Overview
The matter pertains to a construction contract between a constructor, Sivashankar and Co., and the Southern Railway. The contractor could not complete the work in the given amount of time, even after certain extensions were granted by the Railways. The last extension provided ended on 30 June 2020. Due to this, disputes arose between the parties and the matter went to arbitration. An award was passed by the tribunal in favour of the Railway.
The case was then challenged under Section 34 of the Arbitration and Conciliation Act, 1996 before the Madras High Court.
The court observed that the matter does not merely pertain to delay in the execution of a contract, but as to whether a party can terminate a contract which has already ended before. The case also answers the question as to whether any interference with an arbitral award can be made under a Section 34 when there is an issue of understanding of basic contractual terms.
Facts
The dispute arose from a construction contract between the petitioner and the respondent. The respondent i.e., the Southern Railway approached the petitioner for construction of a new foot overbridge at the Chennai Egmore Railway Station. Following this, a formal agreement was signed on 27 March 2017. As per the terms of the contract, it was required from the contractor to complete the work within a period of 12 months.
The work wasn’t completed in the given timeframe and certain extensions were granted by the Railways on three separate occasions. After the last extension on 30 June 2020, the contract was terminated by the respondent on 30 September 2020. The Earnest Money Deposit, the Security Deposit and the Performance Guarantee of the contractor was also forfeited.
Disputes arose due to the same and arbitration was invoked as per the contract. As per the petitioner, the termination was illegal as the contract had already ended earlier and that forfeiture of the deposits was unreasonable. It was argued by the respondent that there was failure on the part of the contractor to complete the work in the given amount of time and that the termination was reasonable. The arbitral tribunal upheld the termination of the contract by the respondent and also accepted that the work was unsatisfactory. The tribunal also rejected most of the claims, though a few limited claims were partly allowed.
Aggrieved with the same, the petitioner approached the Madras High Court under Section 34 of the Arbitration and Conciliation Act, 1996. It was alleged that the award suffered from patent illegality and therefore needs to be set aside.
Legal Issues
Decision
The Madras High Court held that the last extension period given to the petitioner expired on 30 June 2020 and the agreement came to an end. Due to this, the respondent had no legal right to terminate the contract.
Three months later, a contract can be terminated when it is still in existence. Since there was no contract alive, the deposits such as Performance Guarantee, Earnest Money Deposit, and Security Deposit could not be practically forfeited.
The contractor was directed to refund these deposits to the respondent. However, as to the issue of loss of profit, the court agreed with the tribunal. As a result, the award was partly set aside while allowing certain monetary claims. Certain costs were also imposed on the respondent.
Case Reference :- Arb. OP(Com. Div). No. 630 of 2022 (SJB, Delivered by N. Anand Venkatesh, J.) Sivashankar and Co. Vs. Divisional Railway Manager, Chennai Division, Southern Railway
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