Damages Without Proof of Loss and Interest Cannot Be Awarded under Section 34, Arbitration Act | Delhi HC

Delhi High Court partially set aside the arbitral award, ruling that damages awarded without establishing actual loss and interest counted as damages breach Section 34 of the Arbitration Act. The decision restricts arbitral tribunals to grant only loss-based compensation, with interest payable separately, affecting future construction and contract disputes.

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Aug 4, 2026, 8:44 PM(Updated: Nov 3, 2026)

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The Delhi High Court clarified the limited scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996, by setting aside portions of an award that awarded damages without proof of loss and treated interest as damages, while upholding the remainder of the award. The decision underscores the need for strict contractual compliance and evidential support in arbitral awards.

Background & Facts

The Dispute

The petitioner, Union of India through the Dy Chief Engineer Construction Moradabad, entered into a construction contract with Ms Pragati Construction Consultants for earth-filling, embankment cutting, bridge construction and related works on the Roza-Sitapur railway doubling project. The tender was invited on 25.07.2019 and the award letter was issued on 28.11.2019 at a contract value of Rs. 42,46,24,036.66. The contract was executed on 14.02.2020.

Key Facts

Completion deadline: eight months from the letter of acceptance, i.e., 27.07.2020.
Six extensions were granted; final completion occurred on 15.12.2021.
A second amendment and correction (A&C) was approved on 06.07.2021, increasing the cost to Rs. 4,81,19,255.36.
On 01.07.2023 the respondent invoked arbitration under Clause 64 of the General Conditions of Contract (GCC) claiming Rs. 1,95,54,587 with interest at 14% per annum.
The arbitral tribunal was constituted on 12.09.2023 and delivered its award on 04.12.2024, granting the respondent Rs. 65,73,261 with interest at 10.5% per annum if not paid within forty-five days of receipt.

Procedural History

24.07.2026: Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 seeking setting aside of the award dated 04.12.2024.
03.08.2026: Judgment pronounced.

Parties' Positions

Petitioner: Contended that the tribunal erred in (i) directing refund of deductions under Schedule A, contrary to Clause 63 GCC which makes such matters excepted; (ii) awarding damages for prolongation without proof of actual loss; (iii) converting pendente-lite interest into damages, exceeding the prayer.
Respondent: Asserted that the tribunal’s view was plausible, that the deductions under Schedule A were not excepted, that damages were justified under Clause 29.4 and the NTPC Limited precedent, and that interest could be awarded as damages.

Relief Sought

The petitioner sought (i) setting aside of the award portions relating to claims no. 4 and 6, and (ii) confirmation of the award for claim no. 1 (refund of deductions under Schedule A).

Frequently Asked Questions

Section 34 permits a court to set aside an arbitral award only if it is patently illegal, contrary to public policy, or deals with matters beyond the scope of arbitration. The court may also sever the non-arbitrable portions while preserving the valid parts, as clarified in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.

Damages under Section 73 are permissible when there is a breach of contract and the claimant proves actual loss, or when loss is impossible to prove but the liquidated amount is a genuine pre-estimate of loss, as explained in Kailash Nath Associates v. DDA.

No. If the contract expressly bars interest as damages and the award grants it beyond the prayer, the award is illegal and can be set aside under Section 34(2)(a)(iv), as the Delhi High Court held in the present case.

Damages Without Proof of Loss and Interest Cannot Be Awarded under Section 34, Arbitration Act | Delhi HC