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Case Title: MBL Infrastructures Limited vs Delhi Metro Rail Corporation

Case No: 12/12/2023

Decided on: O.M.P. (COMM) 311/2021

Coram: The Hon’ble Mr. Justice Chandra Dhari Singh

 

 Facts of the Case

MBL Infrastructure Ltd., a civil engineering company, entered into a contract with Delhi Metro Railway Corporation in 2012 to construct Sarai Metro Station in Delhi. The project, valued at Rs. 41.57 crore, was meant to be completed within 18 months. However, disputes arose due to alleged delays in site handover by the Metro and non-compliance by MBL. The Metro terminated the contract and encashed bank guarantees in 2013. Arbitration in 2015-2020 found the Metro responsible for delays and the termination illegal, but rejected MBL’s claims for damages and profits. MBL filed a petition challenging this partial award. The case hinges on proving who caused the project’s downfall. The court will determine whether the arbitration tribunal’s decision on specific claims was legally sound.

Legal Provision

Section 34 of the Arbitration and Conciliation Act, 1996 provides for the grounds of setting aside an arbitral award.

 (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application [establishes on the basis of the record of the arbitral tribunal that]—

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

 (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.

Section 73 of the Indian Contract Act, 1872 provides compensation for the loss or damage caused by the breach of Contract.

Issue

1. Whether the learned Tribunal has erred in not awarding the damages to the petitioner despite holding that the delay is attributable to the respondent?
2. Whether Arbitral tribunal can go beyond to grant relief to aggrieved party when contract illegally restricts Remedies?
3. Whether DMRC’s actions caused significant delays and if MBL deserves compensation for their alleged losses?

Court Decision and Analysis

In light of the precedents set by the judgements in cases like, NHAI v. Trichy Thanjavur Expressway Ltd. 2023 SCC Del 5183, Union of India v. Alcon Builders & Engineer (P) Ltd 2023 SCC OnLine Del 160, and few more, the Court found itself empowered under Section 34 of the Act to rectify specific parts of the arbitration award that are demonstrably flawed and fundamentally unjust. Such portions must be so blatantly erroneous that they shake the very foundation of this Court’s judicial conscience.

However, it is crucial to note that setting aside any portion of the award should not inadvertently impact the upheld sections. Any such action must be carefully executed to avoid unintended consequences or cascading effects that disrupt the remaining provisions.

Therefore, should the Court choose to set aside Claim No. 3 (Damages on Account of Idling of Machines and loss of overheads) and Claim No. 4 (loss of profit), it assured that the remaining claims will remain unaffected and suffer no adverse repercussions. This targeted approach upholds the valid aspects of the award while correcting the demonstrably problematic portions.

The Tribunal’s decision was legally flawed. They admitted respondent’s wrongful delays and contract termination, yet denied damages to the petitioner. This contradicts the law and ignores the unique circumstances of the case, where wrongful termination replaced a deserved extension.

The Award exhibited patent illegality due to the Tribunal’s inconsistency in Claim no. 1. While acknowledging the respondent’s project delays, they inexplicably withheld damages from the petitioner, rendering the Award legally unsound.

In view of the aforementioned claims, court partially allowed the petition and disposed pending applications.

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Written by- Bhawana Bahety

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