FAO(OS)(COMM) 210/2022 Page 1 of 57
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS)(COMM) 210/2022 & CM APPL. 36624/2022
Judgment reserved on: 08.12.2025
Judgment pronounced on: 12.01.2026
DELHI JAL BOARD .....Appellant
Through: Mr. Sanjay Jain, Sr. Adv. with
Ms. Sangeeta Bharti, SC for DJB with Ms.
Malvi Balyan, Adv.
versus
M/S MOHINI ELECTRICALS LTD .....Respondent
Through: Mr. Amit Sibal, Sr. Adv. with
Ms. Anusuya Salwan, Mr. Bankim Garg, Mr.
Rachit Wadhwa and Mr. Ankit Handa, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT
% 12.01.2026
OM PRAKASH SHUKLA , J.
1. The appellant has filed the present intra-court appeal under
Section 37(1)(c) of the Arbitration and Conciliation Act, 1996
1
, read
with Section 13 of the Commercial Courts Act, 2015 and Section 151
of Civil Procedure Code, 1908, assailing the impugned judgment dated
04.07.2022 passed by the learned Single Judge in O.M.P. (COMM) No.
22/2020 titled as “Delhi Jal Board (DJB) v. M/s Mohini Electricals
Ltd.”. The appellant had earlier filed the petition under Section 34 of
the A&C Act before the learned Single Judge seeking setting aside of
1
“A&C Act”, hereinafter
FAO(OS)(COMM) 210/2022 Page 2 of 57
the arbitral award dated 02.09.2019
2
rendered by the learned Sole
Arbitrator.
2. By the said impugned award, the learned Arbitral Tribunal
allowed the majority of the claims preferred by the respondent
(claimant before the Arbitral Tribunal) while rejecting certain claim 3,
6A, 7, 11 and 14. The arbitral proceedings emanate from disputes
arising out of the contract dated 28.11.2003, executed between the
parties for the “Construction of various reservoirs at different location
in TYA Areas, Delhi of Delhi Jal Board
3
”.
FACTS
3. The brief factual matrix necessary for the purposes of
adjudication of the present appeal is delineated below.
4. The Delhi Jal Board
4
(appellant hereinafter) invited tenders vide
NIT No.8(2002-2003) for construction of Underground Reservoirs
5
and
Booster Pump Stations
6
across multiple sites in the Trans Yamuna Area,
Delhi
7
. The work was to be executed on a turnkey basis covering civil
construction and supply, installation, testing and commissioning of
Electrical and Mechanical
8
systems. Construction of UGRs with
associated BPSs was required at five specified locations within the
TYA area. At the sixth location, Tahirpur (Nand Nagri), the scope was
2
“Impugned Award”, hereinafter
3
“the Project”, hereinafter
4
“DJB”, hereinafter
5
“UGR”, hereinafter
6
“BPS”, hereinafter
7
“TYA”, hereinafter
8
“E&M”, hereinafter
FAO(OS)(COMM) 210/2022 Page 3 of 57
limited to the construction of a UGR only.
5. For the aforesaid project, M/s Mohini Electrical Ltd. (respondent
hereinafter) entered into a consortium arrangement dated 20.01.2003
with M/s Jes Engineering Co. Pvt. Ltd. and M/s GSJ Envo Ltd., with
the respondent designated as the Consortium Leader.
6. Upon completion of the pre-qualification process, the respondent
submitted its technical and financial bids. A Work Order dated
30.09.2003
9
was thereafter issued for a total value of Rs. 28,49,72,521/-
comprising civil works of Rs. 18,63,11,936/- and E&M works of Rs.
9,86,60,583/-. The scope of the E&M works further envisaged an
Operation and Maintenance
10
obligation for five years following the
completion of the trial run.
7. The Work Order stipulated commencement of work on the 14th
day from the issuance of the Work Order and completion within 18
months, including 15 months for execution and 3 months for the trial,
fixing 14.10.2003 as the commencement date and 13.04.2005 as the
scheduled completion date.
8. Thereafter, the parties executed a formal contract on
28.11.2003
11
, incorporating the FIDIC Conditions of Contract for
Construction for Building and Engineering Works, First Edition 1999,
as modified by Part II – Conditions of Particular Application.
9
“Work Order”, hereinafter
10
“O&M”, hereinafter
11
“contract”, hereinafter
FAO(OS)(COMM) 210/2022 Page 4 of 57
9. Disputes arose soon thereafter concerning commencement and
pace of work. According to the appellant, the respondent started work
only on 19.11.2003, and even then, at only one site, with negligible
progress, despite the clear stipulation of 14.10.2003 as the effective
commencement date. Dissatisfaction over delayed commencement was
recorded vide letter dated 03.12.2003.
10. The respondent, however, vide letter dated 19.01.2004,
contended that commencement was delayed only because the
mobilization advance of 10% was withheld despite furnishing of a
performance bank guarantee dated 28.10.2003 for Rs.1,86,31,194/-.
The respondent alleged expenditure exceeding Rs.1 crore and attributed
delay to financial hardship caused by the non-release of the advance.
11. The appellant refuted the allegation by its communication dated
01.04.2004, pointing out that the bank guarantee securing the
mobilization advance had itself been furnished belatedly on 10.12.2003
and, therefore, the respondent could not shift the burden of delay on the
appellant.
12. As progress continued to lag, a delay notice dated 15.07.2004
was issued, recording that only about 21% of the work had been
completed in nine months, whereas contractual expectations required
nearly 60% progress by that stage. The respondent was called upon to
show cause as to why, in terms of the contract, compensation should
not be levied for the delay and slow progress of the work solely
attributable to the respondent.
FAO(OS)(COMM) 210/2022 Page 5 of 57
13. Between April 2004 and March 2006, the appellant and
respondent exchanged a series of communications recording
deficiencies and delays in execution. The respondent sought extensions
on grounds of escalation and financial constraints. The appellant
granted extensions though expressly reserving its right to impose
liquidated damages and penalties.
14. Due to persistent disputes regarding delay, mobilization advance
recovery, and release of payments, the respondent invoked Clause 20
of the contract and sought the constitution of a Dispute Adjudication
Board
12
on 29.08.2005.
15. Initially, the appellant appointed Mr. Rakesh Seth, former
Member (Drainage), DJB, as DAB member on 03.03.2006. However,
the respondent objected to the said unilateral appointment, and
requested that a panel of three names be proposed for consideration for
appointment of a single-member DAB.
16. Subsequently, the appellant appointed Mr. I.M. Singh as the
single-member DAB, and the respondent conveyed its consent to the
said appointment. On 07.01.2009, Mr. Singh requested both parties to
attend his office for execution of the Dispute Adjudication
Agreement
13
. However, the respondent did not participate in the signing
of the DAA.
12
“DAB”, hereinafter.
13
“DAA”, hereinafter.
FAO(OS)(COMM) 210/2022 Page 6 of 57
17. By its letter dated 28.01.2009, the respondent stated that both
parties had agreed to explore an amicable resolution of the disputes and,
in that context, had mutually decided to defer execution of the DAA.
18. According to the appellant, no effective progress took place
thereafter until 10.10.2013, when the respondent sought to revive the
DAB process seeking execution of the DAA.
19. Meanwhile, the timeline for completing the project was extended
on multiple occasions and the final extension was granted up to
31.10.2008 by the letter dated 08.02.2013, subject to a token penalty of
Rs.40,000/- for the delay. Also, the performance certificates dated
11.08.2008 recorded that execution of the works had been completed
by August 2008.
20. Alleging continued inaction regarding the DAB, Jes Engineering
Co. Pvt. Ltd. (a member of the consortium) filed W.P.(C) 5337/2015
before this Court seeking directions for execution of the DAA. Pursuant
to order dated 27.05.2015, a single member DAB was constituted with
the consent of both the parties, and Mr. Anand Kumar was appointed
on 05.09.2016.
21. In a joint meeting held on 27.10.2017, the parties agreed to close
the DAB process and refer the disputes to arbitration. By mutual
consent, Mr. Anand Kumar was appointed as the Sole Arbitrator, and
DAB proceedings were terminated on 05.03.2018.
FAO(OS)(COMM) 210/2022 Page 7 of 57
PROCEEDINGS BEFORE ARBIT RAL TRIBUNAL AND
IMPUGNED AWARD
22. The respondent had raised as many as twenty distinct claims
before the learned Arbitral Tribunal. Upon a detailed consideration of
the pleadings, documentary evidence, and submissions advanced by
both parties, the learned Arbitral Tribunal proceeded to allow a
substantial majority of the said claims. In addition, it also awarded
financing charges on the amounts found due and payable.
23. The respondent in its Statement of Claim, categorically asserted
that during execution of the contract works, various hindrances were
caused by the appellant, which materially impeded timely performance.
According to the respondent, although it was ready and willing to
execute the work in accordance with the contractual schedule, persistent
delays attributable to the appellant resulted in prolongation of the
project and eventual completion only in the year 2008. The respondent,
therefore, pleaded that it had incurred substantial financial losses,
overheads, and escalation costs due to prolongation, which were wholly
attributable to the defaults of the appellant.
24. Upon appreciation of the contemporaneous correspondence and
record, the learned Arbitral Tribunal recorded a categorical finding that
the primary cause of delay was attributable to the appellant. The
Tribunal noted that there was considerable delay in handing over clear
and encumbrance free site, in issuance and approval of designs and
drawings, in release of payments legitimately due, and in appointment
of the third-party inspection agency. Each of these lapses had a
FAO(OS)(COMM) 210/2022 Page 8 of 57
cumulative and cascading effect on the progress of work, rendering
adherence to the original timeline impossible. The learned Arbitral
Tribunal, therefore, rejected the appellant’s attempt to attribute delay to
the respondent.
25. The learned Arbitral Tribunal thereafter, considered the
preliminary objection raised by the appellant regarding limitation. In its
Statement of Defense, the appellant submitted that the claims were
barred by limitation as they were filed beyond three years from the
alleged accrual of cause of action. It was contended that the respondent
was aware of the alleged disputes at least from 2004, yet chose not to
initiate proceedings within the prescribed period. According to the
appellant, though the respondent attempted to invoke the DAB
mechanism, it failed to meaningfully pursue the same, despite repeated
reminders from the appellant.
26. The appellant further argued that the respondent sought
constitution of the DAB only in 2016, which was far beyond the
contractual period of 42 days contemplated under the dispute resolution
clause for raising disputes. On this basis, it was contended that the
arbitral proceedings themselves were not maintainable, being ex facie
barred by limitation.
27. The learned Arbitral Tribunal, however, rejected the plea of
limitation. It held that the limitation period does not commence merely
on occurrence of a dispute in abstract, but only when the right to invoke
arbitration effectively accrues. It was noted that the parties were
continuously engaged in discussions, negotiations and attempts at
FAO(OS)(COMM) 210/2022 Page 9 of 57
amicable settlement from the inception of the dispute until 2018.
Reliance was placed on the principle laid down in Hari Shankar
Singhania v. Gaur Hari Singhania
14
, wherein it was held that
limitation begins to run only from the date when assertion of claim by
one party is clearly denied by the other.
28. Applying the above principle, the learned Arbitral Tribunal
concluded that the right to seek arbitration accrued only on 05.03.2018,
when both parties mutually agreed to close the DAB process, in terms
of Clause 20 of the contract, and proceed to arbitration. Accordingly,
the learned Arbitral Tribunal held that the claims were well within
limitation.
29. With respect to financing charges, the learned Arbitral Tribunal
undertook an exhaustive examination of the contractual framework
relating to payments and delayed payments, particularly sub-Clauses
14.3, 14.6, 14.7, 14.8, and 20.1 of the contract. The learned Arbitral
Tribunal emphasized that the contractual provisions clearly delineated
the rights and obligations of the parties in relation to interim payments
and the consequences of delayed release.
30. The learned Arbitral Tribunal found that under clause 14.3(b)–
(f), all additions, deductions and claims were required to be
incorporated in the running bills. Since the appellant failed to honour
payments due under these running bills, it became liable, by operation
of clause 14.8, to pay financing charges on delayed amounts. Upon
14
(2006) 4 SCC 658
FAO(OS)(COMM) 210/2022 Page 10 of 57
examining the pleadings, supporting statements, and Chartered
Accountant certified documents filed on 07.08.2019, the learned
Arbitral Tribunal concluded that the appellant had failed to abide by the
contractual stipulations governing financing charges. Consequently, it
was held that the respondent was entitled to financing charges on all
amounts wrongfully withheld.
31. A detailed tabular statement setting out each claim, the amount
awarded, together with the computation of financing charges payable,
thereby formed an integral part of the impugned award, as below:
Claim Principal
Awarded
Finance Charge
(FC) Awarded
Total Amount
Awarded
CNo.1: Addition to
contract price due to
intro of VAT Tax in
place of Work Contract
Tax for Rs.1,20,54,368/-.
Rs. 63,81,699/-
Rs. 2,39,19,679/- Rs.
3,03,01,378/-
CNo.2: Addition To
Contract Price Due to
Intro of Service Tax on
Erection &
Commissioning (E&C)
Works and Operation
and Maintenance
(O&M) Works for
Rs.6,04,384/-
Rs. 6,04,384/- Rs. 19,11,312/- Rs. 25,15,696/-
CNo.3: Addition to
Contract Price on
Account of Levy of
Labour Cess for
Rs.10,42,930/-
NIL NIL NIL
CNo.4(A): Excess
Amount Retained from
RA Bills amounting to
Rs.23,53,806/-
Rs. 23,53,806/- Rs. 75,32,918/- Rs. 98,86,724/-
CNo.4(B): Excess
Retention on pretext of
Extension of Time
Rs. 1,95,924/- Rs. 59,28,146/- Rs. 61,24,070/-
CNo.4(C): Excess
Recovery of
Mobilization Advance
beyond the Provision of
the Contract.
— Rs. 1,78,12,198/- Rs.
1,78,12,198/-
CNo.5: Refund of Rs. 41,55,780/- Rs. 17,21,552/- Rs. 58,77,332/-
FAO(OS)(COMM) 210/2022 Page 11 of 57
Amount wrongly
recovered on the excuse
of use of different Brand
of Steel, Though 'ISl'
Marked for
Rs.41,55,780/-
CNo.6(A): Addition to
Contract Price in Wages
for the Labour deployed
for Civil Works &
Installation Works of
F&M for Rs.97,47,230/-
NIL NIL NIL
CNo.6(B): Addition to
Contract Price in Wages
for the Manpower
deployed for O&M
Works for Rs.64,41,467/-
Rs. 64,41,467/- Rs. 98,15,574/- Rs.
1,62,57,041/-
CNo.7: Addition to
Contract Price on
account of Increased
Prices of Input Materials
during the Stipulated
Period of Completion for
Rs.81,56,564/-
NIL NIL NIL
CNo.8: Addition to
Contract Price on
Account of Increased
Prices of Cement, Steel
and Other input
Materials after the
Stipulated Date Of
Completion for
Rs.2,98,73,338/-
Rs.
2,66,72,624/-
NIL Rs.
2,66,72,624/-
CNo.9A:AmountPayable
on Account of Non-
Payment of Work Done /
Final Bill as per the
terms of the Contract
For Rs.5,56,95,810/-
Rs.
4,97,28,402/-
— Rs.
4,97,28,402/-
CNo.9B: Amount
Payable by way of FC
under Clause 14.8 on
Delayed Payments as per
the Terms of the
Contract.
— Rs. 10,98,93,606/- Rs.
10,98,93,606/-
CNo.9C: Amount
Payable on Account of
FC Due to Delay in
Release of Mobilization
Advance
— Rs. 13,12,205/- Rs. 13,12,205/-
CNo.10: Addition to
Contract Price on
Account of Delay in
Appointment of Third-
Party Inspection Agency
(TPJA)
Rs. 2,67,192/- Rs. 11,59,371/- Rs. 14,26,563/-
CNo.11: On Account of NIL NIL NIL
FAO(OS)(COMM) 210/2022 Page 12 of 57
Deferred Profitability
CNo.12A: Manpower
costs and plant and
machineries during
overrun period
Rs.
3,68,43,750/-
— Rs.
3,68,43,750/-
CNo.12B:
Overhead/Head Office
Profits
Rs.
1,06,03,186/-
— Rs.
1,06,03,186/-
CNo.13: On Account of
FC beyond the Dates as
stated against each
Dispute
— Rs. 5,48,43,184/-
Rs.
5,48,43,184/-
CNo.14 : Costs towards
Arbitration Proceedings
Rs.29,00,000/-
NIL NIL NIL
TOTAL Rs.
15,40,63,788/-
Rs. 22,60,34,141/- Rs.
38,00,97,929/-
IMPUGNED JUDGMENT
32. Aggrieved by the impugned award, the appellant filed a petition
under Section 34 of the A&C Act. The challenge to the impugned award
was primarily premised on the following grounds: i) the claims were
barred by limitation; (ii) the delay in execution of the project was not
attributable to the petitioner/appellant; (iii) the learned Arbitral
Tribunal erred in awarding financing charges/interest on the claims; and
iv) the impugned award was contrary to the express terms of the
contract and therefore liable to be set aside.
33. The learned Single Judge, upon consideration of the rival
contentions and the material on record, dismissed the petition and found
no ground to interfere with the impugned award within the limited
scope of Section 34 of the A&C Act.
34. On the issue of limitation, the learned Single Judge held that
Clause 20 of the contract envisaged a mandatory multi-tier dispute
FAO(OS)(COMM) 210/2022 Page 13 of 57
resolution mechanism, requiring disputes to be placed, in the first
instance, before the DAB. It was found that the respondent had invoked
the DAB mechanism as early as 29.08.2005 and had thereafter
consistently pursued the constitution and functioning of the DAB.
35. However, the learned Single Judge noted, that the DAB remained
non-functional for a prolonged period, constraining one of the
consortium partners to approach this Court by way of a writ petition in
May 2015. By order dated 25.05.2015, this Court directed the parties to
execute DAA within stipulated timelines and further permitted
substitution of the DAB member, if necessary, in order to operationalize
the mechanism contemplated under the contract.
36. Although the DAB ultimately came to be constituted, the learned
Single Judge recorded that it failed to render any decision. The DAB
proceedings were mutually closed on 05.03.2018, whereafter the parties
proceeded to arbitration in terms of the contract. In view of Clause 20,
the learned Single Judge held that the cause of action to invoke
arbitration accrued only upon the closure of the DAB in 2018, and not
at any prior point of time. Consequently, the arbitral claims could not
be said to be barred by limitation.
37. The learned Single Judge also took note of the fact that the
appellant itself had, on 08.02.2013, granted an extension of time for
completion of the project, thereby acknowledging that disputes between
the parties were live and subsisting. In these circumstances, it was
concluded that the view taken by the learned Arbitral Tribunal on
limitation was both plausible and consistent with the contractual
FAO(OS)(COMM) 210/2022 Page 14 of 57
scheme, and therefore did not disclose any patent illegality warranting
interference.
38. With regard to delay, the learned Single Judge observed that the
learned Arbitral Tribunal, on a comprehensive appraisal of the
evidence, found that several factors leading to delay were attributable
to the appellant. The learned Arbitral Tribunal also noticed that the
extensions of time granted were accompanied only by nominal penalties
of Rs.20,000/- and Rs.40,000/-, despite the contract providing for
significantly higher liquidated damages. This conduct in view of the
Court indicated that the appellant itself did not treat the delay as being
attributable to the respondent. The Court held that such findings were
factual in nature, and fell squarely within the domain of the Arbitral
Tribunal as the final adjudicator of facts, and therefore could not be re-
appreciated under Section 34 of the A&C Act.
39. On the question of financing charges/interest, the learned Single
Judge rejected the contention of the appellant that the contract imposed
a blanket prohibition on the award of interest. Upon a plain reading of
Clauses 14.7 and 14.8, the Court held that there was no proscription
against interest; rather, Clause 14.8 positively conferred upon the
contractor an entitlement to financing charges, compounded monthly,
in the event of delayed payments. The argument that the contract barred
interest was therefore held to be misconceived.
