Delhi HC Upholds Award, Says ACC Must Pay Over ₹10 Crore To Engineering Projects For Mining Project Defaults

The Delhi High Court has upheld an arbitral award holding a subcontractor liable to pay over Rs.10 crore to the main contractor under a back-to-back contract for losses caused by its own poor performance.

Justice Harish Vaidyanathan Shankar said: “The recovery of a proportionate share of those penalties from ACC, as the party whose underperformance caused the termination, is a straightforward application of the contractual framework and of the back-to-back principle that governed the parties throughout.”

“The recovery from ACC has been made contingent upon EPI having actually incurred, or being held liable to incur, such differential cost towards SCCL. The afore-said approach espoused by the learned Arbitrator is consistent with the back-to-back arrangement governing the parties, whereby ACC's liability is co-extensive with that of EPI,” the court said.

The dispute traces back to a mining project awarded by Singareni Collieries Company Limited (SCCL) to Engineering Projects (India) Limited (EPI). ACC, run by proprietor EMR Chowdary, agreed to execute the work on the same terms. A work order issued in May 2004 formalised the arrangement and carried SCCL's conditions into the EPI-ACC contract.

The project soon ran into delays. Monthly targets were not met. SCCL terminated EPI's contract on October 1, 2004. EPI terminated ACC's contract on October 8, 2004, blaming it for the shortfall.

SCCL imposed a penalty of around Rs. 1.35 crore for unexecuted work. It also levied around Rs 9.08 crore as the extra cost of getting the remaining work completed through another agency. EPI sought to recover these amounts from ACC under the back-to-back arrangement.

The dispute went to arbitration. The tribunal awarded EPI Rs 1.35 crore towards penalty and Rs 9.08 crore towards differential cost, with the latter payable by ACC only if EPI is required to pay SCCL. It also granted Rs.50 lakh towards forfeiture and around Rs.1.53 crore as interest. Claims for loss of profit and additional expenditure were rejected.

ACC's counterclaims largely failed. It was awarded around Rs 27.92 lakh for unpaid work and around Rs.10.08 lakh for loss of vehicles, both with interest.

Both sides challenged the award. ACC argued that no binding contract existed and that liabilities had been wrongly imposed. EPI defended the award but raised a limited objection to the amount granted towards loss of vehicles.

The Court rejected ACC's challenge, finding that the parties had entered into a binding back-to-back arrangement. It noted that ACC had accepted the same obligations, timelines, and risks as EPI under its contract with SCCL.

On damages, the court upheld the rejection of ACC's claims for loss of profit and goodwill. “ACC had consistently failed to meet the stipulated monthly targets and did not demonstrate the capacity to execute the work at the required scale. In such circumstances, the claim of 15% profit on the balance work is speculative and unsupported by material on record. On the same footing, the claim for loss of goodwill is also unsupported by any material indicating reputational or commercial harm.”

The arbitral award was upheld in all material respects, with the court also dealing with EPI's limited objection separately.

For Petitioner (EMR Chowdary / ACC): Advocates Arjun Natarajan, Ayush Kumar, Nakul Gupta.

For Respondent (Engineering Projects (India) Limited): Advocates Manish Paliwal, Megha Yadav, Srashti Sahu, Trupti Das.