Delhi High Court Upholds Arbitrator's Decision To Deny Pre-Reference, Pendente Lite Interest for Project Delay

The bench held that interpreting a contract and determining claims based on that interpretation fall within the arbitral tribunal's authority.

Brief Facts:

The matter pertained to petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 where Kunal Food Products Pvt. Ltd. (Petitioner) challenged an arbitral award issued by a sole arbitrator. The dispute originated from an Agreement for the sale of a hotel plot between the Respondent, Delhi Development Authority (DDA), and the Petitioner. The plot in question was tendered by the DDA and allocated to the Petitioner through an allotment-cum-demand letter.

The completion of the project was significantly delayed with both parties attributing the delay to each other. The Petitioner eventually completed the project surpassing the originally stipulated completion date of May 31, 2009.

In the arbitration proceedings, the Petitioner presented three claims. Claim No. 1 sought ₹5.45 crores in business losses incurred due to the delay. Claim No. 2 sought a refund of ₹70,01,000 recovered by the DDA through the invocation of a performance bank guarantee provided by the petitioner. Claim No. 3, which was for ₹5,30,649, was for the refund of charges the DDA had recovered from the Petitioner for commencing construction prior to obtaining sanction. The arbitrator dismissed Claim No. 1, granted Claim No. 2 along with post-award interest at 12% per annum, and the Petitioner withdrew Claim No. 3.

The petitioner challenged the award on two grounds before the High Court. The first challenge pertained to the denial of pre-reference and pendente lite interest on Claim No. 2 while the second challenged the denial of costs. The challenge against the rejection of Claim No. 1 was not pursued.

Observations by the High Court:

The High Court noted that the arbitrator analysed the reasons behind the delay in completing the project and concluded that the delay was attributable to both the Petitioner and the DDA. This conclusion was reached after a thorough review of the agreement terms and the documentary evidence provided by both parties. Since the Petitioner did not contest this finding, the High Court held that it was unnecessary to delve further into it. It held that the arbitrator identified contributions to the delay from both parties and other statutory agencies whose approvals were required.

On claim No. 2, the arbitrator found that the invocation of the performance bank guarantee by DDA was unjustified. The arbitrator did not address whether the clause for invoking the bank guarantee for delay was a genuine pre-estimate of loss, as he already determined that the delay was attributable to both parties. The arbitrator noted that the hotel was operationalized with DDA's permission in time for the Commonwealth Games and that neither DDA nor the public experienced loss or damage warranting the invocation of the bank guarantee.

The Petitioner argued that the denial of pre-reference and pendente lite interest was inconsistent with the finding that DDA did not suffer any loss or damage. However, the High Court noted that the arbitrator provided reasons for denying pre-reference and pendente lite interest stating that the petitioner was partly responsible for the delay. It held that contract interpretation and claim determination are within the arbitral tribunal's domain, and the court can only interfere if the award is devoid of reasoning or if the reasons are perverse or arbitrary. The arbitrator's decision to deny interest until the date of the award, given the Petitioner's partial responsibility for the delay, was held to be plausible reasoning by the court.

Therefore, the High Court dismissed the petition.

Case Title: Kunal Food Products Pvt. Ltd. Vs Delhi Development Authority

Citation: 2024 LiveLaw (Del) 946

Case Number: O.M.P. (COMM) 352/2024 & I.A. 36484/2024

Advocate for the Petitioner: Mr. Ajay Kumar, Advocate.

Advocate for the Respondent: Mr. Gaganmeet Singh Sachdeva, Advocate.

Date of Judgment: 14.08.2024

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