Bookmark
PDF
Share
CaseIQ

Jaiprakash Associates Ltd. v. Thdc India Ltd.

Delhi High Court

Dec 14, 2012

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Summary of Judgment (Extract provided)

Factual and Procedural Background

This opinion concerns an appeal from an order under Section 34 of the Arbitration and Conciliation Act, 1996. A Majority arbitral award dated 10 October 2010 decided two monetary claims and awarded interest on the sums allowed. The amounts and awards (as described in the opinion) were:

Claim No. 1 (reimbursement for fluctuations in foreign exchange rates for construction equipment): claimed Rs. 38,75,887; awarded Rs. 18,59,377.
Claim No. 2 (supply of Micro Silica): claimed Rs. 35,17,760; awarded Rs. 6,13,160.

The arbitral tribunal awarded interest on the two amounts at 10% p.a. from the date arbitration was invoked (9 October 2007) until 60 days after the award, and thereafter at 18% p.a. until payment.

Tehri Hydro Development Corporation Ltd. (now THDC India Ltd.) filed objections under Section 34 challenging only the interest portion of the award. By an order dated 15 November 2011, the Single Judge allowed the objection and set aside the majority award to the extent interest had been awarded. The present opinion reviews that conclusion on appeal.

Legal Issues Presented

Whether, in the presence of contractual clauses (Clause 50 and Clause 51 of the contract's General Conditions) that prohibit payment of interest or claims for interest, the arbitrators could award pendente lite or future interest under the Arbitration and Conciliation Act, 1996 (and specifically in light of Section 31(7)).
Whether the precedents relied upon by the parties (notably State of U.P. v. Harish Chandra & Co., Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age, and the Supreme Court's decision in Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd.) are in conflict and which line of authority governs the instant contract.

Arguments of the Parties

Appellant's Arguments

The appellant (as presented by learned Senior Counsel) argued that Clause 1.9 in the Supreme Court decision State of U.P. v. Harish Chandra & Co. is pari materia with Clause 51 of the instant contract. On that basis and by reference to the decision in State of Orissa v. B.N. Agarwalla, the appellant contended that the Single Judge's distinction between Harish Chandra and the present clause was incorrect and that the Single Judge's conclusion should be reversed.
The appellant relied principally upon Harish Chandra (1999) 1 SCC 63 in support of its interpretation.

Respondent's Arguments

The respondent urged that decisions subsequent to Engineers-De-Space-Age had distinguished or limited that decision (citing, inter alia, Sayeed Ahmed & Co. v. State of U.P. and other cases) and that the Single Judge's interpretation (which disallowed interest under the contract clauses) was correct.
The respondent also pointed to a later Supreme Court decision (reported as 2012 (4) Arb.LR 88: Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd.) in which clauses pari materia to Clauses 50 and 51 of the instant contract were interpreted by the Supreme Court in a manner consistent with the Single Judge's conclusion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
(1996) 1 SCC 516 — Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age	Relied upon by the majority arbitrators concerning entitlement to interest.	The court noted that the learned Arbitrators relied on this decision; later decisions were said to have distinguished it and Sayeed Ahmed's case was noted to have held it not to be good law in the relevant respects.
(1999) 1 SCC 63 — State of U.P. v. Harish Chandra & Co.	Interpreted a clause (Clause 1.9) to limit prohibition on interest to certain specified types of amounts (e.g., monies lying with the Government such as security deposits or retention money).	The appellant relied on Harish Chandra. The court analyzed the clause in Harish Chandra and explained that Harish Chandra's clause was limited in scope and thus distinguishable from the clauses in the instant contract in certain respects.
(2009) 12 SCC 26 — Sayeed Ahmed & Co. v. State of U.P.	Held that the decision in Engineers-De-Space-Age was no longer good law for certain propositions.	The court recorded that the Single Judge noted Sayeed Ahmed's overruling effect on Engineers-De-Space-Age and treated that as part of the background to rejecting reliance on Engineers-De-Space-Age.
(2009) 16 SCC 504 — Union of India v. Saraswati Trading Agency	One of the decisions cited as distinguishing Engineers-De-Space-Age.	The court recorded that such decisions were urged by the respondent to show that Engineers-De-Space-Age had been distinguished by later Supreme Court decisions.
(2008) — Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palghat	Another decision cited as distinguishing Engineers-De-Space-Age.	Similarly, the court recorded it among the decisions relied upon by the respondent to show the limited continuing application of Engineers-De-Space-Age.
(2011) 7 SCC 279 — Union of India v. Krafters Engineering & Leasing Pvt. Ltd.	Cited among later authorities bearing on the duty/power to award interest under contracts prohibiting interest.	Recorded as part of the jurisprudential context in which the Single Judge's view was assessed.
(1997) 2 SCC 469 — State of Orissa v. B.N. Agarwalla	Contains a clause (in that contract) the appellant used to support its argument that differently worded clauses with similar purport should be treated alike.	The appellant urged similarity in purport; the court considered this argument but held that Jai Prakash Associates’ decision (below) governs the instant clauses.
2012 (4) Arb.LR 88 (SC) — Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd.	Interpreted contract clauses (1.2.14 and 1.2.15) pari materia with Clauses 50 and 51 of the instant contract and upheld a prohibition on payment of interest in broader circumstances, including delayed payments or omissions.	The court treated this Supreme Court decision as the governing authority for the instant contract, concluding that Clauses 50 and 51 are pari materia with the clauses considered in Jai Prakash Associates and that the law declared there governs the present contract.

