Full Text
HIGH COURT OF DELHI
Date of Decision: 07.08.2025
UNION OF INDIA .....Petitioner
Through: Mr Lalltaksh Joshi, Adv.
Through:
JUDGMENT
1. This is a petition filed under section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) challenging the Arbitral Award dated 18.06.2007 passed by the learned Sole Arbitrator in Arbitration Case being ARB/CP/37/2006, titled “M/s Era Construction (India) Ltd. and Union of India”.
2. The facts of the present matter, as per the petitioner, are that the petitioner appointed the respondent/claimant as a contractor, for the construction of 200 bedded Satyawati Raja Harish Chandra Hospital at Narela, Delhi, vide Agreement No. 34/EE/PWD-28/2000-01 (“the Agreement”).
3. The General Conditions of Contract (“GCC”) of the Agreement contained an arbitration clause being clause No. 25 which reads as under:- “CLAUSE 25 Settlement of Disputes & Arbitration Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design, drawings and instructions here-in before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter:i) If the contractor considers any work demanded of him to be outside the requirements of the contract, or disputes any drawings, record or decision given in writing by the Engineer-in-Charge on any matter in connection with or arising out of the contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request the Superintending Engineer in writing for written instruction or decision. Thereupon, the Superintending Engineer shall give his written instructions or decision within a period of one month from the receipt of the contractor's letter. If the Superintending Engineer fails to give his instructions or decision in writing within the aforesaid period or if the contractor is dissatisfied with the instructions or decision of the Superintending Engineer, the contractor may, within 15 days of the receipt of Superintending Engineer's decision, appeal to the Chief Engineer who shall afford an opportunity to the contractor to be heard, if the latter so desires, and to offer evidence in support of his appeal. The Chief Engineer shall give his decision within 30 days of receipt of contractor's appeal. If the contractor is dissatisfied with this decision, the contractor shall within a period of 30 days from receipt of the decision, give notice to the Chief Engineer for appointment of arbitrator falling which the said decision shall be final binding and conclusive and not referable to adjudication by the arbitrator. ii) Except where the decision has become final, binding and conclusive in terms of Sub Para (i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, CPWD, in charge of the work or if there be no Chief Engineer, the administrative head of the said CPWD. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is a term of this contract that the party Invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Chief Engineer of the appeal. It is also a term of this contract that no person other than a person appointed by such Chief Engineer CPWD or the administrative head of the CPWD, as aforesaid should act as arbitrator and it for any reason that is not possible, the matter shall not be referred to arbitration at all. It is also a term of this contract that if the contractor does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from the Engineer-in- Charge that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceeding under this clause. It is also a term of this contract that the arbitrator shall adjudicate on only such disputes as are referred to him by the appointing authority and give separate award against each dispute and claim referred to him and in all cases where the total amount of the claims by any party exceeds Rs. 1,00,000/- the arbitrator shall give reasons for the award. It is also a term of the contract that if any fees are payable to the arbitrator these shall be paid equally by both the parties. It is also a term of the contract that the arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties. The cost of the reference and of the award (including the fees, if any, of the arbitrator) shall be in the discretion of the arbitrator who may direct to any by whom and in what manner, such costs or any part thereof shall be paid and fix or settle the amount of costs to be so paid.”
4. As per the Agreement, the respondent was entitled to Rs. 14,68,93,562/- for completion of the project, and the stipulated dates of commencement and completion of the project were 09.11.2000 and 08.05.2002 respectively. However, the actual date of completion was 25.08.2003 and the final bill was raised for an amount of Rs. 15,99,66,156/- by the respondent/claimant.
5. As disputes arose between the parties, the respondent/claimant invoked arbitration clause via notice dated 01.07.2004, and Shri A.K. Singhal was appointed as the Sole Arbitrator. However, after conducting some hearing, Shri A.K. Singhal resigned from the post of the Arbitrator and Shri Chandra Pal was appointed as the Sole Arbitrator vide letter dated 21.08.2006.
6. The learned Sole Arbitrator made and published the impugned Award on 18.06.2007, wherein out of total claims of the respondent/claimant, which were approximately Rs. 2 crores plus Rs. 28,75,219.67/- as interest, the learned Sole Arbitrator awarded an amount to the tune of Rs. 27,87,355/- plus 10% interest p.a. Also, the learned Sole Arbitrator completely rejected the counter claims of the petitioner, which were approximately Rs. 1.[5] crores.
