Public Works Department Got Of Maharashtra National Highways vs Khare And Tarkunde Infrastructure Pvt Ltd
- Court
- Bombay High Court
2026:BHC-OS:12904
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 262 OF 2024
WITH
INTERIM APPLICATION (L) NO. 21282 OF 2024
WITH
INTERIM APPLICATION (L) NO. 32187 OF 2023
IN
ARBITRATION PETITION NO. 262 OF 2024
Public Works Department Got of
Maharashtra National Highways
…Petitioner
Versus
Khare And Tarkunde Infrastructure Pvt. Ltd.
…Respondent
WITH
ARBITRATION PETITION NO. 264 OF 2024
WITH
INTERIM APPLICATION (L) NO. 21288 OF 2024
WITH
INTERIM APPLICATION (L) NO. 32189 OF 2023
IN
ARBITRATION PETITION NO. 264 OF 2024
Public Works Department Government of
Maharashtra, National Highways Division PWD
ASHWINI
JANARDAN
VALLAKATI
Digitally signed by
ASHWINI JANARDAN
VALLAKATI
Date: 2026.06.12
12:51:23 +0530
…Petitioner
Versus
Khare And Tarkunde Infrastructure Pvt. Ltd. …Respondent
WITH
ARBITRATION PETITION NO. 263 OF 2024
WITH
INTERIM APPLICATION (L) NO. 32188 OF 2023
WITH
INTERIM APPLICATION (L) NO. 21285 OF 2024
IN
ARBITRATION PETITION NO. 263 OF 2024
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…Petitioner
Public Works Department Govt of
Maharashtra National Hiighways
Versus
Khare And Tarkunde Infrastructure Pvt. Ltd. …Respondent
Mr. Amrut Joshi a/w Ms. Kajal Gupta, Ms. Shweta Singh i/b M. V.
Kini & Co., for the Petitioner.
Mr. Karl Tamboly, Counsel a/w Mr. Anoop Sharma, Mr. Reehan
Ajmerwala, Ms. Ujwala Kamat, Mr. Sumit Khanna, i/b, Sarita D’lima,
for Respondent.
CORAM: SOMASEKHAR SUNDARESAN, J.
RESERVED ON: MARCH 30, 2026
PRONOUNCED ON: JUNE 12, 2026
JUDGEMENT:
Context and Factual Background:
1. This is a Petition filed under Section 34 of the Arbitration and
the Act
Conciliation Act, 1996 (“ ”) impugning an arbitral award dated April
Arbitral Award
14, 2023 (“ ”), by which disputes and differences relating to
an Engineering Procurement and Construction Contract comprising
agreements dated December 17, 2014 and December 24, 2014 (collectively the
Agreement
“ ”) executed between the parties came to be adjudicated.
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2. The core contention that needs to be dealt with in the challenge is
twofold: first , that Clause 4.1.5 specifically and categorically provides that the
aggregate damages payable shall not exceed 1% of the contract price, and yet,
the Impugned Award has held that such limit would not apply in the peculiar
facts of the case; and second , that interest awarded at the rate of 18% per
annum compounded with quarterly rests for pre-arbitration, pendente lite and
post-arbitration, is contrary to the contract as well as Section 31(7) of the Act.
3. A brief factual overview of facts relevant for purposes of this Petition
may be summarised thus:-
A) The Agreement was executed in respect of road infrastructure,
broken up into three packages, each of which involved construction of
various major and minor bridges of four lanes or two lanes; and two
overbridges over land. The three packages were of a value of Rs.~53.24
crores; Rs.~48.80 crores; and Rs.~46.46 crores respectively –
aggregating to Rs.~148.51 crores;
B) Disputes and differences arose between the Petitioner, the Public
PWD
Works Department (“ ”), through the National Highway Division
and the Respondent, Khare And Tarkunde Infrastructure Pvt. Ltd.
KTIPL
(“ ”) over what caused the delays associated with the project;
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C) The Letters of Acceptance for the project were issued in December
2014. PWD communicated that the “Appointed Date” for the
Agreement would be January 27, 2015. This date is important inasmuch
as the Agreement provides for completion of the project within a period
of 18 months from the Appointed Date. The scheduled completion
deadline, on the basis of the Appointed Date, would have been July 26,
2016;
D)
The Agreement was terminated by PWD on October 25, 2018 —
nearly three and a half years after the Appointed Date;
E) The core issue in these proceedings centres around the provision
of the Right of Way (“ ROW ”). Under the Agreement, PWD was to
1
provide KTIPL with ROW to the extent of at least 90% of the total
length of the project within a period of 15 days from the date of
2
execution of the Agreement. The balance 10% of the ROW was to be
handed over within a maximum of 150 days from the Appointed Date;
F) On February 20, 2015, PWD wrote to KTIPL, declaring that
January 27, 2015 would be the Appointed Date. It is common ground
that 90% of the ROW had not been handed over by this date. The very
next day, on February 21, 2015, KTIPL wrote to PWD stating that the
1. Clause 4.1.3(a) read with clause 28.1.
2. Clause 8.2
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ROW had not been handed over, and therefore, the Appointed Date was
incorrect;
G) By June 21, 2015, the first milestone under the project was
reached;
H) On February 15, 2016, KTIPL wrote to PWD, listing the
difficulties faced and highlighting that land and the ROW had not been
handed over, requesting that 90% of the ROW be handed over;
I) The parties traded correspondence between March 9, 2015 and
August 10, 2016, which would establish that 90% of the ROW had not
been handed over. The land necessary for grant of the ROW had not
been acquired, which would indicate that handing over the same to
KTIPL was impossible;
J) The parties held meetings and eventually it was agreed that a
ROW for approaches for five bridges and two road overbridges would be
handed over by November 15, 2016;
K) On July 11, 2016, KTIPL requested an extension of time for
completion of the project and grant of such request was recommended
by PWD;
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L) The second milestone was reached only by January 24, 2017. On
May 11, 2017, PWD acknowledged the delay and recommended payment
of the maximum amount of damages and extension of time until July
30, 2017;
M) Another letter dated August 7, 2017 from PWD recommended
extension up to March 31, 2018 and payment of the maximum amount
of damages;
N) Requests for extension of time were not formally granted and the
applications were pending awaiting approval from the Ministry of Road,
Transport and Highways;
O) On April 14, 2018, KTIPL wrote a letter stating that the handover
of ROW was in bits and pieces and access was also difficult since the
land was surrounded by private land. KTIPL raised a claim for delay in
handover of ROW. On April 27, 2018, KTIPL wrote another letter
asserting that ROW had not been handed over despite lapse of two years
since the scheduled date of completion;
P) Arbitration was invoked by KTIPL on October 1, 2018; and
Q) PWD terminated the Agreement by notice dated October 25,
2018.
