Delhi High Court Sets Aside Arbitration Award Over Reliance on Conciliation Admissions and Unsupported Damages; Holds Arbitrator’s Personal Experience Cannot Substitute Proof of Actual Loss
Delhi High Court Quashes Arbitration Award Granting Idling, Overhead and Loss-of-Profit Claims Without Evidence; Says Breach Alone Does Not Prove Damages
Facts
The dispute arose from a contract for construction and development of “Sikka Kamya Greens, Sector-10, Greater Noida”. The letter of acceptance dated 9 April 2016 was for a contract value of ₹53,73,50,000, with a stipulated completion period of 34 months ending on 8 February 2019.
During execution, disputes arose regarding delay, payment releases and responsibility for prolongation of the contract. The parties thereafter executed a Memorandum of Understanding dated 27 September 2018, whose legal effect itself became contentious. Eco Green Buildtech Pvt. Ltd. relied on the MOU as having settled accounts and claims, whereas Vikartan Infrastructure Pvt. Ltd. alleged continuing defaults.
Vikartan attributed delay to Eco Green’s non-payment, non-supply of material and failure to remove site hindrances. It claimed amounts for work executed, escalation, WCT, idling of machinery, overheads, material at site, loss of profit, interest and costs. Eco Green blamed Vikartan for insufficient manpower, machinery and abandonment.
Arbitration was invoked on 13 July 2020, and a sole arbitrator was appointed by consent. A Local Commissioner was appointed to measure executed work and inventory material, machinery and equipment.
Vikartan raised 12 claims totalling about ₹15.07 crore, while Eco Green filed 13 counterclaims totalling about ₹4.02 crore. The tribunal ultimately held Eco Green responsible for delay and breach, treated the MOU as binding but not a novation, partly allowed several claims and rejected all counterclaims.
An additional award dated 27 March 2023 corrected computational errors, including increasing the additional-overheads award from about ₹2.04 crore to ₹2.84 crore.
Eco Green then challenged both awards under Section 34 of the Arbitration and Conciliation Act, 1996.
Issues
The principal issues were whether the award was passed beyond the tribunal’s mandate under Section 29A; whether the tribunal could rely on statements or concessions made during unsuccessful conciliation; whether claims for idling, overheads, material at site and loss of profit had been supported by actual evidence; whether the tribunal could substitute its own industry experience for proof; and whether denial of an opportunity to object to the Local Commissioner’s report violated procedural fairness.
Petitioner’s Arguments
Eco Green argued that the award had been made after expiry of the tribunal’s statutory mandate, contending that pleadings had concluded earlier than the date accepted by the tribunal.
It also attacked the reliance on the Local Commissioner’s report, arguing that supposed acceptance of that report occurred during conciliation proceedings and could not subsequently be treated as an admission once settlement failed.
The petitioner further challenged the WCT, idling, additional-overhead, material-at-site and loss-of-profit claims on the ground that they were unsupported by actual evidence.
In particular, it argued that the arbitrator quantified several heads largely from personal experience and trade practice, rather than documentary proof of actual expenditure or loss.
Respondent’s Arguments
Vikartan defended the award and argued that the mandate had not expired because pleadings were actually completed on 10 May 2022, making the 28 February 2023 award timely.
It submitted that the Local Commissioner’s measurements were reliable, that WCT had admittedly been deducted but not deposited, and that machinery and resources had in fact remained idle.
On overheads and loss of profit, it argued that the tribunal was entitled to make reasonable assessments once Eco Green’s breach had been established, and relied on the Hudson formula and industry practice for quantification.
Analysis of the Law
Tribunal’s Mandate Had Not Expired
The High Court rejected Eco Green’s Section 29A challenge.
The Court found that although the rejoinder was dated 25 February 2022, it was actually filed only on 10 May 2022. Pleadings therefore stood completed on that later date, and the award was passed within the 12-month period prescribed by Section 29A(1).
Failed Conciliation Discussions Cannot Be Used in Arbitration
The Court found that the tribunal had undertaken conciliation at the parties’ request and had recorded that Eco Green was broadly satisfied with the Local Commissioner’s report, subject to minor variations.
The problem was that, after conciliation failed, the tribunal relied upon what had transpired during those settlement discussions while adjudicating the claims.
