INDIAN RAILWAY CONSTRUCTION COMPANY LIMITEDversusM/S NATIONAL BUILDINGS CONSTRUCTION

                        [2023] 2 S.C.R. 713                              713


  INDIAN RAILWAY CONSTRUCTION COMPANY LIMITED                            A
                                  v.
        M/S NATIONAL BUILDINGS CONSTRUCTION
                CORPORATION LIMITED
                   (Civil Appeal No. 8460 of 2022)                       B

                         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            C
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         D
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    E
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       F
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        G
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        H
                                 713
714            SUPREME COURT REPORTS                         [2023] 2 S.C.R.


A     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
B
      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
C     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
D     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
E     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
F     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
G     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

H
      INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                        715
        NATIONAL BUILDINGS CONST. CORP. LTD.

34, which were with respect to forfeiture of security deposits by      A
the IRCON. Both, the Single Judge as well as Division Bench of
the High Court have seriously erred in setting aside the award
passed by the Arbitral Tribunal rejecting Claim Nos.33 and 34.
The Single Judge, therefore, exceeded in its jurisdiction under
Section 34 of the Arbitration Act quashing and setting aside the
                                                                       B
well-reasoned award passed by the Arbitral Tribunal on rejecting
Claim Nos.33 and 34, which the Division Bench of the High Court
has wrongly affirmed. [Para 7.3][725-E-H]
      3. Under the circumstances, the impugned judgment and
order passed by the learned Single Judge as well as the Division       C
Bench of the High Court quashing and setting aside the award
passed by the Arbitral Tribunal rejecting Claim Nos.33 and 34
deserve to be quashed and set aside and the award passed by the
Arbitral Tribunal rejecting Claim Nos.33 and 34 is required to be
restored and upheld. [Para 7.4][726-A-B]
                                                                       D
       4. Applying the law laid down by this Court in Raveechee
and Company to the facts of the case on hand, once it was found
that the advance amount was paid for hypothecation of equipment
and thereafter when the Arbitral Tribunal awarded the interest
on advance for hypothecation of equipment, the same was not
required to be interfered with by the Single Judge in exercise of      E
the powers under Section 34 of the Arbitration Act and even by
the Division Bench of the High Court while exercising the powers
under Section 37 of the Arbitration Act. However, at the same
time to award the interest @ 18% can be said to be on a higher
side. In the facts and circumstances of the case, if the interest is   F
awarded @ 12% on advance for the hypothecation of equipment,
the same can be said to be reasonable interest. [Para 7.5][726-
G-H; 727-A-B]
      Raveechee and Company Vs. Union of India (2018) 7
      SCC 664 : [2018] 5 SCR 138 – referred to.                        G
                      Case Law Reference
[2018] 5 SCR 138               referred to             Para 7.5


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716            SUPREME COURT REPORTS                          [2023] 2 S.C.R.


A           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8460
      of 2022.
            From the Judgment and Order dated 14.08.2018 of the High Court
      of Delhi at New Delhi in FAOOS No. 112 of 2018.
            R. S. Hegde, Farhat Jahan Rehmani, Krishna Sharma, Advs. for
B     the Appellant.
           Arvind Minocha, Sr. Adv., Mayank Kshirsagar, Ms. Aabha,
      Randhir Singh, Advs. for the Respondent.
            The Judgment of the Court was delivered by
C           M. R. SHAH, J.
            1. Feeling aggrieved and dissatisfied with the impugned judgment
      and order dated 14.08.2018 passed by the High Court of Delhi at New
      Delhi in FAO(OS) No.112 of 2018 by which the High Court has partly
      allowed the said appeal, the Indian Railway Construction Company
D     Limited (hereinafter referred to as “IRCON”) has preferred the present
      appeal.
             2. The brief facts leading to filing of the present appeal in nut-
      shell are as under:
             2.1 That, an Agreement was entered into between IRCON and
E     the respondent – M/s. National Buildings Construction Corporation
      Limited (hereinafter referred to as “NBCC”), whereby the respondent
      was awarded the work of construction of Railway Station cum
      Commercial Complex at Vashi, Navi Mumbai at a cost of Rs.3042.91
      lakh, to be constructed within a period of 30 months from 05.04.1990.
F     NBCC failed to complete the work in time. Thereafter, the supplementary
      agreements were entered into between the parties. As the provision for
      grant of advances had exhausted, NBCC approached IRCON with
      modified programme for completion of works and sought for additional
      financial aid on certain terms and conditions. IRCON in consultation
      with CIDCO, agreed to grant advance as a special case against Bank
G     Guarantee. Accordingly, a supplementary Agreement dated 17.12.1991
      was entered into between the parties providing for special advance of
      an amount of Rs. 68 lakhs bearing interest at the rate of 18% per annum
      on furnishing of Bank Guarantee. In terms of the supplementary
      Agreement dated 17.12.1991, a special advance of Rs.68 lakhs was
H     also given to NBCC. As there was delay in the work of NBCC and the
    INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                                 717
NATIONAL BUILDINGS CONST. CORP. LTD. [M. R. SHAH, J.]

