The Calcutta High Court has set aside an arbitral award of ₹14.68 Crore in a construction contract dispute, holding that the tribunal committed patent illegality by treating the parties’ contract as not having lawfully commenced for lack of a sanctioned municipal plan and then awarding contractual damages nonetheless.
Justice Ravi Krishan Kapur found that the tribunal had rewritten the contract, and left numerous pleaded breaches and counter-breaches undecided, which has vitiated the award.
The case stemmed from a public tender won by the respondent contractor, which resulted in the execution of a works contract dated December 4, 2013, to build a permanent bus terminus with a commercial complex. The petitioner, on May 17, 2027, terminated the contract for alleged delay. The contractor invoked arbitration, citing reasons for delay including poor ground conditions, delayed drawings, encroachment, demonetisation, and payment delays. A unanimous tribunal award granted the contractor ~₹14.68 crore, and rejected the petitioner’s counterclaim.
Before the High Court, the petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, contending that the tribunal had travelled beyond the scope of reference by construing that the contract never legally commenced, despite both parties admitting commencement and performance of substantial work.
Justice Kapur accepted that argument, observing that the tribunal’s finding of non-commencement was contrary to the terms of the contract, it ignored vital evidence, and was inconsistent with the parties’ conduct. An Arbitral Tribunal is not permitted to wander outside the contract or make out a case not made by either of the parties, the Court held.
The Court reiterated that under Section 34, there can be no re-appreciation of evidence or review on merits; however, interference of the court is justified where the award is perverse, ignores vital evidence, or rewrites the contract. Reference was made to Ssangyong Engineering v. NHAI, (2019) 15 SCC 131, Delhi Airport Metro Express v. DMRC (2022) 1 SC 131, and Batliboi v. HPCL, (2024) 2 SCC 375.
The Court also found fault with the tribunal’s reasoning that, since there was no lawful commencement, it was unnecessary to decide the rival contentions on delay, breach, or default. Calling this omission a patent error on the face of the award, Justice Kapur held that the tribunal had failed to adjudicate all issues referred to it, thereby undermining the integrity of the decision-making process.
The Court, consequently, set aside the arbitral award, while holding that the patent illegality on the face of the award makes the same vulnerable and open to attack.
Appearances:
For Petitioner: Mr. Anirban Ray, Sr. Adv.; Mr. Sarvapriya Mukherjee; Mr. Chayan Gupta; Mr. Aviroop Mitra.
For Respondent: Mr. Ratnanko Banerji, Sr. Adv.; Mr. Shaunak Mitra; Ms. Shristy Burman Roy; Ms. Pritha Basu; Ms. Nairanjana Ghosh; Ms. Jaita Ghosh.
