grant advance as a special case against BankGGuarantee. Accordingly, a supplementary Agreement dated 17.12.1991was entered into between the parties providing for special advance ofan amount of Rs. 68 lakhs bearing interest at the rate of 18% per annumon furnishing of Bank Guarantee. In terms of the supplementaryAgreement dated 17.12.1991, a special advance of Rs.68 lakhs wasHalso given to NBCC. As there was delay in the work of NBCC and the work was practically abandoned and came to a standstill, IRCON servedon NBCC a notice dated 21.02.1994 terminating the contract relyingupon Clause 60.1 of the Agreement.

2.2 That, thereafter, after some litigation before the Delhi HighCourt, the NBCC invoked the arbitration clause. The Arbitral Tribunalwas constituted. The Arbitral Tribunal passed the award dated 04.11.2011.That the Arbitral Tribunal rejected the NBCC’s claim for refund of twosecurity deposits i.e. Claim Nos.33 and 34. While holding so, the ArbitralTribunal held that though termination with reference to Clause 60.1 wasbad in law, but justified the termination with reference to Clause 17.4 ofthe Contract and consequently rejected the NBCC’s claim for refund oftwo security deposits i.e. claim Nos.33 and 34. The Arbitral Tribunalalso partly allowed Counter Claim No.3 in favour of IRCON. CounterClaim No.3 was relatable to the counter claim of IRCON for a total ofRs.3,65,38,806/- towards interest on various advances given to NBCC,more particularly, with regard to two specific advances being (1) SpecialAdvance and (2) Advance against hypothecation of equipment.

2.3 Feeling aggrieved and dissatisfied with the award passed bythe learned Arbitral Tribunal and insofar as relating to Claim Nos.33 and34 and the Counter Claim No.3 which were in favor of IRCON, theNBCC approached the High Court by filing an application under Section34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred toas “Arbitration Act”). The application under Section 34 of the ArbitrationAct was confined to the aforesaid three claims / counter claimsrespectively viz. Claim Nos.33 and 34 and Counter Claim No.3 only.

2.4 By the judgment and order dated 03.03.2017, the learned SingleJudge of the High Court set aside the rejection by the learned ArbitralTribunal of Claim Nos.33 and 34 of NBCC to the extent it concernedthe return of security deposit amounts i.e. Rs.5,57,486/- + Rs.60,85,840/- by observing and concluding that once the Arbitral Tribunal found thatthe termination with regard to Clause 60.1 was not justified, it was notopen for the Arbitral Tribunal thereafter to consider the termination underClause 17.4 justifying forfeiture of the security deposits. The learnedSingle Judge of the High Court also set aside the award passed by thelearned Arbitral Tribunal on Counter Claim No.3 by observing that thereis no clause in the contract in particular awarding 18% interest per annumon special advance.

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2.5 The judgment and order passed by the learned Single Judgewas the subject matter of appeal under Section 37 of the Arbitration Actbefore the Division Bench of the High Court.

2.6 By the impugned judgment and order, the Division Bench ofthe High Court has partly allowed the said appeal under Section 37 ofBthe Arbitration Act to the extent upholding the award passed by thelearned Arbitral Tribunal insofar as awarding the interest on specialadvance is concerned. The rest of the judgment and order passed by thelearned Single Judge has been affirmed / confirmed by the Division Benchof the High Court.C2.7 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the Division Bench of the High Court, IRCON haspreferred the present appeal.

3. Shri R.S. Hegde, learned counsel has appeared on behalf ofthe appellant – IRCON and Shri Arvind Minocha, learned SeniorDAdvocate has appeared on behalf of the respondent – NBCC.

4. Shri R.S. Hegde, learned counsel appearing on behalf of theappellant has vehemently submitted that on appreciation of entireevidence and the material on record as the learned Tribunal has observedand held that the IRCON was justified in rescinding the contract dueEto abandonment of work by NBCC and when the said finding attainedthe finality, the IRCON was justified in forfeiting the security deposits.It is submitted that as such the High Court has taken too technicalview. It is submitted that as such both, Clause 17.4 and Clause 60.1are required to be read together. It is submitted that the main aspectFwhich is required to be considered is whether the NBCC failed tocomplete the work as per the contract and whether the NBCCabandoned the work and thereafter, having satisfied that even duringthe extended period, the NBCC was not able to complete the work,the contract was rightly rescinded and therefore, the security depositswere liable to be forfeited.G