work was practically abandoned and came to a standstill, IRCON served         A
on NBCC a notice dated 21.02.1994 terminating the contract relying
upon Clause 60.1 of the Agreement.
       2.2 That, thereafter, after some litigation before the Delhi High
Court, the NBCC invoked the arbitration clause. The Arbitral Tribunal
was constituted. The Arbitral Tribunal passed the award dated 04.11.2011.     B
That the Arbitral Tribunal rejected the NBCC’s claim for refund of two
security deposits i.e. Claim Nos.33 and 34. While holding so, the Arbitral
Tribunal held that though termination with reference to Clause 60.1 was
bad in law, but justified the termination with reference to Clause 17.4 of
the Contract and consequently rejected the NBCC’s claim for refund of         C
two security deposits i.e. claim Nos.33 and 34. The Arbitral Tribunal
also partly allowed Counter Claim No.3 in favour of IRCON. Counter
Claim No.3 was relatable to the counter claim of IRCON for a total of
Rs.3,65,38,806/- towards interest on various advances given to NBCC,
more particularly, with regard to two specific advances being (1) Special
Advance and (2) Advance against hypothecation of equipment.                   D
       2.3 Feeling aggrieved and dissatisfied with the award passed by
the learned Arbitral Tribunal and insofar as relating to Claim Nos.33 and
34 and the Counter Claim No.3 which were in favor of IRCON, the
NBCC approached the High Court by filing an application under Section
34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to     E
as “Arbitration Act”). The application under Section 34 of the Arbitration
Act was confined to the aforesaid three claims / counter claims
respectively viz. Claim Nos.33 and 34 and Counter Claim No.3 only.
       2.4 By the judgment and order dated 03.03.2017, the learned Single
Judge of the High Court set aside the rejection by the learned Arbitral       F
Tribunal of Claim Nos.33 and 34 of NBCC to the extent it concerned
the return of security deposit amounts i.e. Rs.5,57,486/- + Rs.60,85,840/
- by observing and 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   G
Clause 17.4 justifying forfeiture of the security deposits. The learned
Single Judge of the High Court also set aside the award passed by the
learned Arbitral Tribunal on Counter Claim No.3 by observing that there
is no clause in the contract in particular awarding 18% interest per annum
on special advance.
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718            SUPREME COURT REPORTS                          [2023] 2 S.C.R.


