Sikkim High Court Upholds Arbitration Award in Favor of Contractor Chhabil Dass Agarwal

Court affirms arbitrator's decision on escalation charges and interest for delayed payments, citing justified claims and absence of patent illegality.

In a significant ruling, the Sikkim High Court upheld an arbitration award favoring contractor Chhabil Dass Agarwal in a dispute with the State of Sikkim regarding escalation charges and interest on delayed payments for a construction contract. The judgment was delivered by a division bench consisting of Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan.

The case revolved around a contract agreement dated February 24, 2004, for the construction of a substation in Mangan, North Sikkim. The project, initially valued at approximately Rs. 7.79 crore, faced delays attributed to the appellants, resulting in escalated costs and interest claims by the contractor. The arbitration proceedings, initiated by Agarwal, culminated in an award of Rs. 5.88 crore with 10% annual interest in his favor.

Challenging the arbitrator's decision, the State of Sikkim filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, arguing the award's illegality due to absence of an escalation clause and final payment acknowledgment. However, the Commercial Court dismissed their application, leading to an appeal under Section 37.

The High Court, in its detailed judgment, emphasized the arbitrator's reasoned findings and absence of patent illegality or perversity in the award. The court noted that the appellants' delay in project completion justified the escalation claims. Furthermore, the acknowledgment of liability through official notings and correspondence substantiated the contractor's claims.

Addressing the appellants' contention regarding the absence of an escalation clause, the court clarified that the contract's extension due to appellants' delays warranted consideration of increased costs. The court also dismissed new arguments introduced by the appellants at the appellate stage, noting their inconsistency with prior proceedings.

The judgment reinforced the limited scope of judicial interference under Sections 34 and 37 of the Arbitration Act, underscoring the autonomy of arbitral tribunals in contract interpretation. Citing precedents, the court highlighted that an award could only be set aside for fundamental policy contraventions, patent illegality, or gross misconduct by the arbitrator.

This ruling affirms the principles of arbitration in contract disputes, emphasizing the importance of adhering to contractual obligations and the limited judicial oversight in arbitration awards. The decision is a significant victory for Chhabil Dass Agarwal, ensuring compensation for escalated costs and prolonged payment delays, while serving as a precedent for similar arbitration disputes.

Bottom Line:

Arbitration - Escalation charges and interest on delayed payment - Arbitrator's award upheld as it was neither perverse nor patently illegal - Delay in work completion caused by appellants justified escalation claims.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 34, 37

State of Sikkim v. Chhabil Dass Agarwal, (Sikkim)(DB) : Law Finder Doc Id # 2821876