4.1 It is submitted that therefore both, the learned Single Judge(in application under Section 34 of the Arbitration Act) and the DivisionBench of the High Court have materially erred in upsetting / quashingand setting aside the award passed by the learned Arbitral Tribunalrejecting the Claim Nos.33 and 34.H

4.2 It is submitted that both, the learned Single Judge as well asthe Division Bench of the High Court have materially erred in notappreciating the fact that once the termination is justifiable with referenceto the terms of the contract and even if a wrong clause is mentioned inthe letter terminating the contract, the power to terminate the contractcannot be said to be illegal, more particularly, when the power is traceableto the specific terms of the contract, i.e., Clause 17.4.

4.3 Now, so far as the Counter Claim No.3 is concerned, it issubmitted that as such the Division Bench of the High Court has set asidethe award of interest on the amount advanced against hypothecation ofequipments, on the ground that there is no such provision of award ofinterest in the contract / supplementary Agreements. It is submitted thathowever, the Division Bench of the High Court has not properly appreciatedthe fact that there is no bar to award interest on the amount advanced. Itis submitted that the Arbitrator has power to award interest pendente liteunless specifically barred from awarding it. Reliance is placed on thedecision of this Court in the case of Raveechee and Company Vs.Union of India reported in (2018) 7 SCC 664.

Making above submissions, it is prayed to allow the present appealand restore the award passed by the Arbitral Tribunal.

5. Learned senior counsel, Mr. Minocha appearing on behalf ofthe respondent – NBCC while supporting the impugned judgment andorder passed by the High Court has vehemently submitted that in thepresent case admittedly the IRCON invoked Clause 60.1 and rescindedthe contract. It is submitted that even the learned Arbitral Tribunal alsoobserved and held that the IRCON was not justified in rescinding thecontract under Clause 60.1. It is submitted that however, thereafter theArbitral Tribunal justified the termination of the contract under Clause17.4, which as rightly held by the learned Single Judge / Division Benchwas not permissible.

5.1 It is submitted that the finding recorded by the learned ArbitralTribunal that the contract could not have been rescinded under Clause60.1 had attained the finality. It is submitted that therefore the learnedArbitral Tribunal was not justified in rejecting the claim Nos.33 and 34which has rightly been set aside by the learned Single Judge and theDivision Bench, which are not required to be interfered with by thisCourt in exercise of limited jurisdiction under Article 136 of theConstitution of India.

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A5.2 It is further submitted by learned Counsel appearing on behalfof the respondent – NBCC that in absence of any specific provision inthe contract / supplementary Agreements on interest on the amountadvanced against hypothecation of equipments, the Division Bench ofthe High Court has rightly set aside the same.

BMaking above submissions, it is prayed to dismiss the presentappeal.

6. We have heard learned Counsel appearing for the respectiveparties at length.

7. As observed hereinabove, challenge to the award by the learnedCArbitral Tribunal before the learned Single Judge and now before thisCourt is with respect to Claim Nos.33 and 34 and Counter Claim No.3(Partly).

7.1 The learned Arbitral Tribunal rejected the Claim Nos.33 and34 which were with respect to forfeiture of the security deposits onDtermination / rescind of the contract. The Counter Claim No.3 of theIRCON was for a total sum of Rs.3,65,38,806/- towards interest onvarious advances given to NBCC, more particularly, with regard to twospecific advances being (1) Special Advance and (2) Advance againsthypothecation of equipment. The learned Arbitral Tribunal allowed theECounter Claim No.3 and awarded interest at the rate of 18% per annumin favour of the IRCON being interest on special advance and advancesagainst hypothecation of equipments. The Division Bench of the HighCourt has partly allowed the appeal and allowed the interest in favour ofIRCON at the rate of 18% so far as special advance is concerned.