A           2.5 The judgment and order passed by the learned Single Judge
      was the subject matter of appeal under Section 37 of the Arbitration Act
      before the Division Bench of the High Court.
             2.6 By the impugned judgment and order, the Division Bench of
      the High Court has partly allowed the said appeal under Section 37 of
B     the Arbitration Act to the extent upholding the award passed by the
      learned Arbitral Tribunal insofar as awarding the interest on special
      advance is concerned. The rest of the judgment and order passed by the
      learned Single Judge has been affirmed / confirmed by the Division Bench
      of the High Court.
C           2.7 Feeling aggrieved and dissatisfied with the impugned judgment
      and order passed by the Division Bench of the High Court, IRCON has
      preferred the present appeal.
            3. Shri R.S. Hegde, learned counsel has appeared on behalf of
      the appellant – IRCON and Shri Arvind Minocha, learned Senior
D     Advocate has appeared on behalf of the respondent – NBCC.
             4. Shri R.S. Hegde, learned counsel appearing on behalf of the
      appellant has vehemently submitted that on appreciation of entire
      evidence and the material on record as the learned Tribunal has observed
      and held that the IRCON was justified in rescinding the contract due
E     to abandonment of work by NBCC and when the said finding attained
      the finality, the IRCON was justified in forfeiting the security deposits.
      It is submitted that as such the High Court has taken too technical
      view. It is submitted that as such both, Clause 17.4 and Clause 60.1
      are required to be read together. It is submitted that the main aspect
F     which is required to be considered is whether the NBCC failed to
      complete the work as per the contract and whether the NBCC
      abandoned the work and thereafter, having satisfied that even during
      the extended period, the NBCC was not able to complete the work,
      the contract was rightly rescinded and therefore, the security deposits
      were liable to be forfeited.
G
              4.1 It is submitted that therefore both, the learned Single Judge
      (in application under Section 34 of the Arbitration Act) and the Division
      Bench of the High Court have materially erred in upsetting / quashing
      and setting aside the award passed by the learned Arbitral Tribunal
      rejecting the Claim Nos.33 and 34.
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    INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                                   719
NATIONAL BUILDINGS CONST. CORP. LTD. [M. R. SHAH, J.]

       4.2 It is submitted that both, the learned Single Judge as well as       A
the Division Bench of the High Court have materially erred in not
appreciating the fact that once the termination is justifiable with reference
to the terms of the contract and even if a wrong clause is mentioned in
the letter terminating the contract, the power to terminate the contract
cannot be said to be illegal, more particularly, when the power is traceable
                                                                                B
to the specific terms of the contract, i.e., Clause 17.4.
       4.3 Now, so far as the Counter Claim No.3 is concerned, it is
submitted that as such the Division Bench of the High Court has set aside
the award of interest on the amount advanced against hypothecation of
equipments, on the ground that there is no such provision of award of
interest in the contract / supplementary Agreements. It is submitted that       C
however, the Division Bench of the High Court has not properly appreciated
the fact that there is no bar to award interest on the amount advanced. It
is submitted that the Arbitrator has power to award interest pendente lite
unless specifically barred from awarding it. Reliance is placed on the
decision of this Court in the case of Raveechee and Company Vs.                 D
Union of India reported in (2018) 7 SCC 664.
      Making above submissions, it is prayed to allow the present appeal
and restore the award passed by the Arbitral Tribunal.
       5. Learned senior counsel, Mr. Minocha appearing on behalf of
the respondent – NBCC while supporting the impugned judgment and                E
order passed by the High Court has vehemently submitted that in the
present case admittedly the IRCON invoked Clause 60.1 and rescinded
the contract. It is submitted that even the learned Arbitral Tribunal also
observed and held that the IRCON was not justified in rescinding the
contract under Clause 60.1. It is submitted that however, thereafter the        F
Arbitral Tribunal justified the termination of the contract under Clause
17.4, which as rightly held by the learned Single Judge / Division Bench
was not permissible.
      5.1 It is submitted that the finding recorded by the learned Arbitral
Tribunal that the contract could not have been rescinded under Clause           G
60.1 had attained the finality. It is submitted that therefore the learned
Arbitral Tribunal was not justified in rejecting the claim Nos.33 and 34
which has rightly been set aside by the learned Single Judge and the
Division Bench, which are not required to be interfered with by this
Court in exercise of limited jurisdiction under Article 136 of the
Constitution of India.                                                          H
720            SUPREME COURT REPORTS                          [2023] 2 S.C.R.


