Compensation for Prolongation of Contract: Reservation of Right Essential

The High Court of Delhi on 9 October, 2023 in the case of Ircon International Limited v. Delhi Metro Rail Corporation [OMP (COMM) 165 of 2023], held that where the Contractor has not reserved its right to receive compensation for prolongation of contract while seeking extension of time (EOT), it cannot later claim compensation.

The instant case involved the supply, testing and commissioning of ballastless track for the Delhi Metro Rail Project. The contract period was for 24 months however, the work was completed after a delay of 18 months and the Delhi Metro Rail Corporation had granted EOT for the entire prolongation of the contract without levying any liquidated damages. The contractor alleged that the prolongation was due to delay in handing over of stretches and taking over of works. The contractor approached the arbitral tribunal claiming compensation for the prolongation of the contract.

The claims were rejected on the grounds that out of the four EOT requests made by the contractor, the right to claim compensation for delay was reserved only on the third occasion. Hence, out of the 18-month period of prolongation 12 months was without any financial implication, as mutually agreed between the parties and therefore the compensation claim for those 12 months were rejected, allowing proportionately, only the claim for the 6-month period wherein the right to compensation was reserved. The present petition was brought under section 34 of the Arbitration and Conciliation Act, 1996 for partial setting aside of the award.

The Court upheld the decision of the arbitral tribunal citing that the arbitral tribunal’s reluctance to award compensation to the petitioner stemmed from the petitioner’s own waiver of the right to claim compensation and such an interpretation of the letters seeking for EOT was well within the judicial prerogative of the arbitral tribunal.