Union of India v. GL Litmus Events Private Limited

69. The Tribunal also finds that under Section 31 (7) of the Arbitration and Conciliation Act, 1996, the Tribunal has the power to grant interest unless specifically prohibited by the contract. The observations in the following judgments may be relevant in this regard.

70. In Ambica Construction vs. Union of India, (2017) 14 SCC 323, the Court held as under: "The only contention advanced at the hands of the learned counsel for the appellant, was based on the judgment of this Court in Union of India v. Ambica Construction, (2016) 6 SCC 36, wherein having examined the legal position declared by this Court by a Constitution Bench in Irrigation Department, State of Orissa v. G.C Roy, (1992) 1 SCC 508, it was held as under: (Ambica Construction case, SCC p. 59, para 34)

34. Thus, our answer to reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to avoid interest pendente lite by the Arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the division bench to consider the case on merits. A perusal of the conclusions drawn by this Court in the above Judgment, rendered by a three Judge bench leaves no room for any doubt, that the bar to award interest on the amounts payable under the contract, would not be sufficient to deny payment of pendente lite interest. In the above view of the matter, we are satisfied that the clause relied upon by the learned counsel for the Union of India, to substantiate his contention, that pendent lite interest could not be awarded to the appellant, was not a valid consideration, for the proposition being canvassed. We are therefore satisfied, that the arbitrator, while passing the award dated 28-06- 1999, was fully justified in granting interest pendente lite to the appellant."

71. The decisions in Secretary General v. G. C. Roy, (1992) 1 SCC 508 and Union of India v. N.K. Garg (O.M.P. No. 327/2002, Delhi High Court) hold that ability/inability of the person to make payments is not relevant. Where a person is deprived of the use of his money, then the person is entitled to payment of compensation. Any Clause depriving a person of such compensation in an agreement is liable to be struck down in view of Section 23 of the Indian Contract Act, as being opposed to public policy.

72. Recently, the Supreme Court in Jaiprakash Associates Ltd. vs. Tehri Hydro Development Corporation India Ltd., 2019 (2) RAJ 1 (SC), has also held that there ought to be a specific bar on the payment of interest under the agreement. The relevant extract of the Judgment is being reproduced below: "14) In a recent judgment in the case of Reliance Cellulose Products Limited v. Oil and Natural Gas Corporation Limited, (2018) 9 SCC 266, the entire case law on the subject is revisited and legal position reemphasised. That was also a case which arose under the 1940 Act. The Court held that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act as well as pendente lite and future interest, however, he is constricted only by the fact that an agreement between the parties may contain an express bar to the award of pre-reference and/or pendente lite interest. Further, the Court has evolved the test of strict construction of such clauses, and unless there is a clear and express bar to the payment of interest that can be awarded by an arbitrator, clauses which do not refer to claims before the arbitrators or disputes between parties and clearly bar payment of interest, cannot stand in the way of an arbitrator awarding pre-reference or pendente lite interest. Further, unless a contractor agrees that no claim for interest will either be entertained or payable by the other party owing to dispute, difference, or misunderstandings between the parties or in respect of delay on the part of the engineer or in any other respect whatsoever, leading the Court to find an express bar against payment of interest, a clause which merely states that no interest will be payable upon amounts payable to the contractor under the contract would not be sufficient to bar an arbitrator from awarding pendente lite interest. Further, the grant of pendente lite interest depends upon the phraseology used in the agreement, clauses conferring power relating to arbitration, the nature of claim and dispute referred to the arbitrator, and on what items the power to award interest has been taken away and for which period. Also, the position under Section 31 (7) of the 1996 Act, is wholly different, inasmuch as Section 31 (7) of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered.

