A Pune construction contract dispute involving a Rs 5.34-crore Armed Forces Medical College project has resulted in the District Commercial Court setting aside Rs 91.04 lakh from an arbitral award granted to Kanika Construction Company. The court upheld the remaining portions of the award and directed both parties to bear their own legal costs.
District Judge-2 of the Commercial Court, S. S. Kanthale, delivered the judgment on November 6, 2026, in Civil Miscellaneous Application No. 1071/2016. The Union of India, represented by the Chief Engineer, Pune Zone, had challenged an arbitral award dated July 18, 2016, which was later corrected on August 17, 2016.
The original contract was awarded to M/s Kanika Construction Company on March 5, 2009, for the construction of a double-storeyed building with three wings for BTD, MED and QM stores at the Armed Forces Medical College in Pune. The contract also covered allied works. The contractor completed the project on December 28, 2011, after receiving extensions to the original completion period.
The contractor subsequently raised several claims, which were referred to arbitration. The Union of India challenged three components of the award: additional excavation costs linked to changes in foundation strata, waterproofing treatment on accessible rooftops, and reimbursement for variations in material, labour and fuel prices.
On the excavation claim, the arbitrator had awarded Rs 17.31 lakh. The court held that the contract already contained a mechanism for determining rates for excavation in rock through deviation orders based on MES Schedule rates plus 55 percent. Since the department’s valuation of Rs 9.26 lakh was undisputed, the court set aside Rs 8,05,631.89 from this component and retained the departmental valuation.
The court also set aside the entire Rs 47,84,085 awarded for waterproofing treatment. It found that the contract documents, including the schedule of finishes, structural drawings and specifications, included waterproofing within the original lump-sum contract. The contractor had also included the work while preparing the joint work yardstick and had received payments for it through 21 running account bills. The court said the arbitrator had overlooked important contractual documents and had not adequately addressed the department’s objection regarding Rs 24.89 lakh of the claim, which it said was unsupported by evidence.
The third component involved an escalation claim of Rs 35,14,994.45 for changes in material, labour and fuel prices. The court held that Condition 63 of the General Conditions of Contract provided the applicable price-variation mechanism and did not permit an alternative formula. It found that the arbitrator had relied on an empirical formula in the 2007 Manual on Contracts, an internal departmental instruction that had not been incorporated into the agreement.
The judgment further noted that the contractor had not established compliance with the contractual requirements for price variation or produced relevant books of accounts and evidence of actual payments to support the escalation claim. The court also found an inconsistency in allowing escalation for the extended period after rejecting the contractor’s separate claim for prolongation of the contract.
The court therefore reduced the award under Claim No. 1 by Rs 91,04,711.34. It also set aside applicable interest on the disallowed excavation and waterproofing amounts and clarified that no future interest would be payable on the escalation component. However, it declined to interfere with the remaining claims and retained the arbitrator’s decision to grant simple interest at 12 percent per annum on the amounts that continued to stand.
The court held that the remaining grounds raised by the Union of India did not warrant interference under Section 34 of the Arbitration and Conciliation Act, 1996. Advocates K. D. Ratnaparkhi and B. A. Bhogal appeared for the Union of India and the respondents, respectively, with Kanika Construction Company and the sole arbitrator among the respondents.
