AN ARBITRAL TRIBUNAL CANNOT AWARD CERTAIN TYPES OF DAMAGES IF SPECIFICALLY EXCLUDED BY WAY OF CONTRACTUAL CLAUSES - HOLDS DELHI HIGH COURT1
A Division Bench of the Hon'ble Delhi High Court comprising HMJ Vibhu Bakhru and HMJ Tara Vitasta Ganju, recently while dismissing an Appeal held that “If the parties have agreed that a particular type of damages would not be paid, such agreement is required to be implemented.” The Arbitral Tribunal is required to render its decision having regard to such agreed term of the contract, as also provided under Section 28(3) of the Arbitration and Conciliation Act, 1996 (“Act”).
The present issue arose in the context of a specific clause in an agreement between the parties, which provided that neither party would be liable for any indirect, special or consequential loss or damages, or any loss or damage due to loss of goodwill, or loss of revenue or profit arising in connection with the agreement.
The Arbitral Tribunal had proceeded to award damages in the form of loss of profits, despite such exclusion clause.
The issue fell for the consideration of the Hon'ble Delhi High Court whether such clauses could be enforceable.
It was held that it is essential to maintain the bargain entered into between parties. A clause limiting liability is clearly part of the contractual bargain and the same cannot be disregarded. Disregarding the said stipulation would in effect amount to rewriting the bargain between the parties.
The Court also noted that the clause only excluded certain kinds of damages and did not bar compensation for any direct expenditure or costs incurred by the parties.
In this context, the Court emphasised that the Arbitral Tribunal is required to render a decision having regard to the terms of the agreement. It was held that in the present case, the award of damages on account of loss of profits was contrary to the terms of the agreement and thus the Award was held to be vitiated by patent illegality.
Footnote
1. M/s Plus 91 Security Solutions v. NEC Corporation India Private Limited, FAO (OS) (COMM) No. 36/2024 dated 29.07.2024
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