2026 Supreme(Del) 471

IN THE HIGH COURT OF DELHI AT NEW DELHI
V. KAMESWAR RAO, VINOD KUMAR, JJ.
 
National Highways Authority of India – Appellant
Versus
Progressive Constructions Limited – Respondent
FAO(OS) (COMM) 206 of 2023
Decided On : 18-06-2026
 

Judicial review of arbitral awards is limited to identifying patent illegality or perversity. Termination of a contract is illegal if the employer fails to grant mandatory time extensions; however, claims for prolongation and overhead damages lack legal standing if the claimant previously accepted delay conditions without protest or evidence.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 34 and 37 - Scope of judicial review in arbitration matters is narrow - Court should not re-examine factual findings unless they are perverse, arbitrary, or capricious - Judicial interference is limited to scenarios where findings shock the conscience of the court or reveal patent illegality. (Paras 71, 72)

(B) Contractual Termination - Termination of a project contract is illegal when the employer fails to fulfill mandatory obligations regarding extension of time - When an employer persists in inaction despite recommendations for extension by the project expert, the concept of time being the essence of the contract is set at large. (Paras 79, 83)

(C) Compensatory Claims - Claims regarding overhead costs and idleness based on mathematical formulas without substantive contemporaneous records are insufficient - Parties who accept project delay findings from authorities over years without protest are precluded from subsequently raising claims for prolongation costs under principles of acquiescence and waiver. (Paras 105, 107, 108)

Facts of the case:
The dispute involved the termination of a highway construction project. The contractor alleged the termination was illegal, citing the employer's failure to grant necessary time extensions. The arbitrator found in favor of the contractor, declaring the termination illegal and awarding various monetary claims for overheads, machinery idleness, and profit loss. The employer challenged these findings, leading to multiple levels of appeal regarding the validity of the termination and the quantification of damages.

Findings of Court:
The court held that the termination was indeed illegal due to the employer's failure to address time extension requests, which rendered the timeline for completion effectively open. However, the court found that the arbitrator erred in granting specific monetary claims for overheads and prolonged machinery usage, as the contractor had previously acquiesced to the delay assessments during the project without formal reservation, and failed to provide primary evidence for the damages claimed.

Issues: (i) Whether the termination of the project contract was legally justified. (ii) Whether claims for idling costs and overheads are sustainable when project delay findings were historically accepted without protest. (iii) The threshold for judicial interference in arbitral findings regarding evidentiary sufficiency.

Ratio Decidendi: Termination of a contract without adhering to contractual protocols for time extensions is unsustainable. However, an arbitral award granting damages for project prolongation is perverse if it ignores a party's failure to object to previous delay assessments and awards sums relying on speculative formulas without empirical proof of loss.

Result: Appeal partially allowed; termination of the contract declared illegal, but monetary claims pertaining to overheads and prolongation damages were set aside.