Contractor's Claim for Damages Denied: Supreme Court Upholds "No-Damages-For-Delay" Clause


Court: Supreme Court of India.

Case Name: M/S C AND C CONSTRUCTIONS LTD. vs. IRCON INTERNATIONAL LTD..

Citation: 2025 INSC 138 (Reportable)

Factual Background

  • An agreement was signed on June 28, 2012, between M/s C&C Constructions Ltd. (appellant) and IRCON International Ltd. (respondent) for the construction of five Road Over Bridges (ROBs) and their approaches in Rajasthan.

  • The ROB locations were designated as LC-200, LC-89, LC-228, LC-233, and LC-108, with different scheduled completion dates.

  • The scheduled completion dates for LC-89 and LC-228 were September 15, 2013, and for LC-108, it was July 16, 2013.

  • The appellant claimed delays in the work were attributable to the respondent.

  • The work related to LC-200 and LC-233 was withdrawn by the respondent.

  • The work at LC-89 was completed on October 8, 2014, and LC-228 on March 21, 2015.

  • The appellant claimed that work at LC-108 was completed on March 31, 2017.

  • The dispute centered around whether the appellant could claim damages for delays, given clause 49.5 of the General Conditions of Contract (GCC).

Initial Requests and Extensions

  • On June 19, 2013, the appellant requested a 264-day extension for the delay at LC-108, citing hindrances at the site and mentioning that it would separately claim for additional financial burden.

  • Separate requests for extensions were made on August 30, 2013 for LC-89 (430 days) and LC-228 (437 days), similarly mentioning claims for financial burden.

  • The respondent stated that the claim for financial burden had to be considered along with extension requests.

  • On November 29, 2013, the respondent granted extensions with penalties for LC-228 and LC-89, and without penalty for LC-108.

  • Further extensions were requested by the appellant without penalties for LC-89, LC-228, and LC-108, on February 28, 2014, April 9, 2014, and April 19, 2014, respectively.

  • On May 24, 2014, the respondent granted these further extensions without penalties.

Claims for Damages and Rejection

  • The appellant submitted separate claims for damages on September 3, 2014, concerning delays at LC-89, LC-228, and LC-108.

  • The respondent rejected these claims on October 14, 2014, citing clause 49 of the GCC and that the claims had been discussed and would be dealt with alongside the time extensions, which had already been resolved.

  • The respondent reminded the appellant that the lines "it is also to mention here that delay in work is resulting in additional financial burden on us" were removed from the extension request letter earlier, and that the appellant had agreed with that.

Undertakings and Arbitration

  • The appellant applied for further time extensions on January 8, 2015, and the respondent asked for an undertaking that no extra claim would be made, other than escalation for work done during the extension.

  • The appellant submitted undertakings on January 14, 2015, agreeing not to make claims other than escalation due to delays that resulted in time extensions.

  • On January 25, 2017, the appellant invoked the arbitration clause, claiming ₹44.11 crores with interest and costs.

  • The respondent filed its defense on August 25, 2017.

  • The Arbitral Tribunal rejected all the appellant's claims on December 21, 2019, based on clause 49.5 of the GCC.

High Court and Supreme Court Decisions

  • In 2021, the appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, in the Delhi High Court, which was dismissed.

  • The Division Bench of the Delhi High Court dismissed the appellant's appeal under Section 37 of the Arbitration Act on March 1, 2021.

  • The Supreme Court of India dismissed the appeal on January 31, 2025, upholding the High Court judgment.

Clause 49.5 of the GCC

  • Clause 49.5 of the GCC states that if the employer (respondent) causes delays, the contractor (appellant) is not entitled to damages or compensation. Instead, they are only eligible for an extension of time.

  • This clause was central to the respondent's defense against the appellant's claims.

Rationale

  • The court held that the appellant's claims were barred by clause 49.5 of the GCC, which explicitly disallowed claims for damages due to delays by the employer.

  • The court noted that the appellant had repeatedly requested and accepted extensions of time without penalties, and specifically undertook not to claim extra payment other than escalation.

  • The appellant’s conduct of seeking extensions under clause 49 and giving undertakings not to claim damages, indicated their acceptance of the terms of the contract and its limitations on compensation.

  • The court determined that the appellant could not challenge the validity of the contract clause after having acted upon it and given such undertakings.

  • The Supreme Court highlighted the limited scope for interference by courts in arbitration matters, particularly under Section 37 of the Arbitration and Conciliation Act, 1996, if the original arbitral award had been substantially upheld at a prior stage.

  • The court also held that the argument of the invalidity of clause 49.5, based on Sections 23 and 28 of the Contract Act, could not be raised for the first time in the Supreme Court, as it was not raised before the lower courts.

  • The court also rejected the argument of waiver of clause 49.5 by the respondent. The court found the respondent's letter dated October 14, 2013 stating that the financial burden claim and extension of time must be considered together, did not constitute waiver of clause 49.5.

  • The court emphasized that the appellant invoked clause 49 of GCC multiple times for seeking extensions and there is no other sub-clause in clause 49 providing extension in case of delay due to respondent.

Excerpt

  • "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.”

  • "We, therefore, undertake that we will not make any claim other than Escalation against the IRCON because of the delay in completion of which extension of time has been sought by us.”

  • "The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality i.e. that “illegality must go to the root of the matter and cannot be of a trivial nature”; and that the Tribunal “must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground”

Points to Remember

  • Enforceability of "No-Damages-For-Delay" Clauses: The judgment reinforces the validity of clauses like 49.5 in contracts, which restrict a contractor's right to claim damages for delays caused by the employer, limiting them to only seeking an extension of time.

  • Importance of Undertakings: The undertakings given by the appellant, stating they would not claim any amount besides escalation due to delays, were crucial evidence in the case.

  • Limited Scope of Court Interference in Arbitration Matters: The courts have a limited scope to interfere in arbitration matters, particularly under Section 37 of the Arbitration and Conciliation Act, 1996, if the original arbitral award has been upheld at an earlier stage.

  • Conduct of Parties: The court considered the conduct of the parties and held that the appellant was estopped from challenging the validity of clause 49.5 due to the requests for extensions under the clause and giving of undertakings.

  • Contractual Terms and Estoppel: Parties will be bound by their acceptance of contractual terms and by the principle of estoppel.

Conclusion

The Supreme Court's decision in M/S C AND C CONSTRUCTIONS LTD. vs. IRCON INTERNATIONAL LTD. reaffirms the enforceability of "no-damages-for-delay" clauses in contracts and underscores the importance of carefully reviewing contractual terms before signing. It highlights that parties will be bound by their acceptance of contractual terms and by the principle of estoppel. The decision also reinforces the limited scope for judicial interference in arbitration matters, emphasizing that if the Arbitral Tribunal had not acted contrary to the terms of contract, or if there is no illegality in their decision, the courts have limited powers to interfere. This case also acts as a cautionary tale of parties not to make claims contrary to their signed undertakings.

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