An arbitral tribunal cannot award unclaimed relief; doing so exceeds the submission and constitutes patent illegality.

NHPC invited bids for construction of a diversion tunnel and related civil works for the 231 MW Chamera III Hydroelectric Power Project. Hindustan Construction Co. Ltd. (“HCCL”) was awarded the contract on 21.09.2005, with the agreement executed on 17.10.2005. The contractual completion period was fifty-two months, expiring on 20.01.2010.

Owing to various hindrances, HCCL sought ten extensions of time, and the works were ultimately completed on 16.03.2012.

HCCL raised claims for additional costs allegedly incurred during the extended period from 21.01.2010 to 31.07.2011. In arbitration, it initially quantified the claim at approximately Rs.195.33 crores and later reduced it to approximately Rs.143.04 crores.

The majority of the arbitral tribunal held that HCCL was not contractually entitled to claim additional costs for the extended period, but nevertheless awarded Rs.26,05,59,100 towards on-site and head-office overheads for the hindrance period, together with interest, VAT and labour cess.

Both parties filed petitions under Section 34 of the Arbitration and Conciliation Act, 1996: HCCL challenged the rejection of its extended-period cost claim, while NHPC challenged the award of costs for the hindrance period.

1. Whether the arbitral tribunal could award additional costs for the extended period when, on its interpretation of the contract, HCCL was not entitled to such costs under Sub-clause 12.2 of the GCC?

2. Whether the tribunal could award costs for the hindrance period when it had recorded that HCCL had not made such a claim before it?

3. Whether the tribunal’s reliance on the COPA provisions and CWC guidelines, without confronting the parties, violated Section 24(3) of the Act and principles of natural justice?

4. Whether the impugned award was liable to be set aside under Sections 34(2)(a)(iii), 34(2)(a)(iv) and the patent-illegality doctrine?

The Court applied Sub-clause 12.2 of the GCC, under which the engineer may determine both an extension of time and costs incurred because of unforeseeable physical obstructions, subject to proof of the costs.

It applied Section 24(3) of the Arbitration and Conciliation Act, 1996, which requires that documents or other material relied upon by the tribunal be communicated to the parties, and Section 34(2)(a)(iii), which permits challenge where a party was unable to present its case.

Section 34(2)(a)(iv) was applied where an award deals with matters beyond the scope of the submission to arbitration.

The Court further relied on Ssangyong Engineering & Construction Co. Ltd. v. NHAI, holding that reliance on material taken behind a party’s back can constitute perversity and violate the statutory hearing requirements.

Under PSA Sical Terminals (P) Ltd. v. V.O. Chidambaranar Port Trust, Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum and State of Chhattisgarh v. SAL Udyog (P) Ltd., an arbitral tribunal is a creature of contract, must act within the contractual terms, and may commit patent illegality by disregarding or exceeding those terms.

Bharat Coking Coal Ltd. v. Annapurna Construction was relied upon for the distinction between an error within jurisdiction and an award made in excess of the tribunal’s contractual jurisdiction.

The tribunal had found that the delay arose from unforeseeable physical obstructions and that NHPC was not in breach of contract.

The Court held that Sub-clause 12.2 permitted recovery only of costs actually incurred because of the obstruction and did not dispense with the requirement of proving those costs.

The tribunal had itself concluded that HCCL’s financial statements and auditor’s certificate were unreliable and that the actual expenses had not been proved, yet it quantified overheads and supervision charges on an equitable basis using the Emden formula, COPA provisions and CWC guidelines.

This was impermissible because the tribunal could not invoke equity to create an entitlement contrary to the contract, particularly after rejecting the contractual claim.

Further, the tribunal relied on COPA provisions and CWC guidelines without giving the parties an opportunity to address them, contrary to Section 24(3) and natural justice.

The award was also internally contradictory: after holding that HCCL was not entitled to extended-period costs and had failed to claim hindrance-period costs, it awarded Rs.26,05,59,100 for the hindrance period.

The tribunal therefore granted relief on a claim not submitted for adjudication and exceeded the scope of the reference under Section 34(2)(a)(iv).

The award also suffered from patent illegality because the tribunal rejected HCCL’s contractual entitlement and proof of loss but nevertheless awarded compensation on equitable and formulaic grounds.

The impugned award dated 09.04.2018 was accordingly set aside in its entirety, and both Section 34 petitions were disposed of.