2021 INSC 0229
REPORTABLE
IN THE SUPREME COURT OF INDIA
   CIVIL APPELLATE JURISDICTION
          CIVIL APPEAL NO. 3454 OF 2011
M/s. Oriental Structural Engineers Pvt. Ltd.  ...Appellant(s)
     Versus
State of Kerala …Respondent(s)
J U D G M E N T
ANIRUDDHA BOSE, J.
The   appellants   were   awarded   a   contract   by   the   State   of
Kerala for upgradation of a State Highway for two stretches, from
Muvattupuzha­Thodupuzha   and   Muvattupuzha–Angamaly.   The
agreement   in   this   regard   was   executed   on   7 th
  November,   2002.
This   appeal   originates   from   disputes   on   certain   issues   arising
between   the  parties   primarily   relating  to   making   payment   to   the
appellants   under   certain   heads.     In   the   present   proceeding,
however, the only point of dispute on which arguments have been
advanced before us is over entitlement of the appellants to receive
interest on delayed payment on the subject­heads, which were to
1

be paid by the employer in local currency as per the stipulations
in the said agreement. The agreement had provision for resolution
of disputes by a Disputes Review Board (DRB) which was to make
recommendations   at   the   first   instance.   If   the   recommendations
were not acceptable to any of the parties, such disagreeing party
was   required   to   give   notice   to   commence   arbitration   within   a
specified   time   and   thereafter   the   dispute   was   to   be   settled
through arbitration. So far as the controversies out of which this
appeal   arises   are   concerned,   disputes   on   three   counts   arose
between   the  parties,   which   could   not   be   resolved   at   the   stage  of
DRB recommendations.   Those disputes were referred to a three­
member   Arbitral   Tribunal   (the   ‘Tribunal’   in   short).     We   have
already   referred   to   the   scope   of   controversy   involved   in   this
appeal.     This   controversy   shall   be   henceforth   referred   to   in   this
judgment  as  dispute  on  delayed payment.  We shall  address that
issue only in this judgment. 
2. The   Tribunal   passed   the   award   in   favour   of   the   appellants
on   this   point   and   interest   was   directed   to   be   paid   on   delayed
payment   in   relation   to   local   currency   component   payable   under
the   agreement.   This   was,   however,   a   majority   award   and   not   a
unanimous   one   as   one   of   the   members   of   the   Tribunal   gave   a
2

dissenting view.   In the succeeding paragraphs of this judgment,
whenever   we   refer   to   the   expression   ‘award’,   it   shall   mean   the
majority   award   only.   The   award   of   the   Tribunal   was   assailed   by
the   State   of   Kerala   before   the   District   Court   at   Ernakulam   (the
Arbitration Court) by taking out an application under Section 34
of  the  Arbitration and Conciliation  Act, 1996 (the1996 Act). This
application  was  allowed  in  part.  Award  of  the  Tribunal   in  favour
of the appellants on the point of interest on delayed payment was
set aside. The Arbitration Court also adjudicated upon two other
points, but as these points have not been urged before us, we do
not consider it necessary to deal with them here in this judgment.
The decision of the Arbitration Court was sustained in appeal by
a Division Bench of the Kerala High Court.  This appeal is against
the   said   Bench   decision   of   the   High   Court   delivered   on   17 th
September, 2009.  The appellants want the award of the Tribunal
allowing   their   claim   for   interest   on   delayed   payment   to   be
restored. 
3. Entitlement of the contractor to interest was provided for in
sub­clause   60.8   of   the   agreement   on   delayed   interim   payment.
This clause has been reproduced in page 38 of the paperbook and
reads:­
3

