Express contractual risk allocation defeats claims of uncertainty and fraudulent inducement absent proven active concealment.

The National Highways Authority of India (“NHAI”) invited tenders for collection of user fee at the Usaka/Chamari Toll Plaza on specified stretches of NH-25 and NH-2, with an Annual Potential Collection of approximately ₹47.09 crores.

M/s Sangam (India) Ltd. submitted a bid of ₹62.10 crores, which was accepted. It furnished a bank guarantee and performance security aggregating ₹10.35 crores, and the contract was executed on 7 March 2013 for two years commencing 9 March 2013.

A 1.7-kilometre stretch near Kalpi remained incomplete. A Central Government notification dated 26 February 2013, incorporated into the contract, provided for collection based on 66.813 kilometres until completion of the Kalpi stretch and 68.513 kilometres thereafter.

NHAI alleged that Sangam failed to remit the stipulated weekly amounts, terminated the contract, debarred Sangam for two years, and appropriated the bank guarantee and performance security.

Sangam invoked arbitration, alleging fraud, misrepresentation, concealment, breach of statutory and contractual duties, and commercial impossibility.

The sole Arbitrator held the contract void for uncertainty and voidable for misrepresentation and conscious omission, found the termination and debarment arbitrary, and directed NHAI to refund ₹10.35 crores and pay ₹332.05 lakhs towards alleged excess remittances, with interest.

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

Whether the contract was void for uncertainty because the Kalpi stretch was incomplete and the entire 68.513-kilometre stretch was not available for toll collection.

Whether NHAI fraudulently misrepresented or actively concealed material facts concerning the Kalpi stretch, its likely completion, traffic conditions, and highway maintenance, thereby rendering the contract voidable.

Whether the contractual allocation of site, traffic, diversion, and revenue risks could be displaced by the Respondent’s inability to achieve the anticipated toll collections.

Whether the Arbitrator could invalidate NHAI’s termination, debarment, and appropriation of the performance security despite the contractual provisions governing remittance defaults, termination, and arbitrability.

Whether the impugned award suffered from an infirmity going to the root of the dispute warranting interference under Section 34.

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, under the pre-2015 Amendment regime, holding that an arbitral award may be set aside where it is contrary to the fundamental policy of Indian law or is patently illegal, provided the illegality goes to the root of the matter, as explained in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.

Under Sections 17, 18 and 19 of the Indian Contract Act, 1872, fraud requires deception, including active concealment of a material fact known or believed to exist; misrepresentation may arise from an untrue assertion honestly believed to be true or from a breach of duty causing prejudice; and the exception concerning ordinary diligence does not protect active concealment.

Fraud must be specifically pleaded and proved to a high standard, as recognised in Naresh Kumar Sinha v. State of Bihar, 2025 SCC OnLine SC 2339, Kohli Housing & Development (P) Ltd. v. Convenience Enterprises (P) Ltd., 2009 SCC OnLine Del 1136, and Mithoolal Nayak v. LIC, AIR 1962 SC 814.

The Court also applied the contractual provisions requiring bidders to inspect the site, accept risks concerning site conditions, traffic and inaccuracies in bidding information, make their own revenue assessment, and continue remittances during disputes; it further relied on the principle that courts cannot rewrite or disregard an express contractual risk allocation.

The Court held that the contract was not uncertain because the notification and Clause 3 expressly prescribed the toll-able length before and after completion of the Kalpi stretch, thereby providing an operative mechanism for the interim period.

The internal memo indicating that completion might be delayed did not establish any specific false representation or active concealment by NHAI. The RFP expressly required bidders to inspect the site, assess traffic and surrounding conditions, accept risks arising from inaccurate or incomplete information, and acknowledge that NHAI did not guarantee revenue.

Sangam’s reduced profitability and inability to achieve its expected collections therefore constituted commercial risk rather than fraud, uncertainty, or a basis to suspend its fixed remittance obligations.

The Arbitrator’s reasoning also failed to give effect to the notification permitting toll collection over 66.813 kilometres, the contractual requirement of continued remittance during disputes, and Clauses 19 and 26 governing default, termination, recovery from security, and non-arbitrability of specified disputes.

Since the findings that the contract was void or voidable and that NHAI had committed a fundamental breach were unsustainable, the consequential findings concerning termination, debarment, forfeiture, restitution and interest could not stand.

The Court concluded that the Arbitrator had disregarded the RFP, notification, and contractual risk-allocation provisions and had effectively rewritten the parties’ bargain, constituting an infirmity going to the root of the dispute.

There was no order as to costs, and pending applications were disposed of.