Arbitrator's Decision To Choose Internationally Recognised Formula Based On Expertise For Computing Damages Can't Be Faulted: Delhi High Court

Brief Facts:

The present petition has been filed raising certain objections under Section 34 of the Arbitration & Conciliation Act, 1996 ( Arbitration Act) against the award dated 22.01.2009 (“impugned award”) delivered by the Arbitral Tribunal, comprising a Sole Arbitrator (“AT”).

The impugned award pertains to a contract dated 24.12.1987, executed pursuant to a public tender issued by the petitioner for the construction of 152 houses (76 each for Category-II and Category-III) and 114 scooter garages, including water supply and related works, under Group-I of the Self-Financing Scheme (SFS), Sector-I, Pocket K & L, at Sarita Vihar.

The stipulated commencement date was 03.01.1988, with a scheduled completion date of 02.04.1989. However, the work was actually completed on 31.03.1992.

Contentions:

The Petitioner submitted that the claims awarded in favour of the respondent has been passed without giving due consideration to the evidence and are against the provisions of the Agreement entered into between the parties.

It was further submitted that the Arbitral Tribunal (AT) has failed to provide reasons for non-applicability of Clause 10 of the agreement, which bars any compensation or damages on account of any delay in non-supply of materials by the Department.

It was also submitted that the AT has awarded the claim relying solely on the CPWD price index which is not approved of by this Court as in other cases it is not held to be the correct method. Moreover, no evidence was led by the respondent to buttress its claim for loss of profits.

It was also argued that since the respondent had failed to submit the RA Bills, final bills and 10CC bill, lading the petitioner with the burden of preparation of the bills, the petitioner is not liable to pay any interest on delay.

Per contra, the Respondent submitted that there is evidence on record such as the hindrance register based on which the AT has returned its finding that the petitioner was responsible for the delay, and the sufficiency or otherwise of the evidence is not to be looked into in a petition under Section 34 of the Arbitration Act.

It was further submitted that a number of decisions have held that the arbitrator is not required to give detailed calculations, particularly when he is an expert in the field and a technical person.

It was also contended that petitioner has not pointed out any specific discrepancy in the amount calculated and awarded by AT and AT could devise its own formula based on cost indices for assessing the damages by way of reduced profitability and claim can be awarded, notwithstanding payment under clause l0CC.

Observations:

The court noted that the Arbitral Tribunal (AT) reviewed the evidence, including the hindrance register, and concluded that the delay was attributable to the petitioner. These are factual findings within the AT's domain, and this Court will not reappreciate the evidence or assess its sufficiency.

Based on the above, it held that there is no patent illegality or apparent error in the award. As for the lack of detailed calculations, the AT's reasoning sufficiently explains the partial allowance of the claim and the basis for the awarded amount.

The Delhi High Court in DDA v. Bhagat Construction Co. (P) Ltd ., while dealing with the findings arrived at by the Arbitrator based on his expertise held that the Arbitrator, a former Director General of CPWD, relied on his expertise and the material before him to reduce the claimant's demand from Rs. 16,60,000 to Rs. 3,50,000.

The Court in the above further observed that he was not required to disclose the precise basis or mental process for this figure, nor provide a detailed judgment like a court. It suffices that he indicated the reasoning and basis for the award. The learned Single Judge thoroughly examined the relevant documents and found no infirmity in the award.

Based on the above, the court in the present case held that the Arbitrator was a technical person who could take his experience into account and nothing has been shown to prove any mala fide in his approach.

The court relied on the Supreme Court judgment in Hindustan Construction Co. Ltd. v. NHAI ,where it was held that interpretation of the contract is the domain of the AT and the same would not be interfered with in proceedings under Section 34, as long as such interpretation is not ex-facie perverse.

It further observed that the arbitrator being an expert in the field, has gone through the CPWD specifications to arrive at a finding that the respondent was entitled to the award partially. This being a finding of fact, the same is not amenable to challenge unless it can be shown that the same was patently illegal.

The court further observed that claim 31 related to loss of profit due to a three-year delay in contract execution. The Arbitral Tribunal (AT) noted that the petitioner had not sought compensation for the delay and that alternative work was available due to a construction boom in Delhi during 1989–90.

It further noted that rather than accepting the respondent's calculations, the AT independently assessed the loss using the CPWD price index, which was within its discretion.

The Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd held that different formulae may be applied based on the circumstances, and the choice of method for computing damages lies within the arbitrator's discretion. Sections 55 and 73 of the Indian Contract Act do not prescribe any specific mode for calculating compensation, nor do they bar the use of methods recognized internationally. The determination of quantum, being fact-specific, is rightly left to the arbitrator's judgment.

The Delhi High Court in Cobra Instalaciones Y Servicios, S.A. & Shyam Indus Power Solution (P) Ltd. v. Haryana Vidyut Prasaran Nigam Ltd., held that The rationale is that if the arbitrator has material showing damages were suffered but lacks detailed data, they may use honest guesswork or a rough method to quantify damages.

With respect to claim 44, the court held that all running account bills were prepared by the petitioner, and the final bill payment for undisputed work was significantly delayed. The AT found the interest rate claimed by the respondent excessive and awarded simple interest at 10%. Since the finding that the petitioner caused the delay is factual, it falls within the exclusive domain of the AT. Therefore, the challenge to this claim fails.

Accordingly, the present petition was dismissed.

Case Title: DELHI DEVELOPMENT AUTHORITY Versus M/S NARAINDAS R ISRANI

Citation: 2025 LiveLaw (Del) 570

Case Number: O.M.P. (COMM) 203/2020

Judgment Date: 06/05/2025

For Petitioner: Ms. Kritika Gupta, Advocate

For Respondent: Mr.Vivekanand and Mr.Abhishek

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