State Project Director, Vs M/S. Bsr Infratech India Ltd.

SRI JUSTICE K.N. KESHAVANARAYANA SOLE ARBITRATOR, ARBITRATION AND CONCILIATION CENTRE BENGALURU (DOMESTIC AND INTERNATIONAL ) KANJIA BHAVANA, RACE COURSE ROAD BENGALURU - 560 001

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…RESPONDENTS

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(BY SRI ZUFIKIR SHAFI, ADVOCATE FOR C/R-1)

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COMAP No. 487 of 2024

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THIS COMMERCIAL APPEAL IS FILED UNDER SECTION 13(1A) OF THE COMMERCIAL COURTS ACT, 2015 READ WITH SECTION 37(1)(c) OF THE ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO CONSEQUENTLY SET ASIDE THE JUDGMENT DATED 18.09.2024, PASSED IN COM.A.P NO.50/2024 ON THE FILE OF HON'BLE LXXXIV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE, AT BANGALORE & ETC.

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THIS COMMERCIAL APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS DAY, JUDGMENT WAS PRONOUNCED AS UNDER:

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CORAM: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE and HON'BLE MRS. JUSTICE K.S. HEMALEKHA

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C.A.V. JUDGMENT

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(PER: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE)

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The appellant, the State Project Director, Rashtriya Madhyamika Shikshana Abhiyana, has filed the present appeal under Section 13(1A) of the Commercial Courts Act, 2015 [ CC Act ] read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 [ A&C Act ], impugning a judgment dated 18.09.2024 [ impugned judgment ] passed by the learned LXXXIV Additional City Civil and Sessions Judge, Commercial Court, Bengaluru (CCH-85) [ Commercial Court ] in Com.A.P.No.50/2024. The appellant had filed the said petition under Section 34 of the A&C

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COMAP No. 487 of 2024

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Act seeking setting aside of an arbitral award dated 10.11.2023 [ impugned award ] rendered by the learned Sole Arbitrator [ Arbitral Tribunal ], in A.C.No.105/2021. The learned Commercial Court found no ground to interfere with the impugned award and accordingly passed the impugned judgment dismissing the petition.

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Respondent No.1, M/s BSR Infratech India Ltd. [ BSR ], was the claimant before the Arbitral Tribunal and the appellant was the respondent. In terms of the impugned award, the Arbitral Tribunal partly allowed BSR's claims and directed the appellant to pay a total sum of 2,50,28,834/- (Rupees two crores fifty lakhs twentyeight thousand eight hundred and thirty-four only) together with future interest at 9% per annum from the date of the award till payment, comprising 1,59,75,852/towards unproductive overhead charges, as against the claim of 2,32,55,404/- (Claim No.7(a)); and 90,52,982/- towards loss of expected profit, as against the claim of 2,32,55,404/- (Claim No.8); and 2,00,000/towards costs (Claim No.12), as against the claim of `12,00,000/-.

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The present appeal is one of a batch of five appeals, (COMAP Nos.484/2024 to 488/2024), filed by the appellant against orders passed by the learned Commercial Court dismissing the appellant's petitions under Section 34 of the A&C Act,

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COMAP No. 487 of 2024

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(Com.A.P.Nos.48/2024 to 52/2024) assailing separate Arbitral Awards rendered by the Arbitral Tribunal constituted of a Sole Arbitrator in respect of the contract of five packages awarded to M/s. BSR. The arbitral awards rendered are substantially in similar terms and the issues involved in the said five appeals are also materially similar.

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PREFATORY FACTS

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Rashtriya Madhyamika Shikshana Abhiyana [ RMSA ] is a centrally sponsored scheme launched in the year 2009-10 by the Ministry of Human Resource Development, Government of India, for enhancing access to, and the quality of, secondary education. The Government of Karnataka [ GoK ] implemented the scheme through the appellant and took up 2,024 civil works under 77 packages between 2009 and 2015. The said civil works involved construction of new school buildings, Adarsha Vidyalayas [ model schools ] and girls' hostels, and strengthening and upgradation of existing schools at an aggregate cost of `1,645.70 crores. The scheme has since been integrated with Samagra Shikshana Karnataka in 2018-19.