40. The learned Single Judge further recorded that the Arbitral
Tribunal had found certain amounts payable to the respondent, to have
remained unpaid. In respect of such delayed payments, the entitlement
FAO(OS)(COMM) 210/2022 Page 15 of 57
to financing charges flowed directly from Clause 14.8 as per the learned
Arbitral Tribunal. The learned Single Judge found merit in the
contention of the respondent that financing charges are payable only in
respect of admitted/certified payments that remained unpaid. However,
the learned Arbitral Tribunal’s decision to award interest even on
amounts that ought properly to have been included in Interim Payment
Certificates
15
was held to be a possible interpretation based on the
contractual provisions and could not be characterized as perverse or
irrational.
41. The plea that the learned Arbitral Tribunal was legally prohibited
from awarding compound interest was also repelled. The Court
observed that not only did the contractual framework itself envisage
compound financing charges, but the respondent had also produced
material demonstrating that it had incurred compound interest on its
borrowings. In this background, the award of compound interest could
not be said to suffer from patent illegality.
42. The reliance placed by the appellant on M/s Hyder Consulting
(UK) Ltd. v. Governor, State of Orissa
16
was held to be misplaced. The
learned Single Judge observed that the said decision, in fact, recognized
that arbitral tribunals may grant interest on interest under Section 31(7)
of the Act. Reference was made to UHL Power Company Ltd. v. State
of Himachal Pradesh with State of Himachal Pradesh v. UHL Power
Company Ltd
17
, wherein the Hon’ble Supreme Court clarified that there
15
“IPCs”, hereinafter
16
(2015) 2 SCC 189
17
(2022) 4 SCC 116
FAO(OS)(COMM) 210/2022 Page 16 of 57
is no absolute bar on the grant of compound interest by arbitral tribunal
where the contract so provides or where circumstances justify such
award.
43. In light of the above discussion, the learned Single Judge
concluded that the impugned award did not disclose any infirmity
within the narrow grounds of interference under Section 34 of the Act.
The petition was accordingly dismissed.
RIVAL CONTENTIONS BEFORE THIS COURT
44. Mr. Sanjay Jain, learned Senior Counsel appearing for the
appellant, submitted that the award in respect of claims 12A and 12B
suffers from patent illegality and is liable to be set aside. It was
contended that both claims were allowed in the absence of any primary
or contemporaneous evidence establishing that the expenditure claimed
was in actual incurred by the respondent. The award, therefore, travels
beyond the record and warrants interference by this Court.
45. Learned Senior Counsel submitted that claim 12A was allowed
solely on the basis of Annexure 12A appended to the Statement of
Claims, which was merely a self-prepared document based entirely on
unilateral calculations. In the absence of supporting material such as
bank statements, payment records or vouchers, etc., such a document
could not constitute proof of expenditure incurred. Reliance was placed
on SJVN v. Jaiprakash Hyundai Consortium and Others
18
, wherein it
18
2023 SCC OnLine Del 4039
FAO(OS)(COMM) 210/2022 Page 17 of 57
was held that arbitral awards founded merely on mathematical
assumptions or theoretical models without supporting pleadings or
cogent evidence are unsustainable.
46. With respect to claim 12B, learned Senior Counsel submitted that
the award proceeds purely on the application of the Emden Formula to
charts appended as Annexures 12B and 12C, which were again prepared
unilaterally by the respondent to demonstrate actual loss suffered on
account of delay attributable to the appellant. Reliance was placed on
Unibros v. All India Radio
19
, Batliboi Environmental Engineers Ltd.
v. Hindustan Petroleum Corporation. Ltd.
20
, K.R. Builders Pvt. Ltd.
v. DDA
21
, to contend that formulae such as Hudson or Emden cannot
be applied in vacuum, and that the contractor must prove availability of
alternative business opportunities and actual diversion of resources.
47. It was further submitted that the award of financing charges in
respect of claims 1, 2, 4A, 4B, 4C, 5, 6B, 9C 10 and 13 is patently
illegal, contrary to the contract terms and amounts to re-writing its
terms. Clause 14.8 cannot be read in isolation; it must be read along
with clauses 14.3, 14.6 and 14.7 forming part of the payment
mechanism under clause 14.
48. Upon a holistic reading of the clauses14.3, 14.6, 14.7 and 14.8, it
was submitted that the contractor becomes entitled to financing charges
only where, (i) an application for payment is submitted under Clause
19
2023 SCC OnLine SC 1366
20
(2024) 2 SCC 375
21
2012 SCC OnLine Del 1625
FAO(OS)(COMM) 210/2022 Page 18 of 57
14.3, (ii) the engineer issues an IPCs under Clause 14.6, and (iii) despite
such certification, payment is delayed beyond the stipulated period
under Clause 14.7. Reliance was placed on South East Asia Marine
Engg. & Constructions Ltd. (SEAMEC LTD.) v. Oil India Ltd.
22
, to
contend that contractual clauses must be construed in their entirety, and
no term may be applied divorced from its contractual context.
49. It was argued that the respondent produced neither applications
for IPCs under clause 14.3 nor any payment certificates under clause
14.6. The claims rested solely on self-generated annexures reflecting
hypothetical calculations. It was contended that the learned Arbitrator
ignored the absence of these foundational documents, thereby
overlooking essential contractual requirements and granted financing
charges as if they were interest on disputed claims. Learned Senior
Counsel relied on Delhi Metro Rail Corporation Ltd. v. Delhi Airport
Metro Express Pvt. Ltd
23
, to submit that an award ignoring vital
evidence or contractual stipulations amounts to perversity.
50. He further emphasized that the cascading effect of such
erroneous computation is manifest as financing charges alone constitute
to Rs.22,60,34,141/- out of a total arbitral award of Rs.38,00,97,929/-,
far exceeding the principal sum of Rs.15,40,63,788/-, thereby
demonstrating gross arbitrariness.
51. It was further argued that though the learned Single Judge
recorded that financing charges were confined to admitted or certified
22
(2020) 5 SCC 164.
23
2024 SCC OnLine SC 522
FAO(OS)(COMM) 210/2022 Page 19 of 57
dues, the award was nevertheless upheld. This, it was argued, amounted
to re-writing the contract by converting financing charges into interest,
despite lack of contractual sanction, which is impermissible.
52. Reliance was placed on Union of India and Others v. Bharat
Enterprise
24
, Union of India v. Manraj Enterprises
25
, State of
Chhattisgarh and another v. SAL Udyog (P) Ltd.,
26
, Indian Oil
Corporation. Limited v. Shree Ganesh Petroleum Rajgurunagar
27
,
and Bharat Coking Coal Ltd. v. Annapurna Construction
28
, to assert
that where the contract expressly regulates financial liability, deviation
from its terms renders the award unsustainable.
53. Learned Senior Counsel further contended that all claims were ex
facie time-barred. The cause of action arose on 28.01.2009 and expired
on 27.01.2012. Therefore, the learned Single Judge erred in treating the
disputes as live until 08.02.2013.
54. Relying on Geo Miller & Co. (P) Ltd. v. Chairman, Rajasthan
Vidyut Utpadan Nigam Ltd.
29
, it was argued that negotiations or
settlement discussions cannot continue indefinitely and that a “breaking
point” occurred when execution of the DAA was deferred at
respondent’s request vide letter dated 28.01.2009, thereby triggering the
commencement of limitation.
55. It was further submitted that the subsequent letters dated
24
2023 SCC OnLine SC 369.
25
(2022) 2 SCC 311.
26
(2022) 2 SCC 275
27
(2022) 4 SCC 463.
28
(2003) 8 SCC 154.
29
(2020) 14 SCC 643.
FAO(OS)(COMM) 210/2022 Page 20 of 57
01.09.2011, 20.06.2012 and 08.10.2013, were unrelated to the
contractual disputes and pertained to O&M, thus incapable of reviving
limitation. Once limitation expired on 27.01.2012, it could not be
revived by subsequent consent, as held in Extramarks Education India
Private Limited v. Shri Ram School and Another
30
that the consent of
parties cannot revive an already time barred claim.
56. Learned Senior Counsel further assailed the impugned award in
respect of claims 4C, 9A, 9B and 9C, contending that the claims were
allowed without due application of mind and are therefore perverse and
irrational. It was contended that, with respect to claim 4C, Annexure E
itself records that the entire mobilisation advance stood fully adjusted
by the 23
rd
RA Bill. Despite this admitted position, financing charges
continued to be awarded, which is contrary both to the factual record
and the express terms of the contract.
57. As regards claim 9C, it was also submitted that, even assuming
there was a delay in the release of the mobilisation advance, such delay
was limited to a period of one month. Nonetheless, financing charges
were awarded up to 05.03.2018, i.e., up to the date of the Award, and
thereafter until payment, which is contrary to the contractual framework
and wholly unjustified.
58. Per contra, Mr. Amit Sibal, learned Senior Counsel for the
respondent, at the very threshold, objected to the appellant raising fresh
challenge to the claims 12A and 12B, contending that no specific
grounds in respect thereof were pleaded under Section 34 of the A&C
30
2022 SCC Online Del 3123.
FAO(OS)(COMM) 210/2022 Page 21 of 57
Act, and therefore such a challenge cannot be permitted to be raised for
the first time in appellate proceedings. It was submitted that
proceedings under Section 34, being summary in nature, permit
examination only of grounds specifically pleaded therein. Reliance was
placed on Sidhi Industries and Ors. v. Religare Finvest Limited and
Ors.
31
and Media Asia (P) Ltd. v. Prasar Bharti
32
, where as per the
learned Senior Counsel, the Co-ordinate benches of this Court have held
that the limited scope of Section 37 does not permit re-agitation of
unpleaded challenges. Thus, having failed to raise these grounds at the
appropriate stage, the appellant cannot now be allowed to raise them for
the first time in an appeal under Section 37. Such an attempt would
amount to permitting a party to improve its case at the appellate stage,
which is contrary to settled principles governing proceedings under
Section 37.
59. Reliance was further placed on OPG Power Generation Private
Limited v. Enexio Power Cooling Solutions India Private Limited and
Another
33
and Punjab State Civil Supplies Corporation Limited and
Another v. Sanman Rice Mills and Others
34
, to submit that the scope
under Section 37 is even narrower than Section 34, and is akin to
supervisory or revisionary jurisdiction, limited to examining whether
the Court below exceeded or failed to exercise jurisdiction. Therefore,
it was submitted that re-appreciation of facts or substitution of
conclusions is impermissible at this stage.
