Contractor is entitled to loss on account of additional expenditure incurred for maintenance of road due to increase in traffic, says Apex Court while modifying arbitral award

Read Judgment: State of Haryana vs. M/s. Shiv Shankar Construction Co. & Another

Pankaj Bajpai

New Delhi, December 15, 2021: The Supreme Court has opined that the contractor is entitled to the loss on account of the additional expenditure incurred for maintenance of the road due to increase in the traffic because of the closure of the Palwal Aligarh Road and diversion of the traffic to the present road. 

A Division Bench of Justice M.R. Shah and Justice B.V. Nagarathna therefore confirmed the award passed by the Arbitrator, awarding the amount/compensation at Rs.45,000/ per km per month up to January, 2008. 

However, the award passed by the Arbitrator awarding the amount/compensation at Rs.45,000/ per km per month from February, 2008 till the end of the contract is hereby quashed, added the Bench. 

The background of the case was that, State of Haryana (Appellant) awarded a contract to Shiv Shankar Construction (first Respondent – contractor) for strengthening, upgradation and maintenance of road from Palwal to Hasanpur, Haryana for a length of 31.17 kilometres on certain terms and conditions as per the contract entered into between the parties. 

However, due to the closing of the Palwal Aligarh Road on account of the construction of the railway bridge, the entire traffic was diverted from Palwal Aligarh Road to the present road, which resulted in heavy traffic of 24418 PCUS per day on the road as against the design of 3364 PCUS per day, which damaged the road. Hence, the contractor pleaded that he was required to do heavy repair by incurring additional expenditure. 

This resulted in disputes between the parties and a legal notice was served upon the appellant making the claims. As the disputes were not resolved, the contractor approached the High Court for appointment of an arbitrator in exercise of power. The High Court therefore appointed R.S. Jindal, retired Chief Engineer, Delhi Development Authority as the sole Arbitrator, who awarded a total sum of Rs.1,51,95,400/-. Since the appeal preferred u/s 37 of the Arbitration and Conciliation Act, 1996 before the High Court stood dismissed, the State of Haryana preferred the present appeals.

After considering the arguments, the Top Court found that the case on behalf of the appellant that as in the statement of claim, the claimant claimed an amount of Rs.1,03,50,263/ under the claim and the Arbitrator has awarded Rs.1,51,95,400/, the same is in far excess of amount claimed and therefore the award is in excess of amount claimed has no substance. 

“When the statement of claim submitted by the contractor is seen, it is specifically stated by the claimant that the amount of Rs.1,03,50,263/ has been worked out up to May, 2007 and the details of expenditure beyond May, 2007 will be submitted during the course of hearing. It is specifically stated that expenditure incurred up to May, 2007 works out to Rs.1,03,50,263/. Therefore, the amount awarded by the Arbitrator cannot be said to be in excess of the claim”, noted the Court.

So far as the submission on behalf of the appellant that the Arbitrator exceeded the scope of reference while awarding an amount beyond the date on which the High Court appointed the sole Arbitrator is concerned, the Top Court observed that such submission has no substance. 

Further, as regards the case on behalf of the appellant that the Arbitrator ought to have restricted the claim either up to the date on which the contractor invoked the arbitration clause or the date on which the High Court appointed the sole Arbitrator or at least up to the date on which the Arbitrator entered into reference, is concerned, the Apex Court noted that the claim made by the Arbitrator was till the traffic was diverted which was up to January, 2008. 

Therefore, the Arbitrator was justified in awarding the amount beyond the said periods and till the additional traffic was diverted due to the closure of Palwal Aligarh Road, added the Court.

Speaking for the Bench, Justice Shah noted that at the time when the contract was entered into, the mutually agreed rate fixed was Rs.1,000/ per km per month and the estimated traffic was 3364 PCUS per day. 

The cause of action arose subsequently due to diversion of traffic from Palwal Aligarh Road and plying of more heavy vehicles due to which the contractor was required to incur additional expenditure for maintenance of the road, added the Bench.

Therefore, Justice Shah opined that by no stretch of imagination it can be said that there was rewriting the terms of the contract as submitted on behalf of the appellant. 

Finally, the Apex Court partly allowed the appeal and modified the quantum of award.