Airports Authority Of India vs Vidya Infrabuilt Pvt Ltd
- Court
- Delhi High Court
$~22
* IN THE HIGH COURT OF DELHI AT NEW DELHI
# CNR No. DLHC010593122023
+ O.M.P. (COMM) 40/2024 & I.A. 1326/2024
AIRPORTS AUTHORITY OF INDIA .....Petitioner
Through: Mr. Digvijay Rai, SC with Mr.
Archit Mishra, Mr. Gagan
Kochar, Senior Manager (Law)-
AAI.
versus
VIDYA INFRABUILT PVT LTD .....Respondent
Through: Mr. Pulkit Gupta, Mr. Pranshu
Paul, Mr. Karan Jain, Advs.
CORAM:
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT(ORAL)
% 27.10.2026
1. The present petition has been filed under Section 34 of the
1
Arbitration and Conciliation Act, 1996 , challenging the arbitral award
2
dated 20.09.2023 passed by the learned Sole Arbitrator for disputes
between the parties.
3
2. The Petitioner is the Airports Authority of India , i.e., a
statutory body constituted by virtue of the Airports Authority of India
Act of 1994; whereas the Respondent is engaged in the business of
infrastructure development.
3. By way of the impugned award, the learned Arbitrator awarded
Rs. 1.41 crores (approx.) in favour of the Respondent by allowing 11
out of 18 claims preferred by the Respondent.
1
“Act” hereinafter
2
“impugned award” alternatively
3
“AAI” hereinafter
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TRIPATHI
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4. The learned Arbitrator primarily held that the work was delayed
on account of AAI since it failed to provide the work fronts in a
continuous and obstruction-free manner to the Respondent in
accordance with the contract and that some segments were even
provided after the stipulated date of completion. The learned
Arbitrator placed reliance on Clause 15.1 of the Special Conditions of
Contract (“SCC”) which explicitly stipulated that the worksite
belonged to AAI.
5. The brief factual backdrop of the matter is captured in the
following paragraphs.
6. AAI floated e-tenders dated 23.03.2016 for “Extension of
Runway and Strengthening/ Resurfacing of existing Runway along
with Constitution of Isolation Bay, Pavement against Blast Erosion &
RESA and other allied works at Rajahmundry Airport. SH:
4
Construction of Operational Wall and Property Boundary Wall” .
7. The Respondent’s bid came to be accepted by letter of award
dated 07.08.2016 with the contract price of Rs. 19,33,61,080. The
completion date was envisaged to be 06.11.2017 (as recorded by the
learned Arbitrator). A formal contract in this regard came to be
executed on 12.08.2016, whereby 06.11.2017 was the stipulated date
of completion.
8. It is borne from the record that on 30.08.2016, the Respondent
sent a Time Chart/Bar Chart to AAI setting out the intended sequence
4
“work” or “project” hereinafter
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TRIPATHI
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of the work, which was purportedly in a continuous and streamline
manner and not in isolated patches. In this regard, the Respondent also
wrote to AAI on 14.09.2016 and 28.09.2016 seeking reference points
for initiating the work. However, as maintained by the Respondent, it
was only after a meeting held on 03.10.2016, that AAI informed the
Respondent to begin the process of demarcating the boundary wall for
the project. In this regard, a joint survey was conducted on
06.10.2016.
9. It further appears from the record that the work was extended
by AAI. It issued a completion certificate dated 10.04.2019. The gross
value of the completed work, including escalation and GST was
recorded as Rs.24,23,29,016/-. However, AAI subsequently foreclosed
the contract and declared the work as complete as on 28.09.2018.
10. Resultingly, the Respondent sought to invoke arbitration
aggrieved by the failure of AAI to provide complete and unhindered
work site, resulting in loss to the Respondent. The Respondent was
also aggrieved by inter alia the purported change and reduction in the
scope of work by AAI along with foreclosure of the contract and delay
in payment of the final bill.
11. AAI, on the other hand, maintained before the learned
Arbitrator that the non-availability of land was because of litigation
and certain other third-party obstructions which were beyond its
control and hence, it extended the time for completion without levy of
any compensation by letter dated 04.04.2019. In this regard, AAI
placed reliance on a letter dated 20.03.2017 by the District Magistrate,
East Godavari District to the Superintending Engineer, Irrigation,
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TRIPATHI
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Dowleswaram stating that the Pushkara canal and its distributaries
posed as a major hindrance. It was further made out that AAI had paid
Rs. 24,23,29,016/- including escalation and GST to the Respondent,
which was undoubtedly more than the contract price and that this final
amount was accepted by the Respondent on 23.05.2019 without any
protest. Pertinently, AAI maintained that as per Clause 18 and
Schedule F of the contract, it was the contractual responsibility of the
Respondent to arrange and deploy the requisite machinery. Reliance
was also placed on Clause 12 of the General Conditions of Contract
(“GCC”), to contend that the change in scope of work was
contractually permissible. It also sought to justify the foreclosure with
reference to Clause 13 of GCC. AAI contended that the Respondent
invoked arbitration in 2021, i.e., after two years, only as an
afterthought. Additionally, AAI purported that recovery of
mobilization advance was rescheduled at the request of the
Respondent itself.
12. Accordingly, the learned Arbitrator came to allow 11 of the 18
claims raised by the Respondent. It framed two issues, as follows:
(i) “ Whether the delay in the execution of the contract works
was occasioned due to non-availability of contiguous
stretches of land as per the time charge submitted by the
claimant to the respondent on 30.08.2016?” Decided in
favour of the Respondent herein.
(ii) “Whether the claimant executed the works and maintained
the office and the staff till March 2019?” Decided in
favour of AAI.
13. The learned Arbitrator held that AAI made available the
worksite in fragments, some of which were also separated by
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considerable distance. Further, it was found that some portions of the
site were handed over to the Respondent after the stipulated
completion date. It was observed that AAI sought to attribute the
delay to the State Government of Andhra Pradesh, however, the
learned Arbitrator placed reliance upon Clause 15.1 of SCC which
stipulated that the worksite indeed belonged to AAI. Accordingly, it
was found that such a representation was binding upon AAI.
