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Delhi High Court Sets Aside Arbitrator’s Rs. 20 Lakh Award for Loss of Profit Due to Lack of Evidence

CASE TITLE – M/S DIVYAM REAL ESTATE PVT LTD v. M/S M2K ENTERTAINMENT PVT LTD

CASE NUMBER – O.M.P. (COMM) 162/2020 & I.A. 14331/2012, I.A. 10655/2022

DATED ON – 22.05.2024

QUORUM – Justice Anup Jairam Bhambhani

 

FACTS OF THE CASE

Disputes had arisen between the parties from a Memorandum of Understanding dated 20.02.2006 (“MoU‟), under which the petitioner was to construct a mall in the name and style of “R-3 Mall‟ in Ahmedabad, Gujarat (“Mall‟) in which the respondent was to be provided space for running a multiplex on a lease basis. The bone of contention between the parties was, that the respondent alleged that the petitioner had committed a breach of the terms of the MoU by entering into a contract with a third party on 09.03.2006, thereby terminating the respondent’s contract. The respondent claimed that the termination was invalid and illegal, which compelled them to file a claim in arbitration. By way of the Arbitral Award, the petitioner has been directed to pay to the respondent the sum of Rs. 24,54,458.33 along with interest at the rate of 12% per annum. The said sum comprises two primary components: (i) the sum of Rs. 4,54,458.33 towards expenses held to have been incurred by the respondent towards advertisement and exhibition charges etc. as detailed in the award; and (ii) the sum of Rs.20,00,000.00 towards „loss of profit‟ suffered by the respondent, as also detailed in the award.

 

ISSUES

Whether the Learned Arbitrator was justified in issuing an award of Rs. 20,00,000.00 by way of loss of profit?

 

CONTENTIONS BY THE PETITIONER

The Learned Counsel appearing for the petitioner submitted that in the petition they have raised two principal contentions impugning the Arbitral Award. The first is that the MoU signed between the parties was merely an “agreement to agree‟ and was therefore not a concluded or enforceable contract, and second, that the award of Rs. 20,00,000.00 in favour of the respondent by way of loss of profit, is untenable since it was based entirely on conjectures and surmises. The petitioner’s main contention is that the learned Arbitrator has awarded loss of profit to the respondent based on no evidence tendered on record, and the Arbitral Award is in fact self-contradictory in its reasoning

 

CONTENTIONS BY THE RESPONDENT

The Learned counsel for the respondent has argued that the learned Arbitrator has returned a finding that the petitioner was guilty of breach of the MoU, thereby also dismissing the petitioner‟s counterclaims. It was argued that by way of the present petition, the petitioner is therefore asking the court to re-appreciate evidence adduced before the learned Arbitrator, which is impermissible under section 34 of the A&C Act. It was submitted that the award is neither contrary to law nor against the public policy of India. He had drawn the attention of the Hon’ble High Court to an affidavit dated 01.02.2010 tendered by Mr. Sunil Gupta, Deputy Manager of the respondent by way of evidence in the arbitral proceedings, in which, it was argued, the witness has furnished details of the expenses incurred by the respondent towards performing its obligations under the MoU. It was pointed out that the said witness has deposed that the respondent spent a sum of Rs. 20,08,343.00 towards payment made to various parties for performing its part under the MoU. The Learned Counsel also stated that in addition to such expenses, the respondent has also suffered loss of goodwill and loss of profit, resulting from termination of the MoU by the petitioner.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble High Court of Delhi, after looking through the evidence before them and the Arbitrator’s reasoning for issuing the award was of the opinion that on the limited challenge pressed on behalf of the petitioner, viz. a challenge only to the award of Rs. 20 lacs to the respondent towards loss of profit, the discussion and reasoning contained in the Arbitral Award was sparse and cryptic. They noticed that the learned Arbitrator first makes a passing observation that the respondent had incurred loss of profit, which he says has been calculated for the period from 20.06.2006 to 20.12.2008 based on the estimated loss of and then proceeds to observe that calculating loss of profit must involve a certain amount of conjecture and that there cannot be straight-jacket formula for that purpose. However, the learned Arbitrator thereafter proceeds to observe “it is speculative if any profit would be made or not. However, it cannot be ignored that it is the respondent who had committed the breach.” Therefore, the Hon’ble High Court noticed that the learned Arbitrator was of the view that even the foundational fact as to whether the respondent would have made a profit at all was in doubt. IIt the opinion of the Hon’ble High Court, that there is a clear discordance, whereby on the one hand, the learned Arbitrator holds that whether or not the respondent would have made any profit is itself a matter of speculation, but on the other hand, he proceeds to award loss of profit of Rs. 20 lacs, drawing that figure literally from thin air. Hence, they stated that, the learned Arbitrator did not proceed even on the basis of the evidence on record, that was available inter alia by way of the evidence tendered before him. The Hon’ble High Court then held that it was persuaded to allow the present petition, holding that the award of Rs. 20 lacs to the respondent towards loss of profit was based on no evidence on record, and in fact, the learned Arbitrator has failed to even decide whether the respondent had incurred, or would have incurred, any loss of profit at all, and stated that the Arbitral Award dated 07.03.2012 is to be set aside.

 

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Judgement Reviewed by – Gnaneswarran Beemarao

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