Jaipur:<\/strong> In a significant ruling concerning a major infrastructure project in Jaipur, the Rajasthan High Court has set aside an arbitral award that had snowballed into a liability of more than \u20b9500 crore against the Jaipur Development Authority (JDA) in connection with the Ghat Ki Guni tunnel project.<\/p>\n\n\n\n A Division Bench comprising Justice Arun Monga and Justice Sandeep Taneja allowed the appeal filed by the JDA and the Urban Development and Housing Department, holding that the arbitral award suffered from patent illegality, travelled beyond the terms of the contract and was contrary to the fundamental policy of Indian law.<\/p>\n\n\n\n The Court accordingly set aside the June 25, 2023 arbitral award, the July 31, 2023 corrigendum award, as well as the January 27, 2025 order of the Commercial Court, Jaipur, which had refused to interfere with the award.<\/p>\n\n\n\n The dispute arose from a Tripartite Concession Agreement dated November 27, 2009, executed between the Government of Rajasthan, JDA and Rohan Rajdeep Rajasthan Infra Project Limited for construction, operation and maintenance of an alternate route to Ghat Ki Guni through a tunnel in the Jhalana Hills.<\/p>\n\n\n\n The project was awarded on a Build, Operate and Transfer (BOT) basis, with the project cost under the bid documents fixed at \u20b9150 crore.<\/p>\n\n\n\n The concessionaire later raised several claims, including \u20b9175.67 crore for increase in project cost, \u20b9188.02 crore towards loss of toll revenue, \u20b940.71 crore for alleged toll losses arising from delay in achieving the Commercial Operations Date, and \u20b98.49 crore towards loss of advertising revenue.<\/p>\n\n\n\n The arbitral tribunal allowed the project-cost claim, partly allowed the toll-loss claim and allowed the advertising claim, while rejecting the claim relating to delay in achieving COD.<\/p>\n\n\n\n However, the High Court found that the financial consequences of the award had become grossly disproportionate.<\/p>\n\n\n\n According to the Court, the concessionaire’s own case showed that the actual project cost at completion was around \u20b9207.87 crore, against the contractual cost of \u20b9150 crore, an escalation of approximately \u20b957.87 crore. Yet, Claim No. 1 alone was awarded at \u20b9175.67 crore, with 20.33% IRR applied on a compounding basis. The result was an execution claim of more than \u20b9500 crore, with the execution court having issued a recovery warrant for \u20b9544.43 crore before the High Court stayed the proceedings.<\/p>\n\n\n\n The Bench described the transformation of an admitted escalation of about \u20b957 crore into a demand exceeding \u20b9500 crore as fundamentally disproportionate. It emphasised that damages are intended to compensate for loss, not to create a windfall for a claimant at the expense of the public exchequer.<\/p>\n\n\n\n A key issue before the High Court was the arbitrator’s decision to apply an Internal Rate of Return (IRR) of 20.33% to the amounts awarded.<\/p>\n\n\n\n The Bench made it clear that IRR is a financial tool used to assess the projected viability of an investment. It is neither a guaranteed return nor a contractual rate of interest.<\/p>\n\n\n\n The Court noted that the 20.33% figure appeared in the project’s cash-flow projections and that the concessionaire’s actual borrowing cost from its lenders was 13.5%. Nothing in the Concession Agreement converted the projected IRR into an enforceable rate of interest payable by the JDA.<\/p>\n\n\n\n The Court found that applying the 20.33% IRR on a compounding basis had dramatically inflated the award and lacked any contractual foundation.<\/p>\n\n\n\n The Bench rejected the argument that deficiencies in the Detailed Project Report (DPR) automatically made JDA liable for the resulting costs.<\/p>\n\n\n\n The Court found that the Concession Agreement expressly placed the responsibility for investigation, design, engineering and execution on the concessionaire, at its own cost and risk.<\/p>\n\n\n\n The Court further held that the DPR was essentially a reference document, while the project’s design was governed by the applicable IRC and MoRTH standards. Even where government drawings were used, the agreement made the concessionaire responsible for their adequacy.<\/p>\n\n\n\n Accordingly, the arbitrator could not rely on deviations from the DPR to shift the financial burden onto JDA.<\/p>\n\n\n\n The Bench held that doing so effectively rewrote the contractual bargain between the parties.<\/p>\n\n\n\n The High Court also found a fundamental legal flaw in the award: compensation had been granted without identifying any specific contractual obligation of the JDA that had been breached.<\/p>\n\n\n\n Referring to Sections 54, 55 and 73 of the Contract Act, the Court held that compensation presupposes an identifiable contractual obligation and an established breach.<\/p>\n\n\n\n The Bench found that the arbitral tribunal had not established any such breach. Instead, it had effectively proceeded on the basis of perceived unfairness arising from the project’s execution, despite the contract placing design and investigation responsibilities upon the concessionaire.<\/p>\n\n\n\n The Court also noted that the contract provided for an extension of the concession period instead of additional monetary compensation in such circumstances. The concession period had already been extended by 484 days for the relevant reasons.<\/p>\n\n\n\n Having obtained that contractual relief, the concessionaire could not, according to the Court, claim an additional monetary award for the same causes.<\/p>\n\n\n\n The Court further rejected the finding that JDA was liable for loss of toll revenue merely because traffic continued to use the old Ghat Ki Guni road.