Court's Reasoning and Analysis

The court proceeded in a stepwise analytical manner, closely following textual construction and comparative analysis of relevant contract clauses and authorities:

The court identified Clauses 50 and 51 of the parties' contract as the central contractual provisions bearing on entitlement to interest. The exact language of both clauses was quoted and placed before the court for interpretation.
The court noted the Single Judge's starting premise: that Sub-section 7 of Section 31 of the Arbitration and Conciliation Act, 1996 left no scope for arbitrators to award pendente lite or future interest where the contract expressly prohibited interest. The Single Judge therefore construed Clauses 50 and 51 to see whether they prohibited interest on the awards made by the arbitrators.
Clause-by-clause construction:
- Clause 50 was construed by the Single Judge as referring to "ascertainable sums" (phrases like “interest upon any guarantee” and “payments in arrears” indicate ascertained sums). The appellate court accepted that Clause 50 prohibits interest where payment is delayed on account of measurement or otherwise.
- Clause 51 was analyzed for the phrases “no claim for interest or damage will be entertained or be payable” and the terminal phrase “in any other respect whatsoever.” The Single Judge read this clause as prohibiting payment of interest on any amount not paid because of a dispute, difference or misunderstanding. The appellate court concluded Clause 51 prohibits interest on monies lying with the corporation (e.g., security deposits or retention money) and also covers prohibition of interest on delayed payments owing to disputes or omissions in making payments.
The court compared the instant clauses with the contractual clauses considered in prior Supreme Court decisions. It observed that Harish Chandra's clause (Clause 1.9) was interpreted by the Supreme Court there as applying only to specified types of amounts (monies lying with the Government such as security deposits or retention money), and not to all claims for money arising from work done or measurement-related claims.
The court identified an apparent tension between Harish Chandra and the later Supreme Court decision in Jai Prakash Associates (Tehri Hydro v. Jai Prakash), but resolved it: in Jai Prakash Associates the Supreme Court interpreted two clauses that barred claims for interest and held the prohibition to extend to delayed payments, omissions to make payments for work done, and monies lying with the government. The court found Clauses 50 and 51 of the instant contract to be pari materia with clauses 1.2.14 and 1.2.15 in Jai Prakash Associates.
The appellate court criticized the Single Judge's reasoning to the extent the Single Judge drew a distinction between Harish Chandra and Clause 51 on the basis that Clause 51 uses the phrase “or be payable” whereas Clause 1.9 in Harish Chandra did not. The appellate court called that distinction "palpably not sound" because if a claim is not entertained it ordinarily follows it would not be payable; however, the appellate court expressly accepted the Single Judge's final conclusion that interest should not have been awarded under the contract clauses.
The court invoked the canons of construction, including the rule of ejusdem generis / noscitur a sociis, to explain how connected expressions should be read in their cognate sense where a discernible genus exists; the court used this rule in construing the scope of the clauses' prohibitions.
Having concluded Clauses 50 and 51 prohibit payment of interest in the circumstances before the court, and that the law declared in Jai Prakash Associates governs the instant contract, the court affirmed the outcome reached by the Single Judge (that the interest portion of the arbitral award should be set aside), while correcting some aspects of the Single Judge's reasoning.

