Larsen & Toubro Ltd. vs Indian Oil Corporation Ltd.
2018 Latest Caselaw 5889 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
+     OMP (ENF.) (COMM.) 128/2017 & IA 12252/2017

                                      Reserved on: 26.09.2018
                                    Date of decision : 28.09.2018


      LARSEN & TOUBRO LTD.                           ..... Decree Holder
                   Through:             Mr.Dhirendra Negi, Mr.Ananya
                                        Kumar and Ms.Pragya Chauhan,
                                        Advs.

                           versus

      INDIAN OIL CORPORATION LTD.         ..... Judgment Debtor
                    Through: Mr.V.N. Koura and Ms.Paramjeet
                             Benipal, Advs.

CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1.    The present order seeks to adjudicate on a limited dispute that has
been raised by the parties at this stage of the execution of the Arbitral
Award.

2.    The Arbitral Tribunal by its Award dated 18.05.2017 had passed
the following directions adjudicating the disputes between the parties:

      411. In the premises following reliefs are granted:

      1. It is declared that IOCL's claim for Price Discount is unjustified
      and contrary to the terms of the Contract.
      2. IOCL is ordered to pay the withheld/ deducted amount of Rs.
      115,11,28,129/- to L&T along with simple interest at the rate of




OMP (Enf.)(Comm.) No.128/2017                                        Page 1
       9% per annum on the said amount commencing on expiry of 84
      days from 18.05.2012 until the date of the final award.
      3. IOCL is ordered to pay simple interest on Rs.115,11,28,129/- at
      the rate of 9% per annum from the date of final award until the
      date of payment.
      4. IOCL is ordered to reimburse the costs in the sum of
      Rs.2,62,37,918/- to L&T as per the Statement of Costs submitted by
      it and quoted above which includes the cost of the Tribunal,
      expenses of the venue and legal expenses."
3.    The respondent challenged the Arbitral Award before this Court by

way of a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') being OMP(Comm.) No.366/2017 titled Indian Oil Corporation Ltd. vs. Larsen & Toubro Ltd. On 12.10.2017, the following order was passed in the said petition.

"Parties may file short synopsis not exceeding seven pages within four weeks from today. In the meantime, the petitioner may deposit the principal Award amount i.e. Rs.115,11,28,129/- with the Registrar General of this Court. On deposit of the amount the respondent is free to withdraw the same on furnishing of a bank guarantee to secure the payment in the eventuality of any subsequent order passed by this Court."

4. There is no dispute between the parties that in terms of the above order, the respondent deposited a sum of Rs.115,11,28,129/- with the Registrar General of this Court on 15.11.2017. Subsequently, the petitioner withdrew the said amount.

5. The petition filed by the respondent under Section 34 of the Act was dismissed by this Court on 01.06.2018. Though the said order has been challenged by the respondent before the Division Bench, it is not

OMP (Enf.)(Comm.) No.128/2017 Page 2 disputed that there is no order passed by the Division Bench in the said appeal staying the enforcement of the Arbitral Award.

6. On 13.07.2018, the respondent in purported compliance with the order dated 01.06.2018 passed by this Court in the present petition directing the respondent to pay the remaining amount in terms of the Arbitral Award to the decree holder, deposited a further sum of Rs.54,61,07,800/-.

7. The narrow dispute between the parties at this stage is as to whether with the deposit of Rs.115,11,28,129/-, the principal sum awarded by the Arbitral Tribunal, the future liability of the respondent to pay interest thereon ceases.

8. Counsel for the respondent, placing reliance on the judgment of the Supreme Court in Union of India & Anr. vs. M.P.Trading and Investment RAC. Corporation Limited (2016) 16 SCC 699; Himachal Pradesh Housing and Urban Development Authority & Anr. vs. Ranjit Singh Rana (2012) 4 SCC 505 and Union of India vs. Concrete Products and Construction Company & Ors. (2014) 4 SCC 416, contends that as the respondent had deposited the principal sum awarded under the Arbitral Award, no future interest in terms of the Arbitral Award was payable.