7. Mr. Joshi, learned counsel for the petitioner submits that the impugned Award is liable to be set aside as the same is without any reasoning, and based on misinterpretation of documents on record.
8. Learned counsel for the petitioner states that the learned Sole Arbitrator erroneously granted Rs. 16,50,000/- under claim No. 1 on account of escalation. It is submitted that there was no escalation clause in the Agreement and hence, the respondent/claimant was only entitled to what the Agreement provided and nothing beyond it, specially in light of the undertaking given by the respondent/claimant which mentioned that if an extension was given without imposing levy, the respondent/claimant would not claim the escalation.
9. In support of his submissions, Mr. Joshi, learned counsel has brought to my attention the judgment of Delhi Development Authority vs. Sportina Payce Infrastructure Pvt. Ltd., (2024) SCC OnLine Del 1693, particularly paragraphs 26 to 30, which read as under: -
However, when arbitral tribunal seeks to adopt a completely extraneous basis for assessing and awarding damages, at the very least, the award must mention:
(i) reasoning for rejecting the computation/data furnished by the claimant;
(ii) rationale for adopting the alternative methodology; and
(iii) adequately explain the alternative methodology;
29. In the impugned award, none of the above requirements is satisfied. As noticed, the claim as raised was founded on specific assertion as regards exact extent of idling of specifically identified and quantified machinery. The quantum of manpower rendered idle was also pleaded in precise terms. Once the same was found untenable, the impugned award at the very least should have explained the rationale for the alternative methodology to which it was resorting to. In particular, the award ought to have explained the linkage between the manpower and machinery allegedly rendered idle with “50% of the total overheads”. Moreover, the award does not disclose on what basis it has assumed that the extent of overheads was 2.5% of the contract price. The explanation sought to be offered by the respondent in these proceedings is akin to inferring some reasoning, which is not discernible from the award itself.
30. Also, when the arbitral award resorts to methodology which is different from methodology set out in the statement of claim, the same must be put to the opposite party so that the opposite party has an opportunity to make contentions with regard thereto. It is impermissible for an arbitral tribunal to spring a surprise on the parties by making an arbitral award on the basis of methodology which does not form part of the pleaded case at all and on which no submissions have been made by the respondent/claimant. This is essential to meet minimal requirements of natural justice and to ensure that the award does not hit by Section 34(2)(a)(iii) of the A&C Act.”
10. Learned counsel for the petitioner further submits that the learned Sole Arbitrator erroneously awarded an amount of Rs. 2,00,499/under claim No. 4 on account of deviated quantity beyond specified limit of 30%. He states that extra work was done by the respondent/claimant on their own account and no written instructions for execution of extra work was given to them, as required under clause 12 of the Agreement.
11. It is further submitted that the learned Sole Arbitrator erroneously awarded an amount of Rs. 2,58,460/- under claim No. 5, on account of extra items of work, as the respondent/claimant failed to submit complete details for additional payment within three months and therefore waived his right to such claim.
12. Lastly, it is submitted that the award of interest @ 10% against claims is wrong, as the respondent/claimant never asked for interest to the Chief Engineer or refer it to the Arbitration. Hence, by granting interest the learned Sole Arbitrator went beyond its jurisdiction.
13. Vide the order dated 09.11.2023 passed by this Court, the respondent has been proceeded ex parte.
14. As per the reply already on record, the respondent/claimant has submitted that the impugned Award requires no interference. It is submitted that the impugned Award is passed after diligent analysis of documents on records, pleadings and submission of the parties and appreciating the merits of the case.
15. Further, it is submitted that nothing in contravention of the terms of the Agreement is awarded and the award under claim No.1 is based on the finding that both parties have contributed to the delay beyond the stipulated period of the contract and hence, the respondent be reimbursed up to 40% of the amount of overall escalation. Reliance is placed on K.N. Sathyapalan (Dead) By LRs vs. State of Kerala and Anothers JT, 2006 (10) SC 615.
16. I have heard learned counsel for the petitioner and perused the materials available on record.
17. The principles with regard to the limited scope of interference by a Court under section 34 of 1996 Act against the Arbitral Award have been reiterated time and again by the Hon’ble Supreme Court and this Court, reliance is placed on Consolidated Construction Consortium Limited vs. Software Technology Parks of India, 2025 INSC 574 (paragraph No. 23).
