Holding

The contract provides an entitlement to interest on delayed local‑currency payments, the arbitral award is valid, and interest should be payable at 8% simple per annum.

Summary

The appellant, M/s Oriental Structural Engineers Pvt. Ltd., was contracted by the State of Kerala to upgrade two highway stretches. The contract contained a clause (60.8) providing for interest on delayed payments, but the rate for local‑currency interest was left blank in the bid appendix. The arbitral tribunal awarded interest on delayed local‑currency payments, which the State challenged under Section 34 of the Arbitration and Conciliation Act, 1996; the Arbitration Court and the Kerala High Court set aside the award, interpreting the blank as implying a zero rate and deeming the appellant’s earlier letters as a waiver. The Supreme Court held that the contract did not expressly exclude interest, that the blank could not be read as a cancellation of the interest clause, and that the appellant’s letters were not a valid waiver. The Court upheld the arbitral award, fixing the rate of interest at a simple 8% per annum, and set aside the lower courts' judgments.

Issues considered

The contract's clause on interest – does it create an entitlement to interest on delayed local‑currency payments?
Does a blank space in the bid appendix negate the interest entitlement?
Do the appellant's letters constitute a waiver of the right to interest?
Did the arbitral tribunal exceed its jurisdiction in awarding interest?
What is the appropriate rate of interest where the contract is silent on the rate?

Legislation cited

Arbitration and Conciliation Act, 1996s. 28(3), s. 31(7)(a), s. 34
Code of Civil Procedure, 1908s. 34

Subjects

interest on delayed paymentarbitration awardSection 34Section 31(7)contract interpretationwaiverblank space in bidrate of interestsimple interestcompensatory interest

Judgment

[2021] 4 S.C.R. 137 137

M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. A
v.
STATE OF KERALA
(Civil Appeal No. 3454 of 2011)
APRIL 22, 2021 B
[SURYA KANT AND ANIRUDDHA BOSE, JJ.]
Interest: Interest on delayed payment – Dispute between
parties as regards entitlement of the contractor to receive interest
on delayed payment in relation to local currency component – Award
C
by the Arbitral tribunal that the interest be paid on delayed payment
in relation to local currency component payable under the agreement
since the contract did not prohibit award of interest – However, the
said order set aside by the Arbitration court as also the High Court
– On appeal, held: In the agreement between the parties, there was
no specific exclusion of payment of interest on delayed payment in D
relation to the local currency component – Specific term of the
agreement provided for payment of interest on delayed payment as
terms of the contract – Rate at which such interest would be paid
was not specifically agreed upon – Blank space in the “appendix
to the bid” cannot be construed as cancellation of the clause
E
providing for payment of interest of delayed release of funds – The
principle guiding award of interest is that interest payment is
essentially compensatory in nature – On facts, interest on delayed
payment formed part of the contract itself – Furthermore, it cannot
be inferred that ommission to fill in the blank space gave the
contractor some kind of competitive edge in the bid process – F
Reasoning of the Arbitral Tribunal is correct and the contrary view
by the Arbitration Court and the High Court breaches the permissible
boundaries for encroaching upon an award – Thus, the view taken
by the Tribunal is sustained, however the rate at which interest is to
be paid would be simple interest at the rate of 8% pa.
G
Allowing the appeal, the Court
HELD:1.1 In the dispute which forms the subject matter
of this appeal, being the agreement, there was no specific
exclusion of payment of interest on delayed payment in relation
H
137
138 SUPREME COURT REPORTS [2021] 4 S.C.R.

