A party can only recover reasonable compensation for breach of contract if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. A party can amend or supplement its claim or defense during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.

Key Points: - Liquidated damages can only be awarded if they represent a genuine pre-estimate of losses fixed by both parties and accepted by the court (!) (!) (!) . - An application to amend or supplement a claim or defense in arbitration may be allowed unless the arbitral tribunal finds the delay inappropriate, considering the circumstances (!) (!) (!) (!) (!) . - A party must establish loss or damage to enforce a take-or-pay/supply-or-pay clause; liquidated damages require proof of genuine loss or a reasonable pre-estimate (!) (!) (!) (!) (!) .

What is the requirement for awarding liquidated damages under Section 74 of the Indian Contract Act, 1872?

What is the standard for allowing an amendment to a counterclaim in arbitral proceedings under Section 23(3) of the Arbitration and Conciliation Act, 1996?

On what basis can a party challenge an arbitral award concerning take-or-pay/supply-or-pay clauses?

O.M.P. (COMM) 164/2020 & O.M.P. (COMM) 190/2020

Page 1 of 24

IN THE HIGH COURT OF DELHI AT NEW DELHI

%

Judgment delivered on: 06.01.2022

+

O.M.P. (COMM) 164/2020 and IA No. 2870/2015

HINDUSTAN PETROLEUM

CORPORATION LTD

..... Petitioner

Versus

M/S DHAMPUR SUGAR MILLS LTD

..... Respondent

Advocates who appeared in this case:

For the Petitioner

: Mr Naveen Raheja and Ms Aditi

: Shastri, Advocates.

For the Respondent

:Mr. Prasenjit Keswani, Advocate

AND

+

O.M.P. (COMM) 190/2020

M/S DHAMPUR SUGAR MILLS LTD

..... Petitioner

versus

HINDUSTAN PETROLEUM CORPORATION

LTD

..... Respondent

Advocates who appeared in this case:

For the Petitioner

: Mr. Prasenjit Keswani, Adv.

For the Respondent

:Mr Naveen Raheja and Ms Aditi

: Shastri, Advocates.

CORAM

HON’BLE MR JUSTICE VIBHU BAKHRU

JUDGMENT

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/000069

O.M.P. (COMM) 164/2020 & O.M.P. (COMM) 190/2020

Page 2 of 24

VIBHU BAKHRU, J

Introduction

1.

The parties have filed these petitions under Section 34 of the

Arbitration and Conciliation Act, 1996 (hereafter ‘theA&C Act’)

impugning an arbitral award dated 23.08.2012 (hereafter ‘the

impugned award’) rendered by an arbitral tribunal constituted by a

Sole Arbitrator (hereafter ‘the Arbitral Tribunal’).

2.

The impugned award was rendered in respect of the disputes that

had arisen between the parties in connection with the Agreements (five

in number), whereby Dhampur Sugar Mills Limited (hereafter ‘DSM’)

had agreed to supply ethanol to Hindustan Petroleum Corporation

Limited (hereafter ‘HPCL’).

3.

Undisputedly, HPCL was required to bear the sales tax on such

supplies of ethanol. However, it was entitled to mitigate the levy by

providing Form-C for the ethanol purchased from DSM. According to

DSM, HPCL failed and neglected to furnish the Form-Cs within the

time prescribed resulting in a sales tax assessment being framed on

DSM for enhanced sales tax and penalty. DSM claimed that the same

constituted a breach of the agreements in question and accordingly,

suspended the supply of ethanol under the four agreements in question

until the issue was resolved. HPCL treated the same as a default on the

part of DSM to supply the agreed quantity of ethanol and imposed a

penalty under the ‘Take or Pay/Supply or Pay’ Clause (clause 3 of the

agreements in question)

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/000069

O.M.P. (COMM) 164/2020 & O.M.P. (COMM) 190/2020

Page 3 of 24

4.

Thereafter, the parties entered into a fresh Agreement (hereafter

‘the Fifth Agreement’).

5.

HPCL sought to recover the penalty imposed under the ‘Take or

Pay/Supply or Pay’ Clauses of the first four agreements from the

consideration payable for the ethanol supplied under the Fifth

Agreement. DSM contends that the same was impermissible. It also

sought recovery of the sales tax paid on account of non-furnishing of

Form-C. In addition, it also claimed certain sums under the ‘Take or

Pay/Supply or Pay’ Clause under the agreements in question.

6.

The disputes between the parties were referred to arbitration,

which culminated in the impugned award.

7.

The Arbitral Tribunal awarded HPCL’s claim for penalty

imposed under the ‘Take or Pay/Supply or Pay’ Clause and also

awarded the amount claimed by DSM on account of sales tax paid to

the Sales Tax Authorities.

Factual Context

8.

On 07.02.2007, HPCL and DSM entered into an agreement for

supply of ethanol at various locations in Delhi. Thereafter, three similar

agreements were executed between the parties: (i) Agreement dated

28.06.2007 for supply of ethanol to HPCL’s locations in the State of

Punjab; (ii) Agreement dated 17.11.2007 for supply of ethanol to

HPCL’s locations in the State of Haryana; and (iii) Agreement dated

02.01.2008 for supply of ethanol to various locations in the Stat