9. On the other hand, counsel for the petitioner submits that as admittedly, on the date of deposit, that is, on 15.11.2017, apart from the principal sum of Rs.115,11,28,129/- mentioned hereinabove, another amount of Rs.54,61,07,800/- was due and payable as interest, the amount

OMP (Enf.)(Comm.) No.128/2017 Page 3 deposited has to be first appropriated towards interest and costs awarded by the Arbitral Tribunal and only thereafter towards the principal sum. In fact, the petitioner claims interest on the sum of Rs.54,61,07,800/- from the respondent @ 2% higher than the current rate of interest in terms of the amended provision of Section 31 (7) (b) of the Act.

10. I have considered the submissions made by the counsels for the parties. By a separate detailed order passed by me today in Royal Construction Company Pvt. Ltd. vs. National Projects Construction Corporation Ltd. (NPCC), Ex.P. No.131/2015, I have held that where the respondent deposits a sum of money at the interim stage of a proceeding and such proceeding eventually is decided against the respondent, the deposit has to be appropriated in terms of the final judgment and in the absence of any such direction in the final judgment, by the general rules of appropriation, that is, first towards interest, then towards cost and finally towards the principal amount due under the decree. In the said judgment, I have also considered the judgments of the Supreme Court in M.P.Trading and Investment RAC Corporation Ltd. (supra) and Himachal Pradesh Housing and Urban Development Authority & Anr. (supra).

11. As far as the judgment of the Supreme Court in Concrete Products and Construction Company & Ors. (supra) is concerned, the same shall have no application to the facts of the present case. In the said case, it was held that the Award of interest by the Arbitrator was in ignorance of the specific terms of the contract which not only allowed the Railway Authorities or the Government to withhold or retain amounts payable to

OMP (Enf.)(Comm.) No.128/2017 Page 4 the contractor by way of lien but also provided that on such withheld amount, no claim for interest or damages shall be maintainable. It was in light of those specific clauses in the Agreement that the Supreme Court held that the Arbitrator could not have awarded any interest in favour of the contractor. The present is not one of such cases.

12. At the same time, the contention of the petitioner that it would be entitled to charge interest on the amount of Rs.54,61,07,800/- at the rate of 2% higher than the current rate of interest prevalent on the date of the Award is also incorrect. Section 31 (7)(b) of the Act reads as under:-

"31(7)(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

13. A reading of the above provision would clearly show that it is only where the Arbitral Award is silent on the interest to be paid on the sum directed to be paid by the Arbitral Award, that such sum shall carry interest @ 2% higher than the current rate of interest prevalent on the date of the Award, from the date of the Award to the date of payment.

14. In the present case, the Arbitral Award has directed that the principal sum of Rs.115,11,28,129/- shall carry interest @ 9% per annum from the date of the Final Award until the date of payment. Therefore, the default provision of Section 31(7)(b) shall have no application to the facts of the present case.

OMP (Enf.)(Comm.) No.128/2017 Page 5

15. In view of the above discussion, it is held that the amount of Rs.115,11,28,129/- deposited by the respondent on 15.11.2017 shall first be appropriated towards the interest due in terms of the Arbitral Award till that day, that is, 15.11.2017 thereafter, towards the cost of Rs.2,62,37,918/- awarded in the Arbitral Award and the balance towards the principal sum awarded, that is, Rs.115,11,28,129/-.

16. On such appropriation, the principal amount that remains unpaid as on 15.11.2017 shall carry further interest @ 9% per annum from 15.11.2017 till 13.07.2018.

17. Similar exercise with respect to the deposit of Rs.54,61,07,800/- shall be conducted as on 13.07.2018, with the said amount being first appropriated towards interest and thereafter towards the principal sum payable as on that date.

18. On such calculation, the balance principal amount payable in terms of the Arbitral Award along with interest @ 9% per annum calculated from 13.07.2018 till the date of payment thereof shall be paid by the respondent to the petitioner within a period of four weeks from the date of this order.

List on 1st November, 2018.

                                                   NAVIN CHAWLA, J
SEPTEMBER 28, 2018
RN




OMP (Enf.)(Comm.) No.128/2017                                      Page 6