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Synopsis

The Supreme Court has emphasised that Section 37 of the Arbitration and Conciliation Act provides limited and narrower scope to the appellate court to review the findings in an award if it has been substantially upheld under Section 34.

The bench of Justices Abhay S Oka and Ujjal Bhuyan dismissed an appeal filed by M/s C & C Constructions Limited against the Delhi High Court's March 1, 2021 judgment passed in an appeal under Section 37 of the Act, after finding no merit, and due to limited scope of interference as per the law laid down by the apex court.

Court also said that a party cannot question validity of a clause in a contract in appeal after having used it for its benefit.

The appellant entered into an agreement with respondent Ircon International Limited in 2012 for the construction of roads over bridges at different locations in Rajasthan.

The appellant invoked the arbitration clause on January 25, 2017, making a claim for Rs 44.11 crores under 15 substantive heads besides the claim of interest and costs, following the delay in construction.

The Arbitral Tribunal passed the order in the respondent’s application under Section 16 of the Arbitration Act in nature of an award on December 21, 2019, by which all claims were rejected based on clause 49.5 of GCC (General Conditions of Contract).

The appellant approached the Delhi High Court which dismissed the petition holding that a term like clause 49.5 of the GCC would bar its claim. Moreover, it said, the appellant had accepted the communication of October 14, 2014, issued by the respondent dismissing the claim. It also held that clause 49.5 was valid and, after the appellant accepted the same, it could not contend to the contrary.

The appellant then preferred an appeal before the division bench which dismissed its plea, holding that the requirement of clause 49.5 was never waived by the respondent. The division bench held that clause 49.5 was a valid clause.

Before the apex court, the appellant's counsel submitted the award of the Arbitral Tribunal was contrary to public policy and suffered from patent illegality. He also pointed out that the main issue was whether a clause prohibiting the payment of damages, like clause 49.5, could be enforced. The Arbitral Tribunal and the single judge bench failed to appreciate the crucial aspects striking at the root of the award.

He contended that the parties to the contract could not contract against the Indian Contract Act, 1872. He submitted that the Arbitral Tribunal's finding that Clause 49.5 aimed to protect the interests of PSUs and the government was illegal.

The respondent's counsel submitted that clause 49.5 of GCC read with clause 12 of the Special Conditions of Contract were limitation of liability clauses. These clauses were not in conflict with either Section 23 or Section 28 of the Contract Act. Reading the provisions of the contracts, he said, it was apparent that in case of delay or fault on the part of the employer (respondent), a reasonable extension of time could be granted and payment of price variation as per the formula agreed between the parties in the contract itself could be made.

The counsel submitted that the top court has consistently upheld the enforceability of limitation of liability clauses. He said the appellant made an irreversible election to accept an extension of time under clause 49.5 of GCC and therefore had lost its right to challenge clause 49.5.

After going through facts of the matter and hearing the arguments of the parties, the bench concluded that the appellant acted upon clause 49.5 and sought an extension of time on three occasions; the claim in the letter of January 25, 2017 was made by the appellant after giving solemn undertaking on January 14, 2015 not to make any claim other than escalation in respect of delays in the completion of work. The claim made was contrary to the undertakings as the appellant agreed not to make a claim contrary to what is provided in clause 49.5; and therefore, by conduct, the appellant was estopped from challenging the validity of clause 49.5.

In the case, the court pointed out the single judge held that on the plain reading of clause 49.5 of the GCC, the claims made by the appellant before the Arbitrator were barred. The single judge also held that having accepted the stipulation in clause 49.5, the appellant could not have contended otherwise.

The division bench held the claims were hit by Clause 49.5 on its plain reading.

In this appeal, the bench noted, a contention had been raised that the validity of clause 49.5 ought to have been examined in the light of Sections 23 and 28 of the Contract Act, but the high court had not examined the said issue. However, the court pointed out such a contention that the validity of clause 49.5 ought to be decided in the light of Sections 23 and 28 of the Contract Act was not raised before the single judge and even before the division bench.

"Therefore, it is not open to the appellant to raise the said contention in this appeal for the first time," the bench said.

In fact, the bench pointed out, on the applications made by the appellant specifically invoking clause 49, the respondent granted an extension of time on more than one occasion.

Referring to the response of the respondents to the appellant's request, the bench said, "By no stretch of imagination, after reading the said letter it can be inferred that clause 49.5 was waived by the respondent. In fact, the respondent stated that the claim for financial burden would have to be dealt with together with the proposal for an extension of time, and the said claim cannot be processed separately."

Thereafter, it said, on two occasions, on specific requests made by the appellant under clause 49 of the GCC, the extension of time was granted. "The extensions were granted at the instance of the appellant by invoking clause 49. Hence, the argument of waiver of Clause 49.5 by the respondent deserves to be rejected," the bench said.

The court relied upon Larsen Air Conditioning and Refrigeration Company Vs Union of India and Ors (2023) and Konkan Railway Corporation Limited Vs Chenab Bridge Project Undertaking (2023), which underscored the limited and restricted scope of interference by a court in an appeal, in examining an order, setting aside or refusing to set aside an award.

Case Title: M/s C & C Constructions Ltd Vs Ircon International Ltd