Case Note & Summary
The present matter was a commercial appeal before the High Court of Karnataka filed under Section 13(1A) of the Commercial Courts Act, 2015 read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, challenging the judgment dated 30.11.2024 passed by the LXXXVI Additional City Civil and Sessions Judge, Commercial Court, Bengaluru in Com.A.P.No.40/2024. In that judgment, the Commercial Court dismissed the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996, which had sought setting aside of an arbitral award dated 10.11.2023 rendered by a Sole Arbitrator. The appeal was one of a batch of nine similar appeals arising from separate arbitral awards in respect of nine packages awarded to the respondent contractor. The underlying dispute related to Package A-4 under the Rashtriya Madhyamika Shikshana Abhiyana scheme, involving construction of Adarsha Vidyalayas and girls' hostels in Bidar District. Tenders were invited on 24.09.2012; the respondent contractor was the successful bidder and, after negotiations, offered a revised price on 13.02.2013 on the express condition that a price adjustment clause would be included. The Letter of Acceptance was issued on 18.03.2013 and a Construction Agreement dated 15.05.2013 was executed. The stipulated completion period was twenty months from the notice to proceed dated 17.05.2013, expiring on 16.02.2015. A Supplementary Agreement dated 17.03.2017 provided that all conditions of the original agreement would apply except for the price adjustment clause, for which a decision would be taken after government enquiry. Delays occurred, and the contractor raised claims for price adjustment, alleging delays in handing over sites, supply of drawings, approvals, payments, water and power availability, and sand scarcity. The Government initially ordered an audit and enquiry, and by communication dated 17.07.2018 informed contractors that price adjustment would not be paid. Certain other contractors challenged the Government Order dated 16.11.2016 before the High Court; a Single Judge quashed it on 25.02.2019, and a Division Bench disposed of intra-court appeals on 20.10.2020 observing that parties would be governed by their contract terms. The contractor invoked arbitration on 08.05.2019, and the High Court appointed a Sole Arbitrator on 05.11.2020. Government Order dated 30.09.2020 subsequently allowed price adjustment in packages containing the clause. The Arbitral Tribunal partly allowed the contractor's claims, awarding a total sum of Rs 3,80,58,227 comprising price adjustment, interest, unproductive overhead charges, loss of expected profit, future interest at 9% per annum on Rs 2,75,58,852, and costs of Rs 3,00,000. The State challenged the award under Section 34, contending that the price variation clause was not applicable because the notice inviting tenders expressly provided the clause be read as deleted and was unauthorisedly included in the agreement. The Commercial Court dismissed the Section 34 petition, finding no ground to interfere. The present appeal was heard and reserved for judgment on 21.07.2026 and pronounced on 18.08.2026. The provided judgment text ends before the High Court's analysis and final decision, so the ultimate outcome of the appeal is not included in the extract.
Headnote
A) Arbitration - Setting Aside of Arbitral Award - Section 34 of Arbitration and Conciliation Act, 1996 - Limited Judicial Interference - The Commercial Court found no ground to interfere with the arbitral award dated 10.11.2023 which partly allowed the contractor's claims for price adjustment, unproductive overhead charges, loss of expected profit, and interest; the Section 34 petition was dismissed; the present appeal was filed under Section 37(1)(c) read with Section 13(1A) of Commercial Courts Act, 2015 (Paras 1-2). B) Contract Law - Price Adjustment Clause - Clause 39 of Conditions of Contract - Binding Nature of Incorporated Terms - The contractor made a revised offer on 13.02.2013 expressly stating readiness to execute the project considering inclusion of Price Adjustment Clause; the Letter of Acceptance dated 18.03.2013 accepted the revised offer; the Construction Agreement incorporated the Conditions of Contract including Clause 39; the State contended that the notice inviting tenders provided the clause be read as deleted and the clause was unauthorisedly included; the writ court held that whether Clause 39 was incorporated with approval or inserted unauthorisedly was a disputed question of fact and relegated the parties to arbitration (Paras 5-7, 11-12, 19). C) Contract Law - Supplementary Agreement - Exclusion of Price Adjustment Clause - Clause 4(i) of the Supplementary Agreement dated 17.03.2017 stipulated that all conditions of the original agreement would apply except for the price adjustment clause, for which a decision would be taken after completion of the government enquiry; the contractor invoked Clause 39 and raised price adjustment bills which remained unpaid (Paras 8-10). D) Administrative Law - Government Orders - Government Order dated 16.11.2016 and Communication dated 17.07.2018 - A Single Judge quashed the Government Order and restrained the State from acting upon KIPA reports; a Division Bench disposed of intra-court appeals observing that parties would be governed by the terms of the contract; subsequently Government Order dated 30.09.2020 allowed price adjustment in respect of packages whose tender conditions contained the clause (Paras 11-12, 16). E) Arbitration - Appointment of Arbitrator - Section 11 of Arbitration and Conciliation Act, 1996 - The contractor invoked the arbitration agreement by legal notice dated 08.05.2019; the High Court allowed the Section 11 application on 05.11.2020 and appointed a Sole Arbitrator (Paras 13-15).
Issue of Consideration
Whether the Commercial Court erred in dismissing the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996; whether the price adjustment clause (Clause 39) of the Conditions of Contract was applicable and binding on the appellant; whether the contractor was entitled to price adjustment, unproductive overhead charges, loss of expected profit, and interest; whether the arbitral award suffered from any ground for setting aside under Section 34
Final Decision
The Commercial Court dismissed the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996, declining to set aside the arbitral award dated 10.11.2023. The High Court's final decision on the present appeal is not mentioned in the provided text.
Law Points
- Arbitral award can be set aside only on limited grounds under Section 34 of Arbitration and Conciliation Act
- 1996
- Disputed questions of fact regarding incorporation of contractual clauses are to be resolved by arbitration
- Parties are governed by terms of the contract entered into by them
- Price adjustment clause if incorporated in contract is binding and enforceable
- Supplementary agreement can exclude price adjustment clause pending government enquiry
- Government orders cannot override contractual terms if clause formed part of contract
- Section 37(1)(c) appeal against refusal to set aside award under Section 34 requires considering limited grounds
