GUIDELINES REGARDING INADEQUACIES AND DEFICIENCIES IN CRIMINAL TRIALS

REPORTABLE

 IN THE SUPREME COURT OF INDIA

 ORIGINAL JURISDICTION

 SUO MOTO WRIT (CRL) NO.(S) 1/2017

IN RE: TO ISSUE CERTAIN GUIDELINES REGARDING INADEQUACIES

AND DEFICIENCIES IN CRIMINAL TRIALS ….PETITIONER(S)

 VERSUS

THE STATE OF ANDHRA PRADESH & ORS. ....RESPONDENT(S)

ORDER

1. This suo motu proceeding under Article 32 was initiated during the course of

hearing of a criminal appeal1

. The Court noticed common deficiencies which occur in

the course of criminal trials and certain practices adopted by trial courts in criminal

proceedings as well as in the disposal of criminal cases and causes. These related,

amongst others, to the manner in which documents (i.e. list of witnesses, list of exhibits,

list of material objects) referred to are presented and exhibited in the judgment, and the

lack of uniform practices in regard to preparation of injury reports, deposition of

witnesses, translation of statements, numbering and nomenclature of witnesses, labeling

of material objects, etc. These very often lead to asymmetries and hamper appreciation

of evidence, which in turn has a tendency of prolonging proceedings, especially at the

appellate stages.

2. The Court had noticed that on these prominent aspects, rules appeared to have

been formulated by certain High Courts, whereas many other High Courts have not

framed such rules. This has led to a lack of clarity and uniformity in regard to the

1Crl.A.400/2006 & connected matters

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presentation of trial court proceedings and records, for the purpose of appreciation at the

High Court level and eventually, before this court.

3. By an elaborate order dated 30.03.2017, this Court noted various salient aspects

and flagged inadequacies in the practices and rules of High Courts by taking a cue from

existing rules in some High Courts2

. After noticing about 13 issues, the Court felt the

desirability of a uniform approach – in description of exhibits, manner and description

of recording of statements of witnesses, labeling of material objects, and so on. The

Court therefore, issued notice to the Registrar Generals of all High Courts, Chief

Secretaries and Administrators of States and Union Territories as well as Advocates

General, Additional Advocates Generals and Senior Standing Counsel of all states and

Union Territories. By a later order dated 07.11.2017, the Court appointed Mr. Sidharth

Luthra and Mr. R. Basanth, Senior Advocates as amici curiae. On 20.02.2018, Mr. K.

Parameshwar, learned counsel was also appointed as amicus curiae to assist the senior

counsel who were earlier appointed as amici curiae. All concerned State Governments

and Union Territories as well as High Courts through their Registrar Generals were

called upon to submit their responses along with suggestions.

4. By January 2019, 15 States/Union Territories and 21 High Courts had filed

responses before this court. Based upon these responses, the amici curiae evolved a

consultation paper, which inter alia contained draft rules. The draft rules were circulated

to all parties by a letter dated 18.02.2019. Written responses were invited from

stakeholders and a colloquium was convened for this purpose in New Delhi at the India

International Centre, on 30.03.2019. The colloquium was attended by representatives of

different States/Union Territories and their respective High Courts.

5. After considering the suggestions made during the colloquium, the amici curiae

submitted the “Draft Rules of Criminal Practice, 2020” for the consideration of this

court. While framing Draft Rules, due care was taken to ensure uniformity and at the

same time to recognize the diverse practices among the various state authorities and

2Kerala Criminal Rules of Practice, 1982; Andhra Pradesh Criminal Rules of Practices and Circular Orders, 1990 etc.

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High Courts in the country. The draft rules are compliant and not in any way repugnant

to the Code of Criminal Procedure, 1973. Many suggestions made as practice directions

reflect the mandatory provisions of the Code of Criminal Procedure, 1973.

6. By later orders dated 27.10.2020 and 19.01.2021, the High Courts were once

again directed to file their responses to the Draft Rules of Criminal Practice, 2020.

Pursuant to that order, all High Courts filed their responses and the summaries of the

responses.

7. During the hearing, this court noticed that most of the suggestions had been

agreed except in regard to a few aspects. Some High Courts, while accepting the Draft

Rules also sought to elaborate and supplement them, which is a welcome step.

8. The High Courts unanimously welcomed the suggestion of separating the

prosecution from the investigation, (i.e. Rule 18 in the Draft Rules, 2020) which

provides that a separate team of lawyers, distinct from Public Prosecutors must advise

the police during the investigation. However, as pointed out by many High Courts, this

is a step that should be actively pursued by the State Governments. Similarly, the High

Courts welcomed the uniform manner in which body sketches, spot panchnamas etc.

are to be brought on record (Draft Rules 1-4). However, they state that the onus for the

implementation of these Rules is on the investigation agencies.

9. This court is of the opinion that a perusal of the responses indicates that the High

Courts have indicated their reservations to certain draft rules. These are as follows:

(1)translations of deposition [Draft Rule 6(i)(ii)] – High Court of Madhya

Pradesh, Kerala, Tamil Nadu.

(2)references to accused/witnesses/material objects (Draft Rule 9) – Allahabad,

MP, Tripura, Kerala, Calcutta – The High Courts have suggested that along

with the numbers assigned to the witness, accused etc., names may also be

used to avoid confusion.

(3)The rule requiring day to day trial (Rule 19(i)) – Madhya Pradesh, Manipur,

Tripura.

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10. During the hearing of these proceedings, the court took into consideration the

viewpoints, on behalf of High Courts, where there was either a divergence in the

opinion about the practice to be adopted, or some reservation.

11. The amici pointed out that at the commencement of trial, accused are only

furnished with list of documents and statements which the prosecution relies on and are

kept in the dark about other material, which the police or the prosecution may have in

their possession, which may be exculpatory in nature, or absolve or help the accused.

This court is of the opinion that while furnishing the list of statements, documents and

material objects under Sections 207/208, Cr. PC, the magistrate should also ensure that

a list of other materials, (such as statements, or objects/documents seized, but not relied

on) should be furnished to the accused. This is to ensure that in case the accused is of

the view that such materials are necessary to be produced for a proper and just trial, she

or he may seek appropriate orders, under the Cr. PC.3

 for their production during the

trial, in the interests of justice. It is directed accordingly; the draft rules have been

accordingly modified. [Rule 4(i)]

12. It was pointed out by learned amici that the practice adopted predominantly in all

trials is guided by the decision of this court in Bipin Shantilal Panchal v. State of

391. Summons to produce document or other thing.

(1) Whenever any Court or any officer in charge of a police station considers that the production of any document

or other thing is necessary or desirable for the purposes of any investigation, inquiry, trial or other proceeding under this

Code by or before such Court or officer, such Court may issue a summons, or such officer a written order, to the person in

whose possession or power such document or thing is believed to be, requiring him to attend and produce it, or to produce

it, at the time and place stated in the summons or order.

(2) Any person required under this section merely to produce a document or other thing shall be deemed to have

complied with the requisition if he causes such document or thing to be produced instead of attending personally to

produce the same.

(3) Nothing in this section shall be deemed-

(a) to affect sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872 ), or the Bankers' Books Evidence

Act, 1891 (13 of 1891) or

(c)to apply to a letter, postcard, telegram or other document or any parcel or thing in the custody of the postal or

telegraph authority.

