Court holds arbitral award liable to be set aside for claims granted dehors pleadings and failure to consider vital contractual bars, allowing parties to agitate certain claims afresh
In a significant judgment dated September 16, 2026, the Karnataka High Court (Division Bench) delivered a nuanced verdict in the commercial arbitration dispute between Bangalore Metro Rail Corporation Limited (BMRCL) and Larsen and Toubro Limited (L&T), arising from a construction contract related to the Bangalore Metro Rail Project. The judgment arose from cross-appealschallenging an arbitral award dated August 4, 2018.
Background:
BMRCL, a joint venture of the Government of India and Government of Karnataka, had awarded L&T a contract dated March 5, 2010, for constructing approximately 4.80 km of elevated viaduct and three stations on Reach R3A of the Bangalore Metro Rail Project, priced at over Rs. 303 crores, with a 24-month completion period ending December 16, 2011. The contract included detailed provisions on site possession, key completion dates, and clauses regarding variations, extensions of time (EOT), penalties, and price variation compensation.
Due to delays in handing over possession of site stretches and approval of construction drawings, the project extended beyond the original period, with the final works completed by February 2015, and commercial operations commencing in March 2014. The parties entered arbitration after disputes arose regarding claims for additional compensation, extensions, penalties, and price variations.
Claims and Counter-Claims:
L&T asserted nine claims totaling nearly Rs. 125 crores, including claims for declaratory relief on completion, revised rates due to quantity reductions in parapet works, time-related costs for extended stay (Claim iii), revised BOQ rates for delayed pier locations, unpaid reinforcement quantities, refund of penalties and price variation reductions, and arbitration costs.
BMRCL filed eleven counter-claims totaling approximately Rs. 163 crores, including recovery of expenses for completing balance works, loss of revenue due to delays, extended consultant fees, price variation recovery, rental charges, and penalties for failing to meet key dates.
Arbitral Tribunal's Findings:
The Tribunal found delays attributable solely to BMRCL, granting L&T declaratory relief on completion dates and awarding compensation on certain claims. However, it rejected L&T's massive Rs. 103.30 crore claim for time-related costs due to inadequate quantification, relying primarily on a report by American Appraisal India Pvt. Ltd., whose author was not examined.
The Tribunal awarded L&T Rs. 96.43 lakhs on Claim (ii) for parapet quantity reduction by applying a 20% loading on the reduced quantity beyond permissible variation, Rs. 9.27 crores on Claim (iv) for revised rates on 18 pier locations handed over late, and Rs. 2.84 crores on Claim (v) for unpaid reinforcement quantities, partly allowing one counter-claim of BMRCL.
High Court's Analysis and Order:
The High Court undertook a detailed examination of the arbitral award and the parties' submissions under Section 34 of the Arbitration and Conciliation Act, 1996, read with Section 13(1A) of the Commercial Courts Act, 2015.
1. Claim (ii) - Parapet Quantity Variation:
The Court found that while the Tribunal correctly held the reduction in parapet quantities exceeded the contractual 25% variation limit, the method of awarding 20% on the reduced quantity's value was unsustainable. The award was dehors pleadings and evidence because L&T did not establish the profit element or provide a proper rate analysis for the reduced quantities. The Court set aside the award on this claim.
2. Claim (v) - Unpaid Reinforcement Quantities:
The Tribunal relied on a letter from BMRCL's Engineer accepting payment for certain items if shown in approved construction drawings. However, the award included piling guide rings/spacers that the Engineer expressly stated were included in contractual rates and not separately payable. The Court set aside the award to this extent.
3. Claim (iv) - Revised BOQ Rates for 18 Pier Locations:
The Tribunal awarded revised rates due to the land for these locations being handed over 25 months beyond the original contract period. However, the Court observed the Tribunal failed to consider contractual clauses (2.2, 8.3 GCC and 19.3 SCC) expressly barring monetary claims for such delays and regulating price variation during extensions. This failure to consider a vital contractual bar vitiated the award on this claim, leading to its setting aside.
4. Claim (iii) - Time-Related Costs of Extended Stay:
While the Tribunal found delays were attributable to BMRCL and acknowledged L&T's entitlement in principle to compensation for time-dependent costs, it rejected the claim due to lack of proof of quantum, relying mainly on a report whose author was not examined. L&T argued that other material, including ledgers, invoices, audited accounts, and testimonies, supported the claim but were ignored. The Court held that the Tribunal overlooked relevant evidence and failed to consider BMRCL's contractual defence barring such claims. Accordingly, the Court set aside the finding both granting entitlement and rejecting quantification, leaving the claim open for fresh agitations.
5. Counter-Claims:
The Court found no grounds to interfere with the Tribunal's rejection of BMRCL's counter-claims based on the factual finding that delays were attributable to BMRCL.
Legal Principles Affirmed:
The Court reiterated the Supreme Court's principles that an arbitral award can be set aside where the Tribunal grants relief beyond pleadings or evidence, ignores relevant evidence, or fails to adjudicate a vital contractual facet. However, courts cannot reappreciate evidence or modify awards but may sever parts of awards that are unsustainable.
Conclusion:
The Karnataka High Court partly allowed the appeals, setting aside the arbitral award insofar as it (i) granted Claims (ii), (iv), and (v) in favour of L&T, and (ii) held L&T entitled to compensation for prolongation costs under Claim (iii) while rejecting quantification. The Court clarified that the parties remain free to agitate Claims (iii), (iv), and (v) afresh.
This judgment serves as a critical reference on the scope of judicial interference in arbitration awards in construction disputes, emphasizing adherence to pleadings, contractual terms, and evidentiary standards.
Bottom Line:
Arbitration, Section 34 and Section 37 - In cross-appeals arising from challenge to arbitral award in a construction contract dispute, High Court held that arbitral award is liable to be set aside where tribunal grants claims dehors pleadings, evidence or contractual provisions, or fails to consider vital contractual bars and relevant evidence - Findings on attribution of delay to employer were not interfered with, but award on certain claims and finding of entitlement under prolongation claim were set aside, leaving parties free to agitate said claims afresh.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 34, 37; Commercial Courts Act, 2015 Section 13(1A)
