Contract cancellation can forfeit performance guarantee amount

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Delhi High Court recently dismissed an appeal filed under section 37 of the Arbitration and Conciliation Act, 1996, challenging the judgment of the district court, where objections filed by the appellant under section 34 of the act were dismissed and the award passed by the arbitration tribunal was upheld.

In M/S Moni Traders v Government of NCT of Delhi, the appellant was awarded the work to remove construction waste from the bed of NG drain and both banks of the Mall Road Bridge drain in 2012, at an estimated cost of ₹3.6 million (US$55,000) within six months. The appellant commenced the work, but due to heavy seepage works were unable to proceed.

The appellant claimed impossibility of performance, however, the government rescinded the contract via letter in 2013, which was after the six-month period allowed in the contract. The government forfeited the money and the performance guarantee amount, which was challenged by the appellant, who contended that the forfeiture was illegal unless losses were proved by the government as required under section 74 of the Indian Contract Act, 1872.

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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.