Work Commenced Early, But Contract Clock Starts Only With Full Possession: Rajasthan High Court Clarifies in BOT Arbitration Case

“Commencement Date Means What the Contract Says, Not When Work Started”, Rajasthan High Court (Jaipur Bench), in a reportable judgment delivered by Justices Avneesh Jhingan and Bhuwan Goyal, partly allowed an appeal filed by the State of Rajasthan under Section 37 of the Arbitration and Conciliation Act, 1996. The case concerned a complex Build-Operate-Transfer (BOT) agreement with Sanwariya Infrastructure Pvt. Ltd. for construction of the Pali Bypass.

While upholding the arbitrator’s interpretation that the concession period commenced only upon full physical possession of the project site, the Court struck down a major portion of the award, including ₹14.12 crore in compensation and nearly ₹31 crore in compound interest, terming them “beyond the terms of the agreement and patently illegal.”

A Toll Road, Delayed Possession, and Years of Dispute

The dispute stemmed from a tender issued in 2003 by the State Government for construction of the Pali Bypass on a BOT basis. Sanwariya Infrastructure was awarded the contract and entered into a concession agreement in 2004. Under the agreement, the State was required to hand over the complete project site within 60 to 120 days of the Letter of Acceptance.

Although major land was handed over in October 2004, the balance was delivered only on March 23, 2006. The respondent began construction on partial possession and commenced toll collection from May 3, 2006.

Years later, disagreements arose over the date of commencement, the length of the toll collection period, and a demand for compensation due to the non-closure of a Level Railway Crossing (LRC). Arbitration proceedings led to a substantial award in favour of the respondent, which was later challenged under Sections 34 and 37 of the Act.

“Commencement Date is Defined by Possession, Not Action”

Rejecting the State’s argument that the concession period began when the respondent started work on partial land, the Court held: “Starting of work by the respondent on partial receipt of physical possession of site shall not change interpretation of period of concession and commencement date, as defined in the concession agreement.” [Para 14]

The arbitrator had rightly interpreted the commencement date as March 23, 2006—when full possession was given—not October 18, 2004. This view was found to be consistent with the contractual definition and even with the State's own pre-bid clarifications.

“Claim Is Not Time-Barred If Cause of Action Arose From Denial of Rights”

On the issue of limitation, the State argued that claims were filed belatedly. However, the Court ruled otherwise: “The cause of action to file the claim arose when the appellant communicated that concession period shall end on 17.08.2010... The objections based on limitation have no merit.” [Para 6, 11]

The respondent’s consistent attempts to resolve the issue through committees and correspondence reflected that the matter was actively being pursued.

“An Arbitrator Cannot Rewrite a BOT Contract” – Damages and Interest Award Quashed

The most significant blow to the respondent came when the Court examined the arbitrator's award of ₹14.12 crore as compensation for loss due to non-closure of a Level Railway Crossing and ₹30.85 crore in compound interest.

“No clause in the concession agreement is shown under which for non-compliance of obligation as per the agreement, compensation in cash can be claimed.” [Para 18]

The Court clarified that under a BOT model, the only mode of compensation was toll collection: “In a BOT contract the consideration is by collection of toll... The respondent was duly compensated with extension of toll collection period.” [Para 20]

The arbitrator’s presumption that the State failed to close the LRC and was therefore liable for cash damages was deemed contrary to the contract: “The claim for compensation of losses suffered due to non-closure of LRC was against the terms and conditions of the concession agreement.” [Para 24]

“Compound Interest Without Agreement is an Overreach”

The award also granted interest on the delay in toll collection from 2005 to 2006 and further compounded interest at 15% quarterly. The Court found this to be “patently illegal” in the absence of any contractual provision: “Interest on interest compounded quarterly was awarded despite no enabling clause in the agreement... The award suffers from vice of patent illegality.” [Para 27, 31]

The Court firmly held that: “Taking the case of the respondent at the highest, the arbitrator exceeded jurisdiction by awarding monetary compensation and compound interest not contemplated in the agreement.” [Para 21]

“Severability Doctrine Permits Partial Set-Aside of Award”

Invoking the Supreme Court's judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025 INSC 605), the High Court held that it was legally permissible to sever the valid and invalid parts of the award.

“Both claims are severable and are not inter-connected. The severability of both claims is legally and practically possible.” [Para 38]

Accordingly, the award was modified as follows:

“(i) The award of toll collection till 22.01.2012 is upheld;
(ii) Compensation for loss due to non-closure of LRC and delay in toll collection is set aside;
(iii) The entire interest component is quashed.” [Para 39]

This judgment affirms the narrow but significant limits of arbitral discretion. While arbitrators may interpret agreements, they cannot invent entitlements that the contract does not provide. As the Court put it:

“An award passed beyond terms and conditions agreed between the parties comes within the teeth of grounds available under Section 37 for interference.” [Para 21]

By upholding toll collection rights but striking down all monetary claims without contractual backing, the Rajasthan High Court has reaffirmed the principle that commercial contracts are sacrosanct—and arbitration cannot become a backdoor to rewriting them.

Date of Decision: 28 May 2025