Case Note & Summary
The case arises from three arbitration petitions filed by the Public Works Department (PWD) of Maharashtra under Section 34 of the Arbitration and Conciliation Act, 1996, challenging a common arbitral award dated April 14, 2023. The underlying dispute involved an Engineering Procurement and Construction (EPC) contract for road infrastructure, comprising three packages valued at approximately Rs. 148.51 crores, executed between PWD and Khare And Tarkunde Infrastructure Pvt. Ltd. The contractor abandoned the project after completing only 10% of the work, leading to termination and arbitration. The arbitral tribunal awarded damages exceeding the 1% cap stipulated in Clause 4.1.5 of the contract, and granted interest at 18% per annum compounded quarterly. PWD challenged the award on two grounds: first, that the tribunal ignored the contractual cap on damages; second, that the interest rate was excessive and contrary to Section 31(7) of the Act. The court analyzed the contractual provisions and the tribunal's reasoning, noting that the contractor's abandonment constituted a fundamental breach, rendering the limitation clause inapplicable. On interest, the court found that 18% compounded quarterly was penal and reduced it to 9% simple interest, aligning with the principle that interest should be compensatory. The court partially allowed the petitions, modifying the award only on the interest rate.
Headnote
A) Arbitration - Limitation of Liability Clause - Clause 4.1.5 of Contract - The clause capped aggregate damages at 1% of contract price, but the tribunal held it inapplicable due to contractor's abandonment and fundamental breach. The court upheld this finding, reasoning that a party cannot rely on a limitation clause after causing the contract's failure. (Paras 1-10)
B) Arbitration - Interest Award - Section 31(7) of Arbitration and Conciliation Act, 1996 - The tribunal awarded 18% interest compounded quarterly, which the court found excessive and penal. The court reduced it to 9% simple interest, holding that interest must be compensatory and not punitive. (Paras 11-20)
Issue of Consideration
Whether the arbitral tribunal erred in awarding damages beyond the 1% cap under Clause 4.1.5 of the contract, and whether the award of 18% interest compounded quarterly is contrary to Section 31(7) of the Arbitration and Conciliation Act, 1996.
Final Decision
The court partially allowed the petitions, upholding the award on damages but reducing the interest rate from 18% compounded quarterly to 9% simple interest.
Law Points
- Limitation of liability clause not absolute in case of fundamental breach
- Interest rate under Section 31(7) of Arbitration and Conciliation Act
- 1996 must be reasonable and not penal
- Arbitral tribunal cannot ignore express contractual terms without justification
Case Details
2026 LawText (BOM) (06) 45
Arbitration Petition No. 262 of 2024 with Interim Application (L) No. 21282 of 2024 and Interim Application (L) No. 32187 of 2023; Arbitration Petition No. 264 of 2024 with Interim Application (L) No. 21288 of 2024 and Interim Application (L) No. 32189 of 2023; Arbitration Petition No. 263 of 2024 with Interim Application (L) No. 32188 of 2023 and Interim Application (L) No. 21285 of 2024
Somasekhar Sundaresan, J.
Mr. Amrut Joshi a/w Ms. Kajal Gupta, Ms. Shweta Singh i/b M. V. Kini & Co., for the Petitioner; Mr. Karl Tamboly a/w Mr. Anoop Sharma, Mr. Reehan Ajmerwala, Ms. Ujwala Kamat, Mr. Sumit Khanna, i/b, Sarita D’lima, for Respondent
Public Works Department Government of Maharashtra National Highways
Khare And Tarkunde Infrastructure Pvt. Ltd.
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Nature of Litigation
Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award
Remedy Sought
Setting aside or modification of the arbitral award dated April 14, 2023
Filing Reason
The petitioner challenged the award on grounds that the tribunal ignored the contractual cap on damages (1% of contract price) and awarded excessive interest (18% compounded quarterly)
Previous Decisions
Arbitral award dated April 14, 2023 was passed by the arbitral tribunal
Issues
Whether the arbitral tribunal erred in awarding damages beyond the 1% cap under Clause 4.1.5 of the contract?
Whether the award of 18% interest compounded quarterly is contrary to Section 31(7) of the Arbitration and Conciliation Act, 1996?
Submissions/Arguments
Petitioner argued that Clause 4.1.5 capped aggregate damages at 1% of contract price and the tribunal wrongly held it inapplicable.
Petitioner argued that 18% interest compounded quarterly is penal and contrary to Section 31(7).
Respondent argued that the contractor's abandonment constituted a fundamental breach, making the limitation clause inapplicable, and that the interest rate was justified.
Ratio Decidendi
A limitation of liability clause cannot be invoked by a party whose own fundamental breach caused the contract's failure. Interest awarded under Section 31(7) must be compensatory, not penal; 18% compounded quarterly is excessive and reduced to 9% simple.
Judgment Excerpts
Clause 4.1.5 specifically and categorically provides that the aggregate damages payable shall not exceed 1% of the contract price, and yet, the Impugned Award has held that such limit would not apply in the peculiar facts of the case.
interest awarded at the rate of 18% per annum compounded with quarterly rests for pre-arbitration, pendente lite and post-arbitration, is contrary to the contract as well as Section 31(7) of the Act.
Procedural History
The arbitral award was passed on April 14, 2023. The petitioner filed Arbitration Petitions No. 262, 263, and 264 of 2024 under Section 34 of the Arbitration and Conciliation Act, 1996, along with interim applications. The court reserved judgment on March 30, 2026 and pronounced on June 12, 2026.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 31(7), Section 34
