Lack Of Evidence Of Loss Of Profit In An Arbitral Award Renders The Award As Contrary To Public Policy

Published date27 November 2023
Subject MatterLitigation, Mediation & Arbitration, Arbitration & Dispute Resolution
Law FirmMajmudar & Partners
AuthorNeerav Merchant and Prerna Seerwani

In Unibros v. All India Radio, India's Supreme Court (the "SC") set aside an arbitral award that allowed a claim for damages without any proof of the claimant having suffered injury, thereby rendering the award as being in conflict with India's public policy. Section 34(2)(b)(ii) of India's Arbitration and Conciliation Act, 1996 (the "Arbitration Act") stipulates that an arbitral award may be set aside by a court if "the arbitral award is in conflict with the public policy of India." The ambit of "public policy" has constantly been broadened through a plethora of judgments.

Facts

All India Radio ("AIR") engaged M/s. Unibros (the "Contractor") in the construction of the Delhi Doordarshan Bhawan in New Delhi. The project encountered a substantial delay of over forty-two (42) months leading to disputes between the parties, which were referred to an arbitrator. The Contractor claimed loss of profits for having to render services and blocking its resources longer than the period stipulated in the contract, which would, otherwise, have enabled the Contractor to take up other projects and earned profits elsewhere. The Arbitrator awarded compensation to the Contractor for loss of profits by using Hudson's formula, a formula generally used by courts in determining loss of profits (the "First Award").

In the application challenging the First Award filed by AIR under Section 34 of the Arbitration Act, the single bench of the Delhi High Court (the "DHC") noted that the Contractor's claim had been allowed by the arbitrator without considering credible evidence. Accordingly, the single bench of DHC remitted the matter back to the arbitrator for re-consideration and to pass a fresh award in relation to the claim for damages, based solely on evidence available on record and not being influenced by other factors weighing on his mind.

The arbitrator passed a fresh award (the "Second Award") maintaining the award for loss of profit and interest to the Contractor under the First Award.

The Second Award was set aside by the single bench of the DHC, who also ruled that the Second Award conflicted with India's public policy. In an appeal to the division bench of the DHC, it was held that no evidence was produced by the Contractor to support the plea of loss of profit, and therefore, the findings of the arbitrator were contrary to law, more particularly the Indian Contract Act, 1872, that applies to matters related to loss of profits. In addition, the Second Award conflicted...

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