Karnataka High Court rejects L&T's Rs 28.74-crore claim against BMRCL in Metro delay dispute

Indian Express

24-05-2025

The Karnataka High Court, in a ruling on May 20, dismissed an appeal by Larsen and Toubro Limited (L&T) against the Bengaluru Metro Rail Corporation Limited (BMRCL), upholding a lower court's decision to nullify an arbitral award of Rs 28.74 crore for losses incurred due to project delays.
The judgment was delivered by Justices V Kameswar Rao and S Rachaiah.
'The Tribunal's award of Rs 28.74 crore, ignoring Clauses 2.2 and 8.3, is a jurisdictional error. An arbitrator, bound by the contract, cannot override its express terms, especially when L&T accepted extensions without reserving compensation rights, rendering the award contrary to public policy,' they noted.
The case traces back to a December 2009 contract, wherein L&T was tasked with building three elevated Metro stations—Yeshwanthpur, Soap Factory, and Mahalaxmi—for Bengaluru's Metro system.
The 22-month project, governed by General Conditions of Contract (GCC), stipulated that delays caused by BMRCL would warrant only extensions of time (EOTs), not monetary compensation, as per Clauses 2.2 and 8.3. Delays emerged due to land acquisition disputes, resolved by May 2012, leading BMRCL to grant five EOTs without liquidated damages but explicitly prohibiting compensation claims.
Seeking redress for alleged losses, L&T pursued arbitration. In 2018, the Arbitral Tribunal awarded L&T Rs 28.74 crore, referencing the Supreme Court's General Manager, Northern Railways v. Sarvesh Chopra (2002), which suggested contractors could claim compensation if they notified the employer during EOT acceptance.
The Tribunal deemed L&T's communications sufficient to override the contract's no-compensation clauses. BMRCL challenged this under Section 34 of the Arbitration and Conciliation Act, 1996, before Bengaluru's Additional City Civil and Sessions Judge, who, in October 2022, overturned the award, citing its violation of the contract and the Tribunal's overreach.
L&T appealed to the High Court, arguing that Clauses 2.2 and 8.3 were void under the Indian Contract Act, 1872, for being against public policy, and that the Sessions Judge improperly re-assessed evidence. Citing Sarvesh Chopra and precedents like ONGC v. Wig Brothers (2010), L&T claimed BMRCL's delays amounted to a fundamental breach. BMRCL countered that the Tribunal disregarded the contract and authoritative rulings, including Wig Brothers and Ramnath International (2007), which uphold no-compensation clauses. They argued L&T's EOT applications lacked explicit intent to claim compensation, failing Sarvesh Chopra's notice requirement.
The High Court ruled in BMRCL's favour, finding that L&T's acceptance of EOTs without reserving compensation rights precluded later claims. The Court clarified that Sarvesh Chopra's relevant observations were non-binding, and L&T's communications—ambiguous in the first EOT and absent thereafter—did not meet notice standards. The tribunal's award was deemed a jurisdictional error, breaching public policy by ignoring contractual terms and judicial precedents. The court also criticised the tribunal's arbitrary 50:50 delay attribution and unsupported damage quantification.
The court observed that 'an arbitrator, being a creature of the contract, cannot ignore its express terms, and awarding compensation in violation of such terms constitutes a jurisdictional error against public policy.'