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Analysis and Findings:-
4. It is against this backdrop that submissions were made before this Court
by Mr. Devang Vyas, Learned Senior Advocate for PWD along with Mr. Amrut
Joshi, Learned Advocate for PWD, and by Mr. Karl Tamboly, Learned
Advocate for KTIPL. The matter was first heard last year, but due to the
significant efflux of time since the hearing, the matter was fixed for hearing
afresh on March 30, 2026. Learned Advocates addressed the Court afresh and
judgement was reserved.
5. At the threshold, the provisions of Clause 4.1.5, which is relied upon by
PWD for its contention on the quantum of damages is worthy of being
reproduced:
the Parties
“Notwithstanding anything to the contrary contained in this Agreement,
expressly agree that the aggregate Damages payable under Clauses 4.1.4, 8.3 and
9.2 shall not exceed 1% (one per cent) of the Contract Price . For the avoidance of
doubt, the Damages payable by the Authority under the aforesaid Clauses shall
not be additive if they arise concurrently from more than one cause but relate to
the same part of the Project Highway .
Both the parties agree that payment of these Damages shall be full and final
settlement of all claims of the Contractor and such compensation shall be the sole
remedy against delays of the Authority and both parties further agree this as final
cure against delays of the Authority
.”
[Emphasis Supplied]
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6. A plain reading of the foregoing would point out that this provision
essentially entails a cap on the aggregate damages payable under Clause 4.1.4,
Clause 8.3 and Clause 9.2 at 1% of the contract price. If damages were to arise
under multiple clauses but relate to the same part of the project, the damages
shall not be aggregated for purposes of this cap, but shall be subsumed within
the cap.
7. PWD would point out that the Learned Arbitral Tribunal has indeed
noticed the provisions of Clause 4.1.5 and PWD’s contention in this regard.
However, PWD would contend that the Learned Arbitral Tribunal’s reasoning
is flawed since it has placed reliance on judgements that would not apply to
the present dispute. The contention is that the restriction of 1% has not been
applied to the facts of this case and effectively, the Learned Arbitral Tribunal
has rewritten the contract between the parties.
8. On the face of it, this appears to be a reasonable and logical contention,
particularly given the strength of the language and the non-obstante
provision. However, on closer examination of the law and the assessment of
evidence by the Learned Arbitral Tribunal, it does not appear to be that
simple.
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9. It would be necessary to examine how the Learned Arbitral Tribunal has
gone about dealing with this issue. What is evident on the face of the
Impugned Award and the material on record is that the delay in providing the
ROW or obtaining approval from Railway Authorities in terms of Clause 4.1.3
of the contract, would entitle KTIPL to damages in accordance with the
provisions of Clause 8.3 and to an entitlement to a time extension in
accordance with Clause 10.5. This is set out in Clause 4.1.4 which is extracted
below:-
“4.1.4 Delay in providing the Right of Way or approval of GAD by railway
authorities, as the case may be, in accordance with the provisions of Clause 4.1.3
shall entitle the Contractor to Damages in a sum calculated in accordance with
the provisions of Clause 8.3 of this Agreement and Time Extension in accordance
with the provisions of Clause 10.5 of this Agreement. For the avoidance of doubt,
the Parties agree that the Damages for delay in approval of GAD by the railway
authorities for a particular road over-bridge/under-bridge shall be deemed to be
equal to the Damages payable under the provisions of Clause 8.3 for delay in
providing Right of Way for a length of 2 (two) kilometre for each such road over-
bridge/under-bridge .”
[Emphasis Supplied]
10. The provision of the ROW itself would necessitate a review of Clause
4.1.3(a) which sets out PWD’s obligation to provide KTIPL with the ROW and
the same is extracted below:-
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:
“4.1.3 The Authority shall provide to the Contractor
(a) upon receiving the Performance Security under Clause 7.1.1, the Right
of Way in accordance with the provisions of Clauses 8.2 and 8.3, within a
period of 15 (fifteen) days from the date of this Agreement, on no less than 90%
(ninety per cent) of the total length of the Project Highway ;”
[Emphasis Supplied]
11. A plain reading of the foregoing would indicate that PWD was obligated
to provide the ROW in accordance with the Agreement, within a period of 15
days from the date of the Agreement, on no less than 90% of the total length of
the project. This would indicate that the bargain entered into between the
parties envisages a timeframe that would necessarily require PWD to provide
the ROW well within just 15 days of receiving the performance security under
the contract. Evidently, there is a chronic and clear default on PWD’s part in
complying with its obligation to provide the ROW, which was envisaged at a
very early stage of the contract. It is commonsensical and logical that the
provision of the ROW was virtually to be given at the threshold and the rest of
the bargain fashioned by the parties in the Agreement is premised on such
ROW being available.
Section 28(3) of the Act:
12. The cap on damages, as indeed the tight timeline of 18 months, are all
facets of the Agreement that are founded on the obligation of PWD to provide
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90% of the ROW within 15 days, subject to receipt of the performance security.
