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Chandigarh Construction Co. Pvt. Ltd. v. State of Punjab & Anr.

Civil Appeal · 2020 INSC 187Decided 14 Feb 2020
Civil Appeal Nos. 867-870 of 2013
Justice R. Banumathi · Justice A.S. Bopanna

Background

A construction company had contracted with the Punjab government in 1985 to build part of the Sutlej Yamuna Link Canal. During the work, the scope expanded considerably due to unexpected soil conditions and design changes, and the company claimed extra payment. An arbitrator awarded the company a lump sum for several claims, including a large premium of 93.12% on "extra items," but gave essentially no reasoning for how that figure was reached. Lower courts and then the Punjab & Haryana High Court struck down most of these extra-item awards because the arbitration agreement required reasoned awards and this one wasn't. The company appealed to the Supreme Court.

Decision Breakdown

The Supreme Court agreed that the Arbitrator's unreasoned conclusion of a 93.12% premium, calculated by simply comparing the estimated project cost to the actual contract price, could not stand, since the contract specifically required the Arbitrator to give reasons for awards over Rs. 1 lakh. Normally, such a defective award would be sent back to the Arbitrator to be redone from scratch. However, given that more than two decades had already passed since the 1994 arbitration, the Court chose instead to resolve the matter itself: it found a more defensible premium figure (35.02%) supported by an actual departmental letter in the record, and directed that the company's claims for extra work be recalculated and paid at that rate, with interest, within six weeks.

Lesson Learnt

An arbitrator who is contractually required to give reasons for an award cannot simply state a bare number or conclusion, doing so risks the award being struck down; and where a defective award has dragged on for decades, courts may step in to finally fix a fair figure themselves rather than send the dispute back for yet another round of arbitration.

Official source (sci.gov.in)View Judgment (PDF)

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