“ Time of Payment and Interest
(a) The   amount   due   to   the   Contractor   under   any
Interim   Payment   Certificate   issued   by   the   Engineer
pursuant  to this Clause  or  to any  other  term  of the
Contract   shall   subject   to   Clauses   be   paid   by   the
Employer to the Contractor as follows.
(i) (A) In the case of Interim Payment Certificates
within   42   days   after   the   Contractor’s   monthly
statement   has   been   submitted   to   the   Engineer   for
certification   pursuant   to   sub­clause   60.1.   Provided
that if the Engineer’s Interim Certificate has not yet
been issued within said 42 days, the Employer shall
pay   the   amount   shown   in   the   Contractor’s   monthly
statement   and   that   any   discrepancy   shall   be   added
to   or   deducted   from   the   next   payment   to   the
Contractor and
(B) in the case of any  monthly  statement  submitted
by the Contractor at a time when the Bank’s loan or
credit   (from   which   part   of   the   payment   to   the
Contractor   are   being   made)   is   suspended   within   14
days   after   such   monthly   statement   is   submitted.
Provided   that   if   the   Engineer’s   Interim   Certificate
has   not   yet   been   issued   within   said   14   days   the
Employer   shall   pay   the   amount   shown   in   the
Contractor’s   monthly   statement   and   that   any
discrepancy  shall be added to  or  deducted from  the
next payment to the Contractor.
(ii)   (A)   In   the   case   of   the   Final   Payment   Certificate
pursuant   to   Sub­clause   60.13   within   84   days   after
the Final statement and written discharge have been
submitted to the Engineer for certification and
(B)  In the  case  of  the Final Statement  submitted  by
the   Contractor   at   a   time   when   the   Bank’s   loan   or
credit   from   which   part   of   the   payments   to   the
Contractor   are   being   made   is   suspended   or   for
which   payment   under   (ii)   (A)   becomes   due   after   63
days   of   the   date   of   notification   of   the   suspension
notice   payment   will   be   made   within   63   days   after
the   date   of   notification   of   the   suspension   pursuant
to Sub Clause 69.6(d) provided that if the Engineer’s
Final Payment Certificate has not been issued within
4

the   said   63   days,   the   Employer   shall   pay   the
undisputed amounts shown in the Final Statement.
(b)   In   the   event   of   the   failure   of   the   Employer   to
make payments within the time stated the Employer
shall   pay   to   the   Contractor   interest   compounded
monthly at the rate(s) stated in the Appendix to Bid
upon all sums unpaid from the date upon which the
same   should   have   been   paid   in   the   currencies   in
which   the   payment   are   due.   The   provisions   of   the
Sub Clause are without prejudice to the Contractor’s
entitlement under Clause 69 or otherwise.”
4. The relevant provision of the appendix to the bid, the content
of   which   came   for   interpretation   before   the   Tribunal   and
thereafter before the two judicial fora stipulated:­
“ANNEXURE- P-3
Kerala State Transport Project
Volume III
Section 6: Appendix to Bid   Page 7.8
Origin of materials 60.3(a) (v) item Origin Currency
And Plants 60.3 (d) Plant,  USA
Machinery & Germany, or
Spares any other US Dollars
Bitumen & Iran,
   Thermoplastic Singapore or US Dollars
   Paint any other
Bidder to complete
Rates of Interest upon 60.8 ________ percent of payments in local 
Unpaid Sums currency. For other countries, refer to the
table below. 
Currency (as per Sub­Clause 60.1) London Inter­Bank On­
Lending Rate
(LIBOR) Plus 2 percent
                         USS ­do­ 
The   above   of   interest   for   foreign   currencies   shall   be   supplied   by   the
Bidder,   and   these   rates   are   subject   to   clarification/negotiation   before ”
5

formalizing the Contract.
5. In their bid document, the appellants had left the space for
recording   the   rate   of   interest   for   payment   to   be   made   in   local
currency   blank.   The   agreement   contemplated   payment   to   the
contractor in foreign currency as also in local currency. So far as
payment by foreign currency was concerned, as would be evident
from the appendix to the bid quoted in the preceding paragraph,
the London Interbank On­lending Rate (LIBOR) plus two per cent
was the specified norm. It was on this basis the State’s stand has
been   that   the   rate   of   interest   on   delayed   payment   (as
contemplated in Clause 60.8) in local currency had to be treated
as   “zero”   or   “nil”.   It   has   also   been   the   position   of   the   State,
referring to certain communications made by the appellants that
there was waiver of the claim of interest by the appellants.  In the
award,  the  Tribunal  had  repelled  the  argument  of  the  State  that
the words “zero” or “nil” could be read into the said column of the
“appendix to bid”. Relying on the Constitution Bench judgment of
this   Court   in   the   case   of   Secretary,   Irrigation   Department,
Government of Orissa & Ors. vs. G.C. Roy   [(1992) 1 SCC 508],
6

