I. Introduction
The Hon'ble Supreme Court in C & C Constructions Ltd. v. IRCON International Ltd.1 The issue was that ground challenging an arbitral award had not been raised for the first time before the High Court Division Bench under Section 37 of the Arbitration and Conciliation Act ("Act").
The crux of the dispute between the parties was whether Clause 49.5 of the General Conditions of Contract ("GCC") of their Contract, which prohibited the contractor from claiming damages or compensation for delays attributable to the employer, was enforceable, and whether the Appellant (C & C Constructions Ltd.) could claim damages despite agreeing to extensions of time without penalties.
II. Background
An agreement dated 28th June 2012 was entered into between the Appellant and the Respondent for constructing five Road Over Bridges ("ROBs") and their approaches at different locations in the State of Rajasthan with separate completion schedules for each ROB. It was a matter of record that the Respondent later withdrew the work relating to the construction of two ROBs (LC-200 and LC-233) from the Appellant's scope of work and certified the completion of the remaining work. The Appellant's case was that delay in construction work attributable to the Respondent had resulted in an additional financial burden due to establishment and overheads, etc. When the Appellant had raised these claims against the Respondent, the same was rejected by the Respondent. The Respondent directed the Appellant to submit this claim along with its claim seeking an extension of time ("EoT"). The Appellant submitted requests for a grant of EoT, which were granted by the Respondent once, with and without the imposition of a penalty. However, the Respondent rejected the Appellant's claim seeking damages, directing the Appellant to submit undertakings that it would not claim anything other than escalation for the work executed, which the Appellant submitted. Thereafter, it invoked the arbitration clause, raising a claim for Rs. 44.11 crores under 15 heads.
III. Findings of the Arbitral Tribunal
The Respondent applied Section 16(2) of the Arbitration Act, contending that Clause 49.5 of the GCC disentitled the Appellant from raising any claim for damages or compensation for failure or delay caused by the Respondent in fulfilling its obligations under the Contract. The Arbitral Tribunal passed the order like an award dated 21st December 2019 by which all claims were rejected on the grounds raised in the Respondent's Application.
IV. Findings of the Single Bench of the High Court
The learned Single Judge of the High Court of Delhi dismissed the petition, holding that a term like clause 49.5 of the GCC would bar the Appellant's claim. Moreover, the Appellant had accepted the communication issued by the Respondent, dismissing the claim. It was also held that clause 49.5 was valid and, after the Appellant accepted it, could not contend to the contrary.
V. Findings of the Division Bench of the High Court
The Hon'ble Division Bench rejected the appeal, stating that the Respondent never waived the requirement of Clause 49.5. The Appellant objected that the validity of Clause 49.5 should have been examined as per Section 23 and Section 28 of the Indian Contract Act. However, this ground was rejected by the Hon'ble Court, and it affirmed that clause 49.5 was a valid provision. The Division Bench dismissed the appeal after noting that the Court's powers in an appeal under Section 37 of the Arbitration Act are restricted by Section 34.
VI. Analysis of Order by the Hon'ble Supreme Court
In respect of the factual contentions, the Hon'ble Court made the following observations:
- The appellant had relied upon Clause 49.5 to seek an extension of time;
- The Appellant claimed after submitting an undertaking not to make any claim other than escalation regarding delays in the completion of work.
- As per the undertakings, the Appellant agreed not to make a claim contrary to what was provided in Clause 49.5;
- Therefore, by conduct, the Appellant was estopped from challenging the validity of Clause 49.5.
Observations in respect of powers under Section 37 of the Act
The Hon'ble Court noted that the contention regarding the validity of clause 49.5 in the light of Sections 23 and 28 of the Contract Act was not raised either before the learned Single Judge in the petition under Section 34 or before the Division Bench in appeal under Section 37. Therefore, it was held that it is not open to the Appellant to raise this contention in this appeal for the first time.
The Hon'ble Supreme Court made several observations regarding Section 37 of the Arbitration and Conciliation Act, 1996, discussing the limited scope of appeal under this Section. It noted that an appeal under Section 37 has an even narrower scope than a challenge under Section 34. It emphasized that appellate courts cannot independently assess the merits of the arbitral award but can only examine whether the decision under Section 34 was legally justified. Reference was made to judgments such as Larsen Air Conditioning and Refrigeration Co. v. Union of India (2023) 15 SCC 472 and Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking (2023) 9 SCC 85 to affirm this observation.
The Court stressed that new legal arguments cannot be raised for the first time in a Section 37 appeal. It held that since the Appellant had accepted extensions of time without penalty and had given written undertakings not to claim damages, it was bound by those contractual terms. It further held that the appeal under Section 37 cannot be used as a means to escape from contractual obligations that were voluntarily accepted.
The scope of interference by Courts under Section 37 of the Act has been consistently limited by the Hon'ble Supreme Court in various judgments to ensure that the interference with an order made under Section 34 by the Court under Section 37 does not occur beyond the restrictions laid down under Section 34.
Footnote
1. C & C Constructions Ltd. v. IRCON International Ltd., 2025 SCC OnLine SC 218.
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