Kiran Raj

The Supreme Court of India Division Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan dismissed a civil appeal challenging the reinstatement of an arbitral award that had upheld the imposition of liquidated damages against a contractor by Software Technology Parks of India. The Court held that the High Court Division Bench was correct in reversing the Single Judge’s order, and emphasized that courts cannot interfere with arbitral awards merely because a different view is possible. The Court clarified that under Section 34 of the Arbitration and Conciliation Act, 1996, judicial review must be minimal and confined to statutory grounds. Affirming the principle of arbitral autonomy, the Court directed that no case for interference was made out and ordered dismissal of the appeal without costs.

The appellant, Consolidated Construction Consortium Limited (hereinafter "the contractor"), entered into a contract with Software Technology Parks of India (hereinafter "STPI"), an autonomous society under the Ministry of Electronics and Information Technology, Government of India. The contract was for the construction of an office building, an incubation centre, and associated infrastructure at Nagpur, Maharashtra. The contract value was Rs. 16,48,69,970.00, and the work was to be completed within 15 months, i.e., by 15 January 2007.

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However, due to various reasons, including the contractor’s failure to maintain the schedule, the project completion was delayed. Extensions of time were granted, but each time, STPI reserved its right to levy liquidated damages. Ultimately, the project was completed only by 30 November 2007.

Following completion, the contractor claimed a balance payment of Rs. 1,40,12,786.00. STPI deducted Rs. 82,43,499.00 towards liquidated damages in terms of Clause 26 of the contract, resulting in a net payment of Rs. 3,70,992.00. Aggrieved by the deduction, the contractor invoked arbitration.

A sole arbitrator, Mr. K. Srinivasan, was appointed. The contractor’s claims primarily included refund of liquidated damages, release of retention money, and payment of interest. STPI filed counterclaims alleging rental expenses and loss of rental income resulting from the delayed handover.

After considering evidence, pleadings, and submissions, the Arbitrator issued an award dismissing all claims and counterclaims, effectively resulting in a "nil" award. The Arbitrator held that STPI was justified in deducting liquidated damages under Clause 26 and that the contractor had failed to justify the delay.

Challenging the award, the contractor filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, before the Madras High Court. The learned Single Judge, by order dated 2 January 2019, allowed the application and set aside the award. It was held that since extensions were granted without specific reservation of rights, and time was not the essence of the contract, STPI could not recover liquidated damages.

STPI filed an intra-court appeal under Section 37 of the Arbitration and Conciliation Act. The Division Bench of the Madras High Court allowed the appeal by judgment dated 8 August 2019, setting aside the Single Judge’s order and restoring the arbitral award. The Division Bench held that the Single Judge exceeded the permissible limits under Section 34.

The contractor then approached the Supreme Court by filing the present civil appeal.

Before the Supreme Court, the contractor argued that the Division Bench erred in setting aside the Single Judge’s well-reasoned judgment. It was contended that time was not the essence of the contract, extensions had been granted unconditionally, and STPI failed to prove actual loss, making the imposition of liquidated damages unsustainable.

STPI, on the other hand, submitted that the arbitral tribunal had rightly construed the contract. It was pointed out that all extensions had been granted expressly reserving the right to levy liquidated damages. STPI emphasized that under Section 74 of the Indian Contract Act, 1872, proof of actual loss was not necessary when liquidated damages were stipulated.

The Supreme Court, after hearing the parties and considering the arbitral award, High Court orders, and submissions, proceeded to examine the scope of interference with arbitral awards.

Justice Ujjal Bhuyan, recorded:

“The arbitral tribunal found that respondent had suffered losses on two counts; firstly, on account of having to pay rent for ten and half months for the existing premises and secondly, for losing rental income during the delayed period.”

The Court observed that:

“The arbitral tribunal’s findings were based on documentary evidence and appreciation of the terms of the contract. The view taken by the arbitral tribunal is certainly plausible. It is not open to a court under Section 34 to substitute its own view merely because another interpretation is possible.”

The Court noted the settled law that: “Section 34 is not an appellate provision. Judicial interference must be confined to grounds expressly provided therein.”

Citing precedent, the Court stated: “An award can be set aside only if it is vitiated by patent illegality appearing on the face of the award or contravenes public policy.”

Examining the findings of the learned Single Judge, the Court held: “The Single Judge had embarked on a merit-based review, re-appreciating evidence, which is impermissible under Section 34.”

On the essence of time in the contract, the Court recorded:

“Extensions were granted by STPI expressly reserving the right to levy liquidated damages. Hence, the plea that time was not the essence or that the right to liquidated damages was waived is untenable.”

Dealing with the argument on proof of actual loss, the Court held:

“Section 74 of the Indian Contract Act permits recovery of reasonable compensation without the necessity of proving actual loss when a sum is named in the contract as damages for breach.”

Regarding the argument that STPI did not suffer demonstrable loss, the Court stated:

“The arbitral tribunal found that the respondent suffered financial loss on account of rent paid for extended occupation and rental income foregone. Hence, the imposition of liquidated damages was justified.”

The Court stated the principle of minimum judicial interference with arbitral awards, stating: “Unless the award suffers from patent illegality or is against public policy, courts must not interfere with the findings of the arbitrator.”

It further recorded: “The Division Bench rightly reversed the Single Judge’s order, restoring the arbitral award in favour of STPI.”

The Court thus concluded that the arbitral award was sound, supported by evidence, and did not warrant interference under Section 34.

The Supreme Court issued the following directions: “Having considered the entire material on record, we find no merit in the civil appeal. The same is dismissed.”

The Court held: “The Division Bench of the High Court of Madras was justified in setting aside the judgment of the Single Judge.”

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It stated the limited scope of Section 34 proceedings, stating: “Proceedings under Section 34 are summary in nature and not like full-fledged civil suits. A court does not sit in appeal over the arbitral award.”

Before concluding, the Court held: “Judicial review of arbitral awards must be conservative, respecting arbitral autonomy and minimal interference.”

The Court made no order as to costs.

Advocates Representing the Parties:

For the Appellant(s): Mr. S. S. Rajesh, Advocate; Mr. K.S. Mahadevan, Advocate; Ms. Swati Bansal, Advocate; Mr. R. Rangarajan, Advocate; Mr. Aravind Gopinathan, Advocate; Mr. Rajesh Kumar, Advocate-on-Record.

For the Respondent(s): Mr. Vinay Mohan Sharma, Advocate; Mr. Ravinder Kumar Yadav, Advocate-on-Record; Mrs. Arti Anupriya, Advocate; Mr. Kartikey, Advocate; Mr. Paras Juneja, Advocate; Ms. Kritika Yadav, Advocate; Mr. Arnav Singh, Advocate; Mr. Vineet Yadav, Advocate; Ms. Manisha, Advocate.

Case Title: Consolidated Construction Consortium Limited v. Software Technology Parks of India

Neutral Citation: 2025 INSC 574

Case Number: Civil Appeal No. 5383 of 2024

Bench: Justice Abhay S. Oka, Justice Ujjal Bhuyan

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