14. The learned Arbitrator rejected the claim of the Respondent that
it remained deployed at the worksite until March 2019 on the ground
that there was no evidence establishing that any further construction
was executed after the foreclosure. It observed that the last recorded
diesel purchase was dated 16.09.2018 and that while other
documentary evidence demonstrated that machinery charges extended
to different dates such as December 2018, however, the same was not
sufficient to establish that construction continue till March 2019. It
was also observed that the Director’s residence was paid till
November 2018. Notably, the Employees Provident Fund
contributions and certain salary records continued into March 2019. In
this regard, the learned Arbitrator found that permanent employees
could in fact remain on a contractor’s roles, even after the site
operations cease.
15. In this view of the matter, the learned Arbitrator went on to
individually examine the monetary claims and rendered the following
award:
s
Monetary Claims Raised by the Claimant
Claim Nature of Claim Amount (₹) Awarded
Amount
A Salaries and wages during extended
contract period
50,01,465 INR
42,80,690.00
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B Rent paid during extended period 1,96,417 INR
1,96,417.00
C Cost of extending two bank guarantees 7,86,260 INR
3,33,913.00
D Interest paid on margin money deposited
with banks
8,15,281 Nil
E Insurance premium for extended period 3,79,654 INR
13,335.00
F Interest paid on mobilisation advance 18,88,134 Nil
G TDS amount allegedly not credited 64,636 Nil
H Increase in material prices during
extended period
37,69,853 INR
34,67,401.00
I Loss of bulk purchase discount 17,05,175 Nil
J Additional travelling expenses 5,49,703 Nil
K Increase in diesel prices 9,17,524 INR
9,17,524.00
L Machinery deployed during extended
period
51,70,000 Nil
M Hiring of additional machinery 13,94,407 INR
5,88,074.00
N Hiring of additional machinery during
2017-2019
25,01,902 INR
24,04,969.00
O Hiring charges for trolleys and tankers
due to scattered work front
20,77,983 INR
20,77,983.00
P Loss of opportunity/profit calculated at
10% of receipts
2,01,19,671 Nil
Q Interest on claims up to filing of
Statement of Claim
3,65,11,218 “simple
interest @
8% per
annum from
01.12.2018
till date of
payment
should be
paid by the
Respondent
to the
Claimant”
R Pendente lite and post-award interest at
18% per annum with monthly rests
Not quantified
16. Succinctly put, Claim A regarding salaries and wages was
allowed up to 25.10.2018, with the reasoning that since Issue No. (ii)
was decided against the Respondent, the salaries could not be
reimbursed after October 2018. However, it considered that a few
days after the date of foreclosure i.e., 25.10.2018, was reasonable to
wind up the affairs. The salaries claimed for November 2018 into
March 2019 were rejected. Claim B was allowed since the record
supported extension of the Director’s resident rent till November
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2018. It was found that approximately one month from the foreclosure
was a reasonable period for vacating the premises.
17. Claim C was allowed to a certain extent observing that AAI’s
delay, necessitated extension of the bank guarantees beyond the
original contractual period, while also excluding certain charges
pertaining to the defect liability period of the bank guarantees. Claim
D was rejected since the financial loss was not established. Claim E
was partly allowed, to the extent of expenditure pertaining to the
workmen’s compensation insurance, especially since both the
compensation policies were taken before the contract was foreclosed.
18. Claim F for interest on mobilization advance was rejected since
it was observed that the Respondent only sought such recovery from
the fourth and fifth RA bills, and it was reasoned that the Respondent
could have sought the recovery from the earlier bills; however, the
failure to do so was considered to be indicative of an understanding
between the parties that the recovery could be deferred. Claim G
regarding TDS was also rejected.
19. Claim H concerning escalation during the extended contract
period was substantially allowed. In this regard, AAI had relied on
Clause 10CA which permitted lower of the two indices to be adopted.
With respect to the time. Up to November 2017, the learned Arbitrator
held that AAI was entitled to correct its calculations by applying lower
indices as per Clause 10CA. However, for November 2017 into
October 2018, it was held that AAI could not freeze the indices at
November 2017 for the work undertaken during the extended period.
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TRIPATHI
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The learned Arbitrator, in this regard, examined monthly indices for
cement and steel to arrive at its own computation by relying on the
quantities of cement and steel stipulated in the Respondent’s
tabulation, since these quantities were not disputed by AAI.
20. Claim I was rejected on account of lack of sufficient evidence.
Claim J was rejected due to lack of corroborative material. Claim K
for increase in diesel prices came to be allowed in its entirety in view
of breach of the contract. Claim L for machinery deployed at the site
was rejected due to lack of evidence and since the last recorded diesel
purchase was on 16.09.2018. Claim M was partly allowed for hiring
charges of additional machinery based on the invoices placed on
record by the Respondent. The learned Arbitrator excluded the
expenses attributable to the original contractual period. Claim N was
also substantially allowed based on the invoices brought on record, the
invoices pertaining to expenditure preceding the completion date were
excluded. It was observed that certain expenditure after the
foreclosure could still be recoverable since the contractor may have
already undertaken binding commitments with third parties.
21. Claim O was allowed in full. Claim P was rejected for warrant
of corroboration and proof. Under Claim Q, for pre-award interest, the
learned Arbitrator directed payment of simple interest at 8% per
annum from 01.12.2018 till the date of payment.
22. Aggrieved thereby, AAI preferred the instant objection petition.
Submissions
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TRIPATHI
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23. At the outset, Mr. Digvijay Rai, learned Standing Counsel
appearing for the AAI, submitted that he is not pressing its challenge
to Claims A and E. It was submitted that Mr. Rai largely seeks to
challenge Claims H, M, and O; whereas the learned Counsel
appearing for the Respondent has candidly conceded that Claim C
may be set aside.
24. Mr. Rai submitted that in 27.09.2018, the Respondent itself
contacted AAI informing that 98% work was completed and
requesting if AAI could give the remaining 2% land. Accordingly,
taking cognizance of this letter, extension was granted without any
damages. However, on 25.10.2018, the work was foreclosed from
28.09.2018 because the said 2% land was not given to the Respondent.
It was further highlighted that when the Respondent filed its claims
after 2 years, it filed for March 2019.
