Inaction on Engineer’s extension recommendations precludes employer from attributing project delays to contractor or levying liquidated damages.

The Petitioner (NHAI) challenged an Arbitral Award dated 18.11.2015 rendered in favor of the Respondent (OSE) regarding the construction of the Jhansi Bypass Project.

The dispute involved three primary claims: Claim 1 (Construction Workers Welfare Cess/additional costs), Claim 2 (compensation for prolongation of contract and delays), and Claim 3 (non-payment for Tack Coat).

During the proceedings, the parties agreed that Claims 1 and 3 were settled by existing judicial precedents.

Consequently, the challenge survived solely regarding Claim 2, where the Arbitral Tribunal (AT) had attributed 832 days of delay to NHAI and awarded compensation to OSE.

1. Whether the Arbitral Award, in granting compensation for prolongation costs under Claim 2, was patently illegal or contrary to the terms of the Agreement.

2. Whether the findings of the Arbitral Tribunal regarding attribution of delay and the non-levy of Liquidated Damages were perverse or based on no evidence.

Section 34 of the Arbitration and Conciliation Act, 1996, which restricts judicial intervention to grounds of patent illegality, conflict with the fundamental policy of Indian law, or perversity.

OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd. (2025) and Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) to define "fundamental policy of Indian law" and "patent illegality," clarifying that a mere erroneous application of law or reappreciation of evidence does not warrant setting aside an award.

Sections 54 and 73 of the Indian Contract Act, 1872, recognize the right to compensation if a party breaches its contractual obligations.

The court found that the AT had conducted a detailed factual inquiry into the causes of delay, identifying land acquisition hurdles and lack of access to "No Construction Zones" as the primary impediments.

Under Clause 42.2 of the GCC, NHAI was obligated to provide an encumbrance-free site, which it failed to do.

The court rejected NHAI's argument that the AT ignored contemporaneous records; instead, it noted that NHAI remained indolent for over five years by failing to act on the Engineer’s recommendations for Extension of Time (EOT) without Liquidated Damages.

The court held that the AT's view—that OSE could not be held liable for delays caused by third-party authorities—was a plausible interpretation of the facts and the contract.

Since the AT's findings were supported by evidence (Engineer's letters and correspondence), the court determined that the award did not suffer from perversity.

The court affirmed that the Arbitral Tribunal’s decision on EOT and prolongation costs was a well-reasoned finding of fact.

The petition filed by NHAI was dismissed, and the Impugned Award dated 18.11.2015 was upheld.

No order as to costs was made.