TaxTMI 
TaxTMI 
2026 (5) TMI 862
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....ad, New Delhi, is inter alia engaged in the business of development and implementation of the Mass Rapid Transit System in the National Capital Territory of Delhi. 3. The Respondent is a joint venture having its registered office at 11^th Floor, Hiranandani Knowledge Park, Technology Street, Powai, Mumbai. 4. The Petitioner, on 05.08.2014, issued a Tender and invited bids for development and construction of Contract No. 87: Part Design and construction of Elevated Viaduct and 8 Elevated Stations viz. Shahid Nagar, Raj Baugh, Rajendra Nagar, Shyam Park, Mohan Nagar, Arthla, Hindon River, and New Bus Adda, including Architectural finishing works of Station from Chainage 3323.582 m to 12920.678 m of Line 1 Extension (Dilshad Garden to New Bus Adda, Ghaziabad) of Phase-III MRTS Project ('Project'). 5. On 15.10.2014, the Respondent submitted its bid for the Project in response to the said Tender. The Petitioner, on 09.12.2014, issued a Letter of Acceptance for the project in favour of the Respondent for a total value of Rs. 665, 87, 92, 409/-. 6. A Notice to Proceed was issued by the Petitioner to the Respondent on 15.12.2014. The Project work was to be completed within a pe....
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....ditional burden. It held that the introduction of GST amounted to a statutory change affecting the contract price and was not fully factored into the bid at the time of submission. On consideration of the relevant statutory notifications and the documentary evidence placed on record, the Tribunal allowed reimbursement of the differential tax liability to the extent it was actually paid and duly proved. Accordingly, the claim was partly allowed to the extent established. c. Claim No. 5 - Increase in Minimum Wages / Labour Escalation This claim related to additional expenditure incurred on account of statutory revision of minimum wages during the execution of the contract. The amount claimed was calculated on the basis of government notifications enhancing minimum wages, labour deployment records, wage registers, and the differential cost impact allegedly not covered under the contractual escalation formula. The Tribunal examined the relevant contractual clauses dealing with price adjustment and statutory variations to determine whether the increased wage liability was contractually compensable. It held that to the extent the contractual escalation mechanis....
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.... the principal sums as determined, in terms of the contract and applicable law. 11. The Petitioner, aggrieved by the findings rendered by the Tribunal in the Impugned Award, has filed the present Petition under Section 34 of the Act, objecting the Impugned Award to the extent of aforementioned Claim No. 1, 3, 5, 8, and the payment of taxes on the awarded amount. 12. With respect to Claim no. 1, it is submitted that the Tribunal erred in determining the effective period of prolongation and in awarding overheads accordingly. 13. The Counsel for the Petitioner states that the Tribunal reduced 3.25 months towards execution of variations from the total delay period and held the effective prolongation to be 16.51 months. It is the case of the Petitioner that this finding was based merely on a comparison between the scheduled completion date and the actual completion date, without examining the actual time consumed in execution of variations. 14. Learned Counsel for the Petitioner submits that the actual data regarding variations and the time required for their execution was available and could have been called for by the Tribunal. Instead, the Tribunal proceeded on assumption....
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....al policy of Indian law. 19. For Claim No. 3, the Counsel for the Petitioner contends that the Tribunal erroneously awarded compensation on account of GST by adopting labour and P&M components of 22% and 18% respectively, relying upon the price variation formula, despite there being no documentary evidence establishing such allocation within the contract value. 20. It is submitted that the Respondent failed to produce GST challans, returns, payment records, demand notices or other primary documents to substantiate the alleged additional burden. The Tribunal, therefore, awarded the claim on assumed figures. 21. Learned Counsel for the Petitioner further submits that Clause 11.1.4 of the GCC and the corresponding sub-clause in the SCC expressly provide that the contract price is inclusive of all taxes, duties and levies, and no adjustment is permissible on account of change in law. The impact of variation in taxes was already contemplated under Clause 11.1.3 of the GCC (Price Variation Clause). The award of GST, therefore, is stated to be contrary to the express contractual stipulations. The relevant extract of Clause 11.1.4 of the GCC, Sub-Clause 11.1.4 of the SCC, and the ....
