Compensation for prolongation period can’t be granted if the Contractor didn’t reserve claim for compensation while claiming Extension of Time.

In the matter of IRCON International Ltd vs. DMRC O.M.P (COMM) 165/2023, decided by Hon’ble Delhi High Court on 9.10.2023.

Facts of the case-

A contract was executed between the parties for work of Supply, Installation, Testing and commissioning of Ballastless Track of Standard Gauge, Part-I Corridor of sections of Mukundpur-Lajpat Nagar. The work was completed after a delay of 18 months. DMRC had granted extensions of time (EOT) for the entire prolongation of contract without levy of any liquidated damages.

The Contractor contended that time was the essence of the contract and blamed DMRC for the delay of 18 months as DMRC did not hand over the project site timely. Dispute arose between the parties and matter was referred to Arbitral Tribunal (AT) wherein Contractor inter alia sought claim on account of Loss if Profit because of prolongation of contract.

The AT agreed with the contractor and held that time was the essence of the contract, however on the claim of loss of profit, AT noted that contractor sought EOT on four occasion but only on one occasion, the Contractor reserved its right for seeking compensation. AT concluded that out of 18 months of period of prolongation, period of 12 months was without any financial implication and therefore, granted proportionate amount of compensation for the 6 months.

The Contractor challenged the said award under Section 34 of A&C Act. Before the Court, the Contractor argued that even though some clauses of the contract prohibit payment of monetary compensation in the cases of EOT, however, the Contractor can still claim compensation u/s 73 of Indian Contract Act for breach of the contract.

Analysis of the Court–

The Hon’ble Court observed that the Contractor is not required to go as far as to invoke Section 73 of the Contract Act to assail the award, since the AT has rather recognised the Contractor’s right to claim compensation regardless of prohibitive nature of some clauses of the contract. AT’s reluctance to award compensation stems from the Contractor’s own waiver of the right to claim compensation, that happened in the first, second and fourth EOT sought by the Contractor, as opined by the AT. AT read the four extension letters sent by the Contractor and interpreted them to conclude that it was only the third one where the right to claim compensation was reserved. Therefore, according to the AT, out of 18 months of extension, only 6 months were eligible for compensation.

The Court further held that the interpretation of the extension letters by the AT is very well within its judicial prerogative and decided not to re-examine the evidence and re-interpret the same as per its own understanding u/s 34 petition.