Delhi High Court Sets Limits on Contractor Delay Claims: Proof of Loss Required

Delhi High Court Sets Limits on Contractor Delay Claims: Proof of Loss Required

The High Court in Delhi has determined that a contractor cannot automatically receive compensation for damages due to work delays caused by the employer. It is essential for the contractor to not only assert but also substantiate with evidence that the delay has led to a financial loss for them.

Justices Vibhu Bakhru and Tara Vitasta Ganju of the bench clarified that an initial procedural order by a previous arbitrator, which does not constitute a conclusive judgment on the case’s substance, does not prevent a subsequent arbitrator from deciding based on the actual merits of the claims. They stated that such an order should not be considered a provisional award if the matter is intended to be resolved based on its merits at a future point.

On December 15, 2012, an agreement was signed for the refurbishment of certain premises, with a completion deadline set for six months. However, the project encountered a 458-day delay. The appellant sought financial reparation for this postponement and for funds allegedly retained improperly by the respondent. When the two parties could not agree on an arbitrator, the court instructed the DIAC to make the appointment.

Subsequently, the tribunal identified a potential issue regarding the validity of the claim’s basis and instructed both parties to present evidence on this and other matters. Before the evidence gathering was finalised, the respondent petitioned under Section 13 of the Arbitration and Conciliation Act to end the arbitrator’s service. The tribunal, however, noted that the appellant’s claims had adequate grounds to proceed.

Later, a new arbitrator was appointed under Section 29A, who then proceeded with the arbitration and ultimately rejected most of the appellant’s claims due to a lack of demonstrated loss of profit. Dissatisfied, the appellant took the matter to the commercial court, but the initial ruling was upheld, leading to an appeal under Section 37 of the Act.

The appellant contested the decision, arguing that it contradicted a previous ruling by the initial arbitrator who had acknowledged a solid basis for the appellant’s claims. They asserted that the subsequent arbitrator should adhere to the earlier arbitrator’s findings and continue the proceedings from where they were left off, as mandated by Section 29A(6) of the Act, without deviating from those conclusions.

In response, the respondent contended that the order in question was merely procedural and did not represent a conclusive judgment on the substantive issues of the case.

The Court noted that the cause of action matter was contingent on the completion of evidence submission by both parties. The order cited by the appellant was issued before this completion, and its observations were preliminary rather than conclusive. The Court emphasised that such preliminary observations by a previous arbitrator do not restrict a succeeding arbitrator from independently assessing the claims. It was stated that an order should not be seen as a temporary award if the related issue is scheduled for a substantive decision later.

Upon reviewing the merits, the Court acknowledged that the tribunals had recognised the respondent’s accountability for the work delay. Nevertheless, the appellant’s claims were rejected due to their inability to establish and quantify the loss incurred from these delays. Consequently, the Court ruled out any intervention under Section 34, leading to the dismissal of the application.