18. It is a well settled law that the Court, in a petition under Section 34 of the 1996 Act, cannot sit in appeal and re-appreciation or re-evaluate the evidence under the ground of patent illegality, as has been observed by the Hon’ble Supreme Court in catena of judgements.[1] However, this does not protect an Award which is found to be so manifestly perverse or irrational that no reasonable person would have arrived at it, or where the construction of the contract is such that no fair-minded person would adopt it, and such an Award can be set aside under the ground of patent illegality, as observed by the Hon’ble Supreme Court in Patel Engineering Ltd. vs. North Eastern Electric Power Corporation Ltd. (NEEPCO), 2020 INSC 403.
19. In the present case, the learned Sole Arbitrator partially allowed four claims out of nine claims of the respondent/claimant.
20. The learned Sole Arbitrator while partially allowing claim No. 1 towards escalation due to the delay in the completion of the project concluded as under:- “As regards the part of the overall escalation in cost that may be reimbursed to Claimant, as already indicated earlier, the following are relevant:
(i) Clause 10 CC has not been made a part of this
Agreement. As such, provisions of clause 10 CC are not applicable in the manner that those would have been applicable in case clause 10 CC has been made a part of Agreement.
(ii) All the tenders knew that clause 10 CC was not a part of
Agreement. Therefore, they were expected to quote their rates after taking into account possible escalation during Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India (NHAI) (2019) 15 SCC 131, para nos. 37-40, Reliance Infrastructure Ltd. vs. State of Goa, 2023 INSC 514. the stipulated period of contract.
(ii) Both parties have contributed to the delay beyond the stipulated period of contract. Taking an overall view, it is considered that reimbursement may be kept within 40% of the amount of overall escalation. 40% of Rs. 41,37,070/- comes to Rs. 16,54,828/-. It is considered that an amount of Rs. 16,50,000/- may be reimbursed against this claim. Respondent has also given calculations for the work done after the stipulated date of completion, for which the amount worked out is Rs. 13,13,549/- after considering higher base indices at a subsequent date. However, it is considered that original base indices considered by both parties need not be interfered with. He has also referred to and given certain calculations for clause 10 C, but the same is not considered relevant for clause 10 CC. In conclusion, I award ana amount of Rs. 16,50,000/- against this claim.”
21. To my mind, there is no reasoning provided as to how the learned Sole Arbitrator arrived at this 40% overall escalation amount. Surely, the learned Sole Arbitrator deeply analysed the delay in completion of the project and came to the conclusion that both parties have contributed to the delay beyond the stipulated period of the Agreement. However, after holding that both the parties were responsible for delay, the learned Sole Arbitrator granted 40% of overall escalation amount in favour of the respondent/claimant, without providing any reason or basis for the same.
22. In my view, since the delay in completion of the project was attributable to both parties, no amount could have been granted to the respondent. Reliance is placed on Union of India vs. Om Construction Co., (2019) SCC OnLine Del 9037 and more particularly paragraphs 33 and 34 which read as under: -
There was no hold up of casting for such a long period mentioned in your letter.”
34. The award on this claim is not sustainable as there are no reasons and the conclusion that the Department was alone responsible for the delay is contrary to the record. Further, no evidence was led by the Contractor to show that there was any coercion by the Department in the giving of the undertaking by the Contractor. There was also no evidence to establish that any payments were actually made towards idle labour and machinery. The award under Claim 7 is, accordingly, set aside.” (Emphasis added)
23. Accordingly, reliance of the petitioner on Sportina Payce Infrastructure (supra) is well placed, as the learned Sole Arbitrator therein rejected the claimant’s pleaded methodology (idling of men and machinery), but then adopted an extraneous formula without giving any reasoning. Similarly, in the present case, the learned Sole Arbitrator awarded 40% of overall escalation amount, without providing any reasoning as to how that percentage was adopted, despite holding that both parties were responsible for the delay.
24. Moving further, in the impugned Award, claim No. 4 is towards the deviated quantity beyond specified limit of 30% and claim No. 5 is towards extra items of work. The learned Sole Arbitrator awarded an amount of Rs. 2,00,499/- under claim No. 4, and Rs. 2,58,460/- under claim No. 5.
