Delhi High Court Sets Aside Rs 11.93 Crore Damages In Favour Of ONGC For Lack Of Proof Of Loss

The Delhi High Court has struck down an award of Rs 11.93 crore in additional damages granted to ONGC Limited against UEM India Pvt. Ltd., finding that the arbitral tribunal fixed the amount without any proof of actual loss, without even recording that such loss was incapable of proof, and without explaining how the figure was arrived at.

A bench of Justice Avneesh Jhingan held that the award violated the requirement of a reasoned decision under Section 31(3) of the Arbitration and Conciliation Act, 1996. The court observed:

“In absence of a proof of actual damages and without recording a finding that actual damages could not be proved the tribunal proceeded to conclude that 10% of the contract value shall be a reasonable damages to be awarded over and above the LD. The basis for quantification is missing and the awarding of damages is vitiated for violating Section 31(3) of the Act whereby a reasoned award is to be passed.”.

The dispute arose from a contract awarded by ONGC to UEM India on March 30, 2011, for installation of effluent treatment and water injection plants across four sites in Assam, valued at Rs 119.34 crore.

The work was scheduled to be completed within 34 months, but disagreements surfaced along the way. UEM India Pvt. Ltd. eventually invoked arbitration, claiming prolongation costs along with losses and damages.

ONGC Limited responded with counterclaims, alleging non-performance and seeking compensation across several heads, including damages, liquidated damages and the cost of re-tendering.

The arbitral tribunal allowed parts of both sides' claims. It upheld ONGC's right to levy liquidated damages and to invoke the performance bank guarantee. At the same time, it went a step further and treated the performance bank guarantee amount of Rs 11.93 crore as reasonable damages in addition to the liquidated damages.

That finding was carried to court by UEM in a petition under Section 34 of the Arbitration and Conciliation Act, 1996. During the hearing, the Delhi High Court invoked Section 34(4) and asked the tribunal to clarify whether damages over and above liquidated damages had in fact been awarded. A majority of the tribunal confirmed that they had.

Before the court, UEM argued that ONGC had not proved any actual loss under the various heads it had claimed, and that a breach by itself could not justify damages without supporting evidence.

ONGC took the position that the performance guarantee and liquidated damages clauses operated in separate spheres, and that damages beyond the contractual stipulation were still permissible.

The court did not accept this line. While noting that invocation of the performance bank guarantee had been upheld, it found no clear reasoning in the award to justify treating that amount as damages, nor any identifiable basis explaining how that figure had been arrived at.

It noted that the tribunal had rejected ONGC's substantive claims for damages under multiple heads due to lack of evidence, yet proceeded to award damages in a lump sum without identifying the heads of loss or explaining the computation.

The court held the award to be internally contradictory:

“Another aspect is that for want of evidence three different heads in counter claim nos. 1 to 3 were rejected by the tribunal but damages were quantified without discussing the heads under which the damages were being awarded. This renders the award self-contradictory, on one hand the tribunal rejects the counter claims under specific heads for want of proof and on the other hand awards damages over and above the LD without identifying the heads of loss suffered”.

It further held that in the absence of proof of actual loss, and without any finding that such proof was impossible, the award of damages was contrary to settled principles under Section 73 of the Indian Contract Act, 1872.

Concluding that the damages component was unsustainable, the court set aside the award only to the extent of Rs 11.93 crore granted over and above liquidated damages, while preserving the rest of the award as severable.

For Petitioner (UEM India Pvt. Ltd.): Advocates Gaurav Pachnanda, Samir Malik, Snehal Kaila, Yachana Gupta, Udbhav Gady, Krishan Kumar.

For Respondent (ONGC Limited): Advocates Abhishek Puri, Surbhi Gupta, Sahil Grewal.ondent (ONGC Limited): Advocates Abhishek Puri, Surbhi Gupta, Sahil Grewal.