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The Delhi High Court has held that existence of a tortious claim for exemplary damages would not be a ground to permit any party to wriggle out of an arbitration clause in a contract.
The court said, “If such a course of action is permitted, then in each and every case, the party to a contract containing an arbitration clause could escape arbitration by claiming that it is seeking damages under torts or claiming punitive damages”.Since an arbitral tribunal has all the trappings of a civil court, it has the power to grant all forms of injunctions and damages.
The judgment was passed by a Single Judge Bench of Justice Prathiba M Singh in a suit seeking compensation, punitive damages, and other relief against the defendant subsequent to the termination of a ‘Collaboration Agreement’.
At the time of the agreement, the property had only a single storey and the defendant had agreed to construct the stilt parking on the ground floor as well as the upper ground floor, first floor, second floor and third floor. In consideration of the said construction, the defendant was to become the owner of only the first floor and second floor.Further, as per the agreement, the defendant had also agreed to pay the plaintiff a sum of Rs.68,80,000. Additionally, in case the construction was not completed within a period of 12 months, the defendant was to pay a penalty of 2% of the total cost of construction per month till possession was handed over to the plaintiff.
The defendant did not complete the work and the construction came to a halt after some time. The property was completed out of the plaintiff’s own funds. No payment was made by the defendant. At the same time, the defendant entered into an agreement to sell the second floor of the building and received a sum of Rs.46 lakh from a third party.Hence, the plaintiff terminated the agreement and also published a notice for the same in two newspaper.
The Court stated that the entitlement to exemplary/punitive damages was an issue which would be determined by the Tribunal, as long as the claims/disputes arise in respect of the building which was the subject matter of the Collaboration Agreement.
“The compensation or damages, if any awardable for breach of the collaboration agreement including conduct of the defendant incidental thereto, is liable to be adjudicated in arbitration. There have been instances of cases where arbitrators have awarded damages towards mental tension, agony, harassment etc., and the same has been upheld by this Court..“While disposing of the suit, the Court thus concluded that the disputes were arbitral and were liable to be referred to an independent arbitrator.
Furthermore, in view of Section 89 CPC and the fact that the plaintiff was an ex-serviceman and a senior citizen, the Court also directed for a refund of the Court fee deposited by him.
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