Local Residents' Obstruction Not Force Majeure: Delhi High Court Upholds Termination Of IRWO Contract

The Delhi High Court has upheld an arbitral award in favour of the Indian Railway Welfare Organisation (IRWO), affirming the termination of a housing construction contract and forfeiture of the contractor's bank guarantee and security deposit.

The Court held that obstruction by local residents and apprehension of hostility at the site did not fall within the force majeure clause and that the contractor's refusal to resume work amounted to abandonment of the project.

The Bench of Justice Subramonium Prasad observed that, "The learned Arbitrator has interpreted the force majeure clause and has come to the conclusion that the present event on which reliance is placed by the Petitioner will not fall within the four corners of force majeure clause. This Court is in agreement with the view taken by the learned Arbitrator. Even otherwise, as repeatedly held by the Apex Court, the interpretation of a contract, predominantly, is in the domain of the Arbitrator. An award cannot be set aside just because another view is possible or sometimes is even more preferable."

The dispute arose from a tender issued on July 29, 2011, by the Indian Railway Welfare Organisation for construction of 140 dwelling units at Ambattur, Chennai.

Ramsethu Infrastructure, formerly known as APR Projects Pvt. Ltd., was declared the successful bidder with a quoted value of Rs 16.72 crore, and its bid was accepted through a Letter of Intent dated December 27, 2011. The contractor commenced work on February 24, 2012 after furnishing a performance bank guarantee of Rs 83.62 lakh, while the earnest money deposit of Rs 5 lakh was retained as security deposit.

Soon after commencement of work, local residents objected to the project, leading to disruption at the site. The contractor wrote to IRWO in March and April 2012 stating that it was unable to continue work due to obstruction by residents and alleged non-availability of an encumbrance-free site.

Meanwhile, a writ petition filed before the Madras High Court resulted in a status quo order, due to which the work came to a standstill. After the writ petition was dismissed and the status quo order vacated on December 3, 2012, IRWO directed the contractor to resume work.

However, Ramsethu Infrastructure expressed unwillingness to restart the project citing fear of further hostility, and invoked the force majeure clause seeking termination of the contract.

IRWO rejected the request and issued notices in December 2012 and January 2013 calling upon the contractor to resume work, failing which the contract would be rescinded. As the contractor did not restart the work, the contract was terminated, the security deposit of Rs 5 lakh was forfeited and the performance bank guarantee of ₹83.62 lakh was encashed.

The dispute eventually went to arbitration, resulting in an award dated December 23, 2014. The arbitral tribunal rejected the contractor's claims and upheld the termination of the contract, along with the forfeiture of the security deposit and encashment of the performance bank guarantee.

While examining the force majeure clause, the tribunal found that the obstruction by local residents could not be treated as “hostility” or “public enmity” within the meaning of the contract. It also noted that the alleged disruption did not continue for the minimum period required under the clause. After the Madras High Court vacated the stay, the contractor's refusal to restart work was treated as abandonment, particularly since the apprehension of further trouble at the site was not backed by any concrete material.

Ramsethu Infrastructure challenged the award before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996. The company argued that the situation at the site had made performance impossible and that the arbitral tribunal had interpreted the force majeure clause too narrowly.

The Indian Railway Welfare Organisation resisted the challenge, maintaining that the circumstances relied upon by the contractor did not fall within the contractual definition of force majeure and that the contractor had walked away from the project without justification.

After going through the award and the contractual provisions, the Court observed that the tribunal had analysed both the terms of the contract and the surrounding facts in detail before arriving at its conclusions.

The finding that the residents' opposition did not fall within the force majeure clause, and that the alleged obstruction had not continued for the stipulated duration, could not be said to be unsupported by the record. The Court also noted the tribunal's view that the contractor's fear of future hostility was based on assumption rather than evidence.

Reaffirming settled law on the scope of interference under Section 34, the High Court said that interpretation of contractual terms primarily falls within the domain of the arbitral tribunal. A court cannot reassess the evidence or substitute its own view merely because another interpretation is possible, unless the award is shown to be perverse or so unreasonable that it shocks the conscience of the Court.

Finding that none of the statutory grounds for interference were made out, the Court dismissed the petition and left the arbitral award undisturbed, including the termination of the contract and the forfeiture of the security deposit and performance bank guarantee.

For petitioner (Ramsethu Infrastructure): Advocates Gireesh Kumar, Sneha Mathew.

For respondent (Indian Railway Welfare Organisation): Advocates Sulaiman Mohd Khan, Taiba Khan, Gopeshwer Singh Chandel, Abdul Bari Khan, Aditi Chaudhary, Chandra Bose.