Ircon International Limited v. Magnum Builders & Developers and Chawla Construction (JV)

16. Mr. Prabhakar, learned counsel for the respondent, states that the essence of the entire statement of claim of the respondent is that the original contract stood revived by the letter dated 20.02.2007 and the draft Supplementary Agreement dated 11.07.2007 was annexed with the statement of the claim. He further states that even though not putting it in express words, the effect of the draft Supplementary Agreement has duly been adverted to in the pleadings.

17. He further states that the respondent could not recommence the work after the trial period was over, since the petitioner failed to communicate the commencement date for the applicability of the draft Supplementary Agreement. It is contended that the said Supplementary Agreement was duly executed between the parties, so the original Contract was revived/restored. Further, it is stated that merely because the date of commencement was to be written in the draft Supplementary Agreement, does not make the whole agreement invalid or non-existent.

18. Reliance has been placed by the respondent on the case of Pure Helium India Pvt Ltd v. ONGC, (2003) 8 SCC 593, specifically on Paragraphs 25 to 27, which states that the contract can be interpreted by the Sole Arbitrator in terms of the conduct of the parties and the surrounding circumstances.

19. The Learned Counsel for the respondent has also placed reliance on various judgements to lay down the role of the court while interfering with the Arbitral Award and that it is a limited power, so the interpretation of the contract falls exclusively within the domain of the powers of the Arbitrator and that the Court under Section 34 does not act as an appellate court. Reliance has been placed by the respondent on the following judgements: Mc Dermott International Inc v. Burn Standard Company Limited and Others (2006) 11 SCC 181; Swan Gold Mining Ltd. v. Hindustan Copper Ltd (2015) 5 SCC 739; State of Jharkhand and Others v. HSS Integrated SDN and Another (2019) 9 SCC 798; Associate Builders v. Delhi Development Authority (2015) 3 SCC 49.

20. I have heard learned counsel for the parties and perused the material available on record.

21. Before going into further discussion regarding the present factual matrix, it is important to briefly state the extent and scope of the Court while hearing a petition under Section 34 of the Act. It has been held by the Hon’ble Supreme Court in Consolidated Construction Consortium Ltd. v. Software Technology Parks of India, 2025 SCC OnLine SC 956, particularly paragraph 23, that the Courts exercising power under Section 34 of the Act have limited powers to set aside the Arbitral Award. The Court cannot interfere with the Arbitral Award and substitute the view and interpretation accorded by the Arbitrator, as the Court under Section 34 does not sit in appeal over the findings and decision of the Arbitrator.

22. However, where an Arbitral Award (i) is founded on a premise contrary to the contract, (ii) travels beyond the pleadings and record, (iii) proceeds on a construction that no reasonable person would adopt, or (iv) evinces patent illegality apparent on the face of the award, interference is warranted.

23. In light of the above, the pivotal question that arises is whether revival of the contract through the said draft Supplementary Agreement was ever pleaded before the Sole Arbitrator. All other monetary claims (refunds, loss of profit, interest, costs) came to be allowed by the Sole Arbitrator on the assumption that such revival had in fact taken place and that the petitioner thereafter committed repudiatory breach.

24. In the present factual matrix, the material paragraphs of the statement of claim filed by the respondent in the arbitral proceedings read as under: -