A to the local currency component. On the other hand, the specific
term of the agreement entered into by and between the parties
provided for payment of interest on delayed payment as terms of
the contract. What was not specifically agreed upon was the rate
at which such interest would be paid. The blank space in the
“appendix to the bid” cannot be construed as cancellation of the
B
clause providing for payment of interest of delayed release of
funds. The Appellate Court or the Arbitration Court were not
right in adopting the approach. To come to such an inference,
active exclusion of payment of interest under that head was
necessary to have been incorporated in the agreement.
C [Paras 11, 12][148-G-H; 149-A-C]
Reliance Cellulose Products Ltd. vs. ONGC Ltd. [(2018)
9 SCC 266 : [2018] 6 SCR 618; Union of India vs.
Bright Power Projects (India) (P) Ltd. (2015) 9 SCC
695 : [2015] 6 SCR 488 - referred to
D 1.2 The underlying principle guiding award of interest is
that interest payment is essentially compensatory in nature. In
the instant case, interest on delayed payment formed part of the
contract itself. The agreement did not contain any express
exclusion clause on payment of interest on delayed payment
E whether on component of payment in foreign currency or local
currency. The reasoning of the Tribunal on the basis of which it
rejected the respondents’ plea of waiver is accepted. This was a
finding of fact on appreciation of materials placed before the
Tribunal. One of the reasons behind the decisions of the Appellate
Court and Arbitration Court was that the appellants, while bidding,
F had given up their claims for interest. In substance, the
respondents’ assertion is that the Tribunal went beyond the
contractual terms, and the said two fora sought to invoke the
principle of law contained in the third subhead of the “patent
illegality” principle. [Para 13][149-G-H; 150-A-C]
G Associate Builders vs. Delhi Development Authority
[(2015) 3 SCC 49 : [2014] 13 SCR 895 – referred to.
1.3 The Appellate Court accepted reasoning of the
Arbitration Court that the blank portion in the appendix to the

H
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 139
STATE OF KERALA

bid would imply “zero” or “nil”. This reasoning is flawed and A
such an interpretation of the agreement would actually be contrary
to and beyond the terms of the contract. The Tribunal had already
come to a factual finding on appreciation of evidence that there
was no such implication. Such an exercise on the part of the
Arbitration Court and the Appellate Court would constitute
B
rewriting the contract, which is impermissible. The Tribunal
rejected the plea of waiver. The reasoning cannot be held to be
perverse or improbable in the factual background of the instant
case. The Tribunal could have awarded interest as a compensatory
or equitable measure, as there was no clause providing for
exclusion or ouster of interest payment on delayed payment. The C
Tribunal determined the rate thereof in sub paragraphs 1.6 to
1.8 of the award. [Para 14][150-C-F]
1.4 The Appellate Court’s rationale that such blank interest
column might have had resulted in acceptance of the bid of the
appellants as their bid could have been more competitive on the D
assumption that the other bidders might have had pressed for
interest in that column is not acceptable. No material has been
shown from which it can be inferred that omission to fill in the
blank space gave the appellants some kind of competitive edge
in the bid process. It is also not known if other bidders had left
the space blank or filled the same with specified rate. The E
Arbitration Court’s view, sustained by the High Court is tainted
with an element of speculation on this point. [Para 15][151-E-G]
1.5 The reasoning of the Arbitral Tribunal that the contract
did not prohibit the award of interest in respect of delayed payment
F
in local currency component specified therein is correct. The
contrary view expressed by the Arbitration Court in a proceeding
under Section 34 of the Act, which view was upheld by the
Appellate forum, breaches the permissible boundaries for
encroaching upon an award. [Para 16][151-G-H; 152-A]
G
Oil Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.
[(2003) 5 SCC 705 : [2003] 3 SCR 691 - relied on.