F7.2 While considering the findings recorded by the learned ArbitralTribunal and while appreciating the submissions made by the learnedcounsel appearing on behalf of the respective parties, relevant clausesof the Agreement, more particularly, Clause Nos.17.4, 59.1, 60.1 arerequired to be referred to, which are as under:

“TIME TO BE OR THE ESSENCE OF THE CONTRACT:G

17.4 The time for completion of the works by the date or extendeddate fixed for completion shall be deemed to be the essence ofthe contract and if the contractor shall fail to complete the workswithin the time prescribe the Company IRCON shall, if satisfiedthat the works can be completed by the contractor within aH

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reasonably short time thereafter be entitled without prejudice toany other right or remedy available on that behalf to recover byway of ascertained liquidated damages a sum equivalent to oneper cent of the contract value of the works for each week or partof week the contractor is in default and allow the contractor suchfurther extension of time as the Project Manager may decide. Ifthe Company (IRCON) is not satisfied that the works can becompleted by the contractor and in the event of failure on the partof the contractor to complete the works within the further extensionof time allowed as aforesaid the Company (IRCON) shall beentitled, without prejudice to any other right or remedy availablein that behalf, to appropriate the contractor’s security deposit andrescind the contract, whether or not actual damage is caused bysuch default.

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RIGHT OF COMPANY (IRCON) TO DETERMINECONTRACT:

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59.1 The Company (IRCON) shall be entitled to determine andterminate the contract at any time should in the Company’s(IRCON) opinion, the cessation of work become necessary owingto paucity of funds or from any cause whatsoever, in which casethe value of approved materials at site and of work done to dateby the contractor will be paid for in full at the rates specified inthe contract. Notice in writing from the Company (IRCON) ofsuch determination and the reason therefore shall be conclusiveevidence thereof.

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DETERMINATION OF CONTRACT OWING TO DEFAULTOF CONTRACTOR:

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60.1 If the contractor should:-

i.become bankrupt or insolvent or

ii.make an arrangement with or assignment in favour of hisGcreditors, or agree to carry out the contract under committeeof Inspection of his creditors, or iii.Being a company or corporation, go into liquidation (otherthan a voluntary liquidation for the purpose of amalgamationor reconstruction), or H

[2023] 2 S.C.R.

Aiv.have an execution levied on his good or property on theworks, or

v.assign the contract or any part thereof otherwise than asprovided in Clause 7 of these conditions, or

vi.abandon the contract, or

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vii.persistently disregard the instructions of the ProjectManager, or contravene any provision of the contract, or

viii.fail to adhere to the agreed programme of work by a marginof 10% of the stipulated period, or C

ix.fail to remove materials from the site or to pull down andreplace work after receiving from the Project Managernotice to the effect that the said materials or works havebeen condemned or rejected under conditions, or

x.fail to take steps to employ competent or additional staffDand labour as required under these conditions, or

xi.fail to afford the Project Manager or Project Manager’srepresentative proper facilities for inspecting the works orany part thereof as required under these conditions, or

xii.promise, offer or give any bribe, commission, gift oradvantages either himself or through his partner, agent orservant to any officer of employee of IRCON or to anyperson on his or on the behalf in relation to the execution ofthis or any other contract with IRCON.

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FThen and in any of the said cases, the Project Manager on behalfof the Company (IRCON) may serve the contractor with a noticein writing to that effect and if the contractor does not within 7days after the delivery to him of such notice proceed to makegood his default in so far as the same is capable of being madeand carry on the work or comply with such directions as aforesaidGto the entire satisfaction of the Project Manager the Company(IRCON) shall be entitled after giving 48 hours notice in writingunder the hand of the Project Manager (to remove the contractorfrom the whole or any portion or portions as may be specified insuch notice) of the works without thereby avoiding the contractHor releasing the contractor from any of his obligations or liabilities under the contract and adopt any or several of the followingcourses.

a)to rescind the contract, of which rescission notice inwriting to the contractor under the hand of the ProjectManager shall be conclusive evidence, in which casethe security deposit of the contractor shall stand forfeitedto the Company IRCON without prejudice to theCompany’s (IRCON) right to recover from thecontractor any amount by which the cost of competingthe works by any other agency shall exceed the valueof the contractor.

b)to carry out the works or any part thereof, by theemployment of the required labour and materials, thecosts of which shall include lead, lift, freight, supervisionand all incidental charges and to debit the contractorwith such costs, the amount of which as certified by theProject Manager shall be final and binding upon thecontractor, and to credit the contractor with the value ofthe works done as if the works had been carried out bythe contractor under the terms of the contract. And thecertificate of Project Manager in respect of the amountto be credited to the contractor shall be final and bindingupon the contractor;

c)to measure up the work executed by the contractor andto get the remaining work completed by anothercontractor at the risk and expense of the contractor inall respects in which case any expenses that may beincurred in excess of the sum which would have beenpaid to the contractor if the works had been carried outby him under the terms of the contract, the amount ofwhich excess as certified by the Project Manager shallbe final and binding upon contractor shall be borne andpaid by the contractor and may be deducted from anymoneys due to him by the Company (IRCON) underthe contractor or otherwise or from his security deposit.Provided always that in any case in which any of thepowers conferred upon the Company (IRCON) hereofshall have become exercisable and the same shall not A

