Case title:

MBL Infrastructures Limited v. Delhi Metro Rail Corporation

Date of Order:

12^th December 2023

Bench:

Hon’ble Mr. Justice Chandra Dhari Singh

Parties:

Petitioner: MBL Infrastructures Ltd

Respondent: Delhi Metro Rail Corporation

SUBJECT:

The Hon’ble High Court of Delhi (hereinafter referred to as ‘the High Court’ or ‘the Court’) dealt with a dispute between MBL Infrastructures Ltd v. Delhi Metro Rail Corporation, regarding the construction of Sarai Station in Delhi as part of the Badarpur – Faridabad Corridor within Delhi MRTS Phase III. The case centers around issues related to project delays, termination of the contract by the Respondent, and subsequent arbitration proceedings. The primary elements in contention include the legality of the termination, the authority of the Arbitral Tribunal to award damages, and the interpretation of contractual clauses governing the rights and obligations of the parties. The Court upheld the Arbitral Tribunal’s findings and ruled that the Tribunal had the authority to award damages for delay.

IMPORTANT PROVISIONS:

The Arbitration and Conciliation Act, 1996 (the Act):

• Section 34
• Section 55
• Section 31A

The Indian Contract Act, 1872:

• Section 73
• Section 55

OVERVIEW:

• There was a contractual agreement between MBL Infrastructure Ltd. and Delhi Metro Railway Corporation for the construction of Sarai Station in Delhi, with a project value of Rs. 41.57 crores and a scheduled timeline from May 21, 2012, to November 20, 2013.
• Challenges arose, notably delays in the site handover process, despite the initial mobilization advance received by the Petitioner.
• The Respondent, during the project, denied possession of a designated plot for Sarai Metro Station and alleged the Petitioner's failure to meet commitments, leading to the termination of the contract on November 1, 2013.
• An Arbitral Tribunal issued its award on March 6, 2020, determining that the Respondent had breached the contract. The Tribunal considered the termination and the encashment of bank guarantees as illegal and unjustified.
• The Petitioner, in this judgment, has contested the award, invoking Section 34 (2) of the Arbitration and Conciliation Act, challenging the tribunal's decision on specific claims.

ISSUES RAISED:

• Whether the Tribunal can award damages for delay on part of employer in completion of the project despite the contract executed between the parties not providing for any damages for delay on part of the employer?
• Whether the Tribunal despite acknowledging the expenses borne by the petitioner and harm caused by the respondent’s actions, refrained from granting damages, costs, and interests?
• Whether the Tribunal’s refusal to award damages contradict sections 55 and 73 of the Indian Contract Act?

ARGUMENTS ADVANCED BY THE PETITIONER:

• Even Though the Tribunal recognized the expenses incurred and the harm resulting from the respondent’s actions, it refrained from awarding damages, costs, and interests.
• The Tribunal's decision was inconsistent with the petitioner's demonstrated financial losses and the impact of the respondent's actions.
• The denial of damages by the Tribunal contradicted Sections 55 and 73 of the Indian Contract Act.
• The termination of the contract by the Respondent was illegal and unjustified.
• The Respondent's breach of contract led to the termination, justifying the petitioner's claims for damages and other remedies.
• The Petitioner contested the encashment of the Performance Bank Guarantee, arguing that it was illegal and unjustified considering the Respondent's breach of contract.
• Contractual clauses should not limit the Tribunal's authority to award damages for project delays.
• The Tribunal's authority to grant damages, even if the contract only allowed for an extension of time as a remedy.

ARGUMENTS ADVANCED BY THE RESPONDENT:

• The termination of the contract was deemed justified, given the petitioner’s alleged failure to fulfill commitments and work program obligations, as asserted by the respondent.
• The Respondent defended the legality and justification of terminating the contract, claiming it was a legitimate response to the alleged shortcomings on the part of the Petitioner.
• There was an emphasis on the necessity of adhering to the contract terms, including clauses limiting remedies solely to a time extension.
• The argument was made that the Petitioner had willingly agreed to these contractual terms and, consequently, should be held bound by them.
• The contention was that damages were unwarranted based on both the contractual terms and the alleged failure of the Petitioner to meet its contractual obligations.
• Insufficient evidence of reputational loss directly linked to the termination was cited by the Respondent, challenging the Petitioner's claims on this front.
• The Respondent underscored its commitment to following the decisions and findings of the Arbitral Tribunal, asserting that the termination and subsequent actions aligned with the Tribunal's award.
• The clauses within the contract that restricted the remedies available to the parties were highlighted as a key aspect of the Respondent's argument.

JUDGEMENT ANALYSIS:

• The High Court thoroughly examined the case, emphasizing its limited intervention under Section 34 of the Arbitration and Conciliation Act.
• The Court acknowledged the Arbitral Tribunal's findings on the Respondent's accountability for project delays and the illegality of the termination.
• It ruled that despite a contractual clause restricting remedies to a time extension, the Arbitral Tribunal could award damages for delays.
• The Court underscored that such a contractual clause did not limit the tribunal's authority, especially considering Sections 55 and 73 of the Indian Contract Act.
• The judgment emphasized that any clause restricting the right to claim damages goes against the fundamental policy of Indian Law.
• It clarified that the Arbitral Tribunal, as a creation of the contract, is subject to reasonable restrictions imposed by the agreement.
• The Court rejected specific claims related to reputation damage, arbitration costs, and interest, citing the petitioner's failure to prove reputational loss and the limited connection between the termination and the initiation of insolvency proceedings.
• Regarding the partial setting aside of the award, the Court explained that severing certain findings from the award did not amount to modifying the award.
• Consequently, the court set aside the award on specific claims, remitting them back to the Arbitral Tribunal for fresh consideration.

CONCLUSION:

In its judgment, the Delhi High Court meticulously examined the case, underscoring its restrained intervention as guided by Section 34 of the Arbitration and Conciliation Act. The Court upheld the Arbitral Tribunal's findings on the Respondent's accountability for project delays and the illegality of the termination, ruling that, notwithstanding a contractual clause limiting remedies to a time extension, the Tribunal had the authority to award damages for delays. It emphasized the incompatibility of clauses restricting the right to claim damages with the fundamental policy of Indian Law. The court's nuanced interpretation of contractual terms, coupled with its adherence to statutory provisions, resulted in the rejection of specific claims and the partial setting aside of the award, notably on claims 3 and 4, remitting them back to the Arbitral Tribunal for fresh consideration. The petition was partly allowed in the aforementioned terms and all pending applications stood disposed.