Supreme Court: In a special leave petition assailing the judgment of the Karnataka High Court whereby the arbitral award in favour of Navayuga Engineering Company against Bengaluru Metro Rail Corporation Limited (“BMRCL”) was restored in its entirety, a Division Bench of Sanjay Kumar and K. Vinod Chandran, JJ., found no good ground or reason to interfere with the impugned judgment and accordingly dismissed the special leave petition while vacating the interim order dated 29 November 2024.
Navayuga Engineering Company, a public limited company engaged in turnkey infrastructure projects, was awarded a contract by Bengaluru Metro Rail Corporation Limited (“BMRCL”) for construction of elevated metro structures in Bengaluru. During execution of the project, disputes arose between the parties regarding delays and additional costs allegedly attributable to BMRCL, leading to arbitration before a three-member Arbitral Tribunal.
By award dated 16 August 2018, the Arbitral Tribunal awarded Navayuga Engineering Company a sum of ₹122.76 crores with interest at 12 per cent per annum from the date of award till payment. The award included Claims 8 to 10 concerning additional expenditure incurred due to project delays, comprising ₹56.23 crores towards principal amounts and ₹40.01 crores towards finance charges.
Aggrieved, BMRCL challenged the arbitral award under Section 34, Arbitration and Conciliation Act, 1996 before the Commercial Court at Bengaluru. By judgment dated 28 January 2022, the Commercial Court upheld the award substantially, but set aside the finance charges component under Claims 8 to 10 holding the same to be contrary to the fundamental policy of Indian law and suffering from patent illegality.
Thereafter, Navayuga Engineering Company preferred COMAP No. 136 of 2022 before the High Court contending that the Commercial Court exceeded the limited scope of interference under Section 34 by reappreciating the evidence and interfering with a well-reasoned arbitral finding. The appellant consequently sought restoration of the arbitral award insofar as the finance charges awarded under Claims 8 to 10 were concerned.
Referring to Sections 34 and 37, of the Arbitration and Conciliation Act, 1996, the Karnataka High Court reiterated that the scope of interference with an arbitral award is extremely limited and that the Court exercising jurisdiction under Section 34 cannot reassess the merits of the case or substitute its interpretation of the contract for that of the Arbitral Tribunal. The High Court observed that there is a “disturbing tendency” of courts setting aside arbitral awards after dissecting and reassessing factual aspects of the dispute and thereafter dubbing the award to be vitiated by perversity or patent illegality. The Court observed that such an approach would corrode the object of the Arbitration and Conciliation Act, 1996, namely, minimal judicial interference with arbitral awards.
The High Court noted that the three-member Arbitral Tribunal had exhaustively considered the documents exchanged between the parties, the contractual provisions and the oral evidence on record while rendering the unanimous 311-page award. The Tribunal had specifically held that the delays in execution of the Bengaluru Metro project were not attributable to Navayuga Engineering Company, but to Bengaluru Metro Rail Corporation Limited (BMRCL), particularly in view of the extensions of time granted and the wrongful rescissions effected by BMRCL during the extended contract period. The High Court further observed that the Tribunal had examined all 5 rescissions in detail and rightly concluded that the rescissions were premature, contrary to contractual procedure, unsupported by the contractual clauses and violative of principles of natural justice, especially as mandatory notices were not issued and the work was admittedly completed within the extended period.
The High Court held that the Commercial Court, while partly setting aside the award relating to finance charges under Claims 8 to 10, had exceeded the permissible limits under Section 34 by effectively re-evaluating the evidence and contractual terms already considered by the Tribunal. Referring to Ssangyong Engg. and Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 the Court reiterated that interference is permissible only where the award is contrary to public policy or suffers from patent illegality apparent on the face of the award.
The High Court further clarified that the distinction between “interest” and “finance charges” was pivotal, observing that finance charges represented actual financial burden incurred by the contractor on account of delays attributable to BMRCL and were compensatory in nature. The Tribunal was therefore justified in awarding the same on the basis of evidence placed on record. Holding that denial of such charges would undermine principles of fairness and equity, the Court concluded that the Commercial Court erred in setting aside the finance charges awarded by the Tribunal.
Accordingly, the High Court dismissed Commercial Appeal No. 171 of 2022 preferred by BMRCL and allowed Commercial Appeal No. 136 of 2022 preferred by Navayuga Engineering Company. Consequently, the judgment and decree dated 28 January 2022 passed by the LXXXIII Additional City Civil and Sessions Judge, Bengaluru in COM.A.S. No. 228 of 2018 was set aside and the arbitral award dated 16 August 2018 was upheld in its entirety, including the finance charge. Hence the present special leave petition was filed before the Court.
The Supreme Court upon hearing the counsels found no good ground and reason to interfere with the impugned judgment and dismissed the special leave petition vacating interim order dated 29 November 2024.
[Bangalore Metro Rail Corpn.Ltd. v. Navayuga Engineering Co., Special Leave to Appeal (C) Nos. 28101-28102 of 2024, decided on 12-5-2026]
Advocates who appeared in this case:
For the Petitioner: Dama Seshadri Naidu, Sr. Adv., Amit Pai, AOR, S. Sriranga, Sumana Naganand, Pankhuri Bhardwaj, Kushal Dube, Tathagata Dutta, Ssahel Sood, Bhavana Duhoon, Advocates
For the Respondent: C. Aryama Sundaram, Sr. Adv., Sahil Tagotra, AOR, Saurav Agrawal, Shantanu Agarwal, Zafar Inayat, Kapil Rustagi, Dheeraj P. Deo, Harshit Malik, Manas Arora, Allaka Malikayil, Prachi Dubey, Tushar Nair, Aarya Bhat, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
