Allahabad HC Partly Modifies Arbitral Award in UPSHA Highway PPP Dispute, Remands Loss-of-Profits Claim for Fresh Determination

The Allahabad High Court partly allowed UPSHA's Section 37 appeal, severing and remanding the Rs 157.57-crore loss-of-profits claim while affirming the concessionaire's bank guarantee refund and dismissing the concessionaire's cross-appeal.

A Division Bench of the Allahabad High Court comprising Chief Justice Arun Bhansali and Justice Jaspreet Singh, sitting at the Chief Justice's Court, on 23 July 2026 delivered a common judgment in two cross-appeals arising from a failed highway public-private partnership between the U.P. State Highways Authority (UPSHA) and M/s Abhijeet Meerut Karnal Toll Road Limited. The bench partly allowed UPSHA's appeal under Section 37 of the Arbitration and Conciliation Act, 1996, by severing and setting aside the majority arbitral tribunal's finding on Claim No. 4 — loss of profits amounting to Rs 78.84 crores — and remanding it for fresh determination. The concessionaire's separate appeal against rejection of its Claims No. 1 and 6 was dismissed in its entirety. The judgment, authored by Justice Jaspreet Singh, traverses procedural irregularity, encashment of a performance bank guarantee, loss of profits, EPC contractor payments, and the scope of judicial review under Section 37.

The PPP Contract and Its Collapse

UPSHA invited requests for qualification to develop the Meerut-Karnal Road Section (State Highway-82, 87 kilometres) on a design, build, finance, operate and transfer basis under a PPP model. M/s Abhijeet Roads Ltd. submitted the successful bid. A special purpose vehicle, M/s Abhijeet Meerut Karnal Toll Road Limited, was incorporated to execute the project. The Concession Agreement was signed on 16 December 2011. Under the agreement, the concessionaire was to complete the project within 730 days from the appointed date, in return for a 25-year concession commencing from that date.

The concessionaire submitted a performance security of Rs 29.16 crores as required under Article 9.1.1. However, UPSHA could not procure 90% of the right of way to the project site — a condition precedent under Article 4.1.2(a) read with Article 10.3.1 — which meant the appointed date was never fixed and work never commenced. On 13 January 2014, the concessionaire terminated the Concession Agreement, citing UPSHA's default under Article 37.2.2. Before the arbitral tribunal could be constituted, UPSHA encashed the concessionaire's bank guarantee for Rs 29.16 crores, alleging breach of the agreement by the concessionaire.

The Arbitral Proceedings and the Split Award

The International Centre for Alternative Dispute Resolution (ICADR) appointed the presiding arbitrator after both parties nominated their own arbitrators. The three-member tribunal held its first meeting on 26 August 2014. It eventually framed 13 issues covering conditions precedent, financial closure, abandonment of the project, validity of bank guarantee encashment, EPC contracts, and counter-claims.

On the major findings: the tribunal unanimously held that UPSHA had not fulfilled its conditions precedent under Article 4.1.2; that UPSHA had defaulted on its obligations under Articles 10.3.2 and 10.3.4; and that the encashment of the performance bank guarantee was unlawful. It also unanimously found that the concessionaire had achieved financial closure under Article 24, supported by a Punjab National Bank letter dated 11 June 2012 and an email dated 3 June 2013.

On claims, the tribunal divided. By majority, it awarded the concessionaire Rs 78.84 crores for loss of profits (Claim No. 4) and Rs 25.53 crores for payments to EPC contractors (Claim No. 5). The presiding arbitrator dissented on both these claims in a minority award. The full majority award totalled Rs 1,91,50,00,000 towards Claims No. 4, 5 and 7, with interest at 10% per annum from the date of award. The minority award granted only the Rs 29.16 crore bank guarantee refund less a deduction of Rs 68.43 lakhs (the concessionaire's share of the independent engineering firm's remuneration allowed under Counter Claim No. 4), resulting in a net entitlement of Rs 28,47,47,000 at 10% per annum. All of UPSHA's remaining counter claims, including Counter Claim No. 5 for land acquisition and utility-shifting costs, were rejected.

Both parties challenged the award under Section 34 before Commercial Court No. 2, Lucknow. That court dismissed both petitions by a common order dated 31 May 2023, affirming the award. UPSHA and the concessionaire each then filed Section 37 appeals before the High Court.