If this foundational element is missing, it stands to reason that the Learned
Arbitral Tribunal would have to assess the damage suffered and the manner in
which the reciprocal promises in the same agreement were vitiated and how
they ended up getting adjusted. It is this principle that is codified in Section
28 of the Act – the provision whereof is extracted below:
28 .
Rules applicable to substance of dispute.—
(1) Where the place of arbitration is situate 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;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in accordance with the rules of
law designated by the parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal system of a given country
shall be construed, unless otherwise expressed, as directly referring to the
substantive law of that country and not to its conflict of laws rules;
(iii) failing any designation of the law under clause (a) by the parties, the
arbitral tribunal shall apply the rules of law it considers to be appropriate
given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequoet bono or as amiable compositeur
only if the parties have expressly authorised it to do so.
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(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 .
[Emphasis Supplied]
13. Prior to the significant amendments to the Act effected in 2015, Section
28(3) made it a statutory obligation of an Arbitral Tribunal to adjudicate the
dispute “ in accordance with ” the terms of the contract and to take into
account usages of trade applicable to the transaction. After the amendment,
Section 28(3), which is extracted above, requires the Arbitral Tribunal, in all
cases , to take into account the terms of the contract and trade usages
applicable to the transaction.
14. This is a conscious departure by Parliament to give greater elbow room
and leeway to the Arbitral Tribunal to adjudicate the facts, taking into account
the peculiarities of the case. The facts of the case in hand are indeed
extraordinary. The deadline for completion was 18 months from the
Appointed Date. The Agreement itself was terminated three and a half years
after the Appointed Date. The Learned Arbitral Tribunal as the best judge of
the quality and quantity of evidence and in the matter of interpretation of
contract, has returned logical and reasonable findings of fact including on the
conduct of the parties during the course of implementing the Agreement; the
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understanding among them; their understanding before the litigation started;
the termination of the Agreement after the litigation started; and the
interpretation of the limit on damages bearing in mind the provisions of
Section 28(3) of the Act.
15. I must hasten to add that Section 28(3) of the Act is not a license to
ignore the terms of the contract at all, but it is a statutory recognition that
when parties invest their trust in an Arbitral Tribunal to adjudicate their
disputes, the Arbitral Tribunal would take into account the terms of the
contract as opposed to the earlier position of adjudicating only “in accordance
with” the contract. It is in extraordinary situations such as the matter at hand,
that it is arguable that the scheme of the fine balance of reciprocal promises
that the parties wove together may be required to be given business efficacy
where it otherwise presents completely irrational and absurd consequences.
Therefore, the evident objective is that the informal, non-Court adjudication
must be given greater leeway to do justice without ignoring the terms of the
contract but equally taking into account the contract rather than adjudicating
only in accordance with the contract while ignoring how the parties conducted
themselves.
16. The term “ in accordance with ” entails a mandatory stipulation while the
term “ take into account ” would entail factoring in the terms of the contract.
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Therefore, if the contract in question contains a provision of limiting damages,
needless to say, it cannot be wished away or ignored. However, when the
such provision of the contract, as
statutory stipulation is to “ take into account”
in accordance with
a conscious departure from the phrase “ ”, the legislature in
its wisdom has specifically held that the arbitral tribunal must have regard to
the contract. Yet, in a peculiar situation such as this, where the ROW has
simply not been provided for an inordinately long period of time with the
Appointed Date fixed by the PWD being ignored by the PWD itself, the
empowerment of the Arbitral Tribunal to decide the validity of the limit in the
contract introduced by Section 28(3) cannot be ignored.
17. It is the absurdity of the reciprocal promises being in conflict that
justifies invocation of the business efficacy test in the peculiar factual matrix at
hand. The Learned Arbitral Tribunal has examined the contentions of the
parties and noticed that KTIPL’s contention that handing over of the ROW is
the very genesis of the performance under the contract. That apart, the
Learned Arbitral Tribunal examined the provisions of the Clause 4.1.5 and the
contention of KTIPL that PWD’s reading of the same is an unconscionable and
arbitrary reading and that, if the clause were to be read in that manner, it
would be contrary to the provisions of the Indian Contract Act, 1872
(“ Contract Act ”) itself.
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Case Law Analysed:
18. KTIPL’s submission was that the limit of damages to 1% irrespective of
the nature, extent and quantum of the breach by the counterparty would be
contrary to the provisions of Sections 23, 28, 54, 55 and 73 of the Contract Act.
This submission was examined by the Learned Arbitral Tribunal, which led to
consideration of the judgement of the Delhi High Court in Simplex
3
Concrete to extract the analysis of the operation of Section 73 of the
Contract Act. The principle that a clause in a contract cannot be interpreted in
a manner that would prevent the award of reasonable damages as a
fundamental first principle of contract law has been alluded to in the said
judgement, invoking the decision of the Supreme Court in G. Ramachandra
4
Reddy . Likewise, the Learned Arbitral Tribunal cited the judgement of the
5
Supreme Court in K.N. Sathyapalan to notice that parties would
ordinarily be bound by the terms agreed upon in the contract, but if one of the
parties is unable to fulfil its obligations, and that has a direct bearing on the
work to be executed by the other party, the Arbitral Tribunal would be vested
with authority to compensate the non-defaulting party for the additional costs
incurred as a result of the failure of the other party to perform its obligations.
3 Simplex Concrete Piles (India) Ltd. v. Union of India – 2010 SCC OnLine Del 821 – Paras
1, 3, 9, 10, 14, 15 & 16
4 G. Ramachandra Reddy v. Union of India – (2009) 6 SCC 414 – Paras 19 to 27
5 K.N. Sathyapalan v. State of Kerela – (2007) 13 SCC 43
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6
19. In Ssangyong , the Supreme Court analysed the amendment to
Section 28(3), after noticing that the intention of this amendment was to
overcome and overrule the effect of the law earlier declared by the Supreme
7
Court in ONGC , which had held that any conflict with the terms of a contract
in an arbitral award would result in the award being against public policy. The
Arbitral Tribunal being the best arbiter of the interpretation of the contract,
held that a hidebound approach to a 1% cap on damages regardless of the
nature, degree and extent of the breach by PWD is an absurd proposition. The
Arbitral Tribunal is entitled to hold that the limit would not apply in such
situations where the imposition of the limit itself is interdependent on other
reciprocal promises contained in the very same contract.