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....our, materials and fuel/energy during the currency of the Contract: V=Vl +Vs +Vc +Vf+Vm Where, v = Total adjustment on account of all factors Vl = Adjustment on account of labour component. = p x R x(l-lo)lo Vs = = Adjustment. on account of Steel component = q x R x (Ws - Wso) / Wso Vc= Adjustment on account of Cement component = r x R x (Wc - Weo) / Wco Vf = Adjustment on account of Fuel/Lubricant component = s x R x (Wf - Wfo) / Wfo Vm = Adjustment on account of Machinery and Machine Tools = tx R x (Wm - Wmo) / Wmo P = Cost Coefficient of Labour to the Total Cost = 0.22 q = Cost Coefficient of Steel to the Total Cost = 0.25 r. = Cost Coefficient of Cement to the Total Cost = 0.15 s =. Cost Coefficient of Fuel and Lubricant to the Total Cost = 0.05 t = Cost Coefficient of other Machinery and Machine Tools to the Total Cost = 0.18 Note : p+ q + r + s+t = 0.85, balance 0.15 shall be fixed component R = Gross value of the work done by the Contractor for the period of work under consideration,....
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....e of Delay in Availability of Final RBI Indices Where the final Price Indices are not available in the Reserve Bank of India 'Bulletins, while making payment towards on-account bills, payment towards Price Variation. will, be made on provisional basis based on the indices available, to be adjusted in subsequent bills as and when the final Indices figures become available. 22. The Tribunal awarded Claim No. 5 to the Respondent for additional cost due to variation in basic rate of minimum wages. The Learned Counsel for the Petitioner argues that the award of increased wages is violative of Clause 6.2 of the GCC, wherein no extra amount is payable due to increase in minimum wages. Further, Clause 11.1.4 of GCC and Clause 11.1.4 of SCC, provides that nothing extra would be payable on account of change in law. Clause 6.2 of the GCC is reproduced hereunder: Rates of Wages and Conditions of Labour 6.2 Full compliance of statutory requirements apart, the Contractor shall pay rates of wages and observe conditions of labour not less favourable than those established for the trade or the industry where the work is carried out. The Contractor shall make himself aware of all l....
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....sel for the Respondent supports the Impugned Award and submits that the present Petition is an attempt to seek re-appreciation of evidence and re-interpretation of contractual clauses, which is impermissible under Section 34 of the Act. 27. In relation to Claim No. 1 (prolongation costs), it is contended that the Petitioner neither pleaded nor proved the actual value or duration of variations before the Tribunal. No documentary evidence was led to demonstrate the time attributable to variations. In absence of such material, the Tribunal was justified in adopting a reasonable methodology based on the evidence available on record. It is submitted that the quantification of damages and adoption of a particular formula fall squarely within the domain of the Arbitral Tribunal. 28. With respect to Claim No. 3 (GST), Learned Senior Counsel for the Respondent submits that Clause 11.1.4 applies only to a "new tax" or change in rate of tax. GST, being a subsuming tax regime replacing existing indirect taxes, does not fall within the contractual bar in the manner suggested by the Petitioner. In any event, GST was introduced after the scheduled completion date and during the extended per....
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.... into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator. 107. If the learned arbitrator, therefore, applied the Emden Formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court." 35. This Court in NHAI vs. Oriental Pathways, 2016 OnLine Del 3163, has observed as under:- "38. It is trite that it is open to the Arbitrator to adopt any reasonable formula for arriving at the computation of the compensation. In this regard, reference may be made to the pronouncement of the Supreme Court in (2015) 3 SCC 49, Associate Builders v. Delhi Development Authority extracted above. 39. In para 43 of the judgment, the Supreme Court has held that the construction of the contract by the Arbitrator is also within the jurisdiction of the Arbitrator. It is trite law that such construction is clearly beyond the scope of consi....
