Madras High Court Partly Upholds and Partly Sets Aside Arbitral Award, Directs Severance and Withdrawal of Deposit

A bench of Justice N. Anand Venkatesh heard rival Section 34 petitions challenging an arbitral award dated 06.02.2020 arising out of a construction contract between a charitable education trust and a contractor, and dealt with competing claims and counterclaims concerning certified bills, steel consumption, additional works and post-certification rectification.

The Court partly allowed both petitions under Section 34 of the Arbitration and Conciliation Act, 1996 and modified the arbitral award. It upheld certain awards in favour of the contractor and some counterclaims, while interfering with other findings of the Tribunal as being contrary to the evidence or vitiated by "patent illegality." The Court affirmed interest at 12% per annum on the respective claims and counterclaims and permitted withdrawal of a deposit of Rs.34,69,347/‑ (with accrued interest) previously made pursuant to an earlier order. The Court, in its reasoning, observed: "The bills that were certified under Ex.R.3 were subsequently rectified under Ex.C.35 only because of such understanding between the parties in the meetings that were held. Therefore, without properly appreciating the significance of those meetings and the understanding between parties, modifying/ altering/amending the original agreement, constitutes patent illegality." The Court also noted that "the valid portion of the award can be severed from the invalid portion" and applied the principle of severability in line with the Supreme Court's decision in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.

Background The dispute arose from a works contract dated 22.03.2010 under which the claimant, M/s KRK Education Trust, engaged M/s Aintiram Developers (P) Ltd. to execute construction and interior works for a college. The claimant supplied key materials and paid Rs.8.42.42 lakhs against total bills of Rs.9.69.31 lakhs. After final bills were certified by the Architect on 03.02.2012 (Ex.R.3), the claimant raised objections and the Architect issued a rectified certification on 01.02.2013 (Ex.C.35). The claimant sought recovery of alleged excess payments of Rs.60.85 lakhs; the respondent raised multiple counterclaims totalling substantial sums.

The Arbitral Tribunal held on 06.02.2020 that the claimant should pay the respondent Rs.34,69,347/‑ plus retention and interest at 12% p.a., while allowing certain counterclaims and rejecting others. Both parties filed Section 34 petitions: the claimant challenged directions to pay the judgment sum and refund retention; the respondent challenged rejection of many counterclaims.

The High Court examined each dispute and the Tribunal's appreciation of evidence. It found that the Tribunal had inconsistently treated the minutes of meetings — relying on them in some related proceedings but disregarding them here — which led to fundamental error on whether post‑certification understandings amounted to novation of the original agreement. The Court concluded that some findings were perverse or unsupported by evidence (notably on steel consumption, aluminium windows, and certain deductions), while other findings were a possible view on evidence and therefore sustained (for example, rejection of price reduction for corridors and staircases). Applying severability, the Court held the claimant entitled to awards under disputes A, H, B, D and G, and the respondent entitled to counterclaims Nos.2, 3, 4 and 11. The Court upheld the interest awarded by the Tribunal at 12% p.a., allowed withdrawal of the deposited sum and ordered no costs.

Case Details: Case No.: Arbitration O.P.(Com.Div.) No.49 of 2021 & O.P.No.442 of 2021 & A.No.2474 of 2021 Case Title: M/s KRK Education Trust v. M/s Aintiram Developers (P) Ltd. Appearances: For the Petitioner(s): Ms. Tanya Kapoor For the Respondent(s): Mr. R. Karthikeyan