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TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 1329
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....dations at the first instance. If the recommendations were not acceptable to any of the parties, such disagreeing party was required to give notice to commence arbitration within a specified time and thereafter the dispute was to be settled through arbitration. So far as the controversies out of which this appeal arises are concerned, disputes on three counts arose between the parties, which could not be resolved at the stage of DRB recommendations. Those disputes were referred to a three-member Arbitral Tribunal (the 'Tribunal' in short). We have already referred to the scope of controversy involved in this appeal. This controversy shall be henceforth referred to in this judgment as dispute on delayed payment. We shall address that issue only in this judgment. 2. The Tribunal passed the award in favour of the Appellants on this point and interest was directed to be paid on delayed payment in relation to local currency component payable under the agreement. This was, however, a majority award and not a unanimous one as one of the members of the Tribunal gave a dissenting view. In the succeeding paragraphs of this judgment, whenever we refer to the expression 'award'....
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....ed within said 14 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. (ii) (A) In the case of the Final Payment Certificate pursuant to Sub-clause 60.13 within 84 days after the Final statement and written discharge have been submitted to the Engineer for certification and (B) In the case of the Final Statement submitted by the Contractor at a time when the Bank's loan or credit from which part of the payments to the Contractor are being made is suspended or for which payment under (ii) (A) becomes due after 63 days of the date of notification of the suspension notice payment will be made within 63 days after the date of notification of the suspension pursuant to Sub-clause 69.6(d) provided that if the Engineer's Final Payment Certificate has not been issued within the said 63 days, the Employer shall pay the undisputed amounts shown in the Final Statement. ....
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.... which was to be made in local currency. First of these two documents was a letter of the Appellant dated 14th July, 2004 (Exhibit R-1 before the Tribunal) and the next was another written communication dated 3rd August, 2004 (Exhibit C-72 before the Tribunal). The first letter issued by the Appellants addressed to the Chief Executive Officer, Kerala State Transport Project reads: Dear Madam, As discussed on the above subject we confirm that there is no provision of interest on delayed payment in the Contract and hence interest will not be claimed. (quoted verbatim) 6. The next communication dated 3rd August, 2004 was addressed to the same officer of the Respondents. The text of this communication is: Dear Sir, We wish to invite your kind attention to the issue of release of payment against Indian Penal Code-1 General Items as recommended by DRB. As a pre-condition for release of the said payment, we were made to issue the above referred letter dated 14.7.2004. Our commitment not to claim any interest on the said amount released by you be treated purely as a goodwill gesture so....
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.... had also accepted the Appellants/claimants' stand that there was no waiver on claim of interest in respect of all sums due for which Interim Payment Certificates had been issued. The Tribunal's finding on that aspect was buttressed by the fact that the Appellants/claimants had continued to raise demand for interest subsequent to the issue of those two communications. These were essentially findings on facts. 9. The Arbitration Court and the Appellate Court in sustaining the State's application for setting aside the award were of the view that the contract could not be construed to contain provisions for interest on delay in payment with regard to the local currency component contained in the agreement, as the Appellants did not fill up the blank space with the rate of interest. Opinion of the Appellate Bench was that in the event it was intention of the claimants to retain their entitlement to interest on delayed payment under that head, they ought to have had filled in the blank space in the "appendix to bid". Another facet of the High Court's reasoning was that the Respondents might have had been persuaded to accept the Appellants' bid on the basis that the ....
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...." to be specific, had resulted in creation of contractual term that there would not be any claim for interest on delayed payment (as per Clause 60.8) so far as payment in local currency component contained in the agreement is concerned. In our opinion, however, the interference with the award by the Arbitration Court on this ground was unwarranted. The underlying reasoning of the Appellate Court and earlier, the Arbitration Court on this point is that the Tribunal went beyond the contractual term in awarding interest. The case of G.C. Roy (supra) and a later decision of this Court, Reliance Cellulose Products Ltd. v. ONGC Ltd. (2018) 9 SCC 266, were relied upon before us by the Appellants to sustain the Tribunal's findings. These decisions are sought to be distinguished on behalf of the Respondents on the ground that the former decision related to interest pendente lite and both these cases were under the Arbitration Act, 1940. Under the said statute, an arbitrator had power or jurisdiction to grant pre-reference interest under the Interest Act, 1978 as also pendente lite and future interest. Such jurisdiction stood curbed only if express terms of the contract precluded payment....
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....d of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Code of Civil Procedure and there is no reason or principle to hold otherwise in the case of arbitrator..... 13. The underlying principle guiding award of interest is that interest payment is essentially compensatory in nature. But as we have already observed, in the case before us, interest on delayed payment formed part of the contract itself. The agreement did not contain any express exclusion Clause on payment of interest on delayed payment whether on component of payment in foreign currency or local currency. We accept the reasoning of the Tribunal on the basis of which it rejected the Respondents' plea of waiver. This was a finding of fact on appreciation of materials placed before the Tribunal. One of the reasons behind the decisions of the Appellate Court and Arbitration Court was t....
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....al therefore directs that the Respondents shall pay to the claimants interest on the unpaid sum of Rs. 2,15,72,150/- for the period of the due dates of payment till the actual dates of full payment of such amount at the rate stated in para 1.6 above in respect of Indian Penal Codes No. 2 & Indian Penal Code No. 4. 1.8 The Respondents shall further pay to the claimants such interest on the unpaid sums in respect of other Indian Penal Codes No. 5 to 14 issued by the Engineer or the Claimants monthly statements submitted to the Engineer for certification for the period from the due dates of payment till the actual dates of full payment at the rate as stated in hereinabove. The Respondents are also directed to pay further interest at the rate of 12% per annum on the interest amount determined pursuant to para 1.7 and 1.8 hereinabove from such dates of payment of the principal amount to the date of award. 15. The Appellate Court's rationale that such blank interest 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 pres....