CASE TYPE: Arbitration Law
Case Name: M/s. C & C Constructions Ltd. vs. IRCON International Ltd.
[Judgment Date]: 31 January 2025
Date of the Judgment: 31 January 2025
Citation: 2025 INSC 138
Judges: Abhay S. Oka, J. and Ujjal Bhuyan, J.
Can a construction company claim damages from its employer for project delays, even if their contract includes a clause that explicitly prohibits such claims? The Supreme Court of India recently addressed this crucial question in a case between M/s. C & C Constructions Ltd. and IRCON International Ltd. The core issue revolved around the enforceability of a contractual clause that barred the contractor from claiming damages for delays caused by the employer. This judgment clarifies the extent to which parties can contractually limit their liabilities and the circumstances under which such clauses can be upheld. The judgment was delivered by a bench of Justices Abhay S. Oka and Ujjal Bhuyan.
Case Background
In 2012, M/s. C & C Constructions Ltd. (the appellant) and IRCON International Ltd. (the respondent) entered into an agreement for the construction of five Road Over Bridges (ROBs) in Rajasthan. The project involved different completion schedules for each ROB, identified as LC-200, LC-89, LC-228, LC-233, and LC-108. The appellant contended that delays occurred due to the respondent’s actions. The respondent later withdrew the work for two ROBs (LC-200 and LC-233), and certified the completion of the remaining work. The scheduled completion dates for LC-89 and LC-228 were 15th September 2013, and for LC-108, it was 16th July 2013. The completion certificate showed that the work for LC-89 was completed on 8th October 2014, LC-228 on 21st March 2015, and LC-108 on 31st March 2017, according to the appellant.
Timeline
| Date | Event |
|---|---|
| 28th June 2012 | Agreement between M/s. C & C Constructions Ltd. and IRCON International Ltd. for construction of five ROBs. |
| 15th September 2013 | Scheduled completion date for LC-89 and LC-228. |
| 16th July 2013 | Scheduled completion date for LC-108. |
| 19th June 2013 | Appellant requests 264-day extension for LC-108, citing delays and additional financial burden. |
| 30th August 2013 | Appellant requests extensions for LC-89 (430 days) and LC-228 (437 days). |
| 14th October 2013 | Respondent rejects appellant’s claim for separate financial burden, asks for detailed claim with extension request. |
| 29th November 2013 | Respondent grants extensions with penalty for LC-228 and LC-89, without penalty for LC-108. |
| 28th February 2014 | Appellant requests extension for LC-89 without penalty. |
| 09th April 2014 | Appellant requests extension for LC-228 without penalty. |
| 19th April 2014 | Appellant requests extension for LC-108 without penalty. |
| 24th May 2014 | Respondent grants extensions without penalty for LC-228, LC-89, and LC-108. |
| 3rd September 2014 | Appellant submits claims for damages due to respondent’s delay for all three ROBs. |
| 14th October 2014 | Respondent rejects the appellant’s claims for damages. |
| 8th January 2015 | Appellant applies for further extension of time. |
| 9th January 2015 | Respondent asks for undertaking that no extra claims will be made other than escalation. |
| 14th January 2015 | Appellant submits undertakings agreeing not to claim anything extra other than escalation. |
| 22nd March 2016 | Completion certificate issued for LC-89 and LC-228. |
| 25th January 2017 | Appellant invokes arbitration clause, claiming Rs. 44.11 crores. |
| 25th August 2017 | Respondent files statement of defense. |
| 21st December 2019 | Arbitral Tribunal rejects all claims based on clause 49.5 of GCC. |
| 1st March 2021 | High Court of Delhi dismisses appeal under Section 37 of the Arbitration Act. |
| 31st January 2025 | Supreme Court dismisses the appeal. |
Course of Proceedings
The appellant initiated arbitration proceedings, claiming ₹44.11 crores under 15 heads, along with interest and costs. The respondent countered by invoking Section 16(2) of the Arbitration and Conciliation Act, 1996, arguing that clause 49.5 of the General Conditions of Contract (GCC) barred the appellant’s claim for damages. The Arbitral Tribunal upheld the respondent’s argument and rejected all claims based on clause 49.5. The appellant then filed a petition under Section 34 of the Arbitration Act, which was dismissed by a single judge of the High Court of Delhi, who held that clause 49.5 validly barred the claim. The appellant appealed to a Division Bench of the High Court under Section 37 of the Arbitration Act, but the appeal was also dismissed. The Division Bench affirmed the validity of clause 49.5 and stated that the powers of the Court under Section 37 of the Arbitration Act are limited by Section 34.
