Arbitral Award Based on Claim Statements Without Corroborative Evidence Amounts to Patent Illegality and Perversity

In brief

The question

1. Whether the claim for reimbursement of additional taxes was barred by limitation

The court held

The Court answered the first issue in favor of the Respondent, holding the claim was not barred by limitation

It also directed

The Court found the award "bereft of reasons" and characterized the Tribunal’s decision as perverse and patently illegal

01Facts

The Petitioner (NHAI) and Respondent (GMR) entered into a Concession Agreement (CA) on 09.10.2001 for the development of a stretch of NH-45 in Tamil Nadu on a Build-Operate-Transfer (BOT) basis

p. 2

In 2012, the Respondent raised a claim for "Additional Cost" under Article 11 (Change in Law) due to increased rates of Minimum Alternate Tax (MAT), Fringe Benefit Tax (FBT), and Service Tax (ST) occurring after the proposal due date

p. 2

NHAI rejected the claim in 2014, leading to arbitration. The Arbitral Tribunal awarded the Respondent ₹14,51,57,902/- plus interest

pp. 2-3

NHAI challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, alleging the claim was barred by limitation, the taxes didn't constitute "Additional Cost," and the award lacked evidence and reasoning

p. 3

02Issues

i.1. Whether the claim for reimbursement of additional taxes was barred by limitation

p. 8 / para. 6

ii.2. Whether the arbitral award was perverse and patently illegal for being unreasoned and based on no evidence

pp. 9-12 / para. 9-16

03Law Applied

The court applied Section 31(3) of the Arbitration and Conciliation Act, 1996, which mandates that an arbitral award must state the reasons upon which it is based

p. 11

It relied on Ssangyong Engg. & Construction Co. Ltd. v. NHAI, which establishes that a finding based on no evidence or ignoring vital evidence constitutes patent illegality

p. 10

It further cited Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. and Som Datt Builders Ltd. v. State of Kerala, emphasizing that while awards are not court judgments, reasons must be intelligible and adequate to guarantee fair consideration

pp. 11-12

State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd., which holds that awarding a claim solely based on a claim statement without evidence is invalid

p. 10

Provisions in the judgment · 2 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 31 Section 34

04Reasoning

The Court first dismissed the limitation objection, holding that the cause of action arose only when the additional cost threshold under Article 11 was crossed in 2010

p. 8

The Court noted that the Respondent merely provided tabulated statements of tax variations without leading evidence to prove that the taxes at enhanced rates were actually paid or that they occurred after the proposal date

p. 9

The Court observed that under Article 11.2, proving the "incurring" of cost is a fundamental requirement, which was not met here

p. 9

Furthermore, the Tribunal failed to address NHAI's specific defenses regarding statutory notifications that allegedly exempted the Respondent from Service Tax

p. 12

By ignoring the Statement of Defence and awarding claims without supporting proof like tax returns, the Tribunal’s decision was characterized as perverse and patently illegal

p. 13