Court Holds Tribunal Erred by Relying on Conciliation Proceedings and Personal Expertise to Award Damages Without Substantive Evidence; Upholds Legal Mandate for Fair Trial and Proof of Loss Under Contract Act
In a significant judgment delivered on September 10, 2026, the Delhi High Court, presided over by Mr. Avneesh Jhingan, J., quashed the arbitral award passed in favor of Vikartan Infrastructure Pvt Ltd against Eco Green Buildtech Pvt Ltd concerning a construction contract dispute for the "Sikka Kamya Greens" project in Greater Noida. The Court underscored the inviolability of confidentiality in conciliation proceedings and reiterated the mandatory requirement of evidence for awarding damages under Indian Contract Law.
The dispute originated from a contract valued at approximately Rs. 53.7 crore for the construction and development of the Sikka Kamya Greens project. The parties became embroiled in a conflict over delays, payment releases, and responsibilities for contract prolongation, eventually leading to arbitration. During arbitration, an independent Local Commissioner was appointed to measure completed work and inventory on site.
While the arbitral tribunal partly upheld Vikartan's claims-awarding damages for work executed, tax dues, idling machinery, additional overheads, material at site, and loss of profit-it notably relied on the conciliatory proceedings it had conducted, the Local Commissioner's report accepted during conciliation, and the tribunal's own expertise and trade usage to quantify damages. Eco Green Buildtech contested the award on multiple grounds, including the tribunal's reliance on conciliation proceedings, absence of opportunity to contest key reports, and lack of substantive proof for certain claims.
The High Court held that:
- - Conciliation proceedings are confidential and cannot be used as evidence or relied upon in arbitration if settlement fails. The tribunal violated Section 18 of the Arbitration and Conciliation Act, 1996, by not providing Eco Green Buildtech an opportunity to challenge the Local Commissioner's report. Citing Supreme Court precedents such as Moti Ram v. Ashok Kumar (2011) and Perry Kansagra v. Smriti Madan Kansagra (2019), the Court emphasized that mediation/conciliation statements must not be used against parties in arbitration.
- - The tribunal's reliance on personal experience and unproven trade practices to award damages for idling machinery and additional overheads contravened Section 73 of the Indian Contract Act, 1872, which requires proof of actual loss or damage. The Court stressed that tribunal expertise cannot substitute the mandatory evidentiary burden on the claimant.
- - The award of damages using the Hudson formula for loss of profit without credible evidence was impermissible. The Supreme Court's ruling in Unibros v. All India Radio (2023) was invoked to highlight that formulaic calculations must be supported by proof of delay not attributable to claimant, engagement in substantial projects, and substantiation of claimed losses.
- - Procedural irregularities, including failure to reconcile payments recorded in the Memorandum of Understanding and failure to confront CPWD circulars relied upon, rendered the award illegal and liable to be set aside.
Consequently, the Delhi High Court allowed the petition under Section 34 of the Arbitration and Conciliation Act, 1996, and set aside both the main and additional arbitral awards. The judgment reiterates the necessity of upholding confidentiality in conciliation, ensuring fair opportunity to contest evidence, and mandating proof of actual damages before awarding compensation in contract disputes.
This ruling reinforces the principles that arbitral tribunals must adhere strictly to procedural fairness and evidentiary standards, especially when quantifying damages. It also clarifies the boundaries between conciliation and arbitration proceedings, thereby safeguarding parties' rights and the integrity of alternative dispute resolution mechanisms.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Tribunal cannot rely on proceedings conducted during conciliation while deciding arbitral disputes - Evidence is mandatory for awarding damages under Section 73 of the Indian Contract Act, 1872.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 18, 24(3), 29A(1), 33, 34, 61, 62; Indian Contract Act, 1872 Sections 55, 73