20. Therefore, in my opinion, the reliance by the Learned Arbitral Tribunal
on Simplex Concrete cannot be held to be irrelevant or inapplicable.
Indeed, the findings of the Learned Arbitral Tribunal, in my opinion, cannot
be held to be absurdly unjustified and perverse in a manner that necessitates
setting aside the Impugned Award. I have carefully examined the judgements
extracted by the Learned Arbitral Tribunal and the application of the principle
gleaned from them to the facts of the case. The Learned Arbitral Tribunal
found that the Agreement required completion of the work within 18 months,
6 Ssangyong Engg. & Construction Co. Ltd. v. NHAI – (2019) 15 SCC 131 – Paras 38 to 41
7 ONGC v. Saw Pipes Ltd. – (2003) 5 SCC 705
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with not less than 90% of the site being handed over to KTIPL within 15 days
from the signing of the agreement and furnishing of the performance security.
21. The Learned Arbitral Tribunal found that while Clause 4.1.5 may be a
non obstante provision, it has to be read as a part of the contract
harmoniously with the other requirements in the contract and cannot be read
in a manner that is totally divorced from the foundational obligation of
handing over not less than 90% of the site to KTIPL, and that too within 15
days of the provision of the performance security. If all conditions in the
Agreement had been met, the Learned Arbitral Tribunal was of the view, that
the limit set out in Clause 4.1.5 could be logically applied and enforced.
However, the obligatory provision of 90% of the ROW was nowhere in sight.
The delays caused by this reason itself amounted to more than 545 days,
approximately 18 months, and therefore, it was held that it would be wholly
irrational, unfair and illogical to hold that the limit under Clause 4.1.5 would
inexorably apply with damages being restricted to 1% of the contract value.
22. The Learned Arbitral Tribunal found that the work site involving
approaches to the bridge could indeed be considered to be reasonably
problematic since there could be ownership of private lands in the process.
However, the handing over of the site was so inordinately delayed that the
work envisaged to be done in 18 months was prolonged by an additional 27
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months and then only upon arbitration being invoked, was the termination
notice issued. The Learned Arbitral Tribunal could not be blind to the fact
that KTIPL was at the site for 45 months prior to the termination and
therefore could not be held to be limited in its claim for damages to 1% of the
contract value as envisaged in Clause 4.1.5.
23. The Learned Arbitral Tribunal took the view that the restriction in
Clause 4.1.5, if enforced in the manner canvassed by PWD, would place a
premium on non-compliance and allow PWD to take benefit of its own wrong.
This has been squarely held in reliance upon the judgement of the Delhi High
Court in Simplex Concrete .
24. It is hard to hold that the interpretation of contract by the Learned
Arbitral Tribunal is an unreasonable one. It is in conformity with the law
declared by a High Court and it would not be possible to hold that such a view
is completely perverse or contrary to law. The judgements analysed by the
Learned Arbitral Tribunal cannot be brushed aside as being inapplicable,
inasmuch as the judgements indeed squarely dealt with the interpretation of
clauses that severely limited damages and thereby hampered the assessment
of reasonable damages incurred by a party that is a victim of a breach of
contract by the counterparty. For a deployment for 45 months in a project
envisaged to be completed in 18 months, with 90% of the ROW being required
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to be provided upfront, with that threshold not even being met when
termination was effected, which termination too was done after arbitration
was invoked, the Learned Arbitral Tribunal has indeed dealt with the matter
taking into account the substantive law of India and the contract.
25. Likewise, the Learned Arbitral Tribunal has relied upon the judgement
8
in Wing Commander to indicate how the Supreme Court did not enforce a
term of the contract which provided for a specific rate of damages in the event
of a failure, since the Agreement in question had been manifestly breached by
one of the parties and that too when the Agreement was evidently one-sided.
Therefore, the Learned Arbitral Tribunal interpreted the contract in the
context of the law declared to hold that restricting damages to an insignificant,
tiny ceiling without regard to the web of interconnected obligations contracted
by the parties, is untenable.
26. In my opinion, the contention of PWD that the Learned Arbitral
Tribunal has relied upon inapplicable judgements is not at all tenable. The
judgements analysed and extracted are directly on point. Therefore, when an
Arbitral Tribunal interprets the contract, unless the interpretation is
manifestly arbitrary in a manner that goes to the root of the matter, the
Section 34 Court ought not to disturb a reasonable and plausible finding
8 Wing Commander Arifur Rahman Khan v. DLF Southern Homes (P) Ltd. – 2020 16 SCC
512
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returned by the Learned Arbitral Tribunal. The nuanced and interconnected
web of timelines contracted by the parties lies at the heart of the dispute
between the parties. The contract was meant to be performed within a
predetermined and identified timeframe. Such timeframe entailed
interconnected obligations that needed to be performed. Ignoring the
reciprocal promises and simply taking one of the promises alone as being
binding, regardless of all the other provisions of the contract, would render the
interpretation canvassed by PWD to be wholly unreasonable, irrational and
contrary to common sense, quite apart from placing a premium on violation of
such a degree that there would be no disincentive at all for a wanton breach of
the obligation.
27. In my opinion, the reasoning provided by the Learned Arbitral Tribunal
in interpreting Clause 4.1.5, and indeed Clause 1.2.1(w) is a reasonable one.
