The Delhi High Court has partly allowed an appeal filed by Bharat Heavy Electricals Limited (BHEL) under Section 37 of the Arbitration and Conciliation Act, 1996, upholding the arbitral award on merits while setting aside the grant of pre-reference and pendente lite interest in favour of Delkon India Pvt. Ltd. The Division Bench of Justices V. Kameswar Rao and Vinod Kumar affirmed the findings of the Sole Arbitrator and the District Judge insofar as they upheld Delkon’s counterclaims arising out of the illegal termination of the contract, but interfered with the award of interest holding it to be contrary to the contractual bar.
The dispute arose out of a 1996 contract awarded by BHEL to Delkon for erection, testing and commissioning works at the Feroz Gandhi Thermal Power Project in Uttar Pradesh, which was terminated by BHEL in January 1997, citing poor progress. Arbitration proceedings followed, culminating in an award that declared the termination illegal and granted Delkon compensation on several counterclaims, including for transportation of materials, mobilisation and demobilisation costs, and wrongful withholding of tools and plants. The arbitrator also awarded pre-reference and pendente lite interest on certain claims, which was upheld by the District Judge when BHEL preferred an appeal under Section 34. Upon rejection of the appeal, BHEL appeached Delhi High Court u/s 37 of the Act.
While examining BHEL’s challenge, the High Court, while referring to Construction and Design Services Vs. Delhi Development Authority, (2015) 14 SCC 263, held that the arbitrator was justified in adopting a “rough and ready” method by using a practical guesswork to quantify damages where loss was established but precise proof of quantum was unavailable.
The Court held that since the Local Commissioner was unable to take complete measurements of the erection and alignment work due to paucity of time, the Sole Arbitrator was justified in awarding only a bare minimum amount in the absence of documentary proof of the full quantum of work. Noting that the amounts awarded on the counterclaims were meagre and represented minimum costs, the Court declined to interfere and found no perversity or patent illegality in the arbitral award.
However, the Bench set aside the award of pre-reference and pendente lite interest, holding that Clause 17 of the contract, which barred payment of interest on “any moneys due to the contractor,” was wide enough to cover not only contractual dues but also claims arising from illegal termination. Referring to Supreme Court precedents, including Bharat Heavy Electricals Ltd. v. Globe Hi-Fabs Ltd. and Garg Builders v. BHEL, (2015) 5 SCC 718 and Garg Builders v. Bharat Heavy Electricals Limited, Civil Appeal No. 6216 of 2021, the Court held that the arbitrator had no jurisdiction to award such interest in the face of an express contractual prohibition.
Accordingly, while sustaining the principal award directing BHEL to pay Delkon ₹29.42 lakh, the High Court set aside the grant of pre-reference and pendente lite interest in view of the contractual bar. The Court, however, upheld the award of post-award interest at 14.15% per annum under Section 31(7)(b) of the Act, modifying the commencement date to run from the date of the award till actual payment.
Appearances
Appellant- Ms. Mani Gupta, Mr. Pranav Malhotra and Mr. Udwipt Verma, Advocates
Respondent- Mr. K.S. Mahadevan and Ms. Swati Bansal, Advocates
