Arbitral awards based on guesswork without evidentiary foundation or reasoning constitute patent illegality.

The Appellant (landowner) and Respondent (collaborator) entered into a Collaboration Agreement on 07.06.2016 for the commercial development of land in Gurugram

The Respondent failed to adhere to payment schedules and construction timelines, including the critical task of removing an overhead electricity line

Consequently, the Appellant terminated the Agreement on 15.06.2019 and invoked arbitration

The Sole Arbitrator upheld the termination, ordered the handover of possession, and awarded mesne profits of ₹30,00,000 per month from 01.07.2019 to 30.11.2023 (totaling ₹15,90,00,000) based on "guesswork," noting that neither party led evidence on quantification

In a Section 34 petition, the learned Single Judge set aside the award to the limited extent of the mesne profits, holding the quantification lacked evidentiary support

The Appellant challenged this interference under Section 37 of the Arbitration and Conciliation Act, 1996 ("the Act")

1. Whether the learned Single Judge exceeded the scope of Section 34 by interfering with the Arbitrator’s quantification of mesne profits

2. Whether an Arbitral Tribunal can award damages based on "honest guesswork" in the total absence of evidence or reasoning

The Court applied Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996, regarding the limited scope of judicial interference with arbitral awards

It relied on the doctrine of "Patent Illegality" under Section 34(2-A), which includes findings based on "no evidence" or awards devoid of reasoning [DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd., para. 81]

The Court further applied the principle that while "honest guesswork" or a "rough and ready" method is permissible for assessing unliquidated damages, such estimation must be anchored in some foundational material or discernible reasoning [Bharat Heavy Electricals Ltd. v. Delkon India Pvt. Ltd., para. 64; New Okhla Industrial Development Authority v. Harnand Singh, para. 75]

The Court observed that the Arbitrator expressly recorded that "no evidence is led in this behalf by either party" regarding the quantification of loss

While acknowledging that Indian law permits "honest guesswork" when exact mathematical precision is impossible, the Court clarified that such discretion is not unfettered; it must have a rational nexus with the material on record

In this case, the Tribunal rejected the only valuation report provided (CBRE report) and failed to cite any other benchmark (such as the Colliers report) or provide a methodology for arriving at the ₹30 Lakhs per month figure

The Court held that an award without reasons or based on "no evidence" constitutes patent illegality

The Court rejected the Appellant's argument that the figure was traceable to the record, noting that the Court cannot supplement or reconstruct the Arbitrator’s reasoning with material the Arbitrator himself explicitly stated did not exist

It held that the Arbitral Award, to the extent of the ₹15,90,00,000 award, suffered from patent illegality as it was both unsupported by evidence and devoid of reasons

The Court affirmed that while the Appellant is entitled to seek mesne profits due to the Respondent's wrongful possession, such damages cannot be "conjured out of thin air"

The Court maintained the liberty granted to the Appellant to pursue the claim for mesne profits in accordance with the law

No order as to costs