Delay Attributable To State: Sikkim High Court Affirms Arbitral Award Of ₹5.88 Crore; Rejects State's Challenge

The High Court of Sikkim dismissed an appeal under section 37 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) filed by the State of Sikkim and its Power Department challenging an arbitral award that granted escalation and interest to contractor for work executed on a 66/11KV sub-station project at Mangan. A Division Bench comprising Chief Justice Biswanath Somadder and Justice Bhaskar Raj Pradhan upheld the order passed by the Commercial Court holding that neither patent illegality nor contravention of fundamental policy of Indian Law had been demonstrated. The respondent, Chhabil Dass Agarwal, entered into a contract for construction of a sub station at Mangan with LILO works. The work was to be completed within four months. The original contract value was ₹7.79 crore. Due to changes in sites, additional protective works and revised specifications, the work was completed only on 18.02.2008. Despite commissioning the project, full payments were delayed and the final payment was made only on 31.03.2017.Due to additional works, estimates were revised from ₹9.18 crore to ₹11.19 crore. A revised agreement dated 30.03.2017 formalised this. Aggrieved with the payments, the Respondent invoked the arbitration seeking escalation charges and interest. The Sole Arbitrator awarded him ₹5,88,10,934 with 10% interest. Subsequently, the State filed a petition under section 34 against the award which was dismissed by the Commercial Court, prompting the State to file the present appeal. Before the High Court, the State argued that the claims were barred by limitation and that the award was patently illegal due to absence of documentary proof for escalation and delayed payment and that the revised agreement executed in 2017 quantified the payable amount, precluding further claims. The court observed that a new plea not raised before the Arbitrator or the court under section 34 cannot be raised under section 37. It held that “the new plea relying upon „clause 4h above by the learned Additional Advocate General for the first time before this Court is a plea contrary to their own stand before the learned Arbitrator as well as the learned Commercial Court. We are of the view that the award cannot be set aside on such a plea.” Even otherwise, the court held that clause 4(h) of the tender documents which allowed firm prices only for four months execution period did not assist the State because the delay was attributable to the State itself. The court upheld the arbitrator's finding that the State's conduct caused delay making escalation a logical and legal consequence. “It would have been completely illogical to bind the respondent to the prices agreed in the year 2004 as the work was completed in the year 2008 due to the faults of the appellants and even then, substantive payment was made only in the year 2017 ", the court held. It further observed that the revised 2017 agreement only revised the rates and did not bar claims for escalation or interest. The court affirmed that the scope of jurisdiction under section 37 is narrowly confined akin to section 34. The court observed that “the agreement dated 30.03.2017 does not even indicate that it was a full and final settlement as argued by the learned Additional Advocate General. A holistic reading of the agreement dated 30.03.2017 suggests that the parties thereto agreed to revise the schedule of rates agreed upon in the year 2004 which increased the total amount payable for works from Rs.7,79,33,000/- to Rs.1129.94 lakhs. The agreement dated 30.03.2017 also does not prohibit interest on delayed payment or escalation cost.” Accordingly, the court dismissed the present appeal holding that there was no perversity in the findings of the Commercial Court. Case Title: State of Sikkim & Ors. vs. Chhabil Dass Agarwal Case Number: ARB. A. No. 9 of 2024 Judgment Date: 10/12/2025 Mr. Zangpo Sherpa, Additional Advocate General with Mr. Mohan Sharma, Advocate and Mr. Sujan Sunwar, Assistant Government Advocate for the Appellants. Mr. Rohan Batra, Mr. Dhruv Sethi and Mr. Hemlal Manger, Advocates for the Respondent. Click Here To Read/Download The Order

Delay Attributable To State: Sikkim High Court Affirms Arbitral Award Of ₹5.88 Crore; Rejects State's Challenge

Mohd Malik Chauhan

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