Judgment Granting Compensation in Case of No Proven Loss or Injury May Be Set aside U/S 34 on Grounds of Patent Illegality: Delhi HC

Delhi High Court stand Judges Vibhu Bakhru and Sachin Datta It held that the award of compensation by the Arbitrator in the absence of proven injury or loss meant that the patent was illegal under Article 34 of the Arbitration Act. Any such award may be revoked in accordance with clause 34.

Quick Facts

Indian Oil Corporation Ltd. (hereinafter referred to as IOCL) He filed the present intra-court appeal under Article 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the A&C Act), challenging an order dated 29.03.2019.Participant (hereinafter referred to as Fiberfill) filed the above-mentioned petition under Article 34 of the A&C Law for annulment of the arbitral award dated 12.04.2017 (hereinafter referred to as the disputed award) passed by the Arbitral Tribunal consisting of a Single Arbitrator (hereinafter referred to as the Arbitral Tribunal).

In Fiberfill’s petition seeking cancellation of the impugned award under Section 34 of the A&C Act, Fiberfill had confined its objection to the impugned award to the extent of rejection of its claim regarding the amount of ₹22,08,528/- deducted by IOCL and the amount of interest payable. on that.

The Learned Single Judge sustained the said objection and set aside the impugned award to the extent of rejecting Fiberfill’s claim of ₹22,08,528/- and interest thereon. The Learned Single Judge held that Fiberfill was entitled to receive an amount of ₹22,08,528 along with interest at the rate of 8% per annum from the date of retention of the amounts to the date of release.

The amount of ₹22,08,528/- was withheld by IOCL under Clause 9 of the Special Instructions to Bidders (hereinafter referred to as SIT) as compensation for delay in performance of the Work. The Learned Single Judge faulted the Arbitral Tribunal for granting IOCL’s claim for compensation for delay in execution of works without returning any finding that IOCL had suffered loss due to delay.

IOCL is a Public Sector Enterprise engaged in the business of distribution of Petroleum and Petroleum Products, among others. IOCL had invited tenders for designing, supplying, installing, testing and commissioning high mast signage systems of various heights and types at various retail outlets in the State of Tamil Nadu and the Union Territory of Pondicherry.

Fiberfill submitted its offer in line with the tenders invited by IOCL. The offer was accepted and a contract was signed with Fiberfill. There was a delay in completing the Work Order. As noted above, IOCL had issued six Call Orders after the initial expiry of the Contract – not only was there a delay in the issuance of Call Orders, there was also a delay in the installation of high mast signage. for various reasons.

According to IOCL, the delay in installation of high mast signboards exceeded the period of sixty days, extended by the period of delay not attributable to justifiable reasons or Fiberfill. Therefore, IOCL deducted an amount of ₹22,08,528/- from the amounts payable to Fiberfill.

Fiberfill invoked the Arbitration Clause (Article 9.0.1.0 of the Work Order) and urged IOCL to provide a panel of three arbitrators so that it could appoint an arbitrator. There was no positive response from IOCL to the announcement dated 21.01.2014. 22.

In view of the above, Fiberfill filed a petition with this Court seeking the appointment of an arbitrator under Section 11(6) of the A&C Act (Petition for Arbitration No. 155/2014). The said petition was rejected by an order dated 01.08.2014 and IOCL was directed to name three arbitrators for Fiberfill to nominate one of them.

The arbitration proceedings resulted in the disputed decision rejecting the claims asserted by Fiberfill. Fiberfill filed a petition challenging the impugned order under Section 34 of the A&C Act, which was partially allowed in terms of the impugned order.

The issue is before the Supreme Court

Whether the Arbitral Tribunal erred in rejecting Fiberfill’s claim for the amount of ₹22,08,528/- retained by IOCL as compensation by way of reduction in the price payable for the work done.

Analysis of the Court

The court initially stated that the court’s jurisdiction under section 34 does not extend to modifying the arbitral award or making a decision on the claims that are the subject of the arbitration proceedings.

In the present case, the learned Single Judge had decreed Fiberfill’s claim for interest – Case No. 2 before the Arbitral Tribunal – and held that Fiberfill was entitled to receive interest at the rate of 8% per annum on the amount of ₹. 22,08,528/-. This means adjudicating Fiberfill’s claim, which is outside the scope of the court’s jurisdiction under Section 34 of the A&C Act. the court noted.

The court noted that in IOCL’s written submission, there was no objection that Clause 4.4.2.0 of the GCC was merely a price adjustment clause and not a clause for liquidated damages under Section 74 of the Indian Contract Act, 1872. It is important to note that IOCL did not place any reliance on Article 4.4.2.2 of the GCC before the Arbitral Tribunal.

