Financing Charges Under FIDIC Contract Must Be on Certified Claims: Delhi High Court Allows Jal Board Appeal

The Delhi High Court has held that financing charges under a FIDIC-based construction contract can be claimed only on amounts that are formally certified or have clearly become payable under the contract, and not on disputed or unverified claims.

A Division Bench of Justice C. Hari Shankar and Justice Om Prakash Shukla partly allowed an appeal filed by the Delhi Jal Board against a Single Judge order that had upheld an arbitral award in favour of Mohini Electricals Ltd., setting aside the portion of the award that granted financing charges on uncertified claims.

The court said an arbitrator cannot ignore mandatory payment conditions written into the contract.

"Self-serving documents, unsupported by corroborative proof, cannot be treated as evidence of actual expenditure. Reliance on such material renders the impugned award unsupported by evidence and squarely places it within the category of a finding based on “no evidence,” the bench said

The case concerns a turnkey contract signed in November 2003 between the Delhi Jal Board and Mohini Electricals Ltd for building underground reservoirs and booster pump stations in east Delhi.

The contract followed FIDIC conditions, a globally used standard form for construction projects that lays down how bills are raised, how payments are certified, and when interest or financing charges can be claimed if payments are delayed.

The project ran into delays, with both sides blaming each other for slow progress and payment issues. The contractor raised multiple claims, including for prolonged costs, head office expenses, and financing charges.

After the dispute resolution board under the contract was closed without resolving the disputes, both sides agreed in 2018 to refer the matter to arbitration. The sole arbitrator allowed most of the contractor's claims and awarded financing charges of over Rs 22 crore.

A Single Judge of the Delhi High Court later dismissed the Delhi Jal Board's challenge and upheld the arbitral award.

The High Court found serious flaws in that approach. On prolonged costs, it noted that the arbitrator relied mainly on a self-prepared statement and Chartered Accountant certificates that only showed tax payments and receipts. There was no proof that basic records like vouchers or wage registers were examined.

“Annexure 12A appears to be nothing more than a self-prepared statement of the contractor, unsupported by any independent verification. Self-serving documents, unsupported by corroborative proof, cannot be treated as evidence of actual expenditure,” the court said.

However, the court upheld the award of head office overheads and profit, noting that the arbitrator took a conservative view and did not mechanically apply a formula. The Bench said this assessment could not be called unreasonable.

On financing charges, the court drew a clear line. It held that such charges cannot be imposed on disputed or later-adjudicated claims that were never certified under the contract. Even where the contract refers to payment “without formal notice or certification,” the underlying amount must first become payable through the contractual process.

“By granting financing charges without proof of certification or crystallized liability, the learned Arbitral Tribunal has effectively dispensed with a mandatory contractual pre-condition,” the court said, adding that this amounted to rewriting the contract.

The court also rejected the Delhi Jal Board's argument that the claims were time-barred. It held that under a multi-step dispute resolution clause, arbitration could be invoked only after earlier mechanisms failed. Since the process was closed by mutual consent only in 2018, the claims were within time.

“No clear or identifiable breaking point emerges from the record so as to trigger the commencement of limitation,” the court said.

The appeal was partly allowed, with the arbitral award set aside only to the extent it granted prolonged costs without evidence and financing charges on uncertified claims. The rest of the award was left untouched.