Madras High Court Upholds Partial Setting Aside Of Arbitral Awards In Railway Contracts Dispute, Cites GCC Bars

The Madras High Court recently upheld the partial setting aside of arbitral awards in a railway contracts dispute, holding that claims granted by an arbitral tribunal contrary to express contractual prohibitions under the General Conditions of Contract (GCC) are unsustainable.

The court also observed that, in the facts of the case, the contractor's issuance of a “No Claim Certificate” and the agreed GCC clauses barred it from raising further claims against the Railways.

A Division Bench of Justices P. Velmurugan and K. Govindarajan Thilakavadi dismissed appeals filed by Sri Swarna and Co. (SSC), affirming a December 10, 2019 order of a Single Judge, which had partly set aside four arbitral awards arising out of disputes relating to railway track doubling works.

SSC had been awarded four contracts for track doubling works between Shoranur and Mangalore and in the Cannanore–Uppala section under the Southern Railway. Disputes arose during execution of the works, leading to separate arbitrations before a common sole arbitrator.

SSC raised claims under multiple heads, including final bill amounts, refund of security deposit, loss of profit, idle labour, idle machinery, overheads, escalation for work carried out during the extended period, labour amenities and costs. Most of these claims were allowed by the arbitrator.

The Railways challenged the awards under Section 34 of the Arbitration and Conciliation Act, 1996. By a common order dated December 10, 2019, the Single Judge partly allowed the petitions and set aside the awards in respect of claims relating to idle labour and machinery, overheads, enhanced rates during the extended period, loss of profits, and interest. SSC challenged this order under Section 37 of the Act.

SSC contended that the arbitral tribunal had considered all pleadings, evidence, and contractual terms before granting the claims and that the Single Judge had interfered without properly appreciating the reasoning in the awards. It also argued that the Railways had not raised serious objections to several claims before the arbitrator.

Opposing the appeals, the Railways submitted that the claims were barred under Clause 43 and Clause 16(2) of the GCC. It contended that the contractor was required to furnish detailed monthly particulars of any additional claims and that any claim not included therein could not be entertained.

The Railways further pointed out that SSC had issued “No Claim Certificates” in respect of each contract, thereby agreeing not to raise any further claims.

The court examined the GCC provisions and noted that Clause 43 required the contractor to submit full and detailed particulars of claims on a monthly basis, failing which such claims would not be considered. It further noted that Clause 43(2) barred any claims after issuance of a “No Claim Certificate,” and Clause 16(2) prohibited claims for interest.

The bench observed that the Single Judge had undertaken a detailed analysis of each head of claim and found that the arbitral awards suffered from patent flaws.

Claims for idle labour and machinery were made for the entire extended period without establishing actual disruption attributable to the Railways.

The court also found that the arbitrator had allowed claims for overheads and loss of profits without properly examining whether they were supported by evidence.

Escalation, too, had been granted even though the contractor had agreed to carry out the work at the original rates during the extended period.

It further noted that several claims were allowed on the footing that the Railways had not raised serious objections. The Single Judge, however, had taken a different view, relying on the contractual clauses agreed between the parties to hold that such claims could not be sustained.

On the scope of appeal, the bench made it clear that its powers were limited. An appeal under Section 37, it said, is confined to narrow grounds and does not permit a fresh look at the evidence unless there is a clear jurisdictional error or perversity in the order under Section 34.

The court also pointed out that SSC had accepted the terms of the GCC and had agreed to continue the work at the original rates while seeking extensions of time. In such circumstances, it held, the contractor could not later seek escalation or interest for the extended period.

“Furthermore, admittedly, the appellant/Contractor also issued “No Claim” certificate, which also, as per the clauses of GCC, clearly prohibits the appellant/Contractor from making any dues against the Railways, thereafter”

Finding no infirmity in the Single Judge's order, the Court held that the appeals lacked merit and dismissed them.