25. Learned Standing Counsel submitted that the final bill was
settled in April 2019, for which AAI paid Rs. 24 crores (approx.) with
escalation, which undoubtedly exceeded the contract price of Rs. 19
crores (approx.). Mr. Rai stressed that the Respondent did not protest
this at the time, however, in July 2021, the Respondent invoked the
dispute resolution clause without specifying its claims or grievance
etc. It was further submitted that the learned Arbitrator only did not
address the issue that the final bill was already paid with escalation
charges.
26. Mr. Rai highlighted that the land of the Rajahmundry Airport in
Andhra Pradesh was to be handed over by the Government of Andhra
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5
Pradesh as per a Memorandum of Understanding and that it was on
the strength of the said MOU that AAI floated its tender.
27. Qua Claim B, it was submitted that Respondent maintained
before learned Arbitrator there was understanding between AAI and
itself due to which AAI undertook to reimburse charges of the
Respondent’s Director. This understanding, it was submitted, was
devoid of any evidence and hence, baseless.
28. Apropos Claim H for escalation, it was submitted that there
were two escalation bills, one for Rs. 4 lakhs and the other for Rs. 29
lakhs. It was submitted that AAI paid escalation to Respondent,
however, once it realised that it overpaid the Respondent, it conducted
an audit and recovered Rs. 36 lakhs. Learned Standing Counsel
submitted that the learned Arbitrator, in this regard, adopted a
methodology alien to the contract, which renders the award liable to
be set aside on account of patent illegality.
29. Regarding Claim K, Mr. Rai disputed the quantity of diesel
utilised by the Respondent and argued that this claim was wrongly
allowed despite deletion of Clause 10CC from the contract. Reliance
was also placed on the Respondent’s letter dated 27.12.2018, whereby
it undertook that it would not claim escalation under the said Clause
for the extended period till 20.09.2018.
30. Mr. Rai also challenged Claims M and N on the ground that the
contract required the contractor to provide equipment and machinery
and the invoices did not, by themselves, prove that the expenditure
5
“MOU” hereinafter
Signed By:ANUBHAV
TRIPATHI
Signing Date:06.11.2026
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was additional, necessary or caused by the alleged delay. He
submitted that the contractor did not show that the equipment could
not be used elsewhere.
31. With respect to Claim O, Mr. Rai placed reliance on the learned
Arbitrator’s own observation that there was no pleading to the effect
as to how many tankers, tractors and trolleys would have been
required if the work fronts are made available continuously. It was
argued that despite identifying such deficiency in the pleadings of the
Respondent, the learned Arbitrator allowed the full amount on a
different basis, particularly that the expenditure was incurred during
the extended period. Mr. Rai also contended that the interest awarded
could not survive to the extent that the underlying claims are set aside.
Therefore, according to Mr. Rai, the direction for 8% interest p.a.
must be confined to the claims being held legally tenable.
32. Per contra , learned Counsel for the Respondent supported the
impugned award, save for Claim C.
33. The learned Counsel submitted Claim B pertaining to rent was
an ordinary cost incurred within the stipulated contract period which
was supported by invoices, which the learned Arbitrator found to be
cogent. According to the learned Counsel, interference with the said
claim would amount to re-appreciation of evidence, impermissible
under Section 34.
34. With respect to Claim H, it was submitted that Clause 10CA
provides for variation in the contract prices which is entirely different
from damages. The quantities and the indices were entirely taken from
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the record itself and not extraneous at all. It was submitted that the
indices were taken from notifications of the Government and PWD
and that the learned Arbitrator found that the quantities were not
disputed by AAI. This, according to the learned Counsel, was purely a
finding of fact by the learned Arbitrator, which cannot be interfered
with.
35. Learned Counsel submitted that Claim K warranted no
interference. It was submitted that this Claim arose from breach of
contract, therefore, the deletion of Clause 10CC did not adversely
6
impact the claim. Reliance was placed on AAI v. URC Construction ,
to submit that damages could be duly sought and it was the
prerogative of the Respondent that it chose to seek damages as per
Clause 10CA. The same would not mean that Clause 10CA was
applicable in the form of a contractual entitlement for price variation.
36. It was further argued that AAI’s contention that they did not
object to the final bill of 2019 was belied in view of the fact that AAI
itself conducted an audit and raised a new bill in 19.11.2020. Reliance
7
was placed on Bharat Coking Coal Ltd. v. Annapurna Construction .
37. Related to Claims M, N and O, the learned Counsel submitted
that the claims were supported by invoices, bank records and the
documentary material. The learned Arbitrator allowed the claims only
for the periods and amounts that were proven and rejected other parts
of the claims. Therefore, these claims warrant no interference under
6
OMP (COMM.) 348/2019 , decided on 09.02.2026; paras 117 to 119
7
(2003) 8 SCC 154
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Section 34 of the Act. It was further averred that the findings were
entirely factual and the same came to allowed due to prolongation of
the contract, simply because, had the contract not been extended, these
costs would not have been incurred. Reliance was placed on Section
8
55 of the Indian Contract Act, 1872 .
38. In rebuttal, Mr. Rai submitted that the arbitral award shall speak
for itself and the Respondent cannot give it an entirely different
construction. It was submitted that learned Arbitrator did not refer to
Section 73 of the Indian Contract Act of 1872 at all and only refers to
Section 55, which does not deal with damages. Apropos Claim H, it
was submitted that if the Respondent was only claiming damages then
there was no occasion to rely on the escalation clause in its Statement
of Claim and seek Rs. 37 lakhs in furtherance thereof. It was also
submitted with regard to Claim H that the learned Arbitrator rendered
contradictory findings. By placing reliance on para 9(xviii) of the
impugned award, it was averred that the learned Arbitrator could not
filled in the lacunae in the pleadings of the Respondent. Reliance was
placed on a decision of this Court in NHAI v. Larsen and Tourbo
9
Ltd. .
39. It was also averred that the reliance placed on AAI (supra) was
of no avail since an appeal was pending against the said decision.
Analysis and Reasoning
40. I have heard the learned Counsel for the parties and perused
8
“ICA” hereinafter
9
OMP (COMM.) 363/2022 , decided on 17.10.2025
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material on record.
41. Before proceeding further, it is pertinent to note at this stage
that on account of the waiver of Claims A, C and E, the controversy
that remains is whether the impugned award under Claims B, H, K, M,
N and O and the consequential direction for interest, disclose any
ground for interference under Section 34 of the Act.
