Arbitration and Conciliation Act, 1996 – s. 37 – Arbitral award – Interference with – Award of turnkey contract to the appellant by the respondents for a contract value to be completed within stipulated period – Delay in project completion which was extended, and thereafter the appellant abandoned the work, only 80% of the work was completed – Matter proceeded for arbitration – Arbitral award dismissed the respondent’s claim for liquidated damages on the ground that the delay was caused by respondent’s omissions and commissions and its other claim also rejected since they related to future works – Appeal thereagainst allowed by the Division Bench setting aside the arbitral award – Justification of:
Held: Computation depends upon attendant facts and circumstances and methods to compute damages – Determination of the quantum is a matter which would fall within the domain and decision of the arbitrator – However, the computation of damages should not be whimsical and absurd resulting in a windfall and bounty for one party at the expense of the other – Computation of damages should not be disingenuous – Damages should commensurate with the loss sustained – Arbitral tribunal gave a complete go by to the principles well in place, overlooked care and caution required and took a one-sided view, grossly and abnormally inflated the damages – No justification for computation of the loss is elucidated or can be expounded – Even if one were to rely upon the chart given by the appellant, and ignore the contradictions in findings, the amount awarded is highly disproportionate and exorbitant – Patent flaws and illegalities emanate from the award, like the manifest lack of reasoning in arriving at the conclusions and the calculation of amounts awarded, which, in fact, amount to double or partdouble payments, besides being contradictory – Thus, the award rightly held to be unsustainable and set aside by the Division Bench of the High Court exercising power and jurisdiction u/s. 37 rw s. 34. [Paras 15, 16, 27 and 45] s. 34 – Post award interference – Scope and ambit of court’s power: Held: Foundation of arbitration is party autonomy – Parties have the freedom to enter into an agreement to settle their disputes/claims by an arbitral tribunal, whose decision is binding on the parties – Court must exercise its powers when the award is unfair, arbitrary, perverse, or otherwise infirm in law – While arbitration is a private form of dispute resolution, the conduct of arbitral proceedings must meet the juristic requirements of due process and procedural fairness and reasonableness, to achieve a ‘judicially’ sound and objective outcome – If these requirements, which are equally fundamental to all forms of adjudication including arbitration, are not sufficiently accommodated in the arbitral proceedings and the outcome is marred, then the award should invite intervention by the court. [Paras 31and 32]
Contract – Computation of damages – Method for – Usage of formulae such as Hudson’s, Emden’s, or Eichleay’s formulae to ascertain the loss of overheads and profits:
Held: Three formulae deal with theoretical mathematical equations, but are based on factual assumptions, and thus, can produce three different and unrelated compensation/damages – Thus, while applying a particular equation or method, the assumptions should be examined, and the satisfaction of the assumption(s) ascertained in the facts and circumstances – Hudson’s formula like other formulae, which are only rough approximations of the cost impact of unabsorbed overhead, should be applied with great care and caution to ensure fair and just computation. s. 34 – Public policy test to HINDUSTAN PETROLEUM CORP. LTD.
an arbitral award - Expression ‘public policy’ u/s. 34 – Interpretation of – Elucidated. [Para 21, 25, and 38]
LIST OF CITATIONS AND OTHER REFERENCES
McDermott International Inc. v. Burn Standard Company Limited and Others (2006) 11 SCC 181:[2006] 2 Suppl. SCR 409; Associate Builders v. Delhi Development Authority (2015) 3 SCC 49:[2014] 13 SCR 895; A.T Brij Paul Singh and Others v. State of Gujarat (1984) 4 SCC 59; Vidya Drolia and Others v. Durga Trading Corporation and Others, (2021) 2 SCC 1:[2020] 11 SCR 1001; ONGC Limited. v. Saw Pipes Limited. (2003) 5 SCC 705:[2003] 3 SCR 691; Hindustan Zinc Ltd. v. Friends Coal Carbonisation (2006) 4 SCC 445; Centrotrade Minerals and Metals Inc. v. Hindustan Copper Limited (2006) 11 SCC 245; Delhi Development Authority v. R.S. Sharma and Co (2008) 13 SCC 80:[2008] 12 SCR 785; J.G. Engineers (P) Ltd. v. Union of India and Another (2011) 5 SCC 758:[2011] 8 SCR 486; Union of India v. L.S.N. Murthy (2012) 1 SCC 718:[2011] 13 SCR 295; Renusagar Power Co. Limited v. General Electric Co 1994 Supp (1) SCC 644:[1993] 3 Suppl. SCR 22; Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306:[2012] 4 SCR 1; ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263:[2014] 12 SCR 1; Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons 1992 Supp (2) SCC 312; Kuldeep Singh v. Commissioner of Police (1999) 2 SCC 10:[1998] 3 Suppl. SCR 594; MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163:[2019] 3 SCR 1023; Ssangyong Engg. & Construction Co. Ltd. v. National Highways Authority of India (2019) 15 SCC 131:[2019] 7 SCR 522 – referred to. Robinson v. Harman (1848) 1 Ex 850 at 855; Livingstone v. Rawyards Coal Co (1879-80) L.R. 5880 cases 25; Peak Construction (Liverpool) Ltd v. McKinney Foundations Limited (1970) 1 BLR 114; Whittal Builders v. Chesterle-Street District Council (1987) 40 BLR 82; JF Finnegan Ltd v. Sheffield City Council (1988) 43 BLR 124; Ellis- Don v. Parking Authority of Toronto (1978) 28 BLR 98; Property and Land Contractors Ltd v. Alfred McAlpine Homes North Ltd. (1995) 76 BLR 59; Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation., (1948) 1 KB 223: (1947)
2 All ER 680 (CA); Eichleay Corporation case, ASBCA No. 5183, 60-2 BCA – referred to.
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