Court Exercising Powers Under Section 34 Of The A&C Act Cannot Modify An Arbitral Award: Delhi High Court Reiterates

The bench of Justices Yashwant Varma and Dharmesh Sharma also held that where damage or loss is difficult or impossible to prove, the tribunal is empowered to award liquidated amount stipulated in the contract, if it is a genuine pre-estimate of damage or loss, or reasonable compensation for the said amount loss or damage. The claim for LD in such cases is well within the purview of Section 74 of the Indian Contract Act, 1872.

Facts

The parties entered into an agreement dated 13.03.2007. In terms of the agreement, the appellant was to act as Project Management Consultant on behalf of Central Reserve Police Force (CRPF) who was the principal employer and the respondent was to carry out certain installation works. Clause 35 of the agreement provided for imposition of LD in case of delay in the completion of the project work, also the payment under the agreement was on back-to-back basis. It also provided that any deduction made by the principal employer in the payments to the appellant would be proportionally deducted from the respondent.

The entire project work was to be completed within a period of 7 months, however, it was inordinately delayed and it took 33 months to complete the project work. Accordingly, the appellant imposed the LD and withheld 10% of the project amount. Aggrieved by the imposition of LD, the respondent invoked arbitration.

The tribunal partly allowed the claims of the respondent, however, the tribunal refused to allow the claim of the respondent qua the imposition of LD. It held that the appellant was justified in withholding the amount. Aggrieved thereby, the respondent challenged the award under Section 34 of the A&C Act to the extend of the finding of the tribunal on the issue of refund of LD amount.

The Court allowed the challenge and partly modified the award. It allowed the claim of the respondent regarding the refund of the LD amount. Aggrieved thereby, the appellant filed the appeal under Section 37 of the Act.

Grounds of Appeal

The appellant assailed the impugned order on the following grounds:

• The ld. Court misconstrued the terms of the contract and placed an erroneous construction on the provisions of the contract.
• The ld. Court also erred in allowing the claim of the respondent regarding refund of LD amount, by allowing the claim that was disallowed by the tribunal, the Court has modified the award.
• The modification of an arbitral award is impermissible in law.

Analysis by the Court

The Court observed that the arbitral tribunal had disallowed the claim of the respondent regarding the refund of the LD amount. It observed that the tribunal held that both the parties were responsible for the inordinate delay in the completion of the project work, however, it was not possible to segregate the total delay between the parties.

Further, the tribunal disallowed the tribunal as the payment under the agreement was to be received on the same terms as received by the appellant from the principal employer and the principal employer had made the said deduction from the payments made to the appellant, therefore, the same were to be proportionally deducted from the respondent. It held that the decision of the tribunal does not deserve any interference.

The Court held that even if the Court was not satisfied with the decision of the tribunal, it could have set aside the award, however, the Court was not justified in allowing a claim that was disallowed by the tribunal. It held that the Court went beyond the scope of Section 34 and modified the award.

The Court also held that where damage or loss is difficult or impossible to prove, the tribunal is empowered to award liquidated amount stipulated in the contract, if it is a genuine pre-estimate of damage or loss, or reasonable compensation for the said amount loss or damage. The claim for LD in such cases is well within the purview of Section 74 of the Indian Contract Act, 1872.

Accordingly, the Court set aside the impugned order of the ADJ and upheld the arbitral award.

Case Title: National Projects Constructions Corporation Ltd v. AAC India Pvt Ltd

Citation: 2023 LiveLaw (Del) 1083

Date: 02.11.2023

Counsel for the Appellant: Mr. Rajat Arora, Ms. Mariya Shahab & Mr. Nibin Louis, Advs.

Counsel for the Respondent: None.

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