Union Of INDIA vs. Ms Krishna Constructions Company

Facts

The Union of India (petitioner) filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, to challenge an arbitral award dated December 17, 2021. The award directed the Union to pay Rs. 1,05,56,800/- to M/s Krishna Constructions Company (respondent) along with interest. The dispute arose from a contract for constructing a school building and quarters. The Union terminated the contract on April 4, 2019, due to alleged inadequate work progress. The respondent claimed the termination was unlawful and sought various reliefs, including refund of performance guarantee, security deposit, and payment for milestones. The respondent also claimed refund of GST on certain bills. The Union filed counter-claims. The parties agreed to decide the case on documents.

Held

The Court held that the impugned arbitral award did not suffer from any infirmity attracting its jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996. Regarding Claim Nos. 1 and 6, the Arbitrator correctly found that the Union had failed to establish any loss suffered as a consequence of the contract termination. The Arbitrator's finding that the Union wrongly withheld the performance bank guarantee and security deposit was sustained. For Claim No. 2, the Arbitrator's award was based on the finding that no loss was proven by the Union, thus sustaining the award on similar reasoning as Claims 1 and 6. Claim No. 9 and the Union's counter-claim No. 1, relating to the final bill, were found to be consequential to the Union's entitlement to damages, which the Arbitrator had rightly rejected. Therefore, the challenge to these claims also failed. The Court found no patent illegality or perversity in the award.

Key Issues

1. Whether the Arbitrator erred in awarding the refund of the Performance Guarantee (Claim No. 1) and Security Deposit (Claim No. 6) to the respondent, despite the contract termination, considering the Union's contention that it suffered losses due to the respondent's alleged delays and inadequate work. The petitioner argued that the contract's termination was justified and that it was entitled to retain these amounts. The respondent contended that the termination was illegal and that the Union failed to prove any loss suffered. 2. Whether the Arbitrator erred in awarding payment for 3 withheld Milestones (Claim No. 2) to the respondent. The petitioner argued that the Arbitrator's finding was based on the premise of no loss, which was contested. The respondent maintained its entitlement to these payments. 3. Whether the Arbitrator erred in rejecting the Union's counter-claims (Counter Claim No. 1 and 3) for the 6th & final bill and interest. The petitioner argued for the validity of its counter-claims. The respondent did not present arguments on this point as the award rejected the counter-claims.