Delhi High Court Partly Sets Aside ₹1.42 Cr. SBI Contractor Award, Rejects Emden Formula Without Proof

On 15 September, the Delhi High Court partly set aside an arbitral award in favour of contractor K.R. Anand in a dispute with State Bank of India (SBI) over the construction of 76 residential flats for its officers in Noida.

Justice Avneesh Jhingan noted that an arbitrator cannot award overhead losses using the Emden formula without evidence establishing the actual loss suffered or showing that such loss was difficult or impossible to prove, while upholding some portions of the award while setting aside awards towards overhead expenditure and Price Variation Adjustment (PVA) for the project's third extension. The Bench held:

“However, even on a fair reading of the award as a whole no reason emanates for the arbitrator accepting the calculation based on the Emden formula without there being evidence to prove the loss suffered or that it was difficult or impossible to prove the actual loss suffered. The award of claim no.1 falls within the teeth of Section 31(3) of the Act.”

SBI had invited tenders for construction of 76 flats for its officers at Sector-62, Noida, including civil, water supply, sanitary and external development works. K.R. Anand emerged as the successful bidder and was awarded the work on 22 December 2012. The parties executed an agreement on 16 January 2013 for Rs. 19.81 crore, requiring completion by 15 January 2015.

The work was not completed within time and three extensions followed. The first, from 15 January to 8 April 2015, and the second, from 9 April to 31 August 2015, were granted with PVA. A third post-facto extension from 1 September 2015 to 28 January 2016 was granted without PVA. K.R. Anand completed the work on 23 January 2016.

K.R. Anand attributed the delay to SBI's delay in providing necessary drawings and approvals, which SBI disputed. After SBI rejected the contractor's claims on 28 September 2018 as time-barred, K.R. Anand invoked arbitration on 7 January 2019 and raised 14 claims aggregating to Rs. 4.92 crore.

By an award dated 31 August 2023, the arbitrator granted Rs. 1.42 crore to K.R. Anand. SBI challenged four awarded claims and consequential interest before the High Court under Section 34 of the Arbitration and Conciliation Act, 1996.

The Bank argued that K.R. Anand had failed to prove actual overhead loss and that the Emden formula could not be used to quantify an unproven loss. It also contended that PVA could not be granted for the third extension, which had expressly been granted without PVA.

K.R. Anand defended the award, submitting that bills evidencing expenditure during the prolonged period had been produced and that the arbitrator had permissibly relied on the Emden formula and the CPWD Manual.

The Court noted that the arbitrator attributed 205 days of delay to K.R. Anand and 175 days to SBI before awarding Rs. 30.27 lakh as overhead expenditure for the latter period.

It held that the arbitrator had directly quantified damages through the Emden formula without K.R. Anand proving the actual loss suffered or showing that such loss was impossible or difficult to prove. It therefore held that the award was contrary to the Contract Act and suffered from patent illegality.

Further, it set aside Rs. 43.81 lakh awarded as PVA for the third extension. It noted that the architect's recommendation dated 11 November 2015 expressly proposed extending the work until 28 January 2016 “without any monetary benefit and without PVA”.

It found no contractual clause or evidence establishing K.R. Anand's entitlement to PVA for that period. The separate Rs. 56.84 lakh PVA awarded for the first two extensions was not challenged by SBI and remained undisturbed.

The Bench, however, upheld Rs. 4.21 lakh awarded as interest for delayed payment of running and final bills, noting that the contract required payment within 14 working days of the architect's certificate. It also upheld Rs. 8.08 lakh awarded for delayed refund of the security deposit. The two halves were released on 18 June 2017 and 21 March 2018, after delays of 321 and 424 days respectively.

Accordingly, the High Court held that the overhead expenditure and PVA awarded for the third extension were severable from the valid portions of the award and partly allowed SBI's petition.

Appearances for petitioner (State Bank of India): Senior Advocate Dharmesh Mishra, Advocates Rajiv Kapur, Riya Sood and Akshit Kapur.

Appearances for respondent (K.R. Anand): Advocates Aabhas Kshetarpal, Dhiliban Varadarajan and Harsh N Dudhe.