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....en [Embrey v. Owen, (1851) 6 Ex 353 : 155 ER 579 : 86 RR 331], the amount of damages recoverable is, as general rule, governed by the extent of the actual damage sustained in the consequence of the defendant's act, Hiort v. London & North West Railway Co. [Hiort v. London & North West Railway Co., (1879) 4 Exch Div 188] In cases admitting proof of such damage, the amount must be established with reasonable certainty, Commerce, In re [Commerce, In re, (1850) 3 W Rob 286 : 166 ER 969] . But this does not mean that absolute certainty is required, nor in all cases, is there a necessity for direct evidence as to the amount. Damages are not uncertain for the reason that the loss sustained is incapable of proof with the certainty of mathematical demonstration or is to some extent contingent and incapable of precise measurement. As Harlan, J. observed in delivering the judgment of the Supreme Court of the United States in Hetzel v. Baltimore & O.P. Co. [Hetzel v. Baltimore & O.P. Co., 1898 SCC OnLine US SC 12 : 42 L Ed 648 : 169 US 26 (1898)], US at p. 38 certainty to reasonable extent is necessary, and the meaning of that language is that the loss of damage must be so far removed from....
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....truction and Design Services case being apposite are set forth hereafter: "15. Once it is held that even in absence of specific evidence, the respondent could be held to have suffered loss on account of breach of contract, and it is entitled to compensation to the extent of loss suffered, it is for the appellant to show that stipulated damages are by way of penalty. In a given case, when highest limit is stipulated instead of a fixed sum, in absence of evidence of loss, part of it can be held to be reasonable, compensation and the remaining by way of penalty. The party complaining of breach can certainly be allowed reasonable compensation out of the said amount if not the entire amount. If the entire amount stipulated is genuine pre-estimate of loss, the actual loss need not be proved. Burden to prove that no loss was likely to be suffered is on party committing breach, as already observed. xxx 17. Applying the above principle to the present case, it could certainly be presumed that delay in executing the work resulted in loss for which the respondent was entitled to reasonable compensation. Evidence of precise amount of loss may not be possible but in ab....
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....ges in respect of other projects may not have much relevance work qua each project is executed based on the terms and conditions provided in the contract governing such projects, it certainly throws up a scenario where the adjudicator/arbitrator may need to employ a rough and ready method to ascertain reasonable compensation payable to the aggrieved person/entity. Rough and ready method/guesswork is a tool available to an arbitrator, which has received the imprimatur not only of the Supreme Court but also of other courts, even before judgment was rendered in the Construction and Design Services case. 35.1 The underlying rationale appears to be that as long as there is material available with the arbitrator that damages have been suffered, but it does not give him an insight into the granular details, he is permitted the leeway to employ honest guesswork and/or a rough and ready method for quantifying damages [See Mohd. Salamatullah v. Government of Andhra Pradesh, (1977) 3 SCC 590; Delhi Development Authority v. Anand and Associates, 2008 SCC OnLine Del 179; Good Value Engineers v. M.M.S. Nanda, Sole Arbitrator, 2009 : DHC : 5231; National Highway Authority of India v. ITD....
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....y the Respondent, and the delay in works were due to the conduct of the Petitioner entirely. It further held that all the extensions were granted without the levy of liquidated damages upon the Petitioner. The Tribunal held that the Respondent is benefitted under Section 54, 55, and 73 of the Indian Contract Act. The Tribunal has fairly held that if there is a contractual clause prohibiting a claim for loss/damages, then such contractual clauses have to be ignored and the contractor is liable to damages as per law. The Tribunal relied upon a judgment of the Apex Court in G. Ramachandra Reddy vs. Union of India (2009) 6 SCC 414 and K.N. Sathyapalan vs. State of Kerala (2007) 13 SCC 43. 45. The Tribunal further held in paragraphs 228 and 229 of the Impugned Award that notices of delay and cost implications were tendered by the Respondent to the Petitioner. The Apex Court in Northern Railway vs. Sarvesh Chopra (2002) 4 SCC 45, has held that if such notice is tendered, then in law, such claims can be provided despite of a clause prohibiting the same. 46. It is settled that while damages must be founded on evidence, mathematical precision is not an indispensable requirement where ....
