Arbitral Award Without Rationale For Damages Is Ex Facie Contrary To Settled Law, Can Be Set Aside: Delhi High Court

Brief Facts:

The disputes arose in the context of an agreement dated 25.11.2006 executed between M/s. Spice Jet Ltd. (Respondent) and M/s Travel2Agent.com (Petitioner). The petitioner is a service provider which provides reservation management services and ticket distribution services to airline companies. The Agreement between the parties was to create a platform/channel for the respondent to enable travel agents to book the tickets through the said platform.

As per the averments in the arbitration proceedings, the respondent had violated and did not perform its part of the Agreement, due to which the petitioner suffered losses. The disputes were referred to arbitration.

In the arbitration proceedings, the petitioner sought Rs. 1 crore from respondent for the amount spent by it pursuant to the agreement. The respondent asserted that it was misled into entering into the agreement, based on misrepresentation that the petition has an established set-up and requisite knowledge and capability to provide the services contemplated under the agreement. The respondent further claimed that the petitioner breached clause 9 of the agreement since the petitioner sought to resile from the agreed 'commission structure'. The respondent contended that the petitioner's claim for recovery of investment was untenable because the supporting invoices predated the Agreement.

In the award, the Arbitrator rejected the respondent's claim of repudiation and held that the petitioner did not breach the Agreement. The Arbitrator held that the expenditure was incurred by the petitioner only on the assurance of the respondent company. Further, even after signing the Agreement, the petitioner continued to incur expenditure for implementation of the Agreement and consequently, the petitioner was held entitled to recover the same. The claimant was awarded damages of Rs.5 Lakhs with interest at the rate of 12% p.a.

The petition under section 34 of the Arbitration and Conciliation Act, 1996 was filed to assail the arbitral award dated 31.10.2012.

Submissions on behalf of the Petitioner:

The award omits to award Rs. 20 lakhs, which is the expenditure for hiring operation, sales, and technical staff to implement the Agreement.

Submissions on behalf of the Respondent:

Firstly, under the Agreement, the petitioner was entitled to an upfront, set-up fee of Rs.3.5 Lakhs. Other than this, the Agreement does not impose any obligation on the respondent to bear any expenses that were allegedly incurred by the petitioner in setting up the platform.

Secondly, the alleged expenses which have been reimbursed by the award to the petitioner are not substantiated from the evidence on record.

Thirdly, the findings regarding breach/repudiation in the impugned award are erroneous and perverse since certain vital correspondence have not been taken note of by the Arbitrator.

Observations:

The court held that the impugned award did not warrant interference under section 34 of the Arbitration Act being predicated on a plausible interpretation of the provisions of the Agreement by the Arbitrator, and based on the factual circumstances as brought out in the evidence adduced/ material placed on record by the parties. In this regard, the court observed that:

“It is trite that an Arbitrator is the sole judge of the quality and quantity of evidence and that the Court while exercising jurisdiction under Section 34 of the A&C Act would not supplant the views of the arbitral tribunal as long as the view taken is not altogether perverse and untenable.”

With regard to the direction awarding damages to the tune of Rs. 5 lakh to the petition, the court held that no rationale was disclosed for coming to the conclusion as to why the claimant is entitled to the aforesaid amount. The court observed that any award of damages, on the touch stone of Section 73 of the Indian Contract Act, must be predicated on actual loss suffered. The court held that the the award on this count was, ex facie contrary to settled law, and also in manifest disregard of the material/ evidence on record.

The court set aside the impugned award to the extent it awarded damages to the claimant to the sum of Rs.5 Lakhs. The court upheld the other direction in the award viz. payment of Rs.29,30,937 by the respondent to the claimant, alongwith interest at 12% p.a..

Case Title: M/s Travel2Agent.com & Ors. vs. M/s Spice Jet Ltd.

Citation: 2024 LiveLaw (Del) 1230

Case Numbers: O.M.P. (COMM) 121/2016; O.M.P. (COMM) 132/2016

Counsel for Petitioners: Mr. Gagan Chadha, in person.

Counsel for Respondents: Mr. Sanjay Gupta, Mr. Dipan Sethi, Ms. Roshi Surele, Advocates.

Judgment pronounced on: 29.10.2024

Click Here To Read/Download The Order