H
140 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 1.6 The view taken by the Tribunal on consideration of the
contract was both reasonable and possible view. However, the
rate at which interest has been directed to be paid as contained
in paragraphs 1.6 and 1.8 of the award are rather excessive. As
the agreement is silent on the point of rate of interest but provides
for payment of interest on delayed payment, the Tribunal’s
B
exercise of fixing the rate should have been on the basis of
applying the principle laid down in G. C. Roy’s case. The said
principle is applicable in a proceeding under the Arbitration and
Conciliation Act, 1996 as well. This principle has been broadly
incorporated in Section 31(7) (a) of the 1996 Act. The only
C difference between the situation contemplated in the said
provision and the facts of the instant case is that the agreement
involved is not silent on interest entitlement of the appellants on
delayed payment but the agreement contains provision for such
payment. Only the rate at which interest would be payable
remained unspecified. Simple interest at the rate of 8% would be
D
just and equitable on the sum left unpaid, calculated otherwise
on the basis of sub-paragraphs 1.6. to 1.8 of the award. The
judgment of the Division Bench of the High Court is set aside.
As a consequence, judgment of the Additional District Judge,
also stands invalidated. The award of the Tribunal is sustained so
E far as direction to pay interest on delayed payment of the local
currency component of the agreement is concerned, but the rate
of interest on the sum would be computed in the manner
prescribed in paragraphs 1.6, 1.7 and 1.8 and would be at 8%
simple interest per annum. [Para 17][152-A-F]
F Secretary, Irrigation Department, Government of Orissa
& Ors. vs. G.C. Roy (1992) 1 SCC 508 : [1991] 3 Suppl.
SCR 417 – relied on.
Case Law Reference
[2018] 6 SCR 618 referred to Para 11
G
[2015] 6 SCR 488 referred to Para 11
[1991] 3 Suppl. SCR 417 relied on Paras 12, 17
[2014] 13 SCR 895 referred to Para 13
[2003] 3 SCR 691 relied on Para 16
H
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 141
STATE OF KERALA

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3454 A
of 2011.

From the Judgment and Order dated 17.09.2009 of the High Court
of Kerala at Ernakulam in Arbitration Appeal No. 32 of 2007.

Anil Airi, Sr. Adv., Ravi Kishan Chandna, Anant Kumar Vatsya, B
Devendra Singh, Advs. for the Appellant.

G. Prakash, Ms. Priyanka Prakash, Ms. Beena Prakash, Advs.
for the Respondent.

The Judgment of the Court was delivered by C

ANIRUDDHA BOSE, J.

1. The appellants were awarded a contract by the State of Kerala
for upgradation of a State Highway for two stretches, from Muvattupuzha- D
Thodupuzha and Muvattupuzha–Angamaly. The agreement in this regard
was executed on 7th November, 2002. This appeal originates from
disputes on certain issues arising between the parties primarily relating
to making payment to the appellants under certain heads. In the present
proceeding, however, the only point of dispute on which arguments have
been advanced before us is over entitlement of the appellants to receive E
interest on delayed payment on the subject-heads, which were to be
paid by the employer in local currency as per the stipulations in the said
agreement. The agreement had provision for resolution of disputes by a
Disputes Review Board (DRB) which was to make recommendations
at the first instance. If the recommendations were not acceptable to any F
of the parties, such disagreeing party was required to give notice to
commence arbitration within a specified time and thereafter the dispute
was to be settled through arbitration. So far as the controversies out of
which this appeal arises are concerned, disputes on three counts arose
between the parties, which could not be resolved at the stage of DRB
recommendations. Those disputes were referred to a three-member G
Arbitral Tribunal (the ‘Tribunal’ in short). We have already referred to
the scope of controversy involved in this appeal. This controversy shall
be henceforth referred to in this judgment as dispute on delayed payment.
We shall address that issue only in this judgment.
H
142 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 2. The Tribunal passed the award in favour of the appellants on
this point and interest was directed to be paid on delayed payment in
relation to local currency component payable under the agreement. This
was, however, a majority award and not a unanimous one as one of the
members of the Tribunal gave a dissenting view. In the succeeding
paragraphs of this judgment, whenever we refer to the expression ‘award’,
B
it shall mean the majority award only. The award of the Tribunal was
assailed by the State of Kerala before the District Court at Ernakulam
(the Arbitration Court) by taking out an application under Section 34 of
the Arbitration and Conciliation Act, 1996 (the1996 Act). This application
was allowed in part. Award of the Tribunal in favour of the appellants on
C the point of interest on delayed payment was set aside. The Arbitration
Court also adjudicated upon two other points, but as these points have
not been urged before us, we do not consider it necessary to deal with
them here in this judgment. The decision of the Arbitration Court was
sustained in appeal by a Division Bench of the Kerala High Court. This
appeal is against the said Bench decision of the High Court delivered on
D
17th September, 2009. The appellants want the award of the Tribunal
allowing their claim for interest on delayed payment to be restored.

