Delhi High Court Sets Aside Arbitral Award Granting Damages for Price Escalation

Arbitrator's decision to grant damages despite contract prohibition lacks evidentiary basis, rules court.

In a significant ruling, the Delhi High Court has set aside an arbitral award that granted damages for price escalation to M/s Koneru Constructions, despite a specific prohibition against such claims in their contract with Bharat Heavy Electrical Limited (BHEL). The court, presided by Mr. Sachin Datta, J., found that the arbitrator's decision lacked a proper evidentiary basis and was contrary to the express terms of the contract.

The dispute originated from a tender issued by BHEL for civil works at a substation in Tamil Nadu, which was awarded to Koneru Constructions. The contract stipulated a firm price with no allowance for escalation during the contract or extended period. Despite this, the arbitrator awarded damages of Rs. 72,90,719 to the respondent for price escalation, attributing delays to BHEL's failure to provide timely drawings.

The High Court emphasized that the arbitrator had ignored the explicit contract terms prohibiting price escalation, rendering the award unsustainable. Furthermore, the court noted that the awarded damages were based on arbitrary calculations without supporting evidence, violating principles of natural justice.

The court also addressed the issue of a "No Dues Certificate" provided by Koneru Constructions, which the company later claimed was issued under duress. The judgment highlighted the necessity for arbitrators to determine whether such certificates were given voluntarily or under coercion before proceeding with claims.

In setting aside the award, the court reiterated that arbitral decisions must be grounded in evidence and adhere to the contractual framework agreed upon by the parties.

Bottom Line:

Arbitration - Award of damages for price escalation - Arbitrator's decision to grant damages for escalation despite a specific prohibition in the contract, without a proper evidentiary basis, held unsustainable.

Statutory provision(s): Arbitration and Conciliation Act, 1996, Section 34

Bharat Heavy Electrical Limited v. M/s Koneru Constructions, (Delhi) : Law Finder Doc Id # 2814066