1. The Appellant has filed the present intra-court appeal under
Section 37 of the Arbitration and Conciliation Act, 19961, read with
Section 13 of the Commercial Courts Act, 2015 and Section 151 of
Civil Procedure Code, 1908, assailing the order dated 20.05.20242
passed by the learned Single Judge in O.M.P. (COMM) No. 223/2024.
1 "the Act", hereinafter
2 "Impugned Order" hereinafter
The said order arose from a petition filed by the Respondent under
Section 34 of the Act seeking to set aside the arbitral award dated
27.11.20233, as modified by the order dated 22.02.2024, to the limited
extent of Rs. 15,90,00,000/- awarded as mesne profits from 01.07.2019
to 30.11.2023 and further till actual hand-over of possession of the land
in dispute, in favour of the Appellant.
2. In a nutshell, the present dispute arises out of a Collaboration
Agreement dated 07.06.20164 between the Appellant (landowner), and
the Respondent (Collaborator) for commercial development of the
Appellant's land in Gurugram. The Respondent was required to
complete construction within the stipulated timelines and pay a non-
refundable consideration of Rs. 5.50 crore. Due to delayed payments
and failure to commence the project, the Appellant terminated the
Agreement in June 2019, and subsequently invoked the arbitration
clause.
3. The learned Sole Arbitrator allowed Claim Nos. 1 and 2 of the
Appellant, i.e., (i) handover of possession of the land in dispute and
amount for actual loss of profits, (ii) costs of the proceedings, and
consequently awarded a sum of Rs. 16,27,50,000 to the Appellant,
while rejecting all Counter-Claims except Counter-Claim No. 4, which
was partly allowed for Rs. 7,55,33,437/-. After adjustment, a net sum
of Rs. 8,72,16,563/- was awarded in favour of the Appellant, along with
mesne profits at the rate of Rs. 30,00,000/- per month till actual hand
over of the possession of the land to the Appellant.
4. Aggrieved by the Arbitral Award, the Respondent herein filed a
petition under Section 34 of the Act before this Court.
5. By the Impugned Order, the learned Single Judge allowed the
petition and set aside the Arbitral Award to the extent of Rs.
15,90,00,000/- towards mesne profits, holding that the quantification of
loss of profit lacked evidentiary support, while granting liberty to the
Appellant to pursue the Claim in accordance with law.
6. The present appeal is confined to examining the correctness of
the quantification of mesne profits by the learned Sole Arbitrator and
the legality of the interference by the learned Single Judge.
7. The Respondent herein claims to be a company engaged in the
business of development and construction of commercial and
residential properties in Gurugram, Haryana. On the other hand, the
Appellant is the owner of the land located at Sector 16, Mehrauli Road,
Gurugram5.
8. Both the parties entered into a Collaboration Agreement dated
07.06.2016 for the commercial development of the subject land, under
which the Respondent undertook to carry out construction and allied
works and was obliged to pay a total consideration of Rs. 5.50 crore in
instalments between June 2016 and December 2016.
9. In addition to the said consideration, the Respondent was
obligated to develop and construct a building and consequently, upon
completion of the project, the Respondent was entitled to a 54% share
in the build-up area, along with a proportionate share in the land
underneath, while the Appellant was to get 46% share.
10. The scope of work and timelines are set out under Clause 11 of
the Agreement. The same reads as follows:
15. In view of the continuing defaults, the Appellant issued a Notice
of Breach dated 13.02.2017 alleging breach of the Agreement. The
Respondent, in its reply, denied any breach and attributed delays to the
Appellant's lack of cooperation. The Appellant refuted these allegations
vide reply dated 10.04.2017, but still granted a further grace period of
15 days to the Respondent to pay the outstanding sum of Rs. 4.35 crore.
The Respondent, however, by its subsequent communication dated
29.05.2017, reiterated its earlier stand and disputed the Appellant's
entitlement to unilaterally enforce the payment schedule.
16. Despite the earlier disputes, the parties executed an Addendum
Agreement dated 15.11.20178, extending the timeline for payment of
Rs. 4.35 crores till 10.02.2018. So far as the schedule of construction
was concerned, the substantive obligations remained the same, but the
timelines for completion of those obligations were extended till
15.02.2020.
17. It is not in dispute that the Respondent eventually paid the entire
balance consideration of Rs. 4.35 crores, albeit belatedly, with the last
payment made on 15.06.2018.
18. According to the Appellant, despite payment, construction did
not commence. The Respondent attributed delays to factors beyond its
control, particularly the requirement for fresh approvals for the
overhead transmission wire as the earlier permission dated 31.01.2014
obtained from HVPNL had become ineffective due to a change in the
concerned authorities.
19. As no progress was made, the Appellant repeatedly raised
concerns with the Respondent. Due to lack of satisfactory response and
the project remaining inchoate, the Appellant issued a Termination
Notice dated 15.06.2019 and called upon the Respondent to hand over
vacant and peaceful possession of the subject land. The Respondent, in
its reply, disputed the validity of the termination, and refused to hand
over possession.
8 "Addendum Agreement" hereinafter
20. Thus, it could be understood that the lis between the parties
centred around the alleged breaches of the Agreement by the
Respondent, particularly its failure to follow the agreed payment
schedule and complete construction within the stipulated timelines. It
also involved the validity of the termination of the Agreement by the
Appellant and the consequences arising from it including the recovery
of possession of the subject land and loss of profits.
21. In view of the Respondent's non-compliance with the
Termination Notice, the Appellant invoked arbitration under Clause
21(f) of the Agreement by notice dated 04.07.2019.
22. Pursuant thereto, by order dated 27.02.2020, this Court appointed
Justice A.K. Sikri, Supreme Court (Retd.), as the learned Sole
Arbitrator. Before the learned Arbitrator, the Appellant sought
possession of the subject land along with damages for loss of profits on
account of the Respondent's continued possesion. The Respondent
resisted the Claims and filed a Counter-Claims seeking specific
performance of the Agreement, asserting its readiness and willingness
to perform, and in the alternative, sought reimbursement of expenses
allegedly incurred.
Proceedings before the Arbitral Tribunal and Arbitral Award
23. The Appellant raised two Claims before the learned Arbitral
Tribunal9 and the Respondent raised five Counter-Claims. Upon
consideration of the pleadings, evidence, and submissions, the learned
"Tribunal" hereinafter
Tribunal allowed the Appellant's Claims with certain modifications and
rejected the Respondent's Counter-Claims, save and except Counter-
Claim No. 4, which was partly allowed. A tabulation of the same is thus:
Sr. No. Particulars Claimed Amount Awarded
(Rs.) Amount
(Rs.)