Holding and Implications

Holding: The appeal is dismissed. (The final sentence of the opinion: "The appeal is accordingly dismissed but without there being any order as to costs.")

Implications:

Direct effect on the parties: The court upheld the Single Judge's conclusion that the arbitral majority award must be set aside insofar as interest was awarded, on the basis that Clauses 50 and 51 of the contract prohibit payment of interest in the circumstances dealt with by the arbitrators.
The court held that Clauses 50 and 51 are pari materia with clauses considered by the Supreme Court in Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd., and therefore the law declared in that decision governs the interpretation of the instant contract's clauses.
The court corrected aspects of the Single Judge's reasoning (noting that the Single Judge's textual distinction between Harish Chandra and Clause 51 was not sound) but reached the same operative result as the Single Judge on the interest point.
There is no order as to costs.

Note: This summary is limited to the information expressly contained in the provided opinion and does not infer facts or outcomes beyond the text of that opinion.

Show all summary ...

PRADEEP NANDRAJOG, J.

1. Majority award dated October 10, 2010 dealt with two claims and if allowed, interest thereon. And as against Rs. 38,75,887/- prayed for under claim No. 1 for reimbursement on account of fluctuations in foreign exchange rates in respect of construction equipment Rs. 18,59,377/- has been allowed, and under claim No. 2 in sum of Rs. 35,17,760/- pertaining to supply of Micro Silica sum awarded is Rs. 6,13,160/-; and on the two amounts interest awarded is @ 10% per annum from date when arbitration was invoked i.e October 9, 2007, till 60 days after the award and thereafter @ 18% per annum till when payment is made.

2. Objections filed under Section 34 of the Arbitration and Conciliation Act 1996 by Tehri Hydro Development Corporation Ltd., now known as THDC India Ltd. concerned only the interest awarded by the learned Majority Arbitrators. Vide impugned order dated November 15, 2011, the objection has succeeded resulting in the majority award being set aside limited to the interest being awarded.

3. Two clauses under the contract between the parties, being Clause No. 50 and Clause No. 51 under the General Condition of Contract were the subject matter of consideration before the learned Arbitrators as also the learned Single Judge. The two clauses reads as under:-

“Clause 50.0 Interest on money due to the contractor

No omission on the part of the Engineer in charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any balance which may on the final settlement of his account, be due to him.

Clause 51.0 No claim for delayed payment due to dispute etc.

No claim for interest or damage will be entertained or be payable by the corporation in respect of any amount or balance which may be lying with the corporation owing to any dispute, different or misunderstanding between the parties or in respect of any delay or omission on the part of the Engineer in charge in making intermediate or final payments on in any other respect whatsoever.”

4. Para 24 of the award penned by the majority would reveal that the learned Arbitrators have relied upon the law declared by the Supreme Court in the decision reported as (1996) 1 SCC 516Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age, and before the learned Single Judge the appellant had principally relied upon the decision of the Supreme Court reported as (1999) 1 SCC 63State of U.P v. Harish Chandra and Co. and the respondent had sought to urge that the decision in Engineers-De-Space-Age's (supra) pronounced by the Supreme Court was distinguished in various decisions reported as (2009) 12 SCC 26Sayeed Ahmed & Co. v. State of U.P;(2009) 16 SCC 504UOI v. Saraswati Trading Agency; 2008 SCC 767Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palgat; and (2011) 7 SCC 279UOI v. Krafters Engineering & Leasing Pvt. Ltd.

