Contractual Cap on Project Cost Prevails Over Unilateral Notifications in Computing Arbitral Termination Payments

The dispute arises from a Concession Agreement dated 13.07.2010 between NHAI and M/s Kurukshetra Expressway Pvt. Ltd. (KEPL), a Special Purpose Vehicle, for four-laning of the Rohtak–Bawal Section of NH-71 in Haryana under NHDP III, with a concession period of 28 years from the appointed date of 10.05.2011

Vide letter dated 07.10.2021, KEPL terminated the Concession Agreement citing an "Indirect Political Force Majeure Event" under Clause 34.8 and claimed a Termination Payment of Rs. 1,347.53 crore

In the ensuing arbitration (the third round between the parties), the Tribunal, by award dated 16.08.2024, awarded KEPL Rs. 911.13 crore towards Termination Payment (Claim No. 1) with interest (Claim No. 2), Rs. 26.32 crore for force majeure losses (Claim No. 3), Rs. 1.30 crore towards insurance premium refund (Claim No. 6), and Rs. 1.10 crore in costs, while partly allowing NHAI's counter-claims

NHAI challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 ("A Act"), contesting primarily the Termination Payment, arguing that the Tribunal disregarded the definition of "Total Project Cost" (TPC) under Article 48.1, which caps the TPC at the lowest of three figures, including Rs. 650 crore

KEPL filed IA No. 540/2025 seeking dismissal of the petition as time-barred (alleging a "non-est" filing) and for suppression of material documents

1. Whether the Section 34 petition was barred by limitation under Section 34(3) of the AC Act, or liable to dismissal as a "non-est" filing

2. Whether the petition was liable to be dismissed on the ground of deliberate suppression of material documents

3. Whether the award of Rs. 911.13 crore towards Termination Payment (Claim No. 1) suffers from patent illegality under Section 34(2A) — specifically, whether the Rs. 650 crore ceiling in the definition of "Total Project Cost" operates as a cap on the Termination Payment, or whether the Disaggregation Letter dated 04.02.2019 (notifying TPC of Rs. 1,045.55 crore) displaces that cap

4. Whether the award of interest on the Termination Payment (Claim No. 2) and the findings on the remaining claims and counter-claims warrant interference under Section 34

The Court applied Section 34(3) of the AC Act, which prescribes a limitation of three months, extendable by thirty days on sufficient cause (outer limit of 120 days), relying on Simplex Infrastructure Ltd. v. Union of India, (2019) 2 SCC 455 and Panjab Ali v. State of West Bengal (Calcutta High Court, order dated 19.01.2026)

It further applied Northern Railway v. Pioneer Publicity Corporation Pvt. Ltd., (2017) 11 SCC 234, holding that Section 34(3) governs only the original institution of the petition, not delays in curing registry defects and re-filing

An arbitral construction of a contract is liable to be set aside if it is one "no fair-minded or reasonable person could" adopt (Associate Builders v. DDA, (2015) 3 SCC 49; Ssangyong Engineering Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131), and re-writing a contract shocks the conscience of the Court (PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust, 2021 SCC OnLine SC 508)

On interpretation of the definition clause, the Court applied K.V. Muthu v. Angamuthu Ammal, holding that where a definition is preceded by "unless the context otherwise requires," the defined meaning is the rule and its displacement the exception

On limitation, the Court found the petition was initially instituted on 13.11.2024 — within three months of the award dated 16.08.2024 — accompanied by the award, relevant concession agreement extracts, vakalatnama, and memo of parties; subsequent re-filings merely cured Registry defects, which under Northern Railway v. Pioneer Publicity do not attract the rigours of Section 34(3)

The "lowest of three" formulation in the TPC definition, especially the Rs. 650 crore cap (anchored in the RFP's estimated project cost), is central to the contractual risk allocation, shielding NHAI from cost overruns and over-leveraging being passed off as termination liability — the award rendered sub-clause (c) a "dead letter"

The TPC definition contains a termination-specific proviso permitting only WPI-linked adjustment, conclusively showing the definition applies at termination and cannot be unilaterally displaced by a disaggregation letter, which is a unilateral communication incapable of amending the contract

The definition of "Termination Payment" — "restricted to" Debt Due and Adjusted Equity "which form part of the Total Project Cost" — expressly incorporates the ceiling; the disaggregation mechanism serves only to fix the internal debt-equity apportionment, not to re-determine the TPC

The Court also held the Tribunal's reliance on Clause 1.4.2(a) misplaced since Article 34.9.2 itself operates through the defined terms "Debt Due" and "Adjusted Equity," which derive content from the TPC definition

The Tribunal's computation of the Termination Payment disregarded the express contractual ceiling of Rs. 650 crore and thereby re-wrote the Concession Agreement, constituting patent illegality on the face of the record under Section 34(2A); the award in respect of Claim No. 1 (Termination Payment of Rs. 911.13 crore) and Claim No. 2 (interest thereon) was set aside

The award on all other claims (Nos. 3, 4, 5, 6, 7, 8) and counter-claims (Nos. 1–7) was upheld, as no jurisdictional transgression or perversity was found. Accordingly, the petition was partly allowed