3. Entitlement of the contractor to interest was provided for in
sub-clause 60.8 of the agreement on delayed interim payment. This clause
E has been reproduced in page 38 of the paperbook and reads:-

“ Time of Payment and Interest

(a) The amount due to the Contractor under any Interim Payment
Certificate issued by the Engineer pursuant to this Clause or to
F any other term of the Contract shall subject to Clauses be paid by
the Employer to the Contractor as follows.

(i) (A) In the case of Interim Payment Certificates within 42 days
after the Contractor’s monthly statement has been submitted to
the Engineer for certification pursuant to sub-clause 60.1. Provided
G that if the Engineer’s Interim Certificate has not yet been issued
within said 42 days, the Employer shall pay the amount shown in
the Contractor’s monthly statement and that any discrepancy shall
be added to or deducted from the next payment to the Contractor
and
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M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 143
STATE OF KERALA [ANIRUDDHA BOSE, J.]

(B) in the case of any monthly statement submitted by the A
Contractor at a time when the Bank’s loan or credit (from which
part of the payment to the Contractor are being made) is
suspended within 14 days after such monthly statement is
submitted. Provided that if the Engineer’s Interim Certificate has
not yet been issued within said 14 days the Employer shall pay the
B
amount shown in the Contractor’s monthly statement and that
any discrepancy shall be added to or deducted from the next
payment to the Contractor.

(ii) (A) In the case of the Final Payment Certificate pursuant to
Sub-clause 60.13 within 84 days after the Final statement and C
written discharge have been submitted to the Engineer for
certification and

(B) In the case of the Final Statement submitted by the Contractor
at a time when the Bank’s loan or credit from which part of the
payments to the Contractor are being made is suspended or for D
which payment under (ii) (A) becomes due after 63 days of the
date of notification of the suspension notice payment will be made
within 63 days after the date of notification of the suspension
pursuant to Sub Clause 69.6(d) provided that if the Engineer’s
Final Payment Certificate has not been issued within the said 63 E
days, the Employer shall pay the undisputed amounts shown in
the Final Statement.

(b) In the event of the failure of the Employer to make payments
within the time stated the Employer shall pay to the Contractor
interest compounded monthly at the rate(s) stated in the Appendix F
to Bid upon all sums unpaid from the date upon which the same
should have been paid in the currencies in which the payment are
due. The provisions of the Sub Clause are without prejudice to
the Contractor’s entitlement under Clause 69 or otherwise.”

4. The relevant provision of the appendix to the bid, the content of G
which came for interpretation before the Tribunal and thereafter before
the two judicial fora stipulated:-

H
144 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “ANNEXURE- P-3
Kerala State Transport Project
Volume III

Section 6: Appendix to Bid Page 7.8

B

C

D

The above of interest for foreign currencies shall be supplied by the
E Bidder, and these rates are subject to clarification/negotiation before
formalizing the Contract.
5. In their bid document, the appellants had left the space for
recording the rate of interest for payment to be made in local currency
blank. The agreement contemplated payment to the contractor in foreign
currency as also in local currency. So far as payment by foreign currency
F was concerned, as would be evident from the appendix to the bid quoted
in the preceding paragraph, the London Interbank On-lending Rate
(LIBOR) plus two per cent was the specified norm. It was on this basis
the State’s stand has been that the rate of interest on delayed payment
(as contemplated in Clause 60.8) in local currency had to be treated as
G “zero” or “nil”. It has also been the position of the State, referring to
certain communications made by the appellants that there was waiver
of the claim of interest by the appellants. In the award, the Tribunal had
repelled the argument of the State that the words “zero” or “nil” could
be read into the said column of the “appendix to bid”. Relying on the
Constitution Bench judgment of this Court in the case of Secretary,
H
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 145
STATE OF KERALA [ANIRUDDHA BOSE, J.]