15) After discussing and analysing almost all the judgments on this subject, the legal position is summed up in the following manner: "24. A conspectus of the decisions that have been referred to above would show that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act, 1978 as well as pendente lite and future interest. However, he is constricted only by the fact that an agreement between the parties may contain an express bar to the award of prereference and/or pendente lite interest. Since interest is compensatory in nature and is parasitic upon a principal sum not having been paid in time, this Court has frowned upon clauses that bar the payment of interest. It has therefore evolved the test of strict construction of such clauses, and has gone on to state that unless there is a clear and express bar to the payment of interest that can be awarded by an arbitrator, clauses which do not refer to claims before the arbitrators or disputes between parties and clearly bar payment of interest, cannot stand in the way of an arbitrator awarding pre-reference or pendente lite interest. Thus, when one contrasts a clause such as the clause in Second Ambica Construction case [Ambica Construction v. Union of India, (2017) 14 SCC 323: (2018) 1 SCC (Civ) 257] with the clause in Tehri Hydro Development Corpn. Ltd. [Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10: (20 13) 2 SCC (Civ) 122], it becomes clear that unless a contractor agrees that no claim for interest will either be entertained or payable by the other party owing to dispute, difference, or misunderstandings between the parties or in respect of delay on the part of the engineer or in any other respect whatsoever, leading the Court to find an express bar against payment of interest, a clause which merely states that no interest will be payable upon amounts payable to the contractor under the contract would not be sufficient to bar an arbitrator from awarding pendente lite interest under the 1940 Act. As has been held in First Ambica Construction case [Union of India v. Ambica Construction, (2016) 6 SCC 36: (2016) 3 SCC (Civ) 36], the grant of pendente lite interest depends upon the phraseology used in the agreement, clauses conferring power relating to arbitration, the nature of claim and dispute referred to the arbitrator, and on what items the power to award interest has been taken away and for which period. We hasten to add that the position as has been explained in some of the judgments above under Section 31 (7) of the 1996 Act, is wholly different, inasmuch as Section 31 (7) of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered. "

73. Even in Raveechee and Company (Supra), the Supreme Court has categorically held that a Claimant becomes entitled to interest not as compensation for any damages but for being kept away from the money which is due to him. The power to award interest is an inherent power of the Arbitral Tribunal unless the same is expressly barred by agreement.

74. The Tribunal also finds no substance in the Respondent's contention that it had been prevented by the provisional attachment orders passed by Income Tax authority under Sections 281A from time to time and the garnishee Order under Section 226(3) of the Income Tax Act, 1961. It is observed that these Orders, even as per the Respondent were initially not the reasons that the Respondent itself had given for not making payments. Rather, the Respondent had taken the stand that they were not liable to make payments at all to the Claimant. Thus, these orders of the IT Department do not have any bearing on the award of damages or interest. Rather, this ground is a complete afterthought.

75. The Respondent did not make the payment to the Claimant not because the Orders passed u/S 281B of the Income Tax Act or Notices under the same Act, but because it took the stand that it is not liable to make any payment to the Claimant at all. It also raised Counter claims against the Claimant. The Respondent neither makes payment to the Claimant nor does it deposit the money with the Income Tax authorities as sought by Notice under Section 226(3). Thus, it is clear that these Orders I Notices were not barriers for making payments.

76. In any event, the issue is made even more clear by Organizing Committee vs. PICO Deepali (Supra) where the Delhi High Court held that Orders under Section 281B cannot come in the way of awarding interest. The said Order was thereafter confirmed by the Division Bench as well as by the Supreme Court.

77. Therefore, the Tribunal is of the considered view that the Respondent's contentions regarding the opposition to Claim No. 26 are a complete afterthought and have no substance. The Claimant is accordingly liable to receive interest and Claim No. 26 is hereby allowed.

78. The Tribunal is inclined to grant interest at 8% per annum from the due dates of the invoices till the date of the Award, i.e. a sum of Rs. 42,70,25,308/-.

79. The Tribunal is also inclined to grant interest @8% per annum on the bank guarantee charges, which come to a sum of Rs. 51,75,939/-.

80. The Tribunal also grants future interest @ 8% per annum on the principal amount as per the corrected Award dated 14.05.2018 as well as the amount awarded under this Additional Award.”

11. Assailing the aforesaid award, Mr.Neeraj Sharma, learned counsel for the petitioner, has mainly urged three grounds. He submits that the Tribunal has failed to appreciate the effect of Clause 38 in the proper light by overlooking the fact that Clause 38 of the agreement bars grant of any compensation, which also includes a bar on the grant of any interest. He further submits that since Clause 38 uses the word ‘or’, a disjunctive conjunction, between the following three phrases: i) to return monies of goods received or, ii) pay compensation or, iii) be liable to the Overlays Provider for an amount that is greater than the actual direct costs incurred by the Overlays Provider at the date of the claim, therefore, all the three phrases had to be independently considered. He submits that the Tribunal, however, in paragraph 67 of the impugned award, has erroneously presumed that the bar contained in Clause 38 served the purpose of only limiting the amount of compensation payable. He further submits that once the payment of compensation itself was barred by Clause 38, therefore interest, which is a species of compensation, could not have been awarded. This aspect has also been totally overlooked by the Tribunal, as per the petitioner.