Claim Relief for possession and 75.27 crore 15,90,00,000
No.1 damages for actual loss along with
suffered by the Appellant possession
Claim Cost of proceedings 37,50,000/-
No.2
Counter Claim for Specific Rejected
Claim Performance and direction
No.1 to Appellant for
registration of documents
Counter Claim for loss of profits 15,40,88,479/- Rejected
Claim suffered by the
No.2 Respondent during the
delayed period
Counter Cost of Arbitration Rejected
Claim
No.3
Counter Claim for Damages 9,89,85,929/- 7,55,33,437/-
Claim
No.4
Counter Claim for Loss of Profit 42,80,23,552 Rejected
Claim
No.5
24. Through Claim No. 1, the Appellant sought (i) peaceful and
vacant possession of the subject land, and (ii) a sum of
Rs. 75,27,00,000/- towards loss of profits for four years, alleging that
the Respondent induced the Appellant to execute the Agreement and
the Addendum Agreement by assurances of timely payment and
construction, but failed to perform its obligations, undertook no
effective construction, retained possession of the land, and thereby,
caused financial loss to the Appellant.
25. Upon consideration of the material on record, the learned
Tribunal noted that removal of the 66 kVA overhead transmission line
was a necessary precondition for development. The learned Tribunal
recorded that under Clause 11, the Respondent was obligated to
complete specified developmental activities within the stipulated
timelines, including preparation of building plans, removal of the
overhead wire, and execution of construction. It was found that none of
these milestones were achieved within the agreed timelines and that
only Rs. 1.15 crore had been paid by December 2016 which is in
contravention of Clause 12.
26. Thereafter, the learned Tribunal examined the effect of the
Addendum Agreement, whereby revised timelines were agreed. While
noting that the Appellant had accepted delayed payments, it held that
even the revised timelines were not adhered to. The removal of the
overhead wire, which was to be completed by 15.05.2018, was in fact
achieved only in 2019, and the building plans were not prepared even
till the date of termination on 15.06.2019. The explanations advanced
by the Respondent, including delays in regulatory approvals, were not
accepted, in view of the fact that the obligation to obtain such approvals
formed part of the Respondent's contractual responsibilities, and the
Respondent failed to adhere to it.
27. On a cumulative assessment, the learned Tribunal held that the
Respondent had failed to perform its obligations within the stipulated
or even a reasonable time, with no realistic possibility of completion
within the extended period, i.e., by 15.02.2020. It was found that the
Respondent lacked readiness and willingness to perform, and
accordingly, the Termination Notice dated 15.06.2019 was upheld as
valid. Therefore, the Appellant was held entitled to the recovery of
possession.
28. Insofar as the Claim for damages is concerned, the learned
Tribunal distinguished between the pre-termination and post-
termination periods. The claim for loss of profits up to the date of
termination was rejected since the project had not reached a stage where
profits could have been realised. Therefore, the claim for loss of profits
up to 15.06.2019 was rejected.
29. For the period subsequent to termination, the learned Tribunal
held that the Respondent's continued possession entitled the Appellant
to compensation in the nature of mesne profits. However, the learned
Tribunal rejected the Appellant's computation at Rs 2.10 crore per
month, based on valuation report dated 27.05.2020 prepared by CBRE
South Asia Pvt. Ltd.10 as excessive and unsupported. It was further
recorded that no evidence had been led by either party to establish
precise quantification. Thereafter, the learned Tribunal proceeded to
determine the amount on guesswork. It accordingly awarded mesne
profits at Rs 30,00,000/- per month with effect from 01.07.2019,
aggregating to Rs 15,90,00,000/- up to 30.11.2023, with a direction that
the same would continue at the said rate till the delivery of possession.
"CBRE report" hereinafter
Claim No. 2, pertaining to the costs of arbitration, was partly allowed,
and 50% of the costs were awarded to the Appellant.
30. The Respondent raised five Counter-Claims before the learned
Tribunal. Insofar as Counter-Claim No. 1, seeking specific performance
of the Agreement, is concerned, the learned Tribunal, while relying
upon its findings recorded in respect of Claim No. 1, held that the
Respondent had failed to establish its continuous readiness and
willingness to perform its contractual obligations. The learned Tribunal
also noted that there were repeated defaults on the part of the
Respondent. In view of the finding that the Termination notice dated
15.06.2019 was valid, the learned Tribunal held that the question of
granting specific performance did not arise. Counter-Claim No. 1 was,
accordingly, rejected.
31. Counter-Claim No. 2, seeking registration of documents and
allied reliefs, along with claims for loss of profits, was rejected since
delays were attributable to the Respondent and not to the Appellant.
Counter-Claim No.3, relating to the cost of Arbitration was also
rejected.
32. Counter-Claim No. 4 was partly allowed. The learned Tribunal
permitted adjustment of the consideration amount of Rs. 5.50 crores
which inured to Appellant's benefit and allowed reimbursement for
certain expenditures, including removal of the overhead transmission
wire, payments made to contractors, and statutory dues such as property
tax and water charges. However, the claims pertaining to expenditures
that were either unsubstantiated or did not result in any benefit to the
Appellant were rejected.
33. Counter-Claim No. 5, seeking damages towards loss of profits
based on a report of M/s Colliers International (India) Property Services
Pvt. Ltd.11, estimating potential revenue, was rejected holding that no
claim for loss of profits could be sustained due to lack of performance
of the agreement and that delay was attributed to the Respondent.
34. After adjustment, the learned Tribunal awarded Rs. 8,72,16,563/-
in favour of the Appellant and against the Respondent, along with
mesne profits at the rate of Rs. 30,00,000/- per month from 01.07.2019
to 30.11.2023 and further till the hand-over of possession of the subject
land.
Impugned Order
35. Aggrieved by the Arbitral Award insofar as it allowed Claim No.
1, particularly the grant of mesne profits, the Respondent filed a petition
under Section 34 of the Act, contending that the quantification suffered
from patent illegality, being based on no cogent evidence and mere
conjecture.
36. Upon examining the Arbitral Award, it was noted by the learned
Single Judge that the Agreement did not provide for pre-estimated
damages. It was further noted that the learned Tribunal itself
categorically recorded that no evidence was led by either party to
substantiate the quantum of damages, and yet proceeded to award
11 "Collier Report" hereinafter
mesne profits at Rs. 30,00,000/- per month by resorting to guesswork,
which was held to be impermissible in law. In this context, reliance was
placed on Airwil JKM Infracon (P) Ltd. v. Cadillac Infotech (P) Ltd.12,
wherein it was held that where a claimant fails to establish damages, the
Arbitral Tribunal cannot suo motu determine the quantum on a notional
basis, as it is bound to decide in accordance with law under Section 28
of the Act and cannot resort to equitable considerations unless
authorised. The learned Single Judge also considered the Appellant's
submission that damages may, in certain circumstances, be assessed on
a reasonable or approximate basis, with reference to decisions such as
Construction & Design Services v. DDA13, NHAI v. ITD Cementation
India Ltd.14, Mohd. Amin v. Mohd. Iqbal15 but distinguished them on
the ground that those cases had some evidentiary or contractual basis
for quantification.
37. Further reliance was placed on Edifice Developers & Project
Engineers Ltd. v. Essar Projects (India) Ltd.16, wherein the arbitral
award towards overhead losses was set aside on the ground that it lacked
any basis. Accordingly, it was concluded that the grant of mesne profits
at Rs. 30,00,000/- per month, aggregating to Rs. 15,90,00,000/-, was
unsupported by evidence and liable to be set aside. The Arbitral Award
was thus interfered with to this limited extent, while leaving it open to
the Appellant to pursue its Claim in accordance with law.
