The Delhi High Court has partly allowed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, filed by Pali Hills Breweries Private Limited, challenging an arbitral award passed in favour of Carlsberg India Private Limited, arising out of a brewing and packaging agreement between the parties.
The Court upheld the arbitral tribunal’s award of ₹25 lakh as liquidated damages for delay in achieving the contractual “Start Date” and declined to interfere with the rejection of most counterclaims raised by Pali Hills. Justice Jasmeet Singh held that the amount stipulated under Clause 4.3 of the agreement constituted a genuine pre-estimate of loss, and the tribunal’s view for granting such an award was a plausible one not warranting interference under the limited scope of Section 34.
The Court upheld the tribunal’s finding that time ceased to be of the essence in this Agreement after the initial 135-day period for achieving the ‘Start date’ expired in April 2016, as both parties continued to perform the contract instead of terminating it. The Court noted that the parties renegotiated key obligations, including the substitution of the bank guarantee with post-dated cheques in June 2016, which clearly showed that strict timelines were no longer insisted upon. However, the Court held that relaxation of timelines did not amount to waiver of Carlsberg’s right over liquidated damages, particularly since Carlsberg had expressly reserved this right in its June 17, 2016, communication.
The Court rejected Pali Hills’ argument that proof of actual loss was mandatory in these circumstances, holding that while actual loss is generally required under Section 74 Indian Contract Act, such proof of such loss is not mandatory where the parties have agreed in advance to a reasonable pre-estimate of damages and where loss is inherently difficult to quantify. On the application of Section 74, the Court held that the contractual stipulation for ₹25 lakh was a genuine pre-estimate of loss, as the agreement itself acknowledged that delay in achieving the Start Date would adversely impact Carlsberg’s expected sales.
The court further sustained the rejection of the counterclaim for electricity charges, finding the arbitrator’s conclusion that Pali Hills itself was responsible for the substantial delay to be a plausible view.
However, the Court set aside the tribunal’s rejection of the Counter Claim relating to rental charges for Carlsberg’s equipment lying at Pali Hills’ premises even after termination of the agreement. The Court found that vital documentary evidence and admissions in cross-examination showing access for removal of equipment had been provided, but the equipment was not removed for a prolonged period, were ignored by the tribunal, rendering the finding perverse. Applying the doctrine of severability, the Court modified the award to that limited extent while sustaining the remainder.
Appearances
For the Petitioner: Mr. Kirtiman Singh, Senior Advocate, with Mr. Varun Rajawat, Mr. Arjun Chopra and Mr. Maulik Khurana, Advocates
For the Respondent: Mr. Dr. Maurya Vijay Chandra and Mr. Manu Prabhakar, Advocates
