- 1 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF JULY, 2026 PRESENT THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE AND THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA MISCELLANEOUS FIRST APPEAL NO. 2819 OF 2026 (AA) BETWEEN: 1. M/S RAJIV GANDHI RURAL HOUSING CORPORATION LTD SURVEY NO.205, KOMMAGHATTA ROAD BANDEMATH, KENGERI SATELLITE TOWN BANGALORE - 560 060 AT PRESENT HAVING ITS OFFICE AT NO.1,2,3,4, I.T PARK, 1ST FLOOR 4TH MAIN ROAD, RAJAJI NAGAR INDUSTRIAL AREA, RAJAJI NAGAR BANGALORE - 560 010 REPRESENTED BY ITS MANAGING DIRECTOR …APPELLANT (BY SRI UDAYA HOLLA, SENIOR ADVOCATE A/W SRI M.S. RAJENDRA, ADVOCATE FOR SRI VIVEK HOLLA, ADVOCATE) AND: 1. M/S KPC PROJECTS LIMITED (PREVIOUSLY KCP PROJECTS LIMITED) NO.1-2-339/1, STREET NO.6 GAGAN MAHAL, DOMALGUDA HYDERABAD - 500 029 REPRESENTED ITS AUTHORIZED SIGNATORY MR. P. LAKSHMAIAH S/O ANJAIAH AGED ABOUT 62 YEARS Digitally signed by VEERENDRA KUMAR K M Location: High Court of Karnataka - 2 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 2. M/S MJR INFRA PRIVATE LIMITED H.NO.8-2-21/A/3A SAIKRUPA NILAYAM, 3RD FLOOR SRINGAR COLONY ROAD PANJAGUTTA, HYDERABAD - 500 082 REPRESENTED BY ITS AUTHORIZED SIGNATORY MR. M VENKAT REDDY AGED ABOUT 80 YEARS 3. M/S KPC-MJR (JV) NO. 22/1, 1ST MAIN, 6TH CROSS KRISHNAPPA BLOCK GANGA NAGAR, R.T. NAGAR BENGALURU - 560 032 REPRESENTED BY ITS AUTHORIZED SIGNATORY MR. M. VENKAT REDDY S/O JENGI REDDY AGED ABOUT 80 YEARS 4. HON'BLE JUSTICE N.K. SODHI FORMER JUDGE HIGH COURT OF KARNATAKA SOLE ARBITRATOR …RESPONDENTS (BY SRI S. VIVEKANANDA, ADVOCATE FOR R-1 TO R-3) THIS MFA IS FILED UNDER SECTION 37(1)(c) OF THE ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO ALLOW THE ARBITRATION SUIT FILED UNDER SECTION 34 OF ARBITRATION AND CONCILIATION ACT, 1996, THEREBY SETTING ASIDE THE AWARD DATED 07.09.2017 PASSED BY THE ARBITRAL TRIBUNAL (ANNEXURE-B) AND ALLOW THE COUNTER CLAIMS RAISED BY THE APPELLANT AND ETC. THIS APPEAL, COMING ON FOR ORDERS, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: - 3 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE and HON'BLE MRS. JUSTICE K.S. HEMALEKHA ORAL JUDGMENT (PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE) 1. For the reasons stated in the application, I.A. No. 1/2026 is allowed. The delay of 11 (eleven) days in filing the appeal is condoned. 2. The appellant – M/s Rajiv Gandhi Rural Housing Corporation Ltd. [RGRHCL] – has filed the present appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 [the A&C Act] impugning an order dated 18.12.2025 [the impugned order] passed by the learned LXVIII Additional City Civil and Sessions Judge, Bengaluru City [District Court] in A.S.No.169/2017, whereby RGRHCL's application under Section 34 of the A&C Act, assailing the arbitral award dated 07.09.2017 [the impugned award] rendered by the Arbitral Tribunal comprising the learned Sole Arbitrator (respondent no.4 herein), was dismissed. Respondent nos.1 to 3 [hereafter collectively referred to as ‘the claimants’] were the claimants before the Arbitral Tribunal. - 4 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 PREFATORY FACTS 3. RGRHCL is a Government of Karnataka enterprise engaged in providing housing facilities to the economically and socially weaker sections of society. RGRHCL issued an Invitation for Tenders [IFT] on 20.11.2010, inviting bids for the design, build and transfer of 1668 multistorey (G+2) dwelling units in the Bangalore and Ramanagara Districts, with the object of implementing the affordable housing scheme “Nanna Mane”. The claimants submitted their bid as a joint venture and emerged as the successful bidders. Although the tender contemplated conventional construction, the claimants, by their letter dated 23.06.2011, proposed execution of the works by adopting an alternative fast- track technology, assuring timely completion with adequate resources and at the same rates. The said proposal was accepted. 4. Thereafter, a common Letter of Acceptance dated 24.10.2011 [LoA] was issued in the name of respondent no.1 in respect of all four packages of the works, for a total contract price of `57,10,68,630/- (Rupees fifty-seven crores ten lakh sixty-eight thousand six hundred and thirty only). The LoA stipulated that the number of houses in each of the packages may increase/decrease - 5 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 based on site conditions and that the value of the package(s) may differ accordingly. The claimants were also required to furnish a bank guarantee/security deposit for a sum of `5,71,06,863/- (Rupees five crores seventy-one lakh six thousand eight hundred and sixty-three only), which was duly furnished. 