31
2017 SCC OnLine Del 12685
32
2012 SCC OnLine Del 2739
33
(2025) 2 SCC 417
34
2024 SCC OnLine SC 2632
FAO(OS)(COMM) 210/2022 Page 22 of 57
60. On merits, learned Senior Counsel submitted that claim 12A was
duly supported by Annexure 12A, which comprised extracts from
audited accounts, duly certified by a Chartered Accountant, and drawn
from, as well as reconcilable with, the audited books of account, which
were never disputed by the appellant. The learned Arbitrator, in
paragraph 39.4.2, expressly noted this aspect. It was further submitted
that the appellant never challenged the authenticity of these documents
in its Statement of Defence and is, therefore, estopped from doing so at
this stage.
61. It was further submitted that Annexure 12A constitutes
admissible secondary evidence under Section 65(g) of the Indian
Evidence Act, 1872
35
(now Section 60(g) of Bharatiya Sakshya
Adhiniyam, 2023). It was premised on the fact that the said annexure
consolidates voluminous data such as manpower deployment,
machinery utilization, and monthly expenditure incurred during the
overrun period, and has consistently been recognized in construction
arbitrations as a valid evidentiary method. Reliance was placed on
NHAI v. CEC-HCC Joint Venture
36
and NHAI v. Hindustan
Construction Company Ltd.
37
, where the claims were ultimately
allowed by the learned Arbitral Tribunal by relying inter alia, on the
Chartered Accountant's certificate produced by the contractor.
62. It was further emphasised that the learned Arbitrator did not
mechanically accept the figures, but applied contractual and statutory
35
“IE Act”, hereinafter
36
2017 SCC OnLine Del 7593
37
2016 SCC OnLine Del 1144
FAO(OS)(COMM) 210/2022 Page 23 of 57
filters, restricting manpower costs to one Graduate Engineer and three
Watchmen under Clauses 4.3 and 4.22, restricting machinery costs to
the batching plant under Clause 2.3, applying the relevant DSR rates,
and finally reducing the entire assessed amount by 50% towards idling.
Thus, against a claim exceeding Rs. 10.56 crores, only Rs. 3.68 crores
stood awarded, thereby demonstrating a reasoned and conservative
assessment
63. As regards claim 12B, it was submitted that the award relates not
to loss of profits but to overhead and head-office expenses attributable
to delays caused by the appellant. The learned Arbitrator expressly
declined to adopt the Emden Formula and instead awarded only 5% of
the work value executed beyond stipulated completion, consistent with
Central Public Works Department
38
circulars under clause 12.3.
Reliance was placed on National Highways Authority of India v. M/s
Prakash Atlanta (JV)
39
; and Union of India v. Rama Construction
Company
40
, and OPG Power (supra), to submit that once the arbitrator
adopts a plausible view grounded in contractual terms, interference is
unwarranted.
64. On Financing charges, learned Senior Counsel submitted that the
award has been passed strictly within the contractual framework, and
such charges are not interest on unliquidated damages, but contractual
compensation for delayed payment. Clauses 14.3, 14.6, 14.7 and 14.8
constitute mechanism for valuation, certification and timing of
payments. Clause 14.8 operates when payments falling under Clause
38
“CPWD”, hereinafter
39
2018 SCC OnLine Del 8327
40
2022 SCC OnLine Del 1016
FAO(OS)(COMM) 210/2022 Page 24 of 57
14.3 remain unpaid beyond stipulated time. Financing charges accrue
even if IPCs are not issued by the appellant, and the appellant cannot
benefit from its failure to certify when the learned Arbitrator awarded
such claim exercising its power under clause 20 of the contract.
65. Reliance was placed on Nabha Power Limited v. Punjab State
Power Corporation Limited and Another
41
and Adani Power
(Mundra) Limited v. Gujarat Electricity Regulatory Commission and
Others
42
and Municipal Committee Katra and Others v. Ashwani
Kumar
43
to reinforce the principle that contracts must be enforced as
written and no party may take advantage of its own wrong. Therefore,
both the learned Arbitrator and the learned Single Judge, rightly upheld
the award of financing charges in terms of the contract.
66. On limitation, it was urged that the cause of action for invoking
arbitration does not accrue until pre-arbitral procedures under Clause
20 of the contract stand exhausted. It was contended that the DAB
process could not be unilaterally terminated and came to an end only on
05.03.2018 by mutual closure, whereafter the period of limitation
commenced. In this regard, reliance was placed on a judgment of this
Court in Welspun Enterprises Ltd. v. NCC Ltd.
44
and B and T AG v.
Ministry of Defence
45
.
67. Learned Senior Counsel further submitted that no “breaking
point” arose in 2009. The parties continued sincere negotiations,
41
(2018) 11 SCC 508
42
(2019) 19 SCC 9
43
2024 SCC OnLine SC 840
44
2022 SCC OnLine Del 3296
45
(2024) 5 SCC 358
FAO(OS)(COMM) 210/2022 Page 25 of 57
reflected in letters dated 01.09.2011 and 20.06.2012 repeatedly urging
execution of the DAA. Reliance was placed on Geo Miller (supra),
which recognizes exclusion of time spent in bona fide negotiations.
68. The appellant’s contention that the aforesaid letters relate only to
O&M was specifically denied, it being pointed out that the work order
was on a turnkey basis, encompassing civil works, E&M and O&M,
and that there was no separate or independent O&M contract.
69. Learned Senior Counsel further argued that challenges to claims
4C, 9A, 9B, and 9C cannot now be entertained, as such objections were
neither pleaded nor urged before the Court under the Section 34
petition. It was submitted that, having elected not to contest these claims
at the earlier stage, the appellant is barred from reopening such issues
at the appellate stage.
70. With respect to claim 4C, learned Senior Counsel contended that
the mobilization advance was contractually required to be recovered at
the rate of 10% on a pro-rata basis, whereas the appellant made excess
and premature deductions. Accordingly, the award of financing charges
was confined only to amounts prematurely withheld and was strictly in
accordance with the contractual stipulations.
71. It was further submitted that in respect of claims 9A, 9B and 9C,
the learned Arbitrator, upon appreciation of evidence, rightly awarded
the unpaid contractual dues and the corresponding financing charges
under Clause 14.8, and such findings, being factual and plausible,
warrant no interference.
FAO(OS)(COMM) 210/2022 Page 26 of 57
72. In rebuttal, learned Senior Counsel for the appellant submitted
that the objection regarding the absence of any challenge to claims 12A
and 12B is misconceived. It was contended that specific challenges
were, in fact, raised in Grounds H and FF of the Section 34 petition,
alleging lack of evidence and arbitrary assessment. The appellant,
therefore, cannot be faulted on this count.
73. Without prejudice, learned Senior Counsel submitted that
Section 34(2) of the A&C Act confers statutory power upon the Court
to set aside an arbitral award where it suffers from patent illegality and
violates fundamental policy of Indian law, irrespective of the manner in
which such grounds are pleaded. It was further submitted that the Court
is duty-bound to strike down awards that are ex facie contrary to law.
Reliance was placed on Sal Udyog (supra).
74. It was further submitted that the Chartered Accountant
certificates relied upon by the respondent do not establish actual
expenditure, as they merely certify tax computations without verifying
supporting vouchers, invoices, wage registers or deployment records.
The respondent’s reliance on CEC-HCC Joint Venture (supra) and
Hindustan Construction Co. Ltd (supra) was distinguished, on the
ground that in those cases the certifications were tied to
contemporaneous account records and jointly verified site registers,
which are conspicuously absent in the present case.
75. Learned Senior Counsel argued that alleged compliance with
clause 14 was shown, if at all, only in relation to claim 9A and 9B. For
FAO(OS)(COMM) 210/2022 Page 27 of 57
all other claims where financing charges were awarded, there was no
demonstration of compliance of Clause 14 of the contract. Further, it
was submitted that learned Single Judge had re-written the contract by
upholding financing charges as “interest”, which was alleged to be alien
to the contract and hence it was contended that Clause 14.8 could not
be invoked to grant the Financing charges. The above position was
argued even for claim 9A and 9B.
76. Learned Senior Counsel submitted that the letters dated
01.09.2011 and 20.06.2012 primarily concern non-payment of O&M
dues and contain unilateral request for execution of the DAA, with no
response. Even the respondent, while invoking DAB, referred back to
the letter dated 28.01.2009, thereby acknowledging that subsequent
correspondence was unrelated and incapable of extending limitation.
77. Finally, it was submitted that Clause 20 does not envisage
perpetual continuation of the DAB process. By seeking deferment on
28.01.2009, the respondent effectively abandoned the contractual
mechanism, bringing it to an end and triggering limitation. Permitting
otherwise would defeat settled law governing limitation and finality in
commercial transactions.
ANALYSIS AND CONCLUSION
78. We have carefully considered the submissions advanced by
learned Senior counsel for parties and have meticulously examined the
material placed on record.
FAO(OS)(COMM) 210/2022 Page 28 of 57
79. Before entering into the merits of the controversy, it is necessary
to first delineate the scope and contours of judicial interference in
proceedings arising under Section 34 and 37 of the A&C Act:
“34. Application for setting aside arbitral award. -(1) Recourse to
a Court against an arbitral award may be made only by an
application for setting aside such award in accordance with
subsection (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application establishes on the basis
of the record of the arbitral tribunal that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the
law to which the parties have subjected it or, failing
any indication thereon, under the law for the time
being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or
of the arbitral proceedings or was otherwise unable
to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration:
Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so
submitted, only that part of the arbitral award which
contains decisions on matters not submitted to
arbitration may be set aside; or
(v.) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was
in conflict with a provision of this Part from which
the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force, or
(ii) the arbitral award is in conflict with the public
policy of India.
37. Appealable orders.—(1) (Notwithstanding anything contained in
any other law for the time being in force, an appeal) shall lie from
the following orders (and from no others) to the court authorised by
FAO(OS)(COMM) 210/2022 Page 29 of 57
law to hear appeals from original decrees of the Court passing the
order, namely:
(a) refusing to refer the parties to arbitration under Section
8;
(b) granting or refusing to grant any measure under Section
9;
(c) setting aside or refusing to set aside an arbitral award
under Section 34.)
