Delhi High Court
Bharat Heavy Electricals Limited vs Simplex Infrastructures Limited on 16 October, 2018
$~16
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 16.10.2018
+ O.M.P. (COMM) 431/2018 & I.A. No.14161/2018
BHARAT HEAVY ELECTRICALS LIMITED
..... Petitioner
Through Mr. Lalit Kumar Jha and Mr. C.B.
Singh, Advs.
versus
SIMPLEX INFRASTRUCTURES LIMITED
..... Respondent
Through Mr. Ankit Raj, Adv.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J. (ORAL)
1 This is a petition which seeks to challenge the Award dated
11.06.2018 on a singular ground, which is the award of interest by the
learned Arbitrator for the pre-award period. This aspect of the matter
was noticed by me on the previous date i.e. on 11.10.2018. On that
date, notice was issued in the petition which was accepted by Mr.
Ankit Raj and opportunity was given to the respondent to file a reply,
confined to the aforesaid aspect. However, no reply has been filed on
behalf of the respondent. To my mind, no further opportunity can be
given to file a reply.
2 The parties before the Arbitrator, basically, advanced
arguments on the interpretation of a clause incorporated in the
contract obtaining between them. The said clause, which is Clause
OMP (Comm.) 431/2018 Page 1
17, reads as follows:
"No interest shall be payable by BHEL on Earnest Money
Deposit, Security Deposit or on any Money's due to the
contractor."
3 Despite the prohibition on payment of interest under Clause 17,
the learned Arbitrator for the reasons furnished by him in paragraph
83 to 100 of the impugned Award, has come to the conclusion that the
said clause does not bar payment of interest to the respondent for the
pre-award period. Accordingly, the learned Arbitrator has gone on to
grant interest for the pre-award period at the rate of 6% per annum on
the amount retained by the petitioner. Consequently, a sum of
Rs.1,95,31,608/- has been awarded in favour of the respondent for the
period commencing from 25.02.2015 and ending on 14.11.2016.
4 In support of his submission that interest could not have been
awarded by the learned Arbitrator for the pre-award period, reliance is
placed by the learned counsel for the petitioner on the provisions of
Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 (in
short '1996 Act').
4.1 Thus, the submission of the learned counsel is that since there
is a contract to the contrary, the learned Arbitrator could not have
granted interest to the respondent for the pre-award period. This
submission learned counsel seeks to back by relying upon the
following judgments: (i) Bharat Heavy Electricals Limited Vs. Globe
Hi-Fabs Limited, (2015) 5 SCC 718; (ii) Bharat Heavy Electricals
OMP (Comm.) 431/2018 Page 2
Limited Vs. Tata Projects Limited, (2015) 5 SCC 682; (iii) judgment
dated 02.07.2015, passed in Civil Appeal No.2404 of 2008, in the
matter of: Union of India Vs. M/s Bright Power Projects (I) P. Ltd,.;
and (iv) judgment dated 03.08.2017, passed in Civil Appeal No.2099
of 2007, in the matter of: Union of India Vs. M/s Pradeep Vinod
Constructions Co..
5 Learned counsel for the respondent, on the other hand, says that
the reasoning given by the learned Arbitrator in support of its decision
to award interest for the pre-award period ought to be sustained. It is
the learned counsel's submission that the interest was accorded by the
learned Arbitrator on account of gross illegality on the part of the
petitioner in retaining the final payment, which was the amount
equivalent to 2.5% of the contract value. Learned counsel, in support
of this submission, relies upon the judgment in Union of India Vs.
M/s Pradeep Vinod Constructions Co.
6 Having heard the learned counsel for the parties, the only issue
which arises for consideration, which, in my view, is a pure question
of law is: whether the learned Arbitrator was right in directing
payment of interest on the retained amount in favour of the
respondent in view of the provisions of Clause 17 of the contract
obtaining between the parties?
7 The first thing to be noted in respect of Clause 17 is that it is a
stand alone clause and not a sub-clause to another clause obtaining in
the contract.