the period of forty five days. The Claimant resumed the work in accordance with this conditional revival of contract w.e.f 12/03/2007 and raised running bill on 28/03/2007 for amount of Rs. 18,75,031.94 against the work executed during the first fortnight. Again on 31st Mar.07 the bill for the month of March 07 was raised by the Claimant for an amount of Rs. 3,13,134.00. The bill for 2nd fortnight working was raised by the Claimant on 14/04/2007 for an amount of Rs. 14,66,551.00. The bill for 3rd fortnight was raised by the Claimant on 30/04/2007 for an amount of Rs. 47,74,122.00. Thus the Claimant have executed the work worth Rs. 84,28,839.00 against the fixed target of Rs. 50.19 lakhs. The Respondent once again exhibited its callous work approach and unprofessional conduct by making part and delayed payments of hardly Rs. 17.00 lakhs against the executed work of Rs. 84.29 lakhs The Respondent further hindered the progress of the project by intermittent and delayed checking of inter-mediate levels of various items. The Respondent further ordered numerous and untimely changes at site causing re-execution of preliminaries of various items. The Claimant achieved the fixed target despite such odds; however the Respondent still did not allow the Claimant to continue with the work. The Respondent, since very inception of the contract, had its own plans to get the work done through the agencies of its choice for vested reasons. The Claimant herein was forced to staff some of such agencies in form of petty contractors. Subsequently the Respondent sought to oust the Claimant from its own project by awarding more and more work to these petty contractors for extraneous considerations. It will not be out of place to mention here that the agencies brought by the Respondent have still not completed the work though it could have been completed long back by the Claimant had the Respondent granted extension of time and extended contractual cooperation within the frame work of duly executed agreement. It is also pertinent to emphasize here that the Respondent have never breathed a single word of complaint against the Claimant that the target fixed for trial period of 45 days has not been achieved. The petty contractors hired by the Claimant on the insistence of the Respondent have executed the work of Claimant part with the tools and tackles of the Claimant even in the period between rescission of Claimant's contract and re-award of work to such petty contractors....

20. Rescission of contract - The order of rescission of contract issued by the Respondent vide its office memo No. IRCON/7001/MAP-Jhansi/404/883 dated 28-09-2006 became in-fructuous due to revival of contract under its office memo no. IRCQN/700.1/MAP-Jhansi/404/106 dated 20th Feb.07 and the fixed targets fixed under such letter were duly achieved by the Claimant and thereafter no further order of rescission of contract was ever issued by the Respondent. The action of revival of contract has made the terminated contract agreement enforced in its entirety, as if it was never terminated. Hence all its clauses and terms and conditions were made applicable in toto. If the Respondent was desirous of rescinding the contract again under said clause-50 or any other clause, the mechanism depicted under the contract was required to be fulfilled completely and so the issuance of notice of 7 days and 48 hours was a vital pre-condition for rescission of this contract. In fact, no such pre-requisite of show cause notice etc. have been fulfilled by the Respondent and no further order for rescission of contract is issued, thus its action for calling tenders at the risk and cost of the Claimant and retaining due sums of Claimant in the name of so called extra cost automatically become null and void ipso facto.”

25. On perusal, it emerges that the case of the respondent was that the termination of the original contract became infructuous since the stipulated targets were achieved, and therefore the contract stood revived. However, the respondent did not plead any specific communication evidencing that the petitioner had, in fact, exercised its discretion to revive the contract. Significantly, no reliance was placed on the draft Supplementary Agreement to infer revival, yet the Sole Arbitrator proceeded to base the impugned Award on that very document.

26. The petitioner, in its reply to statement of claim in the arbitral proceedings, has duly responded to the above stated paragraphs 17 and 20 of the statement of claim, as under: -

