Arbitral award upheld despite no-objection certificate as involuntary NOC cannot bar legitimate escalation claims under section 73

The Delhi HC dismissed a petition challenging an arbitral award under section 34 of the Arbitration Act. The petitioner argued that the contractor's no-objection certificate (NOC) barred claims for escalation costs and contract prolongation. The HC upheld the arbitral tribunal's finding that the NOC was issued involuntarily and could not prevent legitimate claims. The tribunal correctly awarded escalation costs as damages under section 73 of the Contract Act, despite no specific contractual provision, since delays were attributable to the petitioner. The HC found the tribunal's reasoning plausible within section 34's narrow scope and dismissed the petition.

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Issues Involved:

1. Attribution of delay in project completion.
2. Validity of claims for escalation cost and prolongation of contract.
3. Applicability of "no claim" certificates.
4. Scope of judicial intervention under Section 34 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Attribution of Delay in Project Completion:

The primary issue was whether the delay in completing the project was attributable to the petitioner or the contractor. The Arbitral Tribunal (AT) found that the delay of 1041 days was primarily due to the petitioner, citing various hindrances such as pile design changes, methodology alterations, and external factors like NGT orders and monsoon conditions. The AT concluded that the petitioner was responsible for these delays, as the site was not handed over hindrance-free as required by the contract. The petitioner admitted to a justified delay of 1047 days, which further supported the AT's findings.

2. Validity of Claims for Escalation Cost and Prolongation of Contract:

The petitioner challenged the AT's decision to award claims for escalation costs and prolongation of the contract, arguing that there was no contractual provision for such claims. However, the AT held that the contractor was entitled to compensation due to the petitioner's breach of contract, which caused the delays. The AT relied on Clause 10C of the contract, which allowed for increased costs of materials and labor during the extension period. The AT's decision was supported by precedents, including P.M. Paul v. Union of India, which recognized the contractor's right to claim escalation costs due to delays caused by the other party.

3. Applicability of "No Claim" Certificates:

The petitioner argued that the contractor's endorsement, stating no claim for losses due to delays, should preclude any claims for compensation. However, the AT found that this endorsement was given under duress, as the contractor's payments and security were withheld. The court cited R.L. Kalathia & Co. vs. State of Gujarat, which held that a "no claim" certificate does not bar genuine claims if issued under coercive circumstances. The AT's finding that the endorsement was involuntary was upheld, as it was a factual determination with no patent illegality.

4. Scope of Judicial Intervention under Section 34 of the Arbitration and Conciliation Act, 1996:

The scope of judicial intervention under Section 34 is limited to instances of patent illegality or contravention of public policy. The court reiterated that it does not sit in appeal over arbitral awards and can only interfere on narrow grounds. The AT's findings were deemed reasonable and based on evidence, and the court found no grounds for interference. The petitioner's objections were dismissed, reinforcing the limited scope of Section 34 and the autonomy of arbitral awards.

In conclusion, the court upheld the AT's award, finding no merit in the petitioner's challenges. The AT's findings on delay attribution, escalation costs, and the involuntary nature of the "no claim" certificate were supported by legal precedents and contractual provisions. The petition was dismissed, emphasizing the narrow grounds for challenging arbitral awards under Section 34.

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