OMP (Comm.) 431/2018 Page 3
7.1 Second, both, learned counsel for the respondent as well the
learned Arbitrator, have, inter alia, relied upon the judgment of the
Supreme Court in Union of India Vs. M/s Pradeep Vinod
Constructions Co. to support the reasoning that Clause 17 should be
confined to payments relating to earnest money deposit and security
deposit. At first blush, this argument seems to have some merit,
especially, in the context of the judgment of the Supreme Court in the
matter of Union of India Vs. M/s Pradeep Vinod Constructions Co.
However, on a closer scrutiny of the ratio of the said judgment, it is
clear that the clause which obtained in that case is somewhat different
from the clause obtaining in the instant case. The clause, which
barred payment of interest to the contractor, was a sub-clause, which
was preceded by another sub-clause, which dealt, essentially, with
earnest money deposit and security deposit.
7.2 Given these circumstances, the two Judge Bench of the
Supreme Court in the said case came to the conclusion that the bar on
payment of interest provided in sub-clause (2) of Clause 16 of that
contract was confined only to earnest money deposit and security
deposit. As indicated hereinabove, that position does not obtain in the
subject contract. The said clause is extracted hereafter:
"16. Earnest-money and security deposit - (1) The
earnest-money deposited by the Contractor with his
tender will be retained by the Railway as part of security
for the due and faithful fulfillment of the contract by the
Contractor. The balance to make up this security deposit
which will be 10 per cent of the total value of the
contract, unless otherwise specified in the special
OMP (Comm.) 431/2018 Page 4
conditions, if any, may be deposited by the contractor in
cash or in the form of Government Securities or may be
recovered by percentage deduction from the Contractor's
"on account" bills, provided also that in case of a
defaulting contractor the Railway may retain any amount
due for payment to the contractor on the spending `on
account bills' so that the amount or amounts so retained
may not exceed 10% of the total value of the contract.
(2) Interest on amounts - No interest will be payable
upon the earnest money or the security deposit or
amounts payable to the Contractor under the contract
but Government Securities deposited in terms of sub-
clause (1) of this clause will be repayable with interest
accrued thereon"
7.3 At this stage, I may point out that the Supreme Court in Union
of India Vs. M/s Bright Power Projects (I) P. Ltd. has taken a
different position than that which obtains in its judgment in Union of
India Vs. M/s Pradeep Vinod Constructions Co. The judgment of the
Supreme Court in Union of India Vs. M/s Bright Power Projects (I)
P. Ltd. is a three Judge Bench judgment, which, it appears, was not
brought to the notice of the Bench, which passed the judgment in
Union of India Vs. M/s Pradeep Vinod Constructions Co.
7.4 The other judgment which is a Division Bench judgment which
also takes a position, which is in line with the decision of the Supreme
Court in Union of India Vs. M/s Bright Power Projects (I) P. Ltd is
the judgment rendered in Shri Chittaranjan Maity v Union of India,
dated 3.10.2017, passed in Civil Appeal No. 15545/2017. This
decision, however, is a decision which was rendered at a point in time
after the pronouncement of the judgment in Union of India Vs. M/s
OMP (Comm.) 431/2018 Page 5
Pradeep Vinod Constructions Co.
7.5 In Bharat Heavy Electricals Limited Vs. Globe Hi-Fabs
Limited, the Supreme Court agreed with the petitioner and,
accordingly, excised the interest granted by the learned Arbitrator in
that case for the pre-award period. The clause, which was considered
by the Supreme Court, was pari materia with Clause 17, which
obtains in the instant case. The clause obtaining in that case is
extracted hereafter:
"No interest shall be payable by the employer on earnest
money, security deposit or on any money due to the
contractor by the employer"
7.6 While interpreting the clause, the Supreme Court made the
following observations in paragraphs 16 & 17. The same are
extracted hereafter:
"...16 In the present case we noticed that the clause
barring interest is very widely worded. It uses the words
"any amount due to the contractor by the employer". In
our opinion, these words cannot be read as ejusdem
generis along with the earlier words "earnest money" or
"security deposit.
