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Supreme Court reaffirms limited scope of appeal under Section 37 of Arbitration and Conciliation Act, 1996

In the case of M/s. C&C Constructions Limited vs. IRCON International Limited[1], the Hon’ble Supreme Court of India (“Supreme Court”) re-affirmed that Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34 of the Arbitration Act. The Supreme Court also examined the validity of Clause 49.5 of the General Conditions of Contract (“GCC”) which barred the appellant/contractor from claiming damages or compensation for delays caused by the respondent/employer’s failure to fulfil its contractual obligations.

Brief facts

The parties entered into an agreement for the construction of Road Over Bridges (“ROBs”). The agreement provided for dispute resolution through arbitration.
Disputes arose between the parties concerning delays in the completion of the project, the imposition of penalties, and the validity of claims related to these delays.
M/s. C&C Constructions Limited (“Appellant/Contractor”) invoked the arbitration clause, leading to the initiation of arbitration proceedings.
The Appellant had submitted an undertaking for 3 (three) specific locations where ROBs were to be constructed, agreeing not to make any claims other than for escalation due to delays. Despite this, the Appellant later made claims for damages due to delays caused by the Respondent, for which extensions had been granted.
IRCON International Limited (“Respondent/Employer”) filed an application under Section 16(2) of the Arbitration Act, arguing that Clause 49.5 of the GCC barred the Appellant from claiming damages or compensation for delays caused by the Respondent.
Clause 49.5 of GCC states that any failure or delay by the Respondent/Employer in fulfilling contractual obligations does not entitle the Appellant/Contractor to damages or compensation. Instead, the Appellant/Contractor is only entitled to a reasonable extension of time as determined by the Respondent/Employer.
The Arbitral Tribunal passed an award in the Respondent’s application under Section 16 of the Arbitration Act on December 21, 2019, by which all claims were rejected based on clause 49.5 of GCC.
The Appellant challenged the award under Section 34 of the Arbitration Act, before the High Court of Delhi (“Delhi HC”). The Delhi HC dismissed the petition, holding that a term like Clause 49.5 of the GCC would bar the Appellant’s claim. It was also held that Clause 49.5 of the GCC was valid and, after the Appellant accepted the same, it could not contend to the contrary.
Being aggrieved by the Delhi HC’s judgment, the Appellant then appealed under Section 37 of the Arbitration Act to the Division Bench of the Delhi HC. The Division Bench dismissed the appeal, affirming the validity of Clause 49.5 of the GCC and stating that the Respondent had not waived its requirements. Consequently, the Appellant filed a special leave petition before the Supreme Court to appeal against the High Court’s Division Bench’s order.

Issues

The judgment deals with the following issues:

whether Clause 49.5 of the GCC, which prevents the Contractor from claiming damages or compensation for delays caused by the Respondent/Employer, is valid and enforceable?
whether the Respondent had waived the requirements of Clause 49.5 of the GCC through its conduct or communications, thereby allowing the Appellant to make claims for damages despite the clause?

Findings and analysis

Re: Limited scope of interference in appeal under section 37 of the Arbitration Act

The Appellant, for the first time in the appeal before the Supreme Court, invited the Court to examine the validity of Clause 49.5 of the GCC in light of Sections 23 and 28 of the Indian Contract Act, 1872.
The Appellant argued that the Delhi HC should have examined this issue. However, the Supreme Court observed that this contention was not raised by the Appellant either at the Section 34 stage before the learned Single Judge or at the Section 37 stage before the Division Bench. Therefore, the Supreme Court held that it is not open for the Appellant to raise this contention for the first time in the appeal before the Supreme Court.
The Supreme Court also relied on Larsen Air Conditioning and Refrigeration Company vs. Union of India[2] wherein it was held that when an award is upheld or substantially upheld under Section 34 of the Arbitration Act then the scope of appellate court under Section 37 of the Arbitration Act to review the finding in an award becomes narrower.
The Supreme Court also referred to the judgment of Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking[3] to establish that scope of interference by a court in examining an award is limited. The grounds for setting aside or refusing to set aside an award in an appeal under Section 37 of the Arbitration Act is restricted and subject to the same grounds as available under Section 34 of the Arbitration Act.
The Supreme Court found no merit in the appeal and dismissed it, reaffirming the limited scope of interference in appeals under Section 37 of the Arbitration Act.

Re: Findings in relation to clause 49.5 of the GCC

The Supreme Court examined the clause 49.5 of the GCC and concluded that the Appellant had given a solemn undertaking not to make any claim other than for escalation in respect of delays in the completion of work. The claims made were contrary to these undertakings, and only an extension of time was available for such delays. Therefore, the Supreme Court held that by the undertakings, the Appellant agreed not to make a claim contrary to what is provided in clause 49.5 of the GCC. Consequently, by conduct, the Appellant was estopped from challenging the validity of clause 49.5 of the GCC.
The contention in relation to clause 49.5 of the GCC having been waived by the Respondent was raised by the Appellant for the first time before the Division Bench in the appeal under Section 37 of the Arbitration Act. The Supreme Court noted that although such argument could not have been raised at the stage of an appeal, it still examined the same.
On the argument of waiver, On the argument of waiver, the Supreme Court held that the Respondent’s request for the Appellant to submit detailed claims for early processing of the extension requests could not be termed as a waiver of Clause 49.5 by any stretch of the imagination. The argument of waiver of Clause 49.5 was thus rejected by the Supreme Court, and the finding of the High Court’s Division Bench that there was no merit in such contention was upheld.

Conclusion

This judgment reinforces the well-established principle that courts have a limited scope of interference in an arbitral award. It adds to the growing body of precedents that emphasise judicial restraint in arbitration matters. The Supreme Court, in line with prior rulings, reiterated that a high threshold of proof is required to convince the court that an arbitral award is vitiated by any of the grounds enumerated under Section 34 of the Arbitration Act. Mere dissatisfaction with the award or a claim that the tribunal misinterpreted contractual provisions is insufficient to warrant judicial intervention. The Supreme Court also upheld strict interpretation of the contract by the Arbitral Tribunal. When parties enter a contract with full awareness of its terms, then later, a party cannot challenge the contractual terms simply because it ceases to be favorable to one party. The judgment establishes that the parties as well as the Arbitral Tribunal in passing an award and adjudicating the disputes are bound by the terms of the contract.

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