India: Whether The Arbitral Tribunal Can Transgress The Boundaries Of The Contract To Address The Absence Of Sufficient Remedies

Introduction

Recently, the Hon'ble Delhi High Court in MBL Infrastructures Ltd. v. Delhi Metro Rail Corporation¹ has held that clauses which restrict the right of a party to claim damages are restrictive as such clauses defeat the purpose of the sections 55 and 73 of the Indian Contract Act, 1872 (hereinafter “Contract Act”) which entitle an aggrieved party to claim damages. Furthermore, as per Section 23 of the Contract Act, such clauses are opposed to public policy as they aim at restraining the aggrieved party from claiming damages. In this article, the authors will be analysing this case to highlight the arbitration jurisprudence on such clauses which restrict parties from claiming damages and whether the contractual contours can be transgressed in case the contract itself limits such right from being invoked by aggrieved parties to such contracts thereby limiting the very entitlement to claim damages.

Analysis of MBL Infrastructure

The Arbitral Tribunal was dealing with the Claimant MBL's claim for damages due to inaction and delays on part of respondent DMRC. Tribunal observed and held that the Claimant suffered certain damages on account of idling and machinery and loss of overheads because there was a default on the part of the Respondent in fulfilling the obligations under the Contract. However, after referring to the relevant clauses of the contract and relying on Clause 8.3 of the General Conditions of Contract (hereinafter “GCC”), the Tribunal concluded that the Claimant was entitled only to reasonable extension of time and the Respondent is not bound as per the contract for any compensation to the Claimant. Clause 8.3 of GCC therein provided that any delay on account of the Respondent shall entitle the contractor to a remedy of reasonable Extension of Time as deemed reasonable by the Engineer and there can be no monetary claims payable for delays including handing over of site, providing necessary notice of commencement of work, providing necessary drawings or instructions or clarification or supply of any material, plant or machinery which were the obligations of the employer as per the contract. Tribunal held that it is acting in accordance with Section 28 of the Contract Act as per which the Tribunal shall take into consideration the terms of the agreement and trade usages of relevant industry. It is with this rationale that the Tribunal held that the Respondent was not bound as per the contract for any compensation to the Claimant.

It is pertinent to note that herein the Tribunal clearly held that the Claimant was not responsible for the delay in mobilization and the start of the work as alleged by the Respondent, and further the termination of the contract along with the forfeiture of the performance security by the Respondent was held untenable.

The Hon'ble Delhi High Court has clearly pointed out these pivotal aspects and award and opined that a clause which restricts the right of a party in claiming damages is a restrictive clause and such a clause defeats the purpose of the Contract Act. The court held that no party can restrict or prohibit the claim for damages under Section 55 and 73 as the same is the right of the aggrieved party. The Court also observed that such kind of clauses are not in public interest as they hinder the smooth operation of the commercial transactions and create an environment which is not conducive for the business transactions.

The Court further went on to discuss the power of the Tribunal to award damages for delay on the part of the employer when the same is not provided in the contract and contractor is only entitled to extension of time. The court after referring to a number of judgements concluded that it is a settled law that the Arbitral Tribunal can award damages when the clause of the contract contemplates that only extension of time can be given as remedy when there is a delay on the part of the employer. Hence the act of awarding the damages to the aggrieved party does not amount to transgression from the terms of the contract².

The court highlighted that keeping the sanctity of contracts and its bindingness is a matter of public policy and the same must be given precedence over the entitlement to breach of the said contract vide clauses rendering no remedy of damages to the aggrieved party³.

The Hon'ble Delhi High Court therefore set aside the Tribunal's rejection of the Claimant's claim holding that the Claimant was entitled to damages due to inaction and delays by the Respondent. The Bench held that the Tribunal erred by not awarding damages to the Petitioner despite holding that the delay was attributable to the Respondent which rendered the Petitioner remediless.

Conclusion

In infrastructure disputes' landscape, it is often seen that claim restricting clauses stipulate that there can be no monetary claims payable for delays including handing over of site, providing necessary notice of commencement of work, providing necessary drawings or instructions or clarification or supply of any material, plant or machinery etc. which are primarily the obligations of the employer as per the contract. In such a scenario, there exists an imbalance of interest between parties to such a contract. The Hon'ble Delhi High Court's decision in MBL Infrastructure is a welcome step as it has emphasised that aggrieved parties cannot be deprived of monetary damages even when there are contractual bars to such a relief and thereby upheld the sanctity of the settled principles of the Contract Act.

Footnotes

1. MBL Infrastructures Ltd. v. Delhi Metro Rail Corporation, 2023 SCC OnLine Del 8044.

2. Para 54, MBL Infrastructures Ltd. v. Delhi Metro Rail Corporation, 2023 SCC OnLine Del 8044.

3. Asian Techs Ltd. v. Union of India (2009) 10 SCC 354, Simplex Concrete Piles v. Union of India 2010 SCC OnLine Del 821 and Delhi Metro Rail Corporation Ltd. v. J. Kumar-Crtg JV 2022 SCC OnLine Del 1210.

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