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2025 Supreme(Online)(Mad) 66338
IN THE HIGH COURT OF JUDICATURE AT MADRAS
MR. JUSTICE ABDUL QUDDHOSE, J
M/s. CHENNAI METROPOLITAN WATER SUPPLY AND SEWERAGE BOARD – Appellant
Versus
M/s.GKC VISHWA CONSORTIUM – Respondent
Arb.O.P. (Com.Div.) No.98 of 2023
For the Appellants/Petitioners: Mr.Gautam S. Raman
For the Respondents: Mr.Satish Parasaran, Senior Counsel, for P.J. Rishikesh for R1
The moratorium under IBC does not bar arbitration initiated by a corporate debtor, and the arbitrator's determination of invalid termination and refusal to enforce liquidated damages was upheld due to lack of evidence for actual loss.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 34 - Indian Contract Act, 1872 - Sections 73, 74, 55 - Arbitral award challenged on grounds of erroneous loss of profit award, illegal termination, and liquidated damages. Court upheld arbitrator’s award of Rs.5,99,56,072/- towards loss of profit and found termination invalid. (Paras 1-5, 9, 12-13, 39)
(B) Arbitral proceedings - Jurisdiction and validity - Moratorium under IBC does not bar arbitration initiated by corporate debtor; decision based on circumstantial evidence is key. (Paras 37-38)
(C) Award of liquidated damages - Petitioner failed to prove actual loss due to delay; the burden of proof rests on the claimant, and arbitrator was justified in rejecting claims by the petitioner. (Paras 22-28)
Facts of the case:
The petitioner challenged the arbitral award of Rs.33,87,43,444/- in favor of the first respondent, asserting that the contract termination was justified but was found invalid.
Issues: Whether the contract termination was lawful, applicability of moratorium under IBC, and validity of liquidated damages.
Findings of Court:
The court reaffirmed the arbitrator's findings regarding improper termination and liquidated damages, emphasizing parties' conduct and the context of contractual obligations.
Ratio Decidendi: The arbitrator's decision reflected reasonable assessment based on evidence regarding the overall context, including numerous extensions provided and correspondence detailing delays attributed to both parties.
Result: Petition dismissed.
| Table of Content |
|---|
| 1. challenge to arbitral award under arbitration act (Para 1 , 2) |
| 2. petitioner challenges arbitral award claims (Para 3) |
| 3. petitioner's grounds for contesting the award (Para 4 , 5 , 6) |
| 4. claim details and arbitration context (Para 7 , 8) |
| 5. court's analysis on implications of time within contracts (Para 10 , 11 , 12 , 13 , 14) |
| 6. legal principles regarding delays in contract performance (Para 15 , 16 , 17) |
| 7. implications of contract extensions on obligations (Para 18 , 19 , 20) |
| 8. evaluating claims for damages in contracts (Para 21 , 22) |
| 9. court confirming arbitration award validity (Para 23 , 24 , 25 , 26) |
| 10. specific claims assessed and awarded by the arbitrator (Para 27 , 28 , 29 , 30) |
| 11. court's affirmation of arbitration award outcomes (Para 31 , 32 , 33 , 34) |
| 12. legal conclusions and dismissal of the petition (Para 35 , 36 , 37 , 38) |
ORDER
This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 , challenging the impugned arbitral award dated 25.03.2022. The petitioner is the respondent and the first respondent is the claimant in the arbitration. The arbitral Tribunal under the impugned arbitral award dated 25.03.2022 has allowed the claim of the first respondent against the petitioner to the tune of Rs.33,87,43,444/- and has denied the counter claim of the petitioner made against the first respondent to the tune of Rs.57,35,03,000/-. Aggrieved by the same, the petitioner has filed this petition under of the .
2. The petitioner is the employer and the first respondent is the contractor, who was awarded the contract by the petitioner for "providing comprehensive water supply scheme to Manapakkam, Nandambakkam, Okiyam Thuraipakkam, Ramapuram and providing comprehensive underground sewerage scheme to Ramapuram". This scheme has been taken up by the petitioner Board under the Chennai Mega City Development Mission Fund at an estimated cost of Rs.143.96 crores under 5 schemes.
3. The petitioner has challenged the impugned arbitral award on the following grounds:
a) The arbitrator has erroneously awarded loss of profit of Rs.5,99,56,072/- in favour of the first respondent. According to the petitioner, by total non application of mind to the fact that the first respondent was the one, who approached the petitioner for extension of time for completing the said contract and having stopped work since 2018, even after granting extension of time by them till 31.03.2019, was alone responsible for the breach of contract, for which the petitioner cannot be penalised, by directing them to pay damages by way of loss of profit for a huge sum of Rs.5,99,56,072/- to the first respondent;
b) Stoppage of work by the first respondent lead to termination of contract by the petitioner. According to the petitioner, the first respondent had completely stopped work from April, 2018 onwards, because of which, the petitioner was forced to terminate the contract as there was fundamental breach committed by the first respondent;
c) The impugned arbitral award passed in favour of the first respondent, declaring that the termination of the contract made by the petitioner is void, despite the first respondent stopping work from April, 2018 onwards, is not only perverse but also patently illegal;
d) The arbitrator did not consider the fact that the first respondent did not have the financial means to perform the contract, as their lead partner was facing CIRP proceedings under the provisions of the Insolvency and Bankruptcy Code, 2016 (In short 'IBC'). Therefore, the termination of the contract by the petitioner can never be declared to be illegal;
e) Time is the essence of the contract. Since the first respondent had sought for various extensions of time over and above the contractual period, which was also granted by the petitioner till 31.03.2019, there was no breach of contract committed by the petitioner. According to the petitioner, the first respondent has stopped work from April, 2018 onwards and the e
