Contract Clause Favouring Employer Over Contractor In Claiming Damages Are Deemed Knowingly Included If Not Challenged Before Tribunal: Delhi HC
The Delhi High Court bench of Justice Manoj Kumar Ohri has held that clauses of the contract giving an advantage to the employer over the contractor in claiming damages, if not questioned before the Arbitral Tribunal or at the time of formation or execution of the contract, cannot be questioned under section 34 of the Arbitration Act as the parties are deemed to have...
The Delhi High Court bench of Justice Manoj Kumar Ohri has held that clauses of the contract giving an advantage to the employer over the contractor in claiming damages, if not questioned before the Arbitral Tribunal or at the time of formation or execution of the contract, cannot be questioned under section 34 of the Arbitration Act as the parties are deemed to have knowingly incorporated such clauses in the contract.
Brief Facts:
The present petition has been filed under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) against an award passed by the Arbitral Tribunal (AT) by which the claim No. 1 with respect to idling of men, machinery and resources of the petitioner was rejected.
The impugned award was delivered in context of contract executed between the parties under which the work was to be completed within 30 months from the date of letter of acceptance. The date by which the work was to be completed was 20.04.2014 and the work was completed on 30.06.2018.
The claims were filed by the Petitioner before the AT. The AT after hearing the submissions of both the parties rejected the claim No. 1 which has been challenged in the present petition. The AT held that clause 8.3 of the subject contract provides that the delay by the engineer in handing over the site and other necessary things would not entitle the contractor to damages or compensation thereof.
The AT while rejecting the said claim observed that the Respondent has provided extension of completion period while taking into account the delay which was not attributable to the Petitioner including not making work sites available and the Respondent had admitted to compensation for price variation during the extended period.
The Petitioner submitted that the AT mechanically applied clauses 2.2 and 8.2 and rejected the claim without giving any reasons or considering the merits of the claim. Time was of the essence of the contract and the AT failed to consider whether the employer could be exempted from paying damages as per Clause 8.3 GCC even after failing to perform its obligations under section 55 of the Indian Contract Act and any claim arising therefrom under section 73 of the Contract Act.
It was further submitted that clause 8.3 GCC which disentitles the contractor from claiming any damages is contrary to section 73 of the Indian Contract Act and fundamental policy of Indian Law. Reliance was placed on the Judgments in Simplex Concrete Piles (India) Ltd vs. Union of India and G. Ramachandra Reddy vs. UOI.
It was further submitted that the Respondent committed delay in providing work fronts on time and the handing over the land was also delayed.
It was further submitted that clause 17.1 of the GCC is couched in a broad language and empowers the AT to award compensation due to extension of time and additional payment based on evidence.
Per contra, the Respondent submitted that the plea that clauses 2.2 and 8.3 of the GCC are contrary to the fundamental policy of Indian Law was not taken before the Arbitrator nor was judgment of the Supreme Court in Simplex Concrete (Supra) cited therefore this plea cannot be allowed to be raised for the first time under section 34 of the Arbitration Act.
It was further submitted that the petitioner did not intimate its intention to seek compensation when a letter was sent seeking extension of time therefore section 55 of the Indian Contract Act is not applicable to the facts of the present case.
In rejoinder, the Petitioner submitted that Petitioner had reserved the right to costs and that it was conveyed to the Respondent that there would be cost implications.
Observations:
The court noted that clause 2.2 deals with access to and possession of the site and provides for the consequences of delay in providing the work site to the contractor. It further states that if the work site is not provided within the stipulated time period, the contractor can intimate the engineer within 28 days after the failure of handing over of the site. The Engineer can only extend the time period and communicate the same to the contractor. However, no monetary claims can be sought by the contractor on this ground.
It further noted that Clause 8.3 of the GCC bars the contractor from claiming any monetary compensation on the ground of failure of the Employer or the Engineer in handing over the site, issuing notices, giving instructions or providing necessary materials. It is further provided that this does not change the character of the contract and the contractor is only entitled to seek extension of time, not monetary compensation.
The court further observed that in contrast, the employer is entitled to claim damages for any loss suffered on account of any delay committed by the contractor. This scheme was knowingly adopted by both the parties and it was not even challenged neither before the AT nor at the time of formation and execution of the contract therefore the Petition is now allowed to challenge the award under section 34 of the Arbitration Act by indirectly challenging clause 8.3.
It further observed that the petitioner's conduct shows that it was aware of the arrangement entered into between the parties as no compensation was claimed while seeking extension of time due to the failure of the Respondent in handing over the site and obtaining approvals. The extension of time was granted by the Respondent without imposing any penalty.
It further observed that however, the claim for compensation was raised subsequently via a letter which was denied by the Respondent citing clause 2.2 of the GCC. It is well settled that the AT is the master of facts and evidence and is in a better position to interpret the clauses of the contract based on the factual context. Furthermore, the Supreme Court in Union of India v. Susaka (P) Ltd held that a plea not raised before the AT amounts waiver or clear abandonment and cannot be raised later in the proceedings under section 34 of the Arbitration Act.
The court held that since the clauses in question in the present petition were not questioned before the AT, the court under section 34 of the Arbitration Act is not empowered to enter into a detailed analysis under the limited scope of interference under section 34 of the Arbitration Act.
Accordingly, the present petition was dismissed.
Case Title: M/S LARSEN & TOUBRO LIMITED. Versus RAIL VIKAS NIGAM LIMITED
Case Number: O.M.P. (COMM) 278/2017
Judgment Date: 01/07/2025
For Petitioner: Mr. Manu Seshadri, Mr. Siddharth Shekliar, Mr. Rishi Rai Mukherjee, Mr. Sahil Manganani and Ms. Aakriti Gupta, Advocates.
For Respondent: Mr. Udit Seth, Mr. Anil Seth, Mr. Divyanshu Singh and Mr. Vivek, Advocates