The Karnataka Excessive Court docket, in a ruling on Might 20, dismissed an enchantment by Larsen and Toubro Restricted (L&T) towards the Bengaluru Metro Rail Company Restricted (BMRCL), upholding a decrease court docket’s resolution to nullify an arbitral award of Rs 28.74 crore for losses incurred as a consequence of mission delays.
The judgment was delivered by Justices V Kameswar Rao and S Rachaiah.
“The Tribunal’s award of Rs 28.74 crore, ignoring Clauses 2.2 and eight.3, is a jurisdictional error. An arbitrator, certain by the contract, can’t override its specific phrases, particularly when L&T accepted extensions with out reserving compensation rights, rendering the award opposite to public coverage,” they famous.
The case traces again to a December 2009 contract, whereby L&T was tasked with constructing three elevated Metro stations—Yeshwanthpur, Cleaning soap Manufacturing unit, and Mahalaxmi—for Bengaluru’s Metro system.
The 22-month mission, ruled by Basic Situations of Contract (GCC), stipulated that delays brought on by BMRCL would warrant solely extensions of time (EOTs), not financial compensation, as per Clauses 2.2 and eight.3. Delays emerged as a consequence of land acquisition disputes, resolved by Might 2012, main BMRCL to grant 5 EOTs with out liquidated damages however explicitly prohibiting compensation claims.
Searching for redress for alleged losses, L&T pursued arbitration. In 2018, the Arbitral Tribunal awarded L&T Rs 28.74 crore, referencing the Supreme Court docket’s Basic Supervisor, Northern Railways v. Sarvesh Chopra (2002), which steered contractors might declare compensation in the event that they notified the employer throughout EOT acceptance.
The Tribunal deemed L&T’s communications ample to override the contract’s no-compensation clauses. BMRCL challenged this below Part 34 of the Arbitration and Conciliation Act, 1996, earlier than Bengaluru’s Extra Metropolis Civil and Periods Decide, who, in October 2022, overturned the award, citing its violation of the contract and the Tribunal’s overreach.
Story continues beneath this advert
L&T appealed to the Excessive Court docket, arguing that Clauses 2.2 and eight.3 had been void below the Indian Contract Act, 1872, for being towards public coverage, and that the Periods Decide improperly re-assessed proof. Citing Sarvesh Chopra and precedents like ONGC v. Wig Brothers (2010), L&T claimed BMRCL’s delays amounted to a elementary breach. BMRCL countered that the Tribunal disregarded the contract and authoritative rulings, together with Wig Brothers and Ramnath Worldwide (2007), which uphold no-compensation clauses. They argued L&T’s EOT purposes lacked specific intent to say compensation, failing Sarvesh Chopra’s discover requirement.
The Excessive Court docket dominated in BMRCL’s favour, discovering that L&T’s acceptance of EOTs with out reserving compensation rights precluded later claims. The Court docket clarified that Sarvesh Chopra’s related observations had been non-binding, and L&T’s communications—ambiguous within the first EOT and absent thereafter—didn’t meet discover requirements. The tribunal’s award was deemed a jurisdictional error, breaching public coverage by ignoring contractual phrases and judicial precedents. The court docket additionally criticised the tribunal’s arbitrary 50:50 delay attribution and unsupported harm quantification.
The court docket noticed that “an arbitrator, being a creature of the contract, can’t ignore its specific phrases, and awarding compensation in violation of such phrases constitutes a jurisdictional error towards public coverage.”