Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8460 / 2022
(@SLP (C) No.32002 OF 2018)
Indian Railway …Appellant(s)
Construction Company Limited
Versus
M/s National Buildings …Respondent(s)
Construction Corporation Limited
J U D G M E N T
M. R. Shah, J.
1. Feeling aggrieved and dissatisfied with the impugned
judgment and order dated 14.08.2018 passed by the
High Court of Delhi at New Delhi in FAO(OS) No.112
Signature Not Verified
of 2018 by which the High Court has partly allowed
Digitally signed by R
Natarajan
Date: 2023.03.17
14:30:32 IST
Reason:
the said appeal, the Indian Railway Construction
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Company Limited (hereinafter referred to as
“IRCON”) has preferred the present appeal.
2. The brief facts leading to filing of the present appeal
in nutshell are as under:
2.1 That, an Agreement was entered into between IRCON
and the respondent – M/s. National Buildings
Construction Corporation Limited (hereinafter
referred to as “NBCC”), whereby the respondent was
awarded the work of construction of Railway Station
cum Commercial Complex at Vashi, Navi Mumbai at
a cost of Rs.3042.91 lakh, to be constructed within a
period of 30 months from 05.04.1990. NBCC failed
to complete the work in time. Thereafter, the
supplementary agreements were entered into
between the parties. As the provision for grant of
advances had exhausted, NBCC approached IRCON
with modified programme for completion of works
and sought for additional financial aid on certain
terms and conditions. IRCON in consultation with
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CIDCO, agreed to grant advance as a special case
against Bank Guarantee. Accordingly, a
supplementary Agreement dated 17.12.1991 was
entered into between the parties providing for special
advance of an amount of Rs. 68 lakhs bearing
interest at the rate of 18% per annum on furnishing
of Bank Guarantee. In terms of the supplementary
Agreement dated 17.12.1991, a special advance of
Rs.68 lakhs was also given to NBCC. As there was
delay in the work of NBCC and the work was
practically abandoned and came to a standstill,
IRCON served on NBCC a notice dated 21.02.1994
terminating the contract relying upon Clause 60.1 of
the Agreement.
2.2 That, thereafter, after some litigation before the
Delhi High Court, the NBCC invoked the arbitration
clause. The Arbitral Tribunal was constituted. The
Arbitral Tribunal passed the award dated
04.11.2011. That the Arbitral Tribunal rejected the
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NBCC’s claim for refund of two security deposits i.e.
Claim Nos.33 and 34. While holding so, the Arbitral
Tribunal held that though termination with reference
to Clause 60.1 was bad in law, but justified the
termination with reference to Clause 17.4 of the
Contract and consequently rejected the NBCC’s
claim for refund of two security deposits i.e. claim
Nos.33 and 34. The Arbitral Tribunal also partly
allowed Counter Claim No.3 in favour of IRCON.
Counter Claim No.3 was relatable to the counter
claim of IRCON for a total of Rs.3,65,38,806/
towards interest on various advances given to NBCC,
more particularly, with regard to two specific
advances being (1) Special Advance and (2) Advance
against hypothecation of equipment.
2.3 Feeling aggrieved and dissatisfied with the award
passed by the learned Arbitral Tribunal and insofar
as relating to Claim Nos.33 and 34 and the Counter
Claim No.3 which were in favor of IRCON, the NBCC
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approached the High Court by filing an application
under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as “Arbitration
Act”). The application under Section 34 of the
Arbitration Act was confined to the aforesaid three
claims / counter claims respectively viz. Claim
Nos.33 and 34 and Counter Claim No.3 only.
2.4 By the judgment and order dated 03.03.2017, the
learned Single Judge of the High Court set aside the
rejection by the learned Arbitral Tribunal of Claim
Nos.33 and 34 of NBCC to the extent it concerned
the return of security deposit amounts i.e.
Rs.5,57,486/ + Rs.60,85,840/ by observing and
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. The learned Single Judge of the High Court
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also set aside the award passed by the learned
Arbitral Tribunal on Counter Claim No.3 by
observing that there is no clause in the contract in
particular awarding 18% interest per annum on
special advance.
2.5 The judgment and order passed by the learned
Single Judge was the subject matter of appeal under
Section 37 of the Arbitration Act before the Division
Bench of the High Court.
