State Cannot Expect a Private Party to ‘Magically Provide’ Telecom Connectivity Where None Exists: Bombay High Court

“It is neither commonsensical nor reasonable to read the Agreement as one that requires Samruddhi to magically provide the last mile telecommunication connectivity.” –the Bombay High Court (Ordinary Original Civil Jurisdiction), in a detailed and emphatic ruling, dismissed cross-petitions under Section 34 of the Arbitration and Conciliation Act, 1996, thereby upholding a significant arbitral award rendered in favour of the petitioner-service provider. The case revolved around a government ICT initiative to establish Common Service Centres (CSCs) in rural Maharashtra, which ran into systemic delays owing to the lack of last-mile broadband infrastructure.

The court, speaking through Justice Somasekhar Sundaresan, categorically held that the arbitral tribunal’s award, which rejected the State’s claim for liquidated damages and upheld Samruddhi’s right to payment under viability gap funding, was based on a “plausible and reasoned view” and did not warrant interference. The court refused to interfere even with the denial of pre-award and pendente lite interest, observing that the tribunal’s discretionary decision was not perverse.

“Reasonable Compensation Under Section 74 Requires Proof of Loss” – Liquidated Damages Claim Defeated for Want of Evidence

The court’s judgment rests heavily on two pivotal legal conclusions: the impossibility of demanding last-mile connectivity from a non-licensee private party, and the failure of the State to establish any actual loss that would justify imposition of liquidated damages under Section 74 of the Indian Contract Act, 1872.

The court reiterated that liquidated damages cannot be mechanically enforced merely because a contract stipulates them. Relying on the Supreme Court’s authoritative ruling in Kailash Nath Associates v. DDA, (2015) 4 SCC 136, the court held:

“Damage or loss caused is a sine qua non for the applicability of Section 74… The expression ‘whether or not actual damage or loss is proved’ means that where it is possible to prove actual damage or loss, such proof is not dispensed with.”

In this case, the State had claimed ~Rs. 7.62 crores in liquidated damages, alleging delay in CSC rollout. However, the court accepted the arbitral tribunal’s finding that the claimed damages were neither based on a genuine pre-estimate nor supported by proof of actual loss. Notably, the tribunal observed that the liquidated damages were imposed only after arbitration was invoked, raising further doubts about their bona fides.

The dispute arose out of a 2011 Master Service Agreement between Bhartiya Samruddhi Finance Ltd. and the State of Maharashtra under the Government of India’s National e-Governance Plan. The project envisaged setting up 1,362 CSCs, mostly in rural regions such as Nandurbar and Nashik, with viability gap funding for 1,112 rural centres.

Samruddhi attributed delays in rollout to lack of broadband connectivity in remote areas, supported by RTI data and government advisories. The State countered by claiming Samruddhi was contractually obliged to ensure last-mile connectivity and imposed liquidated damages.

In 2021, an arbitral tribunal awarded Samruddhi approximately Rs. 7.66 crores but denied interest except for post-award interest. Cross-challenges ensued under Section 34 of the Arbitration Act—Samruddhi challenging denial of interest, and the State opposing the award itself.

Can a Service Provider Be Held Liable for Non-Provision of Connectivity Beyond Its Control?

The crux of the dispute was whether Samruddhi had failed in its contractual obligations by not ensuring timely rollout of CSCs, or whether the delays were attributable to systemic infrastructure deficits beyond its control.

Justice Sundaresan upheld the tribunal’s reasoning that while Samruddhi was expected to equip CSCs with necessary infrastructure (e.g., masts, radio transceivers), it could not be made responsible for the actual availability of broadband or telecom services—a responsibility that remained with licensed telecom providers and the State.

“It goes without saying that broadband telecom connectivity ought to have been available in the respective CSCs in the first place… The contention that Samruddhi should somehow provide last mile connectivity… is perverse and incapable of acceptance.”

Notably, the court invoked the business efficacy test as laid down by the Supreme Court in Nabha Power Ltd. v. PSPCL, (2018) 11 SCC 508, stating that commercial contracts must be interpreted in a way that gives practical effect to their purpose, not in a manner that imposes impossible obligations.

Was the Arbitral Tribunal’s Refusal of Interest Arbitrary?

While Samruddhi challenged the denial of pre-award and pendente lite interest, the court declined to interfere, noting that the tribunal had consciously exercised its discretion. The tribunal found deficiencies in the pleadings, absence of specific dates, and further noted that both parties had acted diligently. Thus, it awarded only post-award interest at 9% p.a. from three months after the award date.

Justice Sundaresan noted: “The exercise of discretion in relation to interest is not so irrational or perverse that it warrants interference by the Section 34 Court… the tribunal must be allowed reasonable play in the joints.”

Application of Section 34 Standards – No Perversity, No Interference

Reiterating the settled law under Dyna Technologies v. Crompton Greaves, (2019) 20 SCC 1, the court underscored that interference under Section 34 is warranted only where the arbitral award is perverse or in conflict with public policy.

“The Section 34 Court must not lightly interfere with arbitral awards… Even implied reasons may be inferred to support the outcome.”

On all counts—interpretation of the contract, allocation of responsibility for connectivity, applicability of liquidated damages, and discretionary refusal of interest—the High Court found that the arbitral award passed the test of judicial deference and commercial sensibility.

A Well-Reasoned Affirmation of Contractual Equity and Commercial Logic

By affirming the arbitral award in toto, the Bombay High Court has reinforced critical principles in government contract litigation and arbitration review—particularly that:

• Private service providers cannot be penalized for systemic infrastructure failures beyond their control;
• Liquidated damages must be backed by real, provable loss; and
• Arbitral tribunals enjoy wide discretion in managing interest claims, provided their reasons are plausible.

Justice Sundaresan’s judgment thus stands out not just for upholding the finality of arbitral awards under Section 34 but for its clarity in delineating the limits of government liability and the contours of fairness in public-private partnerships.

Date of Decision: 14 October 2025