Judgment: Dispute Resolution in Infrastructure Contracts

In a significant decision by the Supreme Court of India, the case regarding dispute resolution in infrastructure contracts has been settled. The Court’s ruling sheds light on the proper procedures to be followed in such cases, ensuring a fair and just resolution for all parties involved.


  • The appellant filed reference petitions challenging the termination of agreements and the claimed damages before the Madhya Pradesh Arbitral Tribunal under the Adhiniyam, 1983.
  • The High Court dismissed the petitions based on the initiation of recovery proceedings by the General Manager of the first respondent after quantifying liquidated damages.
  • The appellant argues that recovery proceedings should not have been initiated while the matter is pending before the Arbitral Tribunal.
  • The respondents contend that they were justified in initiating recovery proceedings post quantification of damages by the General Manager.
  • Both reference petitions regarding the claimed damages are still pending before the Arbitral Tribunal for adjudication.
  • The appeals are against the High Court’s judgment and review orders related to quantifying recoverable liquidated damages while the matter is pending before the Arbitral Tribunal under the Adhiniyam, 1983.

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  • The competent authority should convey their decision to the Contractor within 45 days of being requested in writing.
  • The communication of the decision should be in writing to the Contractor.
  • The Contractor must make the request for a decision in writing to the competent authority.
  • The right to assess damages arises only if the breach of conditions is admitted or not disputed.
  • The power to assess damages is a subsidiary and consequential power, not the primary power.
  • In case of termination due to a fundamental breach by the contractor, the Engineer issues a certificate for work done, deducting liquidated damages and other payments.
  • If total due to Employer exceeds payments due to Contractor, the difference is recovered from security deposit and performance security.
  • The officer of the State has the right to assess damages for breach based on specific terms of the contract.
  • Arbitration can be invoked when recovery proceedings are legally challenged.
  • Liquidated damages can be withheld for failure to achieve milestones, but must be restored if the milestone is subsequently achieved.
  • Employer may deduct liquidated damages from payments due to Contractor, up to the defined amount in the Contract Data.
  • Upon termination, if liquidated damages are payable, redressal can be sought through the Arbitral Tribunal as per the agreement.
  • Respondent cannot initiate recovery proceedings while the matter is pending before the Arbitral Tribunal.
  • A party to an agreement cannot be an arbiter in their own cause, principles of justice and equity demand independent adjudication in case of disputes.
  • The Madhya Pradesh High Court, relying on a previous judgment, stated that the Government cannot initiate recovery proceedings on disputed amounts by the contractor under the contract.
  • The disputed amount cannot be recovered as arrear of land revenue until adjudicated by the Arbitral Tribunal.
  • In the case of Virendra Sharma vs. State of Madhya Pradesh, the contract was terminated due to the contractor’s failure to complete the work within the stipulated period leading to huge losses for the department.
  • The appellant invoked arbitration as per the procedure prescribed in the contract, disagreeing with the decision of the Superintendent Engineer.
  • The matter is pending before the Arbitrator, with no adjudication having taken place yet.
  • The correctness of the Department’s claim of suffering a loss is yet to be determined by the Arbitrator.
  • The amount in question becomes due and payable only post-adjudication.
  • Recovery of the said amount cannot be done through the Land Revenue Act procedures in the absence of adjudication.

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  • The Arbitral Tribunal constituted under the Adhiniyam, 1983 is currently handling the dispute mentioned in the agreement.
  • The respondent cannot demand liquidated damages while the dispute is pending before the Arbitral Tribunal.
  • The respondent’s claim for liquidated damages was not justified as per the agreement clauses.
  • The General Manager’s decision on liquidated damages does not outweigh the arbitration process specified in the agreement.
  • The initiation of recovery proceedings by the respondent before the arbitral proceedings conclusion was unwarranted.
  • The High Court judgments dated 26 February, 2018 & 7 September, 2018 have been quashed and set aside.
  • The Arbitral Tribunal’s independence in deciding the reference petition in accordance with the law is emphasized.
  • Pending applications are disposed of, and the Contractor is instructed to continue with the work diligently.

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Case Number: C.A. No.-006726-006729 / 2019

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