<\/p>\n\n\n\n The Bench held that the Concession Agreement gave the concessionaire the right to collect toll but did not guarantee any particular volume of tollable traffic or provide an indemnity against traffic diversion.<\/p>\n\n\n\n The Court noted that the authorities had undertaken to restrict heavy vehicles, buses and trucks on the old road. A notification dated January 31, 2013 was issued for this purpose and physical barriers were also erected.<\/p>\n\n\n\n The arbitrator, however, had proceeded on the assumption that the authorities were required to prevent all tollable traffic from using the old road.<\/p>\n\n\n\n The High Court held that this effectively enlarged the contractual obligation beyond what the parties had agreed.<\/p>\n\n\n\n The Court also rejected the demonetisation-related claim because the mandatory contractual process for certification and verification of force majeure costs had not been followed.<\/p>\n\n\n\n The Court found the award of \u20b98.49 crore towards alleged loss of advertising revenue equally unsustainable.<\/p>\n\n\n\n Under Article 17.3 of the Concession Agreement, advertising was allowed only if it was safe for road users. The Empowered Committee rejected the proposal because the curved road made roadside advertising unsafe.<\/p>\n\n\n\n The High Court held that the arbitrator had failed to properly address this safety-based decision and had also failed to adequately scrutinise the quantum of the alleged loss.<\/p>\n\n\n\n The Bench separately struck down the July 31, 2023 corrigendum, holding that the arbitrator had exceeded the limited power available under Section 33 of the Arbitration and Conciliation Act.<\/p>\n\n\n\n The original award referred to the amount as \u20b9198.04 crore. The corrigendum deleted those words, effectively removing the ceiling and allowing the 20.33% IRR to continue until realisation.<\/p>\n\n\n\n The High Court held that such a change was not a mere clerical or computational correction. It substantively altered the award and expanded the relief granted, something Section 33 did not permit.<\/p>\n\n\n\n The Bench also criticised the Commercial Court for treating the limited scope of Section 34 as a reason to avoid examining the specific objections raised against the award. According to the Bench, the Commercial Court failed to apply those tests to crucial issues including the use of 20.33% IRR, the mandatory force majeure certification mechanism and the scope of the corrigendum.<\/p>\n\n\n\n The High Court held that the defects were so fundamental that the disputed claims could not be separated from the rest of the award. As a result, the award could not be partly upheld.<\/p>\n\n\n\n The Court found that the award had rewritten the contractual arrangement, awarded compensation without an established breach, adopted a rate of return having no contractual basis, and resulted in a liability that was grossly disproportionate to the underlying project-cost escalation.<\/p>\n\n\n\n The Division Bench therefore allowed the JDA’s appeal, set aside the Commercial Court’s order, and quashed both the June 25, 2023 arbitral award and July 31, 2023 corrigendum award.<\/p>\n","protected":false},"excerpt":{"rendered":" Court holds arbitrator rewrote the concession agreement, wrongly treated 20.33% IRR as interest and awarded compensation without establishing any contractual breach Jaipur: In a significant ruling concerning a major infrastructure project in Jaipur, the Rajasthan High Court has set aside an arbitral award that had snowballed into a liability of more than \u20b9500 crore against … Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":9469,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wppp_is_locked":false,"_wppp_selected_plans":[],"footnotes":""},"categories":[29,69],"tags":[],"class_list":["post-9496","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-top-stories","category-rajasthan-high-court"],"_links":{"self":[{"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/posts\/9496","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/comments?post=9496"}],"version-history":[{"count":1,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/posts\/9496\/revisions"}],"predecessor-version":[{"id":9497,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/posts\/9496\/revisions\/9497"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/media\/9469"}],"wp:attachment":[{"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/media?parent=9496"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/categories?post=9496"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lawsandlegals.com\/english\/wp-json\/wp\/v2\/tags?post=9496"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\u20b957.87-crore escalation became \u20b9500-crore-plus liability<\/h3>\n\n\n\n
The total award stood at \u20b9198.04 crore, before the subsequent corrigendum removed the ceiling on the amount recoverable.<\/p>\n\n\n\n20.33% IRR Was a Projected Return, Not Contractual Interest<\/h3>\n\n\n\n
Arbitrator\u2019s Attempt to Shift Liability<\/h3>\n\n\n\n
No breach, no compensation<\/h3>\n\n\n\n
Toll revenue was not guaranteed by JDA<\/h3>\n\n\n\n
\u20b98.49-crore advertising claim also fails<\/h3>\n\n\n\n
Corrigendum unlawfully expanded the award<\/h3>\n\n\n\n
Commercial Court failed to properly examine JDA’s objections<\/h3>\n\n\n\n
The High Court held that while courts cannot ordinarily sit in appeal over an arbitral award, they are nevertheless required to examine allegations of patent illegality, conflict with public policy and excess of jurisdiction within the statutory framework.<\/p>\n\n\n\nAward set aside in entirety<\/h3>\n\n\n\n