Kiran Raj

The Supreme Court of India Division Bench of Justice J. B. Pardiwala and Justice K. V. Viswanathan set aside a Kerala High Court judgment and restored an arbitral award in favour of a road-maintenance contractor in its contractual dispute with the Kerala government under the Kerala State Transport Project. The Court disagreed with the High Court’s approach that an arbitral tribunal could only decide the specific issue initially taken to arbitration and that other disputes could not be introduced without a separate notice under Section 21 of the Arbitration and Conciliation Act, 1996. The dispute concerned unpaid amounts and related claims, including price adjustment for bitumen and POL, escalation for extended periods, and interest on delayed payments.

The dispute arose out of four Road Maintenance Contracts awarded to a private contractor under a State road development project. The contracts incorporated a multi-tier dispute resolution mechanism comprising reference to the Engineer, adjudication, and arbitration under the Arbitration and Conciliation Act, 1996. The contractor raised four disputes relating to price adjustment, escalation during extended periods, applicable bitumen price, and interest on delayed payments. These disputes were referred to the Adjudicator, who partly allowed and partly rejected the claims.

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The State expressed disagreement with the Adjudicator’s decision on one issue and initiated steps for constitution of an arbitral tribunal. During arbitration, both sides challenged the validity and binding nature of the Adjudicator’s decision and contested the scope of arbitral jurisdiction. The arbitral tribunal assumed jurisdiction over all four disputes and passed an award in favour of the contractor.

The award was set aside by the District Judge under Section 34 of the Act and the Adjudicator’s decision was restored. The High Court, while holding the contractual time limit invalid, nevertheless affirmed the setting aside of the award on the ground that only one dispute had been referred to arbitration and no notice under Section 21 had been issued by the contractor for the remaining disputes.

The Supreme Court observed that “the High Court totally erred in setting aside the award on the basis that the appointment of the Tribunal was only to adjudicate dispute No.1.” It recorded that the High Court also erred in holding that non-issuance of a notice under Section 21 by the contractor was fatal to its claims, noting that “the Arbitral Tribunal exceeded its jurisdiction in deciding the entire dispute” was an incorrect conclusion.

The Court examined the conduct of the State and observed that “the sequence of events clearly demonstrates that the present was a case where conduct of the respondent clearly precluded it from relying on the mandate of clause 24, 24.1 and 25.” It noted that no objection was raised before the Adjudicator regarding delay in reference, and further recorded that “notwithstanding clause 25.2 specifying that on the expiry of 28 days the decision of the adjudicator was final and binding, the respondent never treated the decision of the adjudicator as final and binding.”

On Section 21, the Court stated that “Section 21 is concerned only with determining the commencement of the dispute for the purpose of reckoning limitation.” It further recorded that “there is no mandatory prerequisite for issuance of a Section 21 notice prior to the commencement of Arbitration.” The Court observed that failure to issue such notice “would not be fatal to a party in Arbitration if the claim is otherwise valid and the disputes arbitrable.”

With respect to jurisdiction, the Court recorded that “the arbitration clause was comprehensive enough to include any matter arising out of or connected with the agreement.” It further observed that the respondent’s plea to declare the Adjudicator’s decision null and void “virtually indicated their intention to reopen the four disputes originally brought for consideration.”

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The Court reiterated that once an arbitral tribunal is constituted, “the claimant is not bound to restrict his statement of claim to the claims already raised by him by notice,” unless the agreement expressly restricts the reference.

The Court directed that “the judgment of the High Court of Kerala at Ernakulam dated 07.01.2025 in Arbitration Appeal No. 56/2012 is set aside. The consequence will be that the award of the arbitrator dated 29.06.2006 is upheld in its entirety.” The appeal was “allowed” and “there shall be no order as to costs.”

Case Title: M/s Bhagheeratha Engineering Ltd. v. State of Kerala
Neutral Citation: 2026 INSC 4
Civil Appeal: Arising out of SLP (Civil) No. 7338 of 2025
Bench: Justice J.B. Pardiwala, Justice K.V. Viswanathan