Irrigation Department, Government of Orissa & Ors. vs. G.C. A
Roy [(1992) 1 SCC 508], the Tribunal held that a person deprived of the
use of money to which he is legitimately entitled has a right to be
compensated and such compensation may be called interest,
compensation or damages. Two documents originating from the appellants
in the form of written communications were relied upon by the State
B
before the Tribunal to contend that claim for interest, in any event, stood
waived by claimants on delayed payment of the sum which was to be
made in local currency. First of these two documents was a letter of the
appellant dated 14th July, 2004 (Exhibit R-1 before the Tribunal) and the
next was another written communication dated 3rd August, 2004 (Exhibit
C-72 before the Tribunal). The first letter issued by the appellants C
addressed to the Chief Executive Officer, Kerala State Transport Project
reads :-
“Dear Madam,
As discussed on the above subject we confirm that there is no
provision of interest on delayed payment in the Contract and D
hence interest will not be claimed.”
(quoted verbatim)
6. The next communication dated 3rd August, 2004 was addressed
to the same officer of the respondents. The text of this communication E
is:-
“Dear Sir,
We wish to invite your kind attention to the issue of release of
payment against IPC-1 General Items as recommended by
DRB. As a pre-condition for release of the said payment, we F
were made to issue the above referred letter dated 14.7.2004.
Our commitment not to claim any interest on the said amount
released by you be treated purely as a goodwill gesture so that
our future payments are released to us without any delay. The
said letter is restricted to the subject claim/item only.”
G
(quoted verbatim)
7. Before the Tribunal, the appellants had taken a point that the
said letter of 14th July, 2004 was issued under coercion or duress. Their
second plea on this count was that the content of the first letter was
restricted to release of withheld amount recommended by the Review H
146 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Board in respect of Interim Payment Certificate-I (IPC-I). The Tribunal
accepted the stand of the appellants (claimants before it). It was, inter-
alia, observed in the award:-
“The essential element of waiver is intentional relinquishment of
known right. The claimant has stated that the said letter was given
B by them under coercion. This holds goods in view of the fact and
circumstances of the case. It is also noted that the said letter
dated 14.7.04 (ext. R1) is not even mentioned in the defence
statement dated 29.1.05. Nor has this issue been raised before
the DRB. So the argument of the respondent that the letter dated
14.7.04 (ext. R1) is a waiver of the rights of the claimant does not
C stand. The fact that this letter was issued at the time of receiving
payment in respect of IPC. I suggests that this was given under
coercion. The waiver does not apply to the instant case. This is
corroborated by the fact that the claimant has been continually
agitating for the payment of interest before and after the issuance
D of the said letter. As discussed earlier, payment of interest on
unpaid sums was due under the terms of the contract and under
the law. The recommendation of the DRB made after due
deliberations and discussions with the parties has relevance in the
matter.”
E (quoted verbatim)
The Tribunal directed interest on delayed payment in paragraphs
1.6 to 1.8 of the award. Extract from the award containing these
paragraphs would appear later in this judgment.
8. The majority view of the Tribunal was that the contract itself
F provided for payment of interest with regard to local currency and foreign
currency. The plea of the appellants has been that there was no waiver
and in any event the communication of 14th July, 2004 followed by that
of 3rd August, 2004 related to IPC-I only. This stand had been broadly
accepted by the Tribunal. The Tribunal had also accepted the appellants/
G claimants’ stand that there was no waiver on claim of interest in respect
of all sums due for which Interim Payment Certificates had been issued.
The Tribunal’s finding on that aspect was buttressed by the fact that the
appellants/claimants had continued to raise demand for interest subsequent
to the issue of those two communications. These were essentially findings
on facts.
H
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 147
STATE OF KERALA [ANIRUDDHA BOSE, J.]