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Gujarat4

 with respect to objections regarding questions to be put to witnesses. This

court had termed the practice of deciding the objections, immediately as “archaic” and

indicated what it felt was an appropriate course:

“It is an archaic practice that during the evidence collecting stage,

whenever any objection is raised regarding admissibility of any material in

evidence the court does not proceed further without passing order on such

objection. But the fall out of the above practice is this: Suppose the trial

court, in a case, upholds a particular objection and excludes the material

from being admitted in evidence and then proceeds with the trial and

disposes of the case finally. If the appellate or revisional court, when the

same question is re-canvassed, could take a different view on the

admissibility of that material in such cases the appellate court would be

deprived of the benefit of that evidence, because that was not put on record

by the trial court. In such a situation the higher court may have to send the

case back to the trial court for recording that evidence and then to dispose

of the case afresh. Why should the trial prolong like that unnecessarily on

account of practices created by ourselves. Such practices, when realised

through the course of long period to be hindrances which impede steady

and swift progress of trial proceedings, must be recast or re-moulded to

give way for better substitutes which would help acceleration of trial

proceedings.

When so recast, the practice which can be a better substitute is this:

Whenever an objection is raised during evidence taking stage regarding

the admissibility of any material or item of oral evidence the trial court can

make a note of such objection and mark the objected document tentatively

as an exhibit in the case (or record the objected part of the oral evidence)

subject to such objections to be decided at the last stage in the final

judgment. If the court finds at the final stage that the objection so raised is

sustainable the judge or magistrate can keep such evidence excluded from

consideration. In our view there is no illegality in adopting such a course.

(However, we make it clear that if the objection relates to deficiency of

stamp duty of a document the court has to decide the objection before

proceeding further. For all other objections the procedure suggested above

can be followed.) The above procedure, if followed, will have two

advantages. First is that the time in the trial court, during evidence taking

stage, would not be wasted on account of raising such objections and the

court can continue to examine the witnesses. The witnesses need not wait

4(2001) 3 SCC 1

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for long hours, if not days. Second is that the superior court, when the

same objection is re-canvassed and reconsidered in appeal or revision

against the final judgment of the trial court, can determine the correctness

of the view taken by the trial court regarding that objection, without

bothering to remit the case to the trial court again for fresh disposal. We

may also point out that this measure would not cause any prejudice to the

parties to the litigation and would not add to their misery or expenses.”

13. It was argued by amici that the procedure, whereby the courts record answers to

all questions, regardless of objections, leads to prolonged and lengthy cross

examination, and more often than not, irrelevant facts having no bearing on the charge

or the role of the accused, are brought on record, which often result in great prejudice. It

is pointed out that due to the practice mandated in Bipin Shantilal Panchal (supra), such

material not only enters the record, but even causes prejudice, which is greatly

multiplied when the appellate court has to decide the issue. Frequently, given that trials

are prolonged, the trial courts do not decide upon these objections at the final stage, as

neither counsel addresses arguments. Therefore, it is submitted that the rule in Bipin

Shantilal Panchal (supra) requires reconsideration.

14. During a trial, in terms of Section 132, every witness is bound to answer the

questions she or he is asked; however, that is subject to the caveat that he or she is

entitled to claim silence, if the answers incriminate him or her, by virtue of Article 20

(3) of the Constitution. Every judge who presides over a criminal trial, has the authority

and duty to decide on the validity or relevance of questions asked of witnesses. This is

to be found in Section 148 Cr. PC, which reads as follows:

“148. Court to decide when question shall be asked and when witness

compelled to answer. –– If any such question relates to a matter not

relevant to the suit or proceeding, except in so far as it affects the credit of

the witness by injuring his character, the Court shall decide whether or not

the witness shall be compelled to answer it, and may, if it thinks fit, warn

the witness that he is not obliged to answer it.

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In exercising its discretion, the Court shall have regard to the following

considerations: ––

(1) such questions are proper if they are of such a nature that the truth of

the imputation conveyed by them would seriously affect the opinion of the

Court as to the credibility of the witness on the matter to which he testifies;

(2) such questions are improper if the imputation which they convey relates

to matters so remote in time, or of such a character, that the truth of the

imputation would not affect, or would affect in a slight degree, the opinion

of the Court as to the credibility of the witness on the matter to which he

testifies;

(3) such questions are improper if there is a great disproportion between

the importance of the imputation made against the witness’s character and

the importance of his evidence;

(4) the Court may, if it sees fit, draw, from the witness’s refusal to answer,

the inference that the answer if given would be unfavourable”

15. Apart from Section 148, there are other provisions of the Evidence Act (Sections

149-154) which define the ground rules for cross examination. During questioning, no

doubt, the counsel for the party seeking cross examination has considerable leeway;

cross examination is not confined to matters in issue, but extends to all relevant facts.

However, if the court is not empowered to rule, during the proceeding, whether a line of

questioning is relevant, the danger lies in irrelevant, vague and speculative answers

entering the record. Further, based on the answers to what (subsequently turn out to be

irrelevant, vague or otherwise impermissible questions) more questions might be asked

and answered. If this process were to be repeated in case of most witnesses, the record

would be cluttered with a jumble of irrelevant details, which at best can be distracting,

and at worst, prejudicial to the accused. Therefore, this court is of opinion that the view

in Bipin Shantilal Panchal should not be considered as binding. The presiding officer

therefore, should decide objections to questions, during the course of the proceeding, or

failing it at the end of the deposition of the concerned witness. This will result in decluttering the record, and, what is more, also have a salutary effect of preventing

frivolous objections. In given cases, if the court is of the opinion that repeated

objections have been taken, the remedy of costs, depending on the nature of obstruction,

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and the proclivity of the line of questioning, may be resorted to. Accordingly, the

practice mandated in Bipin Shantilal Panchal shall stand modified in the above terms.

16. Counsel appearing for the states and High Courts submitted that the provision in

the draft rules, requiring that trials should be conducted on a day-to-day manner, cannot

be complied with. It was argued that courts have to, more often than not, postpone or

adjourn cases due to non-availability of witnesses, or on account of absence of defense

counsel, or the prosecutor. The learned amici submitted that given that trial begins after

charges have been framed, the prosecution witnesses should be available on the dates of

trial, for the simple reason that they are relied on for proving the charges. It was

submitted that this court should indicate that as far as practicable, the trial court should

carry out before hand, sequencing of witness deposition, in terms of eyewitnesses, other

material witnesses, formal witnesses, expert witnesses etc., and also factor in some

specific date or dates, so that effective depositions are recorded on every date of hearing

so fixed.

17. This court is of the opinion that the courts in all criminal trials should, at the

beginning of the trial, i.e. after summoning of the accused, and framing of charges, hold

a preliminary case management hearing. This hearing may take place immediately after

the framing of the charge. In this hearing, the court should consider the total number of

witnesses, and classify them as eyewitness, material witness, formal witness (who

would be asked to produce documents, etc) and experts. At that stage, the court should

consider whether the parties are in a position to admit any document (including report of

experts, or any document that may be produced by the accused, or relied on by her or

him). If so, the exercise of admission/denial may be carried out under Section 294, Cr.

PC, for which a specific date may be fixed. The schedule of recording of witnesses

should then be fixed, by giving consecutive dates. Each date so fixed, should be

scheduled for a specific number of witnesses. However, the concerned witnesses may be

bound down to appear for 2-3 consecutive dates, in case their depositions are not

concluded. Also, in case any witness does not appear, or cannot be examined, the court

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shall indicate a fixed date for such purpose. The recording of deposition of witnesses

shall then be taken up, after the scheduling exercise is complete. This court has

appropriately carried out necessary amendments to the Draft Rules.

18. It was submitted by the amici that as regards the subject matter relating to the first

three Draft Rules, the state and police authorities have to carry out necessary and

consequential amendments to the police manuals, and other related instructions, to be

followed by each state. Counsel appearing for states and union territories have assured

that suitable steps to incorporate the Draft Rules - relating to (1) Body sketch to

accompany medico-legal certificate, post-mortem report and inquest report –[Draft Rule

No. 1]; (2) Photographs and Video graphs of post mortem in certain cases [Draft Rule

No. 2] and (3) Scene Mahazar/ Spot Panchanama [Draft Rule No. 3] would be taken at

the earliest.

