Summary
A contractor abandoned construction of a railway station complex at Vashi and the employer rescinded the contract in 1994 citing Clause 60.1. The arbitral tribunal held that clause inapplicable but upheld the termination under Clause 17.4, rejected the contractor's claims for refund of security deposits, and awarded 18 per cent interest on two advances. The Delhi High Court set aside those parts of the award, restoring in appeal only the interest on the special advance. The Supreme Court allowed the employer's appeal: the finding that termination was justified under Clause 17.4 had attained finality and both clauses permit forfeiture, so the Section 34 court exceeded its jurisdiction; and under Section 31(7)(a) and Raveechee an arbitrator may award pendente lite interest absent a specific bar, though the rate was reduced to 12 per cent.
Issues
- Whether an arbitral tribunal, having found a termination notice wrongly founded on one clause of the contract, may uphold the termination and consequent forfeiture of security deposits under another clause conferring the same power.
- Whether an arbitral tribunal may award pendente lite interest on an advance where the contract contains no provision for interest but no bar against it.
Provisions considered
- Section 34, Arbitration and Conciliation Act, 1996The Single Judge exceeded the limited jurisdiction under Section 34 by setting aside a well-reasoned award rejecting the refund claims when the tribunal's finding that the contractor abandoned the work and that rescission was justified under Clause 17.4 had not been disturbed and had attained finality. (¶¶ 7.2, 7.3, 7.4)
- Section 31(7)(a), Arbitration and Conciliation Act, 1996Unless otherwise agreed, the tribunal may include interest at a reasonable rate for the period between the cause of action and the award; following Raveechee and Company the bar must be clear and specific, and absence of a stipulation for interest in the contract is no bar, so the award of interest on the advance against hypothecated equipment should not have been set aside. (¶ 7.5)
- Section 37, Arbitration and Conciliation Act, 1996The Division Bench wrongly affirmed the Single Judge on the security deposits and on interest for the equipment advance, while rightly restoring interest on the special advance. (¶¶ 2.6, 7.3, 7.5, 8)
Held
- Clause 17.4 entitles the employer, where it is not satisfied that the works can be completed within a further extension, to appropriate the security deposit and rescind the contract, and Clause 60.1 likewise permits rescission with forfeiture on abandonment; the tribunal was justified in examining whether rescission was warranted under either clause, and its finding of abandonment and justified rescission under Clause 17.4 having attained finality, forfeiture of the deposits and rejection of the refund claims were correct. (¶¶ 7.2, 7.3, 7.4)
- The High Court did not consider Section 31(7)(a); once the advance for hypothecation of equipment was found to have been paid, the tribunal's award of interest on it could not be interfered with under Sections 34 or 37, but 18 per cent being on the higher side, 12 per cent pendente lite is reasonable. (¶¶ 7.5, 8)
Result
Appeal allowed; judgments of the Single Judge and Division Bench of the Delhi High Court setting aside the arbitral rejection of Claim Nos. 33 and 34 quashed and the award on those claims restored; award of interest on the advance for hypothecation of equipment restored at 12 per cent pendente lite instead of 18 per cent; no order as to costs.