Clause 1.2.1(w), which refers to the provisions of contract that determine
damages on a per-day basis and not to provisions imposing an overall cap on
the total quantum of damages, was held by the Learned Arbitral Tribunal to
fall in the realm of liquidated damages, which would then be governed by the
9
principles enunciated in Kailash Nath . On the other hand, the restriction
of 1% on the overall quantum of damages was held to be deviant from the very
9 Kailash Nath Associates v. DDA – (2015) 4 SCC 136
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concept of the need to demonstrate damages and the need to assess damages,
which is the very principle articulated in Kailash Nath .
28. To my mind the serious deep limit placed under Clause 4.1.5 would be
applicable only if there had been a reasonable delay in handing over the ROW.
I am afraid that the contention that even if the Agreement had been
terminated only another decade later, with ROW not having been given, the
cap on damages would still be 1%, would lead to an absurd outcome and make
a mockery of contract law. The delay in this case is abnormal and the
exclusionary clause cannot be blindly applied. This is where the business
efficacy test would have to be applied to make sense of the Agreement.
29. Mr. Tamboly’s reliance on another decision of the Delhi High Court in
10
MBL to contend that clauses in a contract that restrict the right of a party to
claim damages would defeat the very purpose of the Contract Act, resonates
with me in accepting the approach of the Learned Arbitral Tribunal, that there
cannot be a limit on the right of a party to claim damages, is a reasonable and
logical proposition. To my mind, although at first blush Clause 4.1.5 presents
a strong argument in PWD’s favour, on a reflection upon the facts and the
evidence assessed by the Learned Arbitral Tribunal, the Impugned Award does
10 MBL Infrastructures Ltd. v. DMRC – 2023 SCC OnLine Del 8044
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not return an impossible finding for a Section 34 Court to upset the arbitral
findings.
30. PWD would place reliance on a number of judgements to contend that
the Arbitral Tribunal cannot go beyond the terms of the contract. These
11 12
include the decisions in Bright Power ; Vilayati Ram ; Ssangyong ;
13 14 15 16
Recon ; Deccan Chronicle ; Sal Udyog ; Manraj ; and PSA
17
SICAL .
31. To my mind, each of these judgements is distinguishable. The decision
in Bright Power related to interest and an agreement between the parties to
waive the payment of interest. This is not a judgement that relates to a severe
limit on damages. In Vilayati Ram , this Court set aside an arbitral award on
the basis of a categorical finding that the clause limiting damages was
excluded by the arbitral tribunal from consideration. On the other hand, in
the instant case, PWD’s reliance on Clause 4.1.5 has been noticed, considered
and dealt with, with an extensive analysis as to why it would constitute a
provision contrary to the Contract Act.
(2015) 9 SCC 695
11 Union of India v. Bright Power Projects (India) Pvt. Ltd. –
2017 SCC OnLine Bom 8479
12 Vilayati Ram Mittal (P) Ltd. v. Reserve Bank of India –
2020 SCC OnLine Bom 2278
13 Union of India v. Recon, Mumbai –
2021 SCC
14 Board of Control for Cricket in India v. Deccan Chronicle Holdings Ltd –
OnLine Bom 834
15 State of Chhattisgarh v. Sal Udyog (P) Ltd. – (2022) 2 SCC 275
16 Union of India v. Manraj Enterprises – (2022) 2 SCC 331
17 PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust – (2023) 15 SCC 781
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32. Ssangyong does not appear to be of any assistance to PWD. The
Learned Arbitral Tribunal has indeed given detailed reasons in the paragraphs
6.2.22 to 6.2.36 to squarely explain how the provisions of Clause 4.1.5 cannot
be read in isolation without taking a holistic view of the Agreement. I have
already dealt with the detailed reasoning adopted by the Learned Arbitral
Tribunal and in fact, as stated earlier, I find that the analysis of Section 28(3)
set out in Ssangyong , if anything, supports the plausible view taken in the
Impugned Award in respect of how Clause 4.1.5 ought to be interpreted. As
regards Recon , in my opinion, by reason of the explanation set out in relation
to Ssangyong ; the applicability of Simplex Concrete ; the analysis set out
in this judgement as to why the Impugned Award is logical and plausible; and
indeed, the provisions of Section 28(3) of the Act, the Impugned Award is not
worthy of being disturbed.
33. To avoid prolixity, each and every judgement cited to make the same
point is not being extracted and dealt with – I have given a fair indication
above, of the principle underlying these multiple judgements. It cannot be
said that any rewriting of the contract or any new provision not envisaged by
the parties has been brought in and substituted by the arbitral tribunal.
Instead, in my view, what the Learned Arbitral Tribunal has done is interpret
the Agreement in a logical and reasonable manner to give it business efficacy.
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Such interpretation squarely falls in the domain of the Learned Arbitral
Tribunal.
Business Efficacy Test:
34. A quick word on business efficacy is necessary. Mr. Joshi would rely on
the principle that only when a commercial contract presents an ambiguity
necessitating an inquiry into the true intent, purport and interpretation of a
contractual provision, that the business efficacy test can be applied. A
purposive interpretation cannot be lightly resorted to if the terms of the
contract are clear and unambiguous, leaving no scope for interpretation
whatsoever. In that context, Mr. Joshi would submit that resorting to an
interpretation going behind the plain language of the contract under the garb
of commercial wisdom and business efficacy is wholly impermissible. In my
opinion, the general proposition as stated, being not in itself exceptionable,
when seen from the factual prism of this case, this is a fit case for application
of the business efficacy test.
35. In situations where the provisions of a contract when applied to a
problematic fact pattern as seen in the instant case, lead to ambiguity of such
an order, particularly in a commercial contract, that the commercial wisdom
and the commercial sense in striking such a bargain call for review by the
Arbitral Tribunal, it is not wrong to invoke the business efficacy test. The
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18
Supreme Court in the case of Nabha Power has clearly declared the law on
the business efficacy test. The Supreme Court noticed various earlier
judgements on how to give commercial sense to terms in a contract that may
not lend themselves to a clear unequivocal meaning, in the following terms:
49. We now proceed to apply the aforesaid principles which have evolved for
interpreting the terms of a commercial contract in question. Parties indulging in
commerce act in a commercial sense. It is this ground rule which is the basis
of The Moorcock [The Moorcock, (1889) LR 14 PD 64 (CA)] test of giving
“business efficacy” to the transaction, as must have been intended at all events by
both business parties.