12 2021 SCC OnLine Del 5126
13 (2015) 14 SCC 263
14 2010:DHC:404
15 2024 SCC OnLine Del 2395
16 2013 SCC OnLine Bom 5
Rival Contentions Before This Court
38. Mr. Jeevesh Nagrath, learned Senior Counsel appearing for the
Appellant, contended that the learned Single Judge erred in setting aside
the Arbitral Award insofar as it granted mesne profits, as the same did
not suffer from any patent illegality. It was submitted that the learned
Tribunal had, upon appreciation of the material on record, returned a
categorical finding that the Respondent remained in illegal possession
of the subject land from 01.07.2019, thereby depriving the Appellant of
its right to commercially exploit the same and entitling it to
compensation in the nature of mesne profits. In these circumstances, it
was argued that, in the absence of any challenge to the finding of
wrongful possession, interference with the Arbitral Award on the
ground of quantification alone was unwarranted.
39. It was contended that the learned Single Judge erred in holding
that the Arbitral Award was based on no evidence, as the learned
Tribunal had considered expert material, including the CBRE report
relied upon by the Appellant, and, upon evaluation, reduced the claim
from Rs. 2.10 crore per month to Rs. 30 lakh per month, thereby
adopting a reasonable approach. It was further submitted that the
learned Single Judge exceeded the limited jurisdiction under Section 34
of the Act by re-appreciating evidence and substituting his own view
on quantification. Reliance was placed on Associate Builders v. DDA17,
to contend that interference is not warranted where the Tribunal's view
is plausible.
17 (2015) 3 SCC 49
40. Learned Senior Counsel also pointed out that the quantification
of mesne profits was, in fact, traceable to the Colliers report relied upon
by the Respondent, which indicated rental values in the range of Rs.
50-80 per sq. ft. for an approximate project area of 60,000 sq. ft.,
yielding a potential monthly income between Rs. 30-48 lakh. Thus, it
was submitted that the learned Tribunal, while adopting a figure of Rs.
30 lakhs per month, had undertaken a reasonable estimation based on
such material, and it could not be characterised as a guesswork being
based on no evidence so as to warrant interference.
41. Learned Senior Counsel further submitted that the learned Single
Judge failed to appreciate the settled principle that in claims for
damages, particularly loss of profits or mesne profits, exact
mathematical precision is not required. Reliance was placed on Cobra
Instalaciones y Servicios S.A. v. Haryana Vidyut Prasaran Nigam
Ltd.18, Bharat Heavy Electricals Ltd. v. Delkon India Pvt. Ltd.19,
Construction & Design Services v. DDA20, A.T. Brij Paul Singh v.
State of Gujarat21, Hindustan Petroleum Corporation Ltd. v.
Mohanjit Singh (Deceased) Through Legal Heirs22, Krishan Kumar
v. UOI23 and Mohd. Salamatullah v. State of Andhra Pradesh24, to
contend that where breach and resultant loss are established, but precise
quantification is difficult, the Tribunal is entitled to adopt a reasonable
or "rough and ready" method, including honest guesswork. It was
argued that in the present case, the Respondent's continued occupation
18 2024 SCC OnLine Del 2755
19 2026 SCC OnLine Del 482
20 (2015) 14 SCC 263
21 (1984) 4 SCC 59
2019 SCC OnLine Del 9419
(2015) 15 SCC 220
24 AIR 1977 SC 1481
and failure to undertake construction for several years clearly
established loss, and in the absence of exact evidence, the learned
Tribunal was justified in awarding reasonable compensation based on
honest guesswork, warranting no interference.
42. In support of methodology for adoption of honest guesswork by
the learned Arbitrator, reliance was also placed on Ramesh Kumar Jain
v Bharat Aluminium Co. Ltd25, New Okhla Industrial Development
Authority v. Harnand Singh26, Gemini Bay Transcription (P) Ltd. v.
Integrated Sales Service Ltd.27, Mahendra Singh Jaggi v. Dataram
Jagnnath28, Flovel Hydro Technologies (P) Ltd. v. Mecamidi SA29, DDA
v. Anand and Associates30 and Jaiprakash Associates Ltd. v. Ircon
International Ltd31.
43. It was also contended that the Impugned Order suffers from a
patent error, inasmuch as it sets aside the Arbitral Award only to the
extent of the quantification of mesne profits while sustaining the
remaining findings. It was argued that the Arbitral Award was rendered
on a holistic basis, with mutual adjustments between the Claims and
Counter-Claims. Therefore, interference with one component in
isolation without disturbing the corresponding adjustments is legally
unsustainable.
44. It was further submitted that the Appellant was denied a fair
25 2025 SCC OnLine SC 2857
26 2024 SCC OnLine SC 1691
27 2022 1 SCC 753
28 (1998) 9 SCC 28
29 2024 SCC OnLine Del 5039
30 2008 SCC OnLine Del 179
31 2024 SCC OnLine Del 3142
opportunity to address the basis of quantification as no notice was
served in the Section 34 petition, nor was any opportunity granted to
seek recourse under Section 34(4) of the Act, thereby violating the
principles of natural justice. The reliance on Airwil JKM Infracon Pvt.
Ltd. (supra) was also contended to be misplaced.
45. Per contra, Mr. Nakul Sachdeva, learned Counsel for the
Respondent supported the Impugned Order, contending that the learned
Single Judge rightly set aside the Arbitral Award to the limited extent
of quantification of mesne profits. It was submitted that the learned
Tribunal itself recorded that no evidence had been led to establish the
quantum of damages, and yet proceeded to award mesne profits at Rs.
30,00,000/- per month by resorting to guesswork, which is
impermissible in law.
46. It was further contended that the Appellant's reliance on the
principle of reasonable estimation is misconceived, as such estimation
is permissible only where some foundational material exists to enable
approximation. In the present case, the learned Tribunal had discarded
the valuation reports and expert evidence and relied on no benchmark,
thereby rendering the determination based on pure conjecture. It was
emphasised that entitlement to compensation and its quantification are
distinct, and even if wrongful possession is assumed, damages cannot
be awarded in the absence of cogent evidence such as market data or
reliable expert material. Reliance was placed on P. Radhakrishna
Murthy v. NBCC Ltd.32, Power Grid Corporation of India v. Ranjit
32 (2013) 3 SCC 747
Singh and Co. LLP33, Delhi Metro Rail Corporation v. Kone Elevators
India Pvt. Ltd.34, Edifice Developers & Project Engineers Ltd. v. Essar
Projects (India) Ltd.35, BCCI v. Deccan Chronicle Holding Ltd.36, and
M/s SGS India Pvt. Ltd. v. M/s Vedanta Ltd.37
47. It was also contended that the learned Tribunal acted beyond its
jurisdiction in resorting to "guesswork" in the purported interest of
justice, without any authorisation under Section 28(2) of the Act. In the
absence of such consent, it was submitted that the learned Tribunal was
bound to decide strictly in accordance with law and the evidence on
record and could not invoke equitable considerations to determine the
quantum.