the   Tribunal  held   that   a   person   deprived   of   the   use   of   money   to
which   he   is   legitimately   entitled   has   a   right   to   be   compensated
and  such  compensation  may  be called interest, compensation  or
damages.   Two   documents   originating   from   the   appellants   in   the
form   of   written   communications   were   relied   upon   by   the   State
before   the   Tribunal   to   contend   that   claim   for   interest,   in   any
event, stood waived by claimants on delayed payment of the sum
which   was   to   be   made   in   local   currency.     First   of   these   two
documents   was   a   letter   of   the   appellant   dated   14 th
  July,   2004
(Exhibit   R­1   before   the   Tribunal)   and   the   next   was   another
written   communication   dated   3 rd
  August,   2004   (Exhibit   C­72
before   the   Tribunal).     The   first   letter   issued   by   the   appellants
addressed   to   the   Chief   Executive   Officer,   Kerala   State   Transport
Project reads :­
“Dear Madam,
As discussed on the above subject we confirm
that   there   is   no   provision   of   interest   on
delayed   payment   in   the   Contract   and   hence
interest will not be claimed.”
                           (quoted verbatim)
6. The   next   communication   dated   3 rd
  August,   2004   was
addressed to the same officer of the respondents. The text of this
communication is:­
7

“Dear Sir,
We   wish   to   invite   your   kind   attention   to   the
issue   of   release   of   payment   against   IPC­1
General   Items   as   recommended   by   DRB.     As
a   pre­condition   for   release   of   the   said
payment,   we   were   made   to   issue   the   above
referred   letter   dated   14.7.2004.   Our
commitment  not  to  claim  any  interest  on the
said   amount   released   by   you   be   treated
purely   as   a   goodwill   gesture   so   that   our
future   payments   are   released   to   us   without
any delay.   The said letter is restricted to the
subject claim/item only.”
(quoted verbatim)
7 . Before   the   Tribunal,   the   appellants   had   taken   a   point   that
the   said   letter   of   14 th
  July,   2004   was   issued   under   coercion   or
duress.   Their   second   plea   on   this   count   was   that   the   content   of
the   first   letter   was   restricted   to   release   of   withheld   amount
recommended by the Review Board in respect of Interim Payment
Certificate­I   (IPC­I).     The   Tribunal   accepted   the   stand   of   the
appellants (claimants before it).  It was, inter­alia, observed in the
award:­
“The   essential   element   of   waiver   is
intentional   relinquishment   of   known   right.
The claimant has stated that  the said letter
was   given   by   them   under   coercion.   This
holds   goods   in   view   of   the   fact   and
circumstances   of   the   case.   It   is   also   noted
that the said letter dated 14.7.04 (ext. R1) is
not   even   mentioned   in   the   defence
statement dated 29.1.05. Nor has this issue
been   raised   before   the   DRB.   So   the
8

argument   of   the   respondent   that   the   letter
dated   14.7.04   (ext.   R1)   is   a   waiver   of   the
rights   of   the   claimant   does   not   stand.   The
fact that this letter was issued at the time of
receiving   payment   in   respect   of   IPC.   I
suggests that this was given under coercion.
The   waiver   does   not   apply   to   the   instant
case.   This   is   corroborated   by   the   fact   that
the   claimant   has   been   continually   agitating
for   the   payment   of   interest   before   and   after
the issuance of the said letter.  As discussed
earlier, payment of interest on unpaid sums
was   due   under   the   terms   of   the   contract
and   under   the   law.   The   recommendation   of
the   DRB   made   after   due   deliberations   and
discussions   with   the   parties   has   relevance
in the matter.”
(quoted verbatim)
The   Tribunal   directed   interest   on   delayed   payment   in
paragraphs   1.6   to   1.8   of   the   award.   Extract   from   the   award
containing   these   paragraphs   would   appear   later   in   this
judgment.
8 . The majority view of the Tribunal was that the contract itself
provided for payment of interest with regard to local currency and
foreign currency.   The plea of the appellants has been that there
was no waiver and in any  event the communication of 14 th
  July,
2004   followed   by   that   of   3 rd
  August,   2004   related   to   IPC­I   only.
This   stand   had   been   broadly   accepted   by   the   Tribunal.   The
9