The Procedural Irregularity Challenge

UPSHA's lead counsel, Senior Advocate Sudeep Seth (assisted by Satvik Misra), argued that the arbitral tribunal had violated Section 18 of the Act — equal treatment of parties — by accepting three new documents filed by the concessionaire along with its written synopsis after oral arguments concluded on 24 February 2016. The tribunal had held a clarificatory hearing on 17 November 2016, passed an order on 5 January 2017 taking the documents on record, but deferred adjudication of their admissibility and relevance to the merits stage. That adjudication, UPSHA said, was never done: the majority award relied on the documents without deciding their admissibility, while the minority award rejected them as unproved.

The High Court rejected this ground. It found that the arbitral tribunal is not bound by technical rules of procedure and has authority to formulate its own procedure, subject to natural justice. The tribunal did hold a clarificatory hearing, gave UPSHA the opportunity to respond, and communicated by order on 5 January 2017 that the documents were on record pending admissibility. At that stage, UPSHA could have sought leave to file rebuttal documents or pressed for a ruling on admissibility. There was no evidence that it did so before the tribunal, the Commercial Court, or the High Court. The bench held that the omission by the tribunal to give a formal ruling on admissibility, while possibly a procedural infraction, did not vitiate the award because UPSHA could not demonstrate any consequent failure of justice or show which rebuttal documents it had sought to place and been denied.

The Bank Guarantee Encashment (Claim No. 3)

UPSHA challenged the unanimous finding that its encashment of the Rs 29.16-crore bank guarantee was wrongful. It argued that Article 9.2 permitted encashment upon any default by the concessionaire and that, even if UPSHA itself was partly in default, Article 4.2 entitled UPSHA to retain at least 20% of the performance security.

The High Court disagreed. It reasoned through Articles 9.1.1, 9.2, 9.3, and 4.1.2 together. The performance security was furnished to secure the concessionaire's obligations during the construction period. The construction period could only begin after the appointed date was fixed. The appointed date could only be fixed after both parties met their conditions precedent. UPSHA never provided 90% of the right of way, so the appointed date was never fixed and no work commenced. The concessionaire was therefore not in default during any construction period, and there was no obligation of the concessionaire that required securing. In those circumstances, UPSHA's invocation of the bank guarantee was without justification. The bench said the finding of the arbitral tribunal and the Commercial Court on this point was based on sound reasoning and no patent illegality was shown. UPSHA's challenge to Claim No. 3 was dismissed.

Loss of Profits — Claim No. 4 and the Ipse Dixit Finding

This was the most contested and ultimately decisive aspect of UPSHA's appeal. The concessionaire had claimed Rs 640.5 crores as loss of profits from the 25-year concession period. The majority arbitrators granted Rs 78.84 crores under this head, using a financial model submitted as part of the financial closure documents. The majority relied on opportunity cost reasoning — the concessionaire's locked-in equity and the return it would have earned had the project proceeded — rather than on direct proof of foregone revenue.

The High Court found the majority's reasoning on Claim No. 4 to be an ipse dixit: a conclusion without adequate supporting analysis. The tribunal had acknowledged that the full claimed amount of Rs 640.5 crores was speculative and dependent on uncertain assumptions, yet it had carved out Rs 78.84 crores without explaining the methodology for arriving at that figure from the financial model. The bench held that this rendered the finding on Claim No. 4 vitiated by patent illegality.

However, the court declined to set aside the entire award. Relying on the Supreme Court's Constitution Bench judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. : (2025) 7 SCC 1, which confirmed that courts have limited power to modify awards using the doctrine of severability, the bench found that Claim No. 4 was legally and pragmatically severable from the rest of the award. The finding on Claim No. 4 was accordingly severed and set aside. The balance of the majority award — the bank guarantee refund under Claim No. 3, EPC contractor payments under Claim No. 5, and interest under Claim No. 7 — was left intact.

The matter was remitted to the arbitral tribunal, reconstituted as per law, for fresh determination of Claim No. 4 in accordance with the observations in the judgment.

EPC Contractor Payments — Claim No. 5

UPSHA argued that the majority award contradicted itself by simultaneously holding (on Issue No. 6) that the concessionaire could not have entered into EPC contracts with third parties before signing the Concession Agreement, and yet awarding Rs 25.53 crores for payments to those very EPC contractors under Claim No. 5. The minority award had rejected the claim on precisely this inconsistency.