48. Mr. Nakul Sachdeva further contended that the award of mesne
profits cannot be based on conjecture or judicial assumption and must
be supported by cogent evidence demonstrating actual profit that could
have been earned by the Respondent. In the present case, it was
submitted that in the absence of any such evidence having been
accepted by the learned Tribunal, the grant of mesne profits is
unsustainable in law.
49. Lastly, it was contended that the learned Single Judge had not re-
appreciated the evidence but confined scrutiny to the legality of the
Arbitral Award, particularly the absence of reasoning and evidentiary
basis for quantification. It was further submitted that reliance on Airwil
JKM Infracon Pvt. Ltd. (supra) was not determinative, as the
34 2021 SCC Online Del 5048
35 2013 SCC OnLine Bom 5
36 2021 SCC Online Bom 834
impugned order rests on settled principles, and correctly identifies
patent illegality warranting no interference.
Analysis
50. We have heard learned Counsel for both parties and have
undertaken a thorough and comprehensive examination of the entire
record placed before us.
51. Before commencing, it would be apposite to remind ourselves
of the limited scope and ambit of interference under Sections 34 and 37
of the Act, as consistently delineated in a line of decisions of the
Supreme Court and this Court. For this purpose, we find it profitable to
refer the decision in PSA SICAL Terminals Pvt. Ltd. v. Board of
Trustees of V.O. Chidambranar Port Trust, Tuticorin38, wherein the
Supreme Court encapsulated the scope of interference under Sections
34 and 37, reiterating its earlier view in MMTC Ltd. v. Vedanta Ltd.39,
in the following words:
"38. Before that, it will be apposite to refer to the judgment of this
Court in MMTC Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC
163 : (2019) 2 SCC (Civ) 293] , wherein this Court has revisited the
position of law with regard to scope of interference with an arbitral
award in India. It will be relevant to refer to the following
observations of this Court in MMTC Ltd. [MMTC Ltd. v. Vedanta
Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] : (SCC pp. 166-
67, paras 11-14)
"11. As far as Section 34 is concerned, the position is
well-settled by now that the Court does not sit in appeal
over the arbitral award and may interfere on merits on the
limited ground provided under Section 34(2)(b)(ii) i.e. if the
award is against the public policy of India. As per the legal
38 2021 SCC OnLine SC 508
39 (2019) 4 SCC 163
position clarified through decisions of this Court prior to
the amendments to the 1996 Act in 2015, a violation of
Indian public policy, in turn, includes a violation of the
fundamental policy of Indian law, a violation of the interest
of India, conflict with justice or morality, and the existence
of patent illegality in the arbitral award. Additionally, the
concept of the "fundamental policy of Indian law" would
cover compliance with statutes and judicial precedents,
adopting a judicial approach, compliance with the
principles of natural justice, and Wednesbury [Associated
Provincial Picture Houses Ltd. v. Wednesbury Corpn.,
(1948) 1 KB 223 (CA)] reasonableness. Furthermore,
"patent illegality" itself has been held to mean
contravention of the substantive law of India, contravention
of the 1996 Act, and contravention of the terms of the
contract.
12. It is only if one of these conditions is met that the
Court may interfere with an arbitral award in terms of
Section 34(2)(b)(ii), but such interference does not entail a
review of the merits of the dispute, and is limited to
situations where the findings of the arbitrator are arbitrary,
capricious or perverse, or when the conscience of the Court
is shocked, or when the illegality is not trivial but goes to
the root of the matter. An arbitral award may not be
interfered with if the view taken by the arbitrator is a
possible view based on facts.40
13. It is relevant to note that after the 2015 Amendment
to Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2),
the scope of contravention of Indian public policy has been
modified to the extent that it now means fraud or corruption
in the making of the award, violation of Section 75 or
Section 81 of the Act, contravention of the fundamental
policy of Indian law, and conflict with the most basic
notions of justice or morality. Additionally, sub-section (2-
A) has been inserted in Section 34, which provides that in
case of domestic arbitrations, violation of Indian public
policy also includes patent illegality appearing on the face
of the award. The proviso to the same states that an award
shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
14. As far as interference with an order made under
Section 34, as per Section 37, is concerned, it cannot be
40 (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]
. Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] ; Hindustan
Zinc Ltd. v. Friends CoalCarbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4
SCC 445] ; and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] )
disputed that such interference under Section 37 cannot
travel beyond the restrictions laid down under Section 34.
In other words, the court cannot undertake an independent
assessment of the merits of the award, and must only
ascertain that the exercise of power by the court under
Section 34 has not exceeded the scope of the provision.
Thus, it is evident that in case an arbitral award has been
confirmed by the court under Section 34 and by the court in
an appeal under Section 37, this Court must be extremely
cautious and slow to disturb such concurrent findings."
52. Recently, this Court, speaking through one of us (Om Prakash
Shukla, J.) in M/s JSW Ispat Steel Limited (now known as JSW Steel
Limited) v. M/s Gas Authority of India Limited41, while referring to
Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust42 and M/s
Larsen Air Conditioning and Refrigeration Company v. Union of
India & Ors.43, reiterated that the scope of judicial review under
Sections 34 and 37 of the Act is extremely limited, and powers of a
court under Section 37 are circumscribed and extend only to examining
whether the Section 34 Court has acted within its jurisdiction. It was
further reiterated that the appellate court cannot re-appreciate the
evidence or substitute its own view merely because another
interpretation is possible. An interference is permissible only on
grounds, such as patent illegality, or violation of public policy, and only
where such infirmity goes to the root of the matter.
53. Keeping the aforesaid principles in mind, we proceed to deal with
the controversy in the present appeal.
54. It is not in dispute that the Respondent breached the Agreement
41 DHC:1922-DB
42 (2026) 3 SCC 186
43 (2023) 15 SCC 472
by failing to adhere to the timelines stipulated under Clause 11 and the
extended timelines under the Addendum. In view thereof, the Appellant
issued a Termination Notice dated 15.06.2019, and the validity of the
said notice was upheld by the learned Tribunal. The learned Tribunal
further held that upon termination, the Respondent was required to hand
over possession within a reasonable time, and its continued occupation
of the subject land beyond such period would entitle the Appellant to
mesne profits, which were quantified at Rs. 30,00,000/- per month from
01.07.2019 till actual hand over of the possession.
55. The learned Counsel for the Respondent contended that the
award of mesne profits was unsustainable in the absence of evidence
establishing the actual profit derived by the Respondent from its
continued possession, which, according to the Respondent, is a
prerequisite for the grant of mesne profits.
56. It is pertinent to note that the learned Single Judge interfered with
the Arbitral Award only to the limited extent of quantification on the
ground of lack of evidentiary support. Accordingly, our consideration
under Section 37 is confined to examining whether the setting aside of
mesne profits quantified at Rs. 30,00,000/- per month for want of any
evidentiary foundation or reasoning was justified or not. The
Appellant's entitlement to mesne profits, including whether the
Respondent derived actual profit from its continued possession, does
not arise for our consideration in this appeal.
