Parties Cannot Rely On Pre-Arbitration Steps They Frustrated: Supreme Court

The Supreme Court has recently set aside a Kerala High Court judgment that invalidated an arbitration award against the Kerala State Government.

The court held that a party cannot rely on contractual dispute resolution timelines when its own conduct has frustrated the process.

It also reiterated its earlier rulings that the non-issuance of a notice under Section 21 of the Arbitration and Conciliation Act does not bar claims before an arbitral tribunal if the disputes are otherwise arbitrable.

A division bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan, in a judgment delivered on January 5, 2026, upheld an arbitral award of Rs. 1.99 crore in favour of Bhagheeratha Engineering Limited.

The court observed that “no one can be permitted to take advantage of one's own wrong.” It further reiterated that Section 21 is procedural in nature and serves only to determine when arbitration commences for limitation purposes and is not a precondition for the existence of the tribunal's jurisdiction.

The case concerns four road maintenance contracts under the Kerala State Transport Project, awarded by the Kerala government to Bhagheeratha Engineering with World Bank support. The contracts required that any disputes between the parties first be taken to the engineer, then to an adjudicator, and finally to arbitration.

In August 2004, the adjudicator ruled in favour of the contractor on issues relating to price adjustments and bitumen pricing, while rejecting its claims for escalation during extended periods and interest on delayed payments.

Dissatisfied with the adjudicator's decision on one issue, the State wrote to the contractor on October 1, 2004, seeking arbitration well beyond the contractual 28-day period.

When the contractor objected on the ground that the decision had become final, Kerala responded that the delay itself could be examined by an arbitral tribunal and proceeded to appoint its arbitrator. It also stated that payments would be withheld pending arbitration. The contractor eventually nominated its arbitrator while reserving its rights, indicating that if the adjudicator's decision was reopened, it would seek adjudication of all four disputes.

Before the tribunal, the state also filed an application seeking a declaration that the adjudicator's decision was “null and void.”

The arbitral tribunal held that the arbitration clause was wide enough to cover any dispute arising out of or connected with the contract and proceeded to decide all four issues, awarding the contractor the full claim.

The District Judge set aside the arbitral award. The Kerala High Court upheld that decision, holding that the tribunal had been constituted only to decide the dispute on bitumen price adjustment and that the contractor had not issued a Section 21 notice for the other claims.

Setting aside the High Court's judgment, the Supreme Court said the High Court had “totally erred” in its approach.

The court noted that the state had itself breached the contractual timelines and never treated the adjudicator's decision as final and binding. It also pointed out that the State had withheld payments on the ground that arbitration was pending, while at the same time seeking to reopen all disputes before the tribunal.

In the context of these facts, the court held that the state could not rely on procedural objections to stall the arbitration. It also rejected the State's argument that only the party issuing a Section 21 notice could be treated as a claimant. The court clarified that once an arbitral tribunal is constituted, it is required to decide all claims and counterclaims that fall within the scope of the arbitration agreement.

The High Court's judgment was accordingly set aside, and the arbitral award restored in full. No order was passed on costs.

Case Title: Bhagheeratha Engineering Ltd. v. State of Kerala

Case Number: Civil Appeal No. 39 of 2026

Citation: 2026 LLBiz SC 5

For Petitioner: Senior Advocate Rajiv Shakdher, with advocates.

For Respondent: Senior Advocate Naveen R. Nath, with advocates.