Chhattisgarh HC overturns arbitral award in Bilaspur storm drainage water project

RAIPUR: In a unique and rare judgment, the Chhattisgarh high court has set aside arbitration and commercial court rulings related to a contract dispute between the Bilaspur Municipal Corporation and Meinhardt Singapore Pte. Ltd. (India Branch). The dispute arose from a 2011 agreement for planning and designing a storm drainage water system for Bilaspur City.
Based on these observations, the high court’s Division Bench comprising Justice Sanjay S Agrawal and Justice Radhakishan Agrawal set aside the arbitrator's award and the Commercial Court's decision. The court concluded that the arbitrator had erred in awarding the claimed amount without considering the contractual obligations and the necessary approvals. The court determined that the claim was premature and lacked a valid cause of action.
The Bilaspur Municipal Corporation issued a tender for the project under the Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT), a component of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Meinhardt Singapore's bid was accepted, and a contract was signed. The consultancy fee was set at 1.18% of the total project cost. Initially, the project was estimated at Rs. 37.53 crores.
Meinhardt submitted various reports, and the project cost eventually escalated to Rs. 333.93 crores. The corporation refused to pay the claimed fee of Rs. 4,07,03,583, leading to arbitration. The sole arbitrator ruled in favour of Meinhardt, awarding the claimed amount with interest.
The Municipal Corporation challenged the arbitrator's award in the Commercial Court, which upheld the arbitrator's decision. Subsequently, the corporation filed an appeal in the Chhattisgarh high court under Section 37 of the Arbitration and Conciliation Act, 1996, and Section 13(2) of the Commercial Courts Act, 2015.
The court found that the arbitrator had exceeded the scope of the Term of Reference (ToR). The contract included not only pre-DPR (Detailed Project Report) activities but also post-DPR activities, such as surveys, investigations, and implementation support.
The court noted that the final DPR, despite approvals from state-level agencies, had not received final approval from the Ministry of Urban Development, Government of India, the primary funding agency for the project. Therefore, the final project cost of Rs. 333.93 crores was not officially sanctioned.
The court determined that Meinhardt's claim for the final payment was premature. The corporation had not explicitly refused the claim but had kept it in abeyance pending the central government's approval. Thus, the claim lacked a valid cause of action.
The court emphasized that the arbitrator was bound by the terms of the contract, which included the completion of bid documents along with the final DPR, which was not fulfilled in time, according to Ashutosh Singh Kachhawaha, the counsel representing the Bilaspur Municipal Corporation.
The court highlighted the funding mechanism of the UIDSSMT scheme, where 80% of the project cost was to be borne by the central government. Without central government approval, the project's financial viability was in question.
The court stressed that the final approval from the Central Government was essential, and without it, the final cost of the project could not be considered final.
This appeal, filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act, 1996’) read with Section 13(2) of the Commercial Courts Act, 2015 (hereinafter ‘the Act, 2015’), challenges the order dated November 3, 2018, passed by the Commercial Court (District Level), Raipur, which rejected the appellant's application under Section 34 of the Act, 1996," stated counsel Kachhawaha. "Under Section 37 of the Arbitration and Conciliation Act, the scope for interfering with an arbitral award is very limited. This high court judgment is unique and rare, as it overturned an arbitral award on the ground of patent illegality,” the counsel said.