Full Text
HIGH COURT OF DELHI
Date of Decision: August 08, 2022
UNION OF INDIA ..... Appellant
Through Mr. Jagjit Singh, Mr. Preet Singh, Ms. Kalyani Arora and Mr. Vipin Chaudhary, Advocates
Through Mr. Rajesh Ranjan, Mr. Neeraj Malta, Mr. A. Shankar Rastogi and Mr. Shivkant Arora, Advocates
HON'BLE MR. JUSTICE SAURABH BANERJEE
JUDGMENT
1. Appellant claims that the respondent applied for setting up a Greenfield PFT served by Chawalpail Railway Station on Ambala-Ludhiana Section of Northern Railway (hereinafter referred as “PFT Project”) and deposited fee of Rs. 1 Crore in terms of Clause 9 of the Policy. Pursuant thereto, appellant granted final approval for the PFT Project on 17.02.2014, which was to be completed within 3 years i.e., by 16.02.2017. As per Clause 2022:DHC:3070-DB
10.02 of the Policy, appellant was to refund 99% of Security Deposit upon successful completion of the PFT Project within 30 days from the date of issuance of the commercial notification.
2. The respondent completed the PFT Project within one and a half years, much before the scheduled time. Same led to execution of a Concession Agreement inter-se parties followed by issuance of a Commercial Notification on 25.08.2015 itself. Upon successful completion of PFT Project, respondent sought refund of 99% of the Security Deposit in terms of Clause 10.[2] of the Policy and followed it up with repeated reminders. Hearing nothing from appellant, respondent approached the Court under Section 11 of The Arbitration and Conciliation Act, 1996 (hereinafter referred as “Act”). Before the Arbitral Tribunal, respondent, vide its Statement of Claim sought refund of the Security Deposit of Rs. 99,00,000/- alongwith interest @ 18% per annum with costs and appellant, vide its Counter Claim sought an amount Rs. 58,26,261/- along with interest. The Arbitral Tribunal vide its Award dated 25.02.2020 (hereinafter referred as “Arbitral Award”) allowed the claim of Rs. 99,00,000/- of the respondent albeit without interest and rejected the Counter Claim of Rs. 58,26,261/- of the appellant.
3. Being aggrieved, respondent filed objections under Section 34 of the Act before the learned trial court primarily challenging the non-grant of interest upon the delayed refund of Security Deposit of Rs. 99,00,000/- and the appellant never challenged the release of refund of said Security Deposit of Rs. 99,00,000/- therein (hereinafter referred as “refund amount”). Learned trial court vide impugned judgment dated 13.10.2021 (hereinafter referred as “Impugned Judgment”), granting interest to respondent, modified the Arbitral Award and held as under:
(i) The claim of the respondents for release of Rs.
(ii) An interest @ 9% is payable to the respondent on the sum of Rs. 99,00,000/- w.e.f. 25.09.2015, the date on which the payment became due till the date of award.
(iii) The parties shall bear their own costs.
(iv) The counter claim of the petitioner is rejected.
(v) The petitioner is directed to pay future interest @ 12%
4. The aforesaid has led to filing of the present appeal wherein learned counsel for appellant has challenged the wrongful grant of interest on the refund amount by the learned trial court vide the impugned judgment, even though the same was made interest free by the Arbitral Tribunal. Further contended that the impugned judgment is in conflict with the fundamental policy of Indian Law and contrary to the terms of the Policy which prohibits award of interest and the Arbitral Tribunal rightly relied upon Clause 5.[1] read with Clause 10.[2] of the Policy and refused to award interest to respondent. Lastly contended that the interest under Section 31(7) of the Act could not be awarded and that the impugned judgment is beyond jurisdiction.
5. Having heard the learned counsel for appellant and after going through the documents on record we now proceed to address the legal position and factual matrix involved before us.
6. Clause 10.[2] of the Policy, part of an admitted document and binding upon the appellant, reads as under: “10.[2] Upon successful completion of the PFT with the 99% of the security deposit will be refunded within 30 days issue of notification of the PFT.” As per above, though appellant was admittedly bound to refund the 99% Security Deposit within the pre-fixed, mandated and prescribed period of 30 days of the issuance of the notification of the PFT Project, however, it failed to do so till passing of the Award. In our opinion, upon expiry of the said fixed period of 30 days the delayed refund amount with interest is actually in the nature of a compensation, debt or damage, owing and payable by appellant to respondent. The appellant cannot wrongfully retain the said refund amount. Non-refund by appellant within the said period as per the Policy, with no waiver from respondent, calls for levy of interest. It is common practice in all financial transactions that interest on such delayed payments is levied, unless otherwise proscribed by the contract in question.
7. In the case on hand though there is no implicit clause/ provision for interest on delayed payment of refund amount beyond the 30 days period in the Policy, same does not preclude respondent from claiming interest as the Policy contains no embargo or prohibition awarding interest on such late refund amount. Especially, as appellant cannot sit over the refund amount by withholding the legitimate dues of respondent and instead choosing to release it as per its choice. Similarly, the Arbitral Tribunal is also not precluded to pass an Arbitral Award alongwith interest over the said refund amount beyond the 30 days period. If there is no express bar, power to grant interest by the Arbitral Tribunal is inherent.
