UEM India Pvt. Ltd. v. ONGC Limited

4. Per contra, the PBG was furnished as per clause 3.[3] of the GCC and could be invoked upon failure of the petitioner to honour the contractual obligations. The LD under clause 6.3.[2] pertains to delay in completion of work. Both the clauses operate in distinct fields. It is argued that the upholding of invocation of the PBG by the tribunal is not under challenge and there were no pleadings for refund of the PBG amount. The impugned award and the order passed under Section 34(4) is defended by stating that a reasoned decision was rendered holding respondent to be entitled to damages of Rs.11,93,45,835/- over and above the LD. Reliance is on the decision of the Supreme Court in SAIL v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63 and the decision of the Calcutta High Court in MBL Infrastructures Ltd. v. Ircon International Ltd., 2017 SCC OnLine Cal 21457 to buttress the argument that damages under heads not covered by the LD can be awarded.

5. Heard learned counsel for the parties at length. Even though written submissions have been filed, learned counsel for the parties while arguing the matter at length have pressed only the contentions noted above.

6. The bone of controversy is limited to awarding of damages of Rs.11,93,45,835/-. The issue arises in two parts: first, as to whether damages were awarded in the original award despite not being reflected in the concluding paragraph and second, whether the damages if awarded are legally sustainable?

7. In paragraph 454 of award, the tribunal considered that the petitioner had performed only 5.86% of the contract and held that the respondent was entitled to encash the PBG. Referring to the decision of the Supreme Court in Kailash Nath Associates (supra) the tribunal in paragraph 461 held that in view of the miniscule fraction of the total work done by the petitioner, the economic viability of the project and the abandonment of the contract by the petitioner, the amount of PBG furnished is to be treated as the quantum of reasonable damages. The decision of the Calcutta High Court in MBL Infrastructures Ltd. (supra) was relied upon for upholding the invocation of the PBG and awarding damages. In paragraph 466 it was observed that 10% of the contract value cannot be said to be unreasonable as damages. Paragraphs 454, 460, 461,465 and 466 of the award are reproduced below:

8. While the matter was being considered pursuant to Section 34(4) of the Act, one of the members of the tribunal expired and a new member was substituted. The proceedings were decided by majority and one of the original members dissented and recorded that damages over and above the LD were not awarded but the majority held that the damages were awarded. Without entering into the validity of the decision pursuant to Section 34(4) of the Act and in view of the settled position that an award has to be read as a whole, it is evident that 10% of the contract value was awarded as damages albeit, the figure was not mentioned in the concluding portion of the award. From the extracted paragraphs of the award, it is clear that the tribunal not only upheld the invocation of the PBG but also recorded a finding that the respondent was entitled to reasonable damages over and above the LD, quantified damages equivalent to the PBG amount.

9. Before dealing with the second limb that as to whether the damages awarded over and above the LD are legally sustainable, it would be relevant to quote the following decisions: 9.[1] The Supreme Court in Unibros vs. All India Radio, 2023 SCC OnLine SC 1366 while dealing with a claim for redressal of loss of profit made under Section 73 of the CA arising from prolongation of the contract held:

9.[2] The Supreme Court in Kailash Nath Associates (supra) held: “43.6. The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.” 9.[3] The Supreme Court in State of Rajasthan v. Ferro Concrete Construction (P) Ltd., (2009) 12 SCC 1 held: “55.While the quantum of evidence required to accept a claim may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be invalid. Suffice it to say that the entire award under this head is wholly illegal and beyond the jurisdiction of the arbitrator, and wholly unsustainable.” 9.[4] The Division Bench of this court in Tower Vision India (P) Ltd. v. Procall (P) Ltd.,2012 SCC OnLine Del 4396 held:

10. Clause 3.[3] of the GCC deals with the PBG. Under clause 3.3.[1] the contractor within two weeks from the date of issue of the NOA had to furnish an unconditional and irrecoverable bank guarantee equivalent to 10% of the contract price for due performance of the contract. As per clause 3.3.[3] the respondent was entitled to invoke the PBG on failure of the petitioner to honour the contractual obligations. Clause 3.3.[5] provides that in case of a delay in completion of the project beyond the scheduled date of completion, the respondent without prejudice to other rights and remedies could operate the PBG for recovery of LD. Clause 6.3.[2] deals with LD for non-completion of work within scheduled time and provides that the respondent may recover LD at the rate of 0.5% per week subject to maximum of 10% of the total contract price. The clause provides that upon partial completion and acceptance of part of the work the LD shall apply only to the balance work. A conjoint reading of clause 3.[3] and clause 6.3.[2] indicates that they operate in different fields. Clause 3.[3] pertains to securing due performance of the contract and enabling invocation of the PBG in case of breach whereas clause 6.3.[2] governs the levy of LD for delay in completion of the work.

