Bombay High Court Holds Arbitral Tribunal Cannot Rewrite EPC Contract Or Shift Contractual Risk

The Bombay High Court has partly set aside an arbitral award in favour of KEC International Ltd. in its dispute with Central Railway, holding that the Arbitral Tribunal went beyond the contract by treating increased earthwork quantities as a change in scope and granting additional payment.

Justice Sharmila U. Deshmukh observed that a lump sum EPC contract places the risk of quantity variations and site conditions on the contractor. This risk cannot later be shifted to Central Railway through arbitration. She held:

“The Arbitral Tribunal, instead of enforcing the terms of the contract has re-written the contract by including the variation in the quantities of earthwork as a change of scope as defined under Article 13 at the behest of the Claimant, which right was not available to the Claimant under the contract and has converted the lump sum contract into item wise contract. Re-writing of contract would be breach of fundamental principles of justice entitling the Court to interfere under Section 34 of Arbitration Act. A party to the agreement cannot be made liable to perform something for which it has not entered into a contract.”

Central Railway and KEC International entered into an EPC contract on 12 August 2022 for construction of a third railway line between Maramjhiri and Chichonda on the Itarsi–Nagpur section. The contract value increased from Rs. 508.96 crore to Rs. 536.23 crore due to GST revisions.

KEC International invoked arbitration on 29 January 2024. It alleged a delay in handing over the Right of Way. It also claimed that revised surveys showed significant variations in earthwork quantities compared to tender drawings.

The Arbitral Tribunal passed its award on 3 February 2025. It re-fixed the Appointed Date as 4 October 2023. It also awarded about Rs. 2.15 crore to KEC International for delay in handing over the Right of Way. It further treated increased earthwork as a change in scope under Article 13. It directed Central Railway to pay for excess quantities and invalidated its termination and default notices.

Central Railway challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. It argued that the Arbitral Tribunal converted a lump sum EPC contract into an item-rate contract. It also said that the contract placed the risk of site conditions on the contractor.

KEC International defended the award. It said Central Railway supplied incorrect drawings and data. It argued that this caused additional work beyond the original scope.

Justice Deshmukh accepted Central Railway's challenge on the issue of extra quantities. The Court held that Article 13 covers changes in work, not an increase in the same work. She held that the Arbitral Tribunal misread the contract and could not convert a lump sum arrangement into an item-rate structure through interpretation.

However, the Court upheld the remaining findings. It sustained the award of Rs. 2.15 crore for delay in handing over the Right of Way. It also upheld the re-fixation of the Appointed Date and the invalidation of the termination notice.

Accordingly, the High Court partly allowed the arbitration petition.

For petitioner (The President of India): Advocates Mr. N.R. Bubna, Ms. Pooja Malik.

For respondent (KEC International Ltd.): Advocates Mr. Mustafa Doctor, Mr. Anuj Athalye, Mr. Nitin Jain, Mr. Rohan Gupta.