Safiya Malik

The Supreme Court of India has upheld the validity of a contractual limitation clause in a dispute concerning construction delays and compensation claims under an arbitration agreement. The case arose from an appeal challenging the rejection of monetary claims by an arbitral tribunal, which had ruled against the appellant based on a contractual provision barring compensation for employer-induced delays. The judgment reinforces the principle that parties to a contract are bound by their agreed terms, including restrictions on claims for damages.

The dispute originated from a construction agreement dated June 28, 2012, between the appellant, M/s. C & C Constructions Ltd., and the respondent, IRCON International Ltd. The contract involved the construction of five Road Over Bridges (ROBs) at various locations in Rajasthan. While work on two of these structures was removed from the scope of the contract, delays occurred in the completion of three ROBs—LC-89, LC-228, and LC-108. The appellant attributed these delays to hindrances caused by the respondent and sought an extension of time as well as compensation for financial losses incurred due to the prolonged project timeline.

The respondent initially imposed penalties for the delays but later granted extensions without penalties. The appellant provided undertakings stating that it would not claim additional compensation beyond escalation costs. Despite this, two years later, the appellant invoked the arbitration clause, seeking ₹44.11 crores in damages. The Arbitral Tribunal, relying on Clause 49.5 of the General Conditions of Contract (GCC), which explicitly barred claims for compensation due to employer delays, rejected the claims.

Following this, the appellant challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court. The Single Judge dismissed the challenge, holding that Clause 49.5 was a valid limitation of liability provision and that the appellant had expressly accepted its terms. An appeal under Section 37 was also dismissed by the Division Bench, which reaffirmed the enforceability of the contractual clause and the limited scope of judicial intervention in arbitration matters.

The Supreme Court, while adjudicating the appeal, extensively examined the contractual provisions and the sequence of events leading to the dispute. The Court observed: "Clause 49.5 of the General Conditions of Contract states that any failure or delay by the employer shall not entitle the contractor to damages or compensation but only to a reasonable extension of time to complete the work."

It was noted that the appellant had, on multiple occasions, sought and accepted extensions under Clause 49.5 without asserting any claim for damages at the time. The Court observed that the appellant had given explicit undertakings, 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 Supreme Court found that these undertakings constituted an "irreversible election" by the appellant, precluding it from later contesting the limitation clause or claiming damages. The Court further held that: "Considering the conduct of the appellant, it is clear that the claim made two years after providing solemn undertakings was contrary to its previous commitments. The appellant is estopped from challenging the validity of Clause 49.5."

Additionally, the Court dismissed the argument that the respondent had waived Clause 49.5, ruling that there was no evidence to suggest such a waiver. A letter from the respondent stating that claims for financial burden would be considered along with extension requests did not constitute a waiver of the contractual limitation.

On the scope of judicial review, the Court reaffirmed the principles laid down in previous judgments, stating: "The jurisdiction of the court under Section 37 of the Arbitration Act is akin to that under Section 34, which is limited to examining whether the arbitral award is in violation of fundamental principles of justice or public policy. The appellate court cannot reassess the merits of the claims or interfere with findings of fact."

Based on these observations, the Supreme Court dismissed the appeal, holding that:

1. The claims for damages were barred by Clause 49.5 of the contract.

2. The appellant had accepted the limitation through conduct and express undertakings.

3. The arbitral tribunal and the Delhi High Court had correctly applied the law in rejecting the claims.

4. No grounds existed for interference under Section 37 of the Arbitration and Conciliation Act, 1996.

Case Title: M/s. C & C Constructions Ltd. v. IRCON International Ltd.
Case Number: Civil Appeal No. 6657 of 2023
Bench: Justice Abhay S. Oka, Justice Ujjal Bhuyan

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