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COMAP No. 487 of 2024

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On 24.09.2012, tenders were invited on a package basis through the e-procurement portal in respect of works spread over thirty districts of the State, for a total of 52 packages. BSR emerged the successful bidder in respect of five packages. The present dispute pertains to Package A-3 - Construction of Adarsha Vidyalayas and Girls' Hostels at Kudligi, Hospet, H.B. Halli and Sandur Blocks, and Girls' Hostels at Siraguppa, Bellary Blocks of Bellary District [ the subject package ] - comprising four Adarsha Vidyalayas and six Girls' Hostels. After BSR was declared as the lowest bidder (L1), the parties entered into negotiations, held on 20.12.2012, 21.01.2013 and 13.02.2013, pursuant to which BSR agreed to a contract price of `32,58,20,153/-.

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By Letter of Acceptance dated 18.03.2013 bearing No. RMSA/CW/AV-GH/Bellary/2012-13 (Ex.C2), the appellant accepted BSR's offer for the said contract price in respect of the subject package, and called upon BSR to furnish the requisite security deposit.

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The parties executed a Construction Agreement [ the Agreement ] dated 15.05.2013 (Ex.C3) for execution of the works under Package A-3. Clause 4 of the Agreement stipulates that the Letter of Acceptance, the Contract Data, the Conditions of

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Contract, and the Special Conditions of Contract, among other documents, formed an integral part of the Agreement.

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The notice to proceed with the work was issued on 17.05.2013 (Ex.C4) and the stipulated period of completion was twenty months therefrom, the tender completion date being 16.01.2015. During execution, additional quantities and EIRL items were required to be executed. Upon approval of the competent authority, the parties entered into a Supplementary Agreement dated 24.03.2017 for the additional work and cost.

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There was delay in execution of the works and they were not completed within the stipulated period. BSR attributed the delay, inter alia , to (i) delay in handing over sites; (ii) delay in supply of drawings; (iii) delay in approval of work slips and EIRL items; (iv) delay in release of payments; and (v) scarcity of materials and labour on account of the scattered nature of the work sites. BSR invoked the price adjustment clause of the Conditions of Contract and raised its claim towards price adjustment; none of the said bills were paid. The appellant, on the other hand, contended that no price adjustment clause was applicable to the Agreement in respect of the subject works.

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In the meantime, under Government Order No. ED 49 MCD 2016 dated 16.11.2016, the GoK, while granting administrative approval to a revised project cost, directed (i) an audit by the Karnataka Institute of Public Auditors [KIPA] into the causes of and responsibility for the delay; and (ii) an enquiry into the issue of price adjustment by a committee headed by an officer of the rank of Additional Chief Secretary. The committee reported that the price adjustment clause incorporated in the tender documents for the RMSA civil works of 2009-10 and 2010-11 was not duly approved and was not binding on the GoK.

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The said Government Order was impugned by three contractors, namely, M/s Jampana Constructions Pvt. Ltd., M/s NCC Ltd., and M/s KBR Infratech Pvt. Ltd., in W.P. Nos.38613/2018, 35594/2018 and 34990/2018 respectively. By orders dated 25.02.2019, a learned Single Judge of this Court quashed the Government Order dated 16.11.2016 and restrained the State from acting upon KIPA's reports and suggestions, observing that whether the price adjustment clause was incorporated with approval or inserted unauthorisedly is a disputed question of fact, and relegated the petitioners to arbitration. The intra-court appeals were disposed of by a Division Bench of this

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Court observing that the parties would be governed by the terms of the contract entered into by them in respect of the various packages awarded by the State.

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By its letter dated 11.03.2019 (Ex.C39), BSR set out the causes of delay and its claims and sought favourable consideration thereof, and sought to invoke the dispute resolution mechanism under Clause 23 of the Conditions of Contract read with Clause 4 of the Special Conditions of Contract; and by legal notice dated 08.05.2019 (Ex.C40), it invoked the arbitration agreement, attributing breach of contract to the appellant.

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The appellant responded by reply dated 11.06.2019 (Ex.C41), contending, inter alia , that the reference to arbitration was premature in view of the pendency of the intra-court writ appeals.

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BSR filed an application under Section 11 of the A&C Act, being C.M.P.No.261/2019, seeking appointment of an Arbitrator. This Court allowed the same by an order dated 05.11.2020 and a Sole Arbitrator to adjudicate the disputes between the parties.

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In the meanwhile, by Government Order No.EP 89 YYK 2020 dated 30.09.2020 (Ex.R1), the GoK, adopted the recommendations

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of the Technical Advisory Committee in supersession of the KIPA report, ordered that (i) for computing extension of time and penalty, each work site in a package be treated as a separate unit; (ii) the administration be held responsible for delays occasioned by causes beyond the contractor's control; and (iii) price adjustment be allowed in respect of the 25 packages whose tender conditions contained the price adjustment clause. Admittedly, the sums due to BSR were released only thereafter and were received in full before 29.03.2021. By an order dated 13.01.2021, extension of time was granted to BSR without levy of penalty.

