Arbitral Award – Liquidated Damages

GRE was awarded contract of Rs.116 crores to construct twelve mounded bullets for LPG storage at HPCL refiner.  The project was to be completed by 5.12.2007 but it was completed on 2.2.2010.

GRE requested for extension on four times with a request to waive liquidated damages.  However, the extensions were granted extension with four change orders without prejudice to the liquidated damages clauses 5.6 and 10 of GCC.  GRE did not raise any protest.

Disputes arose out of computation of liquidated damages and also withholding various other amounts leading to arbitration proceedings.

By the Arbitral Award dated 2.5.2018, the Arbitral Tribunal held in favour of  GRE that HPCL ought not to have withheld the amounts of Civil Works, Under Insurance, Customs Duty variation, Service Tax, Dished Ends and liquidated damages.

HELD that Clause 8.6 provides that the project was subject to inspection by various agencies of the Government of India and to make recovery if recommended from the running bills.  Admittedly, no external agency was at all involved in HPCL’s decision to withhold the amount.  Central Vigilance Commission is an internal department of HPCL and is not an inspection agency of the Government of India to withhold amounts as per clause 8.b of the contract.

HELD that the impugned Arbitral Award on liquidated damages is perverse and manifestly arbitrary for want of reasoning, and also being contrary to the fundamental policy of the law of India in relation to liquidated damages.

The Arbitral Tribunal was expected to deal with the question whether it is difficult or impossible to prove the loss in the instant case.   One would have expected the Tribunal to then deal with whether the amount of 0.5% per week of delay which is capped at 5% of the contract value, is reasonable, if it is difficult to prove the loss.

There was no consideration whatsoever on the causation of delay and which party was responsible for the delay.

Judgment dated 18.6.2025 of the High Court of Bombay in Commercial Arbitration Petition No.984 of 2018 of HPCL   Vs.  G.R.Engineering Private Limited