57. The primary reason that weighed with the learned Single Judge
in setting aside the Arbitral Award to the extent of Rs. 15,90,00,000/-
was that the said figure had been arrived at without any evidentiary
basis and without even a semblance of reasoning. The relevant portion
of the Impugned Order is reproduced below:
"21. In the present case also, the learned Arbitrator passed the
award on the basis of stating that, "Unfortunately, no evidence is led
in this behalf by either party and therefore, there is no other
alternative for the Arbitral Tribunal but to award some amount by
making some guesswork." It is a matter of the fact as recorded in the
impugned award also that the claimant had not produced any
evidence in support to his claim. It is also pertinent to mention here
that learned Arbitrator has not passed an award stating that the figure
has been taken on the basis of the evidence of the respondent. The
perusal of the impugned award indicates that the learned tribunal
awarded the mesne profits @ Rs.30lakhs per month. However, not
even a single reasoning has been given for reaching on this amount.
This court is conscious of the fact that in exercise of jurisdiction
under Section 34 of the Arbitration and Conciliation Act, this court
cannot sit in appeal over the findings of the learned tribunal but at
the same time, within the limited power conferred by the legislation,
the court is required to see whether there is even an iota of reasoning
for reaching the award. Hence, in the circumstances and in view of
there being no evidence to the same, the impugned award to the
extent of grant of Rs.15,90,00,000/- is set aside."
(emphasis supplied)
58. The learned Senior Counsel for the Appellant sought to assail
the aforesaid finding by contending that the quantification of mesne
profits by the learned Tribunal was not arbitrary, but based on honest
guesswork after duly considering the facts and circumstances of the
case. It was argued that such an approach is legally sustainable where
loss is established but precise quantification is not possible. In this
context, it becomes apposite to examine the reasoning adopted by the
learned Tribunal:
"142. While coming to this conclusion, the Tribunal also finds
force in the submission of the Respondent that the Claimant has not
been able to substantiate this claim. Had the Respondent completed
the Project, it would have got 54% share therein. Now, with the
termination of the is Contract, the Claimant is in a more
advantageous position as it not required io part with the said share.
The Claimant is, therefore, is in a better position than it would have
been in the event the terms of the Contract had been performed.
There is another aspect highlighted by the Respondent which cannot
be ignored. Even as per the Valuation Report relied upon by the
Claimant, the revenue potential of the Subject Land, after all
construction is presumed ta be completed, was to be INR 120.00
crore. The Claimant has admitted that the Claimant would only be
entitled to INR 55.00 crore of the aforesaid alleged amount of INR
120.00 crore had the contract been performed and not terminated.
While the Respondent categorically denies the valuation report
relied upon by the Claimant and all of its findings, if the same is
accepted on a demurrer, the market value of the subject land as on
date is stated to be INR 57.00 crore as per the same, and in the event
the Claimant manages to somehow wriggle out of the Agreement,
he can benefit out of 100% of the sale proceeds. This further
establishes that even as per the best case of the Claimant, the
Claimant has incurred an losses whatsoever. The Tribunal, therefore,
rejects the claim for the period up to 15.06.2019.
143. The Claimant has, however, also raised the claim for the
period from 01.06.2020 as well till the date of actual hand-over of
the Project land by the Respondent to the Claimant. preferred @ INR
2.10 crore. It may be claimed that in the Termination Notice dated
15.06.2019, the Claimant had asked for re-possession of the land of
which the Claimant is the owner. The Respondent, refused to do so
forcing the Claimant to initiate the present arbitration proceeding
where the claim for handing over the possession of land is also made.
The same has been allowed. Since this demand was made in the
Termination Notice and is found to be justified, the Respondent was
supposed to handover the possession within a reasonable period. The
Claimant would be entitled to the loss on this account for the
subsequent period. Giving an allowance of 15 (fifteen) days within
which possession should have been handed over by the Respondent,
the Claimant would be entitled to damages w.e.f. 01.07.2019. INR
2.10 crore per month. The Claimant has calculated losses @ INR
2.10 crore per month. For this purpose, the Claimant has produced
Mr. Pankaj Tekchandani (CW-2) who has given his report about the
land in question and its commercial prospects. As against that, the
Respondent has produced Mr. Amit Chawla, RW-2 who has also
deposed about the commercial viability of the property including its
location, etc. Going by the considerations of location of the property,
the fact that even the Claimant could not develop this property from
2006 to 2014 and ultimately, handed over the same to the
Respondent for development, its marketability and other such
considerations, the Tribunal is of the view that calculations of loss
made by the Claimant for loss @ INR 2.10 crore per month is not
justifiable.
144. As already mentioned above, the Respondent has disputed
the validity of the valuation report (CBRE report) relied upon by the
Claimant. The Respondent has made detailed submissions during
arguments and also in the closing written submissions. The
Respondent has also referred to various questions put to CW-2 and
reply given to those questions. It may not be necessary to produce
the entire discussion in this behalf. It is sufficient to mention that
calculation of INR 2.10 crore per month made in the manner in the
said report and relied upon by the Claimant cannot be accepted. At
the same time, the claim for the period in question cannot be rejected
in toto as the Claimant would be entitled to some claim because of
illegal occupation of the Project land by the Respondent even after
the termination of the Agreements. Unfortunately, no evidence is
led in this behalf by either party and therefore, there is no other
alternative for the Arbitral Tribunal but to award some amount
by making some guesswork.
145. Taking into consideration all the relevant facts and
circumstances of the case, in the opinion of the Tribunal, interest of
justice would be subserved in granting mesne profit for withholding
the possession beyond 01.07.2019 @ INR 30.00 lakh per month
from 01.07.2019 which would come to four years and five months
i.e., 30.00 lakh X 53 = to 15,90,00,000/- till 30.11.2013. The
Claimant shall also be entitled mesne profits at this rate with effect
from 01.12.2023 till the possession of the land is handed over to it."
(emphasis supplied)
59. Upon a plain reading, it is clear that while the learned Tribunal
acknowledged the absence of evidence on both sides, it nonetheless
proceeded to quantify mesne profits at Rs. 30,00,000/- per month on the
basis of guesswork.
60. Thus, in order to assess whether the reliance on guesswork by the
Arbitrator finding is permissible and consistent with applicable law, it
is necessary to understand the scope of "guesswork" in the context of
arbitral awards.
61. This Court is aware that reliance on a "rough and ready" estimate
or guesswork is not alien to arbitral jurisprudence and has received
recognition from the Supreme Court as well as this Court.
62. In DDA v. Anand and Associates (supra), the methodology of
adopting some degree of guesswork was affirmed. The relevant
observations are as follows:
"6. ...It is true that while awarding a sum of Rs. 1,91,659/-
towards increase in the labour charges and Rs. 3,50,000/- on account
of the increase in the price of materials, the arbitrator has observed
that no books of accounts had been produced before him and that he
has determined the amount from whatever is available on record yet
interference with that part of the award would also not be justified
in view of the settled legal positions that the court would not set
aside an award simply because it was to an extent based upon some
guesswork. Reference may in this regard be made to Mohd.
Salamatullah and Ors. v. Government of Andhra Pradesh 1977 SC
1481 where the court has observed:--
"We are not able to discern any tangible material on the
strength of which the High Court reduced the damages from
15% of the contract price to 10% of the contract price. If the
first was a guess, it was at least a better guess than the
second one. We see no justification for the appellate court
to interfere with a finding of fact given by the trial Court
unless some reason, based on some fact, is traceable on the
record. There being none we are constrained to set aside the
judgment of the High Court in regard to the assessment of
damages for breach of contract."
