TMI Blog2021 (4) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... terest column might have had resulted in acceptance of the bid of the Appellants as their bid could have been more competitive on the assumption that the other bidders might have had pressed for interest in that column is not acceptable. There are no material from which such a conclusion could be reached. No material has been shown from which it can be inferred that omission to fill in the blank space gave the Appellants some kind of competitive edge in the bid process. The simple interest at the rate of 8% would be just and equitable on the sum left unpaid - appeal allowed. - Civil Appeal No. 3454 of 2011 - - - Dated:- 22-4-2021 - Surya Kant and Aniruddha Bose, JJ. For the Appellant: Devendra Singh, AOR For the Respondent : G. Prakash, AOR JUDGMENT Aniruddha Bose, J. 1. 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 certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 paperbook and reads: Time of Payment and Interest (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also in local currency. So far as payment by foreign currency was concerned, as would be evident from the appendix to the bid quoted in the preceding paragraph, the London Interbank On-lending Rate (LIBOR) plus two per cent was the specified norm. It was on this basis the 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 as zero or nil . It has also been the position of the State, referring to certain communications made by the Appellants that there was waiver of the claim of interest by the Appellants. In the award, the Tribunal had repelled the argument of the State that the words zero or nil could be read into the said column of the appendix to bid . Relying on the Constitution Bench judgment of this Court in the case of Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy (1992) 1 SCC 508, the Tribunal held that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated and such compensation may be called interest, compensation or damages. Two documents originating from the Appellants in the form of written c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) is a waiver of the rights of the claimant does not stand. The fact that this letter was issued at the time of receiving payment in respect of Indian Penal Code. I suggests that this was given under coercion. The waiver does not apply to the instant case. This is corroborated by the fact that the claimant has been continually agitating for the payment of interest before and after the issuance of the said letter. As discussed earlier, payment of interest on unpaid sums was due under the terms of the contract and under the law. The recommendation of the DRB made after due deliberations and discussions with the parties has relevance in the matter. (quoted verbatim) The Tribunal directed interest on delayed payment in paragraphs 1.6 to 1.8 of the award. Extract from the award containing these paragraphs would appear later in this judgment. 8. The majority view of the Tribunal was that the contract itself provided for payment of interest with regard to local currency and foreign currency. The plea of the Appellants has been that there was no waiver and in any event the communication of 14th July, 2004 followed by that of 3rd August, 2004 related to Indian Penal Code-I o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 42.3 of the Report (in the case of Associate Builders), it has been held: 42.3 (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under: 28. Rules applicable to substance of dispute.-(1)-(2)* * * (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction. This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do. 11. The High Court in the appeal concurred with the Arbitration Court and concluded that omission to include the rate of interest in the bid document, the appendix to bid to be specific, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s right in adopting the approach that by not specifying the blank space provided for filling in the interest rate. We are of the view that to come to such an inference, active exclusion of payment of interest under that head was necessary to have been incorporated in the agreement. Though the case of G.C. Roy (supra) was delivered in a dispute to which the 1940 Act was applicable, the Constitution Bench of this Court has laid down certain general proposition or principle on the aspect of grant of interest. This general proposition was referred to by the Tribunal. It has been held in paragraph 43.1 of the Report (in the case of G.C. Roy): 43. The question still remains whether arbitrator has the power to award interest pendent lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge: (i) A person deprived of the use of money to which he is legitimately entitled ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for exclusion or ouster of interest payment on delayed payment. The Tribunal determined the rate thereof in sub-paragraphs 1.6 to 1.8 of the award. This part of the award specifies: 1.6 It is, therefore, held that the Claimants are entitled to interest on the amount as due under any Indian Penal Codes issued by the Engineer or failing which, on the amounts as shown in the Claimants monthly statements submitted to the Engineer for certification and when were not paid or had been withheld by the Respondents and such interest shall be paid by the Respondents for the period as 42 days after the claimants' respective monthly statements had been submitted to the Engineer for certification to the date of payment thereof in full. The arbitral tribunal further holds that on the unpaid sums and for the period of delay in the payment thereof as stated hereinabove, the Respondents shall pay to the claimants interest at the rate of 1% per month compounded monthly such rate being representative of the prevalent rate of access to money that the claimants were deprived of. 1.7 The Arbitral Tribunal therefore directs that the Respondents shall pay to the claimants interest on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave reproduced above, are rather excessive. As the agreement is silent on the point of rate of interest but provides for payment of interest on delayed payment, the Tribunal's exercise of fixing the rate should have been 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 a proceeding under the 1996 Act as well. This principle has been broadly incorporated in Section 31(7) (a) of the 1996 Act. The only difference between the situation contemplated in the aforesaid provision and the facts of this case is that the agreement involved is not silent on interest entitlement of the Appellants on delayed payment but the agreement contains provision for such payment. Only the rate at which interest would be payable remained unspecified. In our view, simple interest at the 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 the award. We, accordingly, set aside the judgment of the Division Bench of the High Court of Kerala impugned in this appeal on the point of entitlement of the Appellants to receive interest on delayed payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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