Section 12(5) does not apply to arbitral proceedings commenced before the 2015 Amendment.

The petitioner, an outsourced manpower and related-services provider, had been providing services to the respondent since 2011.

On 21 March 2014, the parties executed two contracts—WC/REV/146/14 for outsourced salary services and WC/REV/147/14 for reimbursement of outsourced-service expenses—for the period 1 April 2014 to 31 March 2015, with extension contemplated on mutually agreed written terms.

Although negotiations for fresh contracts for 2015–16 continued after the respondent sought a fresh proposal on 16 March 2015, the respondent communicated on 5 May 2015 that both contracts stood terminated.

The petitioner invoked arbitration, claiming approximately ₹5.48 crore for salary, expenses, recruitment costs, loss of credibility, loss of business and other alleged losses. The respondent raised a counterclaim of approximately ₹27.80 lakh.

The arbitral tribunal held that the contracts had not automatically expired on 31 March 2015 and stood extended until 30 June 2015; termination with effect from 1 April 2015 was therefore in breach of contract.

It awarded ₹11,21,810 to the petitioner and ₹27,40,066 to the respondent, resulting in a net award of ₹16,18,256 in favour of the respondent, with interest at 12% per annum from the date of the award.

The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”).

Whether the appointment of the arbitrator was invalid under Section 12(5) of the Act, as introduced by the Arbitration and Conciliation (Amendment) Act, 2015, because the award was rendered after the amendment came into force?

Whether the arbitral tribunal erred in rejecting the petitioner’s claims for salary, telephone and travel expenses, service tax and education cess on the ground that the petitioner had not established any corresponding loss?

Whether the claims for recruitment costs, loss of credibility and loss of business were arbitrable and arose from the contracts?

Whether the impugned award disclosed perversity, patent illegality, conflict with public policy or any other ground warranting interference under Section 34 of the Act?

Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 governs the temporal applicability of the amendments, and where arbitral proceedings commenced before the amendment, the amended Section 12(5) does not invalidate an otherwise valid appointment.

The Court relied on DV Anand v. Hindustan Petroleum Corporation Ltd., Kamal Kumar v. Municipal Corporation of Delhi, Ellora Paper Mills Ltd. v. State of Madhya Pradesh, and the Supreme Court decisions referred to therein.

In claims for damages under Section 73 of the Contract Act, 1872, breach alone is insufficient; the claimant must establish actual loss or show that such loss is incapable of proof.

The Court relied on Kailash Nath Associates v. DDA for the requirement of loss or damage and on State of Rajasthan v. Ferro Concrete Construction (P) Ltd. for the proposition that an award based merely on an unsupported claim, without evidence, is unsustainable.

Under Section 34 of the Act, the court does not sit as an appellate court, reappreciate evidence or substitute a plausible arbitral view with another possible view.

Interference is confined to the statutory grounds, including patent illegality, perversity, conflict with public policy or contravention of the fundamental policy of Indian law.

The Court rejected the Section 12(5) challenge because the arbitration had commenced in September 2015, before the amended provision was applicable in the manner contended for by the petitioner; the subsequent delivery of the award did not invalidate the arbitrator’s appointment.

Although the tribunal found that the respondent had breached the contracts by terminating them prematurely, it separately examined whether the petitioner had suffered compensable loss.

It accepted the tribunal’s factual finding that the respondent had paid the employees’ salary and telephone/travel expenses directly and that the petitioner had not established any corresponding liability or expenditure.

The petitioner therefore failed to prove actual loss, while the tribunal nevertheless awarded the petitioner its 8% remuneration or mark-up for the relevant period.

The Court also upheld rejection of the recruitment-cost, loss-of-credibility and loss-of-business claims.

The claims were either unsupported by pleadings, not contemplated by the contracts, or unsupported by evidence.

In particular, the contractual arrangement operated on a “collect and pay” basis, the petitioner had no demonstrated monetary loss after the relevant payments were made, and the petitioner’s own witness stated that it had no other client, undermining the claim for loss of business.

Since the tribunal’s conclusions were at least plausible and were based on the contractual terms, pleadings and evidence, the Court held that reassessment of those findings was impermissible under Section 34.

It further held that, notwithstanding the respondent’s contractual breach, the petitioner failed to prove compensable actual loss in respect of the rejected claims, and that the claims for recruitment costs, loss of credibility and loss of business were either non-contractual, non-arbitrable or unsupported by evidence.

Finding no perversity, patent illegality, conflict with public policy or other ground under Section 34 of the Act, the Court upheld the arbitral award and dismissed the petition.