The Bombay High Court, Aurangabad Bench, has dismissed a commercial arbitration appeal filed by State authorities and upheld an arbitral award granting over ?10.54 crore to Hule Constructions Private Limited, holding that no ground was made out for interference under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996.
A Division Bench of Justice Arun R. Pedneker and Justice Vaishali Patil-Jadhav upheld the arbitrator’s grant of escalation and compensation for idling of machinery and labour, holding that once breach of contract by the employer was established, the defaulting party could not rely on contractual clauses barring escalation or such claims to resist liability.
The dispute arose out of a contract for repair, renovation and restoration of 19 minor irrigation tanks in Beed district, valued at approximately ₹29.55 crore. The work, awarded in 2006, was to be completed within twelve months but was delayed by nearly three years. After disputes remained unresolved under the contractual dispute-resolution mechanism, the contractor approached the civil court, following which the matter was referred to arbitration by consent.
The sole arbitrator partly allowed six claims raised by the contractor, including claims towards loss of overheads, reduction in productivity of men and machinery, delayed payments, price escalation and illegal deductions, aggregating to ₹10.54 crore along with interest at 12% per annum. Claims for loss of profit, revision of rates, and certain other heads were rejected.
Challenging the award, the State authorities contended that the arbitrator had travelled beyond the contract, particularly in granting escalation and compensation despite contractual clauses barring such claims. They also raised objections regarding limitation and consent to arbitration.
Rejecting these submissions, the High Court held that the arbitrator had examined the contractual clauses in detail and returned findings of breach on the part of the authorities, including delay in completing the mandatory silt survey and failure to make timely payments. The Court reiterated that once breach by the employer is established, it cannot rely on contractual clauses denying escalation or compensation for idle labour and machinery.
Referring to Supreme Court precedents such as K.N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43, and Assam State Electricity Board and Others v. Buildworth Private Limited, ( 2017 ) 8 SCC 146, the Court held that escalation is a normal incident of delayed performance in an inflationary economy, and where delay is caused by the employer, the arbitrator is empowered to award compensation notwithstanding restrictive contractual clauses.
Rejecting the contention that there was no consent to refer the dispute to arbitration, the Court held that since no objection to the constitution of the arbitral tribunal was raised under Section 16(2) of the Arbitration and Conciliation Act at the appropriate stage, such an objection could not be permitted to be raised at this stage.
The Court further emphasised that the interpretation of contractual terms and appreciation of evidence fall squarely within the arbitrator’s domain, and interference is permissible only in cases of patent illegality going to the root of the matter.
Accordingly, the appeal was dismissed and interim relief granted earlier was vacated. The Court also declined to stay the operation of its judgment.
Appearances:
For the Appellants – Mr. Amit A. Yadkikar, Advocate
For Respondents – Mr. J. N. Singh, Advocate, and Mr. A. R. Kale, AGP
