1. Disputes arose from a construction contract; the arbitrator's award was challenged under Section 34 of the Arbitration Act. (Para 2 , 3 )
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2026 Supreme(Online)(Del) 17064
IN THE HIGH COURT OF DELHI AT NEW DELHI
V. Kameswar Rao, Manmeet Pritam Singh Arora, JJ
Rama Construction Co. – Appellant
Versus
Delhi State Industrial & Infrastructure Development Corporation Ltd – Respondent
FAO(OS)(COMM) 277/2018 | FAO(OS)(COMM) 6/2019
Advocates:
For the Appellants/Petitioners: Avinash Trivedi, Rahul Aggarwal
For the Respondents: Tajinder Virdi, Vikrant Narayan Vasudeva
For the Appellants/Petitioners: Avinash Trivedi, Rahul Aggarwal
For the Respondents: Tajinder Virdi, Vikrant Narayan Vasudeva
The Court held that modifying pendente lite interest under Section 34 of the Arbitration Act is impermissible; courts can only set aside such interest or remand the matter. Additionally, ignoring agreed-upon calculations in favor of unilateral last-minute submissions constitutes patent illegality.
Headnote:(A) Arbitration Act - Section 34 - Patent Illegality - Arbitrator relying on a unilateral revised calculation statement submitted just days before the award, while ignoring a recorded agreement between parties in the proceeding sheets regarding a lower amount, constitutes patent illegality. (Para 19)
(B) Contractual Bonus - Early Completion - Incentive for completing work ahead of the extended scheduled date - A finding of fact by the Arbitrator that additional work led to the extension of time is sustainable if the opposing party fails to provide independent evidence to prove that the value increase was due to material costs rather than quantum of work. (Para 24, 25)
(C) Interest - Pendente Lite vs. Post-Award - Power of Court under Section 34 - Courts possess the power to modify post-award interest where facts justify, but cannot modify pendente lite interest; the only available options are to set aside the rate or remand the matter under Section 34(4). (Para 31, 32)
Issues: Whether the Arbitrator's award on price escalation and bonus was sustainable and whether the Single Judge had the jurisdiction to modify pendente lite interest.
Legal Category Hierarchy
- arbitration and conciliation
- contract law
Table of Contents
2. The contractor challenged reduction of an escalation claim and interest; the employer challenged the grant of an incentive bonus. (Para 7 , 8 , 11 , 20 )
3. The arbitrator's reliance on a late-filed calculation ignored a prior agreed figure; the incentive claim was factually justified. (Para 18 , 19 , 25 )
4. Under Section 34, a court can only set aside or remand a flawed pendente lite interest rate; it cannot modify it. (Para 30 , 31 , 32 )
5. Appeals regarding claims 17 and 18 dismissed; appeal regarding interest rate sustained and judgment modified accordingly. (Para 33 )
6. Can a court under Section 34 of the Arbitration Act modify the pendente lite interest rate awarded by an arbitrator?
No, the court can only set aside the rate or remand the matter; modification of pendente lite interest is not permitted. (Para 30 , 31 , 32 )
7. Can an arbitrator rely on a revised calculation statement submitted unilaterally just before the award, ignoring a prior agreed figure?
No, such reliance, without considering the prior agreed position, constitutes patent illegality and can be set aside. (Para 18 , 19 )
8. Is an incentive bonus under Clause 2A of GCC payable for completing work before the extended date of completion due to additional work?
Yes, if the extension was granted due to additional work attributable to the employer, the contractor is entitled to incentive for completing ahead of schedule. (Para 22 , 23 , 24 , 25 , 27 )
JUDGMENT
V. KAMESWAR RAO, J.
1. These two appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’) arise from the same impugned order of the learned Single Judge dated 10.09.2018 in OMP (COMM.) 250/2016, and as such, are being decided together by this common order. For the sake of convenience, the appellant and the respondent in FAO(OS)(COMM) 277/2018 (who are inversely the respondent and the appellant in FAO(OS)(COMM) 6/2019) shall be referred to hereinafter as ‘Rama Construction Company’ and ‘DSIIDC’ respectively
2. At the outset, we may narrate a brief factual background of the present controversy. DSIIDC had awarded Rama Construction Company the tender for “construction of pakka school building for Government school at Gazipur” for an amount of Rs. 4,93,84,902/- vide letter dated 10.01.2005. Pursuant thereto, an agreement dated 24.03.2005 was executed between the parties.
3. Disputes arose between the parties and a Sole Arbitrator was appointed by DSIIDC. Though various claims made by Rama Construction Company were allowed by the Arbitrator, and some were challenged before the learned Single Judge, this appeal is limited to the decision of the learned Single Judge with respect to claims no. 17, 18 and 20.
4. The petition under Section 34 of the Act was disposed of, rejecting the challenge made by DSIIDC to claim no. 18 and holding that claim no. 17 shall be restricted to Rs.4,07,218/- as against an amount of Rs. 19,52,087/- granted by the learned Arbitrator, and also reducing the interest granted under claim no. 20.4 from 10% to 8% on the remaining claims.
4. The conclusion of the learned Single Judge on claim no. 17, which is reproduced below, has been challenged by Rama Construction Company in FAO(OS)(COMM) 277/2018.
“The Arbitrator hence considered final bill no.-2 in order to award Claim No.-17. The claimed amount under Claim No.-17 was only Rs.22,98,591/-. This is also as per the rejoinder submissions, CD-17. Since, the amount claimed is only Rs22,98,591/- and the amount already paid was Rs.18,91,373/-, the balance amount would have only been Rs. 4,07,218. The Arbitrator, therefore,_ erred in taking the claimed amount as per CD-24 without considering the documentation and the proceeding sheet of 3rd November, 2012. CD-24 was admittedly submitted pursuant to order dated 3rd June, 2013 which was just before the passing of the award. The objection raised by the Respondent in respect of the final bill having been considered by the Arbitrator, CD~24 could not have been taken into consideration. Thus, Claim No.-17 is .restricted to Rs. 4,07,218/-. The absence of any documentation in the impugned award as to the calculations recorded on 3rd November, 2012 and sudden increase in Claim no.-17 just before passing of the award lends credence to the case of the Petitioner that an inflated calculation has been wrongly considered by the Arbitrator.”
5. On the issue of interest, the learned Single Judge has held on the remaining claims, the interest shall be 8%, as against the 10% granted by the Arbitrator. This modification has been challenged in this appeal.
6. Similarly, the finding of the learned Single Judge in claim no. 18, reproduced below, has been challenged by DSIIDC in FAO(OS)(COMM)6/2019.
“14. Further, no details whatsoever were given to substantiate the argument that the increase in the value of the work was not because of increase in quantum of work but on account of increase in cost of materials. In the absence of the same, the challenge to this is untenable.”
CLAIM NO. 17
7. On claim no. 17, the submission of Mr. Avinash Trivedi, the learned counsel for Rama Construction Company is primarily that the learned Single Judge could not have modified the award rendered by the Arbitrator and reduced the same from Rs. 19,52,087/- to Rs.4,07,218/-. The claim is relatable to price escalation as governed by Clause 10CC of the Agreement. The Ar
