In a significant legal case, the Supreme Court of India upheld the judgment regarding compensation awarded for the non-performance of a contract. The case involved disputes over claims related to labor charges, uneconomic utilization of plant and machinery, and delayed payments. The Court’s decision impacts the parties involved in the case, ensuring justice is served in contractual matters. #SupremeCourt #LegalCase #ContractLaw
Facts
- The appellant filed an appeal under Section 37 of the Act against the order setting aside the award on claims 1 and 2.
- The District Judge set aside claims 1 and 2, but the High Court restored the Award with respect to claim no. 2.
- The High Court set aside claim nos. 1, 3, and 4, but slightly modified claim no. 6 relating to pre-reference interest.
- The Arbitrator awarded Rs. 5,80,500 for claim no. 3, which was related to labor charges for uneconomical stoppage of work.
- Claim no. 2, on uneconomic utilization of plant and machinery, was set aside by the District Judge as the loss of 135 days by the appellant was not accounted for.
- A comprehensive table of the various claims and the decisions in Awards, Section 34, and Section 37 jurisdiction was presented.
- The delay in receiving the blocked capital was considered as loss and damage by the Arbitrator.
- Interest of Rs. 54,84,024 was granted as compensation for the delay in payments.
- The Arbitrator awarded interest at the rate of 12% per annum on delayed payments.
- The injured party was to be placed in the same financial position he would have been without the fault of the other party.
- The District Judge affirmed the Award and decision of the Arbitrator.
- High Court upheld the Award which included interest @12% from the date of claims till the date of the Award, and further interest @9.25% from the date of the Award till actual payment.
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Arguments
- The High Court under Section 37 disregarded the plausible view of the Arbitrator.
- The High Court substituted its own reasoning instead of upholding the Arbitrator’s view.
- The plausible view of the Arbitrator as upheld under Section 34 was not considered by the High Court.
Also Read: Interest Calculation in Arbitration Case: Analysis by Supreme Court of India
Analysis
- The High Court examined relevant clauses of the contract and found the claim impermissible under contractual provisions.
- The learned Arbitrator failed to exercise jurisdiction by not discussing crucial facts.
- The High Court’s conclusion that bills were paid promptly does not justify interference under Section 37.
- The statement of claim regarding a bill value of Rs. 1 crore was not commented on by the respondent.
- The power of the Arbitrator to award interest is not restricted when the agreement is silent or does not contain a specific term prohibiting interest.
- The High Court correctly concluded that the contract does not prohibit grant of pre-reference interest.
- The Arbitrator did not determine key aspects related to the sixth bill payment, which the High Court addressed by modifying the award.
- The High Court correctly applied the contractual clauses to prohibit granting amount towards idle machinery, etc.
- The submission regarding interest on running account bills below one crore being considered as interest for unpaid advance went against the terms of the contract.
- The District Court upheld the award, and the High Court’s conclusions were deemed correct and free from interference.
- In the case, the injured party is entitled to be placed in the same financial position as if the contract had been duly carried out.
- The principle is to ensure that the injured party is in the same position as if the contract had been performed.
- The judgment awards Rs. 54,84,024/- to the injured party to compensate for the non-performance of the contract.
- Mr. Saurav Agarwal argues that payments became due when the work done exceeded Rs.1 crore, and hence delays should be considered from this point onwards.
- The principle of law regarding delay in payments is established in the case of Secretary, Irrigation Department Government of Orissa Vs. G.C. Ray (1992) 1 SCC 508.
- The arbitral tribunal has the discretion to include interest in an arbitral award for the payment of money unless agreed otherwise by the parties.
- The interest rate included by the arbitral tribunal should be deemed reasonable and can be on the whole or any part of the money for a specified period.
- If the arbitral award is for the payment of money, the sum directed to be paid shall carry interest at a rate 2% higher than the prevailing rate on the date of the award unless the award specifies otherwise.
- This interest on the sum directed to be paid will apply from the date of the award to the date of payment.
Also Read: Currency Conversion in Arbitral Awards: The Supreme Court Ruling on Foreign Exchange Rates
Decision
- Claim no. 3 was set aside, while Claim no. 4 was upheld for payment of compensation for loss or damage and blockage of capital.
- Claimant entitled to receive interest on blocked capital and pre-reference interest under Claim no. 6.
- Civil Appeal arising from SLP (C) No. 8128 of 2021 allowed in part, and Civil Appeal from SLP (C) No. 8129/2021 disposed accordingly.
- High Court decision upheld for setting aside the Award on Claim no. 3.
- High Court decision set aside for rejecting and modifying Claim no. 4 and Claim no. 6 respectively, awarded by the Arbitrator and upheld by the District Judge.
Case Title: PAM DEVELOPMENTS PRIVATE LIMITED Vs. THE STATE OF WEST BENGAL (2024 INSC 628)
Case Number: C.A. No.-009781-009782 – 2024
