Arbitral Tribunal Cannot Rewrite Executed Contract Using Internal Notings: Bombay High Court Sets Aside Award Against Konkan Railway
The Bombay High Court set aside a majority arbitral award that had directed Konkan Railway to bear Royalty Charges for earth used in a Madhya Pradesh project holding that the arbitral tribunal acted in contravention of the contractual terms and committed patent illegality by relying on internal tender committee minutes to infer a different intention of the parties. Justice R.I....
The Bombay High Court set aside a majority arbitral award that had directed Konkan Railway to bear Royalty Charges for earth used in a Madhya Pradesh project holding that the arbitral tribunal acted in contravention of the contractual terms and committed patent illegality by relying on internal tender committee minutes to infer a different intention of the parties.
Justice R.I. Chagla held that once the contract placed royalty liability on the contractor, the tribunal could not rewrite the contract based on alleged pre-contractual understandings or internal deliberations never communicated to the contractor.
Konkan Railway Corporation Limited (KRCL) was the project executing agency appointed by NTPC for the Gadarwara Super Thermal Power Plant in Madhya Pradesh. Tenders were floated for the construction of a coal transportation system. SRC Company Infra Pvt. Ltd. (Contractor) emerged as the successful bidder and a letter of intent was also issued for approx. ₹122.33 crore. The contractor commenced the work. Subsequently, the District Collector demanded royalty for earth used in embankment filling.
The contractor dispute the liability and invoked arbitration. The majority award directed the Konkan Railway to pay the royalty charges while the presiding arbitrator who dissented placed liability on the contractor. Konkan Railway had challenged the award under section 34 of the Arbitration Act.
The court after perusing the relevant clauses of the contractor observed that even the majority award accepted that the royalty had to be paid by the contractor. The contractor did not factor royalty into its bid but submitted an unconditional offer.
“The Petitioner-Respondent and the Respondent-Claimant are ad idem that on a plain reading of the Contract, it was the Respondent Claimant's liability to pay royalty. The Arbitral Tribunal by disregarding the plain terms of the Contract, which are clear and unambiguous and inferring a different intention from that contemplated by the terms of the Contract has committed a patent illegality.", the court said.
The court found error with the tribunal's reliance on tender committee rules, directors committee notes and internal evaluation filed as these had never been communicated to the contractor, lacked legal sanctity and could not override the executed contract.
Citing Mahadeo v. Sovan Devi and Airwide Express, the court held that “Inter-departmental notings are preparatory steps with no legal effect unless communicated. They cannot create rights or liabilities nor rewrite contract terms. The court held that “the minutes of the Tender Committee meeting at best were pre-Contract negotiations which cannot supersede the final written document.”
The court further observed that the tribunal illegally rectified the contract as there was no pleading, no prayer and no issue framed under section 26 of the Specific Relief Act. It held that rectification cannot be granted suo moto. The parties had never mutually agreed to alter the royalty clause, the court stated.
The court further noted that the majority award first held the contractor liable then shifted the burden on Konkan Railway. It held that “the majority Arbitrators having first held that the Respondent-Claimant must pay royalty as per the Contract, have thereafter rendered an Award that shifts the burden onto the Petitioner-Respondent. This is not a permissible cause of action and renders the Award perverse apart from being patently illegal.”
Citing Associate Builder, the court observed that the tribunal rewrote the contract, travelled beyond the reference and disregarded binding clauses warranting interference under section 34 of the Arbitration Act.
“The said Contract between the Petitioner-Respondent and Respondent Claimant overrides and supersedes any prior or collateral correspondence, minutes or opinions, unless they are incorporated into the Contract. It is well settled that once the parties have reduced their understanding into a written agreement, the said agreement becomes conclusive of their intentions. The said Contract clearly and unambiguously provides that the Respondent-Claimant is liable to bear or to pay the royalty”, the court said.
Accordingly, the court allowed the petition and set aside the award holding that the tribunal travelled beyond the contractual terms and wrongly place liability to bear royalty charges on Konkan Railway.
Case Title: Konkan Railway Corporation Ltd. Versus M/s. SRC Company Infra Private Ltd.
Case Number: 2025:BHC-OS:20965
Judgment Date: 14/11/2025
Mr. Simil Purohit, Senior Counsel a/w Mr. Subit Chakrabarti, Ms. Srushti Thorat and Ms. Aashka Vora i/b Vidhii Partners for the Petitioner.
Mr. Anil Anturkar, Senior Counsel a/w Mr. Kunal Kumbhat, Mr. Karthik Pillai, Ms. Kashish N. Chelani, Mr. Atharva Date & Mr. Harshvardhan Suravanshi i/b Ms. Sunanda R. Kumbhat for the Respondent.