5. On 16.11.2011, four separate but identical contract agreements were executed between the parties in respect of each of the packages. The said agreements stipulated that they shall come into full force and effect on the date when RGRHCL hands over possession of 60% of the land required for construction of the works, and that the period for completion of the works was twelve months. On the same day, notices to proceed with the works in respect of each of the packages were also issued. It is material to note that in the said notices, the configuration of the dwelling units in Packages I, III and IV was substantially altered. The number of dwelling units in Package III was reduced from 540 to 180 and the value of the said package was correspondingly reduced from `17,54,98,650/- to `6,12,05,796/-. The number of dwelling units in Package IV was increased from 480 to 696 and the value of the said package from `17,64,92,760/- to `25,55,89,180/-. - 6 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 6. Admittedly, the works were not completed within the stipulated or the extended time. According to RGRHCL, the claimants failed to deploy adequate manpower, material and machinery and had stopped/abandoned the works at the various sites for prolonged periods. The claimants disputed the same and alleged that there was considerable delay on the part of RGRHCL in handing over possession of 60% of the land; that some of the sites were embroiled in land disputes; and that RGRHCL, despite the substantial change in the scope of work and the delay in handing over the sites, declined their request for revision of the contract rates by its letter dated 30.10.2013. However, extensions of time were granted by its letter dated 06.11.2013. 7. RGRHCL issued a final notice dated 23.05.2015 setting out the alleged failures and breaches by the claimants, which the claimants replied to on 15.06.2015. Thereafter, by a detailed order dated 13.10.2015, RGRHCL terminated the contracts at the claimants' risk and cost and forfeited/encashed the bank guarantees furnished by them. 8. In the meanwhile, the claimants approached this Court by filing a petition under Section 11 of the A&C Act, CMP - 7 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 No.178/2015, for the appointment of an arbitrator. The said petition was allowed and, by an order dated 29.10.2015, this Court appointed the Sole Arbitrator and thereby constituted the Arbitral Tribunal to adjudicate the disputes that had arisen between the parties. 9. Before the Arbitral Tribunal, the claimants raised a consolidated claim of `46,37,64,382/- (Rupees forty-six crores thirty-seven lakh sixty-four thousand three hundred and eighty-two only) under various heads, along with interest. RGRHCL denied the claims and raised counter claims aggregating `81.56 crores, comprising `48.81 crores towards additional expenditure incurred for completion of the balance works; `27.54 crores towards administrative overheads and supervision costs for completing the balance works; and `5.21 crores towards liquidated damages. 10. The Arbitral Tribunal rendered the impugned award dated 07.09.2017, holding that both the parties had committed material breaches of their respective obligations. Accordingly, the Arbitral Tribunal rejected the claims made by the claimants as well as the counter claims raised by RGRHCL. However, the Arbitral Tribunal held that it would be fair and equitable to place the parties on even - 8 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 terms and, accordingly, directed RGRHCL to refund to the claimants a sum of `4,88,84,300/- (Rupees four crores eighty-eight lakh eighty-four thousand three hundred only), being the amount of the bank guarantee encashed by it, within six weeks from the date of the award, failing which the said amount would carry interest at the rate of 15% per annum from the date of the award till the date of payment. 11. RGRHCL assailed the impugned award by filing an application under Section 34 of the A&C Act, being A.S.No.169/2017, before the District Court. By the impugned order, the District Court dismissed the said application, holding that the impugned award was a reasoned award; that the findings of the Arbitral Tribunal were findings of fact based on the documentary and oral evidence on record; and that RGRHCL had failed to establish that the impugned award was vitiated by patent illegality or was in conflict with the public policy of India. Aggrieved by the same, RGRHCL has preferred the present appeal. SUBMISSIONS 12. RGRHCL assailed the impugned award, essentially, on two fronts. First, the impugned award is unreasoned and self- - 9 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 contradictory. The Arbitral Tribunal had found that (i) the project could not be completed primarily on account of the inability of the claimants to execute the works, which led to their abandoning the project; (ii) the claimants could not mobilise and deploy the requisite manpower, material and machinery; and (iii) RGRHCL was left with no option but to terminate the contracts. Yet, despite the same, the Arbitral Tribunal rejected RGRHCL's counter claims without assigning any reasons, despite the aforesaid findings. 