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State of Haryana v. M/s. Shiv Shankar Construction Co.

Civil Appeal · 2021 INSC 888Decided 14 Dec 2021
Civil Appeal Nos. 7379-7380 of 2021
Justice M.R. Shah · Justice B.V. Nagarathna

Background

A road-maintenance contractor had agreed with the State of Haryana to maintain a stretch of road at a fixed rate per kilometre per month, based on an estimated traffic volume at the time of contracting. When traffic was diverted from a nearby road onto the contractor's stretch, significantly increasing wear and maintenance costs, the contractor claimed additional compensation through arbitration. The Arbitrator awarded the contractor extra compensation at an enhanced rate, which the State challenged, and which was upheld by the Punjab and Haryana High Court.

Decision Breakdown

The Supreme Court held that the Arbitrator was right to award the contractor extra compensation for the genuine additional burden caused by the diverted traffic, rejecting the State's argument that this amounted to impermissibly rewriting the contract. However, the Court partly allowed the State's appeal, finding that the Arbitrator erred by extending the enhanced compensation all the way to the end of the contract period, even though the additional traffic diversion itself had ceased earlier (around January 2008). To that limited extent, the Court held the award was perverse, and confirmed the enhanced compensation only up to the point when the extra traffic actually stopped, while quashing it for the period thereafter.

Lesson Learnt

An arbitral award can be partially set aside by courts where it awards compensation for a loss beyond the period the loss-causing circumstance actually existed: compensation must be tied to the actual duration of the hardship, not extended indefinitely for the remainder of a contract.

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

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