12. Relying on the decision of the Supreme Court in Union of India vs. Raman Iron Foundry (1974)2SCC231, Mr.Sharma further submits that the Tribunal has also failed to appreciate that till the claim of the respondent was actually adjudicated and determined by the adjudicating authority, there was no liability of any kind on the petitioner to pay any amount to the respondent especially since the petitioner had already paid a sum exceeding Rs.71 crores to the respondent during the performance of the contract. He thus contends that the Tribunal has failed to consider the legal position summarised by the Hon’ble Supreme Court in paragraph 11 of its decision in Union of India vs. Raman Iron (supra) categorically holding that mere breach of contract does not entitle the person alleging the breach to any amount he claims is due to him. In other words, no pecuniary liability arises on the petitioner’s part till the court determines that the respondent, who is the party alleging breach of the Agreement, is entitled to damages. For this reason, he contends that till the arbitral award was passed in 14.05.2018, it could not be said that the petitioner was liable to pay any amount to the respondent by way of damages or that any interest was attracted thereon for delayed payment. He submits that the Tribunal has also failed to appreciate this aspect and has erroneously awarded interest to the respondent.

13. Mr Sharma, by placing reliance on paragraph 15 of the remand order passed by this Court, submits that the scope of the remand to the arbitral Tribunal was only to consider the effect of the provisional attachment orders passed by the revenue under Section 281B of the Income Tax Act, 1961 and as to whether the same could be a ground to withhold amounts payable to the respondent. He submits that the Tribunal, therefore, could not have stepped outside these confines and re-examined any other issue, as has been done in the additional award.

14. Mr.Sharma finally submits that the findings of the Tribunal in paragraph 73 of the impugned Award to the effect that interest is not in the nature of compensation is also contrary to its own findings in the original award dated 23.02.2018, which findings have already attained finality. He, therefore, contends that the Tribunal was not justified in reversing its stand and taking a different view in this regard merely because the matter was remanded back to it by this Court. He, therefore, submits that the impugned award suffers from a patent illegality, violates public policy and is, therefore, liable to be set aside.

15. On the other hand, Mr.Vijay Phadke, learned counsel for the respondent, who appears on advance notice supports the impugned award and submits that there is absolutely no perversity or illegality therein warranting interference by this Court. He submits that once the Tribunal found that the petitioner had withheld payments rightfully due to the respondent, it was justified in directing payment of interest thereon especially since its mandate on remand was not just confined to re-examining the effect of the provisional attachment orders but also the grant of interest payable to the respondent with reference to Clauses 11.[4] and 38 of the Agreement. He submits that once the Tribunal, upon consideration of Clauses 11.[4] and 38 came to a conclusion that the respondent was entitled to pre-pendente lite, pendente lite and future interest, as it was deprived of the money which it was entitled to receive in the year 2011, there is absolutely no reason why this Court should exercise its jurisdiction under Section 34 of the Act to interfere with these findings.

16. He further submits that the provisional attachment orders were never the reason for the petitioner withholding payments due to the respondent, which was also noted by the Tribunal and therefore reliance on those attachment orders passed under Section 281 B of the Income Tax Act, 1961 came to be rejected. He further contends that a similar plea already stands rejected by a Coordinate Bench of this Court in OMP (COMM.) 30/2015 titled Organizing Committee Commonwealth Games, 2010 vs. Pico Deepali Overlay Consortium & Anr. dated 08.03.2016 which decision has now attained finality since the challenge thereon before the Division Bench and, subsequently, the Supreme Court, was rejected. He, therefore, prays that the present petition be dismissed.

17. Before I deal with the rival contentions of learned counsel for the parties, a reference may be made to a recent decision in Hindustan Construction Company Limited & Ors. Vs. Union of India & Ors. 2019 (16) SCALE 823 wherein the Supreme Court reiterated the scope and grounds of judicial interference in an arbitral award under Section 34 of the Act; the relevant paragraph reads as under: “49. Further, this Court has repeatedly held that an application Under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit - see Canara Nidhi Ltd. v. M. Shashikala. As a result, a court reviewing an arbitral award Under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for - see Associated Construction v. Pawanhans Helicopters Ltd. (2008) 16 SCC 128 at paragraph 17.

50. Also, as has been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. v. NHAI 2019 SCC Online 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits (see paragraph 28 and 76 therein).....”