(2) An appeal shall also lie to a court from an order of the arbitral
tribunal—
(a) accepting the plea referred to in sub-section (2) or sub
section (3) of Section 16; or
(b) granting or refusing to grant an interim measure under
Section 17.
(3) No second appeal shall lie from an order passed in appeal under
this section, but nothing in this section shall affect or take away any
right to appeal to the Supreme Court.”
80. A plain reading of Section 34 of the A&C Act makes it evident
that the power of the Court to interfere with an arbitral award is
extremely limited. Section 34 does not permit the Court to sit in appeal
over the findings of the Arbitral Tribunal. The Court is not expected to
re-appreciate evidence, reassess factual findings, or substitute its own
view merely because an alternative view is possible. Even if the award
appears unreasoned or partially non-speaking, that by itself, does not
furnish a ground for interference unless the award is shown to fall
within one of the narrowly defined statutory grounds. Thus, the
correctness or reasonableness of the conclusions reached by the
Arbitrator is ordinarily beyond the scope of judicial scrutiny under
Section 34.
81. It is now well-settled that the jurisdiction exercised under Section
34 of the A&C Act is neither appellate nor revisional in nature. The
arbitral award may be challenged only within the narrow confines
expressly stipulated in sub-sections (2), (2A) and (3) of Section 34,
FAO(OS)(COMM) 210/2022 Page 30 of 57
including grounds such as incapacity of parties, lack of jurisdiction,
conflict with public policy, or patent illegality appearing on the face of
the award (in a domestic arbitration). The merits of the dispute are,
therefore, insulated from judicial review. Correspondingly, the
appellate jurisdiction under Section 37 is even more restricted, being
confined only to examining whether the Court deciding the Section 34
petition acted within the limits prescribed by law. The Appellate Court,
while exercising powers under Section 37, cannot re-evaluate evidence,
revisit factual determinations, or decide whether the Arbitral Tribunal’s
conclusions were right or wrong, as permissible in a regular appeal.
82. In Haryana Tourism Limited v. M/s. Kandhari Beverages Ltd
46
,
the Hon’ble Supreme Court reaffirmed that a Court exercising power
under Section 37 cannot travel into the merits of the dispute. An arbitral
award can be interfered with only if it is shown to be contrary to the
fundamental policy of Indian law, the interests of India, justice or
morality, or if it suffers from patent illegality going to the root of the
matter. Mere errors of fact or appreciation of evidence do not justify
judicial intervention.
83. In light of the settled legal position, this Court is of the considered
view that the scope of review under Section 37(1)(c) of the A&C Act,
while examining an order passed under Section 34, is extremely
circumscribed. The appellant, therefore, carries a very heavy burden
and must demonstrate a clear case of jurisdictional error, violation of
statutory mandate, or patent illegality apparent on the face of the record,
46
(2022) 3 SCC 237
FAO(OS)(COMM) 210/2022 Page 31 of 57
in order to justify interference. Within this narrowly confined
framework, the present appeal calls for consideration of the following
issues-
i. Whether claims 12A and 12B were awarded in the impugned
award without any supporting evidence, and if so, whether
such findings constitute patent illegality warranting
interference by this Court.
ii. Whether the award of ‘Financing Charges’ in respect of
claims 1, 2, 4A, 4B, 4C, 5, 6B, 9B, 9C, 10 and 13 is patently
illegal, contrary to contractual provisions, or inconsistent with
the fundamental policy of Indian law.
iii. Whether the claims allowed by the arbitral tribunal were ex-
facie barred by limitation and, if so, whether the learned
Arbitral Tribunal committed a manifest error in law in
entertaining and awarding such time-barred claims?
Issue 1- CLAIM 12A AND 12B
84. Claim 12A pertains to the alleged additional expenditure incurred
during the period of overrun/prolongation of the contract, consisting of
(i) manpower expenses at site and (ii) hire/idling charges of plant and
machinery. In substance, the claim represents compensation for site
overheads and idling costs allegedly suffered on account of
prolongation of works beyond the stipulated completion period.
85. Claim 12B, on the other hand, pertains to the alleged loss of off-
site/Head Office overheads and profit during the prolongation period.
The claim proceeds on the premise that the project delay resulted in
FAO(OS)(COMM) 210/2022 Page 32 of 57
continued deployment of head office establishment and blocking of the
contractor’s profit element, thereby giving rise to an entitlement for
compensation under this head.
86. The learned arbitrator allowed claim 12A primarily on the basis
of Annexure 12A appended to the Statement of Claims. It was asserted
that the said Annexure had been authenticated by a Chartered
Accountant, and proceeding on that premise, the learned sole Arbitrator
accepted it as reliable evidence and accordingly granted the claim 12A
in favour of the respondent.
87. Learned Senior Counsel for the appellant argued that the Court
exercising jurisdiction under Section 34, while upholding the impugned
Award on claims 12A and 12B, failed to assign any reasons or to
examine the specific challenges raised by the appellant,
notwithstanding the fact that the impugned award itself contains a
detailed and reasoned analysis. According to the appellant, such an
approach amounts to failure on the part of the Section 34 Court to
exercise the jurisdiction, thereby rendering the order vulnerable on the
ground of patent illegality.
88. It was further contended that both claim 12A and 12B were
allowed in the absence of any substantive evidence and therefore suffer
from patent illegality.
89. Before examining whether the impugned award is vitiated, it is
apposite to recapitulate and delineate the scope of “patent illegality”
under Section 37 read with Section 34 of the A&C Act.
FAO(OS)(COMM) 210/2022 Page 33 of 57
90. It is now settled that patent illegality constitutes a ground for
setting aside an award under Section 34(2A) of the A&C Act. However,
such illegality must be apparent on the face of the award, and not one
that requires reappreciation of evidence or a merit based review.
91. In Delhi Airport Metro Express (P) Ltd. (supra), the Hon’ble
Supreme court made the following observations. The same reads as
follows:
“39. In essence, the ground of patent illegality is available for
setting aside a domestic award, if the decision of the arbitrator is
found to be perverse, or so irrational that no reasonable person
would have arrived at it; or the construction of the contract is such
that no fair or reasonable person would take; or, that the view of the
arbitrator is not even a possible view. A “finding” based on no
evidence at all or an award which ignores vital evidence in arriving
at its decision would be perverse and liable to be set aside under the
head of “patent illegality”. An Award without reasons would suffer
from patent illegality. The arbitrator commits a patent illegality by
deciding a matter not within his jurisdiction or violating a
fundamental principle of natural justice.”
(Emphasis supplied)
92. Thus, it could be understood that patent illegality refers to such
an error that is obvious, self-evident and goes to the root of the matter,
offending substantive provisions of law, principles of natural justice, or
reflecting a decision based on “no evidence”, thereby warranting
judicial interference.
93. In Ssangyong Engineering & Construction Co. Ltd. v. NHAI
47
,
it was held that “Thus, a finding based on no evidence at all or an award
47
(2019) 15 SCC 131
FAO(OS)(COMM) 210/2022 Page 34 of 57
which ignores vital evidence in arriving at its decision would be
perverse and liable to be set aside on the ground of patent illegality”.
94. Further, on perversity of an arbitral award, the Hon’ble Supreme
Court in its decision in Associate Builders v. Delhi Development
Authority
48
held as follows:
“31. The third juristic principle is that a decision which is perverse
or so irrational that no reasonable person would have arrived at the
same is important and requires some degree of explanation. It is
settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such
decision would necessarily be perverse.”
95. The Hon’ble Supreme Court has consistently held that where an
arbitral award is based on no evidence or ignores vital evidence, such
illegality goes to the foundation of the Award and amounts to patent
illegality. However, a mere erroneous application of law or re-
appreciation of evidence is impermissible within the limited scope of
interference under Section 34 or Section 37 of the A&C Act.
96. The primary grievance of the appellant, therefore, is that claim
12A was awarded merely on the basis of a “put up calculation”, without
any supporting evidence.
48
(2015) 3 SCC 49
FAO(OS)(COMM) 210/2022 Page 35 of 57
97. The learned Arbitral Tribunal attached significant weight to the
Chartered Accountant’s certificate. Hence, we deem it relevant to
reproduce the Chartered Accountant certificates relied on by the learned
arbitrator:
“TO WHOMSOEVER IT MAY CONCERN
This is to certify that M/s Mohini Electricals Ltd., WZ-263, Railway
Road, Srinagar, Delhi-110034 discharged their tax liability with
respect to DVAT as well as Service Tax as per its applicability
during the Financial Year period 2004-05 to 2012-13 víz. 12.5%
under DVAT for the entire corresponding period & Service Tax
12.24% w.e.f. 18/04/2006 to 10/05/2007, 12.36% w.e.f. 11/05/2007
to 23/02/2009 and 10.3% w.e.f. 24/02/2009 to 31/03/2012 including
the payments pertaining to Delhi Jal Board works of Contract of
UGR & BPS at various location in Trans-Yamuna Area. It is further
confirmed that M/s Mohini Electricals Ltd. has declared the entire
receipts of payments for the Project.
For V.D. BISHAMBHU & CO.
CHARTERED ACCOUNTANTS
(F.C.A. V.D. BISHAMBHU)
(PROP.)
M.No. F-004303
Place: New Delhi
Date: 31.03.2016”
98. Upon scrutiny, it is evident that the certificates attached in
Annexure 1D and 2B only certify payment of taxes and receipts of
amounts. They neither certify, authenticate, audit, nor verify the
expenditure allegedly incurred during the period of prolongation, which
forms the very basis of claim 12A.
99. It is thus evident that there is no material before the learned
Arbitrator to show that the Chartered Accountant even certified or
examined the underlying books of accounts, vouchers, muster rolls,
utilization statements or any contemporaneous documents in support of
FAO(OS)(COMM) 210/2022 Page 36 of 57
Annexure 12A. Annexure 12A appears to be nothing more than a self-
prepared statement of the contractor, unsupported by any independent
verification. Self-serving documents, unsupported by corroborative
proof, cannot be treated as evidence of actual expenditure. Reliance on
such material renders the impugned award unsupported by evidence and
squarely places it within the category of a finding based on “no
evidence”.
