M/s. Sunrise & Engineering Industries v. Sri Batlanki Venkata Subbarao

GANDHIGRAM VISAKHAPATNAM-530005 REP. BY ITS ADDITIONAL GENERAL MANAGER (LAW) SRI BATLANKI VENKATA SUBBA RAOS/O ETHIRAJULU AGED 58 YEARS R/O VISAKHAPATNAM LIMITED,

2. A NARASINGA RAO, SOLE ARBITRATOR R/O FLAT NO. 405, ANNAPURNA ARCADE MIDHILAPURI ROAD, VISAKHAPATNAM ..RESPONDENT/ RESPONDENT (R 2 NOT NECESSASARY PARTY) NO RELIEF SOUGHT AGAINST R2 HENCE R2 ARE NOT NECESSARY PARTIE) 4 RRR,J & TCDS,J CMA.No.234 of 2025 & batch Appeal Under Section_____against orders pleased to set aside the Decree and Judgment dated 03.01.2025 in ARB.OP.No. 257 of 2017 on the file of the XI Additional District Judge, Visakhapatnam ...RESPONDENT(S): Counsel for the Appellant:

1. K SRINIVASA RAO Counsel for the Respondent(S):

1. G RAMESH BABU Date of Reserved : 09.12.2025 Date of Pronouncement : 31.12.2025 Date of Upload : 31.12.2025 5 RRR,J & TCDS,J CMA.No.234 of 2025 & batch The Court made the following Common Judgment: (per Hon’ble Sri Justice R. Raghunandan Rao) As all these appeals raise the same issues and arise out of awards passed by the same Arbitrator, they are being disposed of, by way of this common judgment.

2. Respondent No.1 in all these cases is a Public Sector Undertaking, involved in the construction, fabrication and repairs of various kinds of vessels and other works. The 1st respondent had awarded sub-contracts to various sub-contractors for the aforesaid works. These contracts were awarded under separate work orders. All these work orders contained timelines within which the work was to be completed. In the event of failure to adhere to the timeline, all the contracts provided for liquidated damages to be levied @ 2% per week of delay up to a maximum of 20% of the contract value. The 1st respondent, on the ground that there was delay in all the aforesaid contracts, awarded to the appellants herein, had levied liquidated damages of 20% of the contract value and deducted the same in the bills of the appellants. Aggrieved by the said deduction of liquidated damages, the appellants sought reference to arbitration. A common arbitrator was appointed in all these cases.

3. The details of the claims made by the appellants and the awards passed by the learned Arbitrator are contained in the table set out below: 6 RRR,J & TCDS,J CMA.No.234 of 2025 & batch S.No Name of the Petitioner Arbitration case number and Date of Arbitral Award Arbitration OP NO and date of order CMA NO 1 2 3 4 5 6 7 8 9 Sun rise and engineering industries 001 of 2013 05/11/2016 ARB OP 257 of 2017 03/01/2025 234 of 2025 Swapna fabrications and constructions 003 of 2013 05/11/2016 ARB OP 2261 of 2017 03/01/2025 242 of 2025 Sri Srinivasa engineering Works 013 of 2013 05/11/2016 ARB OP 266 of 2017 03/01/2025 243 of 2025 Nest builders and engineers 012 of 2013 05/11/2016 ARB OP 259 of 2017 03/01/2025 244 of 2025 Nest builders and engineers 007 of 2013 05/11/2016 ARB OP 264 of 2017 03/01/2025 245 of 2025 Bharat steel fabrication works 015 of 2013 05/11/2016 ARB OP 256 of 2017 03/01/2025 246 of 2025 Sri Srinivasa engineering Works 014 of 2013 05/11/2016 ARB OP 255 of 2017 03/01/2025 247 of 2025 Swapna fabrications and constructions 010 of 2013 05/11/2016 ARB OP 262 of 2017 03/01/2025 248 of 2025 Bharat steel fabrication works 008 of 2013 05/11/2016 ARB OP 254 of 2017 03/01/2025 249 of 2025 10 Perfect People 009 of 2013 05/11/2016 ARB OP 263 of 2017 03/01/2025 253 of 2025 11 12 13 KIM Fabs 004 of 2013 05/11/2016 ARB OP 265 of 2017 03/01/2025 257 of 2025 Patel Engineering Works 006 of 2013 05/11/2016 ARB OP 258 of 2017 03/01/2025 258 of 2025 Sunrise Engineering Industries 005 of 2013 05/11/2016 ARB OP 260 of 2017 03/01/2025 259 of 2025 7 RRR,J & TCDS,J CMA.No.234 of 2025 & batch

