A Party Cannot Partly Challenge Parts Of An Arbitral Award After Receiving Benefits: Delhi High Court

The Delhi High Court held that once a party has accepted benefits under an arbitral award, they are precluded from partially challenging any part of the award.

The Court dismissed the Petition challenging Claims No. 4 and 5, related to loss of profits, which were partly allowed of a contract award granted in favour of the Petitioner.

The Bench of Justice Sanjeev Narula observed, “it is undisputed fact that on 18th August, 2022, Petitioner has already received the awarded amount under Claim no. 5. This acceptance would estop them from challenging the award”.

Advocate Minakshi Jyoti appeared for the Petitioner and Advocate Sulaiman Mohd. Khan appeared for the Respondent.

The dispute arose from a Contract Award valued at INR 33,52,66,929/-. It involved constructing a residential complex in Village Miranpur-Pinvat, Pargana-Bijnor, Tehsil & District Lucknow, with a thirty-month completion period from the issuance of the Letter of Award (LoA). The Petitioner faced obstacles, including delays in project commencement due to the Respondent's actions and a reduction in project cost because the Lucknow Industrial Development Authority approved fewer dwelling units.

Subsequently, the Petitioner initiated arbitration, claiming substantial losses, including resource engagement and loss of profits. The Arbitrator dismissed the Respondent's counterclaims and awarded INR 1,42,34,622/- to the Petitioner, along with an 8% per annum interest rate. The Petitioner challenged the award, specifically focusing on Claim no. 5, related to the loss of profit on undone work. The Petitioner argued that, based on the Arbitrator's findings on breach of contract, they were entitled to compensation under Section 73 of the Indian Contract Act, 1872. The Arbitrator agreed with the Petitioner and awarded compensation for the loss of profit, calculated according to stipulations in the contract agreement and relevant clauses.

The Court noted that the Petitioner initially sought relief to annul a specific segment of an Arbitral Award about Claim No. 4 and Claim No. 5. However, during a court hearing on January 19, 2024, the Petitioner clarified that they were no longer contesting the Arbitral Tribunal's findings regarding Claim No. 4. With Claim No. 5, the Petitioner initially limited the challenge to the disallowed portion but later sought to retract this statement through an application.

Additionally, the Court analyzed the challenge to the disallowed portion of Claim No. 5, highlighting the Supreme Court Judgment in the case of National Highways Authority of India v M. Hakeem & Anr [(2021) 9 SCC 1]. Emphasizing the impermissibility of altering or modifying an arbitral award, the Court stressed the judicious application of the doctrine of severability. Given the interconnected nature of the findings and reasoning, partial annulment was deemed inappropriate.

The Court also assessed whether the Petitioner had grounds to set aside the entire award for Claim No. 5 under Section 34 of the Arbitration and Conciliation Act, 1996 (Act). The Petitioner contested the awarded damages, arguing against the application of certain clauses and advocating for a different rate. However, the Court rejected the arguments, noting that intervention is unwarranted if the Arbitral Tribunal's view is plausible. The Court rejected the Petitioner's claims of conflict with public policy or patent illegality, highlighting the speculative nature of the calculation of lost profits.

The Bench observed that establishing patent illegality in determining a threshold for patent infringement requires a notably high standard. This standard transcends mere errors in applying the law, demanding a glaring and fundamental error pivotal to the matter at hand. Despite the petitioner's disagreement with the tribunal's interpretation of a contractual provision or the decision to award a 5% damages rate, such actions were deemed insufficient to constitute a grave miscarriage of justice or a breach of fundamental legal principles.

The Bench noted that the tribunal's decision to assess damages at 5% was considered a factual finding based on the material presented during arbitration. The tribunal's determination of damages at 5% of the reduced work value was considered reasonable and justified, reflecting a balanced and reasoned assessment within acceptable bounds of arbitral decision-making.

The Court emphasized that, as per the Proviso to Section 34(2A) of the Act, an award cannot be set aside solely on the grounds of an erroneous application of the law or by re-appreciation of evidence. The Court emphasized that it is not its role to reassess or re-evaluate evidence presented before the Arbitral Tribunal unless there is a clear indication of arbitrariness or gross misinterpretation leading to a miscarriage of justice.

Furthermore, the Court noted the argument that the plea to annul the disallowed portion of Claim No. 5 is not viable as the Petitioner already received the awarded amount on August 18, 2022. This acceptance establishes an estoppel, preventing the Petitioner from challenging the award, referring to the case of Sporty Solutionz Pvt. Ltd v Badminton Association of India and another [O.M.P. (COMM) 316/2017].

The Court reiterated that accepting costs or benefits under an award prevents later repudiation of any part detrimental to the individual, as the order is to take effect in its entirety.

In this specific case, the Court concluded that the tribunal's decision to award a specific amount under Claim no. 5 was a well-considered assessment based on the analysis of presented evidence and did not exhibit any flaws justifying a challenge under the specified grounds of Section 34 of the Arbitration Act.

Accordingly, the Court dismissed the Petition.

Cause Title: Ms K S Jain Builders v Indian Railway Welfare Organization (2024:DHC:575)

Appearance: 

Petitioner: Dharaveer Singh, Vikas Singh and Sanjeep Jain Advocates 

Respondent: Taiba Khan, Bhanu Malhotra and Gopeshwar Singh Chandel Advocates

Click here to read/download Judgment