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Case Title: MBL Infrastructures Limited v. Delhi Metro Rail Corporation

Case No: O.M.P. (COMM) 311/2021

Decided on:  12th December, 2023

CORAM: THE HON’BLE MR. JUSTICE CHANDRA DHARI SINGH 

Facts of the Case

MBL Infrastructure Ltd., a Public Limited Company with expertise in Civil Engineering projects throughout India, and the Delhi Metro Railway Corporation, a joint venture of the Government of NCT of Delhi and the Government of India, entered into a contract. This agreement focused on the construction of Sarai Station, encompassing architectural finishing, water supply, sanitary installations, external development works, and structural works on the Badarpur – Faridabad Corridor within Delhi MRTS Phase III.

The Respondent issued an invitation for tenders for the project on March 9, 2012. On the same day, the Petitioner submitted its tender, which was subsequently accepted by the Respondent on May 9, 2012. The project, valued at Rs. 41.57 crores, was scheduled to commence on May 21, 2012, and conclude on November 20, 2013, encompassing an 18-month duration.

The Petitioner furnished performance bank guarantees and bank guarantees for mobilization advance. Despite encountering delays in the site handover process, the Petitioner received the initial mobilization advance installment on September 6, 2012. However, the Respondent denied possession of the remaining plot designated for Sarai Metro Station. Following this, the Respondent issued a notice, alleging the Petitioner’s failure to meet work program commitments and other obligations. Despite the Petitioner’s assertion of timely performance, the Respondent terminated the contract on November 1, 2013, and invoked the bank guarantees provided by the Petitioner.

Following arbitration, the Arbitral Tribunal rendered its award on March 6, 2020, determining that the Respondent had breached the contract and was accountable for the project delay. While the Tribunal upheld some of the Petitioner’s claims, it dismissed others, including all Counter claims presented by the Respondent. Notably, the Tribunal deemed the termination of the contract and the encashment of the Performance Bank Guarantee as illegal and unjustified, considering the Respondent’s breach of the agreement. Expressing dissatisfaction with the rejection of certain claims, the Petitioner contested the award, specifically challenging the tribunal’s decision to dismiss those claims.

Legal Provision

Section 34 (2) of the Arbitration and Conciliation Act states that an arbitral award may be set aside by the Court only if-

1. the party making the application 1[establishes on the basis of the record of the arbitral tribunal that]–
2. a party was under some incapacity, or
3. 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

• 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

1. 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

1. 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
2. the Court finds that-
3. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
4. the arbitral award is in conflict with the public policy of India.

Issues

1. Whether the tribunal, despite recognizing the petitioner’s incurred expenses and the harm resulting from the respondent’s actions, refrained from awarding damages, costs, and interest?
2. Whether the denial of damages by the tribunal contradicts Section 55 and 73 of the Indian Contract Act?

Court’s analysis and decision

The Delhi High Court emphasized that it can only interfere with the arbitral award if the grounds under Section 34 of the Arbitration and Conciliation Act are made out and not otherwise.

The court noted the tribunal’s determination of the respondents being accountable for the project work delay and the illegal nature of the termination. Highlighting that the tribunal attributed the delay to the respondent, leading to damages suffered by the petitioner, the court asserted that in such a scenario, the tribunal should have granted damages to the petitioner.

The court ruled that the arbitral tribunal, despite the existence of Clause 8.3 in the GCC limiting remedies to a time extension, cannot deny damages. It emphasized that such a clause does not restrict the tribunal’s authority to award damages, particularly in light of Section 55 and 73 of the Indian Contract Act.

Additionally, the court declared that any clause limiting the aggrieved party’s right to claim damages is against the fundamental policy of Indian Law. It affirmed that such a prohibitionary clause doesn’t hinder the tribunal’s power to compensate a party for losses due to the other party’s delay, even if the contract only provides for an extension of time.

The court clarified that the arbitral tribunal can grant damages for delay even if the contract only allows for an extension of time as the remedy for the contractor. Once the tribunal establishes the employer’s responsibility for delays, it must award damages, regardless of any contractual prohibition or absence of a provision for damages.

The court further stated that in situations where the contract inadequately restricts or fails to provide remedies for the contractor to claim damages, the arbitral tribunal has the authority to go beyond the contract’s boundaries to grant the relief that the party is legally entitled to.

Regarding the rejection of certain claims, the court upheld the tribunal’s decision on the denial of claims related to damage to reputation, costs of arbitration, and the interest component. It reasoned that the petitioner failed to prove reputational loss due to the agreement’s termination, and the initiation of insolvency proceedings could not be entirely attributed to the termination.

The court noted that the agreement constrained the tribunal from awarding costs to any party, and it prohibited anti-lite and pendente lite interest. It emphasized that the tribunal, as a creation of the contract, is bound by reasonable restrictions on its power imposed by the agreement.

In addressing the issue of partial setting aside of the award, the court clarified that severing the findings on claims 3 and 4 from the rest of the award does not constitute a modification of the award. It explained that modification would involve altering damages awarded or changing the interest rate. Setting aside unconnected or independent findings of the tribunal does not amount to modifying the award. Consequently, the court set aside the award on claims 3 and 4, remitting them back to the tribunal for fresh consideration.

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Written by- Afshan Ahmad

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