A            5.2 It is further submitted by learned Counsel appearing on behalf
      of the respondent – NBCC that in absence of any specific provision in
      the contract / supplementary Agreements on interest on the amount
      advanced against hypothecation of equipments, the Division Bench of
      the High Court has rightly set aside the same.
B           Making above submissions, it is prayed to dismiss the present
      appeal.
             6. We have heard learned Counsel appearing for the respective
      parties at length.
             7. As observed hereinabove, challenge to the award by the learned
C     Arbitral Tribunal before the learned Single Judge and now before this
      Court is with respect to Claim Nos.33 and 34 and Counter Claim No.3
      (Partly).
             7.1 The learned Arbitral Tribunal rejected the Claim Nos.33 and
      34 which were with respect to forfeiture of the security deposits on
D     termination / rescind of the contract. The Counter Claim No.3 of the
      IRCON was for a total sum of Rs.3,65,38,806/- towards interest on
      various advances given to NBCC, more particularly, with regard to two
      specific advances being (1) Special Advance and (2) Advance against
      hypothecation of equipment. The learned Arbitral Tribunal allowed the
E     Counter Claim No.3 and awarded interest at the rate of 18% per annum
      in favour of the IRCON being interest on special advance and advances
      against hypothecation of equipments. The Division Bench of the High
      Court has partly allowed the appeal and allowed the interest in favour of
      IRCON at the rate of 18% so far as special advance is concerned.

F            7.2 While considering the findings recorded by the learned Arbitral
      Tribunal and while appreciating the submissions made by the learned
      counsel appearing on behalf of the respective parties, relevant clauses
      of the Agreement, more particularly, Clause Nos.17.4, 59.1, 60.1 are
      required to be referred to, which are as under:
            “TIME TO BE OR THE ESSENCE OF THE CONTRACT:
G
            17.4 The time for completion of the works by the date or extended
            date fixed for completion shall be deemed to be the essence of
            the contract and if the contractor shall fail to complete the works
            within the time prescribe the Company IRCON shall, if satisfied
            that the works can be completed by the contractor within a
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    INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                              721
NATIONAL BUILDINGS CONST. CORP. LTD. [M. R. SHAH, J.]

    reasonably short time thereafter be entitled without prejudice to      A
    any other right or remedy available on that behalf to recover by
    way of ascertained liquidated damages a sum equivalent to one
    per cent of the contract value of the works for each week or part
    of week the contractor is in default and allow the contractor such
    further extension of time as the Project Manager may decide. If
                                                                           B
    the Company (IRCON) is not satisfied that the works can be
    completed by the contractor and in the event of failure on the part
    of the contractor to complete the works within the further extension
    of time allowed as aforesaid the Company (IRCON) shall be
    entitled, without prejudice to any other right or remedy available
    in that behalf, to appropriate the contractor’s security deposit and   C
    rescind the contract, whether or not actual damage is caused by
    such default.
    RIGHT OF COMPANY (IRCON) TO DETERMINE
    CONTRACT:
                                                                           D
    59.1 The Company (IRCON) shall be entitled to determine and
    terminate the contract at any time should in the Company’s
    (IRCON) opinion, the cessation of work become necessary owing
    to paucity of funds or from any cause whatsoever, in which case
    the value of approved materials at site and of work done to date
    by the contractor will be paid for in full at the rates specified in   E
    the contract. Notice in writing from the Company (IRCON) of
    such determination and the reason therefore shall be conclusive
    evidence thereof.
    DETERMINATION OF CONTRACT OWING TO DEFAULT
    OF CONTRACTOR:                                                         F

    60.1 If the contractor should:-
    i.     become bankrupt or insolvent or
    ii.    make an arrangement with or assignment in favour of his
           creditors, or agree to carry out the contract under committee   G
           of Inspection of his creditors, or
    iii.   Being a company or corporation, go into liquidation (other
           than a voluntary liquidation for the purpose of amalgamation
           or reconstruction), or
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722          SUPREME COURT REPORTS                         [2023] 2 S.C.R.