On the contrary, IOCL, in terms of GCC, clearly states the amount payable as “compensation” payable for delay in Article 9.2 of the SIT. It is based on the article. Article 17 of the SIT also states that in case of any conflict, the SIT should be given priority over the GCC, the court noted.

The court also noted that Fiberfill referred to communications (email dated 26.07.2012) from IOCL officials acknowledging that Article 4.4.0.0 of the GCC provides for financial compensation. 9.2 of SIT. The article also clearly states that the amount stipulated under the GCC can be paid “by way of compensation”. Additionally, Fiberfill relied on the testimony of IOCL’s witness. In his cross-examination, IOCL’s witness had stated that “the penalty was imposed due to the contractor’s delays in completing the works as per the terms and conditions of the contract”.

The Arbitral Tribunal neither took into account the above-mentioned statement nor analyzed Article 9.2 of the SIT. The Arbitral Tribunal did not address the question of whether Article 4.4.2.0 of the GCC provided a genuine preliminary estimate of damages as claimed by IOCL. It also did not refer to Article 4.4.2.2 of the GCC, the court noted.

The Court also noted that the Arbitral Tribunal had no finding that Article 4.4.2.0 of the GCC contained a measure for a genuine preliminary estimate of damages resulting from delay; This case was filed before us on behalf of IOCL. additionally.

Let’s face it, IOCL did not raise any objection in its written statement claiming that it had suffered any damage. The argument that such loss was obvious because IOCL customers and staff would be inconvenienced by the site being excavated or cordoned off does not appear to have been made before the Arbitral Tribunal. In any event, the Arbitral Tribunal did not return any findings regarding such a claim, the court noted.

The Court concluded that the Arbitral Tribunal awarded compensation in favor of IOCL without any objection that IOCL had suffered any loss/damage or that Article 4.4.2.0 of the GCC contained a genuine preliminary estimate. Damages/losses suffered by IOCL due to delay.

The court noted: Kailash Nath Associates v. Delhi Development Authority & Anr, 2015 The Supreme Court held that the phrase “whether or not it is proven that actual damage or loss resulted therefrom” means that such evidence will not be dispensed with where proof of actual damage or loss is possible. Payment of damage or loss may only be awarded if the cashed amount specified in the contract is an actual preliminary estimate of damage or loss and is difficult or impossible to prove.

Court of Delhi High Court Mahanagar Telephone Nigam Ltd. – Finolex Cables Limited, 2017 It held that under Article 74 of the Contract Law, even in cases where pecuniary damage can be specified, the party claiming non-pecuniary damage is entitled to receive only “reasonable compensation” not exceeding the specified amount.

In the above case, the court also observed that even in a contract where actual damage or loss is difficult to prove, proof of the same is not dispensed with in order to arrive at “reasonable compensation”. Only in cases where it is impossible to prove damage or loss, the amount specified in the contract as pecuniary compensation may be awarded as such if there is a genuine preliminary estimate of the damage or loss.

In all cases where the parties agree to reduce the consideration based on performance, the contract period need not be interpreted as a compensation provision in this sense. In such cases, the contract clause must be read as an integral part of the parties’ rights and obligations to be fulfilled, the court noted.

Based on the above, the court concluded that in the absence of any objection by IOCL that any loss had been suffered, the impugned award was set aside on the grounds of illegality of the patent as the Arbitral Tribunal awarded cash compensation/compensation by way of price adjustment. without any loss and without any finding of such outcome. The Arbitral Tribunal also did not return a finding that the provisions of Article 4.4.0.0 of the GCC provide a measure for a genuine preliminary estimate of damages.

The Court held that the impugned order rejecting Fiberfill’s claim for recovery of the amount deducted by IOCL along with interest was rightly set aside by the learned Single Judge.

The Court further observed that the order of the learned Single Judge granting interest at the rate of 8% per annum or the impugned demand cannot be sustained as the scope of review under Section 34 of the A&C Act does not extend to the following. adjudication of disputes, but only to consider whether the arbitration award can be annulled on the grounds set out in Article 34 of the A&C Law.

Case Title: Indian Oil Corporation Ltd. Vs M/s Fiberfill Engineers.

Case Reference: FAO (OS)(COMM) 114/2019 and CM No.24305/2019

Decision Date: 20/11/2024

For the Appellant : Mr. Huzefa Ahmedi, Senior Advocate for Ms. Mala Narayan, Mr. Shashwat Goel, Mr. Rohan Sharma and Ms. Isha Ray, Advocates.

For the defendant : Mr. Amit Gupta, Mr. Kshitij Vaibhav, Ms. Muskan Nagpal and Mr. HS Mahapatra, Advocates

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