An Engineer’s failure to determine rates does not make the contractor’s proposed rates binding.

The petitioner challenged the arbitral award dated 21 March 2014 under Section 34 of the Arbitration and Conciliation Act, 1996, limiting its challenge to Claim No. 1 concerning unpaid final-bill amounts, rates for quantities exceeding contractual deviation limits, and payment for extra items.

The arbitrator rejected the claim concerning deviated items, finding that the parties had agreed to the applicable rates through letters dated 15 December 2011.

For extra items, the arbitrator awarded Rs. 11,13,256 for twelve items and restored Rs. 25,73,190 previously paid for four items but recovered in the final bill; the claim for additional quantities of Items 3/2 and 3/3 was rejected.

1. Whether the arbitrator’s rejection of the claim for quantities beyond the permissible deviation limits, based on the petitioner’s letters accepting specified rates, disclosed patent illegality or another ground for interference under Section 34.

2. Whether the arbitrator’s assessment of rates for extra items and rejection of the claimed additional quantities for Items 3/2 and 3/3 warranted interference under Section 34.

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, as it stood before the 2015 Amendment, because the challenge proceedings were initiated before that amendment came into force.

Under the pre-amendment standard, an award could be set aside for patent illegality, including disregard of a binding contractual stipulation going to the root of the matter; however, contractual interpretation and assessment of evidence primarily belong to the arbitrator, and a plausible view cannot be displaced merely because another view is possible.

The Court relied on ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705, on patent illegality and public policy.

The Court relied on DDA v. Swastik and Union of India v. Master Construction Co., (2011) 12 SCC 349, for the principle that coercion or economic duress cannot be established by a bare assertion and requires a credible factual foundation.

Clause 12.2 required market-rate determination for excess quantities but did not make the contractor’s unaccepted rates automatically binding if the Engineer-in-Charge failed to determine rates in time.

The Court held that the arbitrator had considered Clause 12.2 and was entitled to assess the subsequent letters, which expressly recorded unconditional acceptance of rates for the excess quantities.

The petitioner’s allegation that the letters were obtained under economic pressure was unsupported by identified communications or other material showing that payment had been made conditional on their execution; the arbitrator’s inference of a negotiated settlement was therefore a permissible view.

For the twelve extra items, neither the petitioner’s unsupported and excessive rate analysis nor the respondent’s DSR-plus-1.85% approach was accepted; the arbitrator used the average enhancement of 38.90% applied to six other extra items under the same contract as a benchmark, a methodology grounded in the record.

The arbitrator separately restored amounts previously paid for four extra items but rejected the claimed additional quantities of Items 3/2 and 3/3 after examining the R.A. bills and finding the quantities unclaimed in the relevant bills.

The Court declined to reappreciate that evidence.

The challenge to Claim No. 1 was rejected, the Section 34 petition was dismissed, and any pending applications were disposed of.