(emphasis supplied)
63. Similarly, a Division Bench of this Court in Cobra Instalaciones
Y Servicios, S.A. (supra), while considering Construction Design
(supra), observed that such a method is a permissible tool available to
an arbitrator, particularly in a situation where material exists to show
that loss has been suffered, but does not furnish granular details for
precise quantification.
64. More recently, another Division bench of this Court in Bharat
Heavy Electricals Ltd. (supra) taking into account Cobra
Instalaciones Y Servicios (supra), affirmed the adoption of honest
guesswork in the following terms:
35. In our opinion, there may be three situations. First, there is
no evidence of any loss to a party raising a claim. In such situation
arbitrator cannot presume any loss and award compensation.
Second, where there is evidence of loss as well as evidence on
quantum of damages. This would be an ideal situation in awarding
damages and compensation. Third is the situation where there is
evidence of loss but either there is meager evidence or absence of
evidence in support of claim of damages. In such situation the
arbitrator can use rough and ready method by using a practical guess
work to determine the damages and compensation. But such
compensation should be reasonable in the sense that in given
situation no man of prudence would call it excessive. The third
situation occurs in the present case and therefore, while exercising
very limited jurisdiction under Section 37, we have only to see as to
whether the damages/compensation awarded to Delkon is
reasonable or not.
****
39. The counter claim no. 3 is towards cost of pre assembly and
part wielding completed. The Arbitrator had relied upon the report
of Local Commissioner and awarded lesser amount of interest at the
rate of 12% (against 15% as per clause 57.3 (1) (A) (i) of the
contract) of the contract rate as appropriate and reasonable and held
that value for 12.908 MT works out to Rs. 4182/-. In appeal the
appellant submits that clause 57.2 (1A)(i) does not deal with the
breakup of the cost but instead pertains to the payment milestone.
Again in our considered view, even if the aforesaid clause is
misapplied, the awarded amount of Rs. 4182/- is so meager that it
has to be accepted as the cost of pre assembly and part wielding
completed.
****
46. The argument of learned Counsel for the appellant is that
there is no evidence on record to show that value of T&P was Rs. 40
lakhs. Further, no evidence has been led to prove respondent's claim
on damages. Learned counsel for the appellant assailed the method
adopted by the Arbitrator for calculating withholding charges.
***
50. After perusing the material available on record, we are of the
opinion that in respect of the heavy machinery, the Arbitrator has
reached to a plausible conclusion that the value of the withheld
machinery would be about Rs. 40,00,000/- and the depreciation
value to be Rs. 10,00,000/-. We concur with the learned District
Judge on Arbitrator's finding on the computation of 210 days and the
methodology adopted for awarding Rs. 5,75,342/- to the respondent
on account of the appellant's illegal withholding of T&P. In other
words the Arbitrator had some basis for calculating withholding
charges of Rs. 5,75,342/-, which is not at all unreasonable if we
consider the nature of T&P which included heavy
equipments/machinery including two Cranes, one Tractor, two
Trailors and one Metador Pickup Van etc. and the duration of 210
days for which the same were withheld. Hence, we agree with the
view of Arbitrator and learned District Judge on contract clause no.
7 being reasonable and uphold the same.
COUNTER CLAIM NO. 13 AND 15
51. The respondent-Delkon had raised these counter claims
towards cost of mobilization and demobilization of T&P, equipment
and manpower. The appellant has drawn our attention to the
observation of Arbitrator that Delkon has not submitted any
documents for actual expenses incurred by them in mobilization and
demobilization. Therefore, awarding a sum of Rs. 10,52,800/- is
based upon mere surmises and conjectures.
****
53. We are of the opinion that even if no documents were
furnished by respondent-Delkon before the Arbitrator, the
conclusion of the Arbitrator has been arrived at on "the analysis of
unit rates", which is Annexure -E to Tender No. BHEL:
NR(SCT):RGTTP:BLR:42. This Annexure - E forms the part of the
contract No. 50/96 between the parties. This finding of Arbitrator,
about 65% of the overheads having been consumed in mobilization
and demobilization, is a finding on fact and therefore we are not
inclined to go deeper into it especially when it is based upon Local
Commissioner's report. The Arbitrator has calculated these charges
on the basis of Annexure - E. Therefore, even if no documents were
filed by Delkon to prove expenditure of this overhead, the
calculation by learned Arbitrator is reasonable and justified.
54. Learned District Judge observed that the award of amount
of Rs. 10,52,800/- towards mobilization and demobilization costs
cannot be held to be without reasons or material evidence on record
and held that as long as there is sufficient material available on
record on the basis of which an estimation of loss/expenses/costs
incurred can be drawn, an award of that estimate can be
granted. We are of the opinion that view of learned District
Judge is correct on this issue especially when the Arbitrator had
based his estimation on the basis of Local Commissioner's report
and "analysis of unit rates" which is part of the contract. The
Arbitrator adopted a rough and ready method with reasonable and
honest guess work on this issue. Consequently, we find no infirmity
in the impugned award and the impugned judgment on this issue.
(emphasis supplied)
65. An analysis of the above-mentioned precedents indicates that,
although the adoption of a "rough and ready" method or honest
guesswork has been judicially recognised, the same is not unguided.
66. The decision of the Division Bench in Cobra Instalaciones y
Servicios S.A. (supra) clarifies that such latitude is available in a
situation where there is material on record to establish that loss has
indeed been suffered, but the evidence falls short of providing precise
quantification. We note that the above principle stands further
elucidated in Bharat Heavy Electricals Ltd. (supra) in context of
unliquidated damages, where this Court upheld the award of damages
not merely because guesswork was employed, but because such
determination was founded upon a discernible and rational
methodology traceable to the material on record.
67. In Bharat Heavy Electricals Ltd. (supra), the Court was dealing
with multiple claims where the Arbitrator had awarded compensation
despite absence of strict proof of expenditure under certain heads.
However, in our considered view, what weighed with the Court while
assessing reasonability was that, in each such instance, the Arbitrator
had relied upon some identifiable material such as contractual clauses,
reports of the Local Commissioner, admitted quantities, or standard
rates and had applied a rational method of computation. Most
significantly, while upholding the award relating to claim for
withholding of machinery, the Court expressly noted that "the
Arbitrator had some basis for calculating... which is not at all
unreasonable". It shows that the existence of a foundational basis,
however limited, is a sine qua non for sustaining such quantification.
68. The same principle is echoed in DDA v. Anand and Associates
(supra), where the Court declined to interfere with an award partly
based on guesswork, as the arbitrator had determined the amount "from
whatever is available on record". It thus emerges to us that while
exactitude in proof of damages is not insisted upon, the adjudicatory
process must nevertheless disclose a rational nexus between the
material available and the figure ultimately awarded or atleast some line
of reasoning in mind of the learned Arbitrator to justify the reasonability
of the figure.