unlawfully. The fact of the matter is that there was exceptionally slow progress of work for which claimant himself was responsible. As is clearly evident from the letters/ documents annexed herewith, the total volume of work executed by the claimant during these 17 months i.e, from 26.04.2005 to 26.09.2006 was only about 18% and the claimant failed on every front in proper execution of the work. Admittedly, there were lack of resources, lack of funds and lack of sincerity in performance of work which ultimately led to his termination of contract. Thereafter, the claimant made fervent requests and representations for being given another chance to make up his shortcomings and after due consideration, the respondent allowed him to have a trial run for 3 fortnights beginning from 12.03.2007. This conditional trial run was subject to certain conditions and assurances on behalf of claimant which the claimant had to undertake in terms of the draft supplementary Agreement which was settled by both the parties. The claimant, after being allowed to go for a trial run, even here he was not serious in starting the work immediately on being given such permission. First he, avoided to accept the letter of communication allowing him to work for this trial period of 45 days and after accepting such communication from the respondent, he further sought time for mobilization of resources at site. Even during execution of work during this trial period, he was continuously reminded of the time frame and the proper execution of work. On completion of this trial period, the claimant withdrew himself from the site and never came forward to perform the balance leftover work of the project. Despite, repeated reminders, the claimant failed to come forward to sign the Supplementary Agreement. In such circumstances, the respondent had no other choice but to get the balance work executed at the risk and cost of the claimant as provided in the contract. Whatever work was executed by the claimant during this trial he was paid for the same and there was no delay whatsoever in clearing his bill for the said period. It is denied that the respondent did not allow the claimant to continue the work. It is also vehemently denied that the respondent wanted to get the work of the said project executed by other agencies for vested reasons. The balance work of the project had to be re-tendered because of utter failure on the part of claimant and in this process, considerable time was lost and which in turn has delayed the over all completion of project. It is the claimant who is primarily responsible for delay in execution of work and the work has been re-tendered at the risk and cost of the claimant as per the terms of the contract. The tools and tackles of the claimant could not be used by other contractors as most of the items had been removed from the site by the claimant....

20. It is denied that the termination of contract in terms of the letter dated 28.09.2006 became in-fructuous as the contract was revived by respondent's letter dated 20.02.2007. It is abundantly clear from the letters on record that the revival of contract could have taken place if the contractor/ claimant had signed the Supplementary Agreement and had come forward for execution of balance work. Since the claimant never came forward to sign the Supplementary Agreementand rather abandoned the work after the trial period of 3 fortnights, the contract could not be revived and as a result, the balance work was awarded to other contractors at the risk and cost of the claimant. It is denied that there was any requirement of invoking of clause 50 or any other clause after the contractor/ claimant failed to sign the Supplementary Agreement and abandoned the work.”

27. On perusal, the petitioner was clear that revival was contemplated only upon execution of a concluded Supplementary Agreement, as the draft never matured, essential blanks remained and the respondent, after the trial period, neither executed the Supplementary Agreement nor mobilized for the balance work.

28. In addition, as specifically pleaded in paragraph 3 of its reply to the statement of claim, the petitioner demonstrated that there was an utter failure on the part of the respondent to perform in terms of the contract, as despite time being the essence and the stipulated period for completion being 26.04.2005 to 25.10.2006, only about 18% of the work was executed. The petitioner repeatedly issued warnings, granted several revised timeframes and even offered a conditional revival by way of a 45-day trial run subject to execution of a Supplementary Agreement, yet the respondent failed on each occasion to mobilize and perform.

29. Consequently, the contract was lawfully terminated on 28.09.2006 and the balance work had to be executed at the risk and cost of the respondent, strictly in accordance with the contractual provisions. The petitioner also placed on record extensive correspondence evidencing the callous and casual approach of the respondent, which directly resulted in failure to meet monthly targets and achieve completion. It is further stated that given that the petitioner itself was bound by a back-to-back contract with the Director General, Married Accommodation Project, any delay or loss on account of the defaults of the respondent was necessarily to be passed on to the respondent. Accordingly, the petitioner maintained that there was no breach on its part and on the contrary, the respondent is liable to compensate the petitioner for the additional financial implications arising from its own persistent non-performance.

