Delhi High Court Sets Aside Construction Arbitration Award; Finds Arbitrator Ignored Contract Terms, Relied on Undisclosed Material and Awarded Unproved Escalation Damages
Delhi High Court Quashes Construction Award Against IGNOU; Finds Arbitrator Wrongly Treated Incomplete Work as Completed and Awarded Unsupported Contractor Claims
Analysis of the Law
Finding of Completion Was Contrary to Contract and Evidence
The arbitrator treated 30 November 2011 as the completion date, partly because IGNOU had begun using the building.
The High Court found this conclusion unsustainable.
The record showed that after the contractor applied for a completion certificate, IGNOU repeatedly communicated lists of pending defects and incomplete works. These included fire-fighting requirements, other defects and failure to submit completion drawings and statutory approvals.
Clause 8 expressly required inspection and issuance of either a final or provisional completion certificate. Clause 15 separately required submission of completion and as-built drawings.
The Court held that the arbitrator ignored these communications and contractual requirements. Under Clause 8, the work could not be treated as complete merely because the contractor had requested a completion certificate.
Further, Clause 17 specifically permitted IGNOU to use completed portions even while work remained in progress. Therefore, occupation of the premises did not prove completion of the entire project.
The contractor also continued submitting completion drawings in June 2012, demonstrating that the contractual completion requirements were still pending after November 2011.
The High Court consequently held the finding of completion to be perverse and contrary to the evidence and contract.
Undisclosed Material and Natural Justice
In deciding the rates for extra and deviated items, the arbitrator relied upon DSR-2007 rates, moderation of those rates and independent market enquiries.
The High Court found that this material and the methodology were not disclosed to IGNOU or put to it for rebuttal.
For some items, the arbitrator adopted rates without any proper evidentiary basis or recorded reasons. In relation to other items, he expressly conducted market enquiries without bringing those enquiries on record or confronting IGNOU with them.
The Court held that reliance on such material violated Sections 18 and 24(3) of the Arbitration Act and principles of natural justice.
Reasoned Award Under Section 31(3)
The Court further held that Section 31(3) requires an arbitral award to contain adequate and intelligible reasons.
For several items, the arbitrator fixed rates without explaining the basis of computation. This defect went beyond a mere disagreement on appreciation of evidence and amounted to non-compliance with the statutory requirement of reasons.
12th RA Bill and Performance Guarantee
The arbitrator awarded the entire ₹50,55,912 claimed under the 12th RA Bill despite accepting that income tax, VAT and cess were deductible.
The High Court further noted that Clause 1A contemplated deduction of 5% from running bills toward the security deposit. This contractual provision had not been properly considered.
Similarly, the Performance Bank Guarantee was contractually returnable only after issuance of a completion certificate. Since no completion certificate existed, directing release of the PBG was contrary to the express terms of the contract.
The Court held that this part of the award was patently illegal and travelled beyond the contract.
Escalation and Damages
A major issue concerned the award of ₹1.27 crore for escalation due to prolongation.
The contractor’s pleaded claim was under Clause 10CC. The arbitrator accepted that Clause 10CC did not apply, but nevertheless granted damages under Sections 55 and 73 of the Contract Act.
The High Court held that damages under Section 73 require two basic conditions:
- breach of contract; and
- proof of actual loss or damage, or proof that such loss cannot reasonably be quantified.
Here, the contractor had neither pleaded nor proved actual loss arising from prolongation. Nor had it shown that proving such loss was impossible or impracticable.
The Court rejected the argument that a recognised formula could substitute proof of loss. A formula can assist in quantifying loss once loss itself is established; it cannot replace proof that loss was actually suffered.
More importantly, after rejecting Clause 10CC, the arbitrator converted the claim into one under Sections 55 and 73 even though no independent claim for such damages had been pleaded or referred.
The Court held that this amounted to travelling beyond the submission to arbitration and attracted Section 34(2)(a)(iv).
Precedent Analysis
Ssangyong Engineering & Construction Co. Ltd. v. NHAI
The Court relied upon Ssangyong for two important propositions.
First, a finding based on no evidence, one which ignores vital evidence, or one relying upon material obtained behind the parties’ backs may be characterised as perverse and patently illegal.
Second, reliance upon undisclosed documents or expert material without giving a party an opportunity to respond can attract Section 34(2)(a)(iii).
Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.
This case was relied upon to explain the requirement under Section 31(3) that an arbitral award contain intelligible and adequate reasons.
PSA SICAL Terminals, Ssangyong and Indian Oil Corporation v. Shree Ganesh Petroleum
These authorities were relied upon for the principle that an arbitral tribunal is a creature of contract and cannot travel beyond its express terms. An award inconsistent with contractual limitations may constitute jurisdictional error or patent illegality.
Kailash Nath Associates v. DDA
The Court referred to Kailash Nath for the proposition that damage or loss is a sine qua non for compensation, and where actual damage can be proved, proof cannot simply be dispensed with.
State of Rajasthan v. Ferro Concrete Construction
This judgment was relied upon to hold that an arbitral claim cannot be allowed merely because it has been asserted in the statement of claim where no supporting evidence whatsoever has been produced.
Sepco Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd.
The Court acknowledged that Section 34 does not permit interference for every factual or legal error. Courts should ordinarily refrain from interfering unless the error falls within the statutory grounds governing challenge to an award.
Court’s Reasoning
The High Court recognised that the jurisdiction under Section 34 is narrow and is not an appellate review of the merits.
However, the defects in this award were not merely errors capable of supporting another possible view.
The arbitrator had:
- ignored vital evidence concerning pending defects and incomplete contractual obligations;
- treated occupation of part of the building as evidence of contractual completion despite express clauses permitting such use during ongoing work;
- relied upon undisclosed market enquiries and rate material;
- fixed rates without adequate reasons;
- directed release of contractual securities contrary to express conditions;
- granted escalation damages without pleading or proof of actual loss; and
- converted a rejected Clause 10CC claim into an unpleaded claim under Sections 55 and 73 of the Contract Act.
The Court therefore concluded that the arbitrator had ignored relevant evidence, disregarded the contract and travelled beyond the scope of reference.
These defects brought the award squarely within Section 34 on the grounds of patent illegality, perversity and violation of contractual and statutory provisions.
Conclusion
The Delhi High Court allowed IGNOU’s Section 34 petition and set aside the entire arbitral award dated 30 April 2018.
The Court held that the arbitrator had ignored relevant evidence, disregarded binding contractual terms and travelled beyond the contract and the scope of the reference. The claims awarded were therefore found to violate both contractual and statutory provisions and to fall within the grounds for interference under Section 34.
All pending applications were also disposed of.
Case Details
Case: IGNOU v. Roshan Real Estates Pvt. Ltd.
Court: High Court of Delhi at New Delhi
Case Number: O.M.P. (COMM) 416/2018 & I.A. 13436/2018; CNR No. DLHC012457252018
Judge: Justice Avneesh Jhingan
Date: 25 August 2026
Result: Petition allowed; arbitral award dated 30 April 2018 set aside in entirety.
