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Quashes Arbitral Award Against JDA for Rewriting
The on set aside an arbitral award of ₹198.04 crore against the and the , holding that the arbitrator had impermissibly rewritten the terms of a Design-Build-Finance-Operate-Transfer () . A Division Bench of Justice Arun Monga and Justice Sandeep Taneja allowed the state’s appeal under , and rejected the award in its entirety, along with a corrigendum that had removed the award’s .
The Dispute Under the Ghat Ki Guni Tunnel Project
The case arose from a tripartite agreement dated , among the Government of Rajasthan, JDA, and . The concession involved constructing and operating an alternate route to Ghat Ki Guni through a tunnel in Jaipur’s Jhalana Hills, with a project cost of ₹150 crores and a concession period of 13 years, 5 months, and 20 days. Under the framework, the concessionaire bore all investigation, design, and construction risks.
Rohan Rajdeep later alleged that the supplied Detailed Project Report (DPR) was fundamentally defective, that site encumbrances forced redesign, and that additional works inflated costs. It raised four claims before a sole arbitrator: increase in project cost (₹175.67 crore), loss of toll revenue (₹188.02 crore), compensation for delayed (₹40.71 crore), and revenue loss from denied advertising rights (₹8.49 crore). On , the arbitrator allowed the cost escalation claim in full, partially allowed the toll loss claim, rejected the delay claim, and allowed the advertising claim—totaling ₹198.04 crore—with an additional award of 20.33% from accrual till payment. A later corrigendum removed the cap, enabling the respondent to seek over ₹500 crore in execution.
The dismissed JDA’s objections under Section 34, prompting the present appeal.
Arguments: Contractual Risk vs. Rewriting the Bargain
Appellants’ Submissions: JDA and the state, represented by , argued that the expressly placed investigation, survey, and design risks on the concessionaire. The DPR was only a reference document, as clarified in pre-bid queries, and the agreement’s sole compensatory mechanism for non-termination events was extension of the concession period—not . The 20.33% IRR was a project-appraisal metric, not an agreed interest rate, and the respondent had already received 484 days of extension, worth over ₹119 crore in toll revenue. The exceeded the limited scope of Section 33 by making a substantive change.
Respondent’s Submissions: countered that the scope of Sections 34 and 37 is narrow and that the arbitrator’s view on the importance of the DPR and entitlement to monetary compensation was plausible. The cash flow projections containing IRR formed part of the agreement, and there was no express bar on cash damages.
Court’s Analysis: No Breach, No Compensation,
The High Court framed five questions and answered all in favor of the appellants. On limitation , the court declined to entertain the new plea, noting it was fact-dependent and not raised before the arbitrator; even on merits, the claims were within three years of the ’s final rejection in .
On the core question of versus extension , the court found the award internally contradictory. The arbitrator himself held in paragraph 124 (rejecting one sub-claim) that the dispute resolution mechanism provided only for change in concession period, yet allowed monetary awards for the main claims. The court observed:
“The respondent has accepted and enjoyed both extensions [484 days] … The award nowhere accounts for, set off, or even adverts to the compensation already received … The result is for a single loss.”
Regarding the design risk , the court emphasized that placed investigation and design entirely on the concessionaire. The DPR was appended for reference only, and pre-bid responses confirmed deviations would not affect cost or concession period. The arbitrator’s treatment of the DPR as binding amounted to :
“Once the parties had consciously allocated the risk of investigation, survey and design to the concessionaire … the learned Sole Arbitrator could not have fastened the financial consequences of redesign upon JDA without first locating a contractual stipulation displacing that allocation.”
On , the court noted the award failed to identify any specific obligation breached by JDA. Compensation under presumes breach; none was established. The arbitrator had “presupposed an obligation not contained in the agreement and then awarded damages for its supposed breach.”
The IRR of 20.33% was described as “neither a promised return nor a rate of interest” but a notional project-appraisal metric. The court found the award “adopts a measure of recovery without contractual foundation,” and noted the actual borrowing cost was 13.5%. The compounding effect inflated an admitted cost overrun of ₹57.87 crore into a claim exceeding ₹500 crore.
On the , the court held it exceeded Section 33 by making a substantive alteration—deleting the —rather than correcting a clerical error.
Finally, the court invoked the doctrine of disproportionality : “An award which bears no rational proportion to the loss found … shocks the conscience of the Court.” It held the award conflicted with the and under Section 34(2)(b)(ii).
The Verdict: Award Set Aside, Restitution Ordered
The High Court allowed the appeal, setting aside the Commercial Court’s order, the arbitral award, and the . It directed that any amounts recovered by the respondent in execution shall abide by restitution in accordance with law. The parties were left to bear their own costs.
The judgment reaffirms that courts will not tolerate arbitral awards that override explicit contractual allocations of risk, award compensation without a finding of breach, or treat internal financial metrics as guaranteed returns—principles equally important for commercial arbitration practice across India.