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be exercised, the non-exercise thereof shall not constitutea waiver of any of the conditions hereof and such powersshall notwithstanding be exercisable in the event of anyfuture case of default by the contractor for which hisliability for past and future shall remain unaffected.”

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BConsidering the material on record and on appreciation of evidence,the learned Arbitral Tribunal though observed that the IRCON was notjustified in rescinding the contract under Clause 60.1, rescinding of thecontract / termination of the contract was justified under Clause 17.4,and thereby has rejected the Claim Nos.33 and 34 of the NBCC whichwere with respect to forfeiture of the security deposits. The learnedCSingle Judge as well as the Division Bench of the High Court have setaside the award passed by the learned Arbitral Tribunal rejecting ClaimNos.33 and 34 inter alia on the ground that once the Arbitral Tribunalgave the finding that the IRCON was not justified in invoking Clause60.1, thereafter it was not open for the Arbitral Tribunal to take the helpDof Clause 17.4 and therefore, the learned Arbitral Tribunal was not justifiedin rejecting Claim Nos.33 and 34 which were with respect to forfeitureof security deposits, which could have been under Clause 17.4.

However, it is required to be noted that as such the finding recordedby the Arbitral Tribunal on applicability of Clause 17.4 and/or rescindingEof the contract under Clause 17.4 has not been set aside either by thelearned Single Judge or by the Division Bench of the High Court andtherefore, the findings recorded by the learned Arbitral Tribunal onapplicability of Clause 17.4 has attained the finality. The learned ArbitralTribunal as such was absolutely justified in considering whether IRCONwas justified in rescinding the contract, may be either under Clause 60.1For under Clause 17.4. Even otherwise, from the material on record andeven the notice dated 21.02.1994 and the subsequent notice dated07.03.1994, we are satisfied that the IRCON was satisfied that the workcould not be completed by the contractor even within further extensionof time. Clause 17.4 provides that if the company (IRCON) is not satisfiedGthat the works can be completed by the contractor and in the event offailure on the part of the contractor to complete the works within furtherextension of time allowed, the IRCON shall be entitled, without prejudiceto any other right or remedy available in that behalf, to appropriate thecontractor’s security deposits and rescind the contract, whether or notactual damage is caused by such default. Even Clause 60.1 also providesH

for determination of contract owing to default of contractor. It providesthat if the contractor should abandon the contract, or persistentlydisregard the instructions of the Project Manager or contravene anyprovisions of the contract…. then the Project Manager on behalf of theCompany may serve the contractor with a notice in writing to that effectand if the contractor does not within 7 days after the delivery to him ofsuch notice proceed to make good his default in so far as the same iscapable of being made good and carry on the work or comply with suchdirections as aforesaid to the entire satisfaction of the Project Manager,the Company (IRCON) shall be entitled after giving 48 hours notice inwriting under the hand of the Project Manager (to remove the contractorfrom the whole or any portion or portions as may be specified in suchnotice) of the works without thereby avoiding the contract or releasingthe contractor from any of his obligations or liabilities. It further providesthat in such a case the Project Manager on behalf of the IRCON shallbe entitled to rescind the contract, in which case the security depositshall stand forfeited to IRCON without prejudice to IRCON’s right torecover from the contractor any amount by which the cost of completingthe works by any other agency shall exceed the value of the contractor.