19. The court is of the opinion that the Draft Rules of Criminal Practice, 2021,

(which are annexed to the present order, and shall be read as part of it) should be hereby

finalized in terms of the above discussion. The following directions are hereby issued:

(a) All High Courts shall take expeditious steps to incorporate the said Draft

Rules, 2021 as part of the rules governing criminal trials, and ensure that the existing

rules, notifications, orders and practice directions are suitably modified, and

promulgated (wherever necessary through the Official Gazette) within 6 months from

today. If the state government’s co-operation is necessary in this regard, the approval of

the concerned department or departments, and the formal notification of the said Draft

Rules, shall be made within the said period of six months.

(b) The state governments, as well as the Union of India (in relation to investigating

agencies in its control) shall carry out consequential amendments to their police and

other manuals, within six months from today. This direction applies, specifically in

respect of Draft Rules 1-3. The appropriate forms and guidelines shall be brought into

force, and all agencies instructed accordingly, within six months from today.

20. The court hereby places its appreciation and gratitude to the contributions and

effort of the three amici Shri Siddharth Luthra, Shri R. Basanth (Senior Advocates) and

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Shri K. Parameshwar, Advocate - they gave valuable inputs and innumerable

suggestions, considered all suggestions given by various stakeholders, reported to the

court and made extremely useful submissions. The court also places on record its

appreciation of Shri A. Karthik, Ms. Mehak Jaggi and Shri M.V. Mukunda, Advocate,

who rendered valuable assistance to the amici.

21. The suo motu proceeding is disposed of in terms of the above directions.

………………………………CJI

[S.A. BOBDE]

……...........................................J

 [L. NAGESWARA RAO]

……...........................................J

 [S. RAVINDRA BHAT]

New Delhi,

April 20, 2021.

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DRAFT CRIMINAL RULES ON PRACTICE, 2021

 CHAPTER I. I NVESTIGATION

1. BODY SKETCH TO ACCOMPANY MEDICO LEGAL CERTIFICATE, POST MORTEM

REPORT AND INQUEST REPORT:

Every Medico Legal Certificate, Post Mortem Report shall contain a printed format

of the human body on its reverse and injuries, if any, shall be indicated on such

sketch.

Explanation: The printed format of the human body shall contain both a frontal and

rear view of the human body as provided in ANNEXURE – A

2. PHOTOGRAPHS AND VIDEO GRAPHS OF POST MORTEM IN CERTAIN CASES

i. In case of death of a person in police action [under Section 46 Criminal

Procedure Code, 1973(“Cr.PC”) or Sections 129 to 131 Cr.PC] or death

while in police custody, the magistrate or the Investigating Officer as the case

may be, shall inform the hospital or doctor in charge to arrange for photographs

or videography for conducting the post-mortem examination of the deceased.

The photographs of the deceased shall also be arranged to be taken in all cases.

ii. Such photograph and video graphs shall be taken either by arranging a police

photographer or a nominated photographer of the State Government, and where

neither of the above are available, an independent or private photographer shall

be engaged.

iii. Such photographs or video graphs shall be seized under a panchnama or

seizure memo and all steps taken to ensure proper proof of such

photographs/video graphs during Trial.

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iv. The Investigating Officer shall ensure that such photographs and videographs,

if taken electronically, are seized under a panchnama or seizure memo and

steps are taken to preserve the original, and ensure that certificate under

Section 65B Indian Evidence Act, 1872 is obtained and taken to be proved

during trial.

v. The video or photographs shall be stored on a separate memory card,

accompanied by a duly certified certificate under Section 65B Indian Evidence

Act, 1872.

vi. Where post-mortems are recorded in electronic form, the file containing the

post-mortem proceedings, duly certified, should be placed with the memory

card as an attachment unless individual memory cards are not capable of being

produced before Court.

3. SCENE MAHAZAR/ SPOT PANCHANAMA

i. A site plan of the place of occurrence of an incident shall be appended by the

Investigating Officer to the scene mahazar or spot panchnama.

ii. The site plan shall be prepared by the Investigating Officer by hand, and shall

disclose

a. the place of occurrence,

b. the place where the body (or bodies) was / were found,

c. the place where material exhibits and/or weapons,

d. blood stains and/or body fluids had fallen,

e. the place where bullet shells, if any, were found or have caused impact,

f. the source of light, if any and

g. adjoining natural and man-made structures or features such as walls,

pits, fences, trees/bushes, if any and

h. elevation of structures and their location.

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iii. The preparation of this sketch by the Investigating Officer shall be followed by

a scaled site plan prepared by police draftsman, if available, or such other

authorized or nominated draftsman by the State Government, who shall prepare

the scaled site plan after visiting the spot.

iv. The relevant details in the mahazar or panchnama shall be marked and

correlated in the said site plan.

4. SUPPLY OF DOCUMENTS UNDER SECTIONS 173, 207 AND 208 CR.PC

i. Every Accused shall be supplied with statements of witness recorded under

Sections 161 and 164 Cr.PC and a list of documents, material objects and

exhibits seized during investigation and relied upon by the Investigating

Officer (I.O) in accordance with Sections 207 and 208, Cr. PC.

Explanation: The list of statements, documents, material objects and exhibits

shall specify statements, documents, material objects and exhibits that are not

relied upon by the Investigating Officer.

 Chapter II: CHARGE

5. The order framing charge shall be accompanied by a formal charge in Form 32,

Schedule II, Cr.P.C. to be prepared personally by the Presiding Officer after

complete and total application of mind.

 CHAPTER III:TRIAL

6. RECORDING OF EVIDENCE: PROCEDURE

i. The depositions of witnesses shall be recorded, in typed format, if possible.

The record of evidence shall be prepared on computers, if available, in the

Court on the dictation of the Presiding Officer.

Provided that in case the language of deposition is to be recorded in a language

other than English or the language of the State, the Presiding Officer shall

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simultaneously translate the deposition either himself or through a competent

translator into English.

ii. The deposition shall be recorded in the language of the witness and in English

when translated as provided in Clause 6 (i).

iii. The depositions shall without exception be read over by the Presiding officer in

Court. Hard copy of the testimony so recorded duly signed to be a true copy by

the Presiding Officer/court officer shall be made available free of cost against

receipt to the accused or an advocate representing the accused, to the witness

and the prosecutor on the date of recording.

iv. A translator shall be made available in each Court and Presiding Officers shall

be trained in the local languages, on the request of the Presiding Officer.

v. The Presiding Officers shall not record evidence in more than one case at the

same time.

7. RECORDING OF EVIDENCE: FORMAT OF WITNESSES

i. The deposition of each witness shall be recorded dividing it into separate

paragraphs assigning paragraph numbers.

ii. Prosecution witnesses shall be numbered as PW-1, PW-2 etc, in seriatim.

Similarly, defence witnesses shall be numbered as DW-1, DW-2, etc., in

seriatim. The Court witnesses shall be numbered as CW-1, CW-2, etc, in

seriatim.

iii. The record of depositions shall indicate the date of the chief examination, the

cross examination and re-examination.

iv. The Presiding Officers shall wherever necessary record the deposition in

question and answer format.

v. Objections by either the prosecution or the defence counsel shall be taken note

of and reflected in the evidence and decided immediately, in accordance with

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law, or, at the discretion of the learned Judge, at the end of the deposition of

the witness in question.

vi. The name and number of the witness shall be clearly stated on any subsequent

date, if the evidence is not concluded on the date on which it begins.

8. EXHIBITING OF MATERIAL OBJECTS AND EVIDENCE

i. Prosecution exhibits shall be marked as Exhibit P-1, P-2 etc in seriatim.