9. The Arbitration Court and the Appellate Court in sustaining the A
State’s application for setting aside the award were of the view that the
contract could not be construed to contain provisions for interest on
delay in payment with regard to the local currency component contained
in the agreement, as the appellants did not fill up the blank space with
the rate of interest. Opinion of the Appellate Bench was that in the
B
event it was intention of the claimants to retain their entitlement to interest
on delayed payment under that head, they ought to have had filled in the
blank space in the “appendix to bid”. Another facet of the High Court’s
reasoning was that the respondents might have had been persuaded to
accept the appellants’ bid on the basis that the appellants would claim no
interest on delayed payment in such situation, as this factor could have C
made their bid more competitive.
10. This appeal, in substance, is an extension of a proceeding
under Section 34 of the 1996 Act. To go into the question of legality of
the decisions made by the two judicial fora, we need to test first if the
grounds of challenge to the award met the test laid down by this Court in D
the case of Oil Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.
[(2003) 5 SCC 705]. Contention of the respondents has been that the
Arbitral Tribunal’s order stood vitiated under the “patent illegality” principle
spelt out in that judgment. This principle came under the broad heading
of “Public Policy” test, applying which an arbitral award could be set
aside. What would constitute patent illegality has been elaborated by E
this Court in a later judgment, Associate Builders vs. Delhi
Development Authority [(2015) 3 SCC 49]. An award would be
invalidated, as per this authority, if the same was in contravention of
substantive law of the country or contravention of the “Arbitration Act
itself”. In paragraph 42.3 of the Report (in the case of Associate F
Builders), it has been held:-
“42.3 (c) Equally, the third subhead of patent illegality is really
a contravention of Section 28(3) of the Arbitration Act, which
reads as under:
“28. Rules applicable to substance of dispute.-(1)-(2)* * G
*
(3) In all cases, the Arbitral Tribunal shall decide in accordance
with the terms of the contract and shall take into account the
usages of the trade applicable to the transaction.”
H
148 SUPREME COURT REPORTS [2021] 4 S.C.R.

A This last contravention must be understood with a caveat. An
Arbitral Tribunal must decide in accordance with the terms of
the contract, but if an arbitrator construes a term of the contract
in a reasonable manner, it will not mean that the award can be
set aside on this ground. Construction of the terms of a contract
is primarily for an arbitrator to decide unless the arbitrator
B
construes the contract in such a way that it could be said to be
something that no fair-minded or reasonable person could do.”
11. The High Court in the appeal concurred with the Arbitration
Court and concluded that omission to include the rate of interest in the
bid document, the “appendix to bid” to be specific, had resulted in creation
C of contractual term that there would not be any claim for interest on
delayed payment (as per Clause 60.8) so far as payment in local currency
component contained in the agreement is concerned. In our opinion,
however, the interference with the award by the Arbitration Court on
this ground was unwarranted. The underlying reasoning of the Appellate
D Court and earlier, the Arbitration Court on this point is that the Tribunal
went beyond the contractual term in awarding interest. The case of
G.C. Roy (supra) and a later decision of this Court, Reliance Cellulose
Products Ltd. vs. ONGC Ltd. [(2018) 9 SCC 266], were relied upon
before us by the appellants to sustain the Tribunal’s findings. These
decisions are sought to be distinguished on behalf of the respondents on
E the ground that the former decision related to interest pendente lite and
both these cases were under the Arbitration Act, 1940. Under the said
statute, an arbitrator had power or jurisdiction to grant pre-reference
interest under the Interest Act, 1978 as also pendente lite and future
interest. Such jurisdiction stood curbed only if express terms of the
F contract precluded payment of interest. Referring to another authority,
the Union of India vs. Bright Power Projects (India) (P) Ltd. [(2015)
9 SCC 695], this Court highlighted the position of law on grant of interest
under Section 31(7) of the 1996 Act. In the case of Bright Power
Projects (supra), it has been opined by this Court that unless otherwise
agreed by the parties, the Arbitral Tribunal can award interest at
G reasonable rate for a period commencing from that date when the cause
of action arises till the date of the award. In the dispute which forms the
subject-matter of this appeal, being the agreement, there was no specific
exclusion of payment of interest on delayed payment in relation to the
local currency component.
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M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 149
STATE OF KERALA [ANIRUDDHA BOSE, J.]

