Arbitrator Cannot Grant Claims Contrary To Clear Contract Terms, Delhi High Court Reiterates

The Delhi High Court, reiterating a settled law, has said that additional compensation cannot be granted where a claim runs contrary to clear contractual terms, even if an arbitrator has allowed it.

Holding so, The court granted relief to Indraprastha Power Generation by setting aside portions of the arbitral award that were contrary to the contract with Jay Gee Construction

A Division Bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar observed that an arbitral tribunal cannot grant relief by ignoring express provisions agreed upon between the parties. 

The dispute related to claims for additional distance and idling charges under a fly ash disposal contract, which had been allowed by the arbitrator but later set aside by a single judge of the High Court.

“In the face of such unambiguous contractual stipulations, the claim for additional lead was plainly contrary to the express terms of the agreement, and the learned arbitrator's award in this regard was rightly set aside under Section 34 of the A&C Act,” the court said.

The case concerned a contract awarded to Jay Gee by Indraprastha Power for excavating and disposing of fly ash from ash ponds along the Ring Road near the Nizamuddin Bridge. The ash was to be transported to low-lying dumping sites within Delhi, as directed during execution. The rates quoted under the contract were applicable to all leads and lifts at such disposal locations.

Disputes arose after the contractor claimed it had to transport ash over longer distances than anticipated and claimed idling charges for machinery and labour for a period of 58 days while awaiting a decision on extending the contract. A sole arbitrator accepted these claims in 1998 and awarded compensation, along with interest at 18 percent per annum.

Indraprastha Power Generation challenged the award before a single judge of the High Court. The single judge set aside the claims relating to additional distance and idling charges and reduced the interest rate to 9 percent. Jay Gee Construction appealed against that decision.

Before the Division Bench, the contractor argued that its bid was linked to certain disposal sites mentioned in the schedule of quantities and that any disposal beyond those sites attracted extra payment. It also said the delay in granting an extension left it with little option but to keep its men and machinery idle.

The court rejected these submissions. It noted that the Special Conditions of Contract made it clear that the disposal sites were only tentative and could be changed during execution. The rates applied to “all leads and lifts” within the Union Territory of Delhi. The Bench said the contractor's obligation was “not confined to any predetermined location or distance” and that the quoted rates were inclusive of all distances.

On idling charges, the court noted that the original contract ended on October 31, 1994, and that there was a gap of 58 days before fresh work began. During this period, “no contractual relationship subsisted between the parties.” The contractor had also been informed that any mobilization during this time would be at its own risk and cost.

The bench reiterated that an extension of time must be continuous and cannot operate after a break. It also pointed out that the arbitrator had himself treated the later work as a new contract under one claim but still awarded idling charges by treating it as an extension. That inconsistency, the court said, could not be sustained.

The court also upheld the reduction of interest from 18 percent to 9 percent, holding that it was reasonable and consistent with prevailing conditions.

Finding no error in the single judge's decision, the High Court dismissed the appeal.

For Jay Gee Construction: Advocates Anil Mittal, Shaurya Mittal, Atul Chauhan

For Indraprastha Power Generation: Advocates Syed Wasim Ahmed Qadri, Preeti Thakur, Saahil Gupta, Saeed Qadri, Umesh, Ranjan