Similarly, defence Exhibits shall be marked as Exhibit D-1, D-2, etc in

seriatim. The Court exhibit shall be marked as Exhibit C-1, C-2, etc in

seriatim.

ii. To easily locate the witness through whom the document was first introduced

in evidence, the exhibit number shall further show the witness number of such

witness after the Exhibit number. If an exhibit is marked without proper proof,

the same shall be indicated by showing in brackets (subject to proof).

Explanation: If Prosecution witness no. 1 (PW1) introduces a document in

evidence, that document shall be marked as Exhibit P-1/PW1. If proper proof

is not offered for that document at the time when it is marked, it shall be

marked as Exhibit P-1/PW1 (subject to proof). The Second document

introduced by PW1 will be Exhibit P-2/PW1.

iii. The Material objects shall be marked in seriatim as MO-1, MO-2 etc.

9. SUBSEQUENT REFERENCES TO ACCUSED, WITNESS, EXHIBITS AND MATERIAL

OBJECTS

i. After framing of charges, the accused shall be referred to only by their ranks

in the array of accused in the charge and not by their names or other references

except at the stage of identification by the witness.

ii. After recording the deposition of witnesses, marking of the exhibits and

material objects, while recording deposition of other witnesses, the witnesses,

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exhibits and material objects shall be referred by their numbers and not by

names or other references.

iii. Where witness cited in the complaint or police report are not examined, they

shall be referred to by their names and the numbers allotted to them in the

complaint or police report.

10.REFERENCES TO STATEMENTS UNDER SECTION 161 AND 164 CRPC:

i. During cross examination, the relevant portion of the statements recorded

under Section 161 Cr.PC used for contradicting the respective witness shall be

extracted. If it is not possible to extract the relevant part as aforesaid, the

Presiding Officer, in his discretion, shall indicate specifically the opening and

closing words of such relevant portion, while recording the deposition, through

distinct marking.

ii. In such cases, where the relevant portion is not extracted, the portions only

shall be distinctly marked as prosecution or defence exhibit as the case may be,

so that other inadmissible portions of the evidence are not part of the record.

iii. Incases, where the relevant portion is not extracted, the admissible portion shall

be distinctly marked as prosecution or defence exhibit as the case may be.

iv. The aforesaid rule applicable to recording of the statements under Section 161

shall mutatis mutandis apply to statements recorded under Section 164 of the

Cr.PC, whenever such portions of prior statements of living persons are used

for contradiction/corroboration.

v. Omnibus marking of the entire statement under S. 161 and 164 Cr.P.C shall not

be done.

11.MARKING OF CONFESSIONAL STATEMENTS

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The Presiding Officers shall ensure that only admissible portion of Section 8 or

Section 27 Indian Evidence Act, 1872 is marked and such portion alone is

extracted on a separate sheet and marked and given an exhibit number.

 CHAPTER IV: THE JUDGMENT

12.Every judgement shall contain the following

i. Start with a preface showing the names of parties as per FORM A to the

Rules.

ii. A tabular statement as per FORM B to the Rules.

iii. An appendix giving the list of prosecution witnesses, defence witnesses,

Court witnesses, Prosecution Exhibits, Defence Exhibits and Court

Exhibits and Material Objects as per FORM C to the Rules.

13.In compliance with Section 354 and 355 Cr.PC, in all cases, the judgments shall

contain:

i. the point or points for determination,

ii. the decision thereon, and

iii. the reasons for the decision

14.In case of conviction, the judgment shall separately indicate the offence involved

and the sentence awarded. In case there are multiple accused, each of them shall be

dealt with separately. In case of acquittal and if the accused is in confinement, a

direction shall be given to set the accused at liberty, unless such accused is in

custody in any other case.

15.In the judgment the accused, witnesses, exhibits and material objects shall be

referred to by their nomenclature or number and not only by their names or

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otherwise. Wherever, there is a need to refer to the accused or witnesses by their

name, the number shall be indicated within brackets.

16.The judgment shall be written in paragraphs and each paragraph shall be numbered

in seriatim. The Presiding Officers, may, in their discretion, organize the judgment

into different sections.

 CHAPTER V: MISCELLANEOUS

17.BAIL

i. The application for bail in non-bailable cases must ordinarily be disposed off

within a period of 3 to 7 days from the date of first hearing. If the application is

not disposed off within such period, the Presiding Officer shall furnish reasons

thereof in the order itself. Copy of the order and the reply to the bail application

or status report (by the police or prosecution) if any, shall be furnished to the

accused and to the accused on the date of pronouncement of the order itself.

ii. The Presiding Officer may, in an appropriate case in its discretion insist on a

statement to be filed by the prosecutor in charge of the case.

18.SEPARATION OF PROSECUTORS AND INVESTIGATORS

The State Governments shall appoint advocates, other than Public Prosecutors, to

advise the Investigating Officer during investigation.

19.DIRECTIONS FOR EXPEDITIOUS TRIAL

i. In every enquiry or trial, the proceedings shall be held as expeditiously as

possible, and, in particular, when the examination of witnesses has once begun,

18

the same shall be continued from day to day until all the witnesses in

attendance have been examined, unless the court finds the adjournment of the

same beyond the following day to be necessary for reasons to be recorded.

(section 309 (1) Cr.PC.). For this purpose, at the commencement, and

immediately after framing charge, the court shall hold a scheduling hearing, to

ascertain and fix consecutive dates for recording of evidence, regard being had

to whether the witnesses are material, or eyewitnesses, or formal witnesses or

are experts. The court then shall draw up a schedule indicating the consecutive

dates, when witnesses would be examined; it is open to schedule recording of a

set of witness’ depositions on one date, and on the next date, other sets, and so

on. The court shall also, before commencement of trial, ascertain if the parties

wish to carry out admission of any document under Section 294, and permit

them to do so, after which such consecutive dates for trial shall be fixed.

ii. After the commencement of the trial, if the court finds it necessary or advisable

to postpone the commencement of, or adjourn, any inquiry or trial, it may, from

time to time, for reasons to be recorded postpone or adjourn the same on such

terms as it thinks fit, for such time as it considers reasonable. If witnesses are

in attendance no adjournment or postponement shall be granted, without

examining them, except for special reasons to be recorded, in writing. (Section

309 (2) Cr.PC.).

iii. Sessions cases may be given precedence over all other work and no other work

should be taken up on sessions days until the sessions work for the day is

completed. A Sessions case once posted should not be postponed unless that is

unavoidable, and once the trial has begun, it should proceed continuously from

day today till it is completed. If for any reason, a case has to be adjourned or

postponed, intimation should be given forthwith to both sides and immediate

19

steps be taken to stop the witnesses and secure their presence on the adjourned

date.

 FORM A

IN THE COURT OF ……………………

Present: …………………. Sessions Judge

[Date of the Judgement]

[Case No………/2019]

(Details of FIR/Crime and Police Station)

Complainant STATE OF…..

OR

NAME OF THE COMPLAINANT

REPRESENTED BY NAME OF THE ADVOCATE

ACCUSED 1. NAME WITH ALL PARTICULARS (A1)

2. NAME WITH ALL PARTICULARS (A2)

REPRESENTED BY NAME OF THE ADVOCATES

 FORM B

20

Date of Offence

Date of FIR

Date of Chargesheet

Date of Framing of Charges

Date of commencement of

evidence

Date on which judgment is

reserved

Date of the Judgment

Date of the Sentencing Order, if

any

Accused Details:

Rank of

the

Accuse

d

Name

of

Accuse

d

Date

of

Arrest

Date of

Release

on Bail

Offences

charged

with

Whether

Acquitted

or

convicted

Sentence

Imposed

Period of

Detention

Undergone

during

Trial for

purpose of

section

428, Cr.PC

FORM C

LIST OF PROSECUTION/DEFENCE/COURT WITNESSES

A. Prosecution

RANK NAME NATURE OF EVIDENCE

(EYE WITNESS, POLICE WITNESS, EXPERT

WITNESS, MEDICAL WITNESS, PANCH

WITNESS, OTHER WITNESS)

PW1

PW2

B. Defence Witnesses, if any:

RANK NAME NATURE OF EVIDENCE

(EYE WITNESS, POLICE WITNESS, EXPERT

WITNESS, MEDICAL WITNESS, PANCH

21

WITNESS, OTHER WITNESS)

DW1

DW2

C. Court Witnesses, if any:

RANK NAME NATURE OF EVIDENCE

(EYE WITNESS, POLICE WITNESS, EXPERT

WITNESS, MEDICAL WITNESS, PANCH

WITNESS, OTHER WITNESS)

CW1

CW2

LIST OF PROSECUTION/DEFENCE/COURT EXHIBITS

A. Prosecution:

Sr.