The development of law saw the “five condition test” for an
implied condition to be read into the contract including the “business efficacy”
test. It also sought to incorporate Officious Bystander
“the Test”
[Shirlaw v. Southern Foundries (1926) Ltd. [Shirlaw v. Southern Foundries (1926)
Ltd., (1939) 2 KB 206 : (1939) 2 All ER 113 (CA)] ]. This test has been set out
in B.P. Refinery (Westernport) Proprietary Ltd. v. Shire of Hastings [B.P. Refinery
(Westernport) Proprietary Ltd. v. Shire of Hastings, 1977 UKPC 13 : (1977) 180
CLR 266 (Aus)] requiring the requisite conditions to be satisfied : (1) reasonable
and equitable ; (2) necessary to give business efficacy to the contract; (3) it goes
without saying i.e. the Officious Bystander Test; (4) capable of clear expression ;
and (5) must not contradict any express term of the contract . The same penta-
principles find reference also in Investors Compensation Scheme Ltd.v. West
Bromwich Building Society [Investors Compensation Scheme Ltd. v. West Bromwich
Building Society, (1998) 1 WLR 896 : (1998) 1 All ER 98 (HL)] and Attorney
General of Belize v. Belize Telecom Ltd. [Attorney General of Belize v. Belize
Telecom Ltd., (2009) 1 WLR 1988 (PC)] Needless to say that the application of
these principles would not be to substitute this Court’s own view of the presumed
18 Nabha Power Ltd. v. Punjab SPCL – (2018) 11 SCC 508
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understanding of commercial terms by the parties if the terms are explicit in their
expression. The explicit terms of a contract are always the final word with regard
to the intention of the parties. The multi-clause contract inter se the parties has,
thus, to be understood and interpreted in a manner that any view, on a particular
clause of the contract, should not do violence to another part of the contract.
[Emphasis Supplied]
36. In coming to the foregoing view, the Supreme Court endorsed and
reiterated what had been stated in a long line of judgements that had endorsed
19
these principles including in the cases of Dhanrajamal Gobindram
20 21
(paragraph 19); D.N. Revri (paragraph 7); and Satya Jain (paragraphs
33 to 35). Applying these well-known principles, in my opinion, effectively
what the Learned Arbitral Tribunal has found is clearly justifiable on the
aforesaid parameters.
37. Indeed, an arbitrator cannot ignore the conditions of a contract or a
head of claim that is prohibited by contract. Indeed, as stated by Mr. Joshi, an
award cannot be passed in manifest ignorance of the terms of the contract.
However, in the facts of the instant case, it cannot be said that the Learned
Arbitral Tribunal has manifestly ignored Clause 4.1.5. On the contrary, the
issue involved is how to apply Clause 4.1.5 and whether Clause 4.1.5 in its
19 Dhanrajamal Gobindram v. Shamji Kalidas & Co. – 1961 SCC OnLine SC 28
20 Union of India v. D.N. Revri & Co. – (1976) 4 SCC 147
21 Satya Jain v. Anis Ahmed Rushdie – (2013) 8 SCC 131
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terms enabled, or even required the Learned Arbitral Tribunal to completely
ignore the breach of various other provisions of the contract.
Conclusion on Clause 4.1.5:
38. In a multi-clause contract, if one clause is to be interpreted in a manner
that inflicts violence upon another part of the contract, it would follow that
both such clauses would need to be reconciled. The reconciliation of Clause
4.1.5 with the timelines envisaged in the Agreement, holding it to be squarely
applicable when the reciprocal promises contained in the same contract are
indeed being performed, to my mind, indeed is responsive to such
requirement of reconciling the clauses. It is not the Learned Arbitral
Tribunal’s case that Clause 4.1.5 has no role whatsoever. What the Learned
Arbitral Tribunal has held is that Clause 4.1.5 would indeed run its course if, in
the wider context of how the parties entered into the bargain, its application
would lead to the terms of the contract, including the terms of Clause 4.1.5
being seen as a logical and reasonable extrapolation of the operation of the
rest of the contract.
39. The PWD was meant to provide 90% of ROW within 15 days of receipt
of the performance security. The timelines in the matter were linked to the
provision of the ROW. Evidently, the contract continued without any
termination with KTIPL being mobilised throughout the period all the way up
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to October 25, 2018, when termination was effected after arbitration was
invoked. In terms of PWD’s own case, the Appointed Date under the contract
for completion of the work would have been January 27, 2015, resulting in the
scheduled completion date being July 26, 2016 i.e. completion within 18
months or 545 days. Such completion not being achieved only because even
the initial handing over of 90% of the ROW, which indeed had also been an
integral part of the contract between the parties cannot be wished away.
40. That KTIPL was mobilised for 45 months cannot be wished away. If one
were to read Clause 4.1.5 without regard to Clause 4.1.3(a), one would be
reading the clause in isolation without examining the commercial and logical
interlinkage between these two vital clauses. If the very basis on which
performance is claimed and the very basis on which the alleged lack of
performance is said to lead to the termination are undermined, it would follow
that the limit on damages cannot be without regard to time. If PWD’s
contention were to be accepted, it would follow that PWD would be entitled to
keep KTIPL deployed for an infinite time or even for another five years or 10
years for that matter, and take its own time to provide the ROW with no scope
for damages for such delay ever crossing 1% of the contract value.