42. This Court is conscious that these proceedings are not an appeal
against the impugned award. This Court will neither re-appreciate
evidence nor will it substitute the award merely because another view
is plausible. Interference will only be warranted if the impugned
award satisfies the grounds prescribed by Section 34 of the Act.
Pertinently, the Arbitral Tribunal derives its authority from the
arbitration agreement and must decide the dispute in accordance with
the contract and the law. However, mere incorrect application of law
is not sufficient for this Court to intervene, such infirmity must travel
to the root of the dispute.
43. An arbitral award that ignores an express contractual
stipulation, rewrites the contractual bargain, or grants compensation in
a manner that is impossible to reconcile with the contract may be
riddled with patent illegality as stipulated in Section 34 of the Act.
44. In OPG Power Generation (P) Ltd. v. Enexio Power Cooling
10
Solutions (India) (P) Ltd. , the Hon’ble Supreme Court articulated
the grounds to challenge an arbitral award, as follows:
10
(2025) 2 SCC 417
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“ Patent illegality
65. Sub-section (2-A) of Section 34 of the 1996 Act, which was
inserted by the 2015 Amendment, provides that an arbitral award
not arising out of international commercial arbitrations, may also
be set aside by the Court, if the Court finds that the award is
visited by patent illegality appearing on the face of the award. The
proviso to sub-section (2-A) states that an award shall not be set
aside merely on the ground of an erroneous application of the law
or by reappreciation of evidence.
66. In Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705] , while dealing with the phrase “public policy of India” as
used in Section 34, this Court took the view that the concept of
public policy connotes some matter which concerns public good
and public interest. If the award, on the face of it, patently
violates statutory provisions, it cannot be said to be in public
interest. Thus, an award could also be set aside if it is patently
illegal. It was, however, clarified that illegality must go to the root
of the matter and if the illegality is of trivial nature , it cannot be
held that award is against public policy.
67. In Associate Builders [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204] , this Court held that an award
would be patently illegal, if it is contrary to :
(a) substantive provisions of law of India;
(b) provisions of the 1996 Act; and
(c) terms of the contract [See also three-Judge Bench decision
of this Court in State of Chhattisgarh v. SAL Udyog (P) Ltd .,
(2022) 2 SCC 275 : (2022) 2 SCC (Civ) 776].
The Court clarified that if an award is contrary to the substantive
provisions of law of India, in effect, it is in contravention of Section
28(1)(a) [“28. Rules applicable to substance of dispute.—(1)
Where the place of arbitration is situated in India—(a) in an
arbitration other than an international commercial arbitration, the
Arbitral Tribunal shall decide the dispute submitted to arbitration
in accordance with the substantive law for the time being in force
in India;(2)(3) While deciding and making an award, the
Arbitral Tribunal shall, in all cases, take into account the terms of
the contract and trade usages applicable to the transaction.”(As
substituted by Act 3 of 2016 w.e.f. 23-10-2015)Prior to substitution
by Act 3 of 2016, sub-section (3) of Section 28 read as under:“28.
(3) In all cases, the Arbitral Tribunal shall decide in accordance
with the terms of the contract and shall take into account the
usages of the trade applicable to the transaction.”] of the 1996
Act. Similarly, violating terms of the contract, in effect, is in
contravention of Section 28(3) of the 1996 Act.
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68. In Ssangyong [Ssangyong Engg. & Construction Co.
Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] this
Court specifically dealt with the 2015 Amendment which inserted
sub-section (2-A) in Section 34 of the 1996 Act. It was held that
“patent illegality appearing on the face of the award” refers to
such illegality as goes to the root of matter, but which does not
amount to mere erroneous application of law. It was also clarified
that what is not subsumed within “the fundamental policy of Indian
law”, namely, the contravention of a statute not linked to “public
policy” or “public interest”, cannot be brought in by the backdoor
when it comes to setting aside an award on the ground of patent
illegality [ See Ssangyong Engg. case, (2019) 15 SCC 131, para 37
: (2020) 2 SCC (Civ) 213]. Further, it was observed,
reappreciation of evidence is not permissible under this category of
challenge to an arbitral award [ See Ssangyong Engg. case, (2019)
15 SCC 131, para 38 : (2020) 2 SCC (Civ) 213].”
(emphasis supplied)
45. Therefore, there is no dispute that patent illegality must go to
the root of the matter, and that a Tribunal cannot disregard the express
provision of the contract or create a new contract altogether. It is also
well settled that interference by a Court exercising jurisdiction under
Section 34 of the Act must remain within the statutory limits and must
not undertake a merits review.
46. Mr. Digvijay Rai, learned Standing Counsel for the Petitioner
premises his challenge to the impugned award primarily on the ground
that the learned Arbitrator ought to have adjudicated the dispute
within the contractual bargain and cannot disregard the explicit
provisions of the contract or award compensation materially different
from the what was actually pleaded. Mr. Rai argued that the learned
Arbitrator cannot, under any circumstance, improve the case of a
claimant.
47. On the other hand, learned Counsel for the Respondent largely
contended that the learned Arbitrator correctly attributed the delay to
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AAI and consequently, damages must follow. It was argued that the
findings of the learned Arbitrator with respect to the monetary claims
were entirely findings of fact, which cannot be re-opened under
Section 34 of the Act.
48. Pertinently, the learned Arbitrator concluded that the work
fronts were made available in bits and pieces, that some portions were
handed over after the stipulated completion date, and that the delay
was occasioned by non-availability of continuous stretches of land.
Accordingly, the learned Arbitrator awarded certain claims in favour
of the Respondent and directed AAI to pay simple interest at 8% per
annum from 01.12.2018 until payment on the sums held payable. It
was reasoned that November 2018 was a reasonable period for the
parties to work out claims after culmination of the contract and the
parties were directed to bear their own costs of the arbitration.
49. For adjudication of the dispute at hand, it is pertinent to reiterate
that a claim for damages must have a rational nexus with the breach
found, the loss said to have resulted from such breach, and the amount
so awarded. In this regard, Section 73 of ICA permits compensation
for loss arising naturally “in the usual course of things from such
breach” of a contract or which the parties knew to be likely when they
made the contract. It does not, in no ambiguous words, authorise
reimbursement of every expense incurred without a finding that the
such expense is inextricably linked to the loss caused by the breach.
