LI Network
Published on: November 07, 2023 at 11:07 IST
The Delhi High Court has reaffirmed that a court, exercising its powers under Section 34 of the A&C Act, lacks the authority to modify an arbitral award. The court can either uphold the award or set aside findings, but it is not empowered to alter the award to grant relief that was denied by the arbitral tribunal.
The Delhi High Court, consisting of Justices Yashwant Varma and Dharmesh Sharma, also clarified that when damage or loss is challenging to prove, the tribunal has the authority to award a liquidated amount specified in the contract if it genuinely pre-estimates the damage or loss or provides reasonable compensation for such loss or damage. This falls within the purview of Section 74 of the Indian Contract Act, 1872.
Background:
The case involved an agreement dated March 13, 2007, in which the appellant acted as a Project Management Consultant for the Central Reserve Police Force (CRPF), with the respondent responsible for certain installation works. The agreement included provisions for imposing Liquidated Damages (LD) in case of project delays, and payments were made on a back-to-back basis.
It stipulated that any deductions made by the principal employer from the appellant’s payments would also be proportionally deducted from the respondent.
The project was supposed to be completed within 7 months but experienced substantial delays, taking 33 months to finish. Consequently, the appellant imposed LD and withheld 10% of the project amount. The respondent, dissatisfied with this action, initiated arbitration.
The arbitral tribunal partially allowed the respondent’s claims but refused to grant relief regarding the LD imposition, affirming the appellant’s justification for withholding the amount. Unhappy with this aspect of the award, the respondent challenged it under Section 34 of the A&C Act.
The court accepted the challenge and partly modified the award by allowing the respondent’s claim for LD refund. In response, the appellant filed an appeal under Section 37 of the Act.
Court’s Analysis:
The court observed that the arbitral tribunal had disallowed the respondent’s claim for LD refund, attributing the delay responsibility to both parties without a clear separation of the delay’s extent.
Furthermore, the tribunal denied the claim due to the agreement’s terms, which aligned payments with what the appellant received from the principal employer. Since the principal employer had deducted the amount from the payments to the appellant, a proportionate deduction was to be applied to the respondent. The court upheld the tribunal’s decision, emphasizing that even if it disagreed with the tribunal, it should have set aside the award rather than modifying it.
The court also stressed that, in cases where damage or loss is challenging to prove, the tribunal has the authority to award a liquidated amount specified in the contract, provided it genuinely estimates the loss or damage or offers reasonable compensation. This claim for LD falls under the purview of Section 74 of the Indian Contract Act, 1872.
Consequently, the court set aside the lower court’s order and upheld the arbitral award in favor of the appellant.
Case Title: National Projects Constructions Corporation Ltd v. AAC India Pvt Ltd, FAO(COMM) 140 of 2021