Madras High Court Upholds Arbitral Award Directing Refund of Liquidated Damages and Dismisses Challenge

A bench of Justice N. Anand Venkatesh heard a petition under Section 34(2)(b) of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 06.04.2022 in a contract dispute between the Chennai Port Trust and a registered engineering contractor concerning retention and refund of liquidated damages and related claims. The limited but decisive contention before the Court related to the learned Arbitrator's direction that the Port Trust refund liquidated damages of Rs.49,19,960/- along with interest and other consequential dues.

The Court upheld the arbitral award and dismissed the Section 34 petition. It found no perversity or patent illegality in the findings of the Arbitrator, held that the matter did not fall within the statutory grounds for interference under Section 34, and confirmed awards for service tax, room rent, reimbursement for genset hire, and interest for delayed final bill. The Court noted that the Arbitrator had applied the authoritative ratio in Kailash Nath Associates v. DDA and had evaluated contractual clauses and documentary evidence in detail. The Court, in its reasoning, observed: “The learned Arbitrator also took into consideration the fact that the levy of liquidated damages resorted to by the petitioner was for the total value of contract work by fixing the figure at Rs.4,91,99,600/... However, even as per Ex.A.56, the total value of work completed by the respondent/claimant was Rs.4,14,38,412/... and in spite of the same, the petitioner imposed levy on the value that was quoted by the respondent/claimant in his bid and that such levy was neither on the contract price of Rs.4,82,15,608/~ nor on the actual value of execution to the tune of Rs.4,14,38,412/~. Hence, the learned Arbitrator reached a conclusion that the very levy of the liquidated damages was in violation of Clause 1.10 read with Clause 49.1 of the General Conditions of Contract.” The Court further recorded that the award “does not suffer from perversity or patent illegality” and that the case “does not fall within any of the eight pigeon holes available under Section 34 of the Act.”

Background
The dispute arose from a tender dated 24.02.2013 for restoration of a damaged revetment at the east quay, for which the contractor was engaged by agreement on 03.10.2013. The work was to be completed within ten months (completion expected on 17.08.2014) but was certified complete on 24.09.2016. The Port Trust withheld Rs.49,19,960/- as liquidated damages and made other deductions; the contractor claimed refund of that amount with interest and pursued multiple heads of claim including service tax, room rent, machinery rental, salaries, escalation, insurance and bank guarantee renewals, container and machinery retention charges, genset rent reimbursement, delayed bill interest and claimed damages for loss of business.

A trigger notice and subsequent proceedings before the High Court led to appointment of an Arbitrator. The Arbitrator framed issues on responsibility for delay, whether extension was approved or impliedly accepted, and liability for the claimed amounts. After evidence and documents (Ex.A series and Ex.R series), the Arbitrator found the delay attributable to the contractor but concluded that the Port Trust had not applied the contractual provisions for levy of liquidated damages correctly, had levied LD on an improper figure (bid value rather than adjusted contract price or actual executed value), and had, in fact, realised savings on the project. Applying the Supreme Court decision in Kailash Nath Associates v. DDA, the Arbitrator held the retention unlawful and directed refund of liquidated damages with interest (including a calculated rate of 14.3% for certain periods and 6% thereafter, plus penal interest in case of default) and awarded several other heads of claim. The Port Trust challenged the award under Section 34 primarily on the LD issue.

In its clarificatory order issued subsequently, the High Court explained and affirmed the Arbitrator's interest calculations and addressed other awarded heads — service tax, room rent, genset reimbursement and interest on final bill — holding none of those findings to be perverse or suffering from patent illegality. The petition stood dismissed and the Court granted no costs.

Case Details:
Case No.: Arb. O.P. (Com.Div.) No.119 of 2023
Case Title: The Chairman, Chennai Port Trust v. Mr. A. Manicavassalou, Proprietor, M/s. A. Manicavassalou
Appearances:
For the Petitioner(s): Mr. Haja Mohideen Gisthi, Standing Counsel
For the Respondent(s): Mr. D. Vivekanandan, Advocate