Safiya Malik

The Supreme Court of India has dismissed an appeal challenging an arbitral award that rejected claims for damages due to project delays in a contractual dispute between a construction company and a public sector undertaking. The dispute arose over an agreement for the construction of Road Over Bridges (ROBs) in Rajasthan, where the appellant sought damages for alleged delays by the respondent. The court upheld the enforceability of a limitation of liability clause in the contract, ruling that the appellant was contractually barred from claiming compensation beyond what was stipulated in the agreement.

The appeal stemmed from a contractual dispute between C & C Constructions Ltd. (appellant) and IRCON International Ltd. (respondent) over delays in the construction of five Road Over Bridges (ROBs) in Rajasthan. The agreement, signed on June 28, 2012, set different completion schedules for each project. However, the appellant claimed that delays attributable to the respondent necessitated extensions and led to financial losses.

The appellant argued that the work at multiple sites was delayed due to hindrances at the location, leading to additional financial burdens. Requests for time extensions were made on multiple occasions, and the respondent granted extensions with and without penalties, depending on the specific site. The dispute escalated when the appellant sought compensation for the delays, which the respondent rejected, citing Clause 49.5 of the General Conditions of Contract (GCC).

The appellant invoked arbitration on January 25, 2017, claiming Rs. 44.11 crores under 15 substantive heads, along with interest and costs. The Arbitral Tribunal rejected the claims, ruling that Clause 49.5 of the GCC precluded compensation for delays caused by the respondent. The appellant challenged the award before the Delhi High Court, where both the Single Judge and Division Bench upheld the tribunal’s decision. The appellant subsequently approached the Supreme Court under Section 37 of the Arbitration and Conciliation Act, 1996, arguing that the limitation of liability clause violated the Indian Contract Act, 1872 and was against public policy.

The Supreme Court examined whether Clause 49.5 of the contract lawfully prevented the appellant from claiming damages due to the respondent's delays. The clause stated: "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 court noted that the appellant had repeatedly sought time extensions under Clause 49.5, which were granted, in some instances, without penalties. The court recorded that: "The appellant acted upon Clause 49.5 and sought an extension of time on three occasions."

Additionally, the court referred to undertakings submitted by the appellant on January 14, 2015, wherein it explicitly agreed: "We 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 observed that these undertakings estopped the appellant from later contesting the validity of Clause 49.5 and seeking damages contrary to the contract terms. The court recorded that: "By the undertakings, the appellant agreed not to make a claim contrary to what is provided in Clause 49.5."

The court also considered arguments that Clause 49.5 violated Sections 23 and 28 of the Indian Contract Act, 1872, which govern agreements restricting legal recourse. However, it found that this argument had not been raised before the High Court and could not be entertained for the first time before the Supreme Court.

Regarding the limited scope of judicial interference in arbitration matters, the court cited precedents, including Larsen Air Conditioning & Refrigeration Co. v. Union of India (2023) and Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking (2023), reiterating that: "The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act permits interference only on grounds of patent illegality or violation of natural justice. Section 37 grants an even narrower scope to the appellate court."

The court held that there was no manifest illegality in the arbitral award and that the appellant had willingly agreed to contractual limitations on liability.

The Supreme Court issued the following directives:

1. The appeal was dismissed, affirming the findings of the Arbitral Tribunal, Single Judge, and Division Bench of the Delhi High Court.

2. The court upheld the validity and enforceability of Clause 49.5 of the contract, ruling that the appellant was contractually barred from claiming damages.

3. It held that the appellant, having sought time extensions under Clause 49.5 and submitted undertakings agreeing not to claim damages, could not challenge the clause at a later stage.

4. The court reiterated that judicial interference in arbitration awards is highly limited under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Case Title: 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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