18. On an application of the aforementioned principles to the grounds urged by the petitioner, I am unable to find any reason to interfere with the impugned award. The petitioner’s primary contention pertains to the interpretation of Clause 38 of the Agreement by the Arbitral Tribunal viz., that the said clause not only limits the amount of compensation payable to the respondent but in fact absolves the OC from its liability to pay any compensation at all to the overlays provider. Thus, the petitioner has contended that, through Clause 38 of the Agreement, the parties agreed that irrespective of any default or breach on its part, no compensation would be payable to the respondent, which stipulation they contend has not been correctly appreciated by the Tribunal. I find no merit in this contention. In fact on the one hand the petitioner contends that Clause 38 absolves it from any responsibility to pay compensation and on the other hand, it claims that the said clause limits the compensation to the actual direct costs incurred by the overlays provider. Evidently, the petitioner has taken contradictory stands regarding the existence of its own liability to pay compensation under Clause 38 of the Agreement. The petitioner’s plea that the said clause in the Agreement barred any grant of compensation cannot hold ground in these circumstances and was rightly rejected by the Arbitral Tribunal. The second limb of this contention was that, by extension, Clause 38 also bars grant of interest, being a species of compensation. However, once I have found no merit in the petitioner’s interpretation that Clause 38 bars grant of compensation, this plea of the petitioner loses significance and has to be necessarily rejected.

19. In fact, I find that the Tribunal, having found that the respondent was illegally deprived of the amounts rightfully payable to it on an appreciation of the evidence placed on record, was fully justified in awarding interest on the sum awarded for this period, i.e., for the period when this sum was wrongfully withheld from the respondent. The petitioner’s reliance on Raman Iron Foundry (supra) to contend that till the Tribunal had specifically determined whether the petitioner had indeed incurred a liability towards the respondent to pay additional compensation, the petitioner could not automatically be held liable in this regard, is also wholly inapplicable to the facts of the present case. The simple reason being that in the present case, the limited extent to which the Tribunal’s consideration had been invited to Claim No. 26 upon remand, was to determine whether the petitioner had incurred any liability to pay interest to the respondent for delaying the payment of money rightfully accruing to the respondent under a valid and binding agreement executed between them, which was not at all an issue in Raman Foundry (supra).

20. I also do not find any merit in the petitioner’s contention that upon remand, the mandate of the Tribunal was only to consider the effect of the provisional attachment orders under Section 281 B of the Income Tax Act, 1961. A bare perusal of paragraph 15.[1] of the remand order shows that this Court had specifically observed that a ruling regarding the impact of Clauses 11.[4] and 38 of the Agreement on the grant of interest had to necessarily be given by the Tribunal. In the light of these specific directions by this Court, it cannot be urged that the Tribunal has in any manner overstepped its mandate while considering the effect of the aforesaid clauses.

21. The petitioner’s final contention that the award of interest under the impugned, additional award is contrary to the findings of the Tribunal in the original award 14.05.2018, is equally meritless. The remand of the matter to the Tribunal by this Court was premised on the specific direction that Claim No. 26 shall be reconsidered by the Tribunal by taking all relevant facts and circumstances into consideration, which claim only pertained to the aspect of granting interest in favour of the respondent. Furthermore, this Court had also observed that the reconsideration of Claim No. 26 shall be made in the light of Clauses 11.[4] and 38 of the Agreement and that the Tribunal shall render specific findings on whether these clauses prohibited the recovery of costs and/or interest from the petitioner in the event the payment of money under the award had been delayed. I find that the Tribunal was expected to render a decision on whether the respondent was entitled to any interest at all, as per Claim No. 26 which it has rightly held in favour of the respondent, after interpreting and considering the effect of Clauses 11.[4] and 38 in accordance with the directions of this Court.

22. Even otherwise, the impugned award hinges upon the interpretation of Clauses 11.[4] and 38 of the Agreement by the Tribunal; this must be considered in the light of the settled legal position that once the arbitrator interprets the provisions of an agreement between the parties, the Court while examining the award under Section 34 of the Act will not interfere with the same merely because another interpretation is possible. In any event, in the present case, I am of the view that the interpretation of Clause 38 by the Tribunal is not only correct but is the only possible interpretation. In this regard, reference may be made to the decision in National Highways Authority of India vs. ITD Cementation India Ltd. (2015) 14 SCC 21 wherein the Supreme Court was dealing with the question of interpreting the terms of a contract, which formed the basis of the dispute, and proceeded to reiterate the settled legal principles in that regard as under:- “25. It is thus well settled that construction of the terms of a contract is primarily for an arbitrator to decide. He is entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the contract. The Court while considering challenge to an arbitral award does not sit in appeal over the findings and decisions unless the arbitrator construes the contract in such a way that no fair-minded or reasonable person could do.”

23. For the aforesaid reasons, there is absolutely no ground made out to interfere with the impugned arbitral award passed by the Tribunal warranting the exercise of the limited jurisdiction of this Court under Section 34 of the Act.

24. The petition, being meritless, is dismissed.

REKHA PALLI, J JANUARY 29, 2020 gm