11. There is no challenge to the LD awarded for delay in completion of the project. It is undisputed that only 5.86% of the project was completed by the petitioner and consequently the PBG was invoked. The challenge is to the quantification of damages inspite of the failure of the respondent to prove actual loss. Clause 3.[3] provides for furnishing and invocation of the PBG but does not stipulate the quantification of damages. In counter claim nos. 1 to 3, the respondent claimed damages under various heads including payments to third-party vendor, production and revenue losses on account of non-performance, compensation towards establishment costs and for re-tendering of the project however, the claims were rejected for lack of proof. For claiming damages under Section 73 of the CA the claimant has to prove the loss suffered and in case it is not possible to prove the actual damages, a reasonable amount of damages is to be assessed. It was neither the case set up before the tribunal nor it was held that in the facts of present case the actual damages cannot be proved. Rather the respondent failed to prove the counter claims nos. 1 to 3 claiming damages under various heads. In absence of a proof of actual damages and without recording a finding that actual damages could not be proved the tribunal proceeded to conclude that 10% of the contract value shall be a reasonable damages to be awarded over and above the LD. The basis for quantification is missing and the awarding of damages is vitiated for violating Section 31(3) of the Act whereby a reasoned award is to be passed.

12. The Supreme Court in Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1:

13. Another aspect is that for want of evidence three different heads in counter claim nos. 1 to 3 were rejected by the tribunal but damages were quantified without discussing the heads under which the damages were being awarded. This renders the award selfcontradictory, on one hand the tribunal rejects the counter claims under specific heads for want of proof and on the other hand awards damages over and above the LD without identifying the heads of loss suffered. Further while deciding the counter claims for compensation and damages arising from wilful abandonment of the contract it was held that the respondent was only entitled to the LD and no other claims. The award of damages is contrary to public policy being against the law laid down by the Supreme Court and is in violation of Section 73 of the CA.

14. The contention that there were no pleadings for refund of the PBG is rejected. Suffice it to say that the petitioner is not aggrieved by the invocation of the PBG but by the appropriation of the PBG amount. From a perusal of the pleadings, it is evident that the reliefs claimed included the amount of the PBG.

15. There is no quarrel with the proposition that damages for breaches not covered by a clause of LD can be awarded over and above the cap provided for which SAIL (supra) is relied upon.

16. The decision of the Calcutta High Court in MBL Infrastructures Ltd. (supra) is not applicable to the facts of the present case. In that case, the court held that damages for lack of performance of the contract cannot be denied for the reason that the claim for additional expenses was disallowed and there was no nexus between the two claims.

17. The Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1 held that while an arbitral award cannot be modified under Section 34 of the Act, a severable part of the award may be set aside. The relevant paragraphs are quoted below: “32. In the present controversy, the proviso to Section 34(2)(a)(iv) is particularly relevant. It states that if the decisions on matters submitted to arbitration can be separated from those not submitted, only that part of the arbitral award which contains decisions on matters nonsubmitted may be set aside. The proviso, therefore, permits courts to sever the non-arbitrable portions of an award from arbitrable ones. This serves a twofold purpose. First, it aligns with Section 16 of the 1996 Act, which affirms the principle of kompetenz-kompetenz, that is, the arbitrators' competence to determine their own jurisdiction. Secondly, it enables the Court to sever and preserve the “valid” part(s) of the award while setting aside the “invalid” ones. [ The “validity” and “invalidity”, as used here, does not refer to legal validity or merits examination, but validity in terms of the proviso to Section 34(2)(a)(iv) of the 1996 Act.] Indeed, before us, none of the parties have argued that the Court is not empowered to undertake such a segregation.

33. We hold that the power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature. The authority to sever the “invalid” portion of an arbitral award from the “valid” portion, while remaining within the narrow confines of Section 34, is inherent in the Court's jurisdiction when setting aside an award.

34. To this extent, the doctrine of omne majus continet in se minus—the greater power includes the lesser—applies squarely. The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety. This interpretation is practical and pragmatic. It would be incongruous to hold that power to set aside would only mean power to set aside the award in its entirety and not in part. A contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified.

18. In the case in hand, the claims of the petitioner for rendering services, refund of ABG and the counter claim of LD are separable and not inter-connected and shall not be affected by the setting aside of damages of Rs. Rs.11,93,45,835/- awarded to the respondent over and above the LD.

19. The award to the extent of allowing the counter claim of the respondent awarding damages to the tune of PBG over and above the LD is set aside. The petition is allowed. All pending applications are also disposed of.