Tribunal   had  also   accepted   the   appellants/claimants’  stand   that
there   was   no   waiver   on   claim   of   interest   in   respect   of   all   sums
due for which Interim Payment Certificates had been issued.  The
Tribunal’s finding on that aspect was buttressed by the fact that
the   appellants/claimants   had   continued   to   raise   demand   for
interest   subsequent   to   the   issue   of   those   two   communications.
These were essentially findings on facts. 
9 . The Arbitration Court and the Appellate Court in sustaining
the State’s application for setting aside the award were of the view
that the contract could not be construed to contain provisions for
interest   on   delay   in   payment   with   regard   to   the   local   currency
component contained in the agreement, as the appellants did not
fill   up   the   blank   space   with   the   rate   of   interest.     Opinion   of   the
Appellate   Bench   was   that   in   the   event   it   was   intention   of   the
claimants   to   retain   their   entitlement   to   interest   on   delayed
payment   under   that   head,   they   ought   to   have   had   filled   in   the
blank  space   in   the   “appendix  to   bid”.     Another   facet  of   the   High
Court’s reasoning was that the respondents might have had been
persuaded   to   accept   the   appellants’   bid   on   the   basis   that   the
appellants   would   claim   no   interest   on   delayed   payment   in   such
10

situation,   as   this   factor   could   have   made   their   bid   more
competitive.  
10. This   appeal,   in   substance,   is   an   extension   of   a   proceeding
under   Section   34   of   the   1996   Act.     To   go   into   the   question   of
legality of the decisions made by the two judicial fora, we need to
test first if the grounds of challenge to the award met the test laid
down   by   this   Court   in   the   case   of   Oil   Natural   Gas   Corporation
Ltd.   vs.   Saw   Pipes   Ltd.   [(2003)   5   SCC   705].     Contention   of   the
respondents   has   been   that   the   Arbitral   Tribunal’s   order   stood
vitiated   under   the   “patent   illegality”   principle   spelt   out   in   that
judgment. This principle came under the broad heading of “Public
Policy” test, applying which an arbitral award could be set aside.
What   would   constitute   patent   illegality   has   been   elaborated   by
this   Court   in   a   later   judgment,   Associate   Builders   vs.   Delhi
Development   Authority   [(2015)   3   SCC   49].   An   award   would   be
invalidated,   as   per   this   authority,   if   the   same   was   in
contravention   of  substantive  law  of  the  country  or  contravention
of the “Arbitration Act itself”. In paragraph 42.3 of the Report (in
the case of  Associate Builders ), it has been held:­
11

“42.3 (c) Equally, the third subhead of patent
illegality   is   really   a   contravention   of   Section
28(3)   of   the   Arbitration   Act,   which   reads   as
under:
“28.   Rules   applicable   to   substance   of
dispute. ­(1)­(2)* * *
(3)   In   all   cases,   the   Arbitral   Tribunal   shall
decide   in   accordance   with   the   terms   of   the
contract   and   shall   take   into   account   the
usages   of   the   trade   applicable   to   the
transaction.”
This   last   contravention   must   be
understood   with   a   caveat.     An   Arbitral
Tribunal must decide in accordance with the
terms   of   the   contract,   but   if   an   arbitrator
construes   a   term   of   the   contract   in   a
reasonable manner, it will not mean that the
award   can   be   set   aside   on   this   ground.
Construction   of   the   terms   of   a   contract   is
primarily   for   an   arbitrator   to   decide   unless
the arbitrator construes the contract in such
a   way   that   it   could   be   said   to   be   something
that   no   fair­minded   or   reasonable   person
could do.”
11. The High Court in the appeal concurred with the Arbitration
Court and concluded that omission to include the rate of interest
in   the   bid   document,   the   “appendix   to   bid”   to   be   specific,   had
resulted   in   creation   of   contractual   term   that   there   would   not   be
any claim for interest on delayed payment (as per Clause 60.8) so
far   as   payment   in   local   currency   component   contained   in   the
agreement   is   concerned.     In   our   opinion,   however,   the
12

