The Delhi High Court has partly allowed a petition filed by the Union of India, holding that an arbitral tribunal could not award damages for prolonged execution of a railway contract without evidence of actual loss. At the same time, the Court upheld another part of the arbitral award relating to refund of deductions made under the contract, finding no reason to interfere with the tribunal's interpretation of the contractual clauses.
Background of the Case
The dispute arose from a railway infrastructure contract awarded by Northern Railway to M/s Pragati Construction Consultants for doubling the Roza–Sitapur railway section. The contract, valued at over ₹42 crore, was awarded in November 2019 and formally executed in February 2020. Although the work was originally scheduled for completion within eight months, the deadline was extended six times before the project was completed in December 2021.
Subsequently, the contractor invoked arbitration under the General Conditions of Contract (GCC), claiming nearly ₹1.95 crore under various heads along with interest. The arbitral tribunal partly accepted the claims and awarded about ₹65.73 lakh, prompting the Union of India to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996.
Court's Observations
Justice Avneesh Jhingan first examined the challenge relating to deductions made due to variation in quantities under Schedule 'A' of the contract. The Railway argued that the issue was an "excepted matter" under the GCC and therefore beyond the scope of arbitration.
The High Court, however, agreed with the arbitral tribunal that the deductions had been made contrary to the contractual provisions governing Schedule of Rates (SOR) items. The Court observed that the Railway's practice of making chapter-wise deductions was inconsistent with the agreed contractual framework.
Rejecting the Railway's argument, the bench observed that
"the petitioner having violated the terms and conditions of the contract cannot raise shield of clause 63 of the GCC that violation of terms is an 'excepted matter'."
The Court further reiterated the limited scope of judicial review under Section 34 of the Arbitration Act, noting that a court cannot interfere merely because another interpretation of the contract is possible.
Damages for Delay Examined
The High Court took a different view regarding the tribunal's award of damages for prolongation of the contract period.
The contractor had claimed compensation for losses allegedly suffered because the work was delayed due to the Railway's failure to make work sites available on time. While the tribunal accepted the claim and awarded compensation, the High Court found that no evidence had been produced to establish the actual loss suffered.
Referring to Supreme Court precedents on contractual damages, Justice Jhingan observed that compensation under Section 73 of the Indian Contract Act requires proof of actual loss unless such loss is impossible to quantify.
The Court observed that
"No evidence was adduced by the respondent of actual loss suffered. It was not the case set up that it was impossible or difficult to prove the actual loss."
Consequently, the damages awarded under Claim No. 4 were held to be legally unsustainable.
The Court also found fault with the tribunal's decision to reject the contractor's claim for pendente lite interest under the contract but then award the same amount as damages. According to the Court, this relief went beyond the scope of the claim and amounted to patent illegality.
Decision
Relying on the Supreme Court's ruling that an arbitral award can be partially set aside where the invalid portions are severable, the Delhi High Court held that Claims 4 and 6 could be separated from the remaining award.
Accordingly, the Court upheld the arbitral award concerning Claim No. 1 but set aside the awards made under Claims 4 and 6. The petition filed by the Union of India was therefore partly allowed, with the remaining portions of the arbitral award continuing to stand.
Case Details
Case Title: Union of India Through Dy Chief Engineer Construction Moradabad v. M/s Pragati Construction Consultants
Case Number: O.M.P. (COMM) 153/2025
Judge: Justice Avneesh Jhingan
Decision Date: 03 August 2026
