Chhattisgarh High Court Sets Aside Arbitral Award Against BSNL For Granting Interest Despite Contractual Bar

The Chhattisgarh High Court has recently set aside an arbitral award against Bharat Sanchar Nigam Limited (BSNL), holding that the arbitrator granted interest despite a clear contractual prohibition and awarded loss of profit without any supporting evidence, rendering the award legally unsustainable.

Justice Bibhu Datta Guru found that the arbitrator had acted contrary to the terms agreed between the parties. The court said, “A perusal of the aforesaid clause would clearly reveal that the payment of interest on the Security Deposit was expressly barred. In spite of such a stipulation, the learned Arbitrator has proceeded to award interest in favour of the claimant, which is clearly contrary to the contractual provisions governing the parties. In the present case, the award of interest being in the teeth of the contractual bar cannot be sustained and is liable to be set aside."

The dispute traces back to a tender issued by BSNL for underground cable work in Ambikapur. A contractor was awarded the work in 2010. According to the contractor, only work worth about sixty two thousand rupees was actually executed, payments were not released, and the remaining work, valued at over Rs 24 lakh rupees, was never allotted, leading to a claim for loss of profit along with refund of the security deposit.

The arbitral tribunal partly accepted the claim. It directed refund of the security deposit of sixty two thousand five hundred rupees, awarded loss of profit of over two lakh rupees, and granted interest at ten per cent per annum along with costs.

BSNL challenged the award, but the challenge was rejected by the district judge, prompting an appeal before the High Court.

Before the court, BSNL argued that no work order had been issued for the remaining work and that the contractor had failed to produce any material to show actual loss. It also pointed out that the contract expressly barred payment of interest on the security deposit. The contractor, on the other hand, argued that the arbitration had begun before the 2015 amendment to the law and therefore newer timelines would not apply.

The court accepted that contention on timelines. It recorded, “it is not in dispute that the arbitral proceedings had commenced much prior to 23.10.2015, i.e., the date on which the Amendment Act, 2015 came into force. In view of the law laid down by the Hon'ble Supreme Court, the provisions of Section 29A, being prospective in nature, are not applicable to the present arbitral proceedings.”

That finding did not affect the outcome.

On the claim for loss of profit, the court found a complete absence of pleadings and proof. It noted, “a perusal of the record would reveal that the claimant has neither laid any specific pleadings with regard to loss of profit nor led any evidence to substantiate the same. No material has been placed on record to demonstrate that the claimant had suffered any actual loss or that any alternative profitable opportunity was lost. The award of loss of profit by the learned Arbitrator is thus based on mere conjectures and surmises.”

The court further held, “By awarding loss of profit in absence of any contractual or evidentiary basis, the learned Arbitrator has travelled beyond the scope of the contract. Such an award, being based on no evidence, would squarely fall within the ground of “patent illegality” under Section 34(2A) of the Act and would also be liable to be set aside as being in conflict with the public policy of India."

Interest was addressed separately. The contract barred it. The arbitrator granted it. The court found that such a grant could not be sustained.

In the end, the High Court set aside both the arbitral award and the order that had upheld it. One part survived. BSNL was directed to refund the security deposit of Rs. 62,500 , but without any interest, in line with the contract.