Delhi High Court

Hindustan Prefab Ltd vs Union Of India on 16 September, 2016

$~20
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
+      EX.P. 114/2015
       HINDUSTAN PREFAB LTD.                             ..... Decree Holder
                     Through : Mr Udit Seth, Advocate.
                     versus
       UNION OF INDIA                          ..... Judgement Debtor
                     Through : Mr R.V. Sinha, Advocate and Mr A.S.
                     Singh, Advocate.
       CORAM:
       HON'BLE MR. JUSTICE VIBHU BAKHRU
                     ORDER

       %             16.09.2016

VIBHU BAKHRU, J

1. The petitioner (hereafter 'HPL') has filed the present petition for

enforcement of an arbitral award dated 07.02.2005 passed by the Sole

Arbitrator, Mr Anurag Sharma (the Chief Engineer, Northern Railways at

the material time). The said award was made in respect of disputes relating

to an Agreement dated 17.03.1997 entered into between the parties for

supply of Monoblock Concrete Sleepers.

2. The said award was challenged by the Judgement Debtor (hereafter

'the railways') which was rejected and therefore, undisputedly, the award has

become final and is liable to be enforced as a decree of this court.

3. According to the railways, the sum payable under the said award has

been paid and the award stands satisfied. This is disputed by HPL.

4. The short issue that arises for consideration is whether the Judgment

Debtor is also liable to pay interest from the date of the arbitral award till the

realization, in terms of Section 31(7)(b) of the Arbitration and Conciliation

Act, 1996.

5. Mr Seth, the learned counsel for HPL submits that in so far as pre-

award interest is concerned, there is no dispute that the same is not payable

to HPL as the arbitrator has rejected the said claim. However, he submits

that the arbitrator has not awarded any post-award interest; consequently, in

terms of provisions of Section 31(7)(b), HPL would be entitled to interest at

the rate of 18% per annum from the date of the award till the date of

payment.

6. Mr Sinha, learned counsel appearing for the railways stoutly disputes

the aforesaid contention. He has referred to the award and emphasised that

the petitioner had claimed interest at the rate of 19.75% on the sums

withheld with effect from the date of withholding till the date of realization,

which had been rejected. According to him, this clearly meant that the

arbitrator had rejected the claim for any post-award interest also. Mr Sinha

further submits that the award must be read on its plain terms and an

executing Court cannot go behind the award which is to be enforced as a

decree.

7. I have heard the learned counsel for the parties.

8. It is trite law that the executing court cannot go behind the

decree/award, however, the award being enforced must be interpreted for its

true meaning and intent. It is thus necessary to refer to the disputes in the

context of which the award in question was made.

9. Briefly stated, the controversy between the parties arose in the

following context. The railways entered into an agreement with HPL on

17.03.1997 for supply of 637500 pieces of PSC monoblock concrete

sleepers at the rate of `396.26 per sleeper (including retainable MODVAT

of `41.81) plus Price Variation. The said agreement had a clause which

provided that if lower rates were subsequently finalised in an open tender,

the same would be applicable to the agreement in question. Thereafter, the

railways floated another tender (CS-120-1997) wherein it was stipulated that

the rates fixed in the ongoing contracts will not be disturbed even if lower

rates were finalised in the tender. A rate of `570 per sleeper was finalised

which included HTS wire. According to the railways, if the cost of HTS

wire was deducted, the finalised price would work out to `279.01 per

sleeper. The railways sought to apply the aforesaid rate and withheld

amounts due to HPL for supplies of sleeper made by HPL. This led to

disputes between the parties which were referred to the sole arbitrator.

10. A plain reading of the arbitral award indicates that HPL made the

following claims before the sole arbitrator:

"(A) Claims submitted by the Claimant vide their letter No.HPL/Legal/130/3503 dated 22-2-1999

Claim Illegally withheld amount Rs.4982191.00 No.1 against written agreement with retrospect effect.

Claim Restoration of rates to Rs.396.26 per sleeper No.2 + Price Variation w.e.f. 05.05.1998 till the supply continued.

Claim Interest @ 19.75% on the withheld payment No.3 w.e.f. 09.02.1998 till the realisation of the payment.

          Claim       Arbitration Cost              Rs.100000.00
          No.4

11. The Arbitrator published the award on 07.02.2005. In so far as claim

Nos. 1 & 2 are concerned, the same were undisputedly awarded in favour of

HPL. In other words, the arbitrator held that HPL was entitled to the sums

withheld by the railways and that railways was liable to pay for the sleepers

at the rate as agreed under the agreement dated 17.03.1997 till the supplies

continued. However, the claim for interest was rejected. The award also

indicates that the claim for interest was rejected on the ground that in terms

of the agreement between the parties, no interest was due on the withheld

amount. The relevant extract of the award indicating the reason for rejection

of the claim of interest on amounts withheld is as under:-

"Reasoning 9.2.1 This claim pertains to interest @ 19.75% on the due payment withheld by the Respondent.