41. Such a proposition is absurd to say the least and therefore, in my
opinion, the attack on the Impugned Award on the premise that the contract
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has been rewritten is not sustainable. The Learned Arbitral Tribunal, far from
re-writing the terms of the contract has restricted itself to reconciling in a
cohesive manner, the multiple provisions of the contract and giving them a
logical meaning, because not doing so would have led to an ambiguity and
absurdity in the interpretation of the terms of the contract. This is precisely
the ambiguity that led to the application of the business efficacy test and
therefore, in my opinion, no case would be made out for accepting the
contention that the Impugned Award is patently illegal for having ignored the
specific provisions of the contract, namely, Clause 4.1.5.
42. Therefore, in my opinion, no case has been made out to accept the
contention made on behalf of PWD that the interpretation contained in
paragraphs 6.2.22 to 6.2.36 of the Impugned Award would warrant any
interference.
Award of Interest:
43. This brings me to the issue of interest awarded by the Learned Arbitral
Tribunal at 18% per annum compounded quarterly. The award of interest is
assailed by PWD on the premise that the interest awarded is directly in
conflict with interest stipulated in multiple clauses of the Agreement.
44. The provisions of Section 31(7) bear extraction:
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31. Form and contents of arbitral award. —
(7) (a) Unless otherwise agreed by the parties , where and in so far as an arbitral
award is for the payment of money, the arbitral tribunal may include in the sum for
which the award is made interest, at such rate as it deems reasonable, on the
whole or any part of the money, for the whole or any part of the period between
the date on which the cause of action arose and the date on which the award is
made.
(b) A sum directed to be paid by an arbitral award shall, unless the award
otherwise directs, carry interest at the rate of two per cent higher than the current
rate of interest prevalent on the date of award, from the date of award to the date
of payment .
Explanation.—The expression “current rate of interest” shall have the same
meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14
of 1978).
[Emphasis Supplied]
45. From a plain reading of the foregoing, it would be seen that where the
award is for payment of a sum of money and the parties have an agreement on
payment of interest on such amount, then the Arbitral Tribunal would be
bound by the agreement already made between the parties. This is why the
unless otherwise agreed by the parties
phrase “ ” is used in this provision to
at such rate
fetter the Tribunal’s power to assess interest and award the same “
as it deems reasonable ”.
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46. Therefore, it is to be seen whether the finding by the Learned Arbitral
Tribunal in its assessment of the applicable interest rate is logical and in
conformity with what has been agreed between the parties. Towards this end,
when one carefully analyses the content of the arbitral award in Paragraph
6.21 and its sub-paragraphs, it would be clear that the Learned Arbitral
Tribunal has again looked at the relevant case law on the point and has
analysed the two provisions, namely, Clause 19.9.2 and Clause 19.2.7 and set
out its interpretation of the same. Bearing that in mind, the Learned Arbitral
Tribunal has computed interest at the rate of 18% per annum with quarterly
compounding on all the amounts awarded.
47. Clause 19.9.2 of the Agreement, according to PWD, would point out that
the interest rate would be at a base rate plus 2% calculated at quarterly rests,
with the base rate being the floor rate of interest announced by the State Bank
of India on all its lending operations.
48. This facet has been discussed by the Learned Arbitral Tribunal in
Paragraph 6.21 and its various sub-paragraphs. According to PWD, the
Learned Arbitral Tribunal’s reasoning with reliance upon allegedly
inapplicable judgements has resulted in interest being awarded at a quarterly
compounded rate of 18% per annum throughout the course of the contract,
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pre-arbitration, pendente lite and post-arbitration, rendering the Impugned
Award patently illegal.
49. It would be appropriate to extract the clauses relied upon namely,
Clause 19.9.2 and Clause 19.2.7 from the Agreement:
19.9.2 In the event of the failure of the Authority to make payment to the
Contractor within the time period stated in this Clause 19.9, the Authority shall be
liable to pay to the Contractor interest at the Base Rate plus 2% (two percent),
calculated at quarterly rests, on all sums remaining unpaid from the date on which
the same should have been paid, calculated in accordance with the provisions of
Clause19.9.1(a) and (b) and till the date of actual payment.
19.2.7 The Contractor shall repay each installment of the Advance Payment on or
before the due date of repayment.
In the event of the Contractor’s failure to make
the repayment on time, the Authority shall be entitled to encash the Bank guarantee
for Advance Payment. The Parties expressly agree that for any delay in repayment
of the Advance Payment, the Contractor shall pay interest to the Authority for
each day of delay, such interest to be calculated at the rate of 18% (eighteen per
cent) per annum. ”
[Emphasis Supplied]
50. The interest rate applicable under Clause 19.9.2 is a rate that is payable
in the event of failure by PWD to make a payment within the stipulated time.
On the other hand, under Clause 19.2.7, KTIPL is required to repay each
instalment of the advance payment on or before the due date of repayment
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and in the event of such failure the bank guarantee towards the advance
payment could be encashed by PWD.
51. It is in this context that the parties have agreed that for any delay in
repayment of the advance payment, the interest payable by KTIPL to PWD for
each day of delay would be calculated at the rate of 18% per annum.
52. It is apparent that each of these provisions is specific in its terms. These
clauses would apply only in the case of events covered by them. In the instant
case, evidently work has been delayed way beyond the scheduled completion
date i.e. 18 months. The additional time taken is another 27 months, in which
period, the Arbitral Tribunal noticed that KTIPL had borrowed funds from
banks and was incurring interest at the rate of 13.8% per annum compounded
monthly. The breach in servicing of the loans taken by KTIPL led to a further
escalation in KTIPL having to bear a burden of interest, resulting in an
effective rate of 18.8% per annum, that too compounded monthly. When one
examines this analysis, it is apparent that with the interest element, the
Learned Arbitral Tribunal has effectively awarded damages rather than
assessed the appropriate interest rate.
53. The Tribunal held that Clause 19.9.2 is not applicable to the instant case
and instead that Clause 19.2.7 would point to the rate at which interest was
payable by KTIPL. While it may be tempting to hold that this too falls in the
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realm of the Learned Arbitral Tribunal’s entitlement to interpret the contract
reasonably having regard to its terms, I find it difficult to accept the reasons
for which interest has been granted in this manner. If anything, the parties
had indicated guidance in the two clauses above as to what rate of interest
would be payable by the respective party in the situations specified. The
parties have consciously agreed to different rates of interest and this conscious
choice cannot be wished away.
