Prolongation Compensation Can't Be Granted If The Contractor Didn't Reserve Claim For Compensation At The Time Of The EOT: Delhi High Court

Justice Manoj Kumar Ohri's bench upheld the Arbitral Tribunal's interpretation. They ruled that the Tribunal's decision, which denied the prolongation cost due to the Contractor's failure to reserve this right during the EOT request, and because the EOT was granted without financial implications, is a plausible view which does not warrant intervention by the Court using its powers under Section 34 of the A&C Act.

The Court also held that interpretation of the extension letters/communications between the parties falls within the tribunal’s prerogative and it would be inappropriate for the Court to re-examine or reinterpret such evidence as per its own understanding.

Facts

The parties entered into an agreement dated 17.02.2015. In terms of the agreement, the petitioner (contractor) was required to carry out certain works for the respondent (DMRC). The entire project work was to be completed within a period of 24 months, however, there was a delay of 18 months in the completion of the project work.

The delay in the completion of the project also resulted in a dispute between the parties regarding compensation for the prolongation of the contract and other connected costs and compensation. The contractor invoked the arbitration clause and the dispute was referred to the arbitral tribunal.

The arbitral tribunal party allowed the claims of the petitioner. However, it disallowed the prolongation compensation on the ground that there were four EOT requests that were made by the petitioner/contractor and granted by the respondent/DMRC, but only in one of such requests, the petitioner reserved its right to claim compensation for the delay and there was no such reservation by the petitioner in the other three requests.

Aggrieved by this finding, the petitioner challenged the award under Section 34 of the A&C Act

Grounds of Challenge

The petitioner challenged the award on the following grounds:

• The finding of the arbitral tribunal suffers from the vice of patent illegality inasmuch as, the tribunal while limiting the compensation to six months, returned a perverse finding that in seeking EOT on the first, second and fourth occasion, the Contractor had not reserved its right to seek compensation, which amounted to a waiver. AT wrongly relied only upon Section 55 of the Indian Contract Act, 1873 instead of reading it in conjunction with Section 73.
• The AT committed a judicial error amounting to patent illegality in denying compensation on the ground that the Contractor had forgone its right to claim compensation for the extension sought on the other three occasions.
• Notwithstanding a clause prohibiting the damages for prolongation, a party aggrieved by such prolongation can claim compensation under Section 73 of the Indian Contract Act if the other party is found in breach of the contract.

Analysis by the Court

The Court observed that out of the four EOT letters, the petitioner had reserved its right to compensation only in one of such letters and in the other requests it did not claim any monetary compensation due to the extensions.

The Court held that the tribunal did not commit any error in disallowing compensation for the remaining period for which no right was reserved. It held that no compensation can be awarded for the prolongation of the contract if the contractor did not reserve its right to such compensation at the time of the seeking Extension of Time (EOT).

The Court upheld the Arbitral Tribunal's interpretation. They ruled that the Tribunal's decision, which denied the prolongation cost due to the Contractor's failure to reserve this right during the EOT request, and because the EOT was granted without financial implications, is a plausible view which does not warrant intervention by the Court using its powers under Section 34 of the A&C Act.

The Court held that the tribunal did not disallow the claims on the grounds of any prohibition in the contract but due to petitioner’s own waiver of the right to claim compensation, that happened in the first, second and fourth EOT sought by it.

The Court held that interpretation of the extension letters/communications between the parties falls within the tribunal’s prerogative and it would be inappropriate for the Court to re-examine or reinterpret such evidence as per its own understanding.

Accordingly, the Court dismissed the challenged and upheld the arbitral award.

Case Title: IRCON INTERNATIONAL LIMITED V. DMRC

Citation: 2023 LiveLaw (Del) 943

Date: 09.10.2023

Counsel for the Petitioner: Mr. Suman K. Doval, Mr. Hari Krishan Pandey and Mr. Preetpal Singh, Advocates.

Counsel for the Respondent: Mr. Tarun Johri and Mr. Ankur Gupta, Advocates

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