After Contractor Failed to Submit Final Bill, Delhi HC Upholds Rejection of Interest Claim Despite Year-Long Payment Delay

The Respondent awarded the Petitioner a contract to construct an office building, with work scheduled from 14 November 2004 to 13 November 2005.

The work was completed on 30 November 2006, after which disputes arose over delayed payment, escalation, and prolongation costs.

The arbitrator partly allowed the Petitioner’s claims, including amounts for statutory minimum-wage escalation and labour cess, but rejected its claims for interest on the final bill, prolongation-related escalation and establishment expenses, and increased material costs.

The arbitrator also awarded interest on the sums allowed.

The Petitioner challenged the rejection of Claims 1, 4, 5 and 6, and the interest awarded under Claim 7, under Section 34 of the Arbitration and Conciliation Act, 1996.

Section 34 of the Arbitration and Conciliation Act, 1996 confines judicial review to its specified grounds; a court does not sit in appeal over an arbitral tribunal’s contractual interpretation or factual assessment, and interference is not warranted merely because another view is possible.

A plausible interpretation may be set aside only where a recognised ground, including patent illegality, is established; disregarding vital evidence or reaching a conclusion unsupported by any relevant evidence may qualify, but weak or scant evidence does not itself amount to “no evidence” (National Highways Authority of India v. Hindustan Construction Company Ltd.; Indian Oil Corporation Ltd. v. Shree Ganesh Petroleum Rajgurunagar; Ramesh Kumar Jain v. Bharat Aluminium Company Limited).

Under Section 31(7), the tribunal is bound by the parties’ agreement on interest (Union of India v. Bright Power Projects (I) P. Ltd.).

The contract’s Clause 7 barred claims, including interest, where the contractor failed to submit the bill and the Engineer-in-Charge prepared it; Clause 9 required the contractor to submit the final bill and reckoned the payment period from its receipt.

Section 55 of the Contract Act, 1872 and General Manager, Northern Railway v. Sarvesh Chopra recognise the relevance of notice of an intention to claim compensation when delayed performance is accepted.

Grant of an extension without compensation does not, by itself, establish the employer’s responsibility for delay (DDA v. Swastic Construction Co.).

Pre-reference interest must rest on a contractual provision or other substantive legal basis.

On Claim 1, the arbitrator found that the Petitioner had not submitted the final bill and that the Respondent had prepared it. The Court held that the Petitioner did not show that this finding was perverse; Clause 9’s payment period depended on receipt of a contractor-submitted bill, while Clause 7 addressed the circumstances found by the arbitrator.

The note-sheets might explain the subsequent delay in payment but did not establish an entitlement to interest despite Clause 7.

On Claims 4 and 5, the Petitioner failed to establish that the alleged hindrances were attributable to the Respondent, the periods for which they delayed the work, or a contemporaneous intention to claim compensation.

The letters relied upon did not cure those evidentiary gaps, and an extension without levy of compensation did not establish responsibility for delay.

Claim 6 likewise failed because the Petitioner established no contractual breach or entitlement to a price adjustment for increased material costs.

For Claim 7, no contractual or other substantive basis was shown for interest from the completion date.

The Court found no Section 34 ground to disturb these conclusions.

The petition was dismissed, with no order as to costs.