Delhi HC Sets Aside ₹4 Crore Plant-Engineering Compensation, Finding No Basis for Arbitrator’s Estimate

In brief

The question

1. Whether the award of ₹4 crore for work performed, based on a “guesstimate,” had an evidentiary foundation and rational basis sufficient to withstand challenge under Section 34

The court held

The Court allowed the petition in part.

It also directed

It set aside the award insofar as it granted ₹4 crore as compensation and EUR 8,000 towards the Paris proceedings’ litigation costs, while leaving the remaining findings and directions undisturbed.

01Facts

The parties’ agreement concerned engineering, supply of OSBL equipment and allied services for a bromine plant, for a total contract value of ₹53 crore. The petitioner paid a ₹5.30 crore advance against a performance bank guarantee. After disputes arose over performance, approvals, land and payments, the petitioner invoked the guarantee and commenced arbitration.

pp. 1–3

The arbitrator found both parties responsible for the contract’s failure, rejected the respondent’s other counterclaims for want of cogent evidence, but awarded the respondent ₹4 crore for work allegedly performed, plus interest, and EUR 8,000 in costs relating to Paris proceedings.

pp. 5–6

The petitioner challenged those awards under Section 34 of the Arbitration and Conciliation Act, 1996; it did not press its challenge to the rejection of its loss-of-profit claim or the respondent’s other counterclaims.

pp. 3–5

02Issues

i.1. Whether the award of ₹4 crore for work performed, based on a “guesstimate,” had an evidentiary foundation and rational basis sufficient to withstand challenge under Section 34

pp. 7, 13–16

ii.2. Whether the award of EUR 8,000 towards costs of the Paris proceedings was supported by adequate reasoning and could be sustained under Section 34

pp. 16–17

03Law Applied

Section 34 permits a court to set aside a domestic award for patent illegality apparent on its face, but does not permit reappraisal of evidence merely because another view is possible.

pp. 6–7

Under Sections 28(2) and 28(3), an arbitral tribunal must decide in accordance with the parties’ agreement and may decide ex aequo et bono only where expressly authorised.

p. 16

An arbitrator may use a rough estimate or “honest guesswork” where loss is established but its precise amount is difficult to prove; however, the estimate must rest on identifiable material and a rational, discernible method connecting that material to the sum awarded.

pp. 8–13

The Court drew on DDA v. Anand and Associates, Bharat Heavy Electricals Ltd., Gemini Bay Transcription (P) Ltd. v. Integrated Sales Service Ltd. and the Division Bench decision in Radiance Infracon and Developers Pvt. Ltd. v. GLS Infratech Pvt. Ltd. for that principle.

pp. 8–13

Provisions in the judgment · 3 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 34 Section 28 Section 37

04Reasoning

The arbitrator relied on the acceptance of certain layout plans and process data sheets to find that the respondent had undertaken preliminary work. But the award did not assess the value of that work or explain how those documents supported a ₹4 crore valuation; indeed, the arbitrator had found that the respondent failed to prove its claims.

pp. 14–16

The amount therefore lacked the rational evidentiary nexus required for a permissible estimate and amounted to an arbitrary determination, constituting patent illegality.

pp. 15–16

As to the Paris costs, the arbitrator’s reasoning—that the petitioner had recovered the advance by encashing the guarantee—did not explain why the respondent could recover costs it had been directed to pay in those proceedings.

p. 17