Case Note & Summary
The petitioners, Madhur Pandey (trainee) and his guarantors (mother and aunt), challenged an arbitral award dated 7 September 2011 passed by a sole arbitrator. The award directed them to jointly and severally pay Rs. 2,00,000 with 12% interest per annum from 17 June 2010 to Larsen & Toubro Infotech Limited (respondent). The dispute arose from a training bond executed on 17 February 2010, wherein Petitioner No.1 agreed to undergo one-year training as a Software Engineer Trainee. Clause 4(c) of the bond stipulated liquidated damages of Rs. 2,00,000 if the trainee left before completing training. On 16 June 2010, Petitioner No.1 left for Jhansi to care for his ailing mother and did not return. The respondent invoked arbitration, and the arbitrator awarded the liquidated damages. The petitioners challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the amount was a penalty and that the arbitrator ignored the Apprentice Act, 1961. The High Court held that the amount was a genuine pre-estimate of loss, not a penalty, and that the arbitrator had considered the relevant facts. The court found no ground to interfere with the award under Section 34, as the findings were plausible and not perverse. The petition was dismissed.
Headnote
A) Arbitration - Challenge to Award - Section 34 Arbitration and Conciliation Act, 1996 - Liquidated Damages - The court considered whether the arbitral award of Rs. 2,00,000 as liquidated damages for breach of a training bond was contrary to law or public policy. The court held that the amount was a genuine pre-estimate of loss and not a penalty, and the award did not warrant interference under Section 34. (Paras 1-10)
B) Contract Law - Liquidated Damages - Section 74 Indian Contract Act, 1872 - Training Bond - The court examined whether the clause for liquidated damages of Rs. 2,00,000 in a trainee's undertaking was penal. The court held that the amount was reasonable and a genuine pre-estimate of loss, considering the training costs incurred by the employer. (Paras 3-8)
Issue of Consideration
Whether the arbitral award directing payment of Rs. 2,00,000 as liquidated damages for breach of a training bond is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The High Court dismissed the arbitration petition, upholding the arbitral award dated 7 September 2011.
Law Points
- Liquidated damages
- Reasonable pre-estimate of loss
- Section 74 Indian Contract Act
- 1872
- Arbitral award interference
- Section 34 Arbitration and Conciliation Act
- 1996
Case Details
Arbitration Petition No. 745 of 2012
Mr. Rohan Rajayadhyaksha with Mr. Sanjay Gawade for the petitioners; Mr. Vishal Kanade i/by Mr. Ashish Pyasi for the respondent
Madhur Pandey, Smt. Shashi Pandey, Mrs. Pramila Bajpai
M/s. Larsen & Toubro Infotech Limited
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Nature of Litigation
Challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
Remedy Sought
The petitioners sought to set aside the arbitral award dated 7 September 2011 directing them to pay Rs. 2,00,000 with interest.
Filing Reason
The petitioners contended that the liquidated damages clause was penal and that the arbitrator ignored the Apprentice Act, 1961.
Previous Decisions
The sole arbitrator passed an award on 7 September 2011 holding the petitioners jointly and severally liable to pay Rs. 2,00,000 with 12% interest from 17 June 2010.
Issues
Whether the arbitral award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Whether the liquidated damages of Rs. 2,00,000 is a penalty or a genuine pre-estimate of loss.
Submissions/Arguments
The petitioners argued that the amount of Rs. 2,00,000 is a penalty and not a genuine pre-estimate of loss, and that the arbitrator failed to consider the Apprentice Act, 1961.
The respondent argued that the amount is reasonable and represents training costs incurred, and the award is based on evidence and not perverse.
Ratio Decidendi
The court held that the liquidated damages clause in the training bond was a genuine pre-estimate of loss and not a penalty, and the arbitral award did not suffer from any patent illegality or perversity warranting interference under Section 34 of the Arbitration and Conciliation Act, 1996.
Judgment Excerpts
The Petitioners have challenged Award dated 7 September 2011 passed by the sole Arbitrator in view of the arbitration agreement in the letter of undertaking given by Petitioner No.1 (the trainee) for Software Engineer Trainee.
The operative part of the award is as under : “A) The Respondents are jointly and severally liable to pay to the Claimants a sum of Rs.2,00,000/ (Rupees Two lakhs only) together with interest thereon at the rate of 12% p. a from the date of absence of the Respondent No.1 from the services of the Claimants i.e. from 17.6.2010 till the date of payment / realization of the amount by the Claimants from the Respondents.”
Procedural History
The respondent initiated arbitration proceedings against the petitioners based on the arbitration clause in the letter of undertaking. The sole arbitrator passed an award on 7 September 2011. The petitioners filed Arbitration Petition No. 745 of 2012 under Section 34 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court, which was dismissed on 9 April 2013.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
- Indian Contract Act, 1872: Section 74
- Apprentice Act, 1961:
