Double Payment for the Same Claim Is Against Public Policy: Karnatka High Court Remits Case to Commercial Court

In a significant ruling on the scope of judicial interference in arbitration, the Karnataka High Court has held that an arbitral award cannot result in unjust enrichment by ignoring prior payments made towards the same claim. The Court observed that failing to adjust the earlier payment of ₹3.5 crores to M/s Ashoka Biogreen Pvt. Ltd. could lead to double compensation, which would be contrary to public policy and the fundamental principles of Indian law.

Delivering judgment on January 23, 2025, a Division Bench comprising Chief Justice N. V. Anjaria and Justice K. V. Aravind partly allowed an appeal by Bruhat Bengaluru Mahanagara Palike (BBMP) under Section 37 of the Arbitration and Conciliation Act, 1996. The Court set aside the Commercial Court’s decision of August 3, 2024, to the limited extent of examining whether the ₹3.5 crore already paid should be deducted from the amounts awarded by the Arbitral Tribunal.

"An arbitral tribunal’s award must ensure fairness and compliance with fundamental legal principles. Ignoring prior payments made towards the same claim leads to an impermissible double payment, which calls for judicial correction."

BBMP Contests Arbitral Award, Says ₹3.5 Crore Payment Was Overlooked
The case arose from a contract dispute between BBMP and M/s Ashoka Biogreen Pvt. Ltd., which was awarded multiple contracts to establish biomethanization plants for solid waste management in Bengaluru. The contractor initiated arbitration, citing multiple grievances, including:

•    Delays in the issuance of work orders and non-availability of land
•    Financial losses due to idling of manpower and machinery
•    Fines imposed by BBMP for delays in execution

Compensation for expenses incurred in maintaining security, water, and electricity
The Arbitral Tribunal ruled in favor of the contractor, granting compensation for various claims, including reimbursement of expenses and return of fines. However, BBMP challenged the award, arguing that an Expert Committee had already assessed the contractor’s claims and determined compensation of ₹6.01 crores, of which ₹3.5 crores had already been paid. Despite this, the Tribunal failed to adjust this amount in its final award, potentially leading to a duplication of payments.

"The ₹3.5 crore payment was made as part of a prior settlement under the same contract, yet the Tribunal overlooked this crucial fact. This results in unjust enrichment and is