Indian Railway Construction Company Limited vs M/s National Buildings Construction Corporation Limited

17.4 and consequently rejected NBCC’s claim for refund of two security deposits – Tribunal also allowed counter claim no.3 (towards interest at rate of 18% p.a. on various advances given to NBCC, particularly (1) special advance and (2) advance against hypothecation of equipment) in favour of IRCON – Single Judge of the High Court set aside the rejection by the Arbitral Tribunal of claim nos. 33 and 34 of NBCC to the extent it concerned the return of security deposit amounts concluding that once the Arbitral Tribunal found that the termination with regard to Clause 60.1 was not justified, it was not open for the Arbitral Tribunal thereafter to consider the termination under Clause 17.4 justifying forfeiture of the security deposits – Single Judge also set aside the award passed by the Tribunal on counter claim no.3, observing that there is no clause in the contract awarding 18% interest p.a. on special advance – Division Bench of the High Court partly allowed the said appeal and allowed the interest in favour of IRCON at the rate of 18% so far as special advance is concerned – On appeal, held : The finding recorded by the Arbitral Tribunal on applicability of Clause 17.4 and/or rescinding of the contract under Clause 17.4 was not set aside either by the Single Judge or by the Division Bench of the High Court and therefore, the findings recorded by the Arbitral Tribunal on applicability of Clause 17.4 has attained the finality – Both, under Clause 17.4 and 60.1, on failure of the contractor to complete the work, the IRCON was justified in rescinding the contract and forfeit the security deposit – Award passed by the Tribunal rejecting the claim nos.33 and 34 restored – However, at the same time award of interest @ 18% on advance for hypothecation of equipment by the Tribunal can be said to be on a higher side and therefore in the facts and circumstances of the case, if the interest is awarded @ 12% on advance for the hypothecation of equipment, the same can be said to be reasonable interest. Allowing the appeal, the Court

HELD: 1. It is required to be noted that as such the finding recorded by the Arbitral Tribunal on applicability of Clause 17.4 and/or rescinding of the contract under Clause 17.4 has not been set aside either by the Single Judge or by the Division Bench of the High Court and therefore, the findings recorded by the Arbitral Tribunal on applicability of Clause 17.4 has attained the finality. The Arbitral Tribunal as such was absolutely justified in considering whether IRCON was justified in rescinding the contract, may be either under Clause 60.1 or under Clause 17.4. [Para 7.2][724-E-F]

2. Both, under Clause 17.4 and 60.1, on failure of the contractor to complete the work, the IRCON is justified in rescinding the contract and forfeit the security deposit. At the cost of repetition it is observed that the Arbitral Tribunal on appreciation of entire evidence on record, had specifically observed that the contractor failed to complete the work even within the stipulated extended period of time and even abandoned the work and therefore, the IRCON was justified in rescinding the contract. The said finding as observed hereinabove has attained finality. Therefore, the IRCON was absolutely justified in forfeiting the security deposits and therefore, the Arbitral Tribunal was absolutely justified in rejecting Claim Nos.33 and NATIONAL BUILDINGS CONST. CORP. LTD.

34, which were with respect to forfeiture of security deposits by the IRCON. Both, the Single Judge as well as Division Bench of the High Court have seriously erred in setting aside the award passed by the Arbitral Tribunal rejecting Claim Nos.33 and 34. The Single Judge, therefore, exceeded in its jurisdiction under Section 34 of the Arbitration Act quashing and setting aside the well-reasoned award passed by the Arbitral Tribunal on rejecting Claim Nos.33 and 34, which the Division Bench of the High Court has wrongly affirmed. [Para 7.3][725-E-H]

3. Under the circumstances, the impugned judgment and order passed by the learned Single Judge as well as the Division Bench of the High Court quashing and setting aside the award passed by the Arbitral Tribunal rejecting Claim Nos.33 and 34 deserve to be quashed and set aside and the award passed by the Arbitral Tribunal rejecting Claim Nos.33 and 34 is required to be restored and upheld. [Para 7.4][726-A-B]

4. Applying the law laid down by this Court in Raveechee and Company to the facts of the case on hand, once it was found that the advance amount was paid for hypothecation of equipment and thereafter when the Arbitral Tribunal awarded the interest on advance for hypothecation of equipment, the same was not required to be interfered with by the Single Judge in exercise of the powers under Section 34 of the Arbitration Act and even by the Division Bench of the High Court while exercising the powers under Section 37 of the Arbitration Act. However, at the same time to award the interest @ 18% can be said to be on a higher side. In the facts and circumstances of the case, if the interest is awarded @ 12% on advance for the hypothecation of equipment, the same can be said to be reasonable interest. [Para 7.5][726G-H; 727-A-B] Raveechee and Company Vs. Union of India (2018) 7 SCC 664 : [2018] 5 SCR 138 – referred to.