4. In all these claims, the case of the claimants can be placed under three heads. i) The delay in the execution of the works entrusted to the appellants, were on account of the inaction as well as actions of the respondent herein including delay in providing clear facilities at ground level for works to be carried on, unrealistic work schedules, insufficient work area, not providing crane facility in needed times, delay in supply of consumables and processed elements, delay in clearing inter dependencies, delayed payments for completed works etc. The claimants contended that all these issues were brought to the notice of the respondents on a number of occasions and in relation to each of the works in particular. Thus, the delay in adherence to time schedule was not on account of claimants but only on account of the respondent. ii) Similarly constituted contractors who had been awarded similar works had not been levied with liquidated damages and in some cases, revised schedules were also given with liquidated damage being reduced to 0.5% per week of delay subject to a maximum of 5% of the tender value. iii) The quantum of liquidated damages @ 2% per week of delay subject to a maximum of 20% of the work is exorbitant, unconscionable, arbitrary, unjust, oppressive, illegal and unenforceable. This arbitrary conduct is further made out as similar works awarded by the respondent contained clause 8 RRR,J & TCDS,J CMA.No.234 of 2025 & batch stipulating liquidated damages @0.5% per week subject to a maximum of 10% of value. iv) Though the contract contains a clause for liquidated damages, the respondent did not allege, at any point of time, that it had suffered any loss on account of alleged delay and deducted liquidated damages merely because such a clause was available in the tender document. Such deduction could not have been done without actual loss being suffered by the respondent and without such loss being brought to the notice of the appellants. v) Once the respondent is at fault for delay, the liquidated damages clause could not have been applied mechanically. The respondent cannot levy liquidated damages as the respondent had acquiesced in the delay as no notice was given to the appellants that time was being extended subject to the liquidated damages clause.

5. The respondent filed counter affidavits, resisting the aforesaid claims. In the counter affidavit, the respondent claimed that the claimant having signed the contract, which included the liquidated damages clause, cannot challenge the same on the ground that the liquidated damages is exorbitant or the other grounds raised in the claim petition. The respondent contended that the delay in completion of the total work resulted in delay in delivery of the vessels due to which the owners of the vessels had levied liquidated damages on the respondent and as such, the respondent is entitled 9 RRR,J & TCDS,J CMA.No.234 of 2025 & batch to levy liquidated damages as per the terms of the contract. The fact that liquidated damages were refunded in some cases would only go to show that the respondent had acted fairly and such refunds were given where extension of time was considered well before submission of final invoices and wherever work orders were amended prior to submission of the 100% bills. As the appellants had failed to obtain extension of time before submission of final bills, the question of refunding the liquidated damages wound not arise. The contention that liquidated damages cannot be deducted as appellants were not put on notice is incorrect as the respondent was at liberty to deduct liquidated damages, in the event of delay in execution of the work and liquidated damages were imposed only after a technical committee had thoroughly analyzed the reasons for delay.

6. The learned Arbitrator on the basis of the said pleadings had framed the following issues:

1. Whether the LD clause is legal and valid or not?

2. Whether the 20% LD is exorbitant?

3. Whether the delay is attributable to the Claimant or respondent?

4. Whether the respondent is justified in imposing LD?

5. Whether the Claimant is entitled to seek refund of LD?

6. If so, whether they are entitled for interest for the said amount?

7. Whether the Claimant is entitled to costs of Arbitration?

8. Whether the claims are barred by limitation? 10 RRR,J & TCDS,J CMA.No.234 of 2025 & batch

7. Thereafter, the learned Arbitrator considered the issues raised in the respective arbitral proceedings, and passed awards in favour of the appellants.

