A Party Cannot Challenge An Arbitral Award After Receiving Amount Payable Under It: Delhi High Court

The bench of Justice Sanjeev Narula held that acceptance of payments under the award would estop a party from challenging the award. It held that party after receiving payment cannot repudiate part award detrimental to it.

Facts

A letter of acceptance (LOA) dated 12.04.2016 was awarded in favour of the petitioner for the construction of 144 dwelling units for the respondent. However, the work was reduced to 126 units. Thereafter, on 15.02.2018 the parties entered into an agreement in respect of the work to be carried out as per the LOA. In terms of the agreement, the project work was to be completed within 30 months from the date of the agreement.

However, the work could not be completed due to various failures of the respondent which led the petitioner to invoke arbitration. The arbitrator partially allowed the claims of the petitioner and rejected the counter-claims by the respondent. However, the petitioner was not satisfied with the quantum awarded by the tribunal in respect of one of its claims. Accordingly, it challenged a part of the award under Section 34 of the A&C Act.

Grounds of Challenge

The petitioner made the following submissions challenging the award:

• The tribunal applied irrelevant terms of the contract to the dispute between the parties which has resulted in manifest illegality, evident on the fact of the record.
• In addressing the loss of profit issue, the tribunal mistakenly used Clause 4.3(iii) of the GCC, which calculates compensation at a 10% rate, including 5% for overheads and 5% for profit loss. This approach overlooked the applicable 15% interest rate specified in CPWD circulars No/DG/MAN/150 and DG/MAN/184, resulting in an incorrect compensation rate of 7.5% for profit loss.
• Additionally, the tribunal misapplied Clause 2.4.1 of the GCC, reducing the scope of work by 25%. It failed to recognize that 23% of the work had already been deducted under the same clause, making the tribunal's conclusion legally flawed.

Analysis by the Court

At the outset, the Court observed that the compensation awarded by the tribunal against the claim for loss of profit has already been paid by the respondent and accepted by the petitioner.

The Court held that a party that has received payment in terms of an arbitral award cannot challenge the award with respect to the disallowed claims.

The Court relied on the judgment in Sporty Solutionz v. Badminton Association of India to hold that acceptance of payments under the award would estop a party from challenging the award. It held that party after receiving payment cannot repudiate part award detrimental to it.

The Court also held that mere misapplication of the terms of the contract does not put the award within the ambit of patent illegality. It held that the threshold for determining patent illegality is high. It involves more than just an erroneous application of law or contractual terms; it requires an egregious error that is blatant and fundamental to the issues being dealt with.

Accordingly, the Court dismissed the petition.

Case Title: M/s K.S. Jain Builders v. Indian Railway Welfare Organisation

Citation: 2024 LiveLaw (Del) 106

Date: 25.01.2024

Counsel for the Petitioner: Ms. Minakshi Jyoti, Mr. Dharaveer Singh and Mr. Vikas Singh, Advocates with Mr. Sanjeep Jain, AR

Counsel for the Respondent: Mr. Sulaiman Mohd. Khan, Ms. Taiba Khan, Mr. Bhanu Malhotra and Mr. Gopeshwar Singh Chandel, Advocates.

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