M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. versus STATE OF KERALA

Citation: [2021] 4 S.C.R. 137 · Decided: 22-04-2021 · Supreme Court of India · Bench: SURYA KANT · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · cites 5 · see the full citation network in Lexace

Judgment (excerpt)

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   [2021] 4 S.C.R. 137
137
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD.
v.
STATE OF KERALA
(Civil Appeal No. 3454 of 2011)
APRIL 22, 2021
[SURYA KANT AND ANIRUDDHA BOSE, JJ.]
Interest: Interest on delayed payment – Dispute between
parties as regards entitlement of the contractor to receive interest
on delayed payment in relation to local currency component – Award
by the Arbitral tribunal that the interest be paid on delayed payment
in relation to local currency component payable under the agreement
since the contract did not prohibit award of interest – However, the
said order set aside by the Arbitration court as also the High Court
– On appeal, held: In the agreement between the parties, there was
no specific exclusion of payment of interest on delayed payment in
relation to the local currency component – Specific term of the
agreement provided for payment of interest on delayed payment as
terms of the contract – Rate at which such interest would be paid
was not specifically agreed upon – Blank space in the “appendix
to the bid” cannot be construed as cancellation of the clause
providing for payment of interest of delayed release of funds – The
principle guiding award of interest is that interest payment is
essentially compensatory in nature – On facts, interest on delayed
payment formed part of the contract itself – Furthermore, it cannot
be inferred that ommission to fill in the blank space gave the
contractor some kind of competitive edge in the bid process –
Reasoning of the Arbitral Tribunal is correct and the contrary view
by the Arbitration Court and the High Court breaches the permissible
boundaries for encroaching upon an award – Thus, the view taken
by the Tribunal is sustained, however the rate at which interest is to
be paid would be simple interest at the rate of 8% pa.
Allowing the appeal, the Court
HELD:1.1 In the dispute which forms the subject matter
of this appeal, being the agreement, there was no specific
exclusion of payment of interest on delayed payment in relation
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
to the local currency component. 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” cannot be construed as cancellation of the
clause providing for payment of interest of delayed release of
funds. The Appellate Court or the Arbitration Court were not
right in adopting the approach. To come to such an inference,
active exclusion of payment of interest under that head was
necessary to have been incorporated in the agreement.
[Paras 11, 12][148-G-H; 149-A-C]
Reliance Cellulose Products Ltd. vs. ONGC Ltd. [(2018)
9 SCC 266 : [2018] 6 SCR 618; Union of India vs.
Bright Power Projects (India) (P) Ltd. (2015) 9 SCC
695 : [2015] 6 SCR 488 - referred to
1.2 The underlying principle guiding award of interest is
that interest payment is essentially compensatory in nature. In
the instant case, interest on delayed payment formed part of the
contract itself. The 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. The reasoning of the Tribunal on the basis of which it
rejected the respondents’ plea of waiver is accepted. 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. [Para 13][149-G-H; 150-A-C]
Associate Builders vs. Delhi Development Authority
[(2015) 3 SCC 49 : [2014] 13 SCR 895 – referred to.
1.3 The Appellate Court accepted reasoning of the
Arbitration Court that the blank portion in the appendix to the
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bid would imply “zero” or “nil”. This reasoning is flawed and
such an interpretation of the agreement would actually be contrary
to and beyond the terms of the contract. The Tribunal had already
come to a factual finding on appreciation of evidence that there
was

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