The Division Bench of the High Court of Delhi in its recent judgement has held that an arbitral tribunal cannot grant damages under a contract if such damages are specifically barred from being claimed under the contract.
The facts in brief are that Plus91 Security Solutions (‘Plus91’) and NEC Corporation India Private Limited (‘NEC’) entered into a Memorandum of Understanding (‘MOU’). Clause 10 of the MOU provided that Neither Party is liable for any indirect, special or consequential loss or damage or any loss or damage due to loss of goodwill or loss of revenue or profit arising from or in connection with this MOU.” Plus91 raised a claim before the Arbitral Tribunal for damages alleging a breach of the terms of the MOU by NEC. The Arbitral Tribunal awarded damages in favor of Plus91 by rendering a finding that Clause 10 of the MOU was not binding.
NEC assailed the said award under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), primarily on the ground that the Arbitral Tribunal had completely misinterpreted the terms of the MOU and the award of loss of damages was contrary to the express terms of the MOU as stipulated in Clause 10. The Single Judge set aside the award by observing that the findings rendered by the Arbitral Tribunal qua Clause 10 of the MOU are vitiated by patent illegality. In an appeal under section 37 of the Arbitration Act, the Division Bench upheld the decision of the Ld. Single Judge and held that the award of damages on account of loss of profits by the Arbitral Tribunal is contrary to the terms of the contract (MOU) executed between the parties and thus, the impugned award is vitiated by patent illegality. While rendering the aforesaid finding, the Division Bench referred to the decisions of the Supreme Court in the case of Ramnath International Construction (P) Ltd. v. Union of India [(2007) 2 SCC 453] and Ch. Ramalingam Reddy v. Superintend Engineer [(1999) 9 SCC 610] where the ratio has been laid down that if a contractual clause bars certain claim of damages, the same would be binding on the parties. The decision in the case of Asian Techs Limited v. Union of India [(2009) 10 SCC 354] was distinguished for the reasons as mentioned in the said judgement.
Case name: M/S Plus91 Security Solutions Vs Nec Corporation India Private Limited
Citation: 2024 SCC OnLine Del 5114
Author: Abhinav Agnihotri
Co-author: Prabhav Gang