30. On these rival pleadings, the Sole Arbitrator held as under: - “b) On the request of the claimant vide letter dated 25.01.2007 and again dated 31.01.2007, the contract was revived by the Respondents vide letter dated 20/02/2007 (Page 125, document C[1]) permitting the contractor to work on trial basis for a period of three fortnights laying down financial targets and 12 other conditions during the trial run. In this connection, contents under para 10 and 11 of the contract revival letter dated 20/02/2007 are relevant which are reproduced below: - … Bare reading of above two paragraphs reveals that if the claimant contractor achieves the financial targets of work worth Rs. 50.19 lakhs during the trial period of three fortnights, then the respondent at its discretion may revive the contract. It is not disputed that the Claimant contractor in fact achieved the given target in the trial period of three fortnights and executed work worth Rs. 55,65,230.00 (page 43 of document R 2). The draft supplementary agreement reviving the original contract duly signed by authorised persons of both the parties dated 11/07/2007 also forms part of the pleadings of both the respondents as well as claimants (Pages 398-401 of R[1] and pages 186-189 of C[1]). It is noted that this draft supplementary agreement running into 4 pages is signed on each page by both the parties though operating dates and other columns are left blank to be filled at the time of signing of formal agreement. The signatory on behalf of the respondent is the same officer who signed the original agreement and is also named as the authorized signatory in the draft supplementary agreement. The intention of the parties can be gleaned from paras 3, 4, 5 & 6 of this supplementary agreement which are reproduced below. … c) It can be seen from above that this agreement was conceived after careful consideration of all aspects of the work by both the parties. To be noted in particular is acknowledgement by the respondent that the contractor having satisfactorily completed the targeted value of work during trial period was considered competent to be in a position to complete the balance work. At page 2 of the supplementary agreement, it is further stated that the terms and conditions, scope of work, technical Specifications, special conditions of contract etc. as laid down in the original contract shall remain applicable for this supplementary agreement also in addition to these new clauses now introduced in the supplementary agreement etc. Among other things this draft agreement provided for a 10 and a half months period for completion of work apart from modifying the milestones. Thus, the intentions of the parties were to carry on with the work as usual with revised time schedule and thus the order of rescission dated 28/09/2006 stood withdrawn after this supplementary agreement was signed by authorized representatives of both the parties. Since no formal agreement was signed, specific dates for performance of balance work were not laid down. The time was therefore set at large as no revised target date of completion was fixed. … h) Thus, considering all the facts elaborated above, I hold that the respondents were in breach, the respondents were responsible for repudiation of the contract and thus execution of balance work at risk and cost of the claimant is bad in law.” (emphasis applied)

31. A perusal of the impugned Award shows that the Sole Arbitrator has placed reliance on the terms of the draft Supplementary Agreement and has proceeded on the assumption that the originalAgreement was in existence and binding upon the parties upon the execution of the draft Supplementary Agreement. The Sole Arbitrator has drawn conclusions on the intention of the parties from paragraphs 3, 4, 5 and 6 of the draft Supplementary Agreement and has held that, in view thereof, (i) the Order of rescission dated 28.09.2006 stood withdrawn, (ii) the parties were intending to carry out the work with revised time schedules and (iii) “time was set at large” with no further revised target date of completion fixed. These findings have formed the very basis for awarding the claims in favour of the respondent.

32. However, this line of reasoning suffers from multiple legal infirmities. A perusal of paragraphs 17 and 20 of the statement of claim, reproduced above, makes it abundantly clear that the respondent never set up a case premised on the execution or binding force of the Supplementary Agreement. The only case pleaded was that the petitioner did not allow the respondent to continue the work after issuance of the letter dated 20.02.2007. In the entire statement of claim, there is not even a reference to the execution of the Supplementary Agreement or to any alteration of rights and obligations of the parties arising therefrom. It was never the case of the respondent that by reason of such an agreement the timelines fixed in the original contract stood extinguished, or that the parties had agreed afresh to be governed by the terms and conditions of the draft Supplementary Agreement.

33. The Sole Arbitrator, therefore, travelled wholly beyond the pleadings by treating the draft Supplementary Agreement as if it were the foundation of the claim and by proceeding to determine issues which were never pleaded or put in contest. The impugned Award thus rests on a completely new set of facts introduced suo motu by the Sole Arbitrator, denying the petitioner any opportunity to meet the same. This approach is ex facie violative of the principles of natural justice and runs contrary to the basic notions of fair play.