Whilst proof of payment may establish the expenditure, it does not
invariably establish that the entire expenditure incurred was a loss
resulting from the breach, for which the other party is legally
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responsible.
50. The computation of damages cannot be whimsical, as cautioned
by the Hon’ble Supreme Court in Batliboi Environmental Engineers
11
Ltd. v. Hindustan Petroleum Corpn. Ltd. . A Division Bench of this
12
Court in Union of India v. Ahluwalia Contracts (India) Ltd.
reiterated that to claim loss of profits or overheads due to prolongation
of contract, evidence must be led to establish the loss incurred.
51. These principles must be applied with care. Where the Tribunal
has examined the evidence, identified the relevant period, and reached
a plausible conclusion i.e., ascertained damages caused by the
prolongation, the Court cannot set aside the award merely because it
would have weighed the evidence differently. An inquiry may be
made into the tenability of the findings of the learned Arbitrator in this
regard.
52. Finally, a defective part of an award may be set aside without
disturbing the rest if it is distinct and severable. In Gayatri Balasamy
13
v. ISG Novasoft Technologies Ltd. , while cautioning that the power
to modify an arbitral award must be exercised judiciously and within
the confines of Section 34 of the Act, the Hon’ble Supreme Court also
recognised the power to sever an invalid part of an award from a valid
and independent part, provided the two are not legally or practically
inseparable. This principle is particularly relevant to the present
dispute because the challenged claims are separately pleaded and
quantified.
11
(2024) 2 SCC 375
12
2025 SCC OnLine Del 4066
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53. Keeping the aforesaid position of law in mind, I shall proceed
with the findings rendered by the learned Arbitrator.
54. At the outset, I deem it fit to first examine the most crucial issue
framed by the learned Arbitrator i.e., which party is responsible for the
delay in the work.
55. The learned Arbitrator's finding that non-availability of
continuous work fronts caused delay is based on the correspondence
referred to in Paragraphs 7(ii) and 7(iii) of the arbitral award. The
learned Arbitrator found that the Respondent vehemently raised the
issue of disconnected stretches being provided by AAI. It was also
found that AAI approached the State authorities for assistance in this
regard. However, the learned Arbitrator placed reliance on Clause
15.1 of SCC, which made it explicitly clear that the work site did, in
fact, belong to AAI.
56. In view thereof, this Court is not persuaded by AAI’s
contention that the tender was floated in pursuance of an MOU. This
is neither persuasive in face of Clause 15.1, nor is it reflected in the
impugned award. It is only reasonable to assume that the bidders
would have submitted their bid on the strength of the said provision.
Consequently, this particular finding of the learned Arbitrator does not
warrant interference since it squarely falls within the ambit of the
contract between the parties.
57. This Court is also not deciding whether every expense asserted
13
(2025) 7 SCC 1
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by the Respondent was, as a matter of fact, incurred. The adjudication
by this Court in the paragraphs to follow is limited to whether the
reasons delineated in the arbitral award for allowing claims are legally
sustainable under Section 34 of the Act. This distinction is important
because a finding that AAI caused the delay in the project does not
automatically establish every item of damages claimed by the
Respondent. There can be no quarrel with the position that while it
may be found that the employer is responsible for delay, it cannot
dispense with the need to plead and prove the resulting loss.
58. I shall proceed with the findings rendered by the learned
Arbitrator for individual claims.
Claim B – Rent For The Extended Period From November 2017
Till March 2019
59. Claim B amounts to Rs.1,96,417/- and comprises of two
components i.e., Rs.44,817/- deducted from running bills as licence
fee for land allotted by AAI and Rs.1,51,600/- said to have been paid
for accommodation used by the Director supervising the site. It was
noted that the last RA bill was dated 07.08.2018, however, the
Respondent claimed that it continued to work at the site till March
2019. It was also noted that the rent paid for the accommodation rent
ran only till November 2018. The learned Arbitrator considered that
after a sudden foreclosure, it could not be expected that the Director of
the project would leave immediately and hence, one month was
considered to be a reasonable period to vacate after the foreclosure.
Accordingly, this claim was allowed in its entirety.
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60. In this regard, Clause 6 of SCC, which required the contractor
to pay a licence fee for land allotted for purposes connected with the
contract, assumes significance. It is reproduced hereinbelow:
“6. LICENSE FEE FOR LAND ALLOTTED BY AAI
6.1 The contractor shall not be permitted to enter in (other than
for inspection purpose) or take possession of the site until
instructed to do so by the Engineer-in-Charge in writing.
The portion of the site to be occupied by the contractor
shall be defined and/or marked on the site plan, failing
which these shall be indicated by the Engineer-in-Charge
at site and the contractor shall on no account be allowed to
extend his operations beyond these areas. In respect of any
land allotted to the contractor for purpose of or in
connection with the contract, the contractor shall be issued
a license subject to the following and such other terms and
conditions as may be imposed by the licenser: -
(i) That he shall pay a nominal license fee for land allotted by
AAI for installation of Plants, Labour Camp (if provided),
Cement Godown and site office, license fee from contractor
is chargeable for land @ Rs. 325/- per sqm per annum
compounding @ 7.5% annually on April' 1st. A security
deposit of Rs. 500/Sqm in the form of Cash/DD/BG is also
to be obtained from the contractor for this purpose. This
security deposit can be released only after ensuring that
allotted land has been vacated and Engineer-in-charge to
certify this fact in the final bill. Land used for stacking of
material to the extent available is, however, provided at
free of cost, with the approval of Project/Airport In-charge.
Land used for site office for AAl’s use will be free of cost.
The allotment of land for purpose of or in connection with
the contract subject to the following and such other terms
and conditions as may be imposed by the licenser:
(ii) That such use or occupation shall not confer any right of
tenancy of the land: to the contractor.
(iii) That the contractors shall be liable to vacate the land on
demand by the Engineer-in-Charge.
(iv) That the contractor shall have no right to any construction
over this land without the written permission of the
Engineer-in-Charge. In case, he is allowed to construct any
structure he shall have to demolish & clear the same before
handling over the completed work unless agreed to the
contrary.