100. The learned Senior Counsel for the respondent sought to justify
reliance on Annexure 12A by invoking Section 65(g) of the IEA,
contending that secondary evidence is admissible where original
records are voluminous. They also relied on precedents such as CEC-
HCC Joint Venture (supra) and Hindustan Construction Co. Ltd
(supra).
101. However, the said judgments are clearly distinguishable on facts.
In those cases, the Chartered Accountant’s certificates were accepted
only after it was demonstrated that the Chartered Accountant had
conducted an independent examination of account books, stock
registers, and jointly verified site records. No such verification exists or
foundational exercise is evident in the present case, nor is there any
material to indicate that certificates relied upon were based on an
examination of primary records.
102. Accordingly, the learned Arbitrator’s approach of treating
Annexure 12A as conclusive proof of expenditure, without examining
its foundation on which it rested, is legally unsustainable. The grant of
compensation in the absence of proof of actual expenditure amounts to
FAO(OS)(COMM) 210/2022 Page 37 of 57
reliance on “no evidence”, and therefore, squarely attracts the ground
of patent illegality.
103. Therefore, the Award granting claim 12A is liable to be set aside.
104. With respect to claim 12B, learned Senior Counsel for the
appellant argued that the claim was purportedly founded on the Emden
Formula and was supported only by unsubstantiated statements of Head
Office Overheads and Profit contained in Annexures 12B and 12C.
105. However, a reading of paragraph 39.4.16 of the impugned award,
reproduced below, clearly establishes that the learned Arbitrator did
not, in fact, apply any formula. Instead, claim 12B was awarded on the
basis of 5% of the value of work remaining beyond the stipulate date of
completion, quantified viz. Rs. 21,20,63,711/-.
“In view of the aforesaid discussions and findings including the
issue or delays I hold that the Claimant is entitled for this claim.
However. the use of overhead %age as 10% in Emden formulae
results in hugely exaggerated amounts. In my opinion this has
resulted due to hugely disproportionate period of prolongation of
work beyond the stipulated completion date. Thus, to be realistic,
under this claim I award 5% of the amount of work remaining
beyond the stipulate date of completion viz. Rs. 21.20,63, 711.”
106. Although the respondent referred to circulars issued by the
CPWD, which prescribe a range of 10-15%, the learned Arbitrator did
not expressly place reliance upon such circulars. Nonetheless, having
determined that delay was attributable to the appellant, and that the
respondent was required to remain mobilized during the extended
period, the learned Arbitrator considered 5% to be a reasonable measure
FAO(OS)(COMM) 210/2022 Page 38 of 57
of compensation in the facts of the case.
107. At this juncture, we deem it relevant to refer to the decision of
division bench of this court in National Highways Authority of India
v. M/s Prakash Atlanta (JV) (supra), where the application of a
standard percentage towards overhead was upheld, recognizing the
technical expertise of arbitral tribunals in adjudicating construction-
related disputes.
108. Further, the Apex court in its decision of McDermott
international INC. v. Burn Standard Co. Ltd and others
49
, held that
selection of a formula or method for calculating damages lies within the
discretion of the Arbitral Tribunal, so long as such discretion is not
exercised arbitrarily. The relevant observation reads as follows:
“106. We do not intend to delve deep into the matter as it is an
accepted position that different formulae can be applied in different
circumstances and the question as to whether damages should be
computed by taking recourse to one of the other formula, having
regard to the facts and circumstances of a particular case, would
eminently fall within the domain of the arbitrator”.
109. In the present case, the learned Arbitrator’s reasoning does not
appear perverse or irrational in our opinion. The impugned award
reflects due consideration of the factual matrix, the nature of delay, and
the entitlement to overheads during the period of prolongation. Thus,
claim 12B does not warrant interference.
110. Learned Senior Counsel for the respondent argued that claims
49
(2006) 11 SCC 181
FAO(OS)(COMM) 210/2022 Page 39 of 57
12A and 12B cannot be assailed, as no specific challenge in respect
thereof was raised before the Court exercising jurisdiction under
Section 34 of the A&C Act.
111. Per contra, the learned Senior Counsel for the appellant pointed
out that they had challenged the finding on claims 12A and 12B in
ground H and FF of the Section 34 petition, which are reproduced
below-
“H. For that the Ld. Arbitrator ignored the relevant terms of the
Contract and went beyond the same while awarding various claims.
Likewise, the assessment of evidence was wholly perverse such that
no reasonable adjudicator exercising a judicial function would have
reached.
FF. For that the primary onus to prove the claims was that of the
Respondent. The Respondent miserably failed to produce any single
document in support of their claim and therefore the impugned
award is bad in the eyes of law and is liable to be set aside.”
112. In this context, it is apposite to refer to the decision of the Apex
Court in Sal Udyog (supra), wherein the following was held-
24. We are afraid, the plea of waiver taken against the appellant-
State on the ground that it did not raise such an objection in the
grounds spelt out in the Section 34 petition and is, therefore,
estopped from taking the same in the appeal preferred under Section
37 or before this Court, would also not be available to the
respondent-Company having regard to the language used in Section
34(2A) of the 1996 Act that empowers the Court to set aside an
award if it finds that the same is vitiated by patent illegality
appearing on the face of the same. Once the appellant-State had
taken such a ground in the Section 37 petition and it was duly noted
in the impugned judgment, the High Court ought to have interfered
by resorting to Section 34(2A) of the 1996 Act, a provision which
would be equally available for application to an appealable order
under Section 37 as it is to a petition filed under Section 34 of the
1996 Act. In other words, the respondent-Company cannot be heard
to state that the grounds available for setting aside an award under
sub-section (2A) of Section 34 of the 1996 Act could not have been
invoked by the Court on its own, in exercise of the jurisdiction vested
FAO(OS)(COMM) 210/2022 Page 40 of 57
in it under Section 37 of the 1996 Act. Notably, the expression used
in the sub-rule is “the Court finds that”. Therefore, it does not stand
to reason that a provision that enables a Court acting on its own in
deciding a petition under Section 34 for setting aside an Award,
would not be available in an appeal preferred under Section 37 of
the 1996 Act.
25. Reliance placed by learned counsel for the respondent-
Company on the ruling in the case of Hindustan Construction
Company Limited(Supra) is found to be misplaced. In the aforesaid
case, the Court was required to examine whether in an appeal
preferred under Section 37 of the 1996 Act against an order refusing
to set aside an Award, permission could be granted to amend the
Memo of Appeal to raise additional/new grounds. Answering the
said question, it was held that though an application for setting aside
the Arbitral Award under Section 34 of the 1996 Act had to be moved
within the time prescribed in the Statute, it cannot be held that
incorporation of additional grounds by way of amendment in the
Section 34 petition would amount to filing a fresh application in all
situations and circumstances, thereby barring any amendment,
however material or relevant it may be for the consideration of a
Court, after expiry of the prescribed period of limitation. In fact,
laying emphasis on the very expression “the Courts find that”
applied in Section 34(2)(b) of the 1996 Act, it has been held that the
said provision empowers the Court to grant leave to amend the
Section 34 application if the circumstances of the case so warrant
and it is required in the interest of justice. This is what has been
observed in the preceding paragraph with reference to Section
34(2A) of the 1996 Act.
(Emphasis supplied)
113. Thus, although the pleadings were general, the settled legal
position remains that patent illegality, when apparent on the face of the
award, can be examined even if not specifically pleaded. Section
34(2A) confers power upon the Court to suo moto consider such
illegality, and this jurisdiction extends equally to proceedings under
Section 37, as authoritatively held in Sal Udyog (supra). Therefore, the
absence of a specific plea cannot defeat the Court’s duty to intervene
where the Award is ex facie vitiated by patent illegality.
FAO(OS)(COMM) 210/2022 Page 41 of 57
114. In light of the above discussion, in our considered view, claim
12A has been awarded without any cogent evidence and, therefore,
suffers from patent illegality. The Award, to that extent, is liable to be
set aside.
115. However, the reasoning adopted by the learned Arbitrator in
relation to claim No. 12B does not disclose any perversity, arbitrariness,
or illegality warranting interference. The challenge to claim 12B is,
therefore, rejected.
LIMITATION
116. The next contention urged by the learned Senior Counsel for the
appellant relates to limitation. It was submitted that the impugned award
is ex-facie time barred and therefore, liable to be set aside. According
to the appellant, negotiations between the parties cannot be permitted
to continue indefinitely and there must necessarily be a “breaking
point”, after which the aggrieved party is required to invoke arbitration.
It was argued that, in the present case, such breaking point arose
immediately after 28.01.2009, when the signing of DAA/DAB was
deferred, and that there is no material to show that negotiations
continued, thereafter, until 10.10.2013.
117. In support of this submission, reliance was placed on the
judgment of the Hon’ble Supreme Court in Geo Miller (supra). The
Hon’ble Supreme Court held that, while computing limitation for
invoking arbitration under the A&C Act, the period spent by parties in
bona fide negotiations may be excluded, provided that such
FAO(OS)(COMM) 210/2022 Page 42 of 57
negotiations are real and demonstrable. Importantly, the Court
emphasized that the adjudicating forum may identify the “breaking
point” i.e., the stage at which any reasonable party would conclude that
amicable settlement is no longer possible and would instead proceed to
arbitration. Thus, such breaking point constitutes the date from which
limitation commences.
118. Proceeding on this basis, the appellant contended that after the
DAA/DAB signing was deferred vide letter dated 28.01.2009, there was
no substantive correspondence concerning adjudication of disputes
until the respondent’s letter dated 10.10.2013, whereby execution of the
DAB/DAA was requested. It was, therefore, urged that the limitation
period commenced on 28.01.2009 and expires three years thereafter.
According to the appellant, the respondent, by its conduct, permitted
the claims to become time-barred, remained in prolonged inaction, and
could not thereafter revive limitation by issuing subsequent
correspondence dated 10.10.2013.