5. Noting that whereas there could be a debate under the Arbitration Act 1940 with respect to the powers of the Arbitrators to award pendente lite interest notwithstanding the contract prohibiting grant of interest, with reference to Sub Section 7 of Section 31 of the Arbitration and Conciliation Act, 1996, the learned Single Judge has found no scope for any debate, and on the premise that if a contract prohibits grant of interest with respect to any claim, the Arbitrator(s) cannot order payment of pendente lite or future interest. Thus holding, the learned Single Judge has proceeded to consider the two clauses to ascertain whether the two clauses prohibit interest to be paid on the two claims allowed.

6. Construing Clause 50 as referable to only ascertainable sums, the learned Single Judge has referred to the phrases ‘interest upon any guarantee’ and ‘payments in arrears’ to conclude that these phrases clearly contemplate ‘ascertained’ sums.

7. Thereafter, the learned Single Judge has proceeded to analyze Clause 51 and has highlighted the expression ‘no claim for interest or damages will be entertained or payable’ and the expression ‘in any other respect whatsoever’ to bring out that the said clause prohibits payment of interest on any amount not paid on account of a dispute or a difference. The learned Single Judge has thereafter contrasted the language of Clause 1.9 of the contract considered by the Supreme Court in Harish Chandra's (supra) and has noted that the phrase ‘or be payable’ in Clause 51 of the instant contract was missing in Clause 1.9 of the contract considered by the Supreme Court in Harish Chandra's case (supra). The learned Single Judge has also found that the said decision was considering the matter under the Arbitration Act, 1940. The learned Single Judge has thereafter noted that the decision relied upon by the appellant in Engineers-De-Space-Age's case (supra) was held to be no longer good law by the Supreme Court in Sayeed Ahmed's case (supra). The learned Single Judge has thereafter noted the other decision relied upon by the respondent and has concluded the opinion against the appellant setting aside the award insofar interest was awarded.

8. It was urged before us by the learned Senior Counsel for the appellant that Clause 1.9 in Harish Chandra's case (supra) is pari materia with Clause 51 of the instant contract and thus urged that a differently worded Clause being Clause No. 4 in the decision reported as (1997) 2 SCC 469State of State Of Orissa v. B.N Agarwalla, but having similar purport, requires it to be held that the view taken by the learned Single Judge is not correct.

9. The clause considered by the Supreme Court in B.N Agarwalla's case (supra) reads as under:-

“Rates, Materials and Workmanship

The rates quoted shall be for finished work inclusive of all materials, labour, taxes, royalities, transportation etc.

The Engineer-in-charge will have full and final authority to reject any material or work done due to defect therein and the contractor/contractors shall forthwith remedy the defects at his/their own expense and no further work shall be done in connection with particular work or portion of the work till such time as the defect is removed to the entire satisfaction of the Engineer-in-charge.

All materials, tools and plants brought to site by the contractor/contractors shall be deemed to be held in lien by the BCCL and the contractor/contractors shall not have the right to remove the same from the site without the written permission of the Engineer-in-Charge. However, the BCCL shall not be liable for any loss, theft or damage due to fire or other causes sustained during this period of lien.

No interest is payable on amounts withheld under the item of the agreement.

The BCCL shall be at liberty to deduct from the security deposit or from any other sum due or to become due under this contract or under another contract all sums that become due to the BCCL. All bills shall be pre-audited before amounts and will be made by cheque only.”

10. Clause 1.9 which was the focal point of interpretation in the decision reported as (1999) 1 SCC 63State of U.P v. Harish Chandra & Co. reads as under:-

“1.9 No claim for delayed payment due to dispute etc.- No claim for interest or damages will be entertained by the Government with respect to any moneys or balances which may be lying with the government owing to any dispute, difference; or misunderstanding between the Engineer-in-Charge in marking periodical or final payments or in any other respect whatsoever.”

11. Learned Senior Counsel for the respondent urged that in another contract between the parties, Clauses 1.2.2.14 and 1.2.15 which are pari materia with clauses 50 and 51 of the instant contract and were the focal point of consideration by the Supreme Court in the decision reported as 2012 (4) Arb.LR 88 (SC)Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd. have been interpreted by the Supreme Court as has been done by the learned Single Judge.

