Arb.OP(Com.Div).No.630 of 2022

IN THE HIGH COURT OF JUDICATURE AT MADRAS

RESERVED ON : 10.02.2026

PRONOUNCED ON : 13.02.2026

CORAM

THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH

Arb.OP(Com.Div).No.630 of 2022

M/s. Sivashankar & Co

Rep.by its Proprietor D.Sivashankar

Having Office at 303, EBONY Apartment

110/2, River View Link Road

IAS/IPS Colony, Manapakkam

Chennai-600125.

..Petitioner

Vs.

The Divisional Railway Manager

Chennai Division ,Southern Railway

Chennai. ..Respondent

Prayer: Arbitration Original Petition filed under Section 34(2) of the

Arbitration and Conciliation Act, 1996, to set aside the award of the

Arbitral Tribunal dated 27.3.2022 and received on 17.05.2022 and to

direct the respondents to pay the costs.

For Petitioner : Mr.J.Srinivasa Mohan

for M/s.TVJ Associates

For Respondents : Mr.K.S.Jayaganesan

Senior Counsel

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Arb.OP(Com.Div).No.630 of 2022

O R D E R

This Arbitration Original Petition has been filed challenging the

award dated 27.3.2022 passed by the Arbitral Tribunal under Section

34(1) of the Arbitration and Conciliation Act, 1996, [hereinafter referred

to as 'the Act'] .

2.The petitioner and the respondent entered into an agreement

dated 27.3.2017 for work relating to provision of new foot over bridge at

Chennai, Egmore. This was for platforms 2 to 11. The Letter of

Acceptance was issued on 7.11.2016 and the duration of work was fixed

as 12 months. However, extensions were granted till June 2020.

Ultimately, a notice of termination dated 30.09.2020 was issued by the

respondent under the General Conditions of Contract (GCC) 62(1) and

16(4)(f). Pursuant to the same, the Earnest Money Deposit (EMD),

Performance Guarantee (PG) and Security Deposit (SD) were forfeited

and certain claims made by the petitioner was rejected. The dispute was

referred to the Arbitral Tribunal and the claimant made the following

claims:

(a) To declare that the termination order dated

30-09-2020 is unlawful and also the termination has

been done without currency.

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Arb.OP(Com.Div).No.630 of 2022

(b) Direct the Respondent to release the

Performance Guarantee amount of a sum Rs.

16,62,557/- .

(c) Direct the Respondent to Refund the EMD of

Rs. 2,82,400/-.

(d) Direct the Respondent to Refund the Security

Deposit of Rs. 13,45,026/-.

(e) Direct the Respondent to pay the Price

Variation Clause Amount of a sum of Rs. 17,63,411/-.

(f) Direct the Respondent to pay the GST

Amount of a sum of Rs. 14,26,327/-.

(g) The Claimant is entitled to cost of Stock at

site of a sum o Rs.4,50,000/-.

(h) The Claimant is entitled to loss of amount

incurred in Idling of men and Machinery of sum of Rs.

1,40,000/-.

(i) The Claimant is entitled to overhead charges

and establishment charges incurred of a sum of

Rs.6,76,000/-.

(j) The Claimant is entitled to cost of 2.5 MT

Finished steel structure of a sum of Rs.2,96,000/-.

(k) The Claimant is entitled to loss of profit at

10% on the balance work of Rs. 2,89,54,459/-

amounting to Rs.28,95,446/-.

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Arb.OP(Com.Div).No.630 of 2022

(l) The Claimant is entitled to Rs. 15,06,047/-

payable towards the Interest and charges paid by the

Claimant to banks and others.

(m) The respondent is liable to pay compensation

20,00,000/-for the agony endured and which continues

till date due to the wrongful termination of the contract.

(n) The claimant is entitled to interest on the

claims.

(o)The respondent is liable to bear the cost of

arbitration.

3.The respondent filed statement of defence and justified the

termination of contract and forfeiture of EMD, PG and SD. The

respondent sought for counter claims to the total tune of Rs.2.44 Crores.

The respondent also sought for the rejection of the claim made by the

petitioner.

4.The Arbitral Tribunal instead of framing issues thought it fit to

deal with each claim made by the petitioner and the counter claim made

by the respondent. On considering the facts and circumstances of the

case and the documents relied upon by both sides, Claim Nos.5 and 6

alone were awarded. Insofar as the counter claims are concerned, the

majority members held that the respondent is entitled for Counter Claim

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Arb.OP(Com.Div).No.630 of 2022

Nos.1 and 2 and rejected Counter Claim Nos. 3 to 5. The summary of the

award is tabulated hereunder:

48.1 Claims of Claimant :

ClaimGist of claimAmount of

Claim

(in Rs.)

Award given by

presiding Arbitrator

(in Rs.)

Award given by

other two

Arbitrators

(in Rs.)

(1)To declare

termination of

contract not

valid

DeclaratoryClaimant as well as

respondent are

responsible for

termination.

Termination letter

with retrospective

effect is legally valid

and justified.

(2)Release of

Performance

guarantee

amount

16,62,557/-

Half of each totalling

16,44,991/- in

favour of the

Nil

(3) Refund of

EMD

2,82,400/- Nil

(4) Refund of

security

deposit

13,45,026/- Claimant Nil

(5)Payment of

price variation

as per

agreement

17,63,411/-

increased to

26,20,140/-

25,94,300/- in favour

of the claimant

25,94,300/-

(6)Reimburse

eligible GST

neutralization

14,26,327/-

increased to*

15,22,402/-

15,22,402/- in favour

of the claimant

Rs.15,22,402/- in

favour of the

claimant

(7)Payment of

stock at site

4,50,000/- Nil Nil

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Arb.OP(Com.Div).No.630 of 2022

ClaimGist of claimAmount of

claimant

(in Rs.)

Award given by

presiding

Arbitrator (In

Rs.)

Award given by

other two

Arbitrators (in Rs.)

(8)Payment for

idling of men

and machinery

1,40,000/- Nil Nil

(9) Payment

towards

overhead and

establishment

charges

6,76,000/- Nil Nil

(10)Payment for

fabricated steel

structure

2,96,000/- Nil Nil

(11)Loss of profit28,95,446/- Nil Nil

(12)Reimbursement

of interest paid

to Bank

15,06,047/- Nil Nil

(13)Compensation

for damage of

reputation etc,

20,00,000/- Nil Nil

(14)Payment of

interest charges

at 12%

TO BE

DECIDED

Nil Nil

(15)Legal expenses

and cost of

Arbitration

9,00,000/- Nil Nil

(16)TOTAL OF

ALL CLAIMS

1,53,43,214/-

(INCREASED

TO

1,62,96,018/-)

+ to be decided

57,61,693/- in

favour of the

claimant

41,16,702/- in

favour of the

claimant

*Increased by the claimant through his submission at CD-4.

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Arb.OP(Com.Div).No.630 of 2022

49.COUNTER CLAIMS OF RESPONDENT:

C/

Claim

Gist of

Counter Claim

Amount of

claim

(in Rs.)

Award given by

presiding

Arbitrator

(In Rs.)

Award given by

other two

Arbitrators

(in Rs.)

(1)Forfeiture of

Performance

guarantee

16,62,557/-Same as award

against claims

nos.2,

3 & 4

Rs.16,44,991/- in

favour of

respondent

16,62,557/- in

favour of

respondent

(2)Forfeiture of

EMD and SD

16,62,557/- 16,62,557/- in

favour of

respondent

(3) Cost of

supervision

58,56,339/- Nil Nil

(4)Difference in

cost due to

escalation

1,66,11,249/- Nil Nil

(5) Cost of

Arbitration

To be

quantified

Nil Nil

(6) Total 2,44,68,417/-

(actual total

comes to

2,57,92,702/-)

plus amount

to be

quantified

Rs.16,44,991/-

in favour of

respondent

Rs.33,25,114/-

in favour of

respondent

5.Aggrieved by the above award passed by the Tribunal, the

present petition has been filed before this Court.

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6.The learned counsel for the petitioner mainly focused his

arguments with respect to Claim Nos.1 to 4, 7 and 11 and it will suffice to

deal with these claims while testing the award passed by the Arbitral

Tribunal.

7.This Court heard the learned counsel for the petitioner and the

learned counsel for the respondents and has carefully considered the

submissions of the learned counsel on either side and perused the

materials available on record and the award passed by the Arbitral

Tribunal.

8.Claim Nos. 1 to 4 are interconnected since the forfeiture of

EMD, PG and SD was done pursuant to the termination of the contract.

Therefore, if the termination of the contract is upheld, the forfeiture of

EMD, PG and SD will be justified. If the termination is held to be bad,

the forfeited amount will have to be refunded to the petitioner.

9.The time was fixed for the completion of work as 12 months.

However, three extensions were granted. The first extension was granted

on 26.6.2018 upto 31.12.2018 and this extension was granted under

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Arb.OP(Com.Div).No.630 of 2022

Clause 17A(ii) of the GCC. The second extension was granted on

6.3.2019 once again by relying upon the same Clause upto 31.12.2019.

The third extension was granted on 21.01.2020 again by relying upon the

same clause upto 30.06.2020. It is an admitted case that no further

extension of time was granted and the period came to an end on

30.06.2020.

10.In the light of the above admitted facts, two issues that falls for

consideration is as to whether after the expiry of the period a contract can

be cancelled and whether extension of the period under Clause 17A(ii) of

the GCC can result in breach of contract for not completing the work

within the time stipulated.

11.The reasons for the extension of time are (a) GAD revised and

approved only on 2.11.2018 (b) Alignment of FOB changed “Z” shape to

a straight line (c ) Site was not handed over for platforms 3 to 6, 10 and

11 and; (d) G1/A2B site – additional work.

12.Apart from the above, there were other reasons like certain third

parties who had to vacate and hand over possession and which was

protracting due to litigation.

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13.As stated supra, extension of time was granted under Clause

17A(ii) of the GCC. For proper appreciation, the relevant Clause is

extracted hereunder:

17- A Extension of Time in Contracts:

(ii) Extension for Delay not due to Railway or

Contractor: If in the opinion of the Engineer, the progress

of work has any time been delayed by any act or neglect

of Railway's employees or by other Contractor employed

by the Railway under Sub-Clause (4) of Clause 20 of

these Conditions or in executing the work not forming part

of the contract but on which Contractor's performance

necessarily depends or by reason of proceeding taken or

threatened by or dispute with adjoining or to neighbouring

owners or public authority arising otherwise through the

Contractor's own default etc. or by the delay authorized by

the Engineer pending arbitration or in consequences of the

Contractor not having received in due time necessary

instructions from the Railway for which he shall have

specially applied in writing to the Engineer or his

authorized representative then upon happening of any

such event causing delay, the Contractor shall immediately

give notice thereof in writing to the Engineer within 15

days of such happening, but shall nevertheless make

constantly his best endeavours to bring down or make

good the delay and shall do all that may be reasonably

required of him to the satisfaction of the Engineer to

proceed with the works. The Contractor may also indicate

the period for which the work is likely to be delayed and

shall be bound to ask for necessary extension of time. The

Engineer on receipt of such request from the Contractor

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shall consider the same and shall grant such extension of

time as in his opinion is reasonable having regard to the

nature and period of delay and the type and quantum of

work affected thereby. No other compensation shall be

payable for works so carried forward to the extended

period of time; the same rates, terms and conditions of

contract being applicable as if such extended period of

time was originally provided in the original contract itself.

14.An extension made under Clause 17A(ii) is an extension given

where the delay is not attributable either to the Railways or to the

contractor. Thus, this Clause is invoked when there are justifiable reasons

to extend the period of contract. It also makes it clear that no further

compensation will be payable for the works carried out during the

extended period of time and the same rates and terms of conditions of

contract will be applicable even for the extended period as if such time

was provided in the original contract itself.

15.In the termination notice dated 30.09.2020, it has been stated

that the petitioner failed to complete the work and failed to apply for the

further extension of period upto 30.06.2020 and did not show any

progress even after the issuance of seven days notice and 48 hours notice

and therefore the contract stands terminated with effect from 30.06.2020.

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16.While going through the materials placed before this Court, it is

seen that various reasons have been given regarding poor progress shown

by the petitioner from 16.3.2020. On 15.9.2020, the SSE bridges writes

that the fabrication work for GI road side work is under progress but the

progress is not substantial. The next day the same SSE bridges writes

another letter stating that the work has not progressed for more than six

months inspite of repeated instructions. On 29.9.2020, yet another letter

was issued to the effect that the contractor has not even reported to the

SSE bridges.

17.In the seven days notice, it is mentioned that the work has not

restarted and that the claimant did not work from 16.3.2020.

18.On the side of the petitioner, certain documents were relied

upon to show that steel has been procured and fabrication was in progress

during September 2020 and during interregnum period between April and

July 2020, nothing was able to be done due to the Pandemic period.

19.The Arbitral Tribunal in more than one place renders a finding

that the contract has come to an end on 30.06.2020 and admittedly no

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extension of time was granted thereafter. At this juncture, it has to be

seen as to whether there can be a termination of contract that is not

subsisting.

20.Once a contract comes to an end by efflux of time and the

period is not extended, there is no question of issuing a termination

notice and thereafter terminating the contract. The very process of

termination pre-supposes that there is a subsisting contract. If there is no

subsisting contract, there is nothing to be terminated thereafter. Useful

reference can be made to the judgment of the Bombay High Court in

Union of India .V. M/s.Quick Communication Systems Pvt., Ltd.,

made in Arbitration Petition No.305 of 2009 dated 02.07.2012. It is

also relevant to take note of the judgment of this Court in The Chief

Engineer/CN/East, Construction Office, Southern Railway,

Chennai .Vs. 1.Mrs.V.kalyani and Others reported in 2018 SCC

Online Mad 2138.

21.The Arbitral Tribunal renders a finding that the determination of

the contract three months after it came to an end is nothing but a

declaration of the end of the contract on account of breach of contract by

the claimant after the previous last day of validity of the contract. The

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Arbitral Tribunal further holds that repudiatory breach is one of the

underlying principles to terminate a contract validly where the party does

not intend to perform his part of the contract or acts inconsistent with the

terms of the contract. These justifications given by the Arbitral Tribunal

does not in any way justify the act of the respondent in terminating a

contract which is not subsisting and which had admittedly come to an end

on 30.06.2020.

22.The Tribunal also takes into consideration the order passed by

this Court under Section 9 of the Act. Such an application came to be

filed by the petitioner to ensure that the left out work is completed and it

did not touch upon the issue of termination of contract. The Arbitral

Tribunal holds that the termination of the contract was not challenged by

the petitioner under Section 9 of the Act and that was put as a ground

against the petitioner. The petitioner could not have challenged the

termination of contract under Section 9 of the Act since if the petitioner

has sought for injuncting the respondent from terminating, it would have

been rejected under Section 14 of the Specific Relief Act, 1963 since it is

capable of being compensated in terms of money.

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23.As stated supra, the extension of time was granted under Clause

17A(ii) of the GCC. Thus, the delay caused due to this extension is

neither attributable to the petitioner nor to the respondent and therefore

the same cannot lead to breach of contract for not completing the work

within the time stipulated.

24.The judgment that was relied upon by the Arbitral Tribunal in

the case of Air India Limited .Vs. Gati Limited will not apply to the

facts of the present case since that was a case where there was inaction or

delay on the part of one party and therefore the termination notice issued

without following the proper procedure was held not to vitiate such

termination.

25.In the light of the above discussion, this Court holds that the

finding rendered by the Arbitral Tribunal justifying the termination order

dated 30.09.2020 is clearly perverse and suffers from patent illegality.

26.The Arbitral Tribunal consisted of retired personnel who were

working with Railways and they were trying to come up with various

reasons to justify the termination of the contract and to justify the

consequent forfeiture of EMD, PG and SD. Such state of mind on the

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part of the Arbitral Tribunal is quite apparent on a careful reading of the

award.

27.In the light of the above finding, the forfeiture of EMD, PG and

SD is unsustainable. Only if there is a valid termination of contract in

line with GCC 62(1), it can lead to forfeiture of EMD, PG and SD under

Clause 16(4)(f). If the termination of contract is held to be unlawful, the

consequent forfeiture must also fall to the ground.

28.In the light of the above discussion, Claim Nos.1 to 4 which was

rejected by the Arbitral Tribunal and which is connected with counter

claim nos.1 and 2, is liable to be interfered with by this Court and the

findings are set aside.

29.The next issue pertains to Claim No.7. This claim was made for

payment of steel material purchased and stocked at the site. The Arbitral

Tribunal rejected this claim only on the ground that the claimant had

caused breach of contract by not completing the work and the termination

of contract was upheld and therefore the claimant is not entitled for any

award under this head. The only other reason that has been assigned is

that the respondent has not taken custody of the materials of the claimant

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from the work site. The finding rendered by the Arbitral Tribunal is liable

to be interfered by this Court since the claimant has established the fact

that the steel material purchased was stocked at the work site (platform 10

and 11) and it was never taken back by the claimant. Accordingly, claim

No.7 has to be awarded in favour of the claimant.

30.Claim No.11 pertains to loss of profit due to illegal termination

of the contract.

31.The specific case of the claimant is that the illegal and unlawful

termination of the contract resulted in the claimant not being able to

execute the balance work resulting in loss of money invested, loss of

manpower and damage caused to the reputation of the claimant. The

claimant was claiming for 10% on the balance work to the tune of

Rs.26,18,886/-.

32.The Arbitral Tribunal had rejected this claim mainly on the

ground that the claimant had committed breach of contract and the

termination of the contract was also upheld and hence the claimant was

held to be not entitled for any compensation under this head.

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33.When it comes to loss of profit, certain amount of guesswork

and leeway is permitted and the Arbitral Tribunal can employ honest

guess work and a rough and ready method for quantifying the damage.

GCC61(3) provides that a contractor shall have no claim to any payment

of compensation or otherwise howsoever on account of any profit or

advantage which he might have derived from the execution of the work in

full but which he did not derive in consequence of determination of

contract.

34.The above Clause can be put against the petitioner if the

termination of the contract was legal. This Court has already held that the

termination of contract is illegal and unlawful. Under such

circumstances, the petitioner will be entitled for loss of profit. However,

there must be some basis for calculating this loss. The only basis on

which the petitioner is claiming for loss of profit is the balance work not

completed and out of which the petitioner is claiming for 10%. Such a

claim cannot be awarded mechanically without giving reasons on the

underlying facts which ultimately leads to adopting a formula to calculate

loss of profit. Just because the Arbitral Tribunal or the Court are given

the leeway or the scope for guesswork, that does not mean that an

arbitrary amount can be fixed without reasons. In the case in hand, the

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claimant is seeking for loss of profit at 10% on the balance work that was

not completed and that certainly cannot form the basis for awarding

compensation under the head of loss of profit. Hence, this Court is not

inclined to interfere with the finding of the Arbitral Tribunal insofar as

Claim No.11 is concerned.

35.The last issue that arises for consideration is as to whether the

petitioner will be entitled to claim for payment of interest towards the

EMD, PG and SD that has to be refunded by the respondent.

36.Under normal circumstances, these amounts will not carry any

interest and it has to be refunded as such. However, these amounts have

been retained by the respondent by forfeiting these amounts and such

forfeiture was held to be illegal by this Court. Therefore, the petitioner

will be certainly entitled for payment of interest on the EMD, PG and

SD.

37.In the result, Claim Nos.1 to 4 and 7 are awarded in favour of

the petitioner/claimant. Insofar Claim Nos. 2 to 4 are concerned, the

EMD, PG, and SD shall be refunded to the petitioner with interest at the

rate of 9% p.a., from 30.06.2020 till the date of actual payment.

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Similarly, the sum of Rs.4,50,000/- for Claim No.7 shall be paid to the

petitioner/claimant with interest at the rate of 9% p.a., from 30.06.2020,

till the date of actual payment. The counter claims 1 and 2 awarded by

the Arbitral Tribunal in favour of the respondent is set aside. The award

in all other respects stands confirmed.

38.In the result, this Arbitration Original Petition is allowed in the

above terms and there shall be a direction to the respondent to pay cost of

a sum of Rs.2,00,000/- to the petitioner.

13.02.2026

Index:Yes/No

Speaking order/Non Speaking Order

NCC:Yes/No

kp

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Arb.OP(Com.Div).No.630 of 2022

To

The Divisional Railway Manager

Chennai Division

Southern Railway

Chennai.

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Arb.OP(Com.Div).No.630 of 2022

N.ANAND VENKATESH, J

kp

Pre Delivery Order in

Arb.OP(Com.Div).No.630 of 2022

13.02.2026

.

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