13. Second, the direction to refund the amount of the encashed bank guarantee is contrary to the terms of the contracts, as the bank guarantee was furnished towards due performance of the contracts and, in view of the findings of breach on the part of the claimants, the same was liable to be forfeited. 14. It was contended that the impugned award is, therefore, patently illegal, perverse and in conflict with the public policy of India, and that the District Court had failed to examine any of the contentions urged by RGRHCL. REASONS AND CONCLUSION 15. We find no merit in the contention that the impugned award is unreasoned. The Arbitral Tribunal, after examining the evidence - 10 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 on record, found that RGRHCL was in breach of its obligations inasmuch as it had delayed in handing over the sites, and some of the sites were disputed. There were substantial changes in the configuration of the dwelling units and, despite the same, RGRHCL had not revised the contract rates. The relevant extract of the impugned award is set out below: "26. By not considering this request of the claimants, the respondent committed a material breach of the conditions of the contract. In view of the delay in handing over the sites, the claimants could not be expected to continue with the work at the contracted rates which were settled way back in October/November 2011. I am also of the view that the claim for the revision of the contract rates was not unreasonable also because of the change of scope in work as discussed in the earlier part of the Award. Substantial changes were made in the configuration of dwelling units in Packages I, III and IV and the contract value had also substantially decreased/increased. It would have been fair and reasonable if the respondent had re-negotiated the contract rates and not having done so, it acted not only unfairly but also in contravention of clause 38.2 of the conditions of contract. To sum up, the delay in handing over the sites, land disputes on some of the sites, substantial changes in the configuration of the dwelling units and the respondent not agreeing to revise the contract rates are some of the reasons partly responsible for the delay in the completion of the project. Having said this, I may hasten to add that, for the reasons recorded hereinafter, the claimants were equally responsible for delaying the project and not completing the works as per the contracts executed between the parties." [emphasis added] 16. It is apparent from the above and from the findings returned in the impugned award that the Arbitral Tribunal had concluded that - 11 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 both parties had committed material breaches of their respective obligations. It is in this view that the Arbitral Tribunal rejected the claims made by the claimants as well as the counter claims raised by RGRHCL, including the counter claims premised on the alleged breach solely attributable to the claimants. Consequently, the Arbitral Tribunal held that it would be fair and equitable to place the parties on even terms and directed RGRHCL to refund the amount of `4,88,84,300/-, which was collected by it by encashing the performance bank guarantee furnished by the claimants. 17. As is well settled, the scope of interference with an arbitral award under Section 34 of the A&C Act is limited. In the present case, RGRHCL claims that the impugned award is vitiated by patent illegality. It is well settled that an arbitral award can be impeached on the ground of patent illegality only if the illegality strikes at the root of the subject matter and the view of the Arbitral Tribunal is one which is unreasonable and capricious, and fails the Wednesbury1 test. 18. The Court cannot supplant its own view in place of the Arbitral Tribunal's decision. If the view of the Arbitral Tribunal is a 1 Ref Lord Greene M.R opinion in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 KB 223. - 12 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 plausible one, no interference would be called for. In the present case, the Arbitral Tribunal has rejected the counter claims on the ground that RGRHCL had failed to perform its obligations as noted above. Clearly, in the given facts, the said view is a plausible one. 19. We also consider it apposite to refer to the observations made by the Supreme Court in Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.2. The Court