interference   with   the   award   by   the   Arbitration   Court   on   this
ground   was   unwarranted.   The   underlying   reasoning   of   the
Appellate Court and earlier, the Arbitration Court on this point is
that  the Tribunal  went  beyond  the  contractual  term  in  awarding
interest. The case of  G.C. Roy  (supra) and a later decision of this
Court,   Reliance Cellulose Products Ltd. vs. ONGC Ltd.   [(2018)
9   SCC   266],   were   relied   upon   before   us   by   the   appellants   to
sustain the Tribunal’s findings.  These decisions are sought to be
distinguished   on   behalf   of   the   respondents   on   the   ground   that
the   former   decision   related   to   interest   pendente   lite   and   both
these cases were under the Arbitration Act, 1940. Under the said
statute,   an   arbitrator   had   power   or   jurisdiction   to   grant   pre­
reference   interest   under   the   Interest   Act,   1978   as   also   pendente
lite   and   future   interest.   Such   jurisdiction   stood   curbed   only   if
express   terms   of   the   contract   precluded   payment   of   interest.
Referring   to   another   authority,   the   Union   of   India   vs.   Bright
Power   Projects   (India)   (P)   Ltd.   [(2015)   9   SCC   695],   this   Court
highlighted the position of law on grant of interest under Section
31(7)   of   the   1996   Act.   In   the   case   of   Bright   Power   Projects
(supra),   it   has   been   opined   by   this   Court   that   unless   otherwise
13

agreed by the parties, the Arbitral Tribunal can award interest at
reasonable rate for a period commencing from that date when the
cause   of   action   arises   till   the   date   of   the   award.     In   the   dispute
which   forms   the   subject­matter   of   this   appeal,   being   the
agreement, there was no specific exclusion of payment of interest
on delayed payment in relation to the local currency component. 
12 . On   the   other   hand,   the   specific   term   of   the   agreement
entered into by and between the parties provided for  payment of
interest on delayed payment as terms of the contract.   What was
not   specifically   agreed  upon   was   the  rate  at   which   such   interest
would   be   paid.   The   blank   space   in   the   “appendix   to   the   bid”,   in
our   opinion,   cannot   be   construed   as   cancellation   of   the   clause
providing for  payment of interest of delayed release of funds. We
do   not   think   the   Appellate   Court   or   the   Arbitration   Court   was
right   in   adopting   the   approach   that   by   not   specifying   the   blank
space   provided   for   filling   in   the   interest   rate.   We   are   of   the   view
that to come to such an inference, active exclusion of payment of
interest   under   that   head   was   necessary   to   have   been
incorporated   in   the   agreement.     Though   the   case   of   G.C.   Roy
(supra)   was   delivered   in   a   dispute   to   which   the   1940   Act   was
14

applicable,   the   Constitution   Bench   of   this   Court   has   laid   down
certain  general  proposition  or  principle  on   the  aspect  of  grant  of
interest. This general proposition was referred to by the Tribunal.
It   has   been   held   in   paragraph   43.1   of   the   Report   (in   the   case   of
G.C. Roy ):­
“43.   The   question   still   remains   whether
arbitrator   has   the   power   to   award   interest
pendent   lite,   and   if   so   on   what   principle.   We
must   reiterate   that   we   are   dealing   with   the
situation   where   the   agreement   does   not
provide   for   grant   of   such   interest   nor   does   it
prohibit   such   grant.   In   other   words,   we   are
dealing   with   a   case   where   the   agreement   is
silent as to award of interest. On a conspectus
of   aforementioned   decisions,   the   following
principles emerge:
(i) A person deprived of the use of money to
which he is legitimately entitled has a right to
be   compensated   for   the   deprivation,   call   it   by
any   name.   It   may   be   called   interest,
compensation   or   damages.   This   basic
consideration   is   as   valid   for   the   period   the
dispute is pending before the arbitrator as it is
for   the   period   prior   to   the   arbitrator   entering
upon   the   reference.   This   is   the   principle   of
Section   34,   Civil   Procedure   Code   and   there   is
no reason or principle to hold otherwise in the
case of arbitrator.....”
13. The   underlying   principle   guiding   award   of   interest   is   that
interest   payment   is   essentially   compensatory   in   nature.   But   as
we   have   already   observed,   in   the   case   before   us,   interest   on
delayed   payment   formed   part   of   the   contract   itself.     The
15