54. This facet of the matter is quite different from the rigid fixed limit on
damages that is contained in Clause 4.1.5, which has been dealt with in detail
above. There is nothing rigid and limiting of the ordinary flow of contract law
principles in relation to the aforesaid two clauses on interest. Therefore, the
Learned Arbitral Tribunal ought to have been mindful that the 18% rate of
interest being adopted from the clause containing KTIPL’s potential obligation
to pay interest and varying even that to compounding at quarterly rests, and
justifying it by reference to the rate of interest borne by KTIPL with its
lenders, to my mind is, a perverse and patently illegal approach, by turning the
bargain on interest in the contract on its head and further extrapolating from
it to change simple interest to compound interest and that too at quarterly
rests.
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55. Therefore, this facet of the matter, in my judgement, would need
intervention. I have carefully considered the law on partial modification to see
if the Impugned Award can be saved, with particular regard to the law
22
declared in Gayatri Balasamy . I find that the law declared by the
Supreme Court would permit the Section 34 Court to modify only the post-
award interest awarded by the Arbitral Tribunal and not the pendente lite
interest. The following extracts are noteworthy:
73. There can be instances of violation of Section 31(7)(a), and the pendente lite
interest awarded may be contrary to the contractual provision. We are of the
opinion that, in such cases, the court while examining objections under Section 34
of the 1996 Act will have two options. First is to set aside the rate of interest or
second, recourse may be had to the powers of remand under Section 34(4).
74. For the post award interest in terms of Section 31(7)(b), the courts will
retain the power to modify the interest where the facts justify such modification .
This is why the standard rate stipulated in clause (b) applies when the award itself
does not specify the applicable post award interest. There can be a situation where
the party to be paid money is at fault and is guilty of delay which may require a
modification in the rate of interest. In the absence of grant of post award interest in
the award, the court also possesses the power to grant post award interest. Clearly,
as per the legislative mandate, it is not the sole prerogative of the arbitrator.
[Emphasis Supplied]
22
Gayatri Balasamy v. ISG Novasoft Technologies Ltd. – (2025) 7 SCC 1
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56. In view of the law so declared, I am unable to save the element of
interest as awarded by the Learned Arbitral Tribunal and substitute it with my
view on what the interest should be. The Learned Arbitral Tribunal has
granted 18% interest compounded at quarterly rests both pendente lite as well
as post-award. I see no point in modifying the post-award interest rate alone,
which would still not solve the issue relating to the interest granted under
Section 31(7)(a), which is awarded without regard to the relevant provisions of
the contract. The length of time for this component of the interest is also long
and is in the realm of facts, and it is the Learned Arbitral Tribunal that is best
placed to rectify it.
57. Equally, interference on the facet of grant of interest would not at all
undermine the Impugned Award and its validity on all other facets of the
matter. Here again, in view of the law declared in Gayatri Balasamy , in
my view, it is eminently feasible to excise and segregate just the portion of the
Impugned Award that relates to the award of interest at the rate of 18%
compounded quarterly without such excision having any impact on the rest of
the Impugned Award.
Summary of Conclusions:
58. Therefore, for the aforesaid reasons, my conclusions are summarised as
under:
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A] The Impugned Award does not deserve to be interfered with on
the ground that it is violative of Clause 4.1.5 of the Agreement which
fixes a firm absolute limit of 1% of the contract value on damages
without regard to the facts as they transpire;
B] In the specific facts of this case, to have such a fixed cap on
damages in the context of an abject default and delay in provision of
ROW on the part of PWD; keeping KTIPL mobilised for 45 months; with
termination being effected upon arbitration being invoked; in totality,
lends itself to the invocation by the Learned Arbitral Tribunal, of the law
declared by High Courts. The interpretation by the Learned Arbitral
Tribunal in this regard falls in the realm of a reasonable application of
the law and indeed, giving business efficacy to the Agreement as a
whole;
C] The findings of the Learned Arbitral Tribunal have been rendered
by taking into account the terms of contract and by applying the law
declared by Courts, in a manner that is consistent with the law and
reasonable enough for the Section 34 Court to not interfere with the
grant of damages in the Impugned Award;
D] On the facet of interest, the grant of interest at 18% compounded
at quarterly rests is squarely in conflict with the calibrated bargain
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entered into by the parties in the Agreement. That apart, there was no
scope to regard the parties as having agreed for compounding of interest
at quarterly rests, and the attempt to justify it by reference to the
interest burden borne by KTIPL with its lenders, nudges the award of
interest from the realm of interest to the realm of assessment of
damages;
E] In the result, interference with the Impugned Award is warranted
because of the manner of grant of pendente lite as well as post-award
interest at the rate of 18% compounded quarterly. However, such
interference can be eminently restricted to just the element of award of
interest without disturbing the rest of the Impugned Award. Therefore,
deploying the principles of law declared in Gayatri Balasamy , it
would only be appropriate to restrict the intervention to quashing and
setting aside the facet of grant of interest as made in the Impugned
Award;
F] In the result, the element of interest and the dispute over the rate
of interest to be awarded remain arbitrable since the arbitration
agreement between the parties subsists on this facet of the matter. The
parties are at liberty to have this element referred to arbitration to have
it resolved.
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59. With the aforesaid conclusions, the Petitions are partly allowed and
the Impugned Award is only partially quashed and set aside, while otherwise
upholding it on all aspects of the matter, other than the award of interest.
60. The Petitions are finally disposed of in the aforesaid terms. In the
peculiar circumstances of the case, there shall be no order as to costs.
61. All actions required to be taken pursuant to this order shall be taken
upon receipt of a downloaded copy as available on this Court’s website.
[SOMASEKHAR SUNDARESAN, J.]
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