Court finds arbitral tribunal exceeded its jurisdiction by altering the contract terms, partially upholding the original award.
In a significant ruling, the Bombay High Court has partially set aside an arbitral award that involved a contractual dispute between the President of India and KEC International Ltd. The dispute arose out of an Engineering Procurement and Construction (EPC) contract for constructing a third railway line between Maramjhiri and Chichonda. The contract, originally valued at Rs. 508.96 crores and later revised to Rs. 536.23 crores, was challenged by the President of India under Section 34 of the Arbitration and Conciliation Act, 1996.
Justice Sharmila U. Deshmukh, presiding over the case, found that the arbitral tribunal had overstepped its jurisdiction by granting a "Change of Scope of Work" that was inconsistent with the original contract terms. The tribunal had converted a lump sum contract into an item-wise contract, which the court deemed as patent illegality. Consequently, the court set aside parts of the award related to the change in scope and excess earthwork quantities.
The judgment also upheld portions of the award concerning claims related to the extension of time and damages due to delays in handing over the Right of Way (ROW). The tribunal’s findings on these aspects were consistent with the contractual terms, and the court found no grounds for interference.
Key issues in the dispute included the delay in providing ROW, the alleged change in scope due to revalidation of survey data, and the subsequent financial claims by KEC International Ltd. The court emphasized that the tribunal had failed to adjudicate claims within the contract's four corners, thus necessitating judicial intervention.
This ruling reinforces the principle that arbitral tribunals must operate strictly within the terms of the contract and cannot impose new obligations that were not originally agreed upon by the parties. It also highlights the judiciary's role in ensuring arbitral awards are consistent with established legal and contractual frameworks.
Bottom line:-
Arbitration - Award set aside partially under Section 34 of the Arbitration and Conciliation Act, 1996 - Arbitral Tribunal exceeded jurisdiction by granting "Change of Scope of Work" inconsistent with terms of the EPC contract - Rewriting of contract by Tribunal amounts to patent illegality - Remaining claims upheld.
Statutory provision(s): Arbitration and Conciliation Act, 1996, Sections 34, 28(3), 34(2A).
President of India v. KEC International Ltd., (Bombay) : Law Finder Doc id # 2887152
