Contractual forfeiture and arbitral interest powers upheld, with security deposit rescission sustained and interest rate reduced.

A contractor's security deposits may be forfeited where the contract authorises rescission for failure to complete the work, abandonment, or other default, and the arbitral finding of such default has attained finality; interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 is then unwarranted. An arbitral tribunal may also award pendente lite interest on an advance against hypothecated equipment under Section 31(7)(a) unless the contract clearly bars interest. The award of interest was therefore sustainable, though the rate was reduced to a reasonable 12% pendente lite.

---

---

Issues: (i) whether the contractor's security deposits were liable to be forfeited on termination of the contract under the contractual clauses governing default and rescission; (ii) whether interest could be awarded on the advance granted against hypothecation of equipment and, if so, at what rate.

Issue (i): whether the contractor's security deposits were liable to be forfeited on termination of the contract under the contractual clauses governing default and rescission.

Analysis: The contractual clauses empowered the employer to rescind the contract and appropriate the security deposit where the contractor failed to complete the work within the stipulated or extended time, abandoned the work, or otherwise committed default. The finding of the arbitral tribunal that the contractor had failed to complete the work and had abandoned the contract was not set aside and had attained finality. On that footing, the rescission and forfeiture of the security deposits were justified, and interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 was unwarranted.

Conclusion: The rejection of the claims for return of the security deposits was valid and ought to have been upheld; the contrary view was wrong.

Issue (ii): whether interest could be awarded on the advance granted against hypothecation of equipment and, if so, at what rate.

Analysis: Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 permits an arbitral tribunal to award interest unless the parties have expressly barred it. In the absence of a clear contractual prohibition, the award of pendente lite interest on the advance could not be interfered with. However, the rate awarded was considered excessive on the facts, and a reduced reasonable rate was substituted.

Conclusion: The tribunal's award of interest on the advance was sustainable, but the rate was modified to 12% pendente lite.

Final Conclusion: The appeal succeeded to the extent that the setting aside of the award on both the security-deposit claims and the interest claim was reversed, with only a modification of the interest rate.

Ratio Decidendi: Where a contractor defaults and the contract authorises rescission and forfeiture upon failure to complete the work, the security deposit may be appropriated; and unless there is a clear contractual bar, an arbitral tribunal may award pendente lite interest under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996.

---