In a recent arbitration case, the court delved into the legal intricacies surrounding interest on delayed payments. The focus was on the detailed analysis carried out by the Arbitral Tribunal regarding the contractual provisions, relevant legal precedents, and the entitlement of the parties involved. This case sheds light on the significance of adhering to contractual obligations and the interpretation of laws in resolving disputes related to payment delays. Let’s explore the court’s legal analysis in this complex arbitration matter.
Facts
- The appellants submitted their final bill, including the cost of additional works executed by them.
- The final bill was not certified by the Engineer-in-Charge, hence not paid by the State of Kerala.
- The appellants argued that they were entitled to payment as per the agreement for the additional works undertaken by them.
- The State of Kerala contended that the additional works were carried out without their prior approval and hence were not liable to pay for them.
- The Arbitral Tribunal analyzed the agreement, the conduct of the parties, and relevant clauses to determine the liability of the State of Kerala for payment.
- The Tribunal found that the additional works were necessary for the proper execution of the project and were entitled to payment under the agreement.
- The Tribunal directed the State of Kerala to make the payment to the appellants for the additional works executed by them.
- The Tribunal emphasized the importance of following the contractual obligations and processes for claims and payments under the agreement.
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Analysis
- The Tribunal determined the rate for interest on delayed payment in sub-paragraphs 1.6 to 1.8 of the award.
- The Arbitration Court’s view, sustained by the High Court, is based on speculation.
- The Tribunal’s reasoning on the contract’s provision for interest on delayed payment was considered reasonable and possible.
- The agreement did not prohibit the award of interest in respect of delayed payment in the local currency component specified in the contract.
- The dispute was referred to a three-member Arbitral Tribunal for resolution.
- Contractor is entitled to payment under any Interim Payment Certificate issued by the Engineer within 42 days after submission of monthly statement
- If Engineer’s Interim Certificate is not issued within 42 days, Employer must pay the amount shown in Contractor’s monthly statement
- Any discrepancy in payments shall be adjusted in the next payment to the Contractor
- In case of suspension of Bank’s loan or credit, payment must be made within 14 days after submission of monthly statement
- If Engineer’s Interim Certificate is not issued within 14 days, Employer shall pay the amount shown in Contractor’s monthly statement
- Referring to the case of G.C. Roy, the Tribunal discussed the arbitrator’s power to award interest pendente lite in the absence of any specific agreement clause.
- The High Court concurred with the Arbitration Court that the omission of interest rate in the bid document created a contractual term prohibiting any claim for interest on delayed payments.
- The concept of patent illegality, as defined in the case of Associate Builders vs. Delhi Development Authority, was elaborated in the context of contravention of substantive law or the Arbitration Act itself.
- The Tribunal relied on the judgment in the case of Secretary, Irrigation Department, Government of Orissa vs. G.C. Roy to emphasize the right to be compensated for deprivation of money, which may include interest, compensation, or damages.
- The position of law on the grant of interest under Section 31(7) of the 1996 Act was highlighted with reference to the case of Union of India vs. Bright Power Projects (India) (P) Ltd.
- The case of G.C. Roy and the decision in Reliance Cellulose Products Ltd. vs. ONGC Ltd. were cited to support the Tribunal’s decision that an arbitrator’s reasonable construction of a contract term does not warrant setting aside the award.
- Appellants were held entitled to receive interest on delayed payment related to the local currency component of the contract.
- Judgment of the Division Bench of the High Court of Kerala was set aside on this particular issue.
- This decision focused on the entitlement of the appellants to receive interest for the delayed payment in the local currency component.
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Decision
- The judgment of the Sixth Additional District Judge, Ernakulam, has been invalidated.
- The award of the Tribunal remains sustained for payment of interest on delayed local currency component, calculated at 8% simple interest per annum.
- The rate of interest on the unpaid sum will be computed as per paragraphs 1.6 to 1.8 of the award.
- The appeal is allowed with the specified terms, and there is no order as to costs.
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Case Title: M/S ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. Vs. STATE OF KERALA (2021 INSC 269)
Case Number: C.A. No.-003454-003454 / 2011
