‘Interest cannot be withheld in the absence of express provisions permitting the same’; Delhi High Court partially sets aside arbitral award for being patently illegal

Delhi High Court

Delhi High Court: In a petition filed by Bawana Infra Development Pvt Ltd. (petitioner) under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the impugned award dated 12-09-2018 passed by the sole arbitrator relating to the concessionaire agreement with respect to the re-development, operation, and maintenance of the ‘Bawana Industrial Area, Chandra Dhari Singh, J., held that there appears patent illegality in the impugned award on the ground that the impugned award with respect to Claim 7 was not well-reasoned as required by the Act under Section 31(3), and the impugned award with respect to the award in Claim 11 is contrary to the provisions of the Agreement between the parties.

The petitioner Bawana Infra Development Private Limited was a special purpose vehicle established after the respondent circulated a tender inviting bid from interested parties on a Public Private Partnership Modality, and Abhudaya Housing and Constructions Pvt. Ltd. and Jyoti Buildtech Pvt. Limited (“Selected Bidder”) were awarded the contract. The respondent is Delhi State Industrial and Infrastructure Development Corporation Ltd. (‘DSIIDC’), a Government Company incorporated under the Companies Act.

The respondent invited bids for redeveloping, operating, and maintaining the infrastructure and utilities of the industrial area of Bawana Industrial Area, Delhi on Public Private Partnership basis. The work was awarded by the Bid selection committee and a concession agreement was executed. On the petitioner’s request for the ‘completion certificate’, the third party issued a “provisional certificate” to the respondent without further issuing it to the petitioner claiming the incomplete work of the petitioner. Due to disputes, the arbitration clause was invoked, and a sole arbitrator was appointed who passed the arbitral award impugned in the instant matter. The petitioner has raised objections against the impugned award based on Claims 2, 3, 5, 6, 7, 9, 10 and 11.

Claim 7- Interest on withheld 25% maintenance charges (18% p.a. till 31-10-2016)

The Court noted that the Arbitral Tribunal has evidently erred in adjudicating upon the claim. The Arbitral Tribunal was bound to adjudicate on the lines of the contract and in the instant clause, the Arbitrator deviated from the lines of the contract. No contractual provision authorized the respondent to withhold the amount of maintenance and other charges. Withholding interest in the absence of express provisions permitting the same is a breach of contract. Thus, the Court sets aside the impugned award with respect to the direction on Claim no. 7 for being unreasoned.

Claim 11- Interest due to delay in disbursement of monthly payment (18% simple interest p.a. calculated till 31-10-2016)

The Court noted that a bare reading of Section 31(7)(a) Arbitration Act makes it evident that the Section applies only where there is no previous agreement as to the rate of interest to be awarded. However, the Arbitral Tribunal has gone beyond the contract and awarded an interest rate that is quite clearly not the rate the parties had previously agreed upon.

The Court further noted that the Arbitral Tribunal may not resort to Section 31(7)(b) Arbitration Act to award a rate of interest when express provisions regarding the same are present in the Concessionaire Agreement. In the instant case, the Concessionaire Agreement expressly stipulated the rate of interest when there is a delayed payment.

Thus, the Court sets aside Claim 11 with regards to the rate of interest awarded being contrary to the rate of interest agreed upon by the parties vide Concessionaire Agreement as the impugned arbitral award in terms of Claim 11 is not in consonance with Section 31(7)(a) of the Act.

The Court opined that the decisive factor is first, the Sole Arbitrator had to adopt a judicial approach; second, the principles of natural justice had to be upheld; third, the decision must not have been egregious, or rather, perverse. However, the impugned award has failed the triple test regarding the award of Claims 7 and 11 and there is no patent illegality regarding clauses 2, 3, 5, 6, 9, and 10. Thus, the award of these claims is found to be patently illegal and contrary to the fundamental policies of India.

Thus, the Court did not completely set aside the impugned award but only regarding Claims 7 and 11 where perversity, and thus Patent Illegality has been observed.

[Bawana Infra Development Private Limited v Delhi State Industrial & Infrastructure Development Corporation Limited, 2023 SCC OnLine Del 1569, decided on 16-03-2023]

Judgment By: Justice Chandra Dhari Singh.

Advocates who appeared in this case :

Mr. Rajshekhar Rao, Senior Advocate with Mr. Dheeraj P. Deo, Mr. Yasuraj Samant and Mr. A. Peter, Advocates for the Petitioner;

Ms. Anusuya Salwan and Ms. Nikita Salwan, Advocates for the Respondents.

Must Watch

maintenance to second wife

bail in false pretext of marriage

right to procreate of convict

Criminology, Penology and Victimology book release

One comment

  • “The writing style in this article is excellent. It’s engaging and easy to follow, even for complex topics.”

Join the discussion

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.