Case: Union of India Vs. M/s. Pradeep Vinod Construction Co

1. Heard learned counsel for the rival parties.2. The arbitral award dated 16.08.2005, which is a subject matter of consideration, awarded interest to the contractor on account of delayed payment. The orders which came to be passed during the course of the challenge to the above award dated 16.08.2005, clearly depict, that interest was not awarded by the arbitrators either on earnest money or on security deposit. Yet, it is sought to be asserted on behalf of the appellant, that the grant of interest in the arbitral award fell foul of two judgments rendered by this Court.3. We may refer to the two judgments relied upon by the learned counsel for the appellant (to assail the impugned order passed by a Division Bench of the Delhi High Court on 03.04.2006 affirming the view taken by the learned Single Judge on 30.11.2005). In the first instance, reliance was placed on Union of India v. Bright Power Projects (India) Private Limited, 2016(3) R.C.R.(Civil) 696 : 2016(4) Recent Apex Judgments (R.A.J.) 148 : (2015) 9 SCC 695. The dispute in the cited case has been summarised in paragraph 1 thereof, which is extracted below:"Being aggrieved by the judgment delivered in Union of India v. Bright Power Projects(I)(P)Ltd. dated 7-8-2006, by the High Court of Judicature of Bombay, this appeal has been filed wherein the issue is whether the appellant is liable to pay interest to the respondent though there was a provision in the contract that no interest should be paid on the amount payable to the contractor."(emphasis is ours)The contractual obligation, dealt with in the above judgment, was extracted in paragraphs 8 and 9 of the judgment. Paragraphs 8 and 9 are accordingly reproduced below:"8. On the aforesaid contentions, this Court has to decide whether the contract between the parties contained an express bar regarding award of interest and if so, whether the Arbitral Tribunal was justified in awarding interest for the period commencing from the date of reference till the date of the award.9. Clause 13 (3) of the contract entered into between the parties reads as under:"13(3).No interest will be payable upon the earnest money and the security deposit or amounts payable to the contractor under the contract, but government securities deposited in terms of sub-clause(1) of this clause will be repayable with interest accrued thereon."(emphasis is ours)While interpreting the aforestated clause, this Court arrived at the conclusion, that no interest was payable under the above clause to the contractor, even on account of delayed payment under the contract, namely payments other than earnest money and security deposit would also not earn any interest.4. The second judgment relied upon by the learned counsel for the appellant was Union of India v. Ambica Construction, 2016(2) R.C.R.(Civil) 638 : 2016(2) Recent Apex Judgments (R.A.J.) 526 : (2016) 6 SCC 36. The question arising for consideration was extracted in paragraph 1 of the above judgment, which is extracted below:"The issue involved in the reference is in regard to the power of the Arbitrator to award pendente lite interest when contract contains bar for grant of interest in a case covered by the Arbitration Act, 1940 (hereinafter referred to as "the Act"). A Division Bench of this Court had doubted the correctness of the decisions in Port of Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516 ; and Madnani Construction Corporation (P) Ltd. v. Union of India (2010) 1 SCC 549. In view of the decisions of the Constitution Bench judgments in Irrigation Department, State of Orissa v. G.C. Roy (1992) 1 SCC 508 and Dhenkanal Minor Irrigation Division v. N.C. Budharaj 2001(1) R.C.R.(Civil) 613 : (2001) 2 SCC 721 which held that the arbitrator had the jurisdiction and authority to award interest for pre-reference period, pendente lite and future period if there was no express bar in the contract regarding award of interest. A doubt was expressed about the correctness of the decisions in Engineers-De-Space Age (supra) in Sayeed Ahmed & Co. v. State of U.P. (2009) 12 SCC 26 and Sree Kamatchi Amman Constructions v. Railways 2011(2) Recent Apex Judgments (R.A.J.) 92 : (2010) 8 SCC 767. Hence the matter had been referred to a larger Bench for decision."(emphasis is ours)During the course of recording its conclusions, this Court in the above-mentioned judgment, took into consideration a decision rendered by a three-Judge Bench of this Court in Tehri Hydro Development Corpn.Ltd. v. Jai Prakash Associates Ltd., 2013(1) R.C.R.(Civil) 262 : 2012(5) Recent Apex Judgments (R.A.J.) 504 : (2012) 12 SCC 10 , wherein the contractual clauses, which came for interpretation, were as under:"CONDITIONS OF CONTRACT1.2.14. No claim for delayed payment due to dispute,etc.- The contractor agrees that no claim for interest of damages will be entertained or payable by the Government in respect of any money or balances which may be lying with the Government owing to any disputes, differences or misunderstandings between the parties or in respect of any delay or omission on the part of the Engineer-in-Charge in making immediate or final payments or in any other respect whatsoever.1.2.15.Interest on money due to the contractor.- No omission on the part of the Engineer-in-Charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any balance which may on the final settlement of his accounts be due to him."(emphasis is ours)With reference to the above clause, this Court recorded in the Tehri Hydro Development Corpn.Ltd. case (supra) as under:"Clauses 1.2.14 and 1.2.15, already extracted and analysed, imposed a clear bar on either entertainment or payment of interest in any situation of non-payment or delayed payment of either the amounts due for work done or lying in security deposit. On the basis of the discussions that have preceded we, therefore, take the view that the grant of pendente lite interest on the claim of Rs. 10,17,461/- is not justified. The award as well as the orders of the courts below are accordingly modified to the aforesaid extent."