Case Note & Summary
The Supreme Court of India heard two civil appeals arising from a judgment of the Delhi High Court Division Bench, which had set aside an arbitral award and the Single Judge's order upholding it. The dispute involved a contract between M/s. Mitra Guha Builders (India) Company (appellant-contractor) and Oil and Natural Gas Corporation Limited (ONGC) (respondent) for construction of residential flats. The contractor completed the work with delays, and ONGC levied liquidated damages under Clause 2 of the contract. The contractor invoked arbitration under Clause 25, and the sole Arbitrator allowed the contractor's claims and disallowed ONGC's counterclaim for liquidated damages, holding that the levy was a penalty and that ONGC was substantially responsible for the delay. ONGC challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, but the Single Judge dismissed the petitions. ONGC then appealed under Section 37, and the Division Bench reversed, holding that the levy of liquidated damages was an 'excepted matter' under Clause 2 read with Clause 25 and thus not arbitrable. The Supreme Court considered whether the levy of liquidated damages was an 'excepted matter' and whether the Arbitrator had jurisdiction. The Court held that Clause 2 does not expressly exclude the dispute from arbitration, and Clause 25 provides for arbitration of all disputes. The Court found that the Division Bench erred in reappreciating evidence and in holding that the levy was not a counter-blast. The Supreme Court restored the Arbitrator's award and the Single Judge's order, allowing the appeals.
Headnote
A) Arbitration Law - Arbitrability of Liquidated Damages - Excepted Matters - Clause 2 read with Clause 25 of Contract - The dispute pertained to whether the levy of liquidated damages by the Superintending Engineer under Clause 2 of the contract was an 'excepted matter' excluded from arbitration. The Supreme Court held that the levy of liquidated damages is not an 'excepted matter' and is arbitrable, as Clause 2 does not expressly exclude it from arbitration and Clause 25 provides for arbitration of all disputes. (Paras 1-10) B) Contract Law - Liquidated Damages vs. Penalty - Section 74 of the Indian Contract Act, 1872 - The Arbitrator found that the liquidated damages claimed by ONGC were in the nature of penalty, as the delay was substantially attributable to ONGC. The Supreme Court upheld the Arbitrator's finding that the levy was not justified. (Paras 11-15) C) Arbitration Law - Scope of Appellate Jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996 - The Division Bench of the High Court erred in reappreciating evidence and setting aside the Arbitrator's award and the Single Judge's order. The Supreme Court restored the award, holding that the Division Bench exceeded its jurisdiction under Section 37. (Paras 16-20)
Issue of Consideration
Whether the levy of liquidated damages by the Superintending Engineer under Clause 2 of the contract is an 'excepted matter' and thus not arbitrable.
Final Decision
Appeals allowed; impugned judgment of Division Bench set aside; award of Arbitrator and order of Single Judge restored
Law Points
- Arbitrability of liquidated damages
- Excepted matters in arbitration
- Interpretation of arbitration clauses
- Section 34 and Section 37 of Arbitration and Conciliation Act
- 1996
