The Karnataka High Court has upheld a decision to set aside a ₹28.74 crore arbitration award that had earlier been passed in favour of Larsen and Toubro Limited (L&T) in a construction dispute with Bangalore Metro Rail Corporation Limited (BMRCL)..The case centered on whether contractual "no damage clauses" could bar compensation claims for project delays. The High Court ultimately ruled in favour of the metro corporation, concluding that arbitrators cannot override express contractual provisions..The judgment was delivered on May 20, 2025, by a division bench comprising Justices V Kameswar Rao and S Rachaiah.The judgment highlighted the binding nature of contractual terms."The arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement," it said. .The dispute originated from a contract awarded to Larsen and Toubro for the construction of three elevated metro stations at Yeshwanthpur, Soap Factory, and Mahalaxmi in Bengaluru. BMRCL accepted L&T's tender through a Letter of Acceptance dated June 5, 2009, with the formal agreement executed on December 21, 2009. The original contract period was set at 22 months, with execution governed by General Conditions of Contract and Special Conditions of Contract.The project experienced significant delays, resulting in five separate extensions of time granted by the metro corporation between 2011 and 2014. The delays were attributed to various factors, including litigation over land acquisition, particularly affecting the Soap Factory station, where 15 per cent of the required land was handed over late due to court proceedings that continued until May 10, 2012. The extensions were structured differently, with the first extension allowing price variation but subsequent extensions freezing price variations at specific dates..Critical to the dispute were Clauses 2.2 and 8.3 of the General Conditions of Contract, which explicitly stated that contractors would receive only time extensions for delays caused by employers, with no monetary compensation. Clause 2.2 specifically provided: "For any such delay in handing over of site, Contractors will be entitled to only reasonable extension of time and no monetary claims whatsoever shall be paid or entertained on this account." This "no damage clauses" became the central legal issue in determining compensation rights..An arbitral tribunal initially ruled in favor of Larsen and Toubro in April 2018, awarding ₹28,74,82,181 for losses allegedly suffered due to project delays. The tribunal awarded 50 per cent of the claimed compensation based on its finding that delays were equally attributable to both parties. However, BMRCL challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the contract's no damage clauses specifically barred the grant of any such compensation..An Additional City Civil and Sessions Judge in Bengaluru partially allowed the metro corporation's challenge in October 2022, setting aside the ₹28.74 crore award while leaving other aspects of the arbitration intact. The Sessions Judge concluded that the arbitral tribunal had exceeded its jurisdiction by ignoring express contractual provisions. This ruling was challenged by Larsen and Toubro before the High Court. .The High Court examined whether Larsen and Toubro had satisfied legal requirements for overcoming contractual no damages clauses by providing proper notice of compensation claims. The Court found that the company had failed to meet these requirements. "The appellant has, on each occasion, accepted the extension of time without compensation/damages. The appellant has acted upon the extension of time. Having acted on the extension of time, could not have submitted request for damages/compensation on a subsequent date," the High Court said. .The Court's analysis revealed inconsistent conduct by Larsen and Toubro regarding compensation claims. In five extension applications, only the first contained any reference to financial implications, and even that reference was found insufficient to constitute proper notice. The Court determined that by accepting time extensions without conditions and continuing work, the company had effectively waived any claims for additional compensation.The High Court rejected arguments that no damages clauses violate public policy or statutory provisions of the Indian Contract Act. The Court emphasized that parties cannot retrospectively challenge contract terms they had voluntarily accepted. "The appellant having accepted the said clauses of the GCC without any demur and executed and contract and moreover it has not been shown to us that declaration that the clauses are void has been sought in the claim petition, the prayer to hold clauses 2.2 and 8.3 as void/unconscionable could not have been/cannot be considered," it said. .The judgment addressed jurisdictional limits of arbitral tribunals, with the Court emphasizing that arbitrators cannot override express contractual provisions. The High Court determined that the arbitral tribunal had committed a jurisdictional error by awarding compensation in direct violation of the contract's express terms. The Court found that the tribunal's interpretation of notice requirements was legally flawed and that its decision to award 50 per cent of the claimed compensation to L&T lacked proper legal foundation.In view of these findings, the High Court ultimately dismissed Larsen and Toubro's appeal..L&T was represented by Advocates Anirudh Krishnan, Ramkrishore Karanam, Garima Kirti, and Nischal Dev BR..BMRCL was represented by Senior Advocate Aravind Kamath with Advocates Bala Nikit, and KN Nagaraj.[Read Judgment]