No

Exhibit Number Description

1 Exhibit P-1/PW1

2 Exhibit P-2/PW2

B. Defence:

Sr.

No

Exhibit Number Description

1 Exhibit D-1/DW1

2 Exhibit D-2/DW2

C. Court Exhibits

Sr.

No

Exhibit Number Description

1 Exhibit C-1/CW1

22

2 Exhibit C-2/CW2

D. Material Objects:

Sr.

No

Material Object

Number

Description

1 MO1

2 MO2

23

When the orders passed by the NCLT admitting the application, under Section 7, and also the ordering of moratorium under Section 14 of the IBC and the orders which have been passed by the tribunal otherwise, the impugned order of the High Court resulting in the Respondent No. 1 being allowed to operate the account without making good the amount of Rs 32.50 lakhs to be placed in the account of the Corporate Debtor cannot be sustained.

When the orders passed by the NCLT admitting the application, under Section 7, and also the ordering of moratorium under Section 14 of the IBC and the orders which have been passed by the tribunal otherwise, the impugned order of the High Court  resulting in the Respondent No. 1 being allowed to operate the account without making good the amount of Rs 32.50 lakhs to be placed in the account of the Corporate Debtor cannot be sustained.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.447 OF 2021

(Arising out of SLP (CRL.) No. 1549 of 2021)

SANDEEP KHAITAN, RESOLUTION PROFESSIONAL

FOR NATIONAL PLYWOOD INDUSTRIES LTD. … APPELLANT(S)

VERSUS

JSVM PLYWOOD INDUSTRIES LTD. & Anr. … RESPONDENT(S)

J U D G M E N T

K.M. JOSEPH, J.

Leave granted.

1. The appeal is directed against order dated

04.02.2021 passed by the Hon’ble High Court of

Guwahati. In the impugned order, the High Court

has allowed an interlocutory application filed by

the Respondent No. 1 to allow it to operate its

bank account maintained with the ICICI Bank 

2

Bhubaneswar and to unfreeze the bank account of

its creditors over which the lien has been created

and the accounts frozen pursuant to the lodging of

an FIR by the appellant before us. It was made

subject to conditions.

2. An application under Section 7 of the Insolvency

and Bankruptcy Code, 2016, hereinafter referred to

as the IBC was admitted on 26.08.2019 against one

National Plywood Industries Limited (NPIL). The

Appellant was appointed as the Interim Resolution

Professional. A moratorium also came to be passed

by the very same order within the meaning of

Section 14 of the IBC. The Appellant came to be

appointed as the Resolution Professional by an

order dated 08.11.2019. In the meantime, the

Respondent No.1 claiming to be an operational

creditor lay the claim for the amounts due to it

from the Corporate Debtor before the Appellant vide

communication dated 22.11.2019. It would appear

that the former Managing Director of the Corporate

Debtor challenged the order of the NCLT, Guwahati, 

3

admitting the application under Section 7. The

NCLAT by order dated 24.11.2019 dismissed the

appeal interalia holding that the application

under Section 7 was not barred by limitation. Civil

Appeal No. 9142 of 2019 filed by the former

Managing Director of the Corporate Debtor came to

be however allowed by this Court by an order dated

20.01.2020. The NCLT was directed to consider the

matter in accordance with law. It would appear that

on 28.01.2020 interlocutory application 7 of 2020

filed by the former Managing Director of the

Corporate Debtor seeking an injunction restraining

the Respondents therein from interfering in the

operation of the Corporate Debtor and to disperse

the cost of the CIRP was disposed of interalia as

follows: -

i. “Today the Respondents submitted across the

Bar that except ratifying the expenses of the

IRP, no major decisions have been taken by the

COC in the yesterday’s COC meeting. Both the

respondents informed that they are conscious 

4

about the order passes by the Hon’ble Supreme

Court and the legal consequences thereof.

ii. In view of the above submissions of the

respondents, this Tribunal expects that the

respondents would maintain status-quo in

respect of the IRP proceedings. As the main

company petition was remanded back to the

Hon’ble NCLAT for fresh disposal in accordance

with law, this Tribunal is of the considered

opinion that the petitioner has to approach

the Hon’ble NCLAT for any further directions

in the above matter and accordingly above

application stands disposed of with the above

observations. Even otherwise, the order of

admission of the company petition has not

attained finality and, therefore, no interim

orders as prayed for needs to be passed today.

iii. In the result, IA No. 07 of 2020 is disposed

of with the above observations.”

Thereafter there is order dated 20.03.2020

passed which we will advert to.

5

3. It is the case of the Appellant that the former

Managing Director of the Corporate Debtor in

conspiracy with the Respondent No.1 engaged in an

illegal transaction to the tune of Rs. 32.50 lakhs

without authority from the Appellant and in

violation of Section 14 of the IBC. It is his

complaint that initially, the Managing Director

made a transaction of Rs. 500. Thereafter, he

proceeded by virtue of 4 consecutive transactions

to transfer a sum of Rs. 32.50 lakhs to the

Respondent No. 1. It is also complaint of the

Appellant that the former Managing Director

proceeded to transfer another sum of Rs. 3.29 lakhs

from another account and the amount was transferred

to his close associate.

4. On 23.04.2020, the Appellant filed a cyber

complaint. This was followed on the same date by

filing an application under Section 19 read with

Section 23 (2) of the IBC alleging non corporation

by the previous management of the Corporate Debtor.

On 27.04.2020, the Appellant got lodged an FIR. On 

6

04.05.2020 the ICICI Bank created a lien upon the

bank account of the Respondent No. 1 based on the

allegedly illegal transaction. The next

development to be noticed is the order dated

20.05.2020 passed by the NCLT, Guwahati. The order

is passed in I.A. No. 37 of 2020. The relief sought

therein was for direction to the Directors of the

Corporate Debtor to hand over the management of

the company. The order reflects the controversy

relating to the payment of Rs. 32.50 lakhs

violating the moratorium. Tribunal finds that the

directors of the Corporate Debtor were not giving

maximum assistance. On the basis of its findings

the tribunal issued directions to the suspended

Board of the Corporate Debtor to cooperate with

the Appellant. The Auditors were to complete the

audit expeditiously interalia. More importantly

the Directors were directed to refund the amount

withdrawn less the amount if any paid to the

alleged supplier as the cost of raw materials. The

interlocutory application was posted before the 

7

regular bench for hearing after lifting the

lockdown.

5. A perusal of the order reveals that the Directors

of the company sought to defend the withdrawal of

Rs.32.50 lakhs as one intended to pay for the raw

materials. It is further noticed that the Tribunal

noticed that there was no proof for the same. More

importantly it was found that even if done to

discharge debt due to supplies during the CIRP,

without permission and knowledge of the Resolution

Professional, it was in violation of Section 14 of

the Code.