6.2 The contractor shall provide, if necessary, or if required on
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the Site, all temporary access thereto and shall alter, adapt
and maintain the same as required from time to time and
shall take up and clear them away as and when no longer
required and as and when ordered by the Engineer-in-
Charge and make good all damage done to the Site.
6.3 Land for Labour Camps: No Labour camps will be
permitted within the operational area and the contractor
shall make the necessary arrangement, at his own cost with
prior approval of the Engineer-in-Charge in setting the
camps outside operational area in AAI land at prescribed
charges or at private land.”
61. The abovementioned Clause establishes the contractor's
obligation to pay the agreed fee for land actually allotted. It does not,
however, expressly state that the contractor must bear, without any
possible claim for damages, every additional month of such fee where
prolongation is caused by a breach attributable to AAI. Therefore,
these are two distinct aspects, i.e., the contractually payable licence
fee, and an additional expense in form of damages caused by a breach.
Therefore, once the learned Arbitrator found that the delay was
attributable to AAI, the additional expenditure incurred by the
Respondent on account of such prolongation was capable of being
recoverable, subject to proof of the expenditure and its connection
with the breach.
62. The learned Arbitrator did not declare Clause 6 of SCC as
inapplicable. Instead, the learned Arbitrator considered the deductions
reflected in the RA Bills and the documentary material concerning the
rent paid for the Director’s accommodation. It is also to be noted that
the claim was not allowed mechanically for the entire period up to
March 2019. Rather, the learned Arbitrator restricted the award to the
amounts mentioned in the record and considered one month after
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foreclosure to be a reasonable period for vacating the accommodation.
The mere fact that the licence fee was payable under Clause 6 of the
SCC does not render the resulting expenditure irrecoverable as
damages where the same is found to have been suffered due to AAI’s
breach.
63. In the absence of anything to the contrary, and given the learned
Arbitrator's categorical factual finding on delay and its causation with
resulting damages, AAI’s objection cannot be sustained as it would
require this Court to re-assess the connection between the
prolongation of the work and rent incurred. Accordingly, the award
under Claim B does not meet the threshold for interference under
Section 34.
64. The challenge to Claim B is therefore rejected.
Claim H – Escalation in Price of Construction Material During
Extended Period from November 2017 till March 2019
65. As regards Claim H is concerned, it is not simply a question of
whether materials became more expensive. This claim amounts to Rs.
37,69,857/-.
66. Apropos this claim, the Respondent argued before the learned
Arbitrator that it could not make purchases at the relevant time due to
piecemeal handing of the work site and that due to such deferred
purchases, the prevailing market rates increased with time. It was also
argued that the bid was submitted with regard to the market rates and
anticipated inflation within the contractual period of the project and
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that the extension of work beyond 30 months was not reasonably
foreseeable. It was argued that AAI did not have the power under the
contract to freeze the indices.
67. On the other hand, AAI resisted this claim on the ground that
the project was foreclosed on 28.09.2018 and thus, there was no
question for compensation beyond this date. AAI further argued that
escalation as per Clause 10CA was calculated and paid to the
th rd
Respondent along with the 20 and 23 RA bills. AAI also averred
that since Clause 10CC was deleted from the contract, no escalation
was payable.
68. It is pertinent to note that the contract contains a specific
formula for the calculation of price variation for materials listed in
Schedule F and Clause 10CA provides that if the price of specified
materials increases or decreases after the tender date, the contract
amount is to be varied in accordance thereof. More importantly for the
present dispute, it states that for work done during a period extended
under Clause 5, without action under Clause 2, the variation is limited
to the index prevailing the stipulated date of completion or the index
prevailing for the period under consideration, whichever is less.
69. Notably, the date of stipulated completion was 06.11.2017. The
extension was granted by AAI without levy of compensation, and the
award itself treated the later period as an extended period.
70. The contractual formula, therefore, required a comparison for
each relevant material and period. It is the index applicable at the
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stipulated completion date (06.11.2017) that had to be compared with
the index for the period under consideration, and the lower index had
to be used. The Clause does not permit the later index to be used
simply because the material was purchased or brought to site after the
stipulated date.
71. The impugned award, at paragraph 9(xviii), sets out the
monthly indices for cement and steel from November 2017 to October
2018. For cement, the index recorded for November 2017 was 93.49,
the subsequent figures in the award's table were higher, including
100.15 for December 2017 and January 2018, 116.47 for February
2018 and 122.14 for October 2018. On the plain wording of Clause
10CA, the November 2017 index would be the cap for those later
periods if the contract's extension proviso applies, because the
stipulated-completion index is the lower figure. The same comparison
had to be made for steel, including any months in which the index for
the period under consideration was lower than the stipulated-
completion index. Further, the learned Arbitrator correctly recognised
that AAI was entitled to rework the earlier escalation calculation by
applying the contractual limit up to the stipulated completion date.
72. However, the learned Arbitrator held that for the period after
November 2017, AAI could not freeze the indices as of November
2017. This conclusion cannot be reconciled with the explicit wording
of Clause 10CA. The said Clause expressly addresses the very
situation of work done during a justified extension and prescribed the
lower of two indices method. It does not envisage a different method
for the period after the original completion date.
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73. By refusing to apply the contractual cap to the extended period,
the impugned award did not merely choose one plausible
interpretation over another, it departed from an express stipulation
governing the claim. Such error undoubtedly goes to the root of the
issue.
74. It appears from the record that the sum of Rs. 34,67,401/- was
calculated by reference to indices for the later months and the
impugned award does not demonstrate which quantities were valued
using the lower index required by Clause 10CA.
75. Undoubtedly, this Court can neither perform a fresh month-by-
month valuation or substitute its own calculation in Section 34
proceedings, nor can it identify a severable amount that is
demonstrably payable as per the formula.
76. Claim H is, therefore, patently illegal for want of application of
the governing contractual formula and is set aside in its entirety.
Claim K – Increase in Price of Diesel During the Extended Period
till March 2019
77. This claim amounts to Rs. 9,17,524/-. The learned Arbitrator
reasoned that the prices were not subject to any escalation during the
contract period and that “A claim beyond the contract period upon
proof of default by the other party is a claim not made under the
contract but is a claim made under law arising out of the breach of the
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contract.”. Therefore, the learned Arbitrator drew a distinction
between contractual escalation and damages due to breach of contract.
