Karnataka HC Upholds Rejection Of Contractor’s ₹2.33-Crore Escalation Claim: Contract Documents Deleted Clause, No Calculations Proved Amount Due

In brief

The question

1. Whether the arbitral tribunal’s rejection of KMV’s price-adjustment claim warranted appellate interference under Section 37 of the Arbitration and Conciliation Act, 1996

The court held

The High Court held that no ground had been shown to interfere with the tribunal’s rejection of Claim No. 1.

It also directed

It dismissed the appeal, leaving the Commercial Court’s order and the arbitral award undisturbed insofar as they rejected the price-adjustment claim.

01Facts

KMV was awarded a construction package under the Rashtriya Madhyamika Shikshana Abhiyana scheme.

¶ 1–3

It claimed that delays attributable to the State Project Director (SPD) entitled it to, among other relief, ₹2,33,19,736 in price adjustment under Clause 39 of the Conditions of Contract.

¶ 1–3

The SPD maintained that the price-adjustment clause had been deleted from the tender documents.

¶ 1–3

The arbitral tribunal rejected the claim, finding both that the clause did not form part of the contract and that KMV had not proved the amount claimed.

¶ 1–3

The Commercial Court dismissed KMV’s application under Section 34 of the Arbitration and Conciliation Act, 1996.

¶ 1–3

KMV appealed, limiting its challenge to the rejection of the price-adjustment claim.

¶ 20–25

02Issues

i.1. Whether the arbitral tribunal’s rejection of KMV’s price-adjustment claim warranted appellate interference under Section 37 of the Arbitration and Conciliation Act, 1996

¶ 25–26, 42

ii.2. Whether KMV established either that the price-adjustment clause formed part of the contract or the quantum of the price adjustment claimed

¶ 35–44

03Law Applied

Section 34 of the Arbitration and Conciliation Act, 1996 provides limited grounds for setting aside an arbitral award; appellate review under Section 37 does not permit the court to reappreciate the merits merely because another view may be possible.

¶ 42, 45

A claimant seeking compensation must establish both entitlement and the measure or quantum of the amount claimed.

¶ 45

Under Clause 39 of the contract, price adjustment was to be calculated for specified cost components using the formulae in the Contract Data; the tribunal treated the Contract Data’s express deletion note as governing the package.

¶ 30–31, 38

Provisions in the judgment · 6 · Linked ones open on LawLens

Commercial Courts Act, 2015 Section 13

Arbitration and Conciliation Act, 1996 Section 37 Section 34 Section 11 Section 32 Section 33

04Reasoning

The contractual documents KMV placed before the tribunal contained a note stating that the price-adjustment clause was deleted and did not apply to the tender.

¶ 37–42

Although KMV relied on negotiation letters referring to price adjustment, it did not establish that the parties had agreed to remove or disregard the deletion note.

¶ 37–42

The tribunal’s finding that the clause was not part of the contract was therefore based on the evidence before it and did not justify interference under the limited review applicable to an arbitral award.

¶ 37–42

Independently, KMV had supplied no calculation sheet or supporting documents showing the adjustment for the relevant cost components.

¶ 43–45

Thus, even if the clause had applied, the tribunal could not have awarded the amount claimed without proof of quantum.

¶ 43–45