An arbitral award must contain intelligible reasoning as mandated by Section 31(3). Furthermore, retention of an advance payment in the absence of an explicit forfeiture clause requires proof of actual loss or damage under contract law principles, as breach of contract does not automatically validate forfeiture.

JUDGMENT :

AVNEESH JHINGAN, J.

1. This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short ‘the Act’) seeking setting aside of the arbitral award dated 01.07.2023 (for brevity ‘the award’).

2. The relevant facts are that the petitioner is engaged in business of developing real estate projects. In the year 2017 petitioner was developing Signature Global Mall (for short ‘the Mall’) in Ghaziabad, Uttar Pradesh under its own brand name. The parties to the lis entered into a Memorandum of Understanding (MoU) dated 18.05.2018 whereby the respondent agreed to operate and maintain service apartments/hotels at 3rd to 6th floor of the Mall under the name of ‘Clark Premier’.

2.1 In terms of clause 14 of the MoU, the petitioner had to pay a sum of Rs.50,00,000/- plus GST after deduction of TDS towards one time brand collaboration fee and an amount of Rs.50,00,000/- towards technical support fee. The respondent was entitled to an additional amount of Rs.1,70,00,000/- (rupees one-crore seventy lakhs) plus GST towards administrative marketing of the property, operational and pre-opening expenses to commence service apartment/hotel operation, within a period of six to eight months from the date of signing of the MoU. As per Clause 20 of the MoU, the prior discussions between the parties were agreed to be merged in the MoU and no further modification would be effected unless mutually agreed between the parties in writing.

2.2 The respondent through emails dated 08.08.2018 and 18.11.2018 sought additional space beyond what was initially agreed between the parties. The request was denied by the petitioner through communications dated 10.08.2018 and 01.12.2018. Thereafter, the respondent sent three emails in December, 2018 agreeing to the denial for the additional space. Meeting was held between the parties on 18.12.2018 and on 08.02.2019, the petitioner sent an email attaching undertaking for mutual termination of the MoU.

2.3 Thereafter in September, 2019 the petitioner demanded a refund of Rs.1,18,00,000/- (rupees one-crore eighteen lakhs) paid as advance. The respondent vide communication dated 21.09.2019, declined the refund and instead demanded payment of the balance amount of Rs.1,70,00,000/- (rupees one-crore seventy lakhs).

2.4 Dispute arose between the parties and arbitration was invoked at the instance of the respondent by issuing notice dated 09.01.2020. The arbitrator was appointed by this court on 30.11.2021 and the arbitral proceedings culminated in the impugned award. The claim of the respondent of rupees one-crore seventy lakhs was rejected and the counter-claim of the petitioner seeking refund of rupees one-crore eighteen lakhs was also dismissed.

3. Learned counsel for the petitioner contends that the award is non-speaking and suffers from patent illegality. The arbitrator erred in concluding that the advance paid by the petitioner was not subject to incurring of expenses.

3.1 The submission is that the MoU contained no clause for forfeiture of the advance paid and that the sums paid were not earnest money.

3.2 Reliance is placed upon the decisions of the Supreme Court in Kailash Nath Associates v. DDA & Anr. 2015 4 SCC 136, Union of India v. Rampur Distillery & Chemical Co. Ltd. AIR 1973 SC 1098, Rajesh Gupta v. Ram Avtar 2022 SCC OnLine Del 1482, Amrit Pal Singh v. Kawaljeet Singh 2022 SCC OnLine 1619, ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705 and Patel Engineering Ltd. v. North Eastern Electric Power C