Patna HC Sets Aside ₹25 Lakh Arbitral Compensation Against Bihar State Food Corporation For No Proof of Loss

The Patna High Court has partly set aside an arbitral award against Bihar State Food and Civil Supplies Corporation Ltd, holding that compensation awarded without evidence of actual loss or injury could not be sustained.

A Division Bench of Justice Mohit Kumar Shah and Justice Arun Kumar Jha held:

“Thus, there is no proof much less any evidence whatsoever, on the records of the arbitral proceedings regarding the claimant-respondent having suffered any loss or injury, hence the award of compensation to the tune of Rs.25 lakhs is based on no evidence, thus is outrightly perverse, hence is set aside.”

The court, however, upheld the principal award of ₹22.67 crore in favour of the contractor.

The dispute arose from a 2016 agreement under which the contractor was appointed as a transporting-cum-handling agent for the movement of foodgrains and other commodities in Madhubani district for three years. Disagreements later surfaced over deductions from bills, alleged breaches of contractual obligations, delayed payments, and the eventual termination of the contract.

A sole arbitrator subsequently awarded the contractor Rs.2.67 crore towards outstanding dues, Rs.25 lakh as compensation after a correction to the original award, 10% interest from September 13, 2019 until the date of the award, and future interest at 18%.

The corporation argued that the principal award was based merely on a calculation chart unsupported by documents such as transport challans or store issue orders, and that no witnesses had been examined to substantiate the claims.

It also contended that the tribunal had granted compensation and interest contrary to the contractual terms, which barred interest on amounts payable under the agreement, and had entertained claims beyond the scope of the contract.

Rejecting the challenge to the principal award, the High Court found that the arbitral record contained supporting bills and documents and reiterated that courts exercising limited review over arbitral awards cannot reassess evidence simply because another interpretation may be possible.

On the issue of interest, the Bench observed:

“An Arbitral Tribunal cannot award pre-award or pendente lite interest, even under the guise of compensation, where contract expressly prohibits payment of interest on amounts payable under the contract, however post-award interest is governed by Section 31(7)(b) of the Act, 1996 and can be granted unless expressly barred. ”

It accordingly set aside the compensation and pendente lite interest components while otherwise upholding the award in favour of Piyush Kumar.

For Appellants (The Bihar State Food and Civil Supplies Corporation Ltd., Managing Director and District Manager): Advocate Shailendra Kumar Singh.

For Respondent (Piyush Kumar): Advocate-on-Record Prashant Kumar; Advocates Manish Prakash, Kumar Anjaneya Shanu, Rohit Raj, Ranvir Pratap Singh.