8. In the awards, learned Arbitrator had recorded submissions of the respondent. Apart from this, the learned Arbitrator had also marked the documents which had been marked as exhibits by the appellants as well as the respondent. These documents include letters by the appellants to the respondent regarding the delay in execution of the works as well as the extension of delivery given by the respondent. As far as the issues 1 and 2 are concerned, the learned Arbitrator held that the liquidated damages clause is legal. However, on the question of the quantum of liquidated damages, the learned Arbitrator while not accepting the description of the liquidated damages clause, as being inordinately exorbitant or in the nature of a penalty, had however held that the same may be exorbitant on the ground that the said liquidated damages were increased four times, and the said Liquidated damages were double, the liquidated damages stipulated in the previous contracts, awarded by the respondent. The learned Arbitrator also held that the amount levied would have to be reviewed taking other relevant factors in to consideration. As far as issues 3 and 4 are concerned, the learned Arbitrator held neither appellants nor the respondent were solely responsible for the delays and as such, implementation of the liquidated damages clause cannot be totally waived and a middle ground would have to be arrived at for a 11 RRR,J & TCDS,J CMA.No.234 of 2025 & batch fair solution. The learned Arbitrator relied upon the letters addressed by the appellants, which had been attached to the claim statements, to come to this conclusion. The learned Arbitrator for the purposes of arriving at reasonable compensation for delay had set out 20 factors to be taken into account for arriving at a reasonable compensation. On issue No.5, the learned Arbitrator upheld a part of the liquidated damages amount and directed refund of that part of the liquidated damages which was rejected by the learned Arbitrator.

9. The learned Arbitrator granted interest, under issue No.8, at the rate of 9%, and directed parties to bear their respective costs for arbitration and in issue No.8 held that the arbitral proceedings were within limitation.

10. These awards were challenged before the trial Court on the following grounds: i) The learned Arbitrator, after holding that the liquidated damages clause is legal and valid, could not have modified the quantum of legal damages. Such a modification is beyond the jurisdiction of the learned Arbitrator and as against the provisions of Section 8(16)(3), 28(1)(A) and 28(3) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). ii) The learned Arbitrator could not have brought in his previous experience as the Former General Manager of the respondent to comment on the procedure and came up with his own analysis of the justification of the 12 RRR,J & TCDS,J CMA.No.234 of 2025 & batch respondent and missing liquidated damages and justification of the appellants seeking refund of such liquidated damages. iii) The award is in conflict with public policy of India, the learned Arbitrator had gone beyond the contract and passed an award which is not based on any material. iv) The learned Arbitrator had erroneously concluded that the details are attributable to both sides.

11. The appellants resisted the contentions of the respondent. The learned trial Judge, after considering the contentions raised by both sides had held that the learned Arbitrator, after holding that the liquidated damages clause is legal and valid could not have reviewed the said clause, especially on the ground that other contracts, of a similar nature awarded by the respondent, did not provide for such large liquidated damages. The learned trial Judge also held that the learned Arbitrator could not have gone into technical and logical assessment of the actual reasons for delay, once the learned Arbitrator had held that there were no letters by the Claimant to the respondent. The learned trial Judge while holding so, again held, in the same order, that the consideration of the letters addressed by the appellants to the respondent was flawed as the learned Arbitrator himself has taken the view that these letters were not sufficient to establish all reasons for delay. Curiously, the learned trial Judge also held that no evidence was found by the trial Judge that the respondent was responsible for undue delay in execution 13 RRR,J & TCDS,J CMA.No.234 of 2025 & batch of the work. On this basis, the learned trial Judge held that the award was violative of Section 34(2)(b)(i), and Section 28(3) of the Act. On that basis, the learned trial Judge set aside all the awards passed by the learned Arbitrator.

12. Aggrieved by judgments, all dated 03.01.2025, appellants have moved this Court, by way of the present set of appeals.

13. Sri K.V. Rama Murthy, the learned counsel appearing for the appellants would contend as follows: i) The respondents could not have levied any liquidated damages, as the respondent had permitted extension of time for completion of the contracts without making such extension subject to the liquidated damages clause. Section 55 of the Contract Act clearly requires such a stipulation to be made, while accepting extension of time, for completing a contract. This aspect was ignored by both the learned Arbitrator as well as the trial Judge. ii) The judgments in Fateh Chand vs. Balakishan Das1, Maula Bux vs. Union of India2., and Oil and Natural Gas Corporation Limited vs. Saw Pipes Limited3, delivered by the Hon’ble Supreme Court, clarified the position of law, that the liquidated damages clause, only fixes the outer limit of damages, and the actual damages or loss would have to be demonstrated by the affected party, before the liquidated damages clause can