(emphasis is ours)Having examined various contractual clauses, as also, the contractual clause in the Tehri Hydro Development Corpn.Ltd. case (supra), the three-Judge Bench concluded as under:"32. In para 4 in Engineers-De-Space-Age (supra) this Court has observed that bar under the contract will not be applicable to the arbitrator cannot be said to be observation of general application. In our opinion, it would depend upon the stipulation in the contract in each case whether the power of Arbitrator to grant pendente lite interest is expressly taken away. If answer is "yes" then the arbitrator would have no power to award pendente lite interest.33. The decision in Madnani Construction Corporation (supra) has followed the decision in Engineers-De-Space-Age (supra). The same is also required to be diluted to the extent that express stipulation under contract may debar the arbitrator from awarding interest pendente lite. Grant of pendente lite interest may depend upon several factors such as phraseology used in the agreement, clauses conferring power relating to arbitration, nature of claim and dispute referred to Arbitrator and on what items power to award interest has been taken away and for which period.34. Thus, our answer to the reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits."(emphasis is ours)5. The submission advanced at the hands of the learned counsel for the appellant was simple. It was contended, that the clause in the present case is in pari materia, with the clause examined by this Court in Tehri Hydro Development Corpn.Ltd. case (supra), and as such, the conclusions recorded therein should be adopted in disposing of the instant matter as well.6. Having given our thoughtful consideration to the submissions advanced at the hands of the learned counsel for the appellant, we are of the view, that the two judgments, relied upon by the learned counsel for the appellant, would lead to one simple inference namely, that the capacity of the arbitrator to award interest, would depend on the contractual agreement. It is therefore necessary and imperative for us to determine the contractual implications of the relevant clause for arriving at the conclusion, whether interest was payable at the behest of the appellant with reference to contractual obligations in respect of matters other than earnest money and security deposit. It is not a matter of dispute, that the relevant clause under which the High Court has awarded interest, and the one under which the appellant desires an adjudication at our hands, that interest should not have been awarded, is clause 16 of the contract, which is reproduced below:"16. Earnest-money and security deposit - (1) The earnest-money deposited by the Contractor with his tender will be retained by the Railway as part of security for the due and faithful fulfillment of the contract by the Contractor. The balance to make up this security deposit which will be 10 per cent of the total value of the contract, unless otherwise specified in the special conditions, if any, may be deposited by the contractor in cash or in the form of Government Securities or may be recovered by percentage deduction from the Contractors "on account" bills, provided also that in case of a defaulting contractor the Railway may retain any amount due for payment to the contractor on the spending `on account bills so that the amount or amounts so retained may not exceed 10% of the total value of the contract.(2) Interest on amounts - No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract but Government Securities deposited in terms of sub-clause (1) of this clause will be repayable with interest accrued thereon."7. Having given our thoughtful consideration to the contractual obligations entered into by the parties through clause 16, we have no reason to doubt, firstly, that the clause related exclusively to earnest money and security deposit. The above Clause did not relate to the other contractual obligations between the parties. A perusal of clause 16 (1) further clarifies the position, inasmuch as, even if some payment under the contractual obligation was diverted to make good the security deposit payable, no interest would be payable thereon as well. Therefore, there can be no doubt, that non-payment of interest, contemplated between the parties under clause 16, was exclusively limited to the component of earnest money and the security deposit, which was held by the appellant and nothing else. Even though, there can be no dispute whatsoever, that Clause 16(2) is in pari materia with the clause taken into consideration in Tehri Hydro Development Corpn.Ltd. case (supra), yet in the case before us, having read the clause in its entirety, we are satisfied, that the parties had agreed, that payment of interest would not be due, only with reference to earnest money and security deposit. Thus viewed, we have no hesitation in concluding, that the determination in the arbitral award, of component of interest, payable by the appellant to the respondent, was in terms of the contractual obligation. Nothing in the contract provided for non-payment of interest on the contractual obligations.8. In recording our finding, we have merely given effect to the judgments relied upon by the learned counsel for the appellant. We have interpreted the contractual clause pertaining to the obligation of interest, and rendered our determination thereon.

Decision:
0[ds]Having given our thoughtful consideration to the contractual obligations entered into by the parties through clause 16, we have no reason to doubt, firstly, that the clause related exclusively to earnest money and security deposit. The above Clause did not relate to the other contractual obligations between the parties. A perusal of clause 16 (1) further clarifies the position, inasmuch as, even if some payment under the contractual obligation was diverted to make good the security deposit payable, no interest would be payable thereon as well. Therefore, there can be no doubt, thatof interest, contemplated between the parties under clause 16, was exclusively limited to the component of earnest money and the security deposit, which was held by the appellant and nothing else. Even though, there can be no dispute whatsoever, that Clause 16(2) is in pari materia with the clause taken into consideration in Tehri Hydro Development Corpn.Ltd. case (supra), yet in the case before us, having read the clause in its entirety, we are satisfied, that the parties had agreed, that payment of interest would not be due, only with reference to earnest money and security deposit. Thus viewed, we have no hesitation in concluding, that the determination in the arbitral award, of component of interest, payable by the appellant to the respondent, was in terms of the contractual obligation. Nothing in the contract provided forof interest on the contractual obligations.8. In recording our finding, we have merely given effect to the judgments relied upon by the learned counsel for the appellant. We have interpreted the contractual clause pertaining to the obligation of interest, and rendered our determination thereon.