In a pivotal ruling, the Supreme Court of India reaffirmed the limited scope of judicial interference under Section 37 of the Arbitration and Conciliation Act, 1996, while dismissing an appeal by C&C Constructions Ltd. against IRCON International Ltd.. The Court held that appellate courts cannot reassess the merits of an arbitral award but must only ascertain whether the lower court’s decision under Section 34 exceeded its jurisdiction.
A bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan dismissed the civil appeal (Civil Appeal No. 6657 of 2023), stating that “when an arbitral tribunal reasonably interprets the contract, the court cannot substitute its own interpretation unless the award suffers from patent illegality or violates public policy.”
Background of the Case
The dispute originated from a contract dated June 28, 2012, between C&C Constructions Ltd. (appellant) and IRCON International Ltd. (respondent) for the construction of five Road Over Bridges (ROBs) in Rajasthan. The project faced delays, which C&C Constructions attributed to IRCON, claiming compensation for the additional financial burden incurred. However, IRCON, while granting extensions of time (EOT), invoked Clause 49.5 of the General Conditions of Contract (GCC), which barred any claims for damages due to delays caused by the employer.
Following arbitration proceedings, the Arbitral Tribunal rejected all claims, citing Clause 49.5 of the GCC. The appellant’s subsequent challenge before the Delhi High Court was also dismissed, prompting the appeal before the Supreme Court.
Key Legal Issues Before the Supreme Court
1. Validity and Enforceability of Clause 49.5 of the Contract:
– The clause barred contractors from seeking damages for delays caused by the employer but allowed for extensions of time.
– The appellant contended that such a clause violated Sections 23 and 28 of the Indian Contract Act, 1872.
2. Limited Scope of Interference Under Section 37 of the Arbitration Act:
– Whether the Delhi High Court’s dismissal of the challenge under Section 34 was justified.
– The appellant argued that the Arbitral Tribunal wrongly summarily dismissed its claims without allowing evidence.
3. Waiver and Estoppel:
– The appellant had accepted the contract terms and had given written undertakings that it would not claim anything beyond escalation costs.
– The Supreme Court examined whether C&C Constructions was estopped from challenging Clause 49.5 after acting upon it.
Supreme Court’s Observations and Ruling
1. Contractual Bar on Damages is Enforceable
– The Court upheld Clause 49.5 of the GCC, affirming that parties cannot contract against statutory law but may agree on limitation of liability.
– It reiterated that public sector undertakings (PSUs) are entitled to contractual protection against damages for delays.
2. Arbitral Award Cannot Be Reassessed Under Section 37
– The Court relied on previous rulings in Larsen Air Conditioning v. Union of India and Konkan Railway v. Chenab Bridge Project, stating:
“The scope of interference in an appeal under Section 37 is even narrower than under Section 34. Courts cannot re-evaluate evidence or substitute their view for that of the arbitrator.”
3. Appellant’s Conduct Precluded Challenge to Clause 49.5
– The Court dismissed the argument that the respondent had waived Clause 49.5.
– It held that the appellant had repeatedly invoked Clause 49 to seek extensions and had given undertakings not to claim damages.
4. Final Dismissal of Appeal
– The Supreme Court upheld the Arbitral Tribunal’s decision and the Delhi High Court’s judgment, concluding:
“When a party acts upon a contract clause, it cannot later challenge its validity. The claim was barred by both conduct and contract.”
Key Takeaways
Courts have a very narrow scope of interference in arbitration matters under Section 37.
Contractual clauses limiting damages for employer-caused delays are enforceable.
If a party accepts an extension of time under a contract, it cannot later claim damages.
Public sector contracts often include liability limitation clauses, which remain valid unless proven unlawful.
This ruling is expected to shape future disputes in infrastructure and construction arbitration, emphasizing that contract terms must be respected and honored by both parties.
Case Title: C&C Constructions Ltd. v. IRCON International Ltd.
Case Number: Civil Appeal No. 6657 of 2023
Bench: Justice Abhay S. Oka and Justice Ujjal Bhuyan
