Rajasthan HC Upholds Setting Aside ₹653-Crore Award To Parcel Licensee Who Never Carried A Parcel, As It Had No Proof Of Loss

RSRTC accepted Bhagwati Enterprises’ bid to act as sole licensee for carrying parcels on its buses and issued a work order stating a licence period from 21 March 2005 to 20 March 2008.

The tender conditions, however, provided for an initial one-year term, extendable for two further years after deliberation.

The appellant signed the formal agreement with a handwritten condition seeking changes to certain clauses.

RSRTC rejected that condition and asked the appellant to sign the prescribed form; the appellant instead sought return of its security, which RSRTC refunded, and it never commenced operations.

The arbitrator awarded approximately Rs. 653.20 crore, principally for anticipated loss of profit.

RSRTC’s Section 34 objections, filed in 2011, were allowed by the Commercial Court, which set aside the award.

The appellant challenged that decision under Section 37 of the Arbitration and Conciliation Act, 1996.

Because RSRTC’s Section 34 objections were filed before the 2015 amendments took effect, the unamended Section 34 applied; the governing public-policy principles included patent illegality, disregard of substantive law or contractual terms, and awards that shock the conscience.

Section 37 review is narrower than Section 34 review and does not permit appellate reweighing of evidence.

Under Sections 7 and 62 of the Indian Contract Act, 1872, an acceptance must be absolute and unqualified, while parties may rescind or alter a contract by agreement, including agreement inferred from conduct.

Section 73 permits compensation for loss caused by breach, not remote or indirect loss, and requires proof where loss can be proved; Section 28(3) of the Arbitration Act requires the tribunal to take the contract’s terms into account.

Associate Builders v. Delhi Development Authority and ONGC Ltd. v. Saw Pipes Ltd. informed the tests for perversity, patent illegality and an award that shocks the conscience.

Kailash Nath Associates v. Delhi Development Authority, Unibros v. All India Radio and Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd. supported the requirement for evidence of loss and a factual basis for loss-of-profit damages.

Under Gayatri Balasamy v. ISG Novasoft Technologies Ltd., severance is available only where valid and invalid parts are separable; a court cannot recalculate the merits or devise a fresh award.

The Court held that the appellant’s request for return of its security, followed by acceptance of the refund, was material conduct inconsistent with readiness to perform and with claiming that the arrangement continued for the full three years; the award did not properly address that evidence.

Reading the tender, agreement and work order together, the Court found that only the first year was assured and that extension depended on performance and RSRTC’s deliberation.

Since the appellant never performed, damages based on the second and third years rested on an unfulfilled contingency; the arbitrator’s failure to account for the relevant contractual terms was patent illegality.

The claimed profit was not substantiated by the appellant’s accounts or business plan; bids by other parties in later tenders did not establish the appellant’s likely profit.

The award was also grossly disproportionate to the licence fees payable and therefore amounted to an unsupported windfall contrary to Section 73.

The Court found no separable portion that could be preserved without reassessing damages and fixing a new figure.

It dismissed the appeal, upheld the Commercial Court’s order dated 8 November 2024, and left the arbitral award set aside.

Pending applications were disposed of, with no order as to costs.