6. The Appellant moved an application for review of

the order dated 20.05.2020. The Tribunal in its

order dated 05.06.2020 noticed the limitations

flowing from Rules 154 and 155 of the NCLT, Rules,

2016 in the matter of review. It is observed that

for the reasons highlighted in the 20.05.2020 the

former Directors of the Corporate Debtor are found

prima facie liable to refund the amount 

8

unauthorisedly withdrawn from the account of the

Corporate Debtor. It is also noticed that the

Directors of the suspended board were not made

respondents. The application for review came to be

dismissed.

7. The genesis of the impugned order is the FIR

lodged against the Appellant and arose from the

payment effected into the account of Respondent

No.1 in a sum of Rs. 32.50 lakhs. The said FIR

came to be challenged in a petition under Section

482 of the Cr.P.C. by the Respondent No.1 by filing

Criminal Petition No. 454 of 2020. In the same the

Appellant also filed I.A. No. 453 of 2020.

8. On 19.01.2021 the NCLT, Guwahati passed an order

in I.A No. 37 of 2020. By the said order the

Appellant was directed to discharge his duties as

per the provisions of the IBC. Thereafter, it also

passed the following directions: -

i. “The Learned Counsel for the Respondents has

confirmed that the Suspended Management has

been co-operating and providing assistance to 

9

RP to complete the CIRP in time. The Corporate

Debtor is directed to submit its reply

Affidavit to the allegations made relating to

the transactions of Rs. 35.795 lakhs serving

a copy upon the RP.

ii. Any amount of the Corporate Debtor lying in

any Bank is to be transferred to the account

being operated by the RP. Banks having account

of the Corporate Debtor are directed to lift

the lien, if any, on any amount of the

Corporate Debtor and allow the operation of

the account by the RP only.

iii. The RP is directed to utilize the funds of the

Corporate Debtor under CIRP judiciously

keeping the Unit in its full operation.”

9. Thereafter, in the petition filed by the

Respondent No.1 under Section 482, the High Court

admitted the petition. The case was directed to be

listed for regular hearing in usual course.

(According to the Appellant the High Court had

directed investigation to be continued. This is 

10

not seen reflected in the order which is produced).

In the I.A No. 453 of 2020 filed in the Section

482 resulting in the impugned order, the prayers

sought has already been noted. It is to allow the

Respondent No.1 and its creditors to operate their

bank account over which lien has been created and

those accounts which have been frozen based on the

FIR dated 27.04.2020.

THE IMPUGNED ORDER

10. After noticing the contentions of the parties,

the Learned Single Judge in the impugned order

proceeds to hold as follows:-

i. “From the material on record, it is apparent

that there was business relation between the

petitioner company and the NPIL, which is

evident from the various documents annexed to

the petition. Only question raised in this FIR

is that the money was transferred by the

suspended CMD without any authority, inasmuch

as, the entire state of affairs of NPIL was 

11

vested with the Respondent No. 2, who has been

appointed as resolution professional. Only

incriminating allegation against the

petitioner is that the suspended CMD has

personal interest in the petitioner company

being an associate company, which is however,

a disputed fact required to be investigated by

police.

ii. Be that as it may, having considered the entire

gamut of the matter and the nature of

accusation brought against the present

petitioner, I am of the view that freezing of

all the bank account as indicated above would

certainly cause unnecessary hardship, which

may not be necessary for the investigation of

the present FIR in view of the nature of the

accusation made therein as well as in view of

the offer made by the petitioner to furnish a

bond. Therefore, in my consider view, the

petitioner is entitled to the interim relief

as sought for. Accordingly, it is provided

that the lien created upon the bank account 

12

no. 149905001306 maintained with the ICICI

Bank Limited, Chandrasekarpur Branch,

Bhubaneswar be lifted, the petitioner and its

creditors shall be allowed to operate the bank

account over which lien has been created and

the accounts have been frozen pursuant to the

instruction of the Respondent No. 2 in

connection with Margherita P.S. Case No.

0112/2020, until further order of the Court.

iii. It is however, made clear that the interim

relief granted to the petitioner as above with

regard to unfreezing the bank account and

lifting of lien shall be subject to the

condition that the petitioner shall withdraw

the WP (C) No. 118/2020 filed before the

Itanagar Permanent Bench of this Court and

furnishing an indemnity bond undertaking to

refund the amount of Rs. 32.50 Lakhs if

required, subject to final outcome of the

criminal case.”

13

11. We heard the Learned Counsel for the Appellant

Shri Anand Varma and the Learned Counsel for the

Respondent No. 1, Shri Harish Pandey. The State is

represented by Shri Shuvodeep Roy.

SUBMISSIONS

12. The Learned Counsel for the Appellant

contended that the impugned order proceeds on an

erroneous basis namely that the allegations about

the co-accused (former Managing Director of the

Corporate Debtor) having an interest in the

Respondent No.1 Company was a disputed fact which

had to be investigated. It is the case of the

Appellant that there is a report of the auditing

firm. Also, the said finding of the High Court is

contrary to the documents of the Respondent No. 1

itself. It is also urged that the High Court itself

has permitted the investigation to go on in the

petition under section 482. Secondly, he pointed

out that the impugned order was contrary to Section

14 of the IBC. He drew support from the judgment 

14

of this Court in P Mohanraj vs. M/S. Shah Brothers

Ispat Pvt. Ltd. in Civil Appeal No. 10355 of 2018.

According to him, the whole purpose of the

moratorium would be defeated if members of the

previous management of the Corporate Debtor are

left free to transfer the funds of the Corporate

Debtor. The Respondent No. 1 was a related party

of the Corporate Debtor. He reiterates that with

the appointment of Appellant as the Resolution

Professional under Section 25 (2)a of the IBC he

is to take custody and control of all the assets

of the Corporate Debtor. Finally, he also

emphasized the nature of the jurisdiction under

Section 482 of the Cr.P.C. The High Court has

overlooked the limits of its power in passing the

impugned order, he complains. He points out that

the order admitting the application under section

(7) has not been stricken by the remand by this

Court of the appeal against the order admitting

the application.

15

13. Per contra Shri Harish Pandey, Learned

Counsel, contended that the order may not be

interfered by this Court. The Respondent No.1 was

a related party and it was always known to be such

related party. He referred to the fact that the

Respondent No.1 was supplier of raw material to

the Corporate Debtor. He pointed out goods worth

more than Rs.2 crores have been supplied by it to

the Corporate Debtor. Payments were being made. In

fact, a sum of more than Rs.39 lakhs is further

due from the Corporate Debtor to the Respondent

No. 1. It is emphasized as a MSME it would cause

grave prejudice to it if the impugned order is set

aside.

14. It is the case of the Respondent No. 1 further

that the business relationship between the

Respondent No. 1 and Corporate Debtor has existed

for more than 15 years. The Corporate Debtor has

been declared a sick industry on 18.04.2006. It

was nursed back by the Respondent No. 1. Our

attention is drawn to the minutes of the first 

16

meeting of the Committee of Creditors dated

23.09.2019. The minutes reveal that committee of

creditors observes that a substantial part of the

raw materials is purchased from Respondent No.1

and that the relatives of the Corporate Debtor

directors or shareholders hold more than 51 percent

shareholding of the first respondent. It is further

noted that the processes to assess the veracity

and reasonableness of the transaction in such

situation were let known and the purchases/sales

must be benchmarked against arm’s length

transactions and open market transactions. (We may

also notice that the meeting resolved that all the

banks were to act on the instructions of the

appellant interalia.) It is the case of the

Respondent No. 1 that right from the beginning, it

was known that the Respondent No. 1 was a related

party. It is the further case of the Respondent

No. 1 that its claim for over 6 crores of rupees

was vetted, verified and admitted by the Appellant.

After the commencement of CIRP Respondent No. 1

had made regular substantial supplies to the 

17

Corporate Debtor for which the payment were being

made (they relate to the period from 26.08.2019 to

31.03.2020). This is shown as amounting to Rs.

