The Delhi High Court has partly set aside an arbitral award granting a company ₹4 crore in compensation and ₹7 lakh in litigation costs in a dispute over a ₹53 crore bromine plant contract, finding that the arbitrator had failed to justify the amounts awarded.
Justice Om Prakash Shukla observed, “Reasons are heartbeat of final conclusion and as such recording of reasons ensures that decisions are based on established norms rather than the Tribunal's whims and fancies.”
The Court found that the arbitrator had not explained how the engineering work undertaken by De Dietrich India Private Limited justified compensation of ₹4 crore. It also found no basis for directing Intech Brinechem Limited to reimburse litigation costs that De Dietrich had been ordered to pay in proceedings before the Commercial Court of Paris.
The Court also observed, “Thus, while precision or strict proof of the exact quantum of loss is not invariably necessary, the Arbitrator must furnish a reasonable basis for the estimation, and the compensation so determined must not be excessive or disproportionate.”
The dispute arose from a May 3, 2022 agreement under which De Dietrich was to undertake detailed engineering, supply equipment and provide allied services for a bromine plant at Rann of Kutch, Gujarat.
Intech paid an advance of ₹5.30 crore against a performance bank guarantee furnished by De Dietrich.
Intech alleged that De Dietrich supplied defective engineering drawings and designs and failed to correct them despite repeated emails between June and September 2022. It further alleged that De Dietrich abandoned the work in September 2022.
De Dietrich blamed Intech for the project's failure, alleging that it had not secured the necessary land, obtained statutory approvals or made further contractual payments.
De Dietrich also approached the Commercial Court of Paris to prevent encashment of the bank guarantee. According to Intech, those proceedings were dismissed. The Paris court had directed De Dietrich to pay costs to Intech and the bank.
Intech invoked the bank guarantee on October 7, 2022, and initiated arbitration on October 31, 2022.
In its February 2, 2024 award, the sole arbitrator held both companies responsible for the contract's failure and termination.
While rejecting several of De Dietrich's counterclaims for want of sufficient evidence, the arbitrator awarded it ₹4 crore towards work undertaken, with 10% annual interest during the arbitration and after the award. It also awarded ₹7 lakh, equivalent to €8,000, towards the Paris litigation costs.
Challenging these amounts under Section 34 of the Arbitration and Conciliation Act, 1996, Intech argued that the compensation was based on unsupported estimates. It contended that De Dietrich had failed to establish the actual work undertaken and expenditure incurred.
De Dietrich maintained that Intech had accepted and used its engineering work before recovering the entire advance through the bank guarantee. It argued that compensation was justified even though the precise value of the work could not be established.
The High Court noted that certain layout plans had been accepted through an email dated June 7, 2022. Process Data Sheets for the Vent Scrubber, RO Plant and CL2 Emergency Scrubber were also accepted through an email dated July 11, 2022.
However, the award did not explain how these documents justified compensation of ₹4 crore. The court held that the mere acceptance of layout plans and technical documents, without assessing the value of the work actually performed, provided no rational basis for arriving at the figure.
The Court clarified that reasonable estimation is permissible where the exact loss cannot be established. However, the arbitrator must identify material supporting the estimate and demonstrate a rational connection between that material and the amount awarded.
On the Paris litigation costs, the court held that the eventual encashment of the bank guarantee did not, by itself, make Intech liable to reimburse De Dietrich for costs it had been directed to pay.
The court partly allowed Intech's challenge and set aside both the ₹4 crore compensation and ₹7 lakh awarded towards the Paris litigation costs on grounds of patent illegality. The remaining findings and directions in the arbitral award were left undisturbed. Pending applications were also disposed of.
For Petitioner (Intech Brinechem Limited): Advocates Jagdeep Kumar Sharma (Senior Advocate), Rakhi Sharma, Kartikay Sharma, Ishika Ahluwalia, Kirti Gupta.
For Respondent (De Dietrich India Private Limited): Advocates Neil Hildreth, Kshitiz Arya.