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....he arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. 53. However, this Court, as would be noticed hereinafter, has had the occasion to consider the matter in great detail in some of its decisions. 54. In Primetrade AG v. Ythan Ltd. [(2006) 1 All ER 367] jurisdictional issue based on interpretation of documents executed by the parties fell for consideration having regard to the provisions of the Carriage of Goods by Sea Act, 1992. It was held that as the appellant therein did not become holder of the bills of lading and alternatively as the conditions laid down in Section 2(2) ....
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.... should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter. xxx 106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator. 107. If the learned arbitrator, therefore, applied the Emden Formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court. xxx 110. As computation depends on circumstances and methods to compute damages, how the quantum thereof should be determined is a matter which would fall for the decision of the arbitra....
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....ibunal further recorded that evidence was led to demonstrate payment of enhanced wages. The Apex Court in P. M. Paul v. Union of India, 1989 Supp (1) SCC 368, has held that grant of compensation when there is a delay on account of employer is justified. The relevant extract of the judgment is reproduced hereunder: "12. In the instant case, it is asserted that the extension of time was granted and the arbitrator has granted 20 per cent of the escalation cost. Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract. The arbitrator has held that there was delay, and he has further referred to this aspect in his award. The arbitrator has noted that claim No. I related to the losses caused due to increase in prices of materials and cost of labour and transport during the extended period of contract from 9-5-1980 for the work under phase I, and from 9-11- 1980 for the work under phase II. The total amount shown was Rs 5,47,618.50. After discussing the evidence and the submissions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20 per....
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....s and otherwise', and therefore, the Contract permitted the Respondent to advance claims 'otherwise' under law. The relevant extract of Clause 17.1 of the GCC is reproduced hereunder: Procedure 17.1 for claims If the Contractor intends to claim any additional payment under any clause of these Conditions or otherwise, the Contractor shall give notice to the Engineer as soon as possible and in any event within 28 days of the start of the event giving rise to the claim. The Contractor shall keep such Contemporary records as may be necessary to substantiate any claim, either on the Site or at any other location acceptable to the Engineer. Without admitting the Employer's liability, the Engineer shall on receipt of such notice, inspect such records and may instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all such records, and shall (if Instructed) submit copies to the Engineer. Within 28 days of such notice, or such other time as may be agreed by the Engineer, the Contractor shall send to the Engineer an account, giving detailed particulars of the amount and basis of the claim. Where the event giving rise t....
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....ora of judgments of this Court. Section 34 is not in the nature of an appellate provision. It provides for setting aside an arbitral award that too only on very limited grounds i.e. as those contained in sub-sections (2) and (2-A) of Section 34. It is the only remedy for setting aside an arbitral award. An arbitral award is not liable to be interfered with only on the ground that the award is illegal or is erroneous in law which would require re-appraisal of the evidence adduced before the Arbitral Tribunal. If two views are possible, there is no scope for the court to re-appraise the evidence and to take the view other than the one taken by the arbitrator. The view taken by the Arbitral Tribunal is ordinarily to be accepted and allowed to prevail. Thus, the scope of interference in arbitral matters is only confined to the extent envisaged under Section 34 of the Act. The court exercising powers under Section 34 has per force to limit its jurisdiction within the four corners of Section 34. It cannot travel beyond Section 34. Thus, proceedings under Section 34 are summary in nature and not like a full-fledged civil suit or a civil appeal. The award as such cannot be touched unless i....
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....d which shocks the conscience of the Court. Thus, in Parsons [Parsons & Whittemore Overseas Co. Inc. v. Societe Generale de l'Industrie du Papier (RAKTA), 508 F 2d 969 (2nd Cir 1974)], it was held: "7. Article V(2)(b) of the Convention allows the court in which enforcement of a foreign arbitral award is sought to refuse enforcement, on the defendant's motion or sua sponte, if 'enforcement of the award would be contrary to the public policy of (the forum) country'. The legislative history of the provision offers no certain guidelines to its construction. Its precursors in the Geneva Convention and the 1958 Convention's ad hoc committee draft extended the public policy exception to, respectively, awards contrary to "principles of the law" and awards violative of 'fundamental principles of the law'. In one commentator's view, the Convention's failure to include similar language signifies a narrowing of the defense [Contini, "International Commercial Arbitration: The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award" [8 Am J Comp L 283 (1959)], Am J Comp L at p. 304]. On the other hand, another noted authority in the fie....
