Supreme Court of India· 21 April 2025

Can an award of damages stand under Section 73 of the Indian Contract Act, 1872 where it is quantified from the opposing party's counter-claim figures rather than from proof of the loss suffered?

Larsen and Toubro Limited v. Puri Construction Pvt. Ltd.

2025 INSC 523 · CIVIL APPEAL NO. 2579 OF 2016
Coram: Abhay S. Oka

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Answer

No. Where the claimant did not prove its loss and the Tribunal relied on no evidence to arrive at a fair assessment of the loss actually incurred, damages built on the other side's counter-claim figures are fundamentally contrary to Section 73 and completely contrary to substantive law, and that part of the award is rightly set aside.

Headnote

Arbitration and Conciliation Act, 1996 — ss.34 and 37 — Indian Contract Act, 1872 — ss.16(3) and 73 — Award cannot be modified — Scope of interference — Conditions precedent — Economic duress — Damages — Arbitration and Conciliation Act, 1996 — ss.34 and 37 — No power to modify an award — Held: A court under Section 34 may only set aside an arbitral award, not modify or vary it. Section 37 powers are no broader, so what cannot be done under Section 34 cannot be done on appeal. (¶40, 56) Arbitration and Conciliation Act, 1996 — s.34 — Conditions precedent — Possible view not interferable — Held further: A Tribunal's conclusion that unfulfilled conditions precedent left a supplementary agreement a non-starter is a finding of fact and a possible finding. Such a finding cannot be interfered with under Section 34. (¶46, 49) Indian Contract Act, 1872 — s.73 — Damages assessed without proof of loss — Held further: Damages fixed from the opposite party's own counter-claim figures, with no evidence of the loss actually incurred, are fundamentally contrary to Section 73. Being contrary to substantive law, that part of the award was rightly set aside. (¶52) Indian Contract Act, 1872 — s.16(3) — Economic duress — Burden on the dominant party — Held further: Where a party in a position to dominate the will of another obtains an unconscionable transaction, the burden of proving absence of undue influence lies on it; a coercion finding so reached discloses no patent illegality. Appeals dismissed. (¶48, 59)

In the Court's own words

Paragraph 52As regards the damages of the sum of Rs. 35 crores to be paid by L&T to PCL on account of breach of the Development Agreement, the basis taken by the Tribunal was the figures given by L&T in its counter-claim. Mr. Mohinder Puri estimated the loss of PCL at Rs. 117 crores. However, PCL did not prove the said loss, and the Tribunal did not rely upon any evidence to arrive at a fair assessment of the loss actually incurred by PCL. The Division Bench held that instead of basing the findings on the figures set out by L&T in its counter-claim, the correct approach would have been to determine the prevailing market rate for sale of built-up area at the time of the breach and thereupon determine the proceeds that PCL would have received from the sale of its 25 per cent share under the Development Agreement. Therefore, the award of Rs. 35 crores as damages was fundamentally contrary to Section 73 of the Contract Act. Such an approach was completely contrary to substantive law in the form of Section 73. This finding cannot be disturbed.

Acts & Sections

s.34 Arbitration and Conciliation Act, 1996s.37 Arbitration and Conciliation Act, 1996s.73 Indian Contract Act, 1872s.16(3) Indian Contract Act, 1872s.28(1)(a) Arbitration and Conciliation Act, 1996s.75 Indian Contract Act, 1872s.96 Code of Civil Procedure, 1908

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Also decided in this judgment

Under the Arbitration and Conciliation Act, 1996, may a court under Section 34, or an appellate court under Section 37, modify an arbitral award instead of setting it aside?Under Section 34 of the Arbitration and Conciliation Act, 1996, can a court set aside an Arbitral Tribunal's conclusion that conditions precedent to an agreement were not complied with?

Plain-language answer prepared by the LexStreak Editorial Desk — verify against the judgment. Source: Supreme Court of India. Corrections