Public Policy Patent Illegality Pleas Raised by NHAI Against HCC Arbitration Award

National Highways Authority of India v. Hindustan Construction Co. Ltd.

O.M.P. (Comm) 99/2017

Jasmeet Singh, J.

This case had originated from a petition presented by the National Highways Authority of India (NHAI) under Section 34 of the Arbitration and Conciliation Act, 1996, against an arbitral award of 14 October 2016 made in favour of Hindustan Construction Company Ltd. (HCC). The case was related to a road project for the four-laning of National Highway No. 28 (Lucknow–Ayodhya Section) from Km 45.00 to Km 92.00. The arbitral tribunal had permitted claims under "Dispute No. 6" relating to additional costs and prolongation expenses incurred during the prolonged period of the project. NHAI attempted to set aside this portion of the award based on patent illegality, excess of jurisdiction, and breach of contract terms.

NHAI, the statutory organization established under the National Highways Authority of India Act, 1988, signed a contract with HCC on 5th October 2005 for an overall price of ?212.33 crore. Completion of the project was within 36 months, with the work starting on 13th October 2005 and finishing on 12th October 2008. Road, bridge, culvert, and other structure construction were part of the work. The contract was item-rate in nature, subject to the General Conditions of Contract (GCC), Conditions of Particular Application (COPA), and Technical Specifications. Owing to delays at various instances, the Engineer extended time, and NHAI approved the same. The works were finally taken over on 12th September 2011, and a Taking Over Certificate was given on 29th September 2011. Disputes also cropped up during execution, which were referred to arbitration under Clause 67 of the agreement.

HCC pleaded two significant disputes against the Tribunal: Dispute No. 5, regarding variation rates under Clause 52.2, and Dispute No. 6, on additional costs and losses for the extended period (13.10.2008 to 12.09.2011). Although NHAI accepted the award on Dispute No. 5, it objected to the findings on Dispute No. 6, for which the Tribunal awarded about ?53.79 crores, including overheads, plant and machinery retention costs, and unrecovered price variations, along with a 12% compound rate of interest.

NHAI argued that the Tribunal had gone beyond the contract's terms, basically rewriting it. It traced its reliance on Clauses 14.1 and 14.4 (Work Program), 53.4 (Verification of Claims), 54.1 (Plant and Equipment), 60.2 (Engineer's Certification), and 70 (Price Adjustment), on the ground that the Tribunal had disregarded these provisions. NHAI argued that the delays were due to HCC's substandard mobilisation, manpower shortage, aged equipment, and inefficient planning, but the Tribunal erred in attributing them to NHAI.

It was argued that extensions of time (EOTs) were granted in the public interest and not as admissions of fault. The finding that the absence of liquidated damages implied NHAI’s default was, according to the petitioner, untenable. The Tribunal had also erred in relying solely on HCC’s Chartered Accountant (CA) certificates while disregarding the Engineer’s records, which were based on actual data.

NHAI also argued that the award was a non-speaking award without valid reasoning.

The Tribunal adopted HCC's overheads and retention cost claims without evidencing whether such costs were indeed incurred over the extended period. It selectively accepted and rejected CA certificates without justification. In addition, the Tribunal rejected calculations using the MoRTH Standard Data Book, even though it was included in the contract through Clauses 2.1 and 2.2 of the Technical Specifications and the Bill of Quantities (BOQ). NHAI claimed that prolonged cost claims and equipment retention were barred by the contract.

Referring to Clause 54.1, it contended that plant and equipment were needed to stay at the site for the works' sole use and could not be a basis of further claims. No notices or evidence had been given by HCC to prove machinery idling or demobilisation. The Tribunal's dependence on these allegations, the NHAI argues, was against both the contract and judicial precedent, especially the Delhi High Court decision in NHAI v. Hindustan Construction Co. Ltd., 2016, to the effect that retention of equipment on the site is not a reason for additional compensation. NHAI also objected to the grant of costs under heads of labour, steel, cement, bitumen, and POL, arguing that they were already paid for through price adjustment mechanisms under Clause 70, and that the payment of additional amounts was double recovery. The Preamble to the BOQ, it contended, clearly stated that all risks and liabilities were embedded in the quoted rates. The petitioner also alleged that the award was against public policy and the established principles of law.

It was highlighted that where both sides were responsible for the delay and the contractor asked for extensions of time, no further compensation could be awarded except the EOT that had been given.

Having received extensions without demur, HCC was not in a position to claim further damages. The Tribunal's premise that the right to extension necessarily meant incurring losses was characterized as a perverse and hypothetical conclusion. NHAI contended that the Tribunal had overstepped its jurisdiction, disregarded material evidence, not given cogent reasoning, and allowed claims precluded by the contract. The Award, it asserted, was vitiated by patent illegality, lack of application of mind, and violation of the contractual paradigm, thus requiring interference under Section 34 of the Arbitration Act.

Case Reference: National Highways Authority of India Versus Hindustan Construction Co. Ltd. O.M.P. (Comm) 99/2017) Decided on October 16, 2025, [Judgment reserved on: 31.07.2025]