22 July 2024


High Court of Madras

Sri Swarna & Co. v. The Controller of Stores, Southern Railway and Ors.




A person is entitled to compensation, if there is delay in settlement of legitimate claim thereof

Present petition has been filed to set aside award passed by second Respondent, Sole Arbitrator in so far as the failure to consider claim for compensation made by Petitioner on account of default in refund of Earnest Money Deposit (EMD) for period 16th June, 1999 and 13th October, 2000. Petitioner's case is that while awarding contract, Respondent Railway administration should have taken into consideration location, availability of material, etc and accordingly they should have fixed period for completion. Allegation is that planning and estimation were not properly done by Railway Administration resulting in Petitioner incurring heavy loss on waiting time and awaiting orders, etc. Petitioner submitted various claim petitions before respondent Railway Administration which were not considered and ultimately matter was referred for arbitration before second Respondent. Present Petition is only restricted to claim for compensation.

Clause 16(2) of the General Conditions of Contract prohibits payment of interest upon EMD or Security Deposit or amounts payable to Contractor under Contract. Emphasis should be made on words "under the Contract". Therefore, if for a specified Contract, Petitioner had furnished an EMD/Security Deposit and upon completion of Contract, when Petitioner is refunded EMD/Security Deposit, no interest is payable in terms of Clause 16(2) of General Conditions of Contract. Admittedly, General Conditions of Contract have a clause which prohibits payment of interest on refund of EMD/Security Deposit. In instant case, refund sought for by Petitioner does not pertain to EMD furnished by Petitioner for the subject Contract but pertains to four other contracts.

Therefore, Court viewed that, Respondent Railway Administration cannot invoke Clause 16(2) of General Conditions of Contract to state that no interest is payable. According to Petitioner, the EMDs were withheld unjustly for over seven years. If a person has a legitimate claim, he is entitled to such payment within a reasonable time and if there is a delay in settlement of the claim, he is entitled to be compensated.

In light of fact, Court has held that Clause 16(2) of General Conditions of Contract would not apply to facts of present claim and that, claim for compensation was not dealt with by Arbitrator, award would call for interference. While exercising powers under Section 34 of Act, there are limits to judicial reviewability of awards passed by Arbitrator. It may be true that reasonableness of an award is not a matter for the Court to consider unless the award is perverse. However, reasons stated by Arbitrator should not only be intelligible but should also deem to consider expressly or impliedly specific points that were raised. However, there is no proposition that, Court should be slow to interfere with Arbitrator's award even if conclusions are perverse and even when very basis of award is wrong.

Arbitrator has not dealt with Petitioner's claim for compensation. This would be sufficient for this Court to hold that award is liable to be set aside to that extent. When Respondents have not raised any objection before Arbitrator with regard to the claim for compensation, the petitioner is entitled to the claim as made. Section 31(3) of Arbitration and Conciliation Act, 1996 provides that, an award must state reasons on which it is based unless it is an award on agreed terms or parties have dispensed with requirements of reasons. Impugned award is set aside in so far as it rejects Compensation Claim made by petitioner for delayed refund in EMDs furnished by Petitioner pertaining to other contracts and matter remanded to Departmental Arbitrator.


Sections 31(3), 31(7) and 34 Arbitration and Conciliation Act, 1996

Tags : Delay Compensation Entitlement

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