'Shocks Conscience': Rajasthan High Court Upholds Setting Aside ₹653 Crore Arbitral Award Against RSRTC

Expressing shock over an arbitral award of ₹653.20 crore against the Rajasthan State Road Transport Corporation (RSRTC) for anticipated profits from a bus parcel service that never commenced, the Rajasthan High Court has upheld the decision to set aside the award.

A division bench of Justice Arun Monga and Justice Ashutosh Kumar and  observed that the award granted an enormous sum despite the firm having done no work, produced no proof of loss, and sought a refund of its security deposit.

The court held, “Impugned award thus fails because it awards an enormous sum on no proof of loss, for a term that was never assured, to a party that did no work and itself asked for its money back. Such an award is so unfair and unreasonable that it shocks the conscience of the Court.”

The dispute arose after RSRTC invited tenders in 2005 to appoint a sole licensee to transport domestic articles and small commercial goods on its fleet of around 4,000 buses. Bhagwati Enterprises submitted the highest bid, which RSRTC accepted on January 31, 2005. The monthly licence fee was ₹6.66 lakh.

RSRTC appointed Bhagwati Enterprises as the sole licensee for its bus parcel service for three years. However, a dispute over two clauses in the agreement led the firm to add a condition that RSRTC refused to accept.

The firm sought a refund of its security deposit, which RSRTC returned before cancelling the work order. Although the service never began, an arbitrator later awarded the firm ₹653.20 crore, largely for anticipated profits. Bhagwati Enterprises argued that it was entitled to profits for the full three-year term.

It also argued that the court's power to interfere with an arbitral award was limited.

RSRTC maintained that the firm had refused its counter-offer and voluntarily sought a refund of its security deposit. It argued that the contract assured only one year, with extensions subject to its consideration. It also submitted that the firm had produced no accounts or business plan to establish the claimed profits.

The High Court accepted that the scope of interference with an arbitral award was limited. However, it held that the objections filed by RSRTC in 2011 were governed by the unamended Section 34, under which an award could be set aside if it was patently illegal or so unfair and unreasonable that it shocked the court's conscience.

On the question of the contract, the court clarified that it was not reopening the finding that a concluded contract had come into existence. It held, however, that the parties had subsequently brought the arrangement to an end through their conduct. The firm had added conditions to the agreement, which RSRTC did not accept. When RSRTC made a counter-offer, the firm did not accept it and instead sought the return of its security deposit. Having accepted the refund, it could not claim profits as though RSRTC had prevented it from performing the contract.

The court also rejected the firm's claim that it was entitled to a three-year term. It held that Clause 21 of the tender conditions assured only one year, while extension for two further years depended on RSRTC's consideration of the licensee's performance. Since the firm never commenced work, there was no basis to assume that the licence would have been extended.

On the claim for loss of profits, the court found that the firm had relied on bids submitted by other parties in later tenders. However, it had produced neither its own accounts nor a proved business plan. No witnesses from those bidders had been examined.

“A bid is a hope. It is not a profit. It tells us what a bidder said it would pay or hoped to earn. It tells us nothing about what appellant before us would have earned,” the court observed.

It further noted that the award was around 816 times the annual licence fee and 272 times the total licence fee payable over three years, even before interest.

The court observed, "The disproportion is not a matter of degree. It is of a different order altogether. It shows that the award was not an estimate of loss caused, but surely a windfall.”

The bench also rejected the firm's request to preserve parts of the award. It held that even the profit for the first year would require a fresh assessment, which the court could not undertake.

The High Court accordingly dismissed the appeal and upheld the Commercial Court's order setting aside the arbitral award. There was no order as to costs.

For Petitioner (M/s Bhagwati Enterprises): Advocates R.K. Agarwal (Senior Advocate), Adhiraj Modi, Madhav Dadhich, Rachit Sharma.

For Respondent (Rajasthan State Road Transport Corporation): Advocates R.N. Mathur (Senior Advocate), Prateek Mathur, Utkarsh Dubey.