78. The impugned award reflects that the relevant documents
depicted diesel purchases from November 2017 to September 2018.
This claim was allowed in its entirety on the reasoning that a claim for
a period beyond the contractual period, if caused by the other party's
default, could be made under general law, even if the contract did not
contain a price-escalation clause.
79. The difficulty with that reasoning is that the period in respect of
which the claim was allowed was the extended contractual period
ending on 28.09.2018, and not a period after that final extended date.
Significantly, the original stipulated completion date was 06.11.2017,
but the contract had been extended thereafter and foreclosed on
28.09.2018. The invoices identified by the learned Arbitrator pertain
to November 2017 through September 2018. The description of the
claim as one for a period beyond the contractual period does not
resolve the effect of the express contractual arrangements governing
escalation during the extended period.
80. Undisputedly, Clause 10CC, which provided a general
mechanism for escalation in prices of materials not covered by Clause
10CA, was not retained as an operative price-adjustment provision in
the contract.
81. Further, it is borne out from the record that by letter dated
27.12.2018, the Respondent gave an undertaking that it would not
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claim escalation under Clause 10CC on account of the final extension
of time up to 28.09.2018. This undertaking also finds mention in the
Statement of Defence of AAI. The undertaking is material because it
relates to the very period for which the diesel escalation claim was
made. The award does not discuss the undertaking in its analysis of
Claim K or explain why, on the face of it, the same price increase is
recoverable under the guise of damages. The said undertaking is
reproduced hereinbelow:
“ दिन ांक /Date: 27.12.2018
To
Joint General Manager (Engg-C),
Airports Authority of India,
Rajahmundry Airport,
Rajahmundry.
Name of Work: Extension of Runway and Strengthening /
Resurfacing of Existing Runway along with
Construction of Isolation Bay, Pavement
against Blast Erosion & RESA and other
allied Works at Rajahmundry Airport.
SH: Construction of Operational wall and
Property Boundary wall at Rajahmundry
Airport. Undertaking regarding escalation
under 10CC
Agmt No:AAI/CHQ/Engg/SR/RJY/2016/W-2, Dt:12.08.2016
Dear Sir,
May please recall the discussion had with us. We have
submitted application for extension of time on 19.12.2018. With
request for sanction of Final EOT up to 28.09.2018 without levy of
compensation. That is for 455 days beyond stipulated date of
completion due to various reasons which are beyond our control.
In this regard we would like to submit further our undertaking that
we will not claim escalation under clause 10CC of contract
agreement due to said Final Extension of contract period to
28.09.2018.
Thanking you and assuring our best service always.
Yours faithfully,
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Sd/-
(Girisj Jaggi)
Managing Director,
M/s Vidya Infrabuilt Pvt. Ltd.,
Gurgaon-122018 (Haryana)”
82. It is definitely not the case that a contractor can never recover
damages for breach merely because the contract lacks a general
escalation clause. There may be a properly pleaded and proved claim
for a distinct loss caused by an employer's breach. The problem in the
instant matter is narrower. Claim K was a claim for the increased price
of diesel during the extended period and the record contains an
express undertaking not to claim escalation under Clause 10CC for
such extension. The learned Arbitrator converted the same escalation
into a claim under general law without identifying a separate loss or
explaining why that would not defeat the undertaking and the parties'
allocation of the risk of escalation during the extended period.
83. The impugned award also does not explain how the invoices for
diesel purchases establish the amount of the incremental loss, as
distinct from the cost of diesel that would have been required to
execute the work in any event. An invoice proves that a purchase was
made. To establish damages for a rise in price, the impugned award
must go one step further to identify a contractual provision by which
that amount is to be calculated or identify the additional amount i.e.,
the loss caused due to the price increase, having a link with the breach.
84. The impugned award grants the full amount claimed without
analysing the effect of the undertaking, the causation between the
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breach and the resultant loss, etc. The failure to consider a material
contractual undertaking, coupled with the absence of a reasoned basis
for the amount allowed as damages, renders the impugned award to
the extent it allows Claim K as unsustainable in light of Section 34 of
the Act.
85. Accordingly, the award of Rs. 9,17,524/- under Claim K is set
aside.
Claim M – Expenses for Hiring Extra Machinery From November
2017 to March 2019
86. Claim M amounts to Rs. 13,94,407/-. It was observed that this
claim, although pleaded as up till March 2019, only extended till
February 2018 as per the record. It was reasoned that the instant claim
for extra machinery could not be sustained for the duration of the
contract i.e., the period prior to 06.11.2017. Accordingly, the learned
Arbitrator did not allow the full amount claimed and excluded hire
charges for period before 06.11.2017 and allowed only those charges
which, as per the invoices, related to the period after the stipulated
completion date. The learned Arbitrator identified the machinery
owners, the months of hire and the relevant amounts supported by
invoices, arriving at Rs. 5,88,074/-.
87. In this context, AAI submitted that the contract required
Respondent to provide machinery and that the contractor did not prove
that the machinery could not be used elsewhere. The said objection is
not sufficient to fall in the narrow compass of Section 34. It does not
establish that the learned Arbitrator ignored the contract or awarded a
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sum for machinery owned by Respondent without cogent proof.
88. The claim was, in fact, allowed in light actual proof i.e.
invoices, and the learned Arbitrator restricted the period of the claim
by excluding the subsisting period of the contract. Further, the
question whether the hired equipment could have been used in another
project does not, without more, disprove the liability to pay the third-
party hire charges for the prolongation period identified in the
invoices i.e., after 06.11.2017.
89. The learned Arbitrator had already found that the work was
prolonged because the required work fronts were not made available
by the AAI. The acceptance of the invoices as proof of the actual hire
charges is a factual assessment by the learned Arbitrator.
90. AAI has not demonstrated that the expenditure allowed was
unrelated to the prolongation, that the invoices were unreliable, or that
the award travels beyond the contractual bargain to attract any of the
grounds under Section 34.