2,70,84,982. The Respondent No. 1 lays store by

the order of the NCLT, Guwahati dated 28.01.2020

which we have already referred to. E-mails

addressed to the Appellant to clarify did not evoke

any response. In March 2020, orders were placed by

the Corporate Debtor for approximately Rs. 30

lakhs. The lockdown intervened. On 18.04.2020 it

is not disputed that the Corporate Debtor made a

payment of Rs 32.50 lakhs through online net

banking transfer against material supplied during

the period that the corporate debtor was under

CIRP. The Learned Counsel for the Respondent No.1

would point out that the order of the NCLT dated

20.05.2020 passed by the NCLT directed the

directors of the Corporate Debtor to refund the

amount withdrawn less any amount supplied to the

alleged supplier. It is therefore, pointed out

creating a lien on the accounts of the Respondent

no. 1 was not justified. The Learned Counsel also 

18

drew our attention to the order dated 24.03.2021

passed by the NCLT Guwahati Bench. This is in an

effort at showing the manner in which the appellant

has been functioning. The Tribunal in the said

order refers to the Impugned Order and the Interim

order passed by this Court in this matter. The

Tribunal noted that the production has been

suspended and layoff notice is also issued in

regard to the Corporate Debtor. The objectives of

the IBC are being defeated on the basis of the

claims and the FIR interalia. The Appellant was

directed to file the copy of the FIR in this case

among other documents. The Learned counsel for the

Respondent no. 1 would submit that the having

regard to the orders passed by the tribunal the

Impugned Order passed by the High Court may not be

interfered with. Having regard to the dismissal of

the review petition filed against the 20.05.2020

there is no merit in the present appeal.

15. The Learned Counsel for the Appellant would

point out that the Appellant is prevented from 

19

disbursing the salary of the workers. Nearly four

months’ salary would be disbursed with the amount

which was paid by the former management without

any authority as noticed. It is the case of

Appellant that the transactions between the

Respondent No.1 and the Corporate Debtor was not

authorised by the Appellant during the period from

21.02.2020 to 27.04.2020.

FINDINGS

16. The contours of the jurisdiction under 482 of

the Cr.P.C. are far too well settled to require

articulation or reiteration. Undoubtedly, in this

case by 26.08.2019 an application filed under

section 7 of the IBC was admitted, the appellant

appointed as the interim resolution professional

and what is more a moratorium declared. With the

declaration of the moratorium the prohibitions as

enacted in section 14 came into force. It is clear

that the assets of the company would include the

amounts lying to the credit in the bank accounts. 

20

There cannot be any dispute that well after the

order under section 14 was passed, a sum of Rs.

32.50 lakhs has been remitted into the account of

Respondent No.1 company. No doubt it is the

definite case of the Respondent No.1 that it has

had business relations with the Corporate Debtor

since more than 15 years and that the amount

remitted in its account represented the price of

the materials supplied to the Corporate Debtor.

Apart from this amount a sum of rupees more than

Rs.39 lakhs is still due. It is to be noticed that

though an appeal was filed against the order

admitting the petition under Section 7 the same

was dismissed by the NCLAT. The appellate order

was undoubtedly set aside by this court and the

appeal remanded to the NCLT for its consideration.

We would think that setting aside the appellate

order of the NCLAT by this court and remanding the

appeal would not have the effect of setting aside

the order admitting the application. Initially, as

was noticed by us an order was passed on

28.02.2020. The ambiguity created by the said order 

21

was removed by the subsequent order of the Tribunal

dated 20.03.2020. In other words, by the order

dated 20.03.2020 the NCLT, Guwahati ordered that

the appellant was at liberty to act as per law and

the words used in the earlier order dated

28.02.2020 relied upon by the Respondent No.1 were

found to be a mere casual observation which did

not culminate into any direction. We need not say

anything further particularly in view of the fact

that there is an FIR and which is pending

consideration in the High Court also. It is

significant only for us to notice that the

Appellant is essentially aggrieved by the

transactions representing a sum of Rs. 32.50 lakhs

all of which took place after order dated

20.03.2020.

17. It may be true that in the interim order passed

by the NCLT Guwahati, the Tribunal had directed

the Directors to refund the amount of the Corporate

Debtor less any amount paid for supplies. It is

also true that the review petition filed by the 

22

Appellant is dismissed, essentially based on the

limitations on the power of review.

18. The provisions of the IBC contemplate

resolution of the insolvency if possible, in the

first instance and should it not be possible, the

winding up of the Corporate Debtor. The role of

the insolvency professional is neatly carved out.

From the date of admission of application and the

appointment of Interim Resolution Professional,

the management of the affairs of the Corporate

Debtor is to vest in the Interim Resolution

Professional. With such appointment, the powers of

the Board of Directors or the partners of the

Corporate Debtor as the case may be are to stand

suspended. Section 17 further declares that the

powers of the Board of Directors or partners are

to be exercised by the Interim Resolution

Professional. The financial institutions are to

act on the instructions of the Interim Resolution

Professional. Section 14 is emphatic, subject to

the provisions of sub section (2) and (3). The 

23

impact of the moratorium includes prohibition of

transferring, encumbering, alienating or disposing

of by the Corporate Debtor of any of its assets.

19. Sub section 2 reads as follows:-

“The supply of essential goods or services to the

corporate debtor as may be specified shall not be

terminated or suspended or interrupted during

moratorium period.”

20. Essential goods and services referred to in

Section 14(2) has been defined by Regulations.

Regulation 32 of the INSOLVENCY AND BANKRUPTCY

BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR

CORPORATE PERSONS) REGULATIONS, 2016, reads as

follows:-

"Essential Supplies.

The essential goods and services referred to in

section 14(2) shall meani. Electricity;

24

ii. water;

iii. telecommunication services; and

iv. information technology services,

to the extent these are not a direct input to the

output produced or supplied by the corporate

debtor.

Illustration- Water supplied to a corporate debtor

will be essential supplies for drinking and

sanitation purposes, and not for generation of

hydro-electricity.”

21. Also, undoubtedly Section (2A) of Section 14

of the THE INSOLVENCY AND BANKRUPTCY CODE, 2016

provides as follows:

“Where the interim resolution professional or

resolution professional, as the case may be,

considers the supply of goods or services critical

to protect and preserve the value of the corporate

debtor and manage the operations of such corporate

debtor as a going concern, then the supply of such

goods or services shall not be terminated,

suspended or interrupted during the period of 

25

moratorium, except where such corporate debtor has

not paid dues arising from such supply during the

moratorium period or in such circumstances as may

be specified.”

22. This provision was inserted with effect from

28.12.2019. No doubt under this provision goods or

services not covered by Section 14(2) are also

covered. The call however is to be taken by the

IRP/RP. Raw material supply could fall within

the provision. The IRP/RP must take a decision

guided purely by the object of the IBC and the

provisions and the factual matrix.

23. With the appointment of Committee of

Creditors, a Resolution Professional is to be

appointed. The Resolution Professional is

thereafter to conduct the resolution process and

manage the operations. Section 23 (2) makes it

clear that his power is the same as the powers of

the Interim Resolution Professional. Undoubtedly,

the Resolution Professional is bound to seek prior 

26

approval of the Committee of Creditors in maters

covered by Section 28.

24. We have to also in this context bear in mind

that the High Court appears to have, in passing

the impugned order, which is an interim order for

that matter, overlooked the salutary limits on its

power under Section 482. The power under Section

482 may not be available to the Court to

countenance the breach of a statuary provision.

The words ‘to secure the ends of justice’ in

Section 482 cannot mean to overlook the undermining

of a statutory dictate, which in this case is the

provisions of Section 14, and Section 17 of the

IBC.

