Court Upholds Tribunal's Findings on Damages, Sets Aside 18% Interest Award for Contravening Contract Terms
In a significant judgment, the Bombay High Court has partially quashed an arbitral award concerning a high-stakes contract dispute between the Public Works Department (PWD) of Maharashtra and Khare And Tarkunde Infrastructure Pvt. Ltd. (KTIPL), a leading infrastructure firm. The court upheld the arbitral tribunal’s findings on damages related to the delayed provision of the Right of Way (ROW) by the PWD but struck down the tribunal's interest award of 18% per annum compounded quarterly, deeming it contrary to the contract terms.
The case revolves around the Engineering Procurement and Construction Contract executed in December 2014 for road infrastructure projects worth approximately Rs. 148.51 crores. The contract was terminated by the PWD in October 2018, after arbitration was invoked by KTIPL due to alleged delays in the handover of the ROW.
Justice Somasekhar Sundaresan, presiding over the matter, noted that the contract stipulated a cap on damages at 1% of the contract value, but the tribunal found this cap inapplicable due to PWD's failure to fulfill foundational obligations, such as providing 90% of the ROW within 15 days of the contract execution. The court agreed with the tribunal’s interpretation, emphasizing that the tribunal’s findings were logical and consistent with the principles of business efficacy.
However, the court took issue with the tribunal's award of interest at a rate of 18% compounded quarterly, which was found to be in conflict with the contractual provisions. The contract specified different interest rates for various situations, and the tribunal’s approach was deemed perverse and patently illegal. The court, therefore, quashed this aspect of the award, allowing the parties to address the interest dispute through further arbitration.
The judgment underscores the importance of adhering to contractual terms while also recognizing the tribunal's authority to interpret contracts to ensure fairness and business efficacy. The decision is expected to have significant implications for arbitration practices and contract enforcement in infrastructure projects across India.
Bottom line:-
Arbitration - Interpretation of contract - The arbitral tribunal can interpret contractual provisions to ensure business efficacy and avoid absurd outcomes, especially in cases involving reciprocal promises and foundational obligations.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 28(3), Section 31(7)