2.6 By the impugned judgment and order, the Division
Bench of the High Court has partly allowed the said
appeal under Section 37 of the Arbitration Act to the
extent upholding the award passed by the learned
Arbitral Tribunal insofar as awarding the interest on
special advance is concerned. The rest of the
judgment and order passed by the learned Single
Judge has been affirmed / confirmed by the Division
Bench of the High Court.
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2.7 Feeling aggrieved and dissatisfied with the impugned
judgment and order passed by the Division Bench of
the High Court, IRCON has preferred the present
appeal.
3. Shri R.S. Hegde, learned counsel has appeared on
behalf of the appellant – IRCON and Shri Arvind
Minocha, learned Senior Advocate has appeared on
behalf of the respondent – NBCC.
4. Shri R.S. Hegde, learned counsel appearing on
behalf of the appellant has vehemently submitted
that on appreciation of entire evidence and the
material on record as the learned Tribunal has
observed and held that the IRCON was justified in
rescinding the contract due to abandonment of work
by NBCC and when the said finding attained the
finality, the IRCON was justified in forfeiting the
security deposits. It is submitted that as such the
High Court has taken too technical view. It is
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submitted that as such both, Clause 17.4 and
Clause 60.1 are required to be read together. It is
submitted that the main aspect which is required to
be considered is whether the NBCC failed to
complete the work as per the contract and whether
the NBCC abandoned the work and thereafter,
having satisfied that even during the extended
period, the NBCC was not able to complete the work,
the contract was rightly rescinded and therefore, the
security deposits were liable to be forfeited.
4.1 It is submitted that therefore both, the learned
Single Judge (in application under Section 34 of the
Arbitration Act) and the Division Bench of the High
Court have materially erred in upsetting / quashing
and setting aside the award passed by the learned
Arbitral Tribunal rejecting the Claim Nos.33 and 34.
4.2 It is submitted that both, the learned Single Judge
as well as the Division Bench of the High Court have
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materially erred in not appreciating the fact that
once the termination is justifiable with reference to
the terms of the contract and even if a wrong clause
is mentioned in the letter terminating the contract,
the power to terminate the contract cannot be said
to be illegal, more particularly, when the power is
traceable to the specific terms of the contract, i.e.,
Clause 17.4.
4.3 Now, so far as the Counter Claim No.3 is concerned,
it is submitted that as such the Division Bench of
the High Court has set aside the award of interest on
the amount advanced against hypothecation of
equipments, on the ground that there is no such
provision of award of interest in the contract /
supplementary Agreements. It is submitted that
however, the Division Bench of the High Court has
not properly appreciated the fact that there is no bar
to award interest on the amount advanced. It is
submitted that the Arbitrator has power to award
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interest pendente lite unless specifically barred from
awarding it. Reliance is placed on the decision of this
Court in the case of Raveechee and Company Vs.
Union of India reported in (2018) 7 SCC 664 .
Making above submissions, it is prayed to allow
the present appeal and restore the award passed by
the Arbitral Tribunal.
5.
Learned senior counsel, Mr. Minocha appearing on
behalf of the respondent – NBCC while supporting
the impugned judgment and order passed by the
High Court has vehemently submitted that in the
present case admittedly the IRCON invoked Clause
60.1 and rescinded the contract. It is submitted that
even the learned Arbitral Tribunal also observed and
held that the IRCON was not justified in rescinding
the contract under Clause 60.1. It is submitted that
however, thereafter the Arbitral Tribunal justified the
termination of the contract under Clause 17.4,
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which as rightly held by the learned Single Judge /
Division Bench was not permissible.
5.1 It is submitted that the finding recorded by the
learned Arbitral Tribunal that the contract could not
have been rescinded under Clause 60.1 had attained
the finality. It is submitted that therefore the learned
Arbitral Tribunal was not justified in rejecting the
claim Nos.33 and 34 which has rightly been set
aside by the learned Single Judge and the Division
Bench, which are not required to be interfered with
by this Court in exercise of limited jurisdiction under
Article 136 of the Constitution of India.
5.2 It is further submitted by learned Counsel appearing
on behalf of the respondent – NBCC that in absence
of any specific provision in the contract /
supplementary Agreements on interest on the
amount advanced against hypothecation of
equipments, the Division Bench of the High Court
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has rightly set aside the same.
Making above submissions, it is prayed to
dismiss the present appeal.
6. We have heard learned Counsel appearing for the
respective parties at length.