119. The learned Senior Counsel for the respondent, however,
controverted this submission and drew our attention to several
communications exchanged between the parties, namely, (i) letter dated
01.09.2011, whereby a formal notice for payment was issued and the
request to proceed with the DAA was reiterated; (ii) letter dated
20.06.2012, intimating a change in staff and operational deployment,
while once again referring to the execution of the DAA; and (iii) the
earlier letter dated 28.01.2009, deferring signing of the DAA. It was
submitted that these communications clearly demonstrate that
negotiations and engagement between the parties were ongoing, and
FAO(OS)(COMM) 210/2022 Page 43 of 57
that there was no definitive “breaking point” as alleged by the appellant.
120. The learned Senior Counsel for the appellant contended that the
aforesaid communications were unrelated to the present dispute and
pertained instead to a separate O&M contract. This submission was,
however, controverted by the learned Senior Counsel for the
respondent, who pointed out that each of the said letters expressly
referred to the same turnkey project and repeatedly requested execution
of the DAA/DAB under that very contract.
121. Upon a careful perusal of the above letters, we find merit in the
respondent’s submission. The letter dated 01.09.2011 specifically urges
the appellant to “At least proceed with signing of DAA”, and is
addressed to the CEO, DJB, with a clear reference to the work order
governing the turnkey project. The scope of the said project itself
encompassed O&M obligations. Hence, said communication cannot be
dissociated or segregated from the disputes forming the subject matter
of the present arbitration.
122. Thus, it is not possible to accept the argument that the letter dated
01.09.2011 pertains to an entirely different contractual arrangement. On
the contrary, it appears to constitute a continuing part of the
negotiations and efforts undertaken by the respondent either to secure
payment or to advance adjudication of disputes through the
contractually agreed DAA/DAB mechanism.
123. Further, the letter dated 28.01.2009 indicates that both parties
remained inclined to resolve the disputes amicably. It records detailed
FAO(OS)(COMM) 210/2022 Page 44 of 57
discussions and a mutual decision to defer execution of the DAA, so as
to enable the issues to be reviewed at an appropriate level. This
communication clearly reflects a continuation of dialogue between the
parties, rather than cessation or termination of negotiations.
124. The subsequent letters dated 01.09.2011 and 20.06.2012 further
reinforce this narrative. Both make reference to the same work order
dated 30.09.2003 and repeatedly call upon the appellant to proceed with
DAA execution. These communications, taken together, demonstrate a
sustained and consistent effort on the part of the respondent to invoke
and operationalise the contractual dispute resolution mechanism, and
cannot be characterised either as isolated demands or as relating to a
distinct or independent contractual arrangement.
125. Equally significantly is the absence of any categorical rejection
by the appellant. There is no material indicating that the appellant
refused to sign the DAA or conclusively denied its liability in respect
of the disputes raised. In the absence of such an unequivocal
repudiation, the correspondence demonstrates that the parties continued
negotiations and remained engaged in addressing disputes.
Consequently, no clear or identifiable “breaking point” emerges from
the record so as to trigger the commencement of limitation.
126. Moreover, under the contractual framework, the parties had
expressly agreed that disputes would first be addressed through the
DAB mechanism before arbitration could be invoked. Where parties
consciously adopt such a tiered or staged dispute resolution, the cause
of action to invoke arbitration ordinarily arises only upon exhaustion,
FAO(OS)(COMM) 210/2022 Page 45 of 57
or failure of the stipulated pre-conditions. The contractual intent,
therefore, was that limitation would commence only upon the
breakdown, dissolution, or failure of the DAB process, and not prior
thereto.
127. The learned Single Judge has rightly observed that the award is
not vitiated by patent illegality on the question of limitation. The
respondent was consistently pursuing the agreed dispute resolution
process, and the right to seek arbitration arose only upon fulfilment of
contractual pre-conditions.
128. In light of the above discussion, and applying the principles
enunciated by the Hon’ble Supreme Court in Geo Miller (supra) and
other binding precedents, we find no perversity or illegality in the view
taken by the learned Single Judge. Accordingly, no ground is made out
to interfere with the finding on limitation.
FINANCING CHARGES
129. The learned Senior Counsel for the appellant contended that the
Contract envisages “Financing Charges” strictly within the limited
contingency contemplated under Clause 14.8, namely delayed payment
of amounts duly certified under the contractual mechanism. It was
urged that clause 14.8 cannot be read in isolation, but must necessarily
be construed in conjunction with Clauses 14.3, 14.6 and 14.7, which
together prescribe a mandatory sequence for submission of monthly
Statements by the Contractor, examination by the Engineer, and
FAO(OS)(COMM) 210/2022 Page 46 of 57
issuance of IPCs. In the absence of this contractual process, no
crystallised liability can be said to arise, and therefore, no financing
charges can be fastened upon the Employer.
130. It was further argued that, in the present case, the respondent
neither pleaded nor proved compliance with Clause 14.3, nor produced
any Applications for IPCs or the IPCs themselves as contemplated
under Clause 14.6. Instead reliance was placed on self-generated charts
and unilateral computations. In the absence of proof of certification, it
was urged that the learned Arbitral Tribunal erred in awarding financing
charges across multiple claims, thereby travelling beyond the four
corners of the Contract and granting amounts unsupported by evidence,
resulting in a manifest miscarriage of justice.
131. Before considering this contention, reference may be made to the
judgment of the Hon’ble Supreme Court in M/s. Hindustan
Construction Company Ltd. v. M/s NHAI
50
, which underscores the
settled principles that courts ordinarily refrain from re-examining
contractual interpretation by an arbitrator. While reiterating this
position, the Hon’ble Supreme Court referred to the judgment of
Associate Builders (supra), wherein it was held that the construction of
contractual terms is primarily for the arbitral tribunal, and that if the
arbitrator adopts a reasonable interpretation of the contract, the award
cannot be set aside merely because another view is possible. It was
further observed that interference is warranted where the interpretation
is so irrational or implausible that no fair-minded or reasonable person
50
(2024) 2 SCC 613
FAO(OS)(COMM) 210/2022 Page 47 of 57
could have arrived at such a conclusion.
132. Further, in PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees
of V.O. Chidambranar Port Trust
51
, the Hon’ble Supreme Court
emphasised that an arbitral tribunal is bound by the contractual
framework agreed upon by the parties. The Court held that where an
award proceeds on a basis that effectively alters or rewrites the contract,
such an exercise violates fundamental principles of justice. Interference
by the Court is warranted in such cases, as the award would fall within
the exceptional category of decisions that shock the judicial conscience
and thereby attract scrutiny under the limited grounds available for
setting aside an arbitral award.
133. Bearing this position in mind, the relevant contractual provisions
regarding financing charges merit close scrutiny, and are accordingly
reproduced hereinafter:
"14.3 Application for Interim Payment Certificate:
The Contractor shall submit a statement in six copies to the
Engineer after the end of each month, in a form approved by the
Engineer, showing in detail the amounts to which the Contractor
considers himself to be entitled, together with supporting
documents which shall include the report on the progress during
this month in accordance with Sub- Clause 4.21 [Progress
Reports].
The statement shall include the following items, as applicable,
which shall be expressed in the various currencies in which the
Contract Price is payable, in the sequence listed:
a) the estimated contract value of the works executed and the
Contractor's documents produced up to the end of the month
(including variations but excluding items described in
subparagraphs (b) to (g) below);
51
(2023) 15 SCC 781
FAO(OS)(COMM) 210/2022 Page 48 of 57
b) any amounts to be added and deducted for changes in legislation
and changes in cost, in accordance with Sub- Clause 13.7
[Adjustments for changes in Legislation] and Sub-Clause 13.8
[Adjustments for changes in Cost];
c) any amount to be deducted for retention, calculated by applying
the percentage of retention stated in the Appendix to Tender to the
total of the above amounts, until the amount so retained by the
Employer reaches the limit of Retention Money (if any) stated in the
Appendix to Tender;
d) any amounts to be added and deducted for the advance payment
and repayments in accordance with Sub-Clause 14.2 [Advance
Payment];
e) any amounts to be added and deducted for Plant and Materials
in accordance with Sub-Clause 14.5 [Plant and Materials intended
for the Works];
f) any other additions or deductions which may have become due
under the Contract or otherwise, including those under Clause 20
[Claims, Disputes and Arbitration];
Sub-Clause 14.6:Issue of Interim Payment Certificates: …..The
Engineer may in any Payment certificate make any correction or
modification that should properly be made to any previous Payment
Certificate....
"14.7 Payment:
The Employer shall pay to the Contractor:
a) the first instalment of the advance payment within 42 days after
issuing the Letter of Acceptance or within 21 days after receiving
the documents in accordance with Sub- Clause 4.2 [Performance
Security] and Sub-Clause 14.2 [Advance Payment], whichever is
later;
b) the amount certified in each interim Payment Certificate within
56 days after the Engineer receives the Statement and supporting
documents; and
FAO(OS)(COMM) 210/2022 Page 49 of 57
c) the amount certified in the Final payment Certificate within 56
days after the Employer receives this Payment Certificate.
Payment of the amount due in each currency shall be made
into the bank account, nominated by the Contractor, in the
payment country (for this currency) specified in the Contract. "
"14.8: Delayed Payment:
If the Contractor does not receive payment in accordance with Sub-
Clause 14.7 [Payment], the Contractor shall be entitled to receive
financing charges compounded monthly on the amount unpaid
during the period of delay. This period shall be deemed to commence
on the date for specified in Sub-Clause 14.7 [Payment], irrespective
(in the case of its sub-paragraph (b)) of the date on which any
Interim Payment Certificate is issued.
Unless otherwise stated in the Particular Conditions, these
financing charges shall be calculated at the annual rate of three
percentage points above the discount rate of the central bank in the
country of the currency of payment, and shall be paid in such
currency.
The Contractor shall be entitled to this payment without formal
notice or certification and without prejudice to any other right or
remedy. "
134. The learned Arbitral Tribunal proceeded on the premise that
entitlement to financing charges under clause 14.8 extends beyond
admitted or certified amounts and may include all sums that could
notionally fall within clause 14.3(a) to (g). On this basis, it held that
once an amount is said to fall within clauses 14.3, any delay in payment
beyond the period stipulated under clause 14.7 would automatically
attracts financing charges.
