Award In Which Damages Are Awarded In Absence Of Proven Loss Or Injury Can Be Set Aside U/S 34 On Grounds Of Patent Illegality: Delhi HC

The Delhi High Court bench of Justices Vibhu Bakhru and Sachin Datta has held that awarding damages by Arbitrator in the absence of proven injury or loss qualifies to be a patent illegality under section 34 of the Arbitration Act. Such an award is liable to be set aside under section 34..Brief FactsIndian Oil Corporation Ltd. (hereafter IOCL) has filed the present intra court appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereafter the A&C Act) impugning an order dated 29.03.2019.The respondent (hereafter referred to as Fiberfill) had filed the aforementioned petition under Section 34 of the A&C Act for setting aside an arbitral award dated 12.04.2017 (hereafter the impugned award) rendered by the Arbitral Tribunal (hereafter the Arbitral Tribunal) comprising of a Sole Arbitrator. Fiberfill's petition for setting aside the impugned award under Section 34 of the A&C Act, Fiberfill had confined its challenge to the impugned award to the extent of denial of its claim for the amount of ₹22,08,528/- withheld by IOCL and the interest payable thereon. The learned Single Judge sustained the said challenge and set aside the impugned award to the extent that it rejected Fiberfill's claim for the amount of ₹22,08,528/- and interest thereon. The learned Single Judge held that Fiberfill is entitled to the sum of ₹22,08,528/- along with interest at the rate of 8% per annum from the date the amounts were withheld till the date of release.The amount of ₹22,08,528/- was withheld by IOCL in terms of Clause 9 of the Special Instructions to Tenderers (hereafter SIT) as compensation for delay in performance of the work. The learned Single Judge faulted the Arbitral Tribunal for accepting IOCL's claim for compensation on account of delay in execution of the works without returning any finding that IOCL had suffered damages on account of delay.IOCL is a Public Sector Undertaking, inter alia, engaged in the business of distribution of Oil and Petroleum Products. IOCL had invited tenders for designing, supplying, installing, testing and commissioning of the high mast signage systems of various heights and types at its various retail outlets in the State of Tamil Nadu and the Union Territory of PondicherryFiberfill submitted its bid pursuant to the tenders invited by IOCL. Its bid was accepted and Fiberfill was awarded the contract.There was a delay in completion of the Work Order. Apart from the fact that there was delay in issuance of the Call-up Orders – as noted above, IOCL had issued six Call up Orders after the initial term of the Contract had expired – there was also a delay in installation of the high mast signages for various reasons.According to IOCL, the delay in execution of installation of the high mast signages exceeded the period of sixty days as extended by the period of delay on account of justifiable reasons or those that were not attributable to Fiberfill. IOCL, thus, withheld an amount of ₹22,08,528/- from the amounts payable to Fiberfill.Fiberfill invoked the Arbitration Clause (Clause 9.0.1.0 of the Work Order) and called upon IOCL to furnish a panel of three arbitrators to enable it to nominate an arbitrator. The notice dated 21.01.2014 also did not elicit any positive response from IOCL. 22. In view of the above, Fiberfill filed a petition under Section 11(6) of the A&C Act (being Arbitration Petition No.155/2014) before this Court seeking appointment of an arbitrator. The said petition was disposed of by an order dated 01.08.2014, whereby IOCL was directed to furnish the names of three arbitrators for Fiberfill to nominate one of them.The arbitral proceedings culminated in the impugned award whereby the claims made by Fiberfill were rejected.Fiberfill filed a petition assailing the impugned award under Section 34 of the A&C Act, which was partly allowed in terms of the impugned order.Issue Before High CourtWhether the Arbitral Tribunal had erred in rejecting Fiberfill's claim for the amount of ₹22,08,528/- withheld by IOCL as compensation by way of reduction in price payable for the work done.Court's AnalysisThe court, at the outset, noted that the court's jurisdiction under section 34 does not extend to modifying the arbitral award or to pass a decree in respect of the claims that were the subject matter of the arbitral proceedings. In the present case, the learned Single Judge has proceeded to adjudicate Fiberfill's claim for interest – Claim no.2 before the Arbitral Tribunal – and has held that Fiberfill is entitled to interest at the rate of 8% per annum interest on the amount of ₹22,08,528/-. This amounts to adjudicating Fiberfill's claim, which is beyond the scope of the court's jurisdiction under Section 34 of the A&C Act, the court noted.The court noted that there is no averment in IOCL's written statement that Clause 4.4.2.0 of the GCC was not a clause for liquidated damages under Section 74 of the Indian Contract Act, 1872 and was merely a price adjustment clause. It is...

Award In Which Damages Are Awarded In Absence Of Proven Loss Or Injury Can Be Set Aside U/S 34 On Grounds Of Patent Illegality: Delhi HC

Mohd Malik Chauhan

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