Introduction:

In a significant ruling, the Delhi High Court, led by Justice Chandra Dhari Singh, declared a contractual clause restricting the contractor’s right to seek damages for delays caused by the employer as against public policy under Section 23 of the Indian Contract Act. The case involves a dispute between M/s MBL Infrastructure Ltd. and the Delhi Metro Railway Corporation, unraveling complex issues surrounding project delays, damages, and the legality of termination.

Arguments of Both Sides:

MBL Infrastructure Ltd. contested the arbitral award, challenging the rejection of several claims for damages, costs, and interest. They argued that despite acknowledging the respondent’s breach and the resultant harm, the tribunal failed to grant adequate compensation. The petitioner emphasized that contractual clauses cannot override provisions of the Indian Contract Act, specifically Sections 55 and 73, which guarantee the right to damages.

On the other side, the respondent relied on Clause 8.3 of the General Conditions of Contract (GCC), which ostensibly limited the remedy to an extension of time. They contended that such clauses were binding and should restrict the tribunal’s authority to award damages.

Court’s Judgement:

Justice Singh asserted that a clause inhibiting the aggrieved party’s right to claim damages is against the fundamental policy of Indian Law. The court clarified that such a clause doesn’t impede the arbitral tribunal’s power to compensate for losses due to delays caused by the other party. Even if the contract lacks provisions for damages, once the tribunal establishes the employer’s responsibility for delays, damages must be awarded.

The court held that a clause restricting the right to claim damages is prohibitionary in nature and cannot fetter the tribunal’s authority. It emphasized that the tribunal can transgress beyond contractual limitations when necessary to provide lawful relief. However, the court upheld restrictions on claims for reputational loss, costs of arbitration, and interest, as stipulated in the agreement.

While setting aside claims related to damage to reputation, the court clarified that the petitioner failed to demonstrate reputational loss due to contract termination. Additionally, it acknowledged the tribunal’s limitation on costs and interest as per the contractual agreement.

In a nuanced decision, the court partially set aside the arbitral award on certain claims, recognizing that severing these findings doesn’t amount to modifying the award. The case was remitted back to the tribunal for fresh consideration of specific claims.