Limited Scope Of Examination U/S 34 Of Arbitration Act, Award Vitiated By Patent Illegality: Delhi High Court

Brief Facts:

The present dispute arose with respect to an agreement for construction of a poly clinic which was constructed by the respondent. As per the agreement the work was to be completed in 18 months, but it was delayed and the same was completed after more than 27 months from the specified date. Then, the dispute referred to arbitration in accordance with the Delhi International Arbitration Centre Rules. The Contractor claimed that he had commenced the work immediately. However, the MCD had failed to fulfil its reciprocal promises thus disabling him to complete the work within the stipulated period.

The Arbitral Tribunal rejected MCD's contention that the claims were barred by limitation, or it did not have the jurisdiction to adjudicate the same. Additionally, the Arbitral Tribunal rejected MCD's contention that the time was the essence of the Contract. The Arbitral Tribunal held that the delay was attributable to the MCD, and the Contractor was not entitled to any damages for the said period as he had not commenced the work by that time. The Arbitral Tribunal passed the award partially in favour of the contractor. Aggrieved by this, the Contractor filed an application under Section 34 of the Act before the Commercial Court assailing the impugned award to the extent that its Claim Nos.1, 2, 6 and 8 were rejected. Thus, the Contractor accepted partial rejection of its Claim No.5.

The Commercial Court held that the Contractor to be entitled to a sum of ₹ 28,85,934/- and ₹4,54,708/- under Claim Nos. 1&2 respectively. It also awarded a sum of ₹1,50,000/- to the Contractor in respect of Claim No. 8 towards the costs of the arbitration proceedings. Thereafter, the MCD filed an appeal under Section 37(1)(c) of the Act impugning the order passed by the Commercial Court.

Observation of the court:

The court noted that the findings of the Arbitral Tribunal that the delay in execution of the work for removal of trees and a further delay of 39 months on account of the MCD's failure cannot be interfered with within this proceeding. Therefore, the Commercial court was right in stating that there are no grounds to set aside these findings.

Moreover, the court noted that since it is not disputed that the escalation was required to be worked out on the component of the work done and also the computation produced by the Contractor before the Arbitral Tribunal was not disputed. So, the court is not able to accept that the impugned award in regard to the award of escalation is required to be interfered with. The Commercial Court had rightly noted the limited scope of examination under Section 34 of the act. Then, the court rejected MCD's challenge to the award of escalation under Section 10C of the GCC.

Additionally, the court held that the computation of quantum of damages as calculated is flawed. There is no evidence/material to indicate that the Contractor would have earned 10% profit on the value of the work. Then, there is no material to indicate that if the Contract had not been prolonged, the Contractor would have been gainfully employed in another profitable contract.

So, the court held that the Arbitral Tribunal has awarded the claim for loss of profit for the period the Contract was prolonged without any evidence or material to support the claim. Therefore, the impugned award is vitiated by patent illegality. Finally, the court set aside the award to the extent that the Arbitral Tribunal has awarded the Contractor's Claim No.5.

Case Title: MUNICIPAL CORPORATION OF DELHI v. SH. SATYA PAL GUPTA

Case Number: FAO (COMM) 169/2023 & CM No.43577/2023

Counsel for the Petitioner: Mr Sanjeev Sagar and Ms Nazia Parveen, Advs. with Mr Mukesh Kumar Meena, JE

Counsel for the Respondent: Mr Avinash Trivedi, Mr AnuragKaushik and Mr Rahul Aggarwal, Advs.

Date of Judgment: 20.11.2024

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