The Rajasthan High Court at Jaipur, in a judgment dated 28 May 2025, has reaffirmed that an arbitral tribunal may not grant relief that the underlying contract does not permit. The Division Bench of Justice Avneesh Jhingan and Justice Bhuwan Goyal held that the award of ₹50.28 crore plus compound interest in favour of Sanwariya Infrastructure for delays on the Pali Bypass BOT project was “patently illegal” because the concession agreement contained no clause authorising cash compensation or compound interest for such delays.
“An arbitrator cannot go beyond the terms of the contract.” — Supreme Court in Nav Bharat Construction (quoted with approval).
Background
On 8 August 2003 the State of Rajasthan invited bids to construct the Pali Bypass on the Jodhpur–Sumerpur road under a 70-month build-operate-transfer concession. Major land was handed over on 18 October 2004 and the remaining portion on 23 March 2006. After completing a railway over-bridge, the concessionaire began toll collection on 3 May 2006. A steering committee later extended the concession by three months and ten days.
Disputes about the true commencement date and traffic revenue led the concessionaire to seek arbitration. On 23 June 2019 the sole arbitrator fixed 23 March 2006 as the commencement date, allowed the company to keep tolls collected up to 22 January 2012, and awarded the disputed compensation with 12 % post-award interest if unpaid within three months.
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The State objected under Section 34; the Commercial Court dismissed the objections on 9 October 2024. In appeal under Section 37 it argued that claims were time-barred, that no contractual clause permitted reimbursement of losses or compound interest, and that the arbitrator wrongly presumed the State was obliged to close a level-crossing.
The respondent countered that delays were State-caused, the steering committee had acknowledged them, and the definition of “commencement date” required complete, not partial, possession of the site.
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The Bench first ruled that the limitation defence failed because the concessionaire had continuously pursued its claims and had invoked arbitration in 2010, well within time. Turning to the merits, it emphasised that the “commencement date” clause tied the 70-month concession to the entire hand-over of land; hence the arbitrator correctly treated 23 March 2006 as the start.
“The commencement date can be reckoned only from the date of entire possession of the project site and not partial possession.” — Rajasthan High Court.
However, the concession agreement did not authorise monetary compensation for losses allegedly caused by the continued use of a level-crossing, nor did it permit compound interest. Citing Delhi Metro Rail Corporation v. DAMEPL and the Supreme Court’s 2025 ruling in Gayatri Balasamy, the Bench said that relief beyond the contract is a “patent illegality” and can be severed from the award.
The Court upheld the arbitrator’s decision allowing Sanwariya Infrastructure to retain tolls collected up to 22 January 2012 but set aside:
- the ₹14.12 crore awarded for losses from the non-closure of the level-crossing,
- the associated ₹4.48 crore interest, and
- all further compound interest granted on those sums.
Thus, the appeal was partly allowed, preserving the toll-retention ruling but nullifying the compensation and interest components.
“The claim for losses and interest has been awarded beyond the terms and the award is patently illegal.” — Justice Avneesh Jhingan.
The case is titled State of Rajasthan & Ors. v. Sanwariya Infrastructure Pvt Ltd., D.B. Civil Misc. Appeal No. 5302/2024; counsel included AAG Sandeep Taneja for the State and Senior Advocate R.N. Mathur for the respondent. Judgment was reserved on 16 May 2025 and pronounced on 28 May 2025.
