Gujarat High Court Says Casual Award Challenges Burden Courts, Imposes ₹3 Lakh Costs On Housing Board

The Gujarat High Court on 18 September held that courts can impose costs to deter casual challenges to arbitral awards, observing that frivolous applications under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 burden courts with unnecessary litigation.

A Division Bench of Chief Justice Sunita Agarwal and Justice D.N. Ray dismissed the Gujarat Housing Board's challenge to a Rs. 3.97 crore arbitral award in favour of Cube Construction Engineering Ltd. and imposed Rs. 3 lakh costs on the Board. The judges observed:

“The casual filing of applications under Sections 34 and 37 of the Act, 1996 burdening the Courts with unnecessary and frivolous litigation, needs to be curbed forthwith. The only deterrent which comes in our mind is imposition of costs by Courts under Section 34 as well as in 37 proceedings, at par with the arbitration costs which is imposed upon the losing party in accordance with the provisions of 31A of Act, 1996.”

The dispute arose from a housing project at Bhuj for which the Housing Board issued Cube Construction a work order on 12 February 2014, with a 15-month completion period commencing from 13 February 2014. The project was originally planned as a G+3 structure. However, the design could not be approved as the site was located in a seismic zone, and the project was eventually curtailed to G+2. It was physically completed on 24 August 2017.

Subsequently, issues arose over the delay, deductions from running-account bills, and Cube Construction's claims for extra work and costs incurred towards idle machinery and manpower. It invoked arbitration on 8 August 2018. A three-member arbitral tribunal, by an award dated 11 August 2023, partly allowed Cube Construction's claims and awarded Rs. 3,97,13,669 against claims exceeding Rs. 12 crore.

The Housing Board challenged the award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act. After the Commercial Court dismissed the challenge on 18 April 2026, the Board approached the High Court under Section 37.

The Board argued that Cube Construction was responsible for the substantial delay in completing the project and that the tribunal had wrongly awarded amounts towards extra work and idle machinery beyond the scope of the agreement. It also challenged the award of interest and arbitration costs.

The High Court found that the Board was essentially seeking a reconsideration of the merits of the arbitral award. It held that, given the limited scope of a Section 37 appeal, it could not independently reassess the tribunal's findings on the cause of delay or the merits of Cube Construction's claims. It observed:

“None of the grounds agitated during the course of arguments by the learned counsel for the appellant herein would demonstrate even a semblance of perversity in the arbitral award, much less patent illegality.”

The Bench also disapproved of the Housing Board, a statutory authority, pursuing successive challenges to the arbitral award. It clarified that merely because a contract is awarded by a statutory authority, it does not automatically become a statutory contract and continues to operate as a private agreement between the authority and the contractor.

Applying the costs regime under Section 31A, it imposed Rs. 3 lakh costs. Of this, Rs. 2 lakh was directed to be paid to Cube Construction towards advocate's fees and legal expenses incurred in the Section 34 and Section 37 proceedings within four weeks.

The judges directed the remaining Rs. 1 lakh to be deposited with the Registrar General within three weeks for burdening the Court's docket and wasting judicial time. It clarified that in case of default, the costs would be recoverable as arrears of land revenue.

Accordingly, the High Court dismissed the appeal.

Appearances for appellant (Gujarat Housing Board): Advocate Y.N. Ravani.

Appearances for respondent (M/s. Cube Construction Engineering Limited): Senior Advocate Manish Bhatt with Advocates Nisarg Dave and Munjaal M. Bhatt.