Isabella Mariam

The High Court of Himachal Pradesh Division Bench of Chief Justice G.S. Sandhawalia and Justice Ranjan Sharma partly allowed an appeal filed by a state infrastructure corporation against an arbitral award made in favour of a construction company. The Court upheld the award on most counts but struck down the component granting around Rs.3.82 crore towards head office expenses and lease money, finding that these claims were unsupported by credible evidence. Stating that the arbitral tribunal had relied solely on a chartered accountant’s certificate without examination of any qualified person to substantiate it, the Bench held that when no such corroboration is available, the award suffers from patent illegality. Consequently, the Court modified the Single Judge’s order, limiting the contractor’s entitlement accordingly.

The appeal arose from an arbitral dispute between a state infrastructure corporation and a construction company concerning the widening and strengthening of the Una–Barsar–Jahu–Kalkhar–Nerchowk Road in Himachal Pradesh. The contract, awarded in February 2008 and formalized in May 2008, required completion within 33 months. Due to delays attributed to various factors, the work extended until October 2014, and multiple extensions were granted. After completion, the contractor invoked the arbitration clause seeking damages for prolongation of the contract.

Also Read: Supreme Court Pulls Up Jharkhand High Court For Granting Bail To Murder Convicts Through Unreasoned Order; Criticises State For Inaction And Directs Immediate Surrender

A three-member arbitral tribunal was constituted in February 2018, comprising nominees from both sides and a presiding arbitrator. The contractor submitted claims for additional costs and overheads, while the corporation contested maintainability, limitation, and authority of the claimant’s representative. The tribunal, after evaluating pleadings and evidence, awarded approximately Rs.35.49 crore including interest and costs to the contractor, allowing claims for prolongation, overhead expenses, and interest at 12% per annum.

The corporation challenged the award before a Single Judge, arguing that the contractor failed to prove actual losses or head office expenses and relied only on a chartered accountant’s certificate. The Single Judge upheld the award, holding that the tribunal’s findings were within its jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996. The corporation then preferred an appeal under Section 37 of the same Act, reiterating its objections on the absence of proof, limitation, and validity of the claim, while the contractor defended the award as a reasoned and unanimous decision supported by contemporaneous records.

The Division Bench observed that “a possible view taken by an arbitrator is not to be interfered at the asking” and that intervention is warranted only when the award is “patently illegal or contrary to the fundamental policy of Indian law.”

Referring to Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd. and ONGC Ltd. v. Saw Pipes Ltd., the Bench stated that “findings of the arbitrator may be interfered with only where they are arbitrary, capricious or perverse, or when the conscience of the Court is shocked.” The Court recorded that after the 2015 Amendment, “contravention of public policy” includes “patent illegality appearing on the face of the award.” It clarified that “an award shall not be set aside merely on the ground of erroneous application of law or by reappreciation of evidence.”

Examining the impugned award, the Court noted that the arbitral tribunal had granted Rs.3.82 crore towards head office expenses and Rs.33 lakh as lease money, solely based on a chartered accountant’s certificate. The Bench stated: “There seems to be no plausible evidence on record or material to show that the said expenses were incurred on account of any fault on behalf of the appellant-Corporation.” It added that “the said Chartered Accountant apparently did not appear in the witness-box to justify the amount so calculated, nor did anybody from his office appear to verify the certificate or explain the methodology on which the huge amount had been calculated.”

The Court further recorded: “In the absence of corroboration of the certificate and any qualified person putting in appearance, the award of ₹3.82 crore along with lease money is arbitrary and constitutes patent illegality.” It referred to the claimant’s witness, who “admitted in cross-examination that he had not personally seen the relevant records and had gathered the information from the Head Office.” The Bench noted that “the Tribunal in a cursory manner did not deal with this aspect and awarded the claim without verifying the supporting material.”

Citing Haryana Tourism Ltd. and Metal Box Co., the Bench observed that “mere production of an auditor’s certificate, especially when not admitted by the opposite party and not proved by the person who prepared it, cannot be treated as conclusive evidence.” It stated that “fairness requires that an opportunity must be given to verify such figures by cross-examination of the person who has calculated them.”

The Court recorded that “the claimant company having failed to put forth the said material on record cannot justify the amount which has been awarded; hence, the award under claim for head office expenses and lease money is not sustainable.” It held that “the cursory manner in which the sum was awarded was not justifiable and falls within the mischief of patent illegality under Section 34(2A).”

Thus, the Division Bench found that the arbitral tribunal’s reliance on an unverified certificate without corroboration constituted “an arbitrary method of assessment conflicting with public policy,” warranting modification of the award.

The Court directed: “Resultantly, the present Arbitration appeal is partly allowed to the extent that the Award of the Tribunal dated 17.08.2019, whereby under Claim No.2 a sum of Rs.13.06 Crore has been awarded is liable to be reduced by Rs.3,82,55,974/- and Rs.33,02,807/-.”

Also Read: Executive Chairman Competent To Delegate Disciplinary Powers To DLSA Under Legal Services Authorities Act: Himachal Pradesh High Court

“Similarly the claim No.3, whereby the interest was awarded from 07.04.2016 at simple interest @ 12% per annum from the cause of action till the filing of the claim petition dated 10.04.2018 and similarly the pendente lite interest @ 12% from 08.04.2018 to 17.08.2019 and the resultant future interest @ 12% from the date of the payment of the Award is set aside on the above principal amount.”

“Thus, the parties are free to make a mention for listing of the application and it is open to the parties as such to seek the execution and release of the amount in the above said terms subject to decision of any further appeal.”

Advocates Representing the Parties

For the Petitioners: Mr. J.S. Bhogal, Senior Advocate with Mr. Tarunjeet Singh Bhogal, Ms. Srishti Verma and Ms. Swati Verma, Advocates.

For the Respondents: Mr. Navin Kumar, Ms. Surbhi Aggarwal, Mr. Deepal Hoda and Mr. Rohit, Advocates.

Case Title: Himachal Pradesh Road and Other Infrastructure Development Corp. Ltd. v. M/s C & C Construction Ltd.
Neutral Citation: 2025: HHC:36449
Case Number: Civil Arb. Appeal No. 01 of 2023
Bench: Chief Justice G.S. Sandhawalia, Justice Ranjan Sharma