Karnataka High Court Restores ₹44.48 Lakh Arbitral Award After Commercial Court Examined Issue Not Raised Before Tribunal

The Karnataka High Court has restored an arbitral award of Rs 44.48 lakh granted to contractor S S Police Patil and Company in a dispute over price adjustment claims arising from a municipal road improvement project in Dharwad district.

A Division Bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha held that the Commercial Court exceeded its limited jurisdiction under Section 34 of the Arbitration and Conciliation Act by examining issues that were not raised before the arbitral tribunal and by undertaking a fresh interpretation of the contract while setting aside the award.

The High Court noted that the Commercial Court had examined whether the contractor's price adjustment bill complied with the Government Order dated November 21, 2008 governing price variation in public works contracts, even though that issue had not been raised before the arbitral tribunal

The Court observed, "It is apparent from the above that the learned Commercial Court has embarked on adjudication of the question whether the price adjustment bill would fall within the terms of the Government Order dated 21.11.2008. This was not an issue raised before the Arbitral Tribunal...It is clearly not open for the respondent to insist on fresh adjudication of contentious question before the learned Commercial Court, unless the Court finds that the award is ex-facie, vitiated by patent illegality.”

The dispute arose from a contract for improvement of roads and drains in Annigeri town in Dharwad district under the Nagarothana municipal development scheme, awarded to S S Police Patil and Company.

According to the contractor, delays in handing over portions of the worksite, non-acquisition of private land and delayed relocation of electrical poles impeded completion of the project.

The contractor later raised a price adjustment claim under the contract after completing a substantial portion of the work. When the payment was not released, it invoked arbitration.

On March 14, 2024, the arbitral tribunal allowed the claim of ₹44,48,415. It awarded interest at 9% per annum from March 9, 2022 until the date of the award, along with future interest at 15% per annum.

The Deputy Commissioner of Dharwad district challenged the award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act. By an order dated August 4, 2025, the Commercial Court set aside the award after examining the contractor's price adjustment calculations in light of a government order on price variation in public works contracts and the relevant contractual clauses.

The High Court agreed, noting that the issue relating to the government order had not been raised before the arbitral tribunal and that the Commercial Court had gone beyond the grounds of challenge while examining the award.

“ If this issue was raised, the Arbitral Tribunal would be required to adjudicate the same. However, as noted above, the respondent, despite the opportunity, did not contest the claim before the Arbitral Tribunal. It is clearly not open for the respondent to insist on fresh adjudication of contentious question before the learned Commercial Court, unless the Court finds that the award is ex-facie, vitiated by patent illegality, the award cannot be set aside on that groundl” the Court said.

Reiterating the court's limits, the bench added, “The question at the very least would require interpreting the terms of the Agreement… the interpretative exercise required for addressing the same, excludes it from the scope of Section 34.”

Holding that the award disclosed no patent illegality, the High Court allowed the appeal, set aside the Commercial Court's order, and restored the arbitral award. The parties were directed to bear their own costs.

For Appellant (S S Police Patil and Company): Advocate Yashodhar Hegde.

For Respondent (Deputy Commissioner, Dharwad District): Additional Advocate General S. Santhosh Gogi with Advocate K.S. Harish.