Delhi High Court: An intra court appeal was filed by Plus91 Security Solutions (appellant) under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 challenging a judgment dated 18-12-2023 passed by a Single Judge in a case filed under Section 34 of the Arbitration and Conciliation Act contesting an arbitral award dated 17-03-2023 wherein the Arbitral Tribunal awarded a sum of ₹8,43,07,904 in favour of the present appellant along with interest at the rate of 6% per annum on the awarded amount with effect from 23-08-2019 till the date of payment along with a sum of ₹1,27,30,625 as costs in favour of the appellant. A Division Bench of Vibhu Bakhru and Tara Vitasta Ganju, JJ., dismissed the appeal and held that the award of damages on account of loss of profits is contrary to the terms of the contract (MOU) and thus, the impugned award is vitiated by patent illegality.
The Court remarked that “If the parties have agreed that a particular type of damages would not be paid, the said agreement is required to be implemented. In terms of Section 28(3) of the Arbitration and Conciliation Act, the Arbitral Tribunal is required to render a decision having regard to the terms of the contract.”
The present appellant, a registered partnership firm specializing in security solutions, collaborated with the respondent, a private limited company known for its biometric solutions, under a Memorandum of Understanding (MOU) signed on 25-09-2014. The collaboration led to several joint projects, including deploying Facial Recognition System (FRS) technology for the Prime Minister’s Special Protection Group (SPG). In 2018, the Airport Authority of India (AAI) issued a Request for Proposal (RFP) for a pilot E-Boarding-Biometric Boarding System (BBS) project at four airports. The respondent approached the appellant to jointly work on the project, promising purchase orders worth approximately ₹84 crores.
Despite the appellant’s substantial assistance in formulating bid documents and holding meetings with AAI officials, the respondent secured the AAI project contract independently in August 2019 and did not enter into a project-specific agreement with the appellant. The appellant issued a legal notice in May 2020, alleging breach of the MOU, to which the respondent replied, denying any binding obligation to issue purchase orders. This led the appellant to invoke the Arbitration Agreement, resulting in the formation of an Arbitral Tribunal. The appellant sought ₹1,32,60,00,000 for losses and interest, while the respondent contended the MOU was only for obtaining vendor quotes.
The Arbitral Tribunal recognized the MOU as a binding contract and awarded the appellant ₹8,43,07,904 for loss of profits, with 6% annual interest from August 2019, and ₹1,27,30,625 in costs. However, the learned Single Judge found the Tribunal’s decision patently illegal. This decision prompted the appellant to file the present appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, challenging the judgment dated 18-12-2023 passed by a Single Judge.
The Court carefully examined the contractual obligations and clauses limiting liability between the parties. The core issue was whether specific contractual provisions barred claims for compensation and damages arising from delays and other related matters. The Court highlighted the necessity of understanding the precise terms of the contract, particularly clauses that explicitly limit liability, referencing several Supreme Court decisions to underscore this principle.
The Court referred to the case of Asian Techs Limited v. Union of India, (2009) 10 SCC 354, where the Supreme Court interpreted a similar clause and concluded that the contractor could still make claims before an Arbitral Tribunal, despite the contract’s provisions. However, the judgment in Ramnath International Construction (P) Ltd. v. Union of India, (2007) 6 SCC 201, established that certain clauses could indeed bar claims for compensation due to delays, a principle upheld in subsequent cases like Associated Engineering Co. v. Government of Andhra Pradesh, (1991) 4 SCC 93, and Ch. Ramalinga Reddy v. Superintending Engineer, (1999) 9 SCC 610.
The Court also discussed Oil and Natural Gas Corporation v. Wig Brothers Builders and Engineers Private Limited, (2010) 13 SCC 377, where the Supreme Court faulted the Arbitral Tribunal for awarding compensation by disregarding explicit contract provisions that barred such claims. Additionally, the court cited Bharathi Knitting Company v. DHL Worldwide Express Courier Division of Airfreight Ltd., (1996) 4 SCC 704, where limitation of liability clauses was upheld, thereby restricting the damages awarded.
Ultimately, the Court found that the award of damages for loss of profits in the present case was contrary to the terms of the contract, specifically Clause 10 of the MOU, which barred claims for certain types of damages but did not extinguish all remedies. Consequently, the Court concurred with the Single Judge in setting aside the impugned award due to patent illegality, thereby dismissing the appeal.
The Court held that the contractual clauses limiting liability and barring certain types of damage claims must be respected and enforced. The award of damages for loss of profits was found to be contrary to the terms of the contract, and thus the impugned award was set aside due to patent illegality. The appeal was dismissed, and the parties were left to bear their own costs.
[Plus 91 Security Solutions v. NEC Corporation India Private Limited, 2024 SCC OnLine Del 5114, decided on 29-07-2024]
Advocates who appeared in this case :
For the Appellant: Mr Jayant Mehta, Senior Advocate with Ms Ritu Bhalla, Mr Arindam Ghose, Mr Ankit Jain, Ms Nikita Sethi and Ms Kaveri Rawal, Advocates.
For the Respondent: Mr Ramesh Singh, Senior Advocate with Mr Aashish Gupta and Ms Chandni Ghatak, Advocates.
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