Interest on Delayed Payment A&C Act 1996
Power of arbitrator to grant interest u/s 31(7) of the Arbitration & Conciliation Act
In the High Court of Delhi at New Delhi
FAO 318/2018, CM APPL. 27385/2018, CM APPL. 4698/2019
North Delhi Municipal Corporation ………… Appellant
Suresh Singhal …………… Respondent
On 2nd June 2023, the Delhi HC held that the arbitrator has the power to grant interest for delayed payment even if the original agreement contains clause prohibiting interest on delayed payments.
Facts of the case:
- North Delhi Municipal Corporation (“NDMC”) invited tenders for execution of improvement of road works on Narela – Alipore Road, for laying ready mix concrete road in Alipore village, Delhi.
- Mr. Suresh Singhal was awarded the tender for an estimated amount of Rs. 68.77 Lakhs. An agreement was duly executed between the parties. As per the work order, Mr. Singhal was entrusted the work of laying ready-mix concrete for 1200 meters length of road. He was paid a net amount of Rs. 45.68 lakhs as first instalment.
- Mr. Singhal invoked the arbitration clause of the agreement he entered into with NDMC. Before the arbitral tribunal, he claimed testing charges along with interest @ 12% from the date of completion of work till the date of realization along with interest for delayed payment of first running bill and other expenses.
- In accordance with provisions of Section 37 of the Arbitration & Conciliation Act, (“Act”) the arbitral tribunal passed an award allowing refund of security deposit along with 9% simple interest from the date of completion till date of award and balance payment.
- Aggrieved by the order of the tribunal, NDMC preferred an appeal before the Delhi High Court.
Mr. Singhal submitted that the work was completed within the time stipulated in the agreement. Further, maintenance of the road for a period of 1 year was also completed. Despite that, he did not receive the balance payment due from NDMC. Hence, he invoked the arbitration clause.
- The NDMC submitted that the quality of the road, including its thickness, was not found to be as per specifications and hence being non-completion of work.
- The interest on delayed payment was not stipulated in the agreement executed between the parties. Hence the award of interest to Mr. Singhal was detrimental to NDMC.
While passing a judgment, the Delhi HC noted:
- Section 37 of the Arbitration & Conciliation Act 1996 contains provisions for filing appeals against certain orders of the court /tribunals. The High Court while relying on decided case laws – MMTC Limited v. Vedanta Limited (2019) 4 SCC 163; Haryana Tourism Limited v. Kandhari Beverages Limited reported as (2022) 3 SCC 237; Haryana Tourism Limited v. Kandhari Beverages Limited reported as (2022) 3 SCC 237 that courts or tribunals cannot enter into or interfere in the merits of the claim. It is not permissible u/s 37 of the Act. It is a settled position of law that an award can be set aside only if the award is against the public policy of India, it against interest of the country, morality, justice or illegal.
- Section 37 of the Arbitration & Conciliation Act is narrow. Before interfering with an Award passed by the Arbitral Tribunal, this Court shall circumspect and refrain from reassessment or re-examination of the merits of the case, as though it were a Court of Appeal against the Award.
- In Reliance Cellulose Products Ltd v. ONGC reported as (2018) 9 SCC 266, the Supreme Court reiterated that the Arbitral Tribunal has the power to award interest for all three periods – pre reference, pendente lite (during pendency of litigation) and post award. Such interest is compensatory in nature.
- In the present case, the Court observed that:
– No evidence was provided or submitted by NDMC to show the unsatisfactory work by Mr. Suresh Singhal.
– The Tribunal had awarded only pendente lite and future interest @ 11% per annum for failing to make the payment within 3 months of passing of the award.
– The Court further observed that the agreement between the parties did not bar them from claiming interest.
On the above grounds, the Delhi High Court upheld the award passed by the Arbitral Tribunal and dismissed all miscellaneous applications as infructuous.
For full text of judgment: