Scope Of Examination U/S 34 A&C Act Doesn't Extend To Re-adjudication Of Disputes But To Consider If Award Is Liable to Be Set Aside: Delhi HC

The Delhi High Court held that the scope of examination under Section 34 of the (Arbitration and Conciliation Act, 1996) A&C Act does not extend to re-adjudication of the disputes but merely to consider whether the Arbitral Award is liable to be set aside on the grounds as set under Section 34. 

The Court held thus in an Intra-Court Appeal filed under Section 37 of the A&C Act against the Order of the Single Judge.

A Division Bench comprising Justice Vibhu Bakhru and Justice Sachin Datta observed, “... the impugned award to the extent rejecting Fiberfill’s claim for recovery of the amount withheld by IOCL along with interest has been rightly set aside by the learned Single Judge. However, as observed at the outset, the decision of the learned Single Judge to award the said claim or interest at the rate of 8% per annum cannot be sustained, given that the scope of examination under Section 34 of the A&C Act does not extend to re-adjudication of the disputes but merely to consider whether the arbitral award is liable to be set aside on the grounds as set under Section 34 of the A&C Act.”

Senior Advocate Huzefa Ahmedi represented the Appellant while Advocate Amit Gupta represented the Respondent.

Brief Facts -

The Respondent had filed a Petition under Section 34 of A&C Act for setting aside an Arbitral Award rendered by the Arbitral Tribunal comprising of a Sole Arbitrator. The impugned Award was rendered in the context of disputes that had arisen between the parties in connection with an agreement for designing, supplying, installation, testing, and commissioning of high mast signage systems of various heights and types at various IOCL (Indian Oil Corporation Ltd.) retail outlets in the State of Tamil Nadu and Union Territory of Pondicherry (hereafter referred to as the Work Order).

The Respondent (M/s. Fiberfill Engineers) had made five claims which were the subject matter of arbitration before the Arbitral Tribunal. The same included a claim of Rs. 22,08,528/- being an amount that was deducted by IOCL towards price adjustment from the bills raised by the Respondent for the work done. The Tribunal rejected all the claims and found that the Respondent was not entitled to any relief. Thereafter, the Single Judge sustained the challenge of the award and set aside the same to the extent that it rejected Fiberfill’s claim for the amount of Rs. 22,08,528/-. The controversy in the Appeal before the Division Bench was thus, confined to the question whether the Arbitral Tribunal had erred in rejecting the Respondent’s claim.

The High Court in view of the above facts, noted, “… in a given case where contractual terms provide for a variable consideration depending on the performance of the agreement, the said term is required to be enforced. It is not necessary that in all cases where the parties have agreed to reduction in consideration on the basis of performance, that the contractual term to that effect is to be construed as the clause for damages.”

The Court added that, in such cases, the contractual clause must be read as an integral part of the rights and obligations of the parties, which are required to be performed.

“… IOCL’s witnesses testified to the effect that the amounts were withheld from the bills raised by Fiberfill as penalty. Whilst IOCL claimed that it was entitled to compensation and liquidated damages, Fiberfill claimed that Clause 4.2.2.2 of the GCC contains the provision for levy of penalty, which was impermissible. The scope of adjudication before the Arbitral Tribunal was thus confined to the aforesaid rival stands”, it said.

The Court while concurring with the decision of the Single Judge remarked that the impugned award is vitiated by patent illegality on the ground that the Arbitral Tribunal has awarded liquidated damages/compensation by way of price adjustment in absence of any averment by IOCL that it had suffered any loss whatsoever and without any finding to the said effect. 

Accordingly, the High Court set aside the impugned Order to an extent and also set aside the impugned Award.

Cause Title- Indian Oil Corporation Ltd. v. M/s. Fiberfill Engineers (Neutral Citation: 2024:DHC:8911-DB)

Appearance:

Appellant: Senior Advocate Huzefa Ahmedi, Advocates Mala Narayan, Shashwat Goel, Rohan Sharma, and Isha Ray.

Respondent: Advocates Amit Gupta, Kshitij Vaibhav, Muskan Nagpal, and H.S. Mahapatra.

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