1. Court’s decision
The Bombay High Court dismissed a Section 34 petition filed by an advertising contractor challenging an arbitral award that had rejected all eight claims raised against a municipal transport undertaking and had allowed counterclaims for delayed payment interest, RTO fees, and defacement charges. The Court held that the Tribunal’s view was fully consistent with the terms of the tender, the contract, and the mathematical formula for fleet-based rentals. The Court found no perversity, patent illegality, or violation of public policy. The petition was accordingly rejected.
2. Facts
The respondent undertaking floated a tender on 9 November 2018 for the grant of advertisement rights on 3121 buses for a three-year term. The petitioner bid ₹95.5 crore, was declared successful, and executed the contract after depositing the required security, including ₹1 crore towards defacement/repainting. The contract ran from 11 February 2019 to 10 February 2022.
Disputes arose when the petitioner alleged that a large percentage of buses were damaged or not operational and therefore not fit for advertising. It sought significant rebates. BEST initially refused but later granted partial concessions for 672 buses. Additional disputes related to the computation of monthly display charges, rebate during the COVID-19 period, RTO fees, and defacement charges at the end of the contract. All disputes were referred to arbitration.
3. Issues
The High Court identified several questions:
• Whether the arbitral tribunal correctly interpreted contractual clauses governing payment of monthly display charges based on “fleet availability” rather than “buses actually plying.”
• Whether the petitioner was entitled to rebate for damaged buses, non-operational buses, and COVID-19 downtime.
• Whether the Tribunal erred in approving BEST’s counterclaims, particularly RTO fees and defacement charges.
• Whether the award suffered from patent illegality warranting interference under Section 34.
4. Petitioner’s arguments
The petitioner argued that the Tribunal misapplied the contractual scheme by refusing rebate despite evidence of 966 damaged buses. It claimed that the display-charge formula must reflect actual operational buses and that excess amounts were recovered due to inflated fleet numbers. It further argued that the RTO fee claim required proof of actual payment by BEST and that penalty-based defacement charges could not be awarded without proof of loss, relying on Kailash Nath Associates to assert that liquidated damages must reflect genuine pre-estimates. It argued that the partial rebates granted by BEST amounted to waiver or admission of contractual entitlement.
5. Respondent’s arguments
BEST argued that the petitioner was attempting to rewrite a commercial contract after quoting an aggressive bid. It maintained that the contract was fleet-based, not “usage-based,” and that the petitioner had expressly accepted that 100% of buses would not necessarily be on the road at all times due to repairs. It emphasised that rebates for damaged buses were a gratuitous concession, never a contractual entitlement.
On counterclaims, BEST argued that delayed payment interest, RTO fees, and defacement charges all flowed directly from clear contract clauses. BEST argued that indemnity for RTO fees became enforceable without the need to show actual disbursement, citing well-settled principles.
6. Analysis of the law
The Court held that contractual interpretation under Section 34 is limited and must be respected unless perverse. The tender documents, letter of allotment, and agreement defined monthly rentals as a function of the quoted contract value divided by 36 × 3121 × fleet available each month—not actual operational buses. This contractual formula was binding and exhaustive.
Schedule-VI expressly stated that 100% buses may not be on the road, and further barred any claim concerning upkeep or maintenance. Clause-1.3 allowed pro-rata relief only for reduction in fleet, not damaged buses or buses temporarily out of use. Therefore, the Tribunal was right in treating the petitioner’s rebate claims as contractually unsustainable.
7. Precedent analysis
The judgment refers to several authorities:
Kailash Nath Associates (2015) 4 SCC 136
Relied on by the petitioner to argue liquidated damages must reflect genuine pre-estimates, but the High Court held that Clause-21’s penalty was not framed as liquidated damages and applied due to contractual default, not estimation of loss.
Gajanan Moreshwar Parelkar (1942 Bom) and Khetarpal Amarnath (1956 Bom)
Relied upon by the Tribunal to support that indemnity becomes enforceable upon the liability arising—not contingent on actual payment. The Court accepted this application while upholding RTO-fee counterclaims.
Jet Airways v. Sahara Airlines and Reliance Industries v. Balasore Alloys
Cited for similar principles on indemnity and contractual liability.
8. Court’s reasoning
The High Court concluded that the Tribunal applied the contract faithfully. Evidence showed that the petitioner had inspected buses prior to bidding and willingly accepted a comprehensive fleet-based pricing structure. The Court agreed that granting partial rebates did not amount to waiver because the concessions were conditional.
On RTO fees, the Court held that the petitioner had expressly agreed to either pay a fixed annual sum or actuals; pandemic-related conditions did not negate this obligation. On defacement charges, the Court held that the petitioner breached Clause-21 by failing to remove advertisements before the expiry of the contract, especially in the three-month gap before the new contract. Though BEST’s particulars were sparse, the Court accepted that the penalty clause was triggered by contractual breach and did not require independent loss proof.
9. Conclusion
The judgment reiterates the narrow scope of Section 34 review. A court cannot re-appraise evidence or rewrite contract terms merely because a party considers the bargain commercially harsh. The Tribunal’s findings were reasoned, contract-centric, and in line with established doctrine. No patent illegality was found. The petition was dismissed with no interference in the award.
10. Implications
The ruling carries major implications for high-value municipal advertising contracts:
• Bidders cannot later rely on operational deficiencies to seek rebates when the contract adopts fleet-based pricing.
• Conditional concessions do not create contractual rights or waiver.
• Penalty clauses tied to failure to vacate workspaces or advertising surfaces will be enforced without independent loss proof.
• Indemnity clauses activate upon obligation, not upon disbursement.
• Section 34 challenges against commercial awards face a very high threshold.
CASE LAW REFERENCES (APPLIED IN JUDGMENT)
• Kailash Nath Associates v. DDA — Liquidated damages principle examined; distinguished because defacement charges arose from contractual penalty.
• Gajanan Moreshwar Parelkar v. Moreshwar — Indemnity enforceability upheld.
• Khetarpal Amarnath v. Madhukar Pictures — Liability under indemnity not dependent on proof of payment.
• Jet Airways v. Sahara Airlines — Indemnity scope discussed.
• Reliance Industries v. Balasore Alloys — Reinforced enforceability of contractual indemnity.
FAQs
1. Can an advertising contractor claim rebate for damaged or non-operational buses under a fleet-based BEST tender?
No. The High Court held that rebates are permissible only for reduction in fleet, not damaged buses, because the tender states that 100% buses need not be operational.
2. Are defacement charges under Clause-21 enforceable without proof of loss?
Yes. The Court held that failure to remove advertisements before expiry triggers contractual penalty, not liquidated damages requiring a loss assessment.
3. Must BEST prove actual RTO-fee payment before enforcing indemnity?
No. Indemnity becomes enforceable the moment the contractor’s liability arises. Actual payment proof is unnecessary.