The Arbitrator Cannot Award A Lumpsum Amount As Against Specified Claims Without Adjudicating The Claims: Delhi High Court

The Bench of Justice Vibhu Bakhru held that an arbitral tribunal cannot award a lumpsum amount against specified claims of a party merely to meet the ends of justice.

The Court also held that an application under Section 34(4) of the A&C Act would not be allowed to clarify the amount of damages when the same is not based on any calculation.

The Court further held that an arbitral tribunal cannot also summarily reject the counter-claim of a party merely because they are belated as long as they are raised within the limitation period.

Facts

The parties entered into Supply and Service Contract (Contracts) dated 10.09.2011 wherein the respondent agreed to supply its service for "induced draft cooling tower package for Muzaffarpur Thermal Power Project Stage-II". The work under the contracts commenced on 09.08.2011 and it was to be completed within 24 months.

The respondent furnished two Performance Bank Guarantees for an amount equivalent to 10% of the Contract value in favour of the petitioner which was to be released after the Performance Guarantee Test (PGT) was conducted.

The work could not be completed on time and as many as 17-time extensions were granted to the respondent for completion of time.

On 21.04.2016, the respondent stated to have completed major work under the contract and requested the petitioner for certificate of Completion of Facilities (COF) and release of its pending dues.

Several meetings and deliberations happened between the parties and on 12.07.2017, the petitioner issued a COF in favour of the respondent with the condition that it would complete the major/minor pending works and complete the PGT.

Thereafter, the respondent requested the petitioner for release of PBGs and stated that PGT was to be conducted within 12 months from the date of completion, however, since the petitioner released the COF belatedly, it cannot be faulted for delay in PGT.

The petitioner stated that since the respondent has not completed the entire work under the agreement and PGT has also not been done, it would not release the PBGs. The respondent stated that delay in the rectification/competition of the rest of the work is due to the financial liabilities it has incurred due to the act of the petitioner in withholding the payments.

Subsequently, a Performance Evaluation Test was conducted through an independent agency and it reported a 3.2- and 3.9-degree Celsius Shortfall in cooling tower No.3 and No.4 respectively. The petitioner called upon the respondent to rectify the deficiencies and to carry out the PGT to facilitate the release of PBGs.

Thereafter, the respondent filed a writ petition which was dismissed by the court with a direction to avail of appropriate remedy under the dispute resolution clause. Again, the respondent filed a civil suit that was dismissed as withdrawn to avail of the appropriate legal remedy.

Thereafter, the respondent approached the MSMEF Council and sought resolution of dispute in terms of Section 18 of the MSMED Act, 2006. Accordingly, the parties were referred to arbitration.

The respondent filed its statement of claim before the arbitrator and claimed a sum of Rs. 45,95,10,542/- along with interest under various heads of claims.

The petitioner filed its statement of defence and also raised certain counter-claims that were rejected at the outset on the ground that they were raised after a delay of 11 months and as the counter-blast to the respondent's claim.

Thereafter, the respondent filed an application under Section 33 of the A&C Act to seek clarification as to whether the awarded amount is inclusive or exclusive of the amount of bank guarantees. The arbitrator dismissed the application as without any merit.

The Award

The arbitrator vide an award dated 30.12.2020 awarded a lump sum amount of Rs. 5.5 Cr on all counts including the bank guarantees as well as the interest component in favour of the respondent.

Application under Section 34(4) of the A&C Act

The petitioner filed an application under Section 34(4) of the A&C Act to adjourn the proceedings to enable the Arbitral Tribunal to take appropriate action for eliminating the grounds for setting aside the Arbitral Award on the ground that the arbitral tribunal has failed to give reasons as to how he has awarded a sum of Rs. 5.5 Cr and whether the same amount includes the amount of bank guarantees.

Analysis by the Court

The Court observed that the impugned award runs into 152 pages out of which 142 pages are mere reproductions of the pleadings of the parties. The Court deprecated such kind of drafting of an arbitral award.

The Court observed that the arbitrator has awarded a lumpsum amount against the specified claims without adjudication of the said claims. The Court held that such an award cannot be sustained.

The Court held that an arbitral tribunal cannot award a lumpsum amount against specified claims of a party merely to meet the ends of justice.

The Court also held that an application under Section 34(4) of the A&C Act would not be allowed to clarify the amount of damages when the same is not based on any calculation. Moreover, the arbitrator had already dismissed the application under Section 33 of the Act.

The Court further held that an arbitral tribunal cannot also summarily reject the counter-claim of a party merely because they are belated as long as they are raised within the limitation period.

Accordingly, the Court set aside the arbitral award.

Case Title: Kanti Bijlee Utpadan Nigam Ltd. v. Paltech Cooling Towers & Equipments Ltd. O.M.P. (COMM.) 154 of 2021

Citation: 2022 LiveLaw (Del) 692

Date: 05.07.2022

Counsel for the Petitioner: Mr Puneet Taneja with Ms Laxmi Kumar and Mr Manmohan Singh Narula, Advocates

Counsel for the Respondent: Mr Ramesh Singh, Senior Advocate with Ms Sakshi Mehley and Ms Harshita Kumar, Advocates.

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