135. Such an approach, however, overlooks the plain structure and
scheme of the contract. Clauses 14.3, 14.6 and 14.7, when read together,
establish a clear and sequential framework: (i) submission of a
FAO(OS)(COMM) 210/2022 Page 50 of 57
Statement by the Contractor, (ii) examination and determination by the
Engineer, and (iii) certification of the determined amount through an
IPCs. It is only upon such certification that the Employer’s obligation
to make payment crystallises, and clause 14.7 merely governs the time
frame for discharge of this crystallised obligation.
136. Clause 14.3, properly construed, serves only to identify the
categories or heads of claims that may be included in a Statement
submitted for scrutiny; it does not, by itself, render any amount due or
payable. To construe clause 14.3 as creating an automatic entitlement
to payment would convert tentative and unverified claims into
enforceable liabilities, thereby undermining the very purpose of
examination and certification by the appellant mandated under clause
14.6.
137. Even in respect to the release of advance payment, there is a
contractual pre-condition for compliance under clause 14.2 which
mandates the submission of a statement and the issuance of an IPCs.
The clause provides that only after the contractor submits a statement
under clause 14.3 and after the employer receives both the performance
security and the advance payment guarantee, the Engineer “shall issue
an interim payment certificate for the first instalment” after which such
amount becomes due.
138. Further, the concluding words of clause 14.8, referring to the levy
of financing charges “without formal notice or certification”, cannot be
read as dispensing with the requirement of certification altogether. The
said phrase operates only after the underlying sum has already attained
FAO(OS)(COMM) 210/2022 Page 51 of 57
the status of an amount lawfully payable under the contract. It merely
obviates the need of issuing further procedural notices once liability has
stood crystallised. To construe this phrase as creating an independent
or substantive entitlement to financing charges would amount to a re-
writing of the Contract, which is impermissible at this stage.
139. Consequently, in the absence of certification or determination by
the Engineer, there can be no concluded or crystallised liability, and
therefore, no legal basis for imposition of financing charges in the
impugned award. The expression “irrespective of the date on which any
Interim Payment Certificate is issued”, cannot be construed as
legitimising claims that were never subjected to the certification
process. Its true purpose is only to guard against deliberate or undue
administrative delay in issuing certificates after the entitlement has
otherwise been determined.
140. Therefore, award of financing charges provided under clauses
14.7 and 14.8 apply only to amounts actually admitted or certified in
accordance with the Contract by the appellant and not to the disputed/
revised claims on which liability was affixed on the appellant at the later
stage by the learned Arbitrator in exercise of its power provided under
clause 20.6. The absence of certification is fatal to any claim for
financing charges. Any broader interpretation would expose the
Employer to financing charges revised, unverified or disputed claims
later affixed on the appellant, a consequence clearly not contemplated
by the parties at the time of contract.
141. Having accepted the principle that financing charges under
FAO(OS)(COMM) 210/2022 Page 52 of 57
clause 14.8 are payable only in respect of admitted or certified amounts,
the learned Single Judge could not have upheld the award of financing
charges on amounts which admittedly stood not certified under the
contractual mechanism. As per the contract, financing charges are
triggered by delay in payment of certified dues, not by delay in
processing of the claims that were never certified.
142. The learned Single Judge permits the levy of financing charges
in circumstances not contemplated by clause 14, and thereby extends
the contractual obligation of the employer on the payments that ought
to be paid. Such an approach is not protected by the principle of judicial
restraint under Section 34, as it results in enforcement of a liability
outside the four corners of the contract.
143. Viewed in this backdrop, the interpretation adopted by the
learned Arbitral Tribunal disregards the mandatory certification
requirement, impermissibly expands clause 14.8 beyond its legitimate
scope, and results in awarding financing charges on amounts that never
crystallised into payable sums. Such an interpretation runs contrary to
the plain contractual text and offends the settled principle that an
arbitrator cannot rewrite the commercial bargain between the parties.
144. The impugned award, therefore, suffers from patent illegality
going to the root of the matter. By granting financing charges without
proof of certification or crystallised liability, the learned Arbitral
Tribunal has effectively dispensed with a mandatory contractual pre-
conditions of submission of application and certification provided in the
contract for the purpose of financing charges. Such an approach does
FAO(OS)(COMM) 210/2022 Page 53 of 57
not amount to a mere erroneous interpretation but adopting an
interpretation that specifically disregards the mandatory pre-conditions
provided in the contract. The impugned award, to that extent, warrants
interference of this Court, and the financing charges so awarded are
liable to be set aside.
145. Claim 9B pertains to financing charges on delayed payments.
The requisite bills were shown to be submitted, and the appellant raised
objections only with respect to the dates of submission of the bills. The
learned Arbitrator examined both the dates of submission of the bills
and the dates on which payments were released and found that
payments were not made within the timelines stipulated under the
contract, which timelines were not themselves in dispute. Since the
amounts were admittedly paid, the underline liability stood accepted,
leaving only a factual dispute regarding the relevant dates of procedural
compliance. In these circumstances, the learned Arbitrator rightly
awarded financing charges in accordance with the contract after
verifying the relevant dates, which warrants no interference by this
Court.
CONCLUSION
146. Insofar as claim 12A is concerned, this Court finds that the
conclusions returned by the learned Arbitral Tribunal are not founded
on any reliable or cogent evidence. The respondent has rested its claim
entirely on certain certificates purportedly issued by a Chartered
Accountant. A bare perusal of these certificates reveals that they merely
acknowledge the discharge of tax liabilities by the respondent and
record receipt of payments. They neither disclose the factual substratum
FAO(OS)(COMM) 210/2022 Page 54 of 57
of the claim nor explain the methodology adopted for computing the
amounts so certified.
147. The said certificates do not reveal the source data, underlying
books of accounts, ledgers, vouchers or any contemporaneous records
from which the figures were derived. Significantly, the Chartered
Accountant who issued the certificates was also not examined as a
witness, thereby depriving the appellant of an opportunity to test the
veracity and correctness of the contents through cross-examination. In
the absence of production of primary documentary material, the learned
Arbitral Tribunal’s implicit presumption that such certificates
constituted reliable proof of expenditure amounts, in law, to treating
“no evidence” as evidence.
148. In these circumstances, the learned Arbitral Tribunal’s
acceptance of such untested, unreasoned and unsupported certificates is
clearly unsustainable. The finding rendered in respect of Claim 12A,
therefore, stands vitiated as perverse, being based on no admissible or
legally acceptable evidence, and falls foul of the test of patent illegality
as elucidated by the Hon’ble Supreme Court in a catena of decisions.
Accordingly, the award, to that extent, warrants interference and is
liable to be set aside.
149. Turning to claim 12B, this Court finds no infirmity warranting
interference. The learned Arbitral Tribunal has recorded a clear finding,
based on the material on record, that the contract period stood extended
and that the respondent suffered consequential prolongation costs,
including extended overheads. The learned sole Arbitrator adopted a
FAO(OS)(COMM) 210/2022 Page 55 of 57
pragmatic approach by granting compensation calculated at 5% of the
value of work remaining beyond the stipulated date of completion,
which constitutes a rational and permissible method of quantification in
the facts of the case.
150. It is settled law that the arbitral forum is the final judge of the
quality and quantity of evidence, as well as the methodology adopted
for computation, and that courts exercising jurisdiction under Section
37 do not sit in appeal so as to substitute their own assessment merely
because another view is possible. Unless the quantification adopted is
demonstrated to be patently arbitrary, irrational or shocking to judicial
conscience, interference is impermissible. The impugned award insofar
as claim no. 12B is concerned is reasoned, proportionate, and firmly
anchored in the material placed before the learned Arbitral Tribunal,
and therefore merits affirmation.
151. The objection based on limitation is equally devoid of merit. The
record reveals continuous correspondence and ongoing engagement
between the parties, evidencing a clear intent to resolve the outstanding
issues, rather than to treat them as finally repudiated. In particular, the
letters dated 01.09.2011 and 20.06.2012 demonstrate that the disputes
remained alive and under active consideration. In the absence of a clear
and unequivocal repudiation, the limitation period cannot be said to
have commenced in the manner urged by the appellant. The plea of
limitation is, accordingly, rejected.
152. Lastly, with respect to financing charges, this Court finds that the
learned Arbitral Tribunal has failed to appreciate the contractual
FAO(OS)(COMM) 210/2022 Page 56 of 57
framework and the evidence on record in its proper perspective. The
award proceeds on an erroneous assumption that financing charges
were recoverable as matter of course, despite the absence of any express
contractual provision permitting such recovery in the circumstances
obtaining in the present case. By treating such charges as a natural or
consequential component of compensation, the learned Arbitral
Tribunal has, in effect, re-written the commercial bargain between the
parties, which is impermissible in law. Further, the learned Single
Judge, despite recording that financing charges were payable only in
respect of admitted or certified amounts, erred in upholding the award
of such charges.
153. Under Section 37, although the jurisdiction of this Court is
supervisory, interference is warranted where the award suffers from
perversity or patent illegality apparent on the face of the record. In the
present case, the learned Arbitral Tribunal’s conclusion on financing
charges is contrary to the express terms of the Contract and is
unsupported by any evidence demonstrating an agreed entitlement to
such charges. Where the learned Arbitral Tribunal travels outside the
four corners of the contract and awards sums not legally due, the error
amounts to patent illegality and a jurisdictional transgression. In such
circumstances, the limited supervisory jurisdiction of this Court stands
squarely attracted.
154. The grant of financing charges, therefore, cannot be sustained
and is liable to be set aside.
155. In view of the foregoing discussion, the portion of the award
FAO(OS)(COMM) 210/2022 Page 57 of 57
insofar as it relates to claim 12A and financing charges is held to be
unsustainable and is accordingly set aside.
156. Save and except the above interference, the remaining findings
and directions contained in the award are found to be lawful, reasoned
and within the jurisdiction of the learned Arbitral Tribunal, and
therefore call for no interference.
157. The appeal is, therefore, partly allowed in the aforesaid terms. No
order as to costs.
OM PRAKASH SHUKLA, J .
C. HARI SHANKAR, J.
JANUARY 12, 2026/rjd/gunn/pa
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