Supreme Court Reinforced The Validity Of Clause 49.5, A Clause Limiting Liability In Contracts

This appeal arose from a construction contract dispute between Ms C & C Constructions Ltd vs IRCON International Ltd, where Ms C & C Constructions Ltd., is a contractor which had entered into an agreement to construct five ROBs (Road Over Bridges) for IRCON International Ltd., in the State of Rajasthan. It was agreed that the contractor would construct five ROBs identified as LC-200, LC-89, LC-228, LC-233, and LC-108 with different completion schedules.

Ms C & C, the contractor, thus pleaded that delays caused by IRCON resulted in escalation. Works relating to two ROBs, namely, LC-200 and LC-233, were withdrawn and thus, works relating to only three ROBs, namely, LC-89, LC-228, and LC-108, were in dispute.

Ms C & C sought extensions for project completion and compensation for the delays. IRCON initially imposed penalties for delays, but later granted extensions without penalties. Subsequently, when Ms C & C requested further extensions, IRCON required an undertaking that no claims beyond escalation would be made for the extended period and the construction company provided this undertaking.

Ms C & C invoked arbitration and claimed Rs. 44.11 crores as damages and other costs however, IRCON contended that claims under clause 49.5 of the GCC were excluded. Clause 49.5 provided that in case the employer at IRCON was at fault for delay, the contractor, Ms C & C, would be entitled to a reasonable extension of time but not to damages. The said contention was upheld by the Arbitral Tribunal, which dismissed all claims relying on said clause 49.5.

After the Tribunal, C&C Construction company appealed to the High Court, but the Single Judge bench of High Court dismissed the appeal and maintained the order of the Arbitral Tribunal. The Court ruled clause 49.5 barred the claim, adding that the petitioner-company had accepted the rejection of their claims as far back as 2014. The judge further found clause 49.5 valid.

The construction company further appealed to the Division Bench of the High Court, which also dismissed the appeal holding that clause 49.5 was valid and was never waived by IRCON, highlighting the limited powers of the court in appeals under Section 37 of the Arbitration Act.

Ms C & C Construction then filed the appeal before the Supreme Court arguing against the enforcement of clause 49.5, and on examining whether a clause which excluded damages, such as 49.5, could be invoked, The Apex Court considered clause 49.5 itself and found it was for extensions for delays caused by the employer and did not involve damages. The Court further observed that the construction company had written and received numerous letters referring to clause 49.5 in support of an extension.

The Supreme Court pointed out that Ms C & C Construction had furnished undertakings to the effect that they would not claim damages exceeding escalation, and by requesting the extensions under clause 49.5 and then providing undertakings, the construction company had acquiesced in and acted upon the clause and therefore became "estopped" from arguing its invalidation after all.

On raising the new contentions by the appeallant the Supreme Court further held that it is not proper to raise a contention for the first time at the time of appeal, and the Court indirectly repeated that there would be a limited interference in the appeals under Sec. 37 of the Arbitration Act.

Enforceability of Contractual Clauses: The Court has claimed that indeed a clause in the contract may deprive a party from claiming damages due to delays caused by another party, especially when the same clause provides for extensions of time.

Doctrine of Estoppel: A party acting upon a particular clause in a contract may be prevented from challenging that particular clause in the same contract later on.

Undertakings: The court reiterated that a party is bound by its undertakings and cannot act contrary to the same.

Limited Judicial Interference: There are limited powers of the courts to interfere with the award of the arbitrator, especially in appeals.

In conclusion the Supreme Court dismissed the appeal, thereby confirming the order of the High Court and Arbitral Tribunal, upholding the legality of clause 49.5. and held that no new claims can be raised for the first time in appeal.

Coram: Justice J.B. Pardiwala and Justice R. Mahadevan
Between: M/s C & C Constructions Ltd vs IRCON International Ltd
Date of Judgment: 31.01.2025