91. The challenge to Claim M is, therefore, rejected.
Claim N – Extra/Unplanned Expenditure for Hiring Extra
Machinery and Vehicle Usage From November 2017 to March
2019
92. Claim N amounts to Rs.25,01,902/- and concerns the hire
charges for an ‘Ajax’ machine and for certain cars, namely, ‘Bolero’
and ‘Swift’. This claim was partly allowed.
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93. Claim L, pertaining to machinery deployed during November
2017 to March 2019, assumes significance in this regard. This claim
was not allowed on account of lack of evidence or any other
corroboration.
94. The learned Arbitrator observed that Claim N need not have
been raised as distinct from Claim L. It was noted that under Claim L,
the Respondent claimed hire charges for an Ajax machine were
placed, which was rejected for want of supporting material. However,
under Claim N, the Respondent again claimed expenditure incurred
for an Ajax machine, but this time, the same was supported by
invoices. The reasons for this inconsistency are best known to the
Respondent.
95. The Claim N was allowed on account of the fact that it was
accompanied by supporting evidence i.e. invoices. The learned
Arbitrator reasoned that a contractor may remain liable to third parties
after a contract is abruptly foreclosed. Accordingly, the learned
Arbitrator found that hire charges for a reasonable period after the
foreclosure of the contract could be recoverable due to third-party
obligations of the contractor.
96. This Court finds no infirmity in the aforesaid reasoning. The
learned Arbitrator had already returned a finding that the delay in
execution of the works was attributable to AAI. The expenditure
claimed was supported by invoices raised by the respective third
parties, and the learned Arbitrator excluded the amounts which were
not supported by the requisite material or pertained to the period prior
to the stipulated date of completion. The allowance of expenditure for
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a reasonable period beyond foreclosure, in view of the existing third-
party commitments, cannot be said to be an unreasonable conclusion.
97. Accordingly, in the considered view of this Court, the finding of
the learned Arbitrator is based on the material placed on record and
does not suffer from any patent illegality warranting interference
under Section 34 of the Act.
98. The challenge to Claim N is accordingly rejected.
Claim O – For Charges for Tollies and Tankers on Account of
Work Site Being Made Available in Fragments
99. This Claim amounts to Rs. 20,77,983/-. In this regard, the
Respondent had furnished the relevant invoices and payments made
for the extended period of contract, i.e., from November 2017 to
October 2018.
100. The learned Arbitrator, however, also expressly observed that
the pleadings of the Respondent did not say how many tankers,
tractors and trolleys would have been deployed if the work fronts had
been made available continuously, and that only if such information
was provided, could the extra equipment deployed because of the
scattered work fronts be identified. While allowing this claim, the
learned Arbitrator held as follows:
“Para(xxix) …Not for the reasons stated in the pleadings, but for
the reasons which are self-evident from the tabulation of the claim,
the claim is allowed because it is actually a claim for deployment
of tractors/ trollies and tankers during the extended period of
contract and has been proved through invoices raised and bank
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statement of accounts showing payment made. For Claim No. O
INR 20,77,983.00 is awarded to the Claimant against the
Respondent.”
101. The aforesaid reasoning, in the considered view of this Court,
cannot be sustained. Despite identifying the deficiency in the
pleadings of the Respondent, the learned Arbitrator proceeded to
allow the claim in its entirety for deployment of tractors, trolleys and
tankers during the extended period. Notably, the claim as pleaded was
for the additional expense said to have arisen because the locations
were broken and far apart. However, the claim as allowed was the
entire hire expenditure incurred during the extended period, without a
finding as to what part of that expenditure was over and above the
expenditure that would have been incurred to perform the contract in
the ordinary way. This is not a minor error of quantification but a
fundamental discrepancy in the quantification of the claim, going to
the root of the claim.
102. It is trite that proof of expenditure does not, by itself, establish a
corresponding entitlement to damages. The invoices and bank
statements may establish that the Respondent incurred the
expenditure, but they do not establish that the entire expenditure
constituted an additional loss attributable to AAI. Tractors, trolleys
and tankers would have been needed to execute the works even if the
work fronts had been continuous. The material questions were inter
alia whether the scattered locations caused Respondent to incur
additional hire charges and, if so, what was the additional amount
incurred.
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103. In the absence of this essential comparison, the entire
expenditure incurred during the extended period could not have been
treated as damages arising from AAI’s breach. As already noted,
Section 73 of the ICA does not authorise reimbursement of every
expenditure incurred during the period of prolongation, without
establishing that the expenditure was occasioned by the breach.
104. Having identified that the causal and quantitative basis of the
claim was not established, the learned Arbitrator could not have
awarded the entirety of the expenditure by treating the invoices as a
general expense of the extended period, without determining the
additional loss (if any) attributable to the breach as required by
Section 73 of the ICA or without identifying a contractual entitlement
to blanket reimbursement of all such costs. The impugned award,
therefore, proceeds on a basis unsupported by the pleadings and fails
to establish the necessary nexus between the breach and the amount
awarded.
105. Therefore, the award of Rs. 20,77,983/- under Claim O suffers
from patent illegality and is, accordingly, set aside.
Claim Q – Interest
106. The learned Arbitrator directed simple interest at 8% per annum
from 01.12.2018 until payment on the sums held payable. This cannot
be construed as a separately quantified award that can be assessed in
isolation from the principal claims. It attaches to the amounts allowed
under the various claims. Consequently, the interest direction must
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:06.11.2026
17:31:28
O.M.P. (COMM) 40/2024 Page 35 of 36
also be set aside to the extent that it operates on the amounts awarded
under Claims C, H, K and O, which either conceded or have been set
aside in this judgment.
Conclusion
107. While Claims C, H, K and O are set aside in view of the
foregoing discussion, Claims A, B, E, M and N remain undisturbed.
108. The direction for interest at 8% per annum from 01.12.2018
until payment shall therefore continue to operate on those surviving
claims in accordance with the terms of the arbitral award. No fresh
calculation of interest on the surviving claims is undertaken by this
Court.
109. For the reasons stated above, the petition is partly allowed in the
aforesaid terms.
110. The petition is therefore disposed of. Pending applications are
also disposed of. No order as to costs.
OM PRAKASH SHUKLA, J
OCTOBER 27, 2026/ at/gunn
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:06.11.2026
17:31:28
O.M.P. (COMM) 40/2024 Page 36 of 36