The grant of post-award interest under Section 31(7)(b) is a statutory mandate not subject to party agreement.

In brief

The question

1. Whether the imposition of 50% Liquidated Damages was valid despite the alleged lack of actual loss and non-readiness of the site

The court held

The Court dismissed BHEL's petition [O.M.P. (COMM) 294/2022] and partially allowed TBEA's petition [O.M.P. (COMM) 307/2022]

It also directed

It upheld the reduction of Liquidated Damages and the directions regarding the APBG and costs

The Court modified the award to grant the Petitioner future interest at the rate of 2% higher than the current prevalent rate from the date of the award until payment, holding that post-award interest is a non-discretionary statutory requirement

01Facts

The Petitioner (TBEA) was awarded a Purchase Order (PO) by the Respondent (BHEL) on 18.12.2017 for the supply of transformers

p. 3

The Petitioner was required to meet Prequalification Requirements (PQR), involving an undertaking by its Parent Company to furnish an Additional Performance Bank Guarantee (APBG) of 10%

p. 3

Delays occurred in delivery (supplied July 2019 against a tentative date of Nov 2018), leading BHEL to impose Liquidated Damages (LD) of ₹7,85,41,104

p. 8, 11

BHEL withheld ₹5,23,76,868 due to the non-submission of the APBG by the Parent Company

p. 8

A Sole Arbitrator issued an award on 06.01.2022, reducing the LD by 50%, allowing TBEA to submit the APBG itself (if authorized), granting proportionate costs, but denying future interest

p. 10

Both parties filed cross-objections under Section 34 of the Arbitration and Conciliation Act, 1996

p. 2

02Issues

i.1. Whether the imposition of 50% Liquidated Damages was valid despite the alleged lack of actual loss and non-readiness of the site

¶ 6, 33

ii.2. Whether the Arbitrator exceeded jurisdiction by allowing the Petitioner to furnish the APBG on behalf of its Parent Company

¶ 16, 41

iii.3. Whether the Petitioner is entitled to post-award (future) interest under the statutory mandate of the Act

¶ 12, 53

03Law Applied

Section 34 of the Arbitration and Conciliation Act, 1996, regarding the limited grounds for setting aside awards, including "patent illegality"

¶ 34, 49

Sections 73 and 74 of the Indian Contract Act, 1872, as interpreted in Kailash Nath v. DDA, regarding reasonable compensation and genuine pre-estimates of loss

¶ 6, 37

Associate Builders v. DDA and Ssangyong Engg. v. NHAI to define the boundaries of judicial interference

¶ 35, 38

Section 31(7)(b) of the Act and the precedent in Hyder Consulting (UK) Ltd. v. State of Orissa, which establishes that post-award interest is a statutory mandate

¶ 14, 55, 56

Provisions in the judgment · 11 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 11 Section 20 Section 28 Section 30 Section 31 Section 34

Indian Contract Act, 1872 Section 28 Section 55 Section 73 Section 74

Interest Act, 1978 Section 2

04Reasoning

Regarding LD, the court found the Arbitrator’s decision to award 50% (₹3,92,70,552) reasonable, as the Respondent proved actual monetary loss via debit notes from the end-customer (TANTRANSCO), and a 70-day delay was attributable to the Petitioner

¶ 33, 36, 38

On the APBG issue, the court held that the Arbitrator’s interpretation—permitting the Petitioner to submit the guarantee if authorized by the parent—was a practical commercial approach within his jurisdiction and did not constitute "rewriting the contract"

¶ 42, 44

Regarding costs, the court upheld the Arbitrator's discretion under Section 31A as the Petitioner was partially successful

¶ 46

Regarding future interest, the court found the Arbitrator erred; while Union of India v. Manraj Enterprises allows contracting out of pendente lite interest, Section 31(7)(b) is a statutory mandate for post-award interest that cannot be waived or denied by the tribunal

¶ 56, 59