A     iv.      have an execution levied on his good or property on the
               works, or
      v.       assign the contract or any part thereof otherwise than as
               provided in Clause 7 of these conditions, or
      vi.      abandon the contract, or
B
      vii.     persistently disregard the instructions of the Project
               Manager, or contravene any provision of the contract, or
      viii.    fail to adhere to the agreed programme of work by a margin
               of 10% of the stipulated period, or
C     ix.      fail to remove materials from the site or to pull down and
               replace work after receiving from the Project Manager
               notice to the effect that the said materials or works have
               been condemned or rejected under conditions, or
      x.       fail to take steps to employ competent or additional staff
D              and labour as required under these conditions, or
      xi.      fail to afford the Project Manager or Project Manager’s
               representative proper facilities for inspecting the works or
               any part thereof as required under these conditions, or

E     xii.     promise, offer or give any bribe, commission, gift or
               advantages either himself or through his partner, agent or
               servant to any officer of employee of IRCON or to any
               person on his or on the behalf in relation to the execution of
               this or any other contract with IRCON.

F     Then and in any of the said cases, the Project Manager on behalf
      of the Company (IRCON) may serve the contractor with a notice
      in writing to that effect and if the contractor does not within 7
      days after the delivery to him of such notice proceed to make
      good his default in so far as the same is capable of being made
      and carry on the work or comply with such directions as aforesaid
G     to the entire satisfaction of the Project Manager the Company
      (IRCON) shall be entitled after giving 48 hours notice in writing
      under the hand of the Project Manager (to remove the contractor
      from the whole or any portion or portions as may be specified in
      such notice) of the works without thereby avoiding the contract
H     or releasing the contractor from any of his obligations or liabilities
    INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                              723
NATIONAL BUILDINGS CONST. CORP. LTD. [M. R. SHAH, J.]

    under the contract and adopt any or several of the following           A
    courses.
        a) to rescind the contract, of which rescission notice in
           writing to the contractor under the hand of the Project
           Manager shall be conclusive evidence, in which case
           the security deposit of the contractor shall stand forfeited    B
           to the Company IRCON without prejudice to the
           Company’s (IRCON) right to recover from the
           contractor any amount by which the cost of competing
           the works by any other agency shall exceed the value
           of the contractor.
                                                                           C
        b) to carry out the works or any part thereof, by the
           employment of the required labour and materials, the
           costs of which shall include lead, lift, freight, supervision
           and all incidental charges and to debit the contractor
           with such costs, the amount of which as certified by the
           Project Manager shall be final and binding upon the             D
           contractor, and to credit the contractor with the value of
           the works done as if the works had been carried out by
           the contractor under the terms of the contract. And the
           certificate of Project Manager in respect of the amount
           to be credited to the contractor shall be final and binding     E
           upon the contractor;
        c) to measure up the work executed by the contractor and
           to get the remaining work completed by another
           contractor at the risk and expense of the contractor in
           all respects in which case any expenses that may be             F
           incurred in excess of the sum which would have been
           paid to the contractor if the works had been carried out
           by him under the terms of the contract, the amount of
           which excess as certified by the Project Manager shall
           be final and binding upon contractor shall be borne and
           paid by the contractor and may be deducted from any             G
           moneys due to him by the Company (IRCON) under
           the contractor or otherwise or from his security deposit.
           Provided always that in any case in which any of the
           powers conferred upon the Company (IRCON) hereof
           shall have become exercisable and the same shall not            H
724             SUPREME COURT REPORTS                            [2023] 2 S.C.R.