69. This approach also emerges from Gemini Bay Transcription (P)
Ltd. (supra), wherein, although the guesswork method was allowed, it
was also noted that the Arbitrator had made assessment taking into
account some material on record. The relevant observations are as
follows:
"77. The arbitrator correctly held that as nothing was forthcoming
from any of the appellants, he would have to make a best judgment
assessment for damages. In making that assessment, he took into
account the commission that was being earned by GBT from the two
clients of DMC and arrived at a figure of 100,000 USD per month
and then found, on a reasonable estimate, that they would continue
to be clients for a period of four years, as a result of which the figure
of 6,948,100 USD was reached.
78. That such "guesstimates" are not a stranger to the law of
damages in the US and other common law tradition nations has been
established very early on in a judgment of Asutosh Mookerjee, J.
reported as Frederick Thomas Kingsley v. Secy, of State for India
AIR 1923 Cal 49..."
(emphasis supplied)
70. Thus, what the law countenances is not guesswork in vacuo, but
a reasoned approximation founded on some material, some method, or
at the very least, a discernible line of reasoning.
71. In the present case, the learned Tribunal rejected the CBRE
Report, holding it to be unreliable and proceeded on the premise that
since no evidence was led by either party for quantification of damages,
mesne profits could be discerned by way of guesswork. The Arbitral
Award, however, discloses no discussion or reasoning for arriving at
the figure of Rs. 30,00,000/- per month.
72. On behalf of the Appellant, Mr. Nagrath suggested that the said
figure is traceable to the material on record by relying on the Colliers
Report furnished by the Respondent. However, it does not merit our
acceptance.
73. As per the Appellant, Colliers Report indicates rental values of
Rs. 50-80 per sq. ft. for an approximate built-up area of 60,000 sq. ft.,
yielding a possible range of Rs. 30-48 lakh per month. However, the
Arbitral Award neither records reliance on this Report nor adopts such
a methodology. An Award must stand or fall on the reasons contained
therein, and it is impermissible for a party to supplement or reconstruct
the reasoning by reference to material not relied upon by the learned
Tribunal. Even otherwise, there are multiple outcomes possible based
on Colliers Report, and in the absence of any reasoning by the learned
Arbitrator linking the material to the figure awarded, the quantification
cannot be sustained. Moreover, it is settled law that the Arbitrator is the
master of facts and evidence. Once the learned Arbitrator itself recorded
that no evidence had been led by either party, it necessarily follows that
the quantification was not based on any material such as the Colliers
Report. In such circumstances, this Court cannot attribute a basis to the
Arbitral Award which the learned Tribunal itself has not disclosed, nor
can it hold that the figure is traceable to the record when the learned
Tribunal has expressly found otherwise.
74. It is no doubt true that in cases of unliquidated damages,
particularly those arising from wrongful retention of property, some
degree of estimation is inevitable. However, such estimation must be
reasoned and based on a discernible foundation. In the present case, the
Arbitral Award proceeds merely on the premise that the Appellant is
entitled to compensation on account of wrongful possession of the
subject land by the Respondent, without any analysis of the extent of
loss or any indication of the basis of computation. The absence of such
reasoning renders the determination unsustainable in law.
75. The Supreme Court has consistently emphasised that the latitude
available for 'honest guesswork' does not dispense with the
requirement of a reasoned determination. In New Okhla Industrial
Development Authority (supra), the Supreme Court clarified that while
some degree of estimation or "guesstimation" is permissible in
determining compensation, the exercise cannot be speculative or purely
subjective. The discretion to adopt guesswork is not unfettered and must
have a nexus with the material on record and other relevant factors. It
was observed as follows:
"33. Having said that, it is important to clarify that the process of
determining compensation is not entirely subjective. While it may
not be possible to arrive at a definitive figure, the exercise is still
epistemologically objective in so far as it is grounded in evidence
and the consideration of relevant factors. In case the compensation
is fixed agnostically to the factors affecting the valuation of the land,
the resultant figure might be arbitrary and may fail to adequately
compensate the landowner for the expropriated land. Hence, while
some subjectivity may exist in fixing the final figure based on these
factors, the sliding scale of judicial discretion cannot be extended to
mere speculation.
34. Accordingly, while the Court can use the principle of
guesstimation in reasonably estimating the value of land in the
absence of direct evidence, the exercise ought not to be purely
hypothetical. Instead, the Court must embrace a holistic view and
consider all relevant factors and existing evidence, even if not
directly comparable, to arrive at a fair determination of
compensation. Trishala Jain v. State of Uttaranchal,9 summarizes
these yardsticks as follows:
"65. It will be appropriate for us to state certain
principles controlling the application of "guesstimate":
(a) Wherever the evidence produced by the parties is not
sufficient to determine the compensation with exactitude,
this principle can be resorted to.
(b) Discretion of the court in applying guesswork to the facts of
a given case is not unfettered but has to be reasonable and
should have a connection to the data on record produced
by the parties by way of evidence. Further, this entire
exercise has to be within the limitations specified under
Sections 23 and 24 of the Act and cannot be made in
detriment thereto."
(emphasis supplied)
76. Similarly, in Ramesh Kumar Jain (supra), the guesswork by the
arbitrator was upheld since it was based on taking into account some
evidence. In Ramesh Kumar Jain (supra), it was also held that an
Arbitral Award may be interfered with if it is based on "no evidence"
because an arbitrator cannot conjure findings out of thin air. The
relevant excerpt is thus:
"35. Considering the aforesaid precedents, in our considered
view, the said terminology of 'patent illegality' indicates more than
one scenario such as the findings of the arbitrator must shock the
judicial conscience or the arbitrator took into account matters he
shouldn't have, or he must have failed to take into account vital
matters, leading to an unjust result; or the decision is so irrational
that no fair or sensible person would have arrived at it given the
same facts. A classic example for the same is when an award is based
on "no evidence" i.e., arbitrators cannot conjure figures or facts out
of thin air to arrive at his findings. If a crucial finding is unsupported
by any evidence or is a result of ignoring vital evidence that was
placed before the arbitrator, it may be a ground the warrants
interference. However, the said parameter must be applied with
caution by keeping in mind that "no evidence" means truly no
relevant evidence, not scant or weak evidence. If there is some
evidence, even a single witness's testimony or a set of documents, on
which the arbitrator could rely upon or has relied upon to arrive at
his conclusions, the court cannot regard the conclusion drawn by
the arbitrator as patently illegal merely because that evidence has
less probative value. This thin line is stood crossed only when the
arbitral tribunal's conclusion cannot be reconciled with any
permissible view of the evidence."
(emphasis supplied)
77. The Appellant also contended that the Arbitral Award must be
read in its entirety and not by isolating a particular paragraph, and that
the quantification must be understood in the context of the overall
findings recorded by the learned Tribunal.
78. We have, accordingly, perused the Arbitral Award as a whole.
While the learned Tribunal has furnished reasons in respect of the
breach and the validity of termination, it is conspicuously silent on the
aspect of quantification of mesne profits. There is no discussion of
material or any discernible methodology or reasoning for arriving at the
figure awarded. The submission on behalf of the Appellant that such
reasoning can be gathered from the record cannot be accepted, as it is
impermissible for this Court to supply reasons which the Arbitral
Award itself does not disclose.