distilled the principles governing interference with arbitral awards as under: “18. It is not necessary to multiply the references. Suffice it to say that the legal position that emerges from the decisions of this Court can be summarised thus: (i) In a case where an arbitrator travels beyond the contract, the award would be without jurisdiction and would amount to legal misconduct and because of which the award would become amenable for being set aside by a court. (ii) An error relatable to interpretation of the contract by an arbitrator is an error within his jurisdiction and such error is not amenable to correction by courts as such error is not an error on the face of the award. (iii) If a specific question of law is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law does not make the award bad on its face. 2 (2009) 10 SCC 63 - 13 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 (iv) An award contrary to substantive provision of law or against the terms of contract would be patently illegal. (v) Where the parties have deliberately specified the amount of compensation in express terms, the party who has suffered by such breach can only claim the sum specified in the contract and not in excess thereof. In other words, no award of compensation in case of breach of contract, if named or specified in the contract, could be awarded in excess thereof. (vi) If the conclusion of the arbitrator is based on a possible view of the matter, the court should not interfere with the award. (vii) It is not permissible to a court to examine the correctness of the findings of the arbitrator, as if it were sitting in appeal over his findings. 20. Although the decision was rendered under the Arbitration Act, 1940, the principles are equally applicable to arbitrations under the A&C Act. The aforesaid principles were reaffirmed by the Supreme Court in Prakash Atlanta (JV) v. National Highways Authority of India3. 21. In Jan De Nul Dredging India (P) Ltd. v. Tuticorin Port Trust4 the Supreme Court referred to the earlier decisions and observed as under: 3 2026 SCC Online SC 98 4 (2026) 3 SCC 186 - 14 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 “35. The gist of the aforesaid decisions is that the jurisdiction of the court under Section 37 of the Act is akin to the jurisdiction of the court under Section 34 of the Act, and, therefore, the scope of interference by the court in appeal under Section 37 cannot go beyond the grounds on which challenge can be made to the award under Section 34 of the Act. Moreover, the courts exercising powers under Sections 34 and 37, do not act as a normal court, and therefore, ought not to interfere with the arbitral award on a mere possibility of an alternative view. 36. In other words, the scope of interference of the court with the arbitral matters is virtually prohibited, if not absolutely barred. The powers of the appellate court are even more restricted than the powers conferred by Section 34 of the Act. The appellate power under Section 37 of the Act is exercisable only to find out if the court exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred. The appellate court exercising powers under Section 37 of the Act has no authority of law to consider the matter in dispute before the Arbitral Tribunal on merits so as to hold as to whether the award of the Arbitral Tribunal is right or wrong. The appellate court in exercise of such power cannot sit as an ordinary court of appeal and reappraise the evidence to record a contrary finding. The award of the Arbitral Tribunal cannot be touched by the court unless it is contrary to the substantive provision of law or any provision of the Act or the terms of the agreement. 22. Thus, even an erroneous view of the Arbitral Tribunal may not warrant any interference if the same is a plausible one. - 15 - HC-KAR NC: 2026:KHC:34558-DB MFA No. 2819 of 2026 23. In the present case, the Arbitral Tribunal returned findings of fact to the effect that RGRHCL had delayed in handing over the sites and had also substantially changed the scope of the contracts without any compulsion arising from site conditions. The conclusion that RGRHCL was in breach of the contracts is founded on the said findings of fact. The decision of the Arbitral Tribunal to reject the counter claims raised by RGRHCL and, as a corollary, to direct the refund of the amount of the encashed bank guarantee, cannot be interfered with in proceedings under Section 37 of the A&C Act. We find no fault with the decision of the learned District Court in rejecting RGRHCL's application for setting aside the impugned award. 24. The appeal is, accordingly, dismissed. 25. All pending applications also stand disposed of. Sd/- (VIBHU BAKHRU) CHIEF JUSTICE Sd/- (K.S. HEMALEKHA) JUDGE KMV List No.: 2 Sl No.: 17