25. It is submitted that the petitioner categorically raised an objection that clauses No. 12.[2] and 12.[4] of the GCC of the Agreement bars payment towards deviated and extra items in its Statement of Defence. Clause 12.[2] and 12.[4] in the GCC of the Agreement read as under:- “12.[2] In the case of contract terms, substituted items, contract cum substituted items or additional items which exceed the limits laid down in sub para (vi) of condition 12.1.2. above, the contractor may within fifteen days of receipt of order or occurrence of the excess claim revision of the rates, supported by proper analysis, for the work in excess of the above mentioned limits, provided that if the rates so claimed are in excess of the rates specified in the schedule of quantities or those derived in accordance with the provisions of sub para (i) to (iv) of conditions 12.1.[2] by more than five percent the Engineer-in-Charge shall within three months of receipt of the claims supported by analysis, after giving consideration to the analysis of the rates submitted by the contractor, determine the rates on the basis the market rates and the rates so determined exceed the rates specified in the schedule of quantities or those derived in accordance with the provisions of sub paras (i) to (iv) of condition 12.1.[2] by more than five percent, the contractor shall be paid in accordance with the rates so determined. In the event of the contractor failing to claim revision of rates within the stipulated period, or if the rates determined by the Engineer-in-Charge within the period of three months of receipt of the claims supported by analysis are within five percent of the rates specified in the schedule of quantities or of those determined in accordance with the provisions of sub para (i) to (iv) of condition 12.1.2. the Engineer-in- Charge shall make payment at the rates as specified in the schedule of quantities or those already determined under sub para (i) to (iv) of condition 12.1.[2] for the quantities in excess of the limits laid down in sub para (vi) of condition 12.1.2. *** 12.[4] The contractor shall send to the Engineer-in- Charge once every three months an up to date account giving complete details of all claims for additional payments to which the contractor may consider himself entitled and of all additional work ordered by the Engineer in-Charge which he has executed during the preceding quarter failing which the contractor shall be deemed to have waived his right However. the Superintending Engineer may authorise consideration of such claims on merits.”
26. However, the learned Sole Arbitrator has not dealt with the said objections of the petitioner as per clause 12.[2] and 12.[4] of GCC, under claims No. 4 and 5. Instead, the learned Sole Arbitrator partially allowed these claims purely on the basis of the calculations provided by the respondent/claimant. Once a particular objection has been raised by the petitioner, it was incumbent upon the learned Sole Arbitrator to deal with the said objections by providing a speaking Award. In case the learned Sole Arbitrator felt that the objection did not merit consideration, the reasons or the basis for the same also need to be spelt out in the Award.
27. Further, the judgment of K.N. Sathyapalan (supra), relied upon by the respondent, is inapposite. In K.N. Sathyapalan (supra), the Hon’ble Supreme Court while considering whether in absence of any price escalation clause, the Arbitrator exceeded his jurisdiction in allowing claims on account of escalation of costs, held that where one party is in default of its contractual obligation, and that default has a direct bearing on execution of the work by the other party, the Arbitrator may compensate the affected party for the resulting escalation cost. In the present case, however, the learned Sole Arbitrator expressly found that both parties contributed to the delay. Hence, this factual distinction renders K.N. Sathyapalan (supra) distinguishable.
28. In light of the above discussion, the impugned Award cannot be sustained.
29. Claim No. 1 was granted without any discernible reasoning to justify awarding 40% of overall escalation amount, despite a finding of mutual delay. Claims No. 4 and 5 were allowed in disregard of the contractual bar under clauses 12.[2] and 12.[4] of the GCC of the Agreement, amounting to a decision contrary to the terms of the Agreement, and in ignorance of specific pleadings of the petitioner. There is no discussion or reasoning given by the learned Sole Arbitrator for granting claim No. 1 or claims No. 4 and 5 contrary to clauses No. 12.2. and 12.[4] of the GCC.
30. For the aforesaid reasons, the petition is allowed and the impugned Award dated 18.06.2007 is set aside.
31. The amount lying deposited with the Registrar General, Delhi High Court, be released to the petitioner after a period of 8 weeks along with accrued interest from the date of uploading of this judgment.
32. The petition is disposed of along with pending applications, if any.