12. The two clauses considered by the Supreme Court in the afore noted decision read as under:-

“1.2.14 No claim for delayed payment due to dispute, etc. - The contractor agrees that no claim for interest or damages will be entertained or payable by the government in respect of any money or balances which may be lying with government owing to any disputes, differences or misunderstandings between the parties or in respect of any delay or omission on the part of the Engineer-in-Charge in making immediate or final payment or in any other respect whatsoever.

1.2.15 Interest on money due to the contractor - No omission on the part of the Engineer-in-Charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any balance which may on the final settlement of his accounts be due to him.”

13. We contrast the language of Clause 50 of the instant contract and the language of clause 1.2.14 considered by the Supreme Court in Jai Prakash Associates' case (supra) as also the language of Clause 51 of the instant contract and clause 1.2.15 considered by the Supreme Court in Jai Prakash Associates' case (supra) by juxtaposing the same in a tabular form as under:-

Clause 50.0 Interest on money due to the contractor. -

1.2.14 No claim for delayed payment due to dispute, etc. - The contractor agrees that no claim for interest or damages will be entertained or payable by the government in respect of any money or balances which may be lying with government owing to any disputes, differences or misunderstandings between the parties or in respect of any delay or omission on the part of the Engineer-in-Charge in making immediate or final payment or in any other respect whatsoever.

Clause 51.0 No claim for delayed payment due to dispute etc. -

1.2.15 Interest on money due to the contractor -

No omission on the part of the Engineer-in-Charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any misunderstanding between the parties or in respect of any delay or omission on the part of the Engineer in charge in making intermediate or final payments on in any other respect whatsoever.

14. Now, in Harish Chandra's case (supra) the clause in question prohibited a claim towards interest being entertained with respect to money or balances lying with the Government owing to any dispute or difference. Thus, as would be evident from paragraph 10 of the said decision, the Supreme Court clearly held that the clause would apply only with respect to specified type of amounts i.e the amounts lying with the Government pursuant to the agreement; such as security deposits or retention money and taking the argument further, the phrase ‘or in any other respect whatsoever’ was read to mean a claim akin thereto i.e of a kind where money was retained and not of a kind where pursuant to a work done or any other clause of the contract a claim for money was raised.

15. Thus, the argument by learned counsel for the appellant that there is hiatus between the decisions of the Supreme Court in Harish Chandra's case (supra) and Jai Prakash Associates’ case (supra) is not correct inasmuch as in the latter case there were two clauses prohibiting interest and both of them clearly envisaged a prohibition to pay interest with respect to not only monies lying with the government but even with respect to delayed payments or omissions to make payments for work done or on account of measurements not taken etc. Clauses 50 and 51 of the instant contact are pari materia with clause 1.2.14 and 1.2.15 in Jai Prakash Associates’ case (supra).

16. The reasoning of the learned Single Judge by drawing a distinction between Clause 1.9 in Harish Chandra's case (supra) and Clause-51 of the instant contract is palpably not sound inasmuch as the learned Single Judge has emphasized that in Harish Chandra's case (supra) the prohibition was limited to a claim being entertained and in the instant case the prohibition related to not only a claim being entertained but even payable; for the reason how would a thing be payable unless it is to be entertained. But, the final conclusion arrived at by the learned Single Judge is correct.

17. We thus correct the reasoning. Clause 50 of the instant contract prohibits interest to be paid if payment is delayed on account of a measurement or otherwise. Clause 51 prohibits interest to be paid in respect of money lying with the corporation i.e security deposits or retention money and also includes a prohibition for interest to be paid owing to any dispute, difference or misunderstanding between the parties or on account of delay or omission to make payments and the clause terminates with the phrase ‘in any other respect whatsoever’.

18. The rule of ejusdem generis guides us that where two or more words or phrases which are susceptible of analogous meaning are coupled together, a noscitur a sociis, they are to be understood to mean in their cognate sense and take colour from each other but only if there is a distinct genus or a category. Where this is lacking i.e unless there is a category, the rule cannot apply.

19. Thus, the two clauses in the instant case compel us to hold that neither there is a conflict in the decisions of the Supreme Court in Harish Chandra's case (supra) and Jai Prakash Associates’ case (supra) and that the law declared in Jai Prakash Associates’ case (supra) governs the instant contract.

20. The appeal is accordingly dismissed but without there being any order as to costs.