High Court Dismisses Employer's Challenge to Arbitral Award Under Section 34 of Arbitration Act in Road Construction Contract; Upholds Contractor's Entitlement to Royalty Reimbursement Under Clause 14. Award Found Reasonable on Merits as Interpretation Consistent with Conduct and Corrigendum.

Challenge to arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 in a construction contract dispute.

The Petitioner sought to set aside the arbitral award dated 3 March 2008 that had allowed the Respondent's claims for royalty reimbursement and rock cutting charges with interest.

The Petitioner, a government undertaking, contended that the award was contrary to the contract terms and that the arbitrator's interpretation of Clause 14 and rate determination was erroneous.

The Engineer rejected the claims; the Steering Committee gave advice; the Sole Arbitrator allowed the claims in the impugned award.

Whether the arbitral award granting royalty reimbursement under Clause 14 of the Special Conditions was perverse and liable to be set aside. Whether the arbitrator correctly determined the rate for rock cutting works. Whether the interest rate of 15% per annum was excessive. Whether the Steering Committee's decision under clauses 67.2 and 67.3 was binding on the employer.

Petitioner argued that the royalty reimbursement was mistakenly paid and that Clause 14 did not cover royalty as 'other taxes'. Petitioner contended that the Steering Committee's decision was not binding and that the arbitrator erred in accepting it. Petitioner challenged the rock cutting rate analysis as flawed, claiming improper computation of machinery hours and lead. Respondent asserted contemporaneous conduct and corrigendum supported inclusion of royalty, and that the employer was estopped from changing interpretation after completion. Respondent argued rate determination was factual and supported by evidence, and interest rate was reasonable.

An arbitral award can be set aside under Section 34 only if it is perverse or patently illegal; the court cannot reappreciate evidence. Contemporaneous conduct of parties is relevant in interpreting contractual terms. An in-house expert committee's decision, when accepted by the arbitrator, binds the employer. Determination of rates for work is a finding of fact not open to challenge unless perverse. Interest rate of 15% per annum is not excessive in a commercial contract absent agreed rate.

During the entire execution of the Works and after reimbursing practically 83% of the claim in respect of enhanced Royalty, at no stage the Employer informed or gave inclination to the Claimant that he is modifying the interpretation given to clause 14 by the parties during execution of the work and on which the parties have acted during execution of work for a period of nearly 3 years. It is not now permissible for the Respondent to disown the interpretation given by both the parties to the contract during the execution of the Work and unilaterally change it after completion of Work and taking over of the Work. The decision, therefore, if made by the Steering Committee and the learned Arbitrator had accepted the same, I see there is no reason to accept the submission that the award so passed by the learned Arbitrator by accepting the Steering Committee's decision read with his expertized reasons, is unjust, contrary to the law and/or the record. no particular rate of interest was agreed by the parties. The learned Arbitrator, considering the nature of business however, granted 15% interest.

The Petitioners invited tender for Four Laning of Satara Kolhapur stretch. A contract was signed on 4 March 2002. Work commenced on 18 May 2002, to be completed by 17 August 2004, but completed on 31 December 2005. Disputes arose regarding royalty reimbursement and rock cutting rates. The Engineer rejected the claims. On 22 February 2006, the matter was referred to the Steering Committee. Subsequently, referral to arbitration. Sole Arbitrator Shri Sharad P. Upasani was appointed first for Claim No.1 on 18 December 2006, later for other claims. The Respondents filed claims, Petitioners filed defense. Impugned award passed on 3 March 2008. Petitioners filed this petition under Section 34 of Arbitration and Conciliation Act, 1996.

• Arbitration and Conciliation Act, 1996: