December 18, 2021 In Uncategorized

SUPREME COURT SETS ASIDE ARBITRAL AWARD ALLOWING COMPENSATION IN EXCESS OF THE AMOUNT CLAIMED

The Division Bench of the Hon’ble #SupremeCourt in matter of State of Haryana v. M/s Shiv Shankar Construction Co. & Anr. (Civil Appeal Nos. 7379-7380/2021) has passed #Judgement dated 14.12.2021 and set aside the Order of the Hon’ble #HighCourt of #PunjabandHaryana dated 03.11.2015 in FAO no. 4882/2011, that allowed the #ArbitralAward which allowed #compensation in excess of #Claim.

Facts of the case:

The Appellant-State of Haryana awarded a Contract to M/s. Shivshankar Construction & Co.  (herein referred as ‘Respondent No.1’) for Maintenance of Road from Palwal to Hasanpur (herein referred as ‘Highway’), for length of 31.17 kilometres as per terms and conditions of Contract entered between the Parties which amounted to Rs. 5,26,69,688/- . As per design and specification by Appellant, the road was meant for 3364 traffic intensity or passenger car unit/day (referred herein as ‘PCU’). Later in 05.03.2005, Palwal Aligarh Highway was closed and the traffic was diverted to Palwal Hasanpur Highway. Due to this diversion of traffic, the traffic load increased to 24418 PCU on Palwal Hasanpur Highway, which lead to deformation of the said Highway. The Respondent No. 1 alleged that due to increased traffic load, they were required to carry out extra repairs incurring extra expenditure.

For the above disputes, the Appellant was served with Legal Notice by the Respondents. Since the disputes remained unresolved, the Respondents invoked Arbitration Clause in the Contract and approached the High Court of Punjab and Haryana for appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (herein referred as ‘Act’).

The Hon’ble High Court appointed an Arbitrator vide Order 23.04.2007. The Learned Arbitrator awarded a sum of Rs. 1,51,95,400/- to the Respondent (Arbitral Award). (The date of the Award is unknown to us, as it is not mentioned in the Judgment)

Being aggrieved by the Arbitral Award, the Appellant filed an Appeal before the High Court of Punjab and Haryana under Section 34 of the Act, which was dismissed.

Hence, the Appellant filed the present Appeal before the Supreme Court under Section 37 of the Act on the grounds that (a) the Arbitral Award is in excess of the Claim, (b) the Arbitrator has exceeded scope of reference, (c) the Arbitrator has rewritten the terms of Contract with respect to amount payable.

The Hon’ble Apex Court passed a Judgment dated 14.12.2021 and observed as follows:

  1. The Contract was awarded for Rs.5,26,59,688/- , for maintaining the Road at the cost of Rs. 12,000/- per kilometre per annum or Rs. 1000/- per kilometre per month. The Maintenance Contract was valid up to 31.07.2010. The terms of Contract stated traffic load as 3364 PCU, however, due to increased traffic load, the repair work costs increased, which was determined as Rs.45,000/- per kilometre per month by the Arbitrator.
  2. As per the Appellant in the Statement of Claim, the Respondent-Claimant has claimed amount of Rs. 1,03,50,263/-­ but the Arbitrator awarded Rs. 1,51,95,400/­-, i.e. in excess of the what was claimed.
  3. The Hon’ble Supreme Court has held that the Claim of Rs. 1,03,50,263/- until May 2007 was as per terms of Contract. The Respondent further submitted that rest of the details about excess expenditure was to be given in due course of the Arbitral Proceedings. The Respondent provided the details of the excess expenditure relying on which the Arbitrator awarded Rs. 1,51,95,400/.
  4. The Hon’ble Apex Court held that the Arbitrator was correct in allowing the Claim of Rs. 1,03,50,263/- till May 2007 on the ground that there was excess expenditure incurred due to increased traffic flow on the Highway till May 2007. However, the Arbitrator erred in awarding the excess amount of Rs. 45,000/- per kilometre per month from 2008 till 31.05.2010 on the ground that there was no extra inflow of traffic after 2008 and the Arbitrator went beyond the terms of the Contract in allowing the same.

Therefore, based on the aforesaid grounds, the Supreme Court set aside the Arbitral award to the extent that allowed for payment of excess amount from January 2008 to May 2010 and upheld the Award of the Arbitrator to the extent that it allowed the Claim of Rs. 1,03,50,263/- till May 2007.

 

Sneha Verma

Senior Legal Associate

The Indian Lawyer

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