7. As observed hereinabove, challenge to the award by
the learned Arbitral Tribunal before the learned
Single Judge and now before this Court is with
respect to Claim Nos.33 and 34 and Counter Claim
No.3 (Partly).
7.1 The learned Arbitral Tribunal rejected the Claim
Nos.33 and 34 which were with respect to forfeiture
of the security deposits on termination / rescind of
the contract. The Counter Claim No.3 of the IRCON
was for a total sum of Rs.3,65,38,806/ towards
interest on various advances given to NBCC, more
particularly, with regard to two specific advances
being (1) Special Advance and (2) Advance against
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hypothecation of equipment. The learned Arbitral
Tribunal allowed the Counter Claim No.3 and
awarded interest at the rate of 18% per annum in
favour of the IRCON being interest on special
advance and advances against hypothecation of
equipments. The Division Bench of the High Court
has partly allowed the appeal and allowed the
interest in favour of IRCON at the rate of 18% so far
as special advance is concerned.
7.2 While considering the findings recorded by the
learned Arbitral Tribunal and while appreciating the
submissions made by the learned counsel appearing
on behalf of the respective parties, relevant clauses
of the Agreement, more particularly, Clause
Nos.17.4, 59.1, 60.1 are required to be referred to,
which are as under:
“TIME TO BE OR THE ESSENCE OF THE
CONTRACT:
17.4 The time for completion of the works
by the date or extended date fixed for
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completion shall be deemed to be the
essence of the contract and if the
contractor shall fail to complete the
works within the time prescribe the
Company IRCON shall, if satisfied that
the works can be completed by the
contractor within a reasonably short time
thereafter be entitled without prejudice to
any other right or remedy available on
that behalf to recover by way of
ascertained liquidated damages a sum
equivalent to one per cent of the contract
value of the works for each week or part
of week the contractor is in default and
allow the contractor such further
extension of time as the Project Manager
may decide. If the Company (IRCON) is
not satisfied that the works can be
completed by the contractor and in the
event of failure on the part of the
contractor to complete the works within
the further extension of time allowed as
aforesaid the Company (IRCON) shall be
entitled, without prejudice to any other
right or remedy available in that behalf,
to appropriate the contractor’s security
deposit and rescind the contract, whether
or not actual damage is caused by such
default.
RIGHT OF COMPANY (IRCON) TO
DETERMINE CONTRACT:
59.1 The Company (IRCON) shall be
entitled to determine and terminate the
contract at any time should in the
Company’s (IRCON) opinion, the
cessation of work become necessary
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owing to paucity of funds or from any
cause whatsoever, in which case the
value of approved materials at site and of
work done to date by the contractor will
be paid for in full at the rates specified in
the contract. Notice in writing from the
Company (IRCON) of such determination
and the reason therefore shall be
conclusive evidence thereof.
DETERMINATION OF CONTRACT OWING
TO DEFAULT OF CONTRACTOR:
60.1 If the contractor should:
i. become bankrupt or insolvent or
ii. make an arrangement with or
assignment in favour of his creditors, or
agree to carry out the contract under
committee of Inspection of his creditors,
or
iii. Being a company or corporation, go
into liquidation (other than a voluntary
liquidation for the purpose of
amalgamation or reconstruction), or
iv. have an execution levied on his good
or property on the works, or
v. assign the contract or any part
thereof otherwise than as provided in
Clause 7 of these conditions, or
vi. abandon the contract, or
vii. persistently disregard the
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instructions of the Project Manager, or
contravene any provision of the contract,
or
viii. fail to adhere to the agreed
programme of work by a margin of 10% of
the stipulated period, or
ix. fail to remove materials from the site
or to pull down and replace work after
receiving from the Project Manager notice
to the effect that the said materials or
works have been condemned or rejected
under conditions, or
x. fail to take steps to employ
competent or additional staff and labour
as required under these conditions, or
xi. fail to afford the Project Manager or
Project Manager’s representative proper
facilities for inspecting the works or any
part thereof as required under these
conditions, or
xii. promise, offer or give any bribe,
commission, gift or advantages either
himself or through his partner, agent or
servant to any officer of employee of
IRCON or to any person on his or on the
behalf in relation to the execution of this
or any other contract with IRCON.