A                      be exercised, the non-exercise thereof shall not constitute
                       a waiver of any of the conditions hereof and such powers
                       shall notwithstanding be exercisable in the event of any
                       future case of default by the contractor for which his
                       liability for past and future shall remain unaffected.”
B            Considering the material on record and on appreciation of evidence,
      the learned Arbitral Tribunal though observed that the IRCON was not
      justified in rescinding the contract under Clause 60.1, rescinding of the
      contract / termination of the contract was justified under Clause 17.4,
      and thereby has rejected the Claim Nos.33 and 34 of the NBCC which
      were with respect to forfeiture of the security deposits. The learned
C     Single Judge as well as the Division Bench of the High Court have set
      aside the award passed by the learned Arbitral Tribunal rejecting Claim
      Nos.33 and 34 inter alia on the ground that once the Arbitral Tribunal
      gave the finding that the IRCON was not justified in invoking Clause
      60.1, thereafter it was not open for the Arbitral Tribunal to take the help
D     of Clause 17.4 and therefore, the learned Arbitral Tribunal was not justified
      in rejecting Claim Nos.33 and 34 which were with respect to forfeiture
      of security deposits, which could have been under Clause 17.4.
             However, 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
E     of the contract under Clause 17.4 has not been set aside either by the
      learned Single Judge or by the Division Bench of the High Court and
      therefore, the findings recorded by the learned Arbitral Tribunal on
      applicability of Clause 17.4 has attained the finality. The learned Arbitral
      Tribunal as such was absolutely justified in considering whether IRCON
      was justified in rescinding the contract, may be either under Clause 60.1
F     or under Clause 17.4. Even otherwise, from the material on record and
      even the notice dated 21.02.1994 and the subsequent notice dated
      07.03.1994, we are satisfied that the IRCON was satisfied that the work
      could not be completed by the contractor even within further extension
      of time. Clause 17.4 provides that if the company (IRCON) is not satisfied
G     that the works can be completed by the contractor and in the event of
      failure on the part of the contractor to complete the works within further
      extension of time allowed, the IRCON shall be entitled, without prejudice
      to any other right or remedy available in that behalf, to appropriate the
      contractor’s security deposits and rescind the contract, whether or not
      actual damage is caused by such default. Even Clause 60.1 also provides
H
    INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                                    725
NATIONAL BUILDINGS CONST. CORP. LTD. [M. R. SHAH, J.]

for determination of contract owing to default of contractor. It provides        A
that if the contractor should abandon the contract, or persistently
disregard the instructions of the Project Manager or contravene any
provisions of the contract…. then the Project Manager on behalf of the
Company may serve the contractor with a notice in writing to that effect
and if the contractor does not within 7 days after the delivery to him of
                                                                                 B
such notice proceed to make good his default in so far as the same is
capable of being made good and carry on the work or comply with such
directions as aforesaid to the entire satisfaction of the Project Manager,
the Company (IRCON) shall be entitled after giving 48 hours notice in
writing under the hand of the Project Manager (to remove the contractor
from the whole or any portion or portions as may be specified in such            C
notice) of the works without thereby avoiding the contract or releasing
the contractor from any of his obligations or liabilities. It further provides
that in such a case the Project Manager on behalf of the IRCON shall
be entitled to rescind the contract, in which case the security deposit
shall stand forfeited to IRCON without prejudice to IRCON’s right to
                                                                                 D
recover from the contractor any amount by which the cost of completing
the works by any other agency shall exceed the value of the contractor.
       7.3 Thus, 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 learned Arbitral Tribunal on appreciation of entire         E
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           F
justified in forfeiting the security deposits and therefore, the learned
Arbitral Tribunal was absolutely justified in rejecting Claim Nos.33
and 34, which were with respect to forfeiture of security deposits by
the IRCON. Both, the learned Single Judge as well as Division Bench
of the High Court have seriously erred in setting aside the award passed
by the learned Arbitral Tribunal rejecting Claim Nos.33 and 34. We               G
are of the opinion that the learned Single Judge, therefore, exceeded in
its jurisdiction under Section 34 of the Arbitration Act quashing and
setting aside the well-reasoned award passed by the learned Arbitral
Tribunal on rejecting Claim Nos.33 and 34, which the Division Bench
of the High Court has wrongly affirmed.                                          H
726             SUPREME COURT REPORTS                            [2023] 2 S.C.R.


