Arbitral Award Can’t Be Interfered With Merely Because Another Interpretation Of Contractual Terms Is Possible: Delhi High Court

The Delhi High Court has reemphasized that an Arbitral Award cannot be interfered with merely because another interpretation of the contractual terms may also be possible.

The Court was deciding a Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking setting aside of the Arbitral Award passed by the Arbitrator.

A Single Bench of Justice Jasmeet Singh observed, “It is well settled that the construction of the terms of a contract lies primarily within the domain of the Arbitral Tribunal. So long as the Arbitrator adopts a plausible and reasonable interpretation of the contractual terms, the Award cannot be interfered with merely because another interpretation may also be possible. Interference is warranted only where the construction adopted is such that no fair-minded or reasonable person could have arrived at it.”

The Bench clarified that the discretion afforded to an Arbitrator in construing contractual terms does not dispense with the obligation to furnish reasons.

Senior Advocate Arvind Nayar appeared on behalf of the Petitioner, while Advocate Arjun Natarajan appeared on behalf of the Respondent.

Case Background

The Petitioner-M/s Traffic Media (India) Pvt. Ltd. was a company engaged in the business of outdoor, indoor, and transit advertising. In 2010, the Respondent-Delhi Metro Rail Corporation (DMRC) invited tenders for grant of advertising rights through pre-designed panels inside RS-3 standard gauge metro trains operating on two metro corridors, namely the Inderlok–Mundka Line (Line-5) and the Central Secretariat - Badarpur Line (Line-6). The Petitioner company submitted its bid and was declared as the highest bidder. Following negotiations, DMRC issued a letter of acceptance confirming the licence fee rates and the advertising area per train. Thereafter, a Contract (Agreement) was entered into between the parties.

Disputes arose when DMRC sought to compel the Petitioner to take possession of five additional RS-3 trains bearing numbers TS-610 to TS 614, which were intended for operation on Line-6. Despite the objections, DMRC issued letters threatening deemed handover of possession and demanding licence fees for the Line-6 trains. The Petitioner sent detailed representations and a legal notice disputing the demands and alleging coercive conduct. DMRC instead of responding to the representations, issued a 15-day termination notice and terminated the contract. Due to this action, the Petitioner invoked arbitration. However, the Arbitrator rejected the Petitioner’s claim and hence, the case was before the High Court.

Reasoning

The High Court in the above context of the case, said, “An Arbitral Tribunal cannot return a finding on a contractual clause without disclosing the basis for such finding. An unreasoned observation particularly in view of clear pleadings and contentions of the parties, falls foul of the requirement of a reasoned award and renders the finding unsustainable in law.”

The Court noted that there is no examination of the Petitioner’s contention that the Contract was wholly one-sided, nor any consideration of the cumulative effect of Clauses.

“The grounds on which the petitioner sought to have the contract declared void, as pleaded in the SOC, have been brushed aside without reasons. Such non-adjudication of material contentions and cryptic rejection, without any reasoning, which shows alack of thought process behind a finding, striking at the core of an Arbitral Award and warrants interference under Section 34 of the Act”, it added.

The Court was of the view that the manner in which claim has been rejected does not align with the standards of a reasoned Award and cannot be sustained in law.

“The Arbitrator has declined the claim for refund solely on the ground that the Contract was not declared null and void. This finding is incorrect. A claim for refund of amounts deposited under a contract is not dependent, upon the contract being void or voidable. Even where a contract is held to be valid and enforceable, the question whether a party is entitled to retain monies received must necessarily be examined with reference to the contractual terms governing such payments and the facts relating to performance and breach. The Award, however, does not undertake any such examination”, it remarked.

The Court further said that in the absence of a finding that the conditions precedent for forfeiture stood satisfied, the Arbitrator could not have upheld the retention of the security deposit without analysing these clauses.

“The failure to even advert to the relevant contractual provisions vitiates the conclusion reached. … the settled position of law is that damages for mental distress, anguish or injured feelings are ordinarily not awarded for breach of contract, particularly in the case of commercial contracts. The recognised exceptions are limited to contracts whose object is to provide peace of mind or freedom from distress, or cases where mental suffering or nervous shock was, at the time of entering into the contract, within the contemplation of the parties as a probable consequence of breach”, it also observed.

Conclusion

Furthermore, the Court noted that the dispute arises out of a commercial licence agreement for advertisement rights and the contract was purely commercial in nature and was not intended to secure peace of mind or freedom from distress.

“Nor can it be said that mental anguish or non-pecuniary injury was within the contemplation of the parties as a likely consequence of breach at the time of execution of the contract. … In these circumstances, the Award cannot be salvaged by severing individual findings. The non-adjudication of the central issue of breach vitiates the entire Award. The Award, therefore, falls foul of Section 31(3) of the Act, and squarely attracts interference under Section 34 of the Act on the ground that it is arbitrary, perverse, and devoid of intelligible reasons. Once the core issue of breach has not been adjudicated, the Award cannot be sustained in part or as a whole, and is liable and is hereby aside”, it concluded.

Accordingly, the High Court allowed the Petition and set aside the arbitral award.

Cause Title- M/s Traffic Media (India) v. Delhi Metro Rail Corporation (Neutral Citation: 2025:DHC:11979)

Appearance:

Petitioner: Senior Advocate Arvind Nayar, Advocates Aman Vaccher, and Ashutosh Dubey.

Respondent: Advocates Arjun Natarajan, Aayush Kumar, and Nakul Gupta.

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