Legal Framework
The core of this case revolves around the interpretation and enforceability of clause 49.5 of the General Conditions of Contract (GCC), which reads:
“49.5 Delays due to Employer/Engineer
In the event of any failure or delay by the Employer/Engineer in fulfilling his obligations under the contract, then such failure or delay, shall in no way affect or vitiate the contract or alter the character thereof; or entitle the Contractor to damages or compensation thereof but in any such case, the Engineer shall grant such extension or extensions of time to complete the work, as in his opinion is/are reasonable.”
This clause essentially states that if the employer causes delays, the contractor is not entitled to damages or compensation, but only to an extension of time for project completion. The respondent also relied on clause 12 of the Special Conditions of Contract (SCC) which was read together with clause 49.5 of the GCC as limitation of liability clauses. The appellant contended that this clause was in conflict with Section 23 and 28 of the Indian Contract Act, 1872.
Arguments
Appellant’s Submissions:
- The arbitral award was against public policy and suffered from patent illegality.
- Clause 49.5, which prohibits payment of damages, cannot be enforced as it is against the Indian Contract Act, 1872.
- The Arbitral Tribunal and the High Court failed to appreciate the crucial aspects that struck at the root of the award.
- The finding that clause 49.5 aims to protect the interests of Public Sector Undertakings (PSUs) and the Government is illegal.
- The appellant relied on the decision of the Supreme Court in Pam Developments Pvt. Ltd. v. State of West Bengal to argue that parties cannot contract against the Contract Act.
- The additional documents filed by the appellant should be considered.
Respondent’s Submissions:
- Clause 49.5 of GCC, when read with clause 12 of SCC, are limitation of liability clauses and do not conflict with Section 23 or Section 28 of the Contract Act.
- In case of delay by the employer, a reasonable extension of time can be granted, and price variation can be paid as per the contract.
- The Supreme Court has consistently upheld the enforceability of limitation of liability clauses, citing ONGC v. Wig Brothers Builders and Engineers Private Limited.
- The appellant made an irreversible election to accept the extension of time without liquidated damages and cannot claim additional compensation.
- The appellant agreed not to make any claim other than escalation, and the claim for damages was raised two years after the last extension.
- The appellant has lost the right to challenge clause 49.5.
| Main Submission | Appellant’s Sub-Submissions | Respondent’s Sub-Submissions |
|---|---|---|
| Validity of Clause 49.5 |
|
|
| Acceptance of Extension |
|
|
| Waiver of Clause 49.5 |
|
|
Innovativeness of the argument: The appellant’s argument that clause 49.5 was against public policy and the Indian Contract Act, 1872, is a common challenge to such clauses. However, the respondent’s argument that the appellant had made an irreversible election by accepting the extension of time and giving an undertaking not to claim damages was a strong point that weighed heavily in the court’s decision.
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issue was whether clause 49.5 of the GCC, which barred the contractor from claiming damages for delays caused by the employer, was valid and enforceable.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Validity of Clause 49.5 | Upheld the validity of Clause 49.5 | The clause was not against public policy or the Indian Contract Act. The appellant had accepted the terms of the contract. |
| Enforceability of Clause 49.5 | Enforced the clause against the appellant | The appellant had sought and accepted extensions under Clause 49.5 and had given undertakings not to claim damages. |
| Whether the respondent waived Clause 49.5 | No waiver was found | The respondent granted extensions under Clause 49.5 and did not waive its right to enforce the clause. |
Authorities
Cases Relied Upon by the Court:
- Pam Developments Pvt. Ltd. v. State of West Bengal, [(2019) 8 SCC 112], Supreme Court of India: The appellant relied on this case to argue that parties cannot contract against the Indian Contract Act, 1872.
- ONGC v. Wig Brothers Builders and Engineers Private Limited, [(2010) 13 SCC 377], Supreme Court of India: The respondent relied on this case to argue that the Supreme Court has consistently upheld the enforceability of limitation of liability clauses.
- Larsen Air Conditioning and Refrigeration Company v. Union of India and Ors., [(2023) 15 SCC 472], Supreme Court of India: This case was cited to emphasize the limited scope of interference under Section 37 of the Arbitration Act.
- Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking, [(2023) 9 SCC 85], Supreme Court of India: This case was cited to reiterate that the jurisdiction under Section 37 is akin to that under Section 34 of the Arbitration Act.
- MMTC Ltd. v. Vedanta Ltd., [(2019) 4 SCC 163], Supreme Court of India: This case was cited to clarify the scope of interference under Section 37 of the Arbitration Act.
