Supreme Court Upholds IRCON’s Right to Rescind Contract and Forfeit Security Deposits: Interest Rate Modified
In a significant ruling, the Supreme Court of India has upheld the right of Indian Railway Construction Company Limited (IRCON) to rescind a contract and forfeit security deposits, while modifying the interest rate awarded on an advance for hypothecation of equipment. In its judgment, the apex court stated, “The IRCON was justified in rescinding the contract due to abandonment of work by NBCC and, therefore, the security deposits were liable to be forfeited.”
The court further emphasized that the findings of the Arbitral Tribunal, which concluded that the IRCON was not justified in invoking a specific clause but was justified under another clause, had attained finality. The court expressed disagreement with the High Court’s decision to set aside the rejection of NBCC’s claims for refund of security deposits, thus restoring the award passed by the Arbitral Tribunal.
The Supreme Court also addressed the issue of interest on the advance provided for hypothecation of equipment. While the High Court had set aside the interest awarded by the Arbitral Tribunal on the ground of absence of a specific contractual provision, the Supreme Court cited Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, and emphasized that unless specifically barred, the arbitrator has the power to award interest.
The court stated, “The interest awarded by the Arbitral Tribunal on advance for hypothecation of equipment should not have been set aside.” However, considering the circumstances, the court modified the interest rate from 18% to 12% as a reasonable rate.
The Supreme Court’s decision, rendered by Justices M. R. Shah and M.M. Sundresh, sets a significant precedent in affirming the right of a party to rescind a contract and forfeit security deposits in cases of abandonment of work.
Date of Decision: March 17, 2023
Indian Railway Construction Company Limited vs M/s National Buildings