Then and in any of the said cases, the
Project Manager on behalf of the
Company (IRCON) may serve the
contractor with a notice in writing to that
effect and if the contractor does not
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within 7 days after the delivery to him of
such notice proceed to make good his
default in so far as the same is capable of
being made and carry on the work or
comply with such directions as aforesaid
to the entire satisfaction of the Project
Manager the Company (IRCON) shall be
entitled after giving 48 hours notice in
writing under the hand of the Project
Manager (to remove the contractor from
the whole or any portion or portions as
may be specified in such notice) of the
works without thereby avoiding the
contract or releasing the contractor from
any of his obligations or liabilities under
the contract and adopt any or several of
the following courses.
a) to rescind the contract, of which
rescission notice in writing to
the contractor under the hand
of the Project Manager shall be
conclusive evidence, in which
case the security deposit of the
contractor shall stand forfeited
to the Company IRCON without
prejudice to the Company’s
(IRCON) right to recover from
the contractor any amount by
which the cost of competing the
works by any other agency shall
exceed the value of the
contractor.
b) to carry out the works or any
part thereof, by the employment
of the required labour and
materials, the costs of which
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shall include lead, lift, freight,
supervision and all incidental
charges and to debit the
contractor with such costs, the
amount of which as certified by
the Project Manager shall be
final and binding upon the
contractor, and to credit the
contractor with the value of the
works done as if the works had
been carried out by the
contractor under the terms of
the contract. And the certificate
of Project Manager in respect of
the amount to be credited to the
contractor shall be final and
binding upon the contractor;
c) to measure up the work
executed by the contractor and
to get the remaining work
completed by another contractor
at the risk and expense of the
contractor in all respects in
which case any expenses that
may be incurred in excess of the
sum which would have been
paid to the contractor if the
works had been carried out by
him under the terms of the
contract, the amount of which
excess as certified by the Project
Manager shall be final and
binding upon contractor shall be
borne and paid by the
contractor and may be deducted
from any moneys due to him by
the Company (IRCON) under the
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contractor or otherwise or from
his security deposit. Provided
always that in any case in which
any of the powers conferred
upon the Company (IRCON)
hereof shall have become
exercisable and the same shall
not be exercised, the non
exercise thereof shall not
constitute a waiver of any of the
conditions hereof and such
powers shall notwithstanding be
exercisable in the event of any
future case of default by the
contractor for which his liability
for past and future shall remain
unaffected.”
Considering the material on record and on
appreciation of evidence, the learned Arbitral
Tribunal though observed that the IRCON was not
justified in rescinding the contract under Clause
60.1, rescinding of the contract / termination of the
contract was justified under Clause 17.4, and
thereby has rejected the Claim Nos.33 and 34 of the
NBCC which were with respect to forfeiture of the
security deposits. The learned Single Judge as well
as the Division Bench of the High Court have set
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aside the award passed by the learned Arbitral
Tribunal rejecting Claim Nos.33 and 34 inter alia on
the ground that once the Arbitral Tribunal gave the
finding that the IRCON was not justified in invoking
Clause 60.1, thereafter it was not open for the
Arbitral Tribunal to take the help of Clause 17.4 and
therefore, the learned Arbitral Tribunal was not
justified in rejecting Claim Nos.33 and 34 which
were with respect to forfeiture of security deposits,
which could have been under Clause 17.4.
However, 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 learned Single Judge or by the Division
Bench of the High Court and therefore, the findings
recorded by the learned Arbitral Tribunal on
applicability of Clause 17.4 has attained the finality.
The learned Arbitral Tribunal as such was absolutely
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justified in considering whether IRCON was justified
in rescinding the contract, may be either under
Clause 60.1 or under Clause 17.4. Even otherwise,
from the material on record and even the notice
dated 21.02.1994 and the subsequent notice dated
07.03.1994, we are satisfied that the IRCON was
satisfied that the work could not be completed by the
contractor even within further extension of time.