34. Pleadings form the foundation of the claims and counterclaims which the Arbitrator is required to adjudicate. The issues or points for determination are to be framed on the basis of the pleadings of the parties, and the Arbitrator has to decide the matter within that framework. Pronouncing an Award or adjudicating claims de hors the pleadings of the parties would be contrary to law and principles of natural justice. In doing so, the Arbitrator would base the award on facts or principles of law that were never placed before him in the first instance. An Arbitral Award that travels beyond the pleadings and decides on matters never in issue suffers from patent illegality apparent on the face of the record, warranting interference under Section 34 of the Act.

35. Secondly, the reasoning adopted by the Sole Arbitrator is flawed on the merits of the documents themselves. Where parties expressly agree that revival shall be at the sole discretion of the petitioner and condition such revival upon further formalization through a Supplementary Agreement with operative dates, bar chart and milestones, mere achievement of trial targets cannot, by itself, effect revival. The draft relied upon was ex facie incomplete, with blanks regarding commencement date and milestone triggers elements that go to the heart of a time-bound construction contract. The presence of signatures on every page of a draft, in the face of acknowledged blanks and the mutual understanding that a formal agreement would follow, does not convert such a draft into a concluded contract as there was no consensus ad idem on essential terms.

36. Thirdly, the finding that “time was set at large” is wholly unsustainable. The doctrine is invoked where parties abandon fixed timelines altogether. Here, the very premise of the draft Supplementary Agreement was to re-fix a defined completion period of 10½ months with milestones. The blanks left in the draft were not incidental but essential and were intended to be filled upon formalization. To treat the absence of dates as a basis to declare “time is set at large” is to invert the bargain of the parties in the contractual framework.

37. There is no contemporaneous communication evidencing withdrawal of termination. The letter dated 20.02.2007 merely contemplated a discretionary trial run, revival being subject to execution of a concluded Supplementary Agreement. By imputing revival without such pleading or proof and by deeming an incomplete draft as concluded while dispensing with operative conditions, the Sole Arbitrator effectively rewrote the contract, an exercise impermissible in law, since an Arbitrator himself, being a creature of the contract, cannot alter its terms. Reliance is placed on Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463 more particularly on paragraph 43, which reads as under:

38. Consequently, once the premise of revival collapses as the Draft Supplementary Agreement was never pleaded before the Sole Arbitrator, all further findings of the Sole Arbitrator, namely, breach by the petitioner, repudiation, invalidity of risk-and-cost action, cannot stand. The petitioner was entitled to proceed under the termination already in force. The inability of the respondent to point to a concluded revival instrument is fatal to its claim. Moreover, the monetary awards (refund of security deposit, refund of performance guarantee, loss of profit, value of tools and plants, and interest components) are all premised on the supposed revival and, hence, lack independent footing. The rejection of counter-claims is also vitiated, being founded on the same erroneous premise.

39. Hence, the impugned Award is vitiated on multiple counts: (i) travelling beyond the pleadings, (ii) reliance on a non-existent contract, (iii) misreading of the letter dated 20.02.2007, and (iv) consequential grant of monetary reliefs without any legal foundation. The impugned Award, thus, suffers from perversity and patent illegality. The findings in the impugned Award that (i) the termination dated 28.09.2006 stood withdrawn, (ii) the Contract stood revived, (iii) the petitioner repudiated the revived Contract, and (iv) the risk-and-cost action was unlawful, are unsustainable. These conclusions rest on a premise neither pleaded nor proved and amount to a rewriting of the contractual framework agreed between the parties.

40. As a necessary corollary, the monetary awards under Claims 2, 3, 4, 6, 11, 12, and costs under Claim 13 lack an independent foundation and are equally liable to be set aside.

41. For these reasons, the impugned Arbitral Award dated 15.01.2015 passed by the Sole Arbitrator in the matter between “M/s. Magnum Builders and Developers and Chawla Construction (JV) vs. Ircon International Ltd.”, is hereby set aside.

42. The amounts, if any, deposited pursuant to interim orders be released to the petitioner upon expiry of 8 weeks from the date of uploading of this judgment.

43. The petition is disposed of in the aforesaid terms.