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2025 Supreme(Mad) 4664
IN THE HIGH COURT OF JUDICATUREAT MADRAS
K.R. Shriram, C.J., Mohammed Shaffiq, J.
Indo Pacific Software and Entertainment Ltd. - Appellant
Versus
Kone Elevators India Pvt. Ltd. and ors. - Respondents
O.S.A. No.313 of 2019 and C.M.P.No.25586 of 2019
Decided On : 14-03-2025
Advocate Appeared:
For the Appellant : Mr. R.Sankaranarayanan, Senior Counsel for Mr. Arjun Suresh
For the Respondent: Mr. Murari, Senior Counsel for Mr. K.K. Muralitharan
The court established that an arbitrator's award can only be set aside for violating public policy, as contractual stipulations prohibit consequential damages unless explicitly allowed.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 11, 34, and 37 - Dispute arose regarding supply of elevators and escalators in construction projects - Agreements executed on 19.12.2005 and 16.02.2006 included arbitration clauses - Sole Arbitrator partly allowed appellant's counter-claim for loss of business income and for non-supply of equipment - Respondents' petition under Section 34 successfully set aside counter-claim award by Single Judge - Court observed challenge scopes narrow under Section 34 and 37 and cited precedents on validity of arbitrator decisions and public policy. (Paras 10-12, 15-42)
Facts of the case:
Appellants engaged in infrastructure projects and had entered agreements with respondents for equipment supply but claimed incomplete delivery, leading to financial losses, and raised a counter-claim.
Findings of Court:
The Arbitrator misinterpreted the agreements and awarded damages contrary to public policy and contractual limitations, thus the learned Single Judge's decision to set aside the award was upheld.
Issues: Validity of the Arbitrator's conclusions on agreement supersession, calculation of damages, and grounds to invoke sections of the Arbitration Act.
Ratio Decidendi: Court affirmed that arbitrated awards cannot be interfered with unless arbitrary or in violation of public policy; misinterpretation of contract terms led to a perverse award.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. factual background of the case (Para 1 , 2 , 3 , 4 , 5 , 6) |
| 2. nature of public policy and standard for judicial interference (Para 9 , 10 , 11) |
| 3. details on relevant agreements and arbitration clauses (Para 12 , 13 , 14 , 15 , 16) |
| 4. discussions on the validity of the agreements and arbitration findings (Para 17 , 18 , 19 , 20 , 21) |
| 5. court's examination of errors and implications on the arbitration process (Para 22 , 23 , 24 , 25 , 26 , 29) |
| 6. on limits to claiming damages in contract law (Para 27 , 28 , 31 , 32) |
| 7. finality of the court's decision and costs (Para 35 , 43) |
| 8. finality of decisions and authority in arbitration disputes. (Para 36 , 40) |
| 9. scope of judicial review of arbitration awards. (Para 37) |
JUDGMENT :
K.R. SHRIRAM, C.J.
Appellant is engaged in the business of engineering and construction and provides comprehensive technical and allied services for infrastructure development. First respondent is engaged in the business of manufacture and supply of elevators and escalators, and maintenance thereon under the collaboration with Kone Corporation, Finland.
2. Appellant was also in the business of constructing and managing entertainment complexes. It needed elevators and escalators in two of its projects – one Wardhaman Nagar Project and the other VIP Road Project. The Wardhaman Nagar Project comprises a commercial multiplex, including Big Bazaar and a multiplex, while the VIP Road Project was another commercial and entertainment complex.
3. Appellant and first respondent had entered into two base agreements – both dated 19.12.2005 – one in respect of supply, erection and installation of one Goods-cum-Passenger Elevator and four Passenger Elevators (totally 5) along with service specifications valued at Rs.70,50,000/- and the other in respect of supply, erection and installation of seven escalators valued at Rs.1.22 Crores. Five elevators and one escalator were to be supplied to Wardhaman Nagar Project and six escalators for the VIP Road Project.
4. The agreements dated 19.12.2005 were executed by the parties as offer letters, which included a payment schedule. As regards supply of escalators, two definitive agreements, both dated 16.2.2006, were entered into. One agreement called Agreement “A” was for design and supply, priced at Rs.68,02,424/- and the other called Agreement “B” was for installation, testing and commissioning priced at Rs.54,92,566/-. Both agreements featured arbitration clauses and other provisions. No such definitive agreement was executed for elevators.
5. Only four elevators and one escalator were supplied and installed.It is appellant's case that VIP Road Project was left incomplete. It is also appellant's case that not even a single escalator was supplied for the Wardhaman Nagar Project. In short, of the total number of five elevators sought, four were supplied and one was not given; and of the total seven escalators required to be supplied, only one was given, six not supplied.
Therefore, disputes arose.
6. Appellant paid a sum of Rs.72,33,490/-, leaving a balance of Rs.15,93,490/-, which first respondent claimed. First respondent also sought Rs.1,09,00,359/- as cancellation charges. In response, appellant raised a counter-claim totalling Rs.11,98,44,385/- citing loss of business income, non-supply of equipment, mental agony and loss of goodwill. Appellant relied on termination notices from various commercial tenants, which were marked as evidence to substantiate its claim of damages and loss of business.
7. Thereafter, first respondent filed two separate petitions, O.P.Nos.704 and 711 of 2007 – one regarding elevators and the other relating to escalators under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (the Act). Pursuant to a common order dated 19.9.2008, this court was pleased to appoint Mr.Justice S.Jagadeesan (Retired) as the Sole Arbitrator. The arbitrator and arbitral proceedings was common and the award dated 20.10.2010 also was common.
8. In the trial before