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ARBITRAL PROCEEDINGS

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BSR filed its Statement of Claims before the Arbitral Tribunal

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claiming an amount of `80,03,19,726/- (Rupees eighty crores three lakhs nineteen thousand seven hundred and twenty-six only) under twelve heads, together with interest at 24% per annum from the date of the claim petition till payment, and costs. The summary of

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claims as set out in the statement of claims is reproduced below:

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Claims	Particulars	Amount (Amt. in Rs.)
Claim No.1	Payment of Price Adjustment/Escalation Bill	4,53,24,186
Claim No.2	Payment of equitable enhanced rates executed beyond tender completion period.	2,91,75,505
Claim No.3	Payment ofequitable

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	enhanced rates executed beyond Tender Completion PeriodforextraItems.
Claim No.4	Payment of equitable enhanced rates executed beyond Tender Completion Period for quantities of 125%
Claim No.5	Refund of Excess Royalty Charges	19,81,068
Claim No.6	Payment towards idle men, machinery and establishment during original tenderperiod.	7,47,95,600
Claim No.7(a)	Payment of unproductive overhead charges.	2,32,55,404
Claim No.7(b)	Payment of additional overhead charges.	56,37,903
Claim No.8	Payment towards loss of expected profit on the balance work as on original tendercompletiondate.	2,32,55,404
Claim No.9(a)	Loss of expected profit due to non-receipt of profit by tendercompletionperiod.	11,62,77,020
Claim No.9(b)	Loss of expected profit due to non-receipt of profit by actualcompletionperiod.	2,73,72,950
Claim No.10	Payment towards additional Bank Guarantee charges beyond original agreement period	5,98,370
Claim No.11	Payment towards interest on claim amount calculated up to 31.12.2020 at the rate of 24%.	45,08,47,944
Claim No.12	Payment of Rs. 12,00,000/- (Rupees Twelve Lakhs Only) towards Cost of Litigation.	12,00,000
TOTAL		80,03,19,726

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It was BSR's case that after it was declared the successful bidder, it had reduced its rates by factoring in the price escalation clause and the economies of scale. BSR claimed that the appellant did not hand over the sites within the stipulated period despite various requests, and delayed approval of drawings, work slips and

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EIRL items, thereby preventing BSR from completing the contract within time and prolonging the execution of the works. BSR alleged that the appellant also withheld amounts due to it, which compelled BSR to seek reference of the disputes to arbitration.

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The appellant contended that no price adjustment clause was applicable to the Agreement in respect of the subject works, and that, in any event, the notice inviting tender required the price variation clause to be treated as deleted, such that the appellant was not bound by it. The appellant further contended that the delay, if any, had been suitably compensated by extension of time granted without imposition of penalty, and that the claims, aggregating `80,03,19,726/-, were fictitious, unsubstantiated and beyond the scope of arbitration.

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On the basis of the pleadings between the parties, the Arbitral Tribunal framed the following issues:

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"1. Whether Claimant proves that non completion of the works under the contract within the stipulated period was for the reasons solely attributable to Respondent, resulting in breach of contract by Respondent, as such, the delay in completion of the works was solely attributable to Respondent?

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2. Whether for the reasons set out in SOC which were beyond the control of Claimant,

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he was prevented from completing the entire scope of work within the scheduled contract period?

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3. Whether Respondent proves that the delay in completion of the works under the contract within the original period stipulated under the contract was solely attributable to Claimant?

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4. Whether Respondent proves that as the requirements of Clause 38.4 of Conditions of Contract have not been complied with by Claimant, none of the claims put-forth in SOC is tenable?

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5. Whether the Claimant is entitled for payment of amounts claimed under various heads as put-forth under claim Nos.1 to 10 of SOC?

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6. Whether the Claimant is entitled for payment towards past interest on the amounts claimed up to 31-12-2020 at 24% PA as claimed under claim No.11 of SOC?

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7. Whether Claimant is entitled for current and future interest at 24% PA on the amount claimed?

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8. Whether Claimant is entitled for cost of this arbitral proceeding?

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9. To what order and award the parties are entitled to?"

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The Arbitral Tribunal, after examining the evidence and

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materials placed on record, found that the non-completion of the contract within the stipulated period was, in substantial part, for

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reasons attributable to the appellant, while also finding that BSR was partly responsible in certain respects. The Arbitral Tribunal further rejected the appellant's contention that non-compliance with Clause 38.4 of the Conditions of Contract rendered the claims not tenable. However, on a consideration of the material placed on record, the Arbitral Tribunal did not find merit in BSR's claim for price adjustment and rejected the same in its entirety.