The High Court did not accept this as a patent illegality. It observed that the majority had reasoned that the EPC contracts were entered on 3 December 2011, thirteen days after the letter of award dated 17 November 2011 and thirteen days before the signing of the Concession Agreement on 16 December 2011; that Article 5.2.2 required submission of project agreements to UPSHA for review but did not expressly prohibit pre-signing EPC contracts; and that the independent engineer's report corroborated actual deployment and activity by the EPC contractors. The court held that the majority had taken a plausible view on the evidence and the award could not be set aside merely because an alternative interpretation, reflected in the minority, was also available. Claim No. 5 was upheld.

UPSHA's Counter Claim No. 5 — Land Acquisition and Utility Costs

UPSHA sought recovery of Rs 49,53,66,822 for payments it made toward land acquisition, forest clearance, shifting of utilities, and consultancy. It argued that its evidence included a detailed chart with cheque numbers, dates, and receipts, and that the concessionaire had not seriously disputed those payments.

The bench rejected the challenge. It found that the expenditure on land acquisition and utility shifting was UPSHA's own contractual obligation — steps needed to achieve the condition precedent of providing 90% right of way. UPSHA had only progressed to issuing a notification under Section 4 of the Land Acquisition Act, 1894, which signifies an intent to acquire. No notification under Section 6 of that Act was ever issued, meaning the acquisition was never completed between 16 December 2011 (agreement date) and 13 January 2014 (termination date). Since UPSHA could not shift the blame for its own failure to achieve the condition precedent onto the concessionaire, Article 35.1 — which permits recovery of direct losses flowing from the concessionaire's material default or breach — had no application. Counter Claim No. 5 was rightly rejected.

The Concessionaire's Cross-Appeal — Claims No. 1 and 6

The concessionaire's appeal (Arbitration Appeal No. 70 of 2023) challenged the rejection of Claim No. 1 (damages for UPSHA's failure to achieve conditions precedent under Article 4.1.2) and Claim No. 6 (termination payments under Article 37.3).

On Claim No. 1, the tribunal had found that the concessionaire was already being compensated for the very same default by UPSHA through other allowed claims, and that permitting duplicate claims under different heads was impermissible. The High Court agreed. Where the same default of UPSHA was the basis for multiple claims, the concessionaire could not recover compensation twice over by labelling the claims differently.

On Claim No. 6, the tribunal had found that termination payments under Article 37.3.1 were expressly contingent on there being a default “during the operation period.” Article 48 defined the operation period as commencing from the commercial operation date. Since the project never reached commercial operation, the operation period never commenced. Consequently, the clause could not be triggered and the claim failed. The High Court found no patent illegality in this reasoning. The concessionaire's appeal was dismissed.

The Section 37 Framework Applied

Throughout the judgment, the bench set out the narrow scope of review under Section 37 at some length, drawing on Supreme Court decisions in MMTC Ltd. v. Vedanta Ltd. : (2019) 4 SCC 163, UHL Power Co. Ltd. v. State of H.P. : (2022) 4 SCC 116, Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd. : (2024) 2 SCC 375, Ramesh Kumar Jain v. Bharat Aluminum Company Ltd. : 2025 SCC OnLine SC 2857, and Jan De Nul Dredging India (P) Ltd. v. Tuticorin Port Trust : (2026) 3 SCC 186, as well as its own earlier decision in UCM Coal Co. Ltd. v. Adani Enterprises Ltd. : 2025 SCC OnLine All 7608.

The bench reiterated that a court under Section 37 cannot re-appreciate evidence or substitute its own view for that of the arbitral tribunal. Interference is warranted only where the Section 34 court has exceeded its permitted jurisdiction, or where the award itself is patently illegal in the sense defined in Section 34(2-A) — illegality that goes to the root of the matter, not a mere erroneous application of law or a reappraisal of evidence. The sole ground on which the bench intervened was that the majority's reasoning on Claim No. 4 was an ipse dixit without an identified methodology — a finding not supported by discernible analysis of the financial model it purported to rely upon.

Order

Arbitration Appeal No. 41 of 2025 filed by UPSHA was partly allowed. The judgment of Commercial Court No. 2, Lucknow in Arbitration Case No. 20 of 2018 was set aside. The award dated 6 May 2017 was partly modified: the finding on Claim No. 4 (loss of profits) was severed and set aside. Claim No. 4 was remitted to the arbitral tribunal, to be constituted as per law, for fresh determination in accordance with the observations in the judgment. The remainder of the award dated 6 May 2017 was left intact.

Arbitration Appeal No. 70 of 2023 filed by the concessionaire was dismissed. The Commercial Court's order dated 31 May 2023 in Arbitration Case No. 35 of 2023 was affirmed. No order as to costs was made in either appeal.