Larsen and Toubro Limited [Appellant] Vs. Puri Construction Pvt. Ltd. [Respondents]

CIVIL APPEAL NOS. 2575-2578 OF 2016

(2JB, Abhay S Oka and Pankaj Mithal JJ., delivered by Abhay S Oka J.)

These appeals arise from the Delhi High Court Division Bench’s judgment dated 30 April 2015 under Section 37 of the Arbitration and Conciliation Act, 1996. The case involves Puri Construction Ltd. (PCL) and Larsen & Toubro Ltd. (L&T) over a land development project. PCL terminated the development agreement, alleging breaches by L&T, leading to arbitration. The Arbitral Tribunal ruled in PCL’s favour, awarding damages, injunctions, and indemnities. The Single Judge had set aside the award, but the Division Bench largely reinstated it, affirming L&T’s failure to meet conditions for a supplementary agreement and upholding the original agreement’s validity. However, it set aside parts of the damages awarded. Both PCL’s and L&T’s counter-claims were partly dismissed, and title deeds were ordered returned to PCL. Both parties appealed further through civil appeals.

The learned senior counsel for L&T argued that the Division Bench wrongly modified the arbitral award, contrary to the Supreme Court’s judgment in M. Hakeem, which prohibits modification under Section 34. He emphasized that the award’s operative and reasoning parts were intrinsically linked and indivisible. The Division Bench upheld some reliefs but set aside major damages, leading to an unfair advantage for PCL. Counsel contended that the Tribunal misinterpreted agreements without adequate reasoning and wrongly concluded coercion by L&T. He criticized the Division Bench for supplying fresh reasons and rewriting contracts, arguing that coercion was neither specifically pleaded nor proven. He relied on precedents like Dyna Technologies and Associate Builders, asserting the award lacked plausible reasoning, ignored evidence, and violated Section 28(1)(a) of the Arbitration Act.

The Arbitral Tribunal found inconsistently that the Supplementary Agreement was non-operative but still held L&T liable under the Tripartite Agreement. L&T argued that since the Supplementary Agreement was invalid, no relief could arise under the Tripartite Agreement. The Tribunal also ignored key clauses of the Development Agreement concerning market conditions that delayed construction. Moreover, L&T contended that the Bank, not being a party to the arbitration, could not claim payment. The Single Judge accepted these points, but the Division Bench overlooked them and exceeded its jurisdiction under Section 37. PCL countered that L&T breached the contract, failed to pay EDC, and abandoned the project without seeking extensions. PCL maintained that the Tribunal’s findings on damages were based on evidence and should not have been disturbed, citing established legal principles on arbitral deference.

The Appellate Court’s powers under Section 37 of the Arbitration Act are no broader than under Section 34, meaning an Arbitral Award cannot be modified in an appeal. The Division Bench correctly left PCL to pursue remedies under law without remanding the matter for quantification of claims, affirming breaches by L&T and severing the award on arbitration costs, which L&T must pay. The Bench also directed the handover of title documents to PCL.