Union Of INDIA vs. Aimco Kcm Royalinfra (Jv)

Facts

The petitioner, Union of India (Railways), challenged an arbitral award dated May 22, 2023, which directed them to pay the respondent, AIMCO KCM Royalinfra (JV), ₹1,98,77,498/- plus post-award interest at 9.5% per annum. The dispute arose from a contract dated May 1, 2018, for a centralized heating system. The respondent claimed ₹2,89,81,575/- for enhanced quantities supplied, including GST, and for damages/loss of profit. The Arbitrator awarded ₹1,82,48,195/- against the claim for enhanced quantities and ₹16,29,303/- against the claim for damages. The petitioner's primary contention was that the award of enhanced quantities was contrary to Clause 4.8 of the contract, which stated no extra charges would be paid for any item under the scope, and that it was a turnkey contract where quantity enhancements were not permissible.

Held

The Court held that the jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996, is limited and interference is warranted only in exceptional cases where findings are manifestly illegal, based on no evidence, or are perverse. The Court found that the Arbitrator had meticulously examined the contract and subsequent communications. The Arbitrator's conclusion that the contract was an item rate contract, rather than a turnkey contract, was based on the tender document itself containing a schedule of items and rates, and was further fortified by the submission and approval of a revised bill of quantities. The Arbitrator's findings regarding the approval of revised drawings, based on site visits and the lack of alternative drawings for execution, were also deemed to be based on evidence. Therefore, the Arbitrator's interpretation and findings were not found to be irrational, arbitrary, or perverse. Consequently, the objections raised by the petitioner against Claim A were rejected. Claims B and C were considered consequential to Claim A, and no separate arguments were addressed on them. The petition was dismissed.

Key Issues

1. Whether the Arbitrator's finding that the contract was an item rate contract, rather than a turnkey contract, and thus permissible to award enhanced quantities, is amenable to challenge under Section 34 of the Arbitration and Conciliation Act, 1996, considering Clause 4.8 of the contract? Petitioner's arguments: The petitioner argued that Clause 4.8 of the contract explicitly stated that quantities were approximate and no extra charges would be paid for any item under the scope, irrespective of the actual conditions. They contended that the contract was a turnkey contract, and the Arbitrator's finding to the contrary, allowing claims for enhanced quantities, went beyond the terms of the contract. The petitioner asserted that the Arbitrator's interpretation was manifestly illegal and perverse. Respondent's arguments: The respondent, through their counsel, argued that the contract was indeed an item rate contract, as evidenced by the schedule of items and rates in the tender document. They relied on subsequent communications, including a revised bill of quantities submitted on June 7, 2018, which detailed reasons for variations in quantities due to site conditions and joint decisions. The respondent also pointed to the execution of work as per revised drawings signed by site officials, which were not denied by the petitioner. The respondent contended that the Arbitrator's findings were based on evidence and a reasonable interpretation of the contract.