7.3 Thus, both, under Clause 17.4 and 60.1, on failure of thecontractor to complete the work, the IRCON is justified in rescindingthe contract and forfeit the security deposit. At the cost of repetition itis observed that the learned Arbitral Tribunal on appreciation of entireevidence on record, had specifically observed that the contractor failedto complete the work even within the stipulated extended period oftime and even abandoned the work and therefore, the IRCON wasjustified in rescinding the contract. The said finding as observedhereinabove has attained finality. Therefore, the IRCON was absolutelyjustified in forfeiting the security deposits and therefore, the learnedArbitral Tribunal was absolutely justified in rejecting Claim Nos.33and 34, which were with respect to forfeiture of security deposits bythe IRCON. Both, the learned Single Judge as well as Division Benchof the High Court have seriously erred in setting aside the award passedby the learned Arbitral Tribunal rejecting Claim Nos.33 and 34. Weare of the opinion that the learned Single Judge, therefore, exceeded inits jurisdiction under Section 34 of the Arbitration Act quashing andsetting aside the well-reasoned award passed by the learned ArbitralTribunal on rejecting Claim Nos.33 and 34, which the Division Benchof the High Court has wrongly affirmed.

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A7.4 Under the circumstances, the impugned judgment and orderpassed by the learned Single Judge as well as the Division Bench of theHigh Court quashing and setting aside the award passed by the learnedArbitral Tribunal rejecting Claim Nos.33 and 34 deserve to be quashedand set aside and the award passed by the learned Arbitral Tribunalrejecting Claim Nos.33 and 34 is required to be restored and upheld.B

7.5 Now, so far as the quashing and setting aside the award passedby the Arbitral Tribunal awarding interest @ 18% on advance for thehypothecation of equipment, by the learned Single Judge confirmed bythe Division Bench is concerned, at the outset, it is required to be notedthat the Division Bench of the High Court has upheld the order passedCby the learned Single Judge quashing and setting aside the interestawarded by the learned Arbitral Tribunal on advance for the hypothecationof equipment on the ground that there is no such stipulation in theagreement / contract. However, the High Court has not at all consideredSection 31(7)(a) of the Arbitration Act, which permits the arbitrator thatDunless otherwise agreed by the parties, where and in so far as an arbitralaward is for the payment of money, the Arbitral Tribunal may include inthe sum for which the award is made interest, at such rate as it deemsreasonable, for the whole or any part of the period between the date onwhich the cause of action arose and the date on which the award ismade. Thus, unless there is a specific bar under the contract, it is alwaysEopen for the arbitrator / Arbitral Tribunal to award pendente lite interest.Identical question came to be considered by this Court in the case ofRaveechee and Company (supra). In the said decision, it is observedand held by this Court that an arbitrator has the power to award interestunless specifically barred from awarding it and the bar must be clearFand specific. In the said decision, it is observed and held that the liabilityto pay interest pendente lite arises because the claimant has been foundentitled to the same and had been kept out from those dues due to thependency of the arbitration, i.e., pendente lite.

Applying the law laid down by this Court in the aforesaid decisionGto the facts of the case on hand, once it was found that the advanceamount was paid for hypothecation of equipment and thereafter whenthe Arbitral Tribunal awarded the interest on advance for hypothecationof equipment, the same was not required to be interfered with by thelearned Single Judge in exercise of the powers under Section 34 of theArbitration Act and even by the Division Bench of the High Court whileH

exercising the powers under Section 37 of the Arbitration Act. However,at the same time to award the interest @ 18% can be said to be on ahigher side. In the facts and circumstances of the case, if the interest isawarded @ 12% on advance for the hypothecation of equipment, thesame can be said to be reasonable interest.

8. In view of the above and for the reasons stated above, presentappeal succeeds. The impugned judgment and order passed by the learnedSingle Judge as well as the Division Bench of the High Court quashingand setting aside the award passed by the Arbitral Tribunal rejectingClaim Nos. 33 and 34 are hereby quashed and set aside and the awardpassed by the Arbitral Tribunal rejecting the claim Nos. 33 and 34 ishereby restored. The impugned judgment and order passed by the DivisionBench of the High Court in confirming the judgment and order passedby the learned Single Judge insofar as quashing and setting aside theaward passed by the Arbitral Tribunal awarding the interest @ 18% onthe advance for hypothecation of equipment is concerned, the same ishereby quashed and set aside and the award passed by the ArbitralTribunal awarding the interest on advance for hypothecation of equipmentis hereby restored, however, with a modification that there shall be paidan interest @ 12% pendente lite on advance for hypothecation ofequipment instead of 18% as awarded by the Arbitral Tribunal.

Present appeal is accordingly allowed to the aforesaid extent.However, in the facts and circumstances of the case, there shall be noorder as to costs.

Ankit Gyan

Appeal allowed.

(Assisted by : Abhishek Pratap Singh and Mahendra Yadav, LCRAs)

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