12. On the other hand, the specific term of the agreement entered A
into by and between the parties provided for payment of interest on
delayed payment as terms of the contract. What was not specifically
agreed upon was the rate at which such interest would be paid. The
blank space in the “appendix to the bid”, in our opinion, cannot be
construed as cancellation of the clause providing for payment of interest
B
of delayed release of funds. We do not think the Appellate Court or the
Arbitration Court was right in adopting the approach that by not specifying
the blank space provided for filling in the interest rate. We are of the
view that to come to such an inference, active exclusion of payment of
interest under that head was necessary to have been incorporated in the
agreement. Though the case of G.C. Roy (supra) was delivered in a C
dispute to which the 1940 Act was applicable, the Constitution Bench of
this Court has laid down certain general proposition or principle on the
aspect of grant of interest. This general proposition was referred to by
the Tribunal. It has been held in paragraph 43.1 of the Report (in the
case of G.C. Roy):-
D
“43. The question still remains whether arbitrator has the power
to award interest pendent lite, and if so on what principle. We
must reiterate that we are dealing with the situation where the
agreement does not provide for grant of such interest nor does
it prohibit such grant. In other words, we are dealing with a
case where the agreement is silent as to award of interest. On E
a conspectus of aforementioned decisions, the following
principles emerge:
(i) A person deprived of the use of money to which he is
legitimately entitled has a right to be compensated for the
deprivation, call it by any name. It may be called interest, F
compensation or damages. This basic consideration is as valid
for the period the dispute is pending before the arbitrator as it
is for the period prior to the arbitrator entering upon the
reference. This is the principle of Section 34, Civil Procedure
Code and there is no reason or principle to hold otherwise in G
the case of arbitrator.....”
13. The underlying principle guiding award of interest is that interest
payment is essentially compensatory in nature. But as we have already
observed, in the case before us, interest on delayed payment formed
part of the contract itself. The agreement did not contain any express H
150 SUPREME COURT REPORTS [2021] 4 S.C.R.

A exclusion clause on payment of interest on delayed payment whether on
component of payment in foreign currency or local currency. We accept
the reasoning of the Tribunal on the basis of which it rejected the
respondents’ plea of waiver. This was a finding of fact on appreciation
of materials placed before the Tribunal. One of the reasons behind the
decisions of the Appellate Court and Arbitration Court was that the
B
appellants, while bidding, had given up their claims for interest. In
substance, the respondents’ assertion is that the Tribunal went beyond
the contractual terms, and the said two fora sought to invoke the principle
of law contained in the third sub-head of the “patent illegality” principle
elaborated in the case of Associate Builders (supra).
C 14. The Appeal Court accepted reasoning of the Arbitration Court
that the blank portion in the appendix to the bid would imply “zero” or
“nil”. This reasoning, in our opinion, is flawed and such an interpretation
of the agreement would actually be contrary to and beyond the terms of
the contract. The Tribunal in this case had already come to a factual
D finding on appreciation of evidence that there was no such implication.
Such an exercise on the part of the Arbitration Court and the Appellate
Court would constitute rewriting the contract, which is impermissible.
The Tribunal rejected the plea of waiver and we have reproduced its
reasoning on that point. We cannot hold such reasoning to be perverse
or improbable in the factual background of the present case. The Tribunal
E in this case could have had awarded interest as a compensatory or
equitable measure, as there was no clause providing for exclusion or
ouster of interest payment on delayed payment. The Tribunal determined
the rate thereof in sub-paragraphs 1.6 to 1.8 of the award. This part of
the award specifies:-
F “1.6 It is, therefore, held that the Claimants are entitled to
interest on the amount as due under any IPCs issued by the
Engineer or failing which, on the amounts as shown in the
Claimants monthly statements submitted to the Engineer for
certification and when were not paid or had been withheld by
G the Respondents and such interest shall be paid by the
Respondents for the period as 42 days after the claimants’
respective monthly statements had been submitted to the
Engineer for certification to the date of payment thereof in
full. The arbitral tribunal further holds that on the unpaid sums
and for the period of delay in the payment thereof as stated
H
M/S. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. v. 151
STATE OF KERALA [ANIRUDDHA BOSE, J.]

