Delhi High Court Upholds ₹9.92 Lakh Award Against Vantage, Rejects Recovery Of RBI Penalties From Supplier

The Delhi High Court on 5 August upheld an award directing Vantage Integrated Securities Solution Pvt. Ltd. to pay Rs. 9.92 lakh to Spark Technologies Pvt. Ltd., holding that the former's unilateral notice stating that it would recover any liquidated damages imposed by the Reserve Bank of India (RBI) from the latter did not create a binding contractual obligation.

A Division Bench of Justices Anil Kshetrapal and Shail Jain noted that liquidated damages imposed by a party's client under a separate contract cannot be recovered from a supplier unless the supplier had expressly accepted such liability under their own agreement. It observed:

“The said communication merely conveyed the Appellant's apprehension that liquidated damages might be imposed by the RBI and its intention to recover the same from the Respondent. Such communication neither formed part of the Purchase Order nor constituted a contractual stipulation governing the rights and liabilities of the parties. More importantly, there is nothing on record to indicate that the Respondent accepted the said stipulation or that the parties mutually agreed to modify the contractual terms.”

Spark Technologies is engaged in dealing in computer peripherals, networking products and allied services, while Vantage is engaged in the design, supply, installation, testing and commissioning of electronic security and surveillance systems.

On 7 May 2015, Vantage issued a purchase order to Spark for networking products and allied material required for a project awarded to Vantage by RBI for installing IP CCTV surveillance systems at its offices.

Spark supplied the material under various invoices worth Rs. 25.68 lakh. It received Rs. 15.75 lakh from Vantage and claimed that Rs. 9.92 lakh remained unpaid. It then approached the Micro and Small Enterprises Facilitation Council under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (which provides for conciliation and arbitration of disputes involving micro and small enterprises).

After conciliation failed, the dispute was referred to the Delhi International Arbitration Centre under the MSMED Act. Before the sole arbitrator, Spark sought recovery of the outstanding principal amount along with interest. Vantage opposed the claim, alleging that Spark delayed the supplies, affecting completion of the RBI project and resulting in RBI imposing liquidated damages on Vantage.

Vantage argued that Spark's unpaid dues should be adjusted against the losses arising from the RBI penalties. It relied on emails exchanged in 2015, where it asked Spark to expedite supplies and stated that any liquidated damages imposed by RBI would be recovered from Spark. On 27 October 2020, the sole arbitrator rejected Vantage's defence and substantially allowed Spark's claim.

The arbitrator found that the purchase order did not make time the essence of the contract and contained no term making Spark liable for liquidated damages imposed under Vantage's separate agreement with RBI. The arbitrator also noted that Vantage had not filed any counterclaim seeking recovery of the alleged losses.

Vantage was consequently directed to pay Rs. 9.92 lakh along with interest under the MSMED Act, costs and further interest, prompting a challenge the award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996 (which allows courts to set aside arbitral awards on limited grounds).

On 6 June 2026, the Commercial Court dismissed the challenge, holding that the arbitrator's findings were based on the purchase order and evidence placed on record. Vantage then approached the High Court under Section 37 of the Arbitration and Conciliation Act, 1996. It argued that the delivery schedule was linked to the time-bound RBI project and that its communication dated 26 August 2015 had preserved its right to claim compensation.

The High Court rejected the contention, holding that the fact that Spark's supplies were intended for use in the RBI project could not alter the contractual relationship between Vantage and Spark. It further held that Vantage's emails merely expressed its intention to recover possible RBI penalties and did not establish any accepted contractual term.

Since Spark had not accepted such a condition and the parties had not mutually modified the purchase order, the Bench held that no binding liability arose against Spark. It found no patent illegality or perversity in the arbitral award, and dismissed Vantage's appeal and the pending application.

Accordingly, the High Court upheld the arbitral award directing Vantage to pay Rs. 9.92 lakh to Spark along with the applicable interest and costs.

Appearances for appellant (Vantage Integrated Securities Solution Pvt. Ltd.): Advocate Dhruv Tamta.