25. It would appear to us that having regard to

the orders passed by the NCLT admitting the

application, under Section 7, and also the ordering

of moratorium under Section 14 of the IBC and the

orders which have been passed by the tribunal

otherwise, the impugned order of the High Court 

27

resulting in the Respondent No. 1 being allowed to

operate the account without making good the amount

of Rs 32.50 lakhs to be placed in the account of

the Corporate Debtor cannot be sustained. The

Learned Counsel for the Appellant has also no

objection in the Respondent No. 1 being allowed to

operate its account subject to it remitting an

amount of Rs. 32.50 lakhs into the account of the

Corporate Debtor. In such circumstances, Appeal is

allowed. The Impugned order is modified as follows:

i. The Respondent No.1 is allowed to operate its

account subject to it to first remitting into

the account of the Corporate Debtor, the

amount of Rs 32.50 lakhs which stood paid to

it by the management of the Corporate Debtor.

The assets of the Corporate Debtor shall be

managed strictly in terms of the provisions of

the IBC. The Appellant as RP will bear in mind

the provision of Section 14 (2A) and the object

of IBC. We however make it clear that our order

shall not be taken as our pronouncement on the 

28

issues arising from the FIR including the

petition pending under Section 482 of the

Cr.P.C.

ii. We also make it clear that the judgment will

not stand in the way of the Respondent No.1

pursuing its claim with regard to its

entitlement to a sum of Rs.32.50 lakhs and any

other sum from the Corporate Debtor or any

other person in the appropriate forum and in

accordance with law. There will be no order as

to costs.

 ......................J.

 (UDAY UMESH LALIT)

......................J.

 (K.M. JOSEPH)

New Delhi,

April 22, 2021. 

When the contract did not prohibit the award of interest in respect of delayed payment in local currency component specified therein. - it can be granted .- 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 boundaries for encroaching upon an award as laid down in Saw Pipes case (supra). When the agreement is silent on the point of rate of interest but provides for payment of interest on delayed payment, simple interest at 8% per annum is a reasonable one - .the Tribunal’s exercise of fixing the rate should have been on the basis of applying the principle laid down in 19 paragraph 43.1. in the case of G.C. Roy (supra). The said principle is applicable in a 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 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 sub­paragraphs 1.6. to 1.8 of the award.

 When the contract did not prohibit the award of interest in   respect   of   delayed   payment   in   local   currency   component specified therein.  - it can be granted .- 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   boundaries   for encroaching upon an award as laid down in  Saw   Pipes  case (supra). 

 When the agreement is silent on the point of rate of   interest   but   provides   for   payment   of   interest   on   delayed payment, simple interest at 8% per annum is a reasonable one - .the Tribunal’s exercise of fixing the rate should have been   on   the   basis   of   applying   the   principle   laid   down   in 19 paragraph   43.1.   in   the   case   of  G.C.   Roy  (supra).     The   said principle is applicable in a 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 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 sub­paragraphs 1.6. to 1.8 of the award.

REPORTABLE

IN THE SUPREME COURT OF INDIA

   CIVIL APPELLATE JURISDICTION

         CIVIL APPEAL NO. 3454 OF 2011

M/s. Oriental Structural Engineers Pvt. Ltd.  ...Appellant(s)

     Versus

State of Kerala …Respondent(s)

J U D G M E N T

ANIRUDDHA BOSE, J.

The  appellants were awarded a contract by the  State  of

Kerala for upgradation of a State Highway for two stretches, from

Muvattupuzha­Thodupuzha   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

interest on delayed payment on the subject­heads, which were to

1

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 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 threemember   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. 

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

2

dissenting view.  In the succeeding paragraphs of this judgment,

whenever we refer to the expression ‘award’, 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 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   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

sub­clause 60.8 of the agreement on delayed interim payment.

This clause has been reproduced in page 38 of the paperbook and

reads:­

3

“ 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 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 sub­clause 60.1. Provided

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

(B) in the case of any monthly statement submitted

by the 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   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 Sub­clause 60.13 within 84 days after

the Final statement and 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

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

4

the   said   63   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 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   which   came   for   interpretation   before   the   Tribunal   and

thereafter before the two judicial fora stipulated:­

“ANNEXURE- P-3

Kerala State Transport Project

Volume III

Section 6: Appendix to Bid   Page 7.8

Origin of materials 60.3(a) (v) item Origin Currency

And Plants 60.3 (d) Plant,  USA

Machinery & Germany, or

Spares any other US Dollars

Bitumen & Iran,

   Thermoplastic Singapore or US Dollars

   Paint any other

Bidder to complete

Rates of Interest upon 60.8 ________ percent of payments in local 

Unpaid Sums currency. For other countries, refer to the

table below. 

Currency (as per Sub­Clause 60.1) London Inter­Bank OnLending Rate

(LIBOR) Plus 2 percent

                         USS ­do­ 

The above of interest for foreign currencies shall be supplied by the

Bidder, and these rates are subject to clarification/negotiation before

”

5

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 was concerned, as would be evident

from the appendix to the bid quoted in the preceding paragraph,

the London Interbank On­lending 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 “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,   Irrigation   Department,

Government of Orissa & Ors. vs. G.C. Roy [(1992) 1 SCC 508],

6

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

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   R­1   before   the   Tribunal)   and   the   next   was   another

written   communication   dated   3rd  August,   2004   (Exhibit   C­72

before the Tribunal).   The first letter issued by the appellants

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 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 is:­

7

“Dear Sir,

We wish to invite your kind attention to the

issue   of   release   of   payment   against   IPC­1

General Items as recommended by DRB.  As

a   pre­condition   for   release   of   the   said

payment, we 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.”

(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 Board in respect of Interim Payment

Certificate­I   (IPC­I).     The   Tribunal   accepted   the   stand   of   the

appellants (claimants before it).  It was, inter­alia, 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   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

8

argument of the respondent that the letter

dated 14.7.04 (ext. R1) is a waiver of the

rights of the claimant does not 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 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.”

(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

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 IPC­I only.

This   stand   had   been   broadly   accepted   by   the   Tribunal.   The

9

Tribunal had also accepted the appellants/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. 

9. The Arbitration Court and the Appellate Court in sustaining

the 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 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

10

situation,   as   this   factor   could   have   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 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

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 Builders), it has been held:­

11

“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)* * *

(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.”

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 construes the contract in such

a way that it could be said to be something

that   no   fair­minded   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 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

12

interference   with   the   award   by   the   Arbitration   Court   on   this

ground   was   unwarranted.   The   underlying   reasoning   of   the

Appellate 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 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  prereference interest under the Interest Act, 1978 as also pendente

lite and future interest. Such jurisdiction stood curbed only if

express   terms   of   the   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

13

agreed by the parties, the Arbitral Tribunal can award interest at

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   subject­matter   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. 

12. 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”, in

our opinion, cannot be construed as cancellation of the clause

providing for payment of interest 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 dispute to which the 1940 Act was

14

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):­

“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 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,

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 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

15

agreement   did   not   contain   any   express   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 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 sub­head of the “patent illegality” principle

elaborated in the case of Associate Builders (supra).

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 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

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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 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   subparagraphs   1.6   to   1.8   of   the   award.   This   part   of   the   award

specifies:­

“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   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 hereinabove, the Respondents shall pay

to the claimants interest 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.

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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 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 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 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 not know if

other bidders had left the space blank or filled the same with

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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   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   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 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

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paragraph   43.1.   in   the   case   of  G.C.   Roy  (supra).     The   said

principle is applicable in a 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 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 sub­paragraphs

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 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 component of the agreement is concerned, but the rate

of   interest   on   the   sum   shall   be   computed   in   the   manner

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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. 

      .................................J.

(SURYA KANT)

...............................J.

 (ANIRUDDHA BOSE)

NEW DELHI

APRIL 22, 2021

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