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The Arbitral Tribunal partly allowed Claim Nos. 7(a), 8 and 12. The Arbitral Tribunal also awarded future interest and costs but rejected the remaining claims, being Claim Nos.1 to 6, 7(b), 9(a), 9(b), 10 and 11, in their entirety.

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22. The dispositive part of the impugned award is set out below:

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"The claims of Claimant as put forth in Statement of Claim are allowed in part as under:

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(1) Claim Nos.7(a) is allowed in part in a sum of Rs.1,59,75,852/- as against claim of Rs.2,32,55,404/-;

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(2) Claim No.8 is allowed in part in a sum of Rs.90,52,982/- only as against the claim of Rs.2,32,55,404/-;

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(3) Respondent is directed to pay to Claimant a total sum of Rs.2,50,28,834/- as per Sl.No.(1) and (2) above together with future interest at the rate of 9% per annum from the date of this Award till the date of payment;

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(4) Claim No.12 is allowed in part in a sum of Rs.2,00,000/- only as against claim of Rs.12,00,000/-. Respondent is directed to pay to Claimant this amount within a period of 3 months from the date of this award failing which the said amount shall carry interest at the rate of 9% per annum from the date of award till the date of payment;

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(5) Claim Nos.1 to 6, 7(b), 9(a), 9(b), 10 and 11 are rejected in their entirety;

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(6) Claimant shall pay requisite stamp duty on this award payable as per Karnataka Stamp Act.

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With the pronouncement and publication of Award, this Arbitral Proceeding stand terminated as per Section 32(1) of the Act."

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The impugned award was assailed by the appellant before the learned Commercial Court in Com.A.P.No.50/2024 under Section 34 of the A&C Act. The learned Commercial Court, by the impugned judgment dated 18.09.2024, found no infirmity warranting interference with the impugned award and dismissed the petition, giving rise to the present appeal.

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As noted above, the learned Arbitral Tribunal had partly allowed Claim No.7(a), which was towards unproductive overhead charges. The learned Arbitral Tribunal had noted that there were no averments made in the claim statement to support the said claim. Further, even in the affidavit tendered by BSR's witness (P.W.1)

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had not stated anything in this regard. Paragraph 121 of the

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impugned award reads as under:

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"121. Respondent in its SO has contended that these claims are beyond the original tender period and the overhead charges are inbuilt for the finished items of works and that there is no provision in the agreement for payment of unproductive overhead charges beyond the original tender period, therefore, these claims are beyond the scope of arbitration as such Claimant is not entitled for these claims."

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Although the statement of claims was bereft of any particulars or the methodology used for quantification of Claim No.7(a), the learned Arbitral Tribunal partly allowed the claim by applying the Hudson Formula and assuming that the overheads charges constituted 10% of the contract price. It is material to note that BSR had made no such claim. The learned Arbitral Tribunal relied on the cross-examination of P.W.1 during which a suggestion was put to the witness that the overhead charges were included in the item rates. In absence of any averments justifying the said claim and any evidence led by BSR in this regard, the award for unproductive overhead imposed is unsustainable.

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The learned Arbitral Tribunal also allowed the claim for loss of profits (Claim No.8), inter alia , referring to the decision in the

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case of the Supreme Court in A.T.Brij Paul Singh and Others v. State of Gujarat¹ . On the said basis, the learned Arbitral Tribunal accepted that the expected profit was 10% of the contract price. However, in the present case, the contract was fully performed and it is evident that BSR had realized the profit as included in the contract price. Notwithstanding the same, the learned Arbitral Tribunal awarded 10% per annum of the expected profits included in the value of work executed after the execution date. BSR had made no claim on such basis. It had led no evidence as to the quantum of loss of profits. We find no basis for awarding 10% p.a of the assured profits as loss of profits for the prolongation of contract. In this view, the award against claim No.8 is unsustainable.

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Claim No.12 is for costs. The award of costs, is premised on BSR succeeding in Claim Nos.7 and 8. Since the award against claim Nos.7 and 8 is set aside, the award against claim No.12 is also unsustainable.

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The impugned award is in the similar terms as the arbitral award which was subject matter of challenge in COMAP No.54/2025. The said appeal was allowed by this court by an order

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1 (1984) 4 SCC 59

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dated 18.08.2026. The reasons set out in the said order fully cover the issues involved in the present appeal as well. For the sake of brevity, the same are not repeated in this order but may be read as a part of the present order as well.

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