Contractual Clauses Extinguishing Rights for Delayed Arbitration Invocation are Void Under Section 28 of Contract Act

The Appellant (MTNL) awarded a contract to the Respondent for construction work in 2010.

Although completion was due by March 2011, the work was finished in May 2012 after a delay of 406 days.

MTNL attributed the delay to the contractor, while the contractor cited departmental hindrances.

The final bill was paid on May 30, 2013.

The Respondent invoked arbitration on September 26, 2015.

MTNL resisted, citing Clause 53 of the General Conditions of Contract (GCC), which mandated that arbitration be invoked within 90 days of the final bill intimation, failing which claims would be "deemed waived".

An Arbitrator was appointed by the High Court and subsequently awarded the Respondent ₹25,23,225/-, holding Clause 53 void.

MTNL’s challenge under Section 34 of the Arbitration and Conciliation Act ("the Act") was dismissed by the Commercial Court on August 6, 2024, leading to this Section 37 appeal.

1. Whether Clause 53 of the GCC, which extinguishes claims if arbitration is not invoked within 90 days, is void under Section 28 of the Indian Contract Act, 1872.

2. Whether Section 43(3) of the Arbitration and Conciliation Act, 1996, validates contractual time-bar clauses notwithstanding Section 28 of the Contract Act.

3. Whether the Arbitral Tribunal exceeded its jurisdiction by setting aside the levy of compensation under Clause 15 of the GCC.

The Court applied Section 28 of the Indian Contract Act, 1872 (as amended in 1997), which renders void any agreement that extinguishes the rights of a party or discharges a party from liability on the expiry of a specified period.

The Court relied on Punj Lloyd v. NHAI and Union of India v. Pt. Munshi Ram, which established that 90-day curtailment clauses are void post-1997.

The Court interpreted Section 43(3) of the Arbitration and Conciliation Act, 1996, regarding the court's power to extend contractual time limits in cases of "undue hardship".

The court applied the principle of minimal curial interference under Sections 34 and 37 of the Act as defined in Associate Builders v. DDA and Ssangyong Engineering v. NHAI.

The Court reasoned that Clause 53 did not merely set a procedural timeline but sought to extinguish substantive contractual rights, bringing it squarely under the prohibition of the amended Section 28(b) of the Contract Act.

The Court rejected MTNL’s reliance on Wildlife Institute of India and P. Manohar Reddy, noting these precedents dealt with the pre-1991/1997 legal landscape where such clauses were permissible.

Regarding Section 43(3) of the Act, the Court held that this provision does not "validate" void clauses; rather, it presupposes a legally valid clause exists.

The Court clarified that the Contract Act governs the substantive validity of tribal provisions, while the Arbitration Act governs the process; thus, Section 28(b) of the Contract Act prevails.

On merits, the Court found that since the Arbitrator relied on MTNL’s own Hindrance Register to attribute delay to the Appellant, such factual findings were not "patently illegal" or perverse.

It held that Section 43(3) of the Act does not override the Contract Act's mandate.

The Court upheld the Arbitrator’s jurisdiction and the validity of the monetary awards. The appeal was dismissed, the Section 34 court order was affirmed, and the arbitral award dated November 27, 2018, was upheld in full.