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.... are final and binding on the parties and may not be appealed against or set aside by a court except in the situations prescribed under Section 24 of the Act and Article 34 of the Model Law. ... In the present context, errors of law or fact, per se, do not engage the public policy of Singapore under Article 34(2)(b)(ii) of the Model Law when they cannot be set aside under Article 34(2)(a)(iii) of the Model Law. *** 59. Although the concept of public policy of the State is not defined in the Act or the Model Law, the general consensus of judicial and expert opinion is that public policy under the Act encompasses a narrow scope. In our view, it should only operate in instances where the upholding of an arbitral award would "shock the conscience" (see Downer Connect [Downer Connect Ltd. v. Pot Hole People Ltd., CIV 2003-409-002878, decided on 19-5-2004 (NZ, unreported)], at p. 136, para 58), or is "clearly injurious to the public good or ... wholly offensive to the ordinary reasonable and fully informed member of the public" (see Deutsche Schachtbau-und Tiefbohrgesellschaft GmbH v. R'As al- Khaimah National Oil Co. [Deutsche Schachtbau-und Tiefbohrgesellschaft Gm....
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....ered the Court has emphasised that it is intended to operate only in extreme cases... *** 19. Where an important document which ought to have been disclosed is deliberately withheld and as a result the party withholding it has obtained an award in his favour the Court may well consider that he procured that award in a manner contrary to public policy. After all, such conduct is not far removed from fraud... *** 26. Even if there had been a deliberate failure to give disclosure of the two documents in question it would still be necessary for Profilati to satisfy the Court that it had suffered substantial injustice as a result.'" 72. And finally, in BAZ v. BBA [BAZ v. BBA, 2018 SGHC 275], the High Court of Singapore stated: "156. From the outset, it is important to reiterate that the public policy ground for setting aside or refusal of recognition/enforcement is very narrow in scope. The Court of Appeal has held that the ground should only succeed in cases where upholding or enforcing the arbitral award would "shock the conscience", or be "clearly injurious to the public good or ... wholly offensive to the ordinary reasonable and ....
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....te Limited, 2024 (6) SCC 357, has reiterated the limited scope of courts under Section 34 of the Act and has held as under: "33. Section 34 of the Arbitration Act delineates the grounds for setting aside an arbitral award. The provision, as amended by the Arbitration and Conciliation (Amendment) Act, 2015 reads as follows: "34. Application for setting aside arbitral award.- (1) * * * (2) An arbitral award may be set aside by the Court only if- (a)*** (b) the Court finds that- (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation 1.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. ....
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....amental breach of the principles of natural justice will result in a patent illegality, where for instance the arbitrator has let in evidence behind the back of a party. In the above decision, this Court in Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] observed : (SCC pp. 75 & 81, paras 31 & 42) "31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where: (i) a finding is based on no evidence, or (ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. *** 42.1. ... 42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality - for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside." (emphasis supplied) 38. In Ssangyong En....
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....e to be set aside under the head of "patent illegality". An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice." 62. Tested on the touchstone of the aforesaid law, the present challenge does not meet the threshold contemplated under Section 34 of the Act. The objections raised by the Petitioner essentially invite this Court to re- appreciate the evidence relating to delay and prolongation, re-interpret contractual clauses concerning taxes, minimum wages and change in law, and re-assess the methodology adopted for quantification of damages. Such an exercise would amount to converting proceedings under Section 34 into a first appeal on facts and law, which is impermissible. 63. The Impugned Award reflects a reasoned consideration of the pleadings, evidence and contractual framework. The Tribunal has not disregarded the contract; rather, it has interpreted the relevant clauses in the factual context of delay and extension. The interpretation adopted cannot be said to be so implausible, irrational or contrary to the express te....