A            7.4 Under the circumstances, the impugned judgment and order
      passed by the learned Single Judge as well as the Division Bench of the
      High Court quashing and setting aside the award passed by the learned
      Arbitral Tribunal rejecting Claim Nos.33 and 34 deserve to be quashed
      and set aside and the award passed by the learned Arbitral Tribunal
      rejecting Claim Nos.33 and 34 is required to be restored and upheld.
B
             7.5 Now, so far as the quashing and setting aside the award passed
      by the Arbitral Tribunal awarding interest @ 18% on advance for the
      hypothecation of equipment, by the learned Single Judge confirmed by
      the Division Bench is concerned, at the outset, it is required to be noted
      that the Division Bench of the High Court has upheld the order passed
C
      by the learned Single Judge quashing and setting aside the interest
      awarded by the learned Arbitral Tribunal on advance for the hypothecation
      of equipment on the ground that there is no such stipulation in the
      agreement / contract. However, the High Court has not at all considered
      Section 31(7)(a) of the Arbitration Act, which permits the arbitrator that
D     unless otherwise agreed by the parties, where and in so far as an arbitral
      award is for the payment of money, the Arbitral Tribunal may include in
      the sum for which the award is made interest, at such rate as it deems
      reasonable, for the whole or any part of the period between the date on
      which the cause of action arose and the date on which the award is
      made. Thus, unless there is a specific bar under the contract, it is always
E
      open for the arbitrator / Arbitral Tribunal to award pendente lite interest.
      Identical question came to be considered by this Court in the case of
      Raveechee and Company (supra). In the said decision, it is observed
      and held by this Court that an arbitrator has the power to award interest
      unless specifically barred from awarding it and the bar must be clear
F     and specific. In the said decision, it is observed and held that the liability
      to pay interest pendente lite arises because the claimant has been found
      entitled to the same and had been kept out from those dues due to the
      pendency of the arbitration, i.e., pendente lite.
             Applying the law laid down by this Court in the aforesaid decision
G     to the facts of the case on hand, once it was found that the advance
      amount was paid for hypothecation of equipment and thereafter when
      the Arbitral Tribunal awarded the interest on advance for hypothecation
      of equipment, the same was not required to be interfered with by the
      learned Single Judge in exercise of the powers under Section 34 of the
      Arbitration Act and even by the Division Bench of the High Court while
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    INDIAN RAILWAY CONST. COMPANY LTD. v. M/S                                       727
NATIONAL BUILDINGS CONST. CORP. LTD. [M. R. SHAH, J.]

exercising the powers under Section 37 of the Arbitration Act. However,             A
at the same time to award the interest @ 18% can be said to be on a
higher side. 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.
       8. In view of the above and for the reasons stated above, present            B
appeal succeeds. The impugned judgment and order passed by the learned
Single Judge as well as the Division Bench of the High Court quashing
and setting aside the award passed by the Arbitral Tribunal rejecting
Claim Nos. 33 and 34 are hereby quashed and set aside and the award
passed by the Arbitral Tribunal rejecting the claim Nos. 33 and 34 is
hereby restored. The impugned judgment and order passed by the Division             C
Bench of the High Court in confirming the judgment and order passed
by the learned Single Judge insofar as quashing and setting aside the
award passed by the Arbitral Tribunal awarding the interest @ 18% on
the advance for hypothecation of equipment is concerned, the same is
hereby quashed and set aside and the award passed by the Arbitral                   D
Tribunal awarding the interest on advance for hypothecation of equipment
is hereby restored, however, with a modification that there shall be paid
an interest @ 12% pendente lite on advance for hypothecation of
equipment instead of 18% as awarded by the Arbitral Tribunal.
      Present appeal is accordingly allowed to the aforesaid extent.                E
However, in the facts and circumstances of the case, there shall be no
order as to costs.

Ankit Gyan                                                        Appeal allowed.
(Assisted by : Abhishek Pratap Singh and Mahendra Yadav, LCRAs)
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