Clause 17.4 provides that if the company (IRCON) is
not satisfied that the works can be completed by the
contractor and in the event of failure on the part of
the contractor to complete the works within further
extension of time allowed, the IRCON shall be
entitled, without prejudice to any other right or
remedy available in that behalf, to appropriate the
contractor’s security deposits and rescind the
contract, whether or not actual damage is caused by
such default. Even Clause 60.1 also provides for
determination of contract owing to default of
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contractor. It provides that if the contractor should
abandon the contract, or persistently disregard the
instructions of the Project Manager or contravene
any provisions of the contract…. then the Project
Manager on behalf of the Company may serve the
contractor with a notice in writing to that effect and
if the contractor does not within 7 days after the
delivery to him of such notice proceed to make good
his default in so far as the same is capable of being
made good and carry on the work or comply with
such directions as aforesaid to the entire satisfaction
of the Project Manager, the Company (IRCON) shall
be entitled after giving 48 hours notice in writing
under the hand of the Project Manager (to remove
the contractor from the whole or any portion or
portions as may be specified in such notice) of the
works without thereby avoiding the contract or
releasing the contractor from any of his obligations
or liabilities. It further provides that in such a case
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the Project Manager on behalf of the IRCON shall be
entitled to rescind the contract, in which case the
security deposit shall stand forfeited to IRCON
without prejudice to IRCON’s right to recover from
the contractor any amount by which the cost of
completing the works by any other agency shall
exceed the value of the contractor.
7.3 Thus, 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 learned 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
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IRCON was absolutely justified in forfeiting the
security deposits and therefore, the learned Arbitral
Tribunal was absolutely justified in rejecting Claim
Nos.33 and 34, which were with respect to forfeiture
of security deposits by the IRCON. Both, the learned
Single Judge as well as Division Bench of the High
Court have seriously erred in setting aside the award
passed by the learned Arbitral Tribunal rejecting
Claim Nos.33 and 34. We are of the opinion that the
learned Single Judge, therefore, exceeded in its
jurisdiction under Section 34 of the Arbitration Act
quashing and setting aside the wellreasoned award
passed by the learned Arbitral Tribunal on rejecting
Claim Nos.33 and 34, which the Division Bench of
the High Court has wrongly affirmed.
7.4 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 learned
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Arbitral Tribunal rejecting Claim Nos.33 and 34
deserve to be quashed and set aside and the award
passed by the learned Arbitral Tribunal rejecting
Claim Nos.33 and 34 is required to be restored and
upheld.
7.5 Now, so far as the quashing and setting aside the
award passed by the Arbitral Tribunal awarding
interest @ 18% on advance for the hypothecation of
equipment, by the learned Single Judge confirmed
by the Division Bench is concerned, at the outset, it
is required to be noted that the Division Bench of the
High Court has upheld the order passed by the
learned Single Judge quashing and setting aside the
interest awarded by the learned Arbitral Tribunal on
advance for the hypothecation of equipment on the
ground that there is no such stipulation in the
agreement / contract. However, the High Court has
not at all considered Section 31(7)(a) of the
Arbitration Act, which permits the arbitrator that
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unless otherwise agreed by the parties, where and in
so far as an arbitral award is for the payment of
money, the Arbitral Tribunal may include in the sum
for which the award is made interest, at such rate as
it deems reasonable, for the whole or any part of the
period between the date on which the cause of action
arose and the date on which the award is made.
Thus, unless there is a specific bar under the
contract, it is always open for the arbitrator /
Arbitral Tribunal to award pendente lite interest.
Identical question came to be considered by this
Court in the case of Raveechee and Company
In the said decision, it is observed and
(supra).
held by this Court that an arbitrator has the power
to award interest unless specifically barred from
awarding it and the bar must be clear and specific.
In the said decision, it is observed and held that the
liability to pay interest pendente lite arises because
the claimant has been found entitled to the same
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and had been kept out from those dues due to the
pendency of the arbitration, i.e., pendente lite.
Applying the law laid down by this Court in the
aforesaid decision 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 learned
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.
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8. In view of the above and for the reasons stated
above, present appeal succeeds. 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 are hereby quashed and set aside and the award
passed by the Arbitral Tribunal rejecting the claim
Nos. 33 and 34 is hereby restored. The impugned
judgment and order passed by the Division Bench of
the High Court in confirming the judgment and order
passed by the learned Single Judge insofar as
quashing and setting aside the award passed by the
Arbitral Tribunal awarding the interest @ 18% on the
advance for hypothecation of equipment is
concerned, the same is hereby quashed and set
aside and the award passed by the Arbitral Tribunal
awarding the interest on advance for hypothecation
of equipment is hereby restored, however, with a
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modification that there shall be paid an interest @
12% pendente lite on advance for hypothecation of
equipment instead of 18% as awarded by the Arbitral
Tribunal.
Present appeal is accordingly allowed to the
aforesaid extent. However, in the facts and
circumstances of the case, there shall be no order as
to costs.
…………………………………J.
(M. R. SHAH)
…………………………………J.
(M.M. SUNDRESH)
New Delhi,
March 17, 2023.