IMPORTANT POINT
The court emphasized that for liquidated damages to be enforceable, the claimant must prove actual loss and the clause must represent a genuine pre-estimate of damages.

JUDGMENT :

VIBHU BAKHRU, J

1. Indian Oil Corporation Ltd. (hereafter IOCL) has filed the present intra court appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereafter the A&C Act) impugning an order dated 29.03.2019 (hereafter the impugned order) passed by the learned Single Judge in OMP(COMM) No.303/2017 captioned Fiberfill Engineers v. Indian Oil Corporation Limited. The respondent (hereafter referred to as Fiberfill) had filed the aforementioned petition under Section 34 of the A&C Act for setting aside an arbitral award dated 12.04.2017 (hereafter the impugned award) rendered by the Arbitral Tribunal (hereafter the Arbitral Tribunal) comprising of a Sole Arbitrator.

2. The impugned award was rendered in the context of disputes that had arisen between the parties in connection with an agreement dated 11.01.2007 for designing, supplying, installation, testing and commissioning of high mast signage systems of various heights and types at various IOCL retail outlets in the State of Tamil Nadu and Union Territory of Pondicherry (hereafter referred to as the Work Order).

3. Fiberfill had made five claims, which were the subject matter of arbitration before the Arbitral Tribunal. The same included a claim of Rs.22,08,528/- being an amount that was deducted by IOCL towards price adjustment from the bills raised by Fiberfill for the work done; interest at the rate of 18% on the sum of Rs.22,08,528/- from the date the amounts were withheld by IOCL till the actual date of release; Rs.75,50,000/- towards Escalation; Rs.1,50,00,000/- towards Loss of Business Opportunity; and Rs.80,00,640/- towards Manpower Retention. The Arbitral Tribunal rejected all the aforesaid claims and found that Fiberfill is not entitled to any relief.

4. During the course of proceedings relating to Fiberfill’s petition for setting aside the impugned award under Section 34 of the A&C Act, Fiberfill had confined its challenge to the impugned award to the extent of denial of its claim for the amount of Rs.22,08,528/- withheld by IOCL and the interest payable thereon. The learned Single Judge sustained the said challenge and set aside the impugned award to the extent that it rejected Fiberfill’s claim for the amount of Rs.22,08,528/- and interest thereon. The learned Single Judge held that Fiberfill is entitled to the sum of Rs.22,08,528/- along with interest at the rate of 8% per annum from the date the amounts were withheld till the date of release.

5. The amount of Rs.22,08,528/- was withheld by IOCL in terms of Clause 9 of the Special Instructions to Tenderers (hereafter SIT) as compensation for delay in performance of the work. The learned Single Judge faulted the Arbitral Tribunal for accepting IOCL’s claim for compensation on account of delay in execution of the works without returning any finding that IOCL had suffered damages on account of delay or that the amount withheld was a reasonable compensation for the delay in execution of the work on the part of Fiberfill. The learned Single Judge held that to the aforesaid extent, the impugned award was vitiated by patent illegality. The Arbitral Tribunal ignored the relevant material and also awarded liquidated damages by way of price adjustment without recording a finding as to whether IOCL had suffered any loss or injury.

6. The controversy in the present appeal is, thus, confined to the question whether the Arbitral Tribunal had erred in rejecting Fiberfill’s claim for the amount of Rs.22,08,528/- withheld by IOCL as compensation by way of reduction in price payable for the work done.

FACTUAL CONTEXT

7. IOCL is a Public Sector Undertaking, inter alia, engaged in the business of distribution of Oil and Petroleum Products. IOCL had invited tenders for designing, supplying, installing, testing and commissioning of the high mast signage systems of various heights and types at its various retail outlets in the State of Tamil Nadu and the Union Territory of Pondicherry. The invitation was, essential