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Indian Railway Construction Company Limited vs M/s National Buildings Construction Corporation Limited

Civil Appeal · 2023 INSC 248Decided 17 Mar 2023
Civil Appeal No. 8460 of 2022
M.R. Shah · M.M. Sundresh

Background

IRCON awarded NBCC a contract to construct a railway station-cum-commercial complex at Vashi, Navi Mumbai. NBCC failed to complete the work on time, and after supplementary agreements and advances did not resolve the delay, IRCON terminated the contract in 1994. The dispute went to arbitration, where the Arbitral Tribunal rejected two of NBCC's claims for refund of security deposits (Claim Nos. 33 and 34) and partly allowed IRCON's counter-claim for interest on advances given to NBCC. NBCC challenged the award before the Delhi High Court, which set aside the rejection of the security-deposit claims and the 18% interest awarded on an equipment advance; both the Single Judge and the Division Bench ruled in NBCC's favour, prompting IRCON's appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that the High Court, acting under Section 34 (and in appeal under Section 37) of the Arbitration Act, had exceeded its limited jurisdiction by re-appreciating the merits of a well-reasoned arbitral award instead of confining itself to the narrow grounds on which an award can be set aside. It restored the Arbitral Tribunal's rejection of NBCC's Claim Nos. 33 and 34 (return of security deposits), holding the High Court had no basis to interfere. On the interest issue, the Court held that under Section 31(7)(a) of the Arbitration Act an arbitrator may award pendente lite interest unless expressly barred by the contract, and since there was no such express bar, the Tribunal was entitled to award interest on the equipment-hypothecation advance; however, it reduced the rate from 18% to a more reasonable 12% per annum. The appeal was accordingly allowed to this extent, with no order as to costs.

Lesson Learnt

Courts reviewing an arbitral award under Sections 34/37 of the Arbitration Act cannot re-examine the merits of the arbitrator's findings as if hearing a fresh appeal: their power to interfere is narrow; and an arbitrator can award interest on sums due unless the contract specifically and clearly bars it.

Official source (sci.gov.in)View Judgment (PDF)

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