17. On the facts of the case we agree with the
submission of Mr Gourab Banerji that interest is only
payable from the date of the award. However, we do not
agree with him that the interest should be reduced
because of Section 31(7)(b) of the Arbitration and
Conciliation Act, 1996 which clearly states that rate of
interest will be 18% p.a. Shri Gourab Banerji submitted
that in some decisions, a lesser interest has been
awarded. We cannot see how a lesser interest can be
OMP (Comm.) 431/2018 Page 6
awarded when the statute specifically provides that the
rate of interest will be 18% p.a. and the arbitrator has
accepted and awarded this rate of interest. Judges cannot
legislate or amend the law by judicial decisions. They
have to maintain judicial discipline and give their
decisions in accordance with law. Hence the lesser rate of
interest cannot be awarded because that would be
amending the law which is not within the powers of the
judiciary..."
(emphasis is mine)
7.7 Likewise, in another case involving the petitioner i.e. Bharat
Heavy Electricals Limited Vs. Tata Projects Limited (2015) 5 SCC
682, the Supreme Court had ruled in favour of the petitioner. The
clause involved in this case as well was pari materia to Clause 17,
obtaining in the instant case. For the sake of convenience, the clause
obtaining in that case is extracted hereafter:
"no interest shall be payable by BHEL on earnest
money/security deposit or any money due to the contractor
by BHEL."
7.8 This judgment was delivered by a Division Bench which was
different from the one which had rendered the decision in the earlier
case involving the petitioner, to which I have made a reference above.
The view of the Court is articulated in the following extract of the
judgment:
"3[]......On behalf of the respondent, the grant of
pre-award interest could not be successfully defended in
view of Clause 1.15.5 of the agreement which provides that
"no interest shall be payable by BHEL on earnest
money/security deposit or any money due to the contractor
OMP (Comm.) 431/2018 Page 7
by BHEL". The ambit and scope of the aforesaid clause
was the subject-matter in Civil Appeal No. 7423 of 2005
between the appellant and M/s Globe HI-Fabs Ltd.
decided on 12-11-2009 wherein this Court accepted and
held that in view of such a provision in the agreement,
interest is payable only from the date of the award. The
aforesaid legal position ought to have been accepted by
the Division Bench of the High Court in view of law settled
by judgments of this Court in Sayeed Ahmed & Co. v. State
of U.P. and several other cases including Union of
India v. Concrete Products & Construction Co.
4. On the issue of award of interest, the learned Senior
Counsel for the respondent tried to persuade us to enhance
the post-award interest granted by the Arbitral Tribunal @
10.5% to 18% p.a. in the light of provisions in Section
31(7)(b) of the Act. We are unable to accept this
contention because the Arbitral Tribunal has already
granted post-award interest @ 10.5%. Only if the award
had not made such a direction, the statutory rate of
interest @ 18% p.a. would have been payable from the
date of the award to the date of payment as per statutory
provision noted above.
5. In the light of the aforesaid discussion, we are
constrained to hold that the order under appeal ought not
to have approved grant of any pre-award interest."
(emphasis is mine)
8 Therefore, as has been correctly argued by the learned counsel
for the petitioner, the Supreme Court has consistently sustained the
submission advanced on behalf of the petitioner that no interest is
payable for the pre-award period in view of the contract obtaining
between parties barring payment of interest on amounts retained.
Thus, in these circumstances, in my view, the contention of the
OMP (Comm.) 431/2018 Page 8
petitioner will have to be accepted.
9 The petition is allowed. The award of interest for the pre-award
period is set aside.
10 The petition is disposed of in the aforesaid terms.
11 Pending application shall, accordingly, stand closed.
RAJIV SHAKDHER, J
OCTOBER 16, 2018
A
OMP (Comm.) 431/2018 Page 9
