Sanchayita Lahkar

The High Court of Rajasthan Division Bench of Justice Avneesh Jhingan and Justice Bhuwan Goyal has dismissed the appeal challenging the arbitral award related to a construction contract dispute. The court conclusively upheld the arbitral award and the Commercial Court’s dismissal of the objections under Section 34 of the Arbitration and Conciliation Act, 1996. The Bench confirmed that the appellant’s recovery of liquidated damages and other financial recoveries lacked merit and that the arbitral tribunal’s findings did not suffer from patent illegality. The final directive maintained the award in favour of the respondent, affirming all compensatory and financial reliefs ordered by the arbitrator without any interference.

The dispute arose from a contract entered on 3rd February 2003 between the appellant and the respondent for widening and strengthening the National Highway Beawar Road, Ajmer, from Ramganj to Transport Nagar, including the construction of a ramp. Though the project was scheduled for completion by 2nd February 2004, actual completion occurred on 10th May 2005.

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Due to disputes during the performance of the contract, the matter was referred to arbitration. The arbitrator delivered an award on 30th August 2010, directing the appellant to pay the respondent Rs. 41,54,511/- along with Rs. 1,01,500/- as arbitration costs. Interest under Section 31(7)(a) of the Act amounting to Rs. 15,87,957/- and further interest at 18% per annum under Section 31(7)(b) from the date of the award until payment was also awarded.

The appellant filed an application under Section 34, which was dismissed by the Commercial Court on 11th July 2019. The present appeal under Section 37 was then filed challenging the Commercial Court’s decision.

The appellant contended that the arbitrator wrongly set aside interest charged for the delay in mobilization advance adjustment, that recovery of excise duty was valid under Clause 14.5, and that the recovery for non-submission of required documents and video cassettes was justified. The appellant further claimed that the arbitrator erroneously awarded escalation charges contrary to the contractual terms and that liquidated damages were correctly imposed during the time extension.

The respondent countered these arguments, stating that there was no clause authorizing the charging of interest on the mobilization advance. It was clarified that the adjustment was scheduled within ten months from the start date, and the respondent had formally requested that 90% of the mobilization advance be adjusted against the November 2003 bill and the remaining 10% against the December 2003 bill.

Regarding excise duty recovery, the respondent argued that exemption for Light Diesel Oil (LDO) was legally availed, and no objections were raised by the excise department. The appellant’s recovery was, therefore, without authority.

On the issue of document submission, the respondent stated that compliance had been made according to contractual obligations, and Clause 85, which required submission of video cassettes, was deleted and replaced by a provision for submission of colour photographs.

The question of price escalation was contested by referencing Clause 41, which prohibited escalation claims for projects under twelve months. However, Clause 41 had been deleted, and Clause 38 remained applicable, allowing compensation for escalation. The respondent also stated that the Higher-Powered Committee attributed 458 days of the total 463-day delay to the appellant.

Finally, on the issue of liquidated damages, the respondent maintained that imposing such damages was unjust, as the majority of the delay was caused by the appellant.

The Division Bench recorded that the arbitral award and the Commercial Court’s dismissal of objections under Section 34 constituted concurrent findings, which could not be disturbed unless the award suffered from patent illegality or contravened fundamental policy.

The court observed, “The interference under Section 37 cannot be beyond the grounds available under Section 34 of the Act. The court has to be very careful before disturbing the concurrent findings.”

Regarding mobilization advance interest, the Bench noted, “The appellant was free to make deductions from interim bills and yet failed to do so. On the other hand, the respondent vide letter dated 03.12.2003 requested for deduction of 90% of advances in November 2003 and 10% recovery to be affected in December 2003.” The court concluded that this contention lacked merit.

On the excise duty issue, the Bench examined Clause 14.5 of the contract and recorded, “The issue as to whether the exemption could be claimed by the respondent is to be decided by the excise department. Nothing was produced either before the arbitrator or now that the excise department had ever objected to the exemption claimed by the respondent on LDO.”

Concerning the non-submission of video cassettes, the court found, “Clause 85 was deleted by Clause 126, and the contractor had to only supply colour photographs, which were submitted. The factual finding recorded calls for no interference.”

The claim for escalation of prices was upheld with the observation, “It was considered by the arbitrator that the appellants had themselves made partial payments for escalation in prices. Moreover, the delay in completion of work was one of the factors for escalation of prices.”

On the matter of liquidated damages, the Bench concluded, “Out of 463 days delay in completion of the work, the delay of 458 days was imputed to the appellant. In such circumstances, the extension of time subject to liquidation damages was rightly set aside.”

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The Bench further relied upon the Supreme Court decisions in MMTC Limited vs. Vedanta Limited and Punjab State Civil Supplies Corporation Limited & Anr. vs. M/s Sanman Rice Mills & Ors., confirming that courts cannot reappraise evidence or disturb concurrent findings unless the award is patently illegal or against the fundamental policy of Indian law.

The Division Bench dismissed the appeal, affirming that the arbitral award stands confirmed. It directed that all sums awarded by the arbitrator, including costs and interest, are payable by the appellant to the respondent. The judgment concluded, "In view of the above discussion, the appeal is dismissed."

Advocates Representing the Parties:

For the Appellants: Mr. R. P. Garg with Mr. Vikram Yadav

For the Respondents: Mr. Sunil Nath with Ms. Shruti Jain

Case Title: Rajasthan Urban Infrastructures Development Project vs. M/s National Builders

Neutral Citation: 2025: RJ-JP:18292-DB

Case Number: D.B. Civil Miscellaneous Appeal No. 5151/2019

Bench: Justice Avneesh Jhingan and Justice Bhuwan Goyal

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