agreement   did   not   contain   any   express   exclusion   clause   on
payment   of   interest   on   delayed   payment   whether   on   component
of   payment   in   foreign   currency   or   local   currency.   We   accept   the
reasoning   of   the   Tribunal   on   the   basis   of   which   it   rejected   the
respondents’   plea   of   waiver.   This   was   a   finding   of   fact   on
appreciation   of   materials   placed   before   the   Tribunal.   One   of   the
reasons   behind   the   decisions   of   the   Appellate   Court   and
Arbitration   Court   was   that   the   appellants,   while   bidding,   had
given up their claims for interest. In substance, the respondents’
assertion is that the Tribunal went beyond the contractual terms,
and   the   said   two   fora   sought   to   invoke   the   principle   of   law
contained in the third sub­head of the “patent illegality” principle
elaborated in the case of  Associate Builders  (supra).
14. The   Appeal   Court   accepted   reasoning   of   the   Arbitration
Court   that   the   blank   portion   in   the   appendix   to   the   bid   would
imply   “zero”   or   “nil”.     This   reasoning,   in   our   opinion,   is   flawed
and   such   an   interpretation   of   the   agreement   would   actually   be
contrary to and beyond the terms of the contract. The Tribunal in
this case had already come to a factual finding on appreciation of
evidence that there was no such implication. Such an exercise on
the   part   of   the   Arbitration   Court   and   the   Appellate   Court   would
16

constitute   rewriting   the   contract,   which   is   impermissible.     The
Tribunal   rejected   the   plea   of   waiver   and   we   have   reproduced   its
reasoning   on   that   point.     We   cannot   hold   such   reasoning   to   be
perverse   or   improbable   in   the   factual   background   of   the   present
case.   The Tribunal in this case could have had awarded interest
as a compensatory or equitable measure, as there was no clause
providing   for   exclusion   or   ouster   of   interest   payment   on   delayed
payment.   The   Tribunal   determined   the   rate   thereof   in   sub­
paragraphs   1.6   to   1.8   of   the   award.   This   part   of   the   award
specifies:­
“1.6 It is, therefore, held that the Claimants
are   entitled   to   interest   on   the   amount   as   due
under   any   IPCs   issued   by   the   Engineer   or
failing which, on the amounts as shown in the
Claimants   monthly   statements   submitted   to
the   Engineer   for   certification   and   when   were
not   paid   or   had   been   withheld   by   the
Respondents   and   such   interest   shall   be   paid
by  the  Respondents for  the  period as 42  days
after   the   claimants’   respective   monthly
statements   had   been   submitted   to   the
Engineer   for   certification   to   the   date   of
payment   thereof   in   full.   The   arbitral   tribunal
further holds that on the unpaid sums and for
the   period   of   delay   in   the   payment   thereof   as
stated hereinabove, the Respondents shall pay
to the claimants interest at the rate of 1% per
month   compounded   monthly   such   rate   being
representative   of   the   prevalent   rate   of   access
to money that the claimants were deprived of.
1.7 The   Arbitral   Tribunal   therefore   directs
that   the   Respondents   shall   pay   to   the
claimants   interest   on   the   unpaid   sum   of   Rs.
17

2,15,72,150/­   for   the   period   of   the   due   dates
of   payment   till   the   actual   dates   of   full
payment of such amount at the rate stated in
para 1.6 above in respect of IPCs No. 2 & IPC
No. 4.
1.8 The   Respondents   shall   further   pay   to
the   claimants   such   interest   on   the   unpaid
sums   in   respect   of   other   IPCs   No.   5   to   14
issued   by   the   Engineer   or   the   Claimants
monthly statements submitted to the Engineer
for   certification   for   the   period   from   the   due
dates   of   payment   till   the   actual   dates   of   full
payment at the rate as stated in hereinabove.
The   respondents   are   also   directed   to  pay
further interest at the rate of 12% per annum
on   the   interest   amount   determined   pursuant
to   para   1.7   and   1.8   hereinabove   from   such
dates   of   payment   of   the   principal   amount   to
the date of award.”
15 . The   Appellate   Court’s   rationale   that   such   blank   interest
column   might   have   had   resulted   in   acceptance   of   the   bid   of   the
appellants  as their  bid could have been  more competitive on  the
assumption   that   the   other   bidders   might   have   had   pressed   for
interest   in   that   column   is   not   acceptable   to   us.   We   do   not   find
any material from which such a conclusion could be reached. No
material has been shown to us from which it can be inferred that
omission to fill in the blank space gave the appellants some kind
of   competitive   edge   in   the   bid   process.   We   also   do   not   know   if
other   bidders   had   left   the   space   blank   or   filled   the   same   with
18

specified rate. The Arbitration Court’s view, sustained by the High
Court is tainted with an element of speculation on this point. 
16 . We   do   not   find   any   flaw   in   the   reasoning   of   the   Arbitral
Tribunal   that   the   contract   did   not   prohibit   the   award   of   interest
in   respect   of   delayed   payment   in   local   currency   component
specified   therein.     This   being   the   position,   in   our   opinion,   the
contrary view expressed by the Arbitration Court in a proceeding
under   Section   34   of   the   Act,   which   view   was   upheld   by   the
Appellate   forum,   breaches   the   permissible   boundaries   for
encroaching   upon   an   award   as   laid   down   in   Saw   Pipes   case
(supra). 
17. In   our   opinion,   the   view   taken   by   the   Tribunal   on
consideration   of   the   contract   was   both   reasonable   and   possible
view.     We,   however,   are   of   the   opinion   that   the   rate   at   which
interest has been directed to be paid as contained in paragraphs
1.6   and   1.8   of   the   award,   which   we   have   reproduced   above,   are
rather  excessive.   As the agreement is silent on the point of rate
of   interest   but   provides   for   payment   of   interest   on   delayed
payment,   the   Tribunal’s   exercise   of   fixing   the   rate   should   have
been   on   the   basis   of   applying   the   principle   laid   down   in
19

paragraph   43.1.   in   the   case   of   G.C.   Roy   (supra).     The   said
principle is applicable in a proceeding under the 1996 Act as well.
This  principle has  been broadly  incorporated  in Section  31(7)  (a)
of   the   1996   Act.     The   only   difference   between   the   situation
contemplated in the aforesaid provision and the facts of this case
is that the agreement involved is not silent on interest entitlement
of the appellants on delayed payment but the agreement contains
provision   for   such   payment.     Only   the   rate   at   which   interest
would   be   payable   remained   unspecified.     In   our   view,   simple
interest at the rate of 8% would be just and equitable on the sum
left unpaid, calculated otherwise on the basis of sub­paragraphs
1.6. to 1.8 of the award. We, accordingly, set aside the judgment
of   the   Division   Bench   of   the   High   Court   of   Kerala   impugned   in
this appeal on the point of entitlement of the appellants to receive
interest   on   delayed   payment   in   relation   to   local   currency
component   of   the   contract.     As   a   consequence,   judgment   of   the
Sixth   Additional   District   Judge,   Ernakulam,   shall   also   stand
invalidated.   The   award   of   the   Tribunal   shall   stand   sustained   so
far   as   direction   to   pay   interest   on   delayed   payment   of   the   local
currency  component of the agreement is concerned, but the rate
of   interest   on   the   sum   shall   be   computed   in   the   manner
20

prescribed   in   paragraphs   1.6,   1.7   and   1.8   and   shall   be   at   8%
simple interest per annum. 
18 . The appeal is allowed in the above terms.
19. There shall be no order as to costs. 
      .................................J.
  (SURYA KANT)
...............................J.
 (ANIRUDDHA BOSE)
NEW DELHI
APRIL 22, 2021
21