Safiya Malik

The High Court of Delhi Single Bench of Justice Sachin Datta has set aside an arbitral award insofar as it granted the contractor damages of about Rs 72.9 lakh towards escalation of rates for a delayed civil works contract, thereby allowing the employer’s petition under Section 34 of the Arbitration and Conciliation Act, 1996. In a dispute arising from a public sector works contract, the Court held that where a party contests a “No Dues Certificate” as having been issued under economic or financial pressure, the arbitrator must expressly determine whether the certificate was given voluntarily, after considering the conflicting factual versions in the pleadings; failure to address this question renders the award liable to be interfered with under Section 34.

The petitioners, Bharat Heavy Electricals Limited (BHEL) and another entity, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside an arbitral award dated 21.01.2014. The underlying dispute arose from a tender for execution of civil works at the 400/220 KV substation at Arasur, Tamil Nadu. A letter of intent dated 17.10.2006 was issued, followed by a detailed work order dated 21.12.2006 stipulating completion by 16.12.2007.

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The respondent completed the work on 30.06.2010. A final bill of Rs. 58,93,917 was raised by the respondent. BHEL notified that release of payment required submission of a performance bank guarantee, sales tax documents, and a “No Dues Certificate.” The respondent issued the certificate on 21.09.2011, and BHEL released Rs. 53,76,147 on 29.09.2011. Shortly thereafter, the respondent asserted that the certificate had been given under financial duress. Arbitration was invoked in December 2012. The contractor raised 33 claims, including Rs. 72,90,719 towards escalation at 10% of the executed value.

The Arbitrator rejected all claims except escalation. BHEL contended before the Court that price escalation was contractually barred, unsupported by evidence, and outside arbitral jurisdiction. The respondent argued that the escalation was justified due to abnormal prolongation of the contract and that the no-dues certificate had been issued under coercion.

The Court recorded that the arbitrator was required to determine “whether the furnishing of a ‘No Dues Certificate’ precluded the respondent/claimant from raising claim/s in derogation thereof” and that this necessitated addressing the issue of voluntariness. It noted that the award merely stated that “the final bill dated 19.09.2011 has been signed by the claimant without even a whiff of protest” but did not render any factual finding on duress despite the parties’ divergent pleadings. The Court stated that “apart from citing the judgments … no specific factual finding has been rendered … To this extent, the award is clearly unreasoned.”

Regarding escalation, the Court recorded that the contract contained “a specific embargo on the payment of price escalation during the contract period and also during the extended period ‘whatever the reason may be’.” It stated that the arbitrator had not considered this clause at all. It recorded that the escalation claim was unsupported, noting: “the claim is not supported by any data or calculation whatsoever and is premised only on a sweeping statement that the claimant is entitled to loss suffered due to escalation of rates at 10% of the value of the work executed.” It further stated that the award was “lacking in any evidentiary basis whatsoever” and that the arbitrator had simply stated that “10% as escalation charges claimed by the claimant are reasonable.”

The Court referenced precedents requiring proof and evidentiary foundation for damages and recorded that awards cannot be sustained where quantification is “random,” “ad-hoc,” or unsupported by material. It also noted that the clause 6(a) of the contract—requiring firm prices without escalation—had not been addressed by the arbitrator.

Based on these cumulative findings, the Court held that the reasoning on both the no-dues certificate and escalation was deficient, unreasoned, and contrary to the contract and the record.

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The Court concluded: “the impugned award, inasmuch as it awards 10% of the value executed, amounting to Rs.72,90,719/-, is clearly unsustainable; the same is, therefore, set aside. The petition is allowed in the above terms. There shall be no order as to cost/s.”

Advocates Representing the Parties

For the Petitioners: Mr. Sanjeev Anand, Senior Advocate; Mr. Pallav Kumar, Mr. Dibya Nishant, Ms. Khushbu Dwivedi, Ms. Farheen Pensale, Advocates

For the Respondent: Ms. Monika Arora, CGSC; Mr. Subrodeep Saha, Ms. Radhika Kurduka, Advocates;
Mr. Dharmesh Misra, Senior Advocate; Mr. Raghav Tiwari, Mr. Prateek Gupta, Advocates

Case Title: Bharat Heavy Electricals Limited & Anr. v. M/s Koneru Constructions
Neutral Citation: 2025: DHC:10464
Case Number: O.M.P (COMM) 255/2020
Bench: Justice Sachin Datta