hereinabove, the Respondents shall pay to the claimants interest A
at the rate of 1% per month compounded monthly such rate
being representative of the prevalent rate of access to money
that the claimants were deprived of.
1.7 The Arbitral Tribunal therefore directs that the Respondents
shall pay to the claimants interest on the unpaid sum of Rs. B
2,15,72,150/- for the period of the due dates of payment till the
actual dates of full payment of such amount at the rate stated
in para 1.6 above in respect of IPCs No. 2 & IPC No. 4.
1.8 The Respondents shall further pay to the claimants such
interest on the unpaid sums in respect of other IPCs No. 5 to C
14 issued by the Engineer or the Claimants monthly statements
submitted to the Engineer for certification for the period from
the due dates of payment till the actual dates of full payment at
the rate as stated in hereinabove.
The respondents are also directed to pay further interest at the D
rate of 12% per annum on the interest amount determined pursuant to
para 1.7 and 1.8 hereinabove from such dates of payment of the principal
amount to the date of award.”
15. The Appellate Court’s rationale that such blank interest column
might have had resulted in acceptance of the bid of the appellants as E
their bid could have been more competitive on the assumption that the
other bidders might have had pressed for interest in that column is not
acceptable to us. We do not find any material from which such a
conclusion could be reached. No material has been shown to us from
which it can be inferred that omission to fill in the blank space gave the
appellants some kind of competitive edge in the bid process. We also do F
not know if other bidders had left the space blank or filled the same with
specified rate. The Arbitration Court’s view, sustained by the High Court
is tainted with an element of speculation on this point.
16. We do not find any flaw in the reasoning of the Arbitral Tribunal
that the contract did not prohibit the award of interest in respect of G
delayed payment in local currency component specified therein. This
being the position, in our opinion, the contrary view expressed by the
Arbitration Court in a proceeding under Section 34 of the Act, which
view was upheld by the Appellate forum, breaches the permissible
H
152 SUPREME COURT REPORTS [2021] 4 S.C.R.

A boundaries for encroaching upon an award as laid down in Saw Pipes
case (supra).
17. In our opinion, the view taken by the Tribunal on consideration
of the contract was both reasonable and possible view. We, however,
are of the opinion that the rate at which interest has been directed to be
B paid as contained in paragraphs 1.6 and 1.8 of the award, which we
have reproduced above, are rather excessive. As the agreement is silent
on the point of rate of interest but provides for payment of interest on
delayed payment, the Tribunal’s exercise of fixing the rate should have
been on the basis of applying the principle laid down in paragraph 43.1.
in the case of G.C. Roy (supra). The said principle is applicable in a
C proceeding under the 1996 Act as well. This principle has been broadly
incorporated in Section 31(7) (a) of the 1996 Act. The only difference
between the situation contemplated in the aforesaid provision and the
facts of this case is that the agreement involved is not silent on interest
entitlement of the appellants on delayed payment but the agreement
D contains provision for such payment. Only the rate at which interest
would be payable remained unspecified. In our view, simple interest at
the rate of 8% would be just and equitable on the sum left unpaid,
calculated otherwise on the basis of sub-paragraphs 1.6. to 1.8 of the
award. We, accordingly, set aside the judgment of the Division Bench of
the High Court of Kerala impugned in this appeal on the point of entitlement
E of the appellants to receive interest on delayed payment in relation to
local currency component of the contract. As a consequence, judgment
of the Sixth Additional District Judge, Ernakulam, shall also stand
invalidated. The award of the Tribunal shall stand sustained so far as
direction to pay interest on delayed payment of the local currency
F component of the agreement is concerned, but the rate of interest on the
sum shall be computed in the manner prescribed in paragraphs 1.6, 1.7
and 1.8 and shall be at 8% simple interest per annum.
18. The appeal is allowed in the above terms.
19. There shall be no order as to costs.
G
Nidhi Jain Appeal allowed.

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