Furthermore, as per Section 23 of the Contract Act, such clauses are opposed to public policy as they aim at restraining the aggrieved party from claiming damages.
FACTS:
- The case involves a dispute between the Petitioner, MBL Infrastructure Ltd., a public limited company engaged in civil engineering projects and Respondent, Delhi Metro Rail Corporation (DMRC), a joint venture of the Government of NCT of Delhi and the Government of India, and a registered company under the Companies Act.
- The Respondent invited tenders for the construction of a station in Delhi on 9 March 2012. The Petitioner submitted its tender, which was accepted by the Respondent on 9 May 2012. The stipulated dates for commencement and completion of the project were 21 May 2012 and 20 November 2013 respectively, spanning over a period of 18 months. The value of the contract was Rs. 41.57 crores. The petitioner furnished two performance bank guarantees amounting to Rs. 4,15,71,525/- @ 10% contract values.
- The Respondent delayed in handing over the site to the Petitioner, despite the initial mobilization advance received by the Petitioner. The Respondent also denied possession of a designated plot for Sarai Metro Station and alleged the Petitioner’s failure to meet commitments, leading to the termination of the contract on 1 November 2013. The Respondent also encashed the bank guarantees furnished by the Petitioner.
- The Petitioner invoked the arbitration clause in the contract and an arbitral tribunal was constituted to adjudicate the dispute. The arbitral tribunal issued its award on 6 March 2020, holding that the Respondent had breached the contract and that the termination, and the encashment of bank guarantees were illegal and unjustified. The arbitral tribunal also awarded damages to the petitioner for the loss of profit and the cost of equipment and materials, along with interest. The Petitioner challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, (“Arbitration Act”) on the grounds that the tribunal had erred in deciding certain claims and had not granted adequate damages, costs, and interests.
ISSUE:
The main issue before the Delhi High Court was whether the tribunal had the authority to award damages for delay on the part of the respondent in the completion of the project, despite the contract executed between the parties not providing for any damages for delay on the part of the respondent?
JUDGMENT:
- The Delhi High Court, by its order dated December 12, 2023, dismissed the petition and upheld the arbitral award.
- The Hon’ble Court held that the tribunal had the authority to award damages for delay on the part of the respondent, as the contract did not exclude the application of Section 73 of the Contract Act, which provides for compensation for loss or damage caused by breach of contract.
- The Hon’ble Court also held that the tribunal had considered the evidence and the arguments of both parties and had arrived at a reasonable and fair assessment of the damages, costs, and interests.
- The Hon’ble Court found no ground to interfere with the arbitral award under Section 34 of the Arbitration Act, which allows the Court to set aside an award only on limited grounds such as incapacity of the parties, invalidity of the arbitration agreement, lack of proper notice, violation of natural justice, excess of jurisdiction, or contravention of public policy.
- The Court observed that none of these grounds were applicable in the present case and that the petitioner had failed to establish any illegality, perversity, or arbitrariness in the arbitral award.
- The Hon’ble Delhi High Court has clearly pointed out these pivotal aspects and award and opined that a clause which restricts the right of a party in claiming damages is a restrictive clause and such a clause defeats the purpose of the Contract Act. The court held that no party can restrict or prohibit the claim for damages under Section 55 and 73 of The Contract Act, as the same is the right of the aggrieved party. The Court also observed that such kind of clauses are not in public interest as they hinder the smooth operation of the commercial transactions and create an environment which is not conducive for the business transactions.
- The Court further went on to discuss the power of the Tribunal to award damages for delay on the part of the employer when the same is not provided in the contract and contractor is only entitled to extension of time. The court after referring to a number of judgments concluded that it is a settled law that the Arbitral Tribunal can award damages when the clause of the contract contemplates that only extension of time can be given as remedy when there is a delay on the part of the employer. Hence the act of awarding the damages to the aggrieved party does not amount to transgression from the terms of the contract.
KS&Co COMMENTS:
The Court respected the autonomy and finality of the arbitral award. The court also applied the principle of minimal judicial intervention in arbitration matters and refrained from re-appreciating the evidence or substituting its view for that of the tribunal.
This case also highlights the applicability of the Indian Contract Act,1872, to the contracts involving public sector undertakings and the scope of awarding damages for breach of contract. This case further reinstates the principle that, no agreement or contract can exclusively restrain the rights of the party to damages that is statutorily available to them. This is a welcome decision as contracting parties/government-owned entities cannot use its undue influence to restrict the statutory right of damages in case the contract only provides for extension of time when there is delay in performance of contract.
Leave a Reply