79. The distinction between an arbitral award where reasons are
either lacking or unintelligible and an award where reasons are explicit
but appear inadequate was carved out by the Supreme Court in OPG
Power Generation (P) Ltd. v. Enexio Power Cooling Solutions (India)
(P) Ltd.44. The Court therein held that where reasons are merely
inadequate or insufficient but the underlying basis is understandable on
a holistic reading, the Court may sustain the award by explaining such
reasoning. However, the present case falls in the category of awards
suffering from a complete absence of reasoning for quantification. Any
attempt to justify the reasonableness of the quantification on the basis
of submissions advanced before us by the learned Senior Counsel for
the Appellant would amount to impermissibly supplanting the findings
of the learned Tribunal by this Court, which are based on no evidence
or reasoning, by substituting them with this Court's own interpretation
of the evidence on record which is impermissible.
80. A mere observation in the Arbitral Award that the determination
is based on the "all the relevant facts and circumstances of the case"
cannot, in our considered view, suffice in a matter of unliquidated
damages. While it may be that the learned Tribunal considered material
such as the CBRE and Colliers reports, along with the testimony of the
expert witnesses, however, the same were ultimately not accepted for
44 (2025) 2 SCC 417
quantification as the learned Tribunal itself recorded that no evidence
had been led by the either party. Once such evidence stood rejected, the
quantification cannot be sustained on the basis of the very same
evidence. Therefore, no linkage can be found between the figure arrived
at and material on record. We may have accepted the linkage between
the said reports and the quantification, had the learned Tribunal not
expressly recorded that there was no evidence. Once such a finding is
returned and the learned Tribunal nevertheless resorts to guesswork, it
was incumbent to disclose some reasoning or basis for the
quantification. In the absence thereof, the figure arrived at remains one
based on mere conjecture and lacks any foundational basis.
81. In the absence of reasons employed by the learned Tribunal, the
contours of patent illegality assume significance. The Supreme Court
in DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd.45, explained the
same in the following words:
"39. In essence, the ground of patent illegality is available for
setting aside a domestic award, if the decision of the arbitrator is
found to be perverse, or so irrational that no reasonable person
would have arrived at it; or the construction of the contract is such
that no fair or reasonable person would take; or, that the view of the
arbitrator is not even a possible view. A "finding" based on no
evidence at all or an award which ignores vital evidence in arriving
at its decision would be perverse and liable to be set aside under the
head of "patent illegality". An Award without reasons would suffer
from patent illegality. The arbitrator commits a patent illegality by
deciding a matter not within his jurisdiction or violating a
fundamental principle of natural justice".
(emphasis supplied)
45 (2024) 6 SCC 357
82. This principle has also been reiterated in Ssangyong
Engineering & Construction Co. Ltd. v. NHAI46 and PSA SICAL
Terminals Pvt. Ltd. (supra) wherein it was held that a finding based on
no evidence is perverse and liable to be set aside on account of patent
illegality.
83. On the touchstone of the aforesaid principles, we find that the
Arbitral Award insofar as it quantifies the mesne profits to the extent of
Rs. 30,00,000 per month cannot be sustained. The learned Tribunal,
having discarded the valuation material and not followed any
benchmark or evidentiary basis, nonetheless proceeded to determine a
fixed figure without disclosing any rationale or methodology. As held
in Ramesh Kumar Jain (supra), while sufficiency of evidence is not
for the Court to reappreciate, a finding based on "no evidence" warrants
interference, as an Arbitrator cannot conjure a figure out of thin air
without any supporting basis.
84. The above conclusion is further reinforced by the decisions in
Bharat Heavy Electricals Ltd (supra), Gemini Bay Transcription (P)
Ltd. (supra) and New Okhla Industrial Development Authority
(supra), which clarify that while a degree of approximation is
permissible in assessing damages, such an exercise must be anchored
in some evidence/material on record, method, or identifiable reasoning.
In our view, the latitude for 'honest guesswork' is confined to situations
where the record furnishes a foundation, however limited, for a rational
estimation. In the present case, the Arbitral Award discloses no such
46 (2019) 15 SCC 131
foundational basis, nor is there any attempt to identify the parameters
which may guide this determination. The quantification, therefore,
ceases to be an exercise in estimation and instead assumes the character
of an fixation without any basis, thereby attracting the vice of patent
illegality. Therefore, the learned Single Judge was justified in
interfering with the Arbitral Award to this limited extent. Also, reliance
on Flovel Hydro (supra) is misplaced, as the said decision was rendered
in the context of an international commercial arbitration, where the
scope of interference is more circumscribed, and the ground of patent
illegality is not available for interference.
85. Insofar as the submission regarding adjustment of Claims and
Counter-Claims is concerned, we find no merit in the same. The Claims
and Counter-Claims have been adjudicated independently on their
respective merits. The setting aside of the quantification of mesne
profits does not, by itself, warrant reopening of the Counter-Claims or
disturb the findings rendered thereon, unless specifically challenged on
merits in proceedings under Section 34. The adjustment is merely
consequential to the final determination and does not create such
interdependence as to require that the fate of one must necessarily
govern and/or follow the other.
86. The Appellant's contention that the Impugned Order was
vitiated due to violation of the principles of natural justice is also devoid
of merit. The record shows that the Appellant was duly represented and
participated in the proceedings, and all its submissions were considered
in the Impugned Order. The mere fact that the petition was disposed of
at the initial stage, or that no opportunity was granted to file a written
reply, does not, ipso facto, amount to a violation of principles of natural
justice.
Conclusion
87. Upon a comprehensive consideration of the material on record,
the reasoning of the learned Tribunal, and the settled principles
governing interference under Sections 34 and 37 of the Act, we find no
infirmity in the Impugned Order.
88. 'Honest guesswork' or a 'rough and ready' approach may be
adopted in appropriate cases. However, such estimation must still be
based on some material on record or must show a rational nexus. In the
present case, the learned Tribunal, after rejecting the valuation reports
and recording that there was no evidence, nonetheless proceeded to fix
mesne profits without indicating any method, benchmark, or supporting
material. Such an approach goes beyond the limits of permissible
estimation.
89. Thus, the Arbitral Award, to the extent it awarded Rs. 30,00,000
per month towards mesne profits suffers from patent illegality being
both unsupported by evidence and devoid of reasons. The learned
Single Judge has rightly exercised its jurisdiction in setting aside the
quantification of mesne profits. We also find no merit in the Appellant's
contentions regarding adjustment of Claims and Counter-Claims or
alleged violation of principles of natural justice, as the same do not
disclose any ground warranting interference.
90. We make it clear that the liberty granted by the learned Single
Judge shall remain, and the Appellant shall be at liberty to agitate its
Claim in accordance with law. If such liberty is exercised, the
concerned authority shall endeavour to decide the same expeditiously.
91. In light of the foregoing discussion, we dismiss the present
appeal, along with any pending applications, if any.
92. There shall be no order as to costs.
OM PRAKASH SHUKLA, J.
C.HARI SHANKAR, J.
April 13, 2026/ss/pa