9.2.2 The claimant during the arguments cited that they are a Public Sector Undertaking and funds for the manufacture of sleepers were borrowed by them from the Ministry of Urban Development at an interest rate of 18% per annum. Due to withholding of the payment by the Railway, their internal liabilities have not been met.

9.2.3 In terms of Clause 2401 and 2403 of I.R.S. Conditions of the Contract, which are applicable in the contract, under consideration, no interest is to be paid on withheld amount. I therefore, hold that notwithstanding the court cases cited in support of grant of interest or otherwise, the express provision of the said Contract shall prevail, and therefore, no interest is due on the withheld amount."

12. Thus, in my view, the reasoning provided in the award makes it clear

that the arbitrator has only considered the claim for interest in terms of the

agreement and held that it was not possible to award the same since no

interest was payable in terms of the agreement in question. The question

whether any interest was payable post award was not in contemplation of the

arbitrator. Thus, the award must be read to be silent as to the question of

post-award interest on the sum awarded.

13. More importantly, the post-award interest sought to be recovered is on

the sum awarded and not on any particular claim. Before the Arbitrator,

Claim No.3 was restricted to interest at the rate of 19.75%. p.a on the

withheld amount; this is not what HPL seeks to recover in these

proceedings.

14. In the above view, the only conclusion that can be drawn is that the

arbitral award is silent as to post-award interest and therefore, interest as

payable under Section 31(7)(b) of the Act would be payable by the railways.

Mr Seth also referred to the decision of the Supreme Court in Hyder

Consulting (UK) Limited v. Governor, State of Orissa: (2015) 2 SCC 189

wherein the Court had explained as under:-

"26. Section 31 (7)(a) of the Act deals with grant of pre-award interest while clause (b) of Section 31 (7) of the Act deals with grant of post-award interest. Pre-award interest is to ensure that arbitral proceedings are concluded without unnecessary

delay. Longer the proceedings, the longer would be the period attracting interest. Similarly, post-award interest is to ensure speedy payment in compliance with the award. Pre-award interest is at the discretion of the Arbitral Tribunal, while the post-award interest on the awarded sum is mandate of the statute--the only difference being that of rate of interest to be awarded by the Arbitral Tribunal. In other words, if the Arbitral Tribunal has awarded post-award interest payable from the date of award to the date of payment at a particular rate in its discretion then it will prevail else the party will be entitled to claim post-award interest on the awarded sum at the statutory rate specified in clause (b) of Section 31(7) of the Act i.e. 18%. Thus, there is a clear distinction in time period and the intended purpose of grant of interest."

15. The Court had further explained that the word "sum" as used in

Section 31(7)(a) would include the sum awarded and interest would be

payable on the said sum even if the said sum included interest. Thus, a clear

distinction had been drawn between the sum awarded and the components of

that sum; whereas the petitioner had claimed interest on one of the

components of its claims. After the passing of the award, no distinction can

be made on account of different claims awarded under the arbitral award;

the awarded sum - the aggregate of all claims awarded - must be treated to

be the "sum" as referred under Section 31(7)(a) of the Act. This was also

clearly explained by the Supreme Court as under:-

"30. Therefore, I am inclined to hold that the amount award under Section 31 (7)(a) of the Act, whether with interest or

without interest, constitutes a "sum" for which the award is made.

31. Coming now to the post-award interest, Section 31(7)(b) of the Act employs the words, "A sum directed to be paid by an arbitral award..." Clause (b) uses the words "arbitral award" and not the "Arbitral Tribunal". The arbitral award as held above, is made in respect of a "sum" which includes the interest. It is, therefore, obvious that what carries under Section 31(7) (b) of the Act is the "sum directed to be paid by an arbitral award" and not any other amount much less by or under the name "interest". In such situation, it cannot be said that what is being granted under Section 31(7) (b) of the Act is "interest on interest". Interest under clause (b) is granted on the "sum" directed to be paid by an arbitral award wherein the "sum" is nothing more than what is arrived at under clause (a)."

16. Although, the said decision was rendered in the context of whether

post-award interest was payable to pre-award interest, it clearly highlighted

the distinction in the nature of the sum awarded and its components.

17. As stated earlier, in the present case, the arbitrator has rejected the

claim for interest on the sum withheld on the ground that no interest is

payable under the agreement for the amount withheld; but it is difficult to

accept that that arbitrator has also held that no interest is payable on the sum

awarded. No such direction or decision can be read into the award in

question. It is also relevant to note that although the award was published on

07.02.2005, the railways did not make any payment till 02.01.2013 - it

would be patently unfair, if the railways does not compensate HPL for using

the awarded sum/ depriving HPL of those funds.