Bombay High Court Overturns Arbitral Award Granting Toll Loss Relief Based On Pre-Contract Meeting Minutes

The Bombay High Court has set aside an arbitral award that granted toll loss compensation to a private concessionaire by treating pre-contract Minutes of Meeting as a binding part of the contract.

Justice Somasekhar Sundaresan held that the arbitral tribunal had misread the contract, effectively converting a force majeure clause into a guaranteed revenue mechanism.

The Court said this interpretation was an “impossible view,” “irrational,” and suffered from “manifest perversity,” and held that it violated the fundamental public policy of Indian law.

The dispute arose from a build-operate-transfer contract awarded in 1999 for the construction of a two-lane bridge connecting Pen and Alibag across the Dharamtar Creek.

The project was originally bid for by Ameya Developers and was implemented by Patwardhan Infrastructure Pvt. Ltd. under a tripartite arrangement with the State.

Under a clause of the contract, the State was required to compensate the concessionaire if toll collection was drastically reduced below 20% of normal due to force majeure events beyond the concessionaire's control, such as floods, riots, or civil commotion.

The state also had the option of extending the concession period instead of making a monetary payment. The clause expressly ruled out compensation for losses arising from wrong traffic estimation or other non-force majeure reasons.

However, relying on pre-contract minutes of a meeting (MOM) held in August 1999, Patwardhan claimed compensation for months in which toll collections fell by more than 20% regardless of any force majeure events.

The arbitral tribunal accepted the claim, holding that these Minutes had materially altered the force majeure clause and entitled the company to rupee-for-rupee compensation for any toll shortfall beyond 20%, even though no force majeure event had occurred.

The State challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, but the challenge was dismissed. It then moved the High Court in appeal under Section 37.

Allowing the appeal, the High Court held that the Minutes of Meeting merely recorded concerns about a proposed Rewas–Karanja bridge and reflected an understanding that the issue would be revisited if and when such a competing bridge became operational. No such bridge was ever constructed.

The court held that treating these meeting notes as a binding amendment effectively rewrote the contract and upset its basic risk-sharing structure.

"What the Learned Arbitral Tribunal and the Section 34 Court have done is turn this on its head. They have simply taken the observations in the MOM to treat them as an amendment not just to the benchmark for compensating for a force majeure event but even for circumstances that do not even constitute a force majeure event," the court observed.

It accordingly set aside both the arbitral award and the order upholding it, holding the case to be a fit one for interference under Section 34 read with Section 37 of the Act.

State: Government Pleader Kuldeep Patil

Respondent: Sonal, Ujwala Kamat, Anoop Sharma, Sumit Khanna and Vaibhav Singh