8. Reliance is placed upon Assam State Electricity Board & Ors. V Buildworth Private Limited (2017) 8 SCC 146, wherein the Hon’ble Supreme Court in held:- “25. The judgments on the point have been considered in a decision of three Judges of this Court in Union of India Vs. Ambica Construction in the context of a bar of jurisdiction to award interest for the period of the pendency of the arbitration under the 1940 Act if there is an express bar under the contract. The decision notes and affirms the powers of the arbitrator to award interest in the absence of a specific power or prohibition contained in the contract.”
9. Reliance is also placed upon State of Rajasthan & Anr. v Ferro Concrete Construction Private Limited (2009) 12 SCC 1 wherein the Hon’ble Supreme Court held: - “60. The appellants contend that there was no provision in the contract for payment of interest on any of the amounts payable to the contractor and therefore no interest ought to be awarded. But this Court has held that in the absence of an express bar, the arbitrator has the jurisdiction and authority to award interest for all the three periods-pre reference, pendente lite and future (vide decisions of Constitution Bench in Secretary, Irrigation Department, Government of Orissa vs. G.C. Roy, Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and Ors. vs. N. C. Budharaj and the subsequent decision in Bhagawati Oxygen Ltd. vs. Hindustan Copper Ltd. In this case as there was no express bar in the contract in regard to interest, the Arbitrator could award interest.”
10. Reliance is also placed upon The Board of Trustees for The Port of Calcutta v Engineers-De-Space-Age (1996) 1 SCC 516 wherein the Hon’ble Supreme Court held: - “4……. …..The short question, therefore, is whether in view of sub-clause (g) of Clause 13 of the contract extracted earlier the Arbitrator was prohibited from granting interest under the contract. Now the term in subclause (g) merely prohibits the Commissioner from entertaining any claim for interest and does not prohibit the Arbitrator from awarding interest. …… ……. Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the Arbitrator is not, in any manner, stifled by this term of the contract and the Arbitrator would be entitled to consider the question of grant of interest pendent lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the Arbitrator was in no manner prohibited from awarding interest pendent lite.”
11. The relevant provision to be factored for consideration by the Arbitral Tribunal while levying interest in this appeal before us is Section 31(7) of the Act, which reads as under: - “(7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.”
12. As clear from Section 31(7)(a) of the Act, if the Award is with respect to payment of money, the same may include interest at a reasonable rate from the period of the commencement of the cause of action and till the date of Award. Further as is clear from the Section 31(7)(b) of the Act, unless specified in the Award, the same can be @ 18% per annum from the date of the Award till the date of payment. Depending upon the facts and circumstances of each case, unless expressly restricted by the contract in question i.e., if it is not silent about grant of interest, the Award can include pre-reference interest, pendente-lite interest and post award future interest.
13. Reliance is also placed upon Hyder Consulting (UK) Limited v Governor, State of Orrisa (2015) 2 SCC 189 wherein the Hon’ble Supreme Court held:- “32. Therefore, in my view, the expression "grant of interest on interest" while exercising the power under Section 31(7) of the Act does not arise and, therefore, the Arbitral Tribunal is well empowered to grant interest even in the absence of clause in the contract for grant of interest.”
14. Reliance is also placed upon State of Haryana & Ors. v S.L. Arora & Company (2010) 2 SCC 690 wherein the Hon’ble Supreme Court held: - “24.2. The authority of the arbitral tribunals to award interest under Section 31(7)(a) is subject to the contract between the parties and the contract will prevail over the provisions of Section 31(7)(a) of the Act. Where the contract between the parties contains a provision relating to, or regulating or prohibiting interest, the entitlement of a party to the contract to interest for the period between the date on which the cause of action arose and the date on which the award is made, will be governed by the provisions of the contract, and the arbitral tribunal will have to grant or refuse interest, strictly in accordance with the contract. The arbitral tribunals cannot ignore the contract between the parties, while dealing with or awarding pre-award interest. Where the contract does not prohibit award of interest, and where the arbitral award is for payment of money, the arbitral tribunal can award interest in accordance with Section 31(7)(a) of the Act, subject to any term regarding interest in the contract. xxxxxxxxxxxxxx
34. Thus it is clear that Section 31(7) merely authorizes the arbitral tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment.”
15. In view of the aforesaid settled position of law and the terms of the Policy, the respondent was entitled to the grant of post award future interest from the date on which the said refund amount became due till the date of passing of the Arbitral Award as well as from the date of passing of the said Arbitral Award till the date of actual realization thereof. As the Arbitral Award neither took the same into consideration nor granted any interest under the aforesaid heads, the entitlement of respondent to interest on the refund amount under Section 34 of the Act by the learned trial court is upheld. The learned trial court has rightly levied the interest @ 9% per annum on the sum of Rs. 99,00,000/- w.e.f. 25.09.2015, the date on which the said refund amount became due till the date of passing of the Arbitral Award alongwith future interest @ 12% per annum from the date of said Arbitral Award till the date of actual realization thereof.
16. This Court finds no perversity, infirmity or illegality in the impugned judgment of the learned trial court requiring interference of any kind.
17. Accordingly the present appeal, alongwith the pending application therein, is dismissed.
(SURESH KUMAR KAIT) JUDGE (SAURABH BANERJEE)
JUDGE AUGUST 08, 2022