The High Court held that this was impermissible. Failed conciliation or mediation discussions remain confidential, and statements or concessions made to facilitate settlement cannot later be used against the party in adjudication.
Confidentiality Is Essential to Settlement Processes
The Court relied on Moti Ram v. Ashok Kumar, where the Supreme Court held that mediation is confidential and that unsuccessful mediation reports should not disclose offers, counter-offers or discussions.
It also relied on Perry Kansagra v. Smriti Madan Kansagra, which emphasised that parties make statements during mediation that they may never make in adversarial proceedings, and such statements must not later be used against them.
Precedent Analysis
The Court relied significantly on Kailash Nath Associates v. DDA and Fateh Chand v. Balkishan Dass for the proposition that damages under Section 73 of the Contract Act require not merely breach, but proof of consequential actual loss or damage.
For loss-of-profit claims, the Court applied Unibros v. All India Radio, where the Supreme Court held that the Hudson formula is only an estimation tool and cannot, by itself, establish actual loss of profit. A claimant must prove delay not attributable to itself, its established business position and credible evidence of lost profitability or opportunities.
The Court distinguished State of West Bengal v. S.K. Maji, noting that in that case the tribunal had recorded plausible reasons for reducing the claimed profit percentage, whereas here the tribunal had relied largely on personal experience and unproved trade practice.
Court’s Reasoning
Claim No. 1 — Work Executed
The Court found that the tribunal had failed to reconcile the MOU figure of ₹11.82 crore with the figure of about ₹10.72 crore treated as paid.
The tribunal also relied on the Local Commissioner’s report without giving Eco Green a proper opportunity to contest it after conciliation failed.
The claim was therefore held to be patently illegal and insufficiently reasoned.
Claim No. 3 — WCT
The Court upheld the WCT award.
Eco Green admitted that it had deducted WCT but had not deposited it. Its explanation that it was involved in tax litigation was unsupported by any material justifying retention of the deducted amount.
Claim No. 4 — Idling of Machinery
The tribunal awarded about ₹1.04 crore for idling of rented machinery even though no rent vouchers or proof of actual loss had been produced.
The arbitrator used his own construction-industry experience to estimate the amount at 2% of contract value. The High Court held that an arbitrator’s expertise cannot substitute the claimant’s obligation to prove actual loss.
Claim No. 6 — Additional Overheads
The tribunal awarded about ₹2.84 crore for additional overheads by relying on personal experience, assumed trade practice and CPWD circulars.
The High Court found no evidence of actual additional overhead expenditure. It further noted that the CPWD circulars relied upon were never confronted to Eco Green, violating Section 24(3) of the Arbitration Act.
Claim No. 8 — Material at Site
The tribunal had treated Eco Green’s supposed acceptance of the Local Commissioner’s report during conciliation as substantive acceptance for adjudicatory purposes.
The High Court held that this violated Section 18 of the Arbitration Act, which requires equal treatment and a fair opportunity to present one’s case.
The arbitrator’s personal site inspection also could not prove ownership or value of the material. The claim was therefore patently illegal.
Claim No. 9 — Loss of Profit
The tribunal allowed loss of profit at 7.5% of the balance contract value, again relying on personal experience and trade usage.
The High Court held that the Hudson formula may assist in quantification, but it cannot replace proof of actual lost profits or business opportunities.
Because Vikartan had not produced credible evidence establishing such loss, the award on this head was also held patently illegal.
Conclusion
The Delhi High Court allowed the Section 34 petition and set aside both the arbitral award dated 28 February 2023 and the additional award dated 27 March 2023.
The judgment establishes two significant propositions: first, failed conciliation or mediation material cannot be used as evidence in later arbitral adjudication; and second, an arbitrator’s personal expertise, experience or understanding of trade practice cannot substitute actual evidence where damages, overheads, idling losses or loss of profit must be proved.
Case Details
Case: Eco Green Buildtech Pvt. Ltd. v. Vikartan Infrastructure Pvt. Ltd.
Court: Delhi High Court
Case Number: O.M.P. (COMM) 293/2023 & I.A. 14489/2023
CNR: DLHC010300652023
Judge: Justice Avneesh Jhingan
Reserved: 17 August 2026
Pronounced: 10 September 2026
Result: Section 34 petition allowed; arbitral award and additional award set aside.
