AAI Caused Rajahmundry Airport Wall Delay, But Delhi HC Sets Aside Rs 64.6 Lakh In Escalation, Diesel And Trolley Claims

01Facts

AAI engaged Vidya Infrabuilt Pvt. Ltd. to construct operational and property boundary walls at Rajahmundry Airport, with completion stipulated for 6 November 2017.

The arbitrator found that AAI provided the worksite in disconnected portions, causing delay, and awarded amounts on several claims, including rent, escalation, diesel, machinery and vehicle-related expenses, with interest at 8% per annum.

pp. 2–5, 15–8

AAI challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

At the hearing, AAI did not press its challenge to Claims A and E, while the respondent conceded that Claim C could be set aside.

p. 9, 13, 19

02Issues

i.1. Whether the arbitrator’s finding that AAI caused delay by failing to provide continuous work fronts warranted interference under Section 34

¶ 54–57

ii.2. Whether the awards on Claims B, H, K, M, N and O were legally sustainable, including whether the arbitrator applied the contract and established a sufficient connection between the breach and the loss awarded

¶ 41–43, 58

iii.3. Whether the interest award should continue on the claims that survived the Section 34 challenge

¶ 106–08

03Law Applied

Section 34 of the Arbitration and Conciliation Act, 1996 permits interference with an award on limited grounds; patent illegality must go to the root of the matter, and courts may not set aside an award merely for an erroneous application of law or by reappreciating evidence.

¶ 42–45, 49–51

Under Section 28(3) of the Act, the tribunal must take account of the contract’s terms.

¶ 42–45, 49–51

Section 73 of the Indian Contract Act, 1872 allows compensation for loss naturally arising from a breach, or loss the parties knew to be likely, but does not make every expenditure incurred during a delayed contract recoverable without proof of causation and loss.

¶ 42–45, 49–51

The Court relied on OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd. for the patent-illegality standard, Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd. and Union of India v. Ahluwalia Contracts (India) Ltd. on proof and computation of damages, and Gayatri Balasamy v. ISG Novasoft Technologies Ltd. on severing an invalid, distinct part of an award.

¶ 44, 50, 52

Clause 10CA of the contract required use of the lower of the stipulated-completion-date index and the index for the relevant period during an extension.

¶ 68–72

Provisions in the judgment · 4 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 34 Section 28

Indian Contract Act, 1872 Section 55 Section 73

04Reasoning

The Court upheld the arbitrator’s finding that AAI was responsible for delay, relying on the correspondence and Clause 15.1 of the Special Conditions, which identified the worksite as belonging to AAI; that factual finding did not itself establish every claimed loss.

¶ 54–57

Claim B was upheld because the arbitrator relied on recorded licence-fee deductions and accommodation expenses, and confined recovery to supported amounts and a reasonable period after foreclosure.

¶ 59–64

Claim H was set aside because the arbitrator’s approach to extended-period escalation departed from Clause 10CA’s express lower-index formula.

¶ 68–76

Claim K was set aside because the award did not address the respondent’s undertaking not to claim escalation under Clause 10CC for the extension, or establish a distinct loss caused by the breach.

¶ 79–85

Claims M and N were upheld as factual findings supported by invoices and limited to identified periods or reasonable post-foreclosure commitments.

¶ 86–97

Claim O was set aside because invoices proved expenditure, but the award did not establish what portion was additional expenditure caused by fragmented work fronts, rather than ordinary performance costs.

¶ 99–105

The interest award was consequential and therefore could continue only on surviving claims.

¶ 106–08