Arbitrator Failed To Deal With Material Contentions, Arbitral Award Would Not Satisfy The Requirement Of A Reasoned Award: Delhi High Court

The bench of Justices Vibhu Bakhru and Tara Vitasta Ganju held that once it is found that the agreement has been validly terminated in accordance with the terms of the Contract, it follows that the earnest money is not liable to be refunded.

Facts

The parties entered into an agreement dated 25.02.2005 wherein the appellant agreed to carry out certain construction work for the respondent. Agreement provided for resolution of dispute through arbitration.

A dispute arose between the parties due to the slow progress of the work. Resultantly, the agreement was terminated by the respondent and the earnest money was forfeited. Thereafter, the respondent got the balance work executed at the risk and cost of the appellant. Aggrieved thereby, the appellant invoked arbitration clause and the dispute was referred to arbitration.

The arbitrator, vide award dated 11.03.2020, rejected the claims of the appellant by observing that the agreement was terminated validly. The tribunal allowed the counter-claims simply by observing that the amount so claimed was the difference between the value of contract given to the appellant and the value of the contract given to third party at the risk and cost of the appellant.

The copy of the award was given to the appellant on 02.09.2020. The appellant challenged the award before the Commercial Court on 18.02.2021. The Court dismissed the petition on the ground that it was barred by limitation. Aggrieved thereby, the appellant preferred an appeal under Section 37 of the Act.

Submissions of the Parties

The appellant challenged the impugned award on the following grounds:

• The award was received belatedly, moreover, the appellant is entitled to the benefit of extension by the Supreme Court.
• The arbitrator erred in accepting the unquantified counter-claims of the respondent without assigning any reasons for the same.
• The tribunal also erred in engaging with the objections raised by the appellant to the counter-claims of the respondent.
• The tribunal also failed to appreciate that the delays were attributable to the respondent itself, therefore, it was not entitled to the earnest money deposit upon the termination of the agreement.

Analysis by the Court

The Court observed that the award was passed on 11.03.2020, however, it was provided to the appellant only on 02.09.2020 and the petition under Section 34 was preferred on 18.02.2021. It held that Commercial Court erred in not appreciating that the appellant was entitled to Supreme Court's extension of limitation period.

The Court observed that the tribunal allowed the unquantified counter-claims of the respondent without assigning any reasons for its findings. Moreover, it failed to deal with the objections raised by the appellant to those claims.

The Court held that when the arbitral tribunal fails to deal with submissions of a party on a contentious issue, the resultant award would not fulfil the requirements of a reasoned award as required under Section 31 of the A&C Act. It held that the tribunal cannot simply accept unquantified claims without assigning reasons and without dealing with the objections to those claims.

The Court held that once it is found that the agreement has been validly terminated in accordance with the terms of the Contract, it follows that the earnest money is not liable to be refunded. Accordingly, it upheld the award on the issue of appellant's claims.

Case Title: Samrata Constructions Company v. Union of India

Citation: 2024 LiveLaw (Del) 481

Date: 04.04.2024

Counsel for the Petitioner: Mr. Nitin Mangla

Counsel for the Respondent: Mr Naginder Benipal with Mr Ankit Siwach and Ms Anjali Pandey

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