Arbitral Clause Precluding Damages Is Enforceable; Appeal Dismissed

A bench of Justices Abhay S. Oka and Ujjal Bhuyan heard Civil Appeal No. 6657 of 2023, arising from a challenge to a Division Bench decision of the Delhi High Court under Section 37 of the Arbitration and Conciliation Act, 1996. The appeal concerned the enforceability of a contractual provision (clause 49.5 of the General Conditions of Contract) which denied entitlement to damages where delay was attributable to the employer and provided only for extension of time.

The Court affirmed the view that clause 49.5 barred the contractor’s monetary claims where delay was on the part of the employer and that the appellant was estopped from contradicting the agreed contractual scheme after acting upon it and giving undertakings. The Court emphasised the narrow scope of judicial interference under the Arbitration Act and the limited grounds available under Section 34. The Court, in its reasoning, observed: “The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality i.e. that ‘illegality must go to the root of the matter and cannot be of a trivial nature’... the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision.” Relying on that principle, the Court found no reason to disturb the arbitral tribunal’s and the High Court’s conclusions and dismissed the appeal.

Background

The dispute arose from a contract dated 28 June 2012 for construction of five Road Over Bridges in Rajasthan. The appellant alleged delays attributable to the respondent and subsequently sought extensions of time and monetary compensation for loss and overheads. Clause 49.5 of the GCC provided: “In the event of any failure or delay by the Employer/Engineer in fulfilling his obligations under the contract, then such failure or delay, shall in no way affect or vitiate the contract or alter the character thereof; or entitle the Contractor to damages or compensation thereof but in any such case, the Engineer shall grant such extension or extensions of time to complete the work, as in his opinion is/are reasonable.”

The appellant sought multiple extensions and, at the respondent’s request, gave written undertakings in January 2015 stating: “We, therefore, undertake that we will not make any claim other than Escalation against the IRCON because of the delay in completion of which extension of time has been sought by us.” The respondent had earlier rejected separate monetary claims in October 2014, stating: “The time extension which has been granted to you without penalty is not at all basis of any claims as per clause 49 of General Conditions of Contract... Once again you are requested to complete the work within the extended period and do not waste your time as well as our time in writing such type of false claims.”

The appellant invoked arbitration in January 2017 seeking over Rs. 44 crores. The arbitral tribunal, on the respondent’s Section 16 application, rejected all claims by applying clause 49.5. The Delhi High Court’s Single Judge refused to set aside the award under Section 34, finding the clause operative and the appellant bound by its conduct and undertakings; the Division Bench dismissed the appeal under Section 37, holding that clause 49.5 applied and that waiver and validity contentions were not raised in the earlier proceedings or were without merit. The Supreme Court noted that the appellant had not argued Sections 23 and 28 of the Indian Contract Act before the Single Judge or Division Bench and that the scope of appellate review under Section 37 is constrained by the parameters of Section 34. The appeal was dismissed.

Case Details: Case No.: Civil Appeal No. 6657 of 2023 Case Title: M/s. C & C Constructions Ltd. v. IRCON International Ltd. Appearances: For the Petitioner(s): Mr. Naveen Kumar, Advocate For the Respondent(s): Counsel not specified in the judgment

New Delhi; January 31, 2025.