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Payment Cannot Be Directed Based on Unfinalized Payment Certificate

In National High Authority of India v. Ssangyong Engineering and Construction Co. Ltd. [O.M.P (COMM) 340/2021 & I.A. 14705/2021] dated April 8, 2024, delivered by the High Court of Delhi, it was held that directing a payment on the basis of a payment certificate not determined as final by the tribunal was illegal and against public policy.

The petitioner, National Highways Authority of India, had invited bids for the construction of a section of NH-26 in Madhya Pradesh. The respondent, a company from the republic of Korea, was awarded the bid and subsequently entered into a contract with the petitioner. The parties also appointed an independent engineer to oversee the contract performance. The respondent submitted a draft statement showing value of all the work done as per the Contract along with the amount which the company considered was due to them, in accordance with the agreement between the parties. 

Several disputes arose between the parties regarding the completion of work and due payments, which was referred for arbitration. In the meanwhile, the independent engineer issued a payment certificate following which the petitioner raised various grievances regarding the completion of work. The arbitral tribunal passed an award holding that the payment certificate should be considered as the final statement of the respondents and directed the petitioner to make the remaining payments to the respondent. Aggrieved by this award the petitioner brought the present suit before the court.

The issue for consideration before the Court was whether the impugned award passed by the arbitral tribunal suffered from illegality and was therefore against the public policy of the country.

On its examination of various clauses of the contract and the impugned award of the tribunal, the Court observed that the decision of the tribunal was based on its interpretation of the payment certificate as the final statement. The court pointed out however, that the contract was silent on the matter regarding the payment being based on the final statement. Further, the court also observed that despite the tribunal itself having acknowledged in its award that the certificate wasn’t a final payment certificate, it directed a payment based on it, thereby contradicting itself.

It was also noted that non-adjudication of the dispute regarding the perversity in the payment certificate amounted to a breach of public policy as this was a major point of dispute between the parties and therefore should have been adjudicated by the Tribunal. Stating that the operative part of the impugned award of the tribunal suffered from illegality which went to the root of the matter, the court set aside the impugned award holding it to be violative of established legal principles and public policy.