Sanchayita Lahkar

The High Court of Rajasthan Division Bench of Justice Avneesh Jhingan and Justice Bhuwan Goyal partially allowed an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996, setting aside significant portions of an arbitral award granted in favor of a private infrastructure company. The Court held that awarding monetary compensation for losses suffered due to the non-closure of a level railway crossing and the delay in toll collection commencement exceeded the terms of the concession agreement. It directed that the compensation and the related interest components granted by the arbitrator be quashed, affirming only the arbitral award permitting the respondent to retain toll collected until January 22, 2012. The appeal was thus partly allowed.

The State of Rajasthan and its Public Works Department issued a tender on August 8, 2003, for construction of the Pali Bypass on the Jodhpur-Sumerpur Road under the Build-Operate-Transfer (BOT) model. Sanwariya Infrastructure Private Limited emerged as the successful bidder and was issued a Letter of Acceptance on February 19, 2004. The concession period was defined as seventy months, including an eighteen-month construction period.

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The concession agreement provided that project land was to be handed over within sixty days, extendable to 120 days. The respondent submitted cheques for land acquisition in July 2004. Major portions of the land were handed over on October 18, 2004, and the remaining land on March 23, 2006. Construction commenced on October 18, 2004. After the completion of a Railway Over Bridge (ROB) on April 29, 2006, toll collection began on May 3, 2006.

On May 31, 2006, the steering committee extended the concession period by three months and ten days. However, the respondent objected to the sufficiency of this extension, which was further reviewed in meetings held on July 24, 2008, and August 4, 2010. The respondent was eventually informed that the concession period would end on August 17, 2010.

Subsequently, in 2010, the respondent-initiated arbitration proceedings. An application under Section 9 of the Arbitration and Conciliation Act, 1996, resulted in a status quo order dated August 13, 2010. The application was disposed of on January 23, 2012, with toll collection by the respondent made subject to arbitration results. The respondent served a notice on September 17, 2010, for the appointment of an arbitrator. The appointment was made through Section 11 proceedings concluded on February 18, 2014.

The arbitrator delivered the award on June 23, 2019. He determined that the concession period commenced on March 23, 2006, and that toll collection was valid until January 22, 2012. He found the respondent entitled to retain toll collected up to that date and awarded damages for losses due to the non-closure of a Level Railway Crossing (LRC), totalling Rs.14,12,54,682/-, along with interest amounting to Rs.4,48,77,258/-.

Further, interest for delayed toll collection between October 18, 2005, and May 3, 2006, was awarded at Rs.36,29,526/- with an additional Rs.25,94,736/- as compound interest. The total compensation awarded was Rs.19,23,56,202/-, with compound interest at 15% from January 23, 2012, until the date of the claim, resulting in a final amount of Rs.50,28,27,944/-.

The appellants challenged the award under Section 34, which was dismissed on October 9, 2024. They then filed the present appeal under Section 37.

"The contention of the appellants that cause of action arose in March, 2006 and the claim is time barred, has no merit." The Court found that the dispute became concrete only after communication from the appellant that the concession period would end on August 17, 2010.

On the issue of commencement date, the Court noted: "Commencement date is when physical possession of the project is delivered to concessionaire... The view taken by the arbitrator is plausible and is in consonance with the terms of concession agreement."

The Court critically examined the claim for damages: "No clause in the concession agreement is shown under which for non-compliance of obligation... compensation in cash can be claimed." It further stated, "In the eventualities of non-performance... the concession period could have been extended and which was actually extended."

On toll collection, it recorded: "With extension of concession period the respondent collected toll for more than sixty-five months... the respondent was duly compensated."

Quoting from the Supreme Court decision in State of Rajasthan v. Nav Bharat Construction Co., it stated: "An arbitrator cannot go beyond the terms of the contract between the parties... he cannot award contrary to the terms of the contract."

Similarly, citing Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd., it observed: "A view can be regarded as not even a possible view where no reasonable body of persons could possibly have taken it."

The Court held: "The claim for losses and interest for delay in start of collection of toll have been awarded beyond the terms and conditions and the award suffers from vice of patent illegality and are quashed..."

Further, "There is no clause stipulating for awarding monetary compensation or fixing maximum limit for the compensation to be awarded."

It also cited the Supreme Court’s decision in Gayatri Balasamy v. ISG Novasoft Technologies Limited: "The Court has a limited power under Sections 34 and 37... to modify the arbitral award... when the valid and invalid parts of the award can be clearly segregated."

The High Court issued the following directions: "The arbitral proceedings are held to be within limitation." It clarified that the arbitration was initiated within the permissible timeframe as per Section 21 of the Act.

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The Court upheld the arbitral award to the extent that it allowed the respondent to retain toll collected up to January 22, 2012. It stated: "The award of the claim of collection of toll tax up to 22.01.2012 and the amount to be retained by respondent is upheld."

However, the Court quashed the remainder of the award: "Awarding of compensation for loss incurred due to non-closure of LRC and interest granted for delay in start of collection of the toll are set aside being against the terms and conditions of the concession agreement."

Further, the Court nullified all related interest components: "The interest awarded is quashed." The appeal filed by the State of Rajasthan was therefore partly allowed.

Advocates Representing the Parties:

For the Petitioners: Mr. Sandeep Taneja, AAG with Mr. Kartikeya Sharma, Ms. Kinjal Surana, Mr. Aman Bohra, and Mr. Aditya Sharma

For the Respondents: Mr. R.N. Mathur, Sr. Adv. assisted by Mr. Divyesh Maheshwari and Mr. Yuvraj Mittal

Case Title: The State of Rajasthan & Ors. v. Sanwariya Infrastructure Private Limited

Neutral Citation: 2025: RJ-JP:20799-DB

Case Number: D.B. Civil Miscellaneous Appeal No. 5302/2024

Bench: Justice Avneesh Jhingan and Justice Bhuwan Goyal

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