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Bombay High Court Holds an Arbitrator Cannot Rewrite a Lump Sum EPC Contract

Overview

In this case, the High Court of Bombay had to deal with a petition which arose from Section 34 of the Arbitration and Conciliation Act, 1996. An arbitral award was challenged by the petitioner which granted various reliefs to the respondent. The dispute was concerning an EPC contract for construction of a railway line on the Itarsi-Nagpur section of Central Railways. 

The main issue before the Court was whether the Arbitral Tribunal acted within the scope of the contract while granting relief as to “Appointed Date” and “Change of Scope” or not. 

 

Facts of the Case

The parties entered into a lump sum EPC contract for construction of a railway line on 12 August 2022. Under the agreement, an “Appointed Date” was provided for the timelines as to the execution of the project. It was required by the petitioner to provide at least 90% hindrance-free Right of Way before the date could commence.

Following the same, disputes arose as to the availability of land. The petitioner relied upon joint notes to argue that the land had already been handed over. However, the respondent, KEC International Ltd. contended that several parts of the land still remain inaccessible because of certain encroachment and obstructions.

The respondent claimed that only 84.3% of the land was available for executing the work. It was also alleged that details of the survey which were supplied during the bidding were inaccurate, which resulted in a substantial increase in earthwork during execution. This was treated as a “Change of Scope” by the respondent who then sought additional payment beyond the agreed price.

The arbitral tribunal, while partly accepting these claims, shifted the “Appointed Date” to 4 October 2023. Compensation was also granted for the delay in handing over the Right of Way, and it was further held that the contractor (the respondent), was entitled to the payment for excess earthwork. 

Aggrieved by the same, the petitioner approached the Bombay High Court.

 

Legal Issues

  1. Whether the 90% hindrance-free ROW was really handed over in terms of the contract. 
  2. Whether the increase in earthwork could be treated as “Change of Scope” under an EPC contract.
  3. Whether the “Appointed Date” could commence without proper consideration of the conditions of the contract.
  4. Whether the award suffered from patent illegality requiring interference under Section 34 of the Arbitration and Conciliation Act 1996.

 

Decision

The Bombay High Court, while partly allowing the petition, upheld the findings related to the delay in handing over the Right of Way. It was observed that the contract required proper documentation and verification before the “Appointed Date” could commence. Since the record showed that only 84.3% of the land was available, the tribunal was correct in deciding as to the extension of the “Appointed Date.” 

Findings related to "Change of Scope” were set aside, and it was held that the contract was a lump sum EPC agreement where the contractor accepted the risk related to the conditions of the site. A mere increase in the earthwork could not become additional work entitled to a separate payment. By granting the compensation item-wise, the contract was rewritten by the tribunal, which was legally impermissible. That part of the award was quashed.

 

Case Reference:- President of India, through Chief Engineer (Construction)/CPM/NGP Vs. KEC International Ltd. Commercial Arbitration Petition No. 855 of 2025 (SJB, Before Sharmila U. Deshmukh, J.)