Legal Provisions Considered:
- Section 16(2) of the Arbitration and Conciliation Act, 1996: This section allows a party to challenge the jurisdiction of the arbitral tribunal. The respondent used this to argue that clause 49.5 of the GCC barred the appellant’s claim for damages.
- Section 34 of the Arbitration and Conciliation Act, 1996: This section allows a party to challenge an arbitral award in court. The appellant filed a petition under this section, which was dismissed by the High Court.
- Section 37 of the Arbitration and Conciliation Act, 1996: This section allows an appeal against an order passed under Section 34. The appellant filed an appeal under this section, which was also dismissed by the High Court.
- Section 23 of the Indian Contract Act, 1872: This section deals with what considerations and objects are lawful and what are not. The appellant argued that clause 49.5 was against public policy and thus void under this section.
- Section 28 of the Indian Contract Act, 1872: This section deals with agreements in restraint of legal proceedings. The appellant argued that clause 49.5 was in restraint of legal proceedings.
| Authority | How the Court Considered It |
|---|---|
| Pam Developments Pvt. Ltd. v. State of West Bengal [Supreme Court of India] | The Court distinguished this case and held that the parties are bound by the terms of the contract. |
| ONGC v. Wig Brothers Builders and Engineers Private Limited [Supreme Court of India] | The Court followed this case to uphold the enforceability of limitation of liability clauses. |
| Larsen Air Conditioning and Refrigeration Company v. Union of India and Ors. [Supreme Court of India] | The Court cited this case to emphasize the limited scope of interference under Section 37 of the Arbitration Act. |
| Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking [Supreme Court of India] | The Court cited this case to reiterate that the jurisdiction under Section 37 is akin to that under Section 34 of the Arbitration Act. |
| MMTC Ltd. v. Vedanta Ltd. [Supreme Court of India] | The Court cited this case to clarify the scope of interference under Section 37 of the Arbitration Act. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Clause 49.5 is against public policy and the Indian Contract Act, 1872. | Rejected. The Court held that clause 49.5 is a valid limitation of liability clause and not against public policy. |
| The respondent waived clause 49.5 by its conduct. | Rejected. The Court found no evidence of waiver and noted that the extensions were granted under clause 49.5. |
| The arbitral award was against public policy and suffered from patent illegality. | Rejected. The Court found that the arbitral award was in accordance with the contract and did not suffer from patent illegality. |
| The appellant’s claim for additional financial burden should have been considered along with the extension. | Rejected. The Court held that the appellant had agreed not to make any claim other than escalation. |
| The additional documents filed by the appellant should be considered. | Rejected. The Court did not find any merit in considering additional documents. |
How each authority was viewed by the Court?
- The Court distinguished the case of Pam Developments Pvt. Ltd. v. State of West Bengal [(2019) 8 SCC 112], stating that the parties are bound by the terms of the contract.
- The Court followed the decision in ONGC v. Wig Brothers Builders and Engineers Private Limited [(2010) 13 SCC 377], upholding the enforceability of limitation of liability clauses.
- The Court cited Larsen Air Conditioning and Refrigeration Company v. Union of India and Ors. [(2023) 15 SCC 472], to emphasize the limited scope of interference under Section 37 of the Arbitration Act.
- The Court cited Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking [(2023) 9 SCC 85], to reiterate that the jurisdiction under Section 37 is akin to that under Section 34 of the Arbitration Act.
- The Court cited MMTC Ltd. v. Vedanta Ltd. [(2019) 4 SCC 163], to clarify the scope of interference under Section 37 of the Arbitration Act.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- Contractual Obligations: The Court emphasized that the parties were bound by the terms of their contract. The appellant had willingly entered into an agreement that included clause 49.5, which explicitly barred claims for damages due to delays caused by the employer.
- Acceptance of Extension: The appellant had repeatedly sought and accepted extensions of time under clause 49.5, which only provided for extensions and not for damages. This conduct was seen as an acceptance of the terms of the contract.
- Undertakings Given: The appellant had given clear undertakings that they would not make any claims other than for escalation. This was a significant factor in the Court’s decision.
- Limited Scope of Interference: The Court reiterated that the scope of interference under Section 37 of the Arbitration Act is limited and that the Court should not re-evaluate the merits of the case.
- No Waiver: The Court found no evidence that the respondent had waived clause 49.5. The respondent’s letter dated 14th October 2013, was interpreted as a rejection of the appellant’s claim for separate financial burden.
| Sentiment Analysis | Percentage |
|---|---|
| Contractual Obligations | 40% |
| Acceptance of Extension | 30% |
| Undertakings Given | 20% |
| Limited Scope of Interference | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning was heavily influenced by the legal principle that parties are bound by the terms of their contract. The Court also considered the conduct of the appellant, who had repeatedly sought and accepted extensions under clause 49.5 and had given undertakings not to claim damages. The Court emphasized that the appellant could not now go back on their contractual obligations. The legal considerations, particularly the interpretation of the contract and the scope of the Arbitration Act, played a significant role in the decision.
Logical Reasoning:
Issue: Validity of Clause 49.5
Court’s Reasoning: Clause 49.5 is a valid limitation of liability clause and not against public policy or the Indian Contract Act.
Appellant’s Conduct: Appellant sought and accepted extensions under Clause 49.5 and gave undertakings not to claim damages.
Conclusion: Appellant is bound by the contract and cannot claim damages.
Key Takeaways
- Enforceability of Limitation Clauses: The Supreme Court has upheld the enforceability of limitation of liability clauses in contracts. Parties are bound by the terms they agree to, even if those terms limit their rights to claim damages.
- Importance of Contractual Terms: It is crucial for parties to carefully review and understand the terms of their contracts, including clauses that limit liability.
- Conduct of Parties: The conduct of the parties during the execution of the contract is a significant factor in determining their rights. Seeking and accepting benefits under a clause can estop a party from challenging that clause later.
- Limited Scope of Interference: Courts have a limited scope of interference in arbitral awards, particularly in appeals under Section 37 of the Arbitration Act.
Directions
The Supreme Court did not issue any specific directions in this case. The appeal was dismissed, and the judgments of the High Court were affirmed.
Development of Law
The ratio decidendi of this case is that parties are bound by the terms of their contracts, including limitation of liability clauses. The Supreme Court has reaffirmed its position that such clauses are enforceable, provided they are not against public policy or in violation of the Indian Contract Act. This judgment reinforces the principle of sanctity of contract and highlights the importance of carefully reviewing contractual terms before entering into an agreement. There is no change in the previous positions of law, but the judgment clarifies the application of limitation of liability clauses in construction contracts and the consequences of accepting benefits under such clauses.
Conclusion
The Supreme Court dismissed the appeal, upholding the High Court’s decision. The Court emphasized that the appellant was bound by clause 49.5 of the GCC, which barred claims for damages due to delays caused by the respondent. The Court found that the appellant had not only agreed to the terms but had also acted upon them by seeking and accepting extensions of time. The judgment underscores the importance of contractual obligations and the limited scope of judicial interference in arbitration matters.
Category
Parent category: Arbitration Law
Child categories:
- Arbitration and Conciliation Act, 1996
- Section 16, Arbitration and Conciliation Act, 1996
- Section 34, Arbitration and Conciliation Act, 1996
- Section 37, Arbitration and Conciliation Act, 1996
- Indian Contract Act, 1872
- Section 23, Indian Contract Act, 1872
- Section 28, Indian Contract Act, 1872
- Limitation of Liability
- Construction Contracts
FAQ
Q: What is a limitation of liability clause in a contract?
A: A limitation of liability clause is a provision in a contract that limits or excludes one party’s liability for certain breaches or damages. In this case, clause 49.5 of the GCC limited the contractor’s right to claim damages for delays caused by the employer.
Q: Can a contractor claim damages if there is a clause in the contract that bars such claims?
A: Generally, no. The Supreme Court upheld the validity of such clauses, stating that parties are bound by the terms of their contract. However, such clauses should not be against public policy or in violation of the Indian Contract Act.
Q: What is the significance of accepting an extension of time under a contract with a limitation of liability clause?
A: Accepting an extension of time under a contract with a limitation of liability clause can be interpreted as an acceptance of the terms of the contract. In this case, the appellant’s repeated requests for extensions under Clause 49.5, which only provided for extensions and not for damages, was seen as an acceptance of the terms of the contract.
Q: What does it mean to give an undertaking in a contract?
A: An undertaking in a contract is a formal promise or agreement to do or not do something. In this case, the appellant gave an undertaking not to make any claims other than for escalation, which was a significant factor in the Court’s decision.
Q: What is the scope of interference by courts in arbitration matters?
A: The scope of interference by courts in arbitration matters is limited, especially in appeals under Section 37 of the Arbitration Act. Courts should not re-evaluate the merits of the case but should only ensure that the arbitral award is not against public policy or in violation of the law.