INDIAN RAILWAY CONSTRUCTION COMPANY LIMITED versus M/S NATIONAL BUILDINGS CONSTRUCTION

Citation: [2023] 2 S.C.R. 713 · Decided: 17-03-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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[2023] 2 S.C.R. 713
713
INDIAN RAILWAY CONSTRUCTION COMPANY LIMITED
v.
M/S NATIONAL BUILDINGS CONSTRUCTION
CORPORATION LIMITED
(Civil Appeal No. 8460 of 2022)
MARCH 17, 2023
[M. R. SHAH AND M. M. SUNDRESH, JJ.]
Arbitration & Conciliation Act, 1996 – ss. 34, 37 – Appellant-
IRCON and the respondent-NBCC entered into an agreement under
which NBCC was awarded the work of construction of railway
station cum commercial complex – NBCC failed to carry out the
work within the time stipulated and the work was practically
abandoned – IRCON served notice upon the NBCC for termination
of the contract relying upon clause 60.1 of the agreement – NBCC
invoked the arbitration clause – Arbitral Tribunal rejected the
NBCC’s claim for refund of two security deposits i.e. claim nos.33
and 34 – Tribunal held termination with reference to clause 60.1
bad in law, but justified the termination with reference to clause
17.4 and consequently rejected NBCC’s claim for refund of two
security deposits – Tribunal also allowed counter claim no.3 (towards
interest at rate of 18% p.a. on various advances given to NBCC,
particularly (1) special advance and (2) advance against
hypothecation of equipment) in favour of IRCON – Single Judge of
the High Court set aside the rejection by the Arbitral Tribunal of
claim nos. 33 and 34 of NBCC to the extent it concerned the return
of security deposit amounts 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 – Single Judge also set aside the award passed
by the Tribunal on counter claim no.3, observing that there is no
clause in the contract awarding 18% interest p.a. on special advance
– Division Bench of the High Court partly allowed the said appeal
and allowed the interest in favour of IRCON at the rate of 18% so
far as special advance is concerned – On appeal, held : The finding
recorded by the Arbitral Tribunal on applicability of Clause 17.4
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SUPREME COURT REPORTS
[2023] 2 S.C.R.
and/or rescinding of the contract under Clause 17.4 was not set
aside either by the Single Judge or by the Division Bench of the
High Court and therefore, the findings recorded by the Arbitral
Tribunal on applicability of Clause 17.4 has attained the finality –
Both, under Clause 17.4 and 60.1, on failure of the contractor to
complete the work, the IRCON was justified in rescinding the
contract and forfeit the security deposit – Award passed by the
Tribunal rejecting the claim nos.33 and 34 restored – However, at
the same time award of interest @ 18% on advance for hypothecation
of equipment by the Tribunal can be said to be on a higher side and
therefore 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.
Allowing the appeal, the Court
HELD: 1. 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 Single Judge or by the Division Bench of
the High Court and therefore, the findings recorded by the Arbitral
Tribunal on applicability of Clause 17.4 has attained the finality.
The Arbitral Tribunal as such was absolutely justified in
considering whether IRCON was justified in rescinding the
contract, may be either under Clause 60.1 or under Clause 17.4.
[Para 7.2][724-E-F]
2. 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 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 IRCON was absolutely justified
in forfeiting the security deposits and therefore, the Arbitral
Tribunal was absolutely justified in rejecting Claim Nos.33 and
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34, which were with respect to forfeiture of security deposits by
the IRCON. Both, the Single Judge 

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