Case Note & Summary
The petitioner, Chennai Port Trust, issued a tender for restoration of a damaged revetment structure after cyclones. The respondent, a contractor, was awarded the contract and work commenced on 18.10.2013 with a completion date of 17.8.2014. However, the work was completed only on 24.9.2016, a delay of 768 days. The petitioner withheld Rs.49,19,960/- as liquidated damages. The respondent invoked arbitration, and an arbitrator was appointed by the High Court. The arbitrator passed an award on 06.4.2022 allowing the respondent's claims, including refund of liquidated damages, payment for extra items, and interest. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The court held that the arbitrator's decision to refund liquidated damages was patently illegal as the contractor had delayed completion by 768 days and failed to prove that no loss was caused. The court set aside the award to the extent of refund of liquidated damages and certain other claims, but upheld the award on interest and other items. The petition was partly allowed.
Headnote
A) Arbitration - Section 34 Petition - Public Policy - Patent Illegality - The court examined whether the arbitral award suffered from patent illegality or was in conflict with public policy under Section 34(2)(b) of the Arbitration and Conciliation Act, 1996 - Held that the award allowing refund of liquidated damages without considering the contractor's delay and the employer's entitlement under the contract was patently illegal and set aside (Paras 1-29). B) Contract - Liquidated Damages - Extension of Time - Section 55 of Indian Contract Act, 1872 - The court considered whether the employer was entitled to recover liquidated damages for delay in completion of work where extensions were granted without levy of damages - Held that mere grant of extension does not bar recovery of liquidated damages if the contractor fails to prove that no loss was caused by the delay (Paras 10-20). C) Arbitration - Interest - Award of Interest - The court examined the award of interest on delayed payments and held that the arbitrator's discretion on rate and period is not ordinarily interfered with unless it is patently illegal - Held that the interest awarded at 12% per annum was not excessive and was upheld (Paras 21-25).
Issue of Consideration
Whether the arbitral award allowing refund of liquidated damages and other claims is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on grounds of patent illegality and conflict with public policy.
Final Decision
The petition is partly allowed. The arbitral award dated 06.4.2022 is set aside to the extent it directed refund of liquidated damages of Rs.49,19,960/- and certain other claims. The award on interest and other items is upheld.
Law Points
- Section 34 of Arbitration and Conciliation Act
- 1996
- public policy
- patent illegality
- liquidated damages
- Section 55 of Indian Contract Act
- 1872
- extension of time
- no loss proof
