Arbitrator Cannot “Conjure” Mesne Profit Figure Solely On “Guesswork”: Delhi High Court

The Delhi High Court on 13 April held that an arbitral tribunal cannot award mesne profits solely on “guesswork” without any foundational material or reasoning supporting the quantification and clarified that while exact proof of unliquidated damages is not necessary, the award must disclose a rational basis linking the material on record to the amount awarded.

A Division Bench of Justices Om Prakash Shukla and C. Hari Shankar upheld an order setting aside the arbitral award to the extent it granted mesne profits to Radiance Infracon and Developers Pvt. Ltd. against GLS Infratech Pvt. Ltd. and dismissed the appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996. It observed:

“While exactitude in proof of damages is not insisted upon, the adjudicatory process must nevertheless disclose a rational nexus between the material available and figure ultimately awarded or atleast some line of reasoning in mind of the learned Arbitrator to justify the reasonability of the figure.”

Radiance Infracon and Developers Pvt. Ltd. and GLS Infratech Pvt. Ltd. entered into a collaboration agreement on 7 June 2016 for development of land in Gurugram. Disputes subsequently arose between the parties, following which Radiance issued a termination notice on 15 June 2019 and invoked arbitration. Justice A.K. Sikri acted as the sole arbitrator.

By award dated 27 November 2023, the Tribunal upheld Radiance's termination of the collaboration agreement and directed GLS to hand over possession of the property. The Tribunal also awarded mesne profits of Rs. 15.90 crore at the rate of Rs. 30 lakh per month from 1 July 2019 till actual handover.

The Tribunal, however, recorded in the award that it was granting mesne profits on the basis of “guesswork” because “no evidence is led in this behalf by either party”. GLS challenged the award under Section 34 of the Act insofar as it granted mesne profits. The Single Judge held that the award lacked evidentiary support and set it aside to that extent. Radiance then filed the present appeal.

Radiance argued that the award did not suffer from patent illegality and contended that the Tribunal had considered expert material before reducing the claim from Rs. 2.10 crore per month to Rs. 30 lakh per month. It submitted that the figure aligned with the Colliers Report relied on by GLS, which indicated rental values of Rs. 50–80 per sq. ft. for approximately 60,000 sq. ft., yielding a monthly rental of around Rs. 30–40 lakh. Radiance further argued that courts permit “honest guesswork” or a “rough and ready” approach where exact quantification of damages is difficult.

GLS, on the other hand, argued that the Tribunal itself admitted that no evidence supported the quantification and that reasonable estimation is permissible only when some foundational material exists. It contended that the Tribunal had rejected all valuation reports and adopted no discernible benchmark for arriving at the figure of Rs. 30 lakh per month.

Examining the law on “guesswork” in arbitral awards, the High Court observed that courts may permit a “rough and ready” method or honest estimation in quantifying damages, but such estimation cannot remain unguided or arbitrary. The Court held that some foundational basis, methodology, or discernible line of reasoning must support the quantification.

The Bench found that the Tribunal had rejected the CBRE Report and proceeded on the basis that no evidence had been led by either side regarding quantification of damages. Despite this, the Tribunal awarded mesne profits at Rs. 30 lakh per month without explaining how it arrived at that figure.

The Court rejected Radiance's contention that the amount could be justified on the basis of the Colliers Report. It noted that the award neither relied upon that report nor adopted any methodology derived from it. It held that Radiance could not reconstruct or supplement the Tribunal's reasoning during appellate proceedings when the award itself disclosed no such basis.

Holding that an arbitrator cannot “conjure a figure” without supporting material, the Bench upheld the Single Judge's order and held that the award suffered from patent illegality to the extent it granted mesne profits at Rs. 30 lakh per month.

Accordingly, the High Court dismissed the appeal, holding that the Award was patently illegal to the extent it awarded mesne profits at the rate Rs.30,00,000 per month.