Determination Of Delay On Part Of Contractor Is Not 'Excepted Matter', Only Quantum Of Damages Is Non-Arbitrable: Delhi High Court
The Delhi High Court bench of Justice Neena Bansal Krishna held that the question of determination of whether indeed, there was a delay on the part of the Contractor is not an excepted matter and it is only the quantum of damages which is non-arbitrable. The bench held that: “….the question of determination of delay, is not an excepted matter and has to be necessarily arbitrated...
The Delhi High Court bench of Justice Neena Bansal Krishna held that the question of determination of whether indeed, there was a delay on the part of the Contractor is not an excepted matter and it is only the quantum of damages which is non-arbitrable.
The bench held that:
“….the question of determination of delay, is not an excepted matter and has to be necessarily arbitrated and is an arbitrable dispute.”
Brief Facts:
The Petitioner contended that the contract for constructing an elevated road was awarded to the Respondent with an initial completion period of 18 months. The project commenced on 11.09.2008, with an original completion date of 10.03.2010, later revised to 01.10.2010. However, the Respondent requested an extension on 10.02.2011 and noted that the remaining work needed to be completed before seeking a completion certificate. The Petitioner, noting that the work was incomplete by the date of this request, set the completion date as 25.11.2011 and subsequently levied liquidated damages at 10% of the contract amount. This prompted the Respondent to file a petition under Section 9 of the Arbitration and Conciliation Act, 1996 requesting to restrain the petitioner.
During the interim period, the Respondent invoked the arbitration clause which led to the appointment of a sole arbitrator despite the Petitioner's resistance, who claimed that the matter of liquidated damages was an "excepted matter" not subject to arbitration. The arbitrator ruled that the project was completed on 22.09.2010 which absolved the respondent of any delay and invalided the Petitioner's claim for liquidated damages.
The Petitioner, aggrieved by this award approached the Delhi High Court (“High Court”) and filed a petition under Section 34 of the Arbitration Act. It argued that the arbitrator's conclusions were contrary to the explicit terms of the contract and overlooked pertinent records and evidence. It argued that the arbitration proceedings were conducted unfairly and non-transparently.
The Respondent contended that its claim for the declaration of the completion date was valid and not an "excepted matter" under the contract, and it had completed the project without delay.
Observations by the High Court:
The High Court referred to the decision of the Supreme Court in ONGC v. Saw Pipes and emphasized the criteria for setting aside an award based on violations of fundamental policy, interest of India, justice or morality, or patent illegality.
To ascertain compliance with the fundamental policy of Indian law, the High Court held that the arbitral tribunal's approach must exhibit fairness, reasonableness, and objectivity within the legal framework. The concept of patent illegality comes into play when there is a breach of substantive Indian law, the Arbitration Act, or relevant dispute resolution regulations. Referring to Hindustan Zinc Limited v. Friends Coal Carbonisation, the High Court held that it has the prerogative to intervene if an award contradicts specific contract terms.
In Ssangyong Engineering & Construction Co. Ltd., the Supreme Court elaborated on "patent illegality," clarifying instances where arbitrators' actions fall within this ambit. It emphasized that a correct interpretation of a contract must be rational and logical, devoid of irrationality or perversity. If an arbitrator's findings stem from irrelevant considerations or ignore vital contract clauses, judicial review is warranted.
The arbitrator, in addressing the Petitioner's argument, noted that "excepted matters" under the Contract did not necessitate further adjudication, as the agreement provided for a named adjudicator. The High Court held that while the quantification of damages may be an excepted matter, the determination of delay leading to such damages is arbitrable. Therefore, the High Court concurred with the arbitrator's decision to arbitrate the issue of delay and held that this aspect was not accepted under the contract.
Consequently, the High Court dismissed the petition.
Case Title: Govt Of Nct Of Delhi Vs M/S Dsc Limited
Citation: 2024 LiveLaw (Del) 679
Case Number: O.M.P. (COMM) 331/2020 & I.A. 10114/2024
Advocate for the Petitioner: Mr. Anupam Srivastava, ASC with Ms. Simran Ahuja, Advocate.
Advocate for the Respondent: Mr. Deepak Khurana and Mr. Abhishek Bansal, Advocates.
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