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Supreme Court Of India
H.K.SEMA,R.V.RAVEENDRAN
Ramnath International Construction - Appellant
Versus
Union of India - Respondent
Civil Appeal Nos. 3167-3168 of 2005
Decided On : 12/11/2006
Delay Damages - Construction Contracts - Section 11 of General Conditions of Contract - [HANGAR CONTRACT, ROAD CONTRACT] - [Section 11(A), Section 11(B), Section 11(C)] - The court considered the validity and legality of the judgment dated 31.10.2002 of the Division Bench of the High Court of Madras in OSA. No. 27/1995 and 25/1996. The core issue was whether the claims for compensation for delays in the Hangar Contract and Road Contract were sustainable, considering clause 11(C) of the contract. The court held that clause 11(C) barred any claim for compensation arising from extensions granted due to delays, and the arbitrator exceeded his jurisdiction in awarding damages, ignoring clause 11(C). The court referred to previous decisions to support its interpretation of clause 11(C) and affirmed the High Court's decision to set aside the awards for delay damages.
Fact of the Case:
The appellant was awarded two contracts for construction work, and disputes arose between the parties. The Arbitrator made awards for delay damages, which were affirmed by the Single Judge but partly allowed by the Division Bench of the High Court. The present appeals challenged the Division Bench's decision.
Finding of the Court:
The court found that the claims for compensation for delays in the contracts were unsustainable due to clause 11(C) of the contract, which prohibited such claims. The court held that the arbitrator exceeded his jurisdiction in awarding damages for delays, ignoring clause 11(C). The court dismissed the appeals, affirming the High Court's decision to set aside the awards for delay damages.
Issues: Validity and legality of the judgment, sustainability of claims for compensation for delays, arbitrator's jurisdiction in awarding damages for delays
Ratio Decidendi: Clause 11(C) of the contract barred any claim for compensation arising from extensions granted due to delays. The arbitrator exceeded his jurisdiction in awarding damages for delays, ignoring clause 11(C.
Final Decision: The court dismissed the appeals, affirming the High Court's decision to set aside the awards for delay damages.
Certainly. Based on the provided legal document, here are the key points summarized:
The contracts in question contained a specific clause (Clause 11(C)) that barred claims for compensation arising from delays when extensions were granted due to those delays. The arbitrator awarded damages for delays despite this clause, exceeding his jurisdiction (!) (!) .
The court held that the claims for delay damages were unsustainable because they conflicted with Clause 11(C) of the contracts, which explicitly prohibited such claims in cases of extensions granted due to delays (!) (!) .
The arbitrator's failure to adhere to Clause 11(C) was considered a legal misconduct, as he acted outside his jurisdiction by awarding damages contrary to the contractual provisions (!) (!) .
The court emphasized that arbitrators are bound by the terms of the contract and cannot decide matters beyond the scope of the reference or outside the contractual limits. Exceeding this scope results in an award being liable to be set aside (!) .
The court affirmed that the arbitrator's awards for delay damages were invalid because they disregarded the contractual clause that specifically barred such claims, and therefore, the awards were rightly set aside by the High Court (!) (!) .
The appeals challenging the setting aside of the delay damages awards were dismissed, and parties were directed to bear their own costs (!) .
In essence, the key legal principles are that contractual clauses prohibiting claims for delay damages must be strictly enforced, and arbitrators must act within the bounds of the contract. Any deviation or decision outside these bounds constitutes a jurisdictional error warranting setting aside of awards.
Judgement
H. K. SEMA, J. :- The validity and legality of the judgment dated 31.10.2002 of the Division Bench of the High Court of Madras in OSA. No. 27/1995 and 25/1996 is assailed in these appeals.
2. The appellant was awarded two contracts - the first for construction of LRMR Aircraft Hangar and Airtech Hangar and connected works; and the second for construction of roads and allied works at NAS Arakonam. In respect of the two contracts, hereinafter referred to as the Hangar Contract and Road Contract, the tenders submitted by appellant were accepted on 10.10.1988 and 3/5.1.1989 respectively. The necessary agreements were executed between the parties. Disputes arose between the parties in respect of those contracts and the matter was referred to Arbitration. The Arbitrator after examining the oral and documentary evidence made his Awards dated 20.7.1993 and 5.3.1994. Applications were filed before the learned Single Judge by the respondent herein for setting aside the Awards. The learned Single Judge by orders dated 24.8.1994 and 22.9.1995 rejected the applications and in each case made a rule of the court in terms of the award. Being aggrieved the respondent filed OSA Nos. 27/1995 and 25/1996, which were partly allowed by the Division Bench of the High Court. Hence, the present appeals by the claimant contractor.
3. It may not be necessary for us to refer to the entire facts leading to the filing of the present appeals as the substantial question of law posed requires reference to limited facts. Suffice it to say that awards of the learned Arbitrator related to claims under several heads. The controversy in these appeals relate to award in respect of item No. 24 in the Hangar contract and items 13 to 16 in respect of the road contract. The particulars thereof are extracted below :
Item No. Description of work Amount claimed Amount awarded 24 Rs.2,77,41,692 Rs.51,36,015/98 Hanger Contract Amount due on account of escalation in materials and labour Road Contract
13 Loss of profit due to turnover loss for staying beyond contract period Rs.2,34,78,404
14. Additional compensation for work done beyond original contract period Rs. 22,89,200 Rs.41,51,847/50
15. Loss of profit on balance work due to termination of contract Rs. 26,00,000
16. Escalation payable for the period 5.3.1992 to date of termination Rs. 3,50,000
4. In regard to Hangar Contract, undisputedly, the contract work had to be completed in two phases, the first phase by 31.10.1989 and the second phase by 30.4.1990. However, the contract work could not be completed within the stipulated time, partly due to the default on the part of respondent. It is also undisputed that on the request of the contractor, the employer gave several extensions - by a letter dated 28.2.1990 the period of completion of work was extended up to 30.6.1990; by a letter dated 10.5.1991 it was extended up to 31.5.1991; by a letter dated 27.8.1991 it was extended up to 30.9.1991; by a letter dated 23.1.1992 the time was extended up to 15.4.1992; by a letter dated 15.5.1992 it was extended up to 28.5.1992 and by a letter dated 4.6.1992, it was further extended up to 22.6.1992. The contract was subsequently terminated by the employer on 1.7.1992.
5. In respect of the road contract, the date of commencement of work was 3.1.1989. The due date of completion was 2.11.1990 (21 months). The employer granted extensions from time to time on the request of the contractor up to 31.5.1992. Subsequently, the contract was terminated by the employer on 14.7.1992.
6. The basis of the disputed claims is that the execution of work was delayed on account of breaches on the part of the employer and the employer is liable to compensate the contractor for all losses and extra cost on account of such delay and extended execution.
7. These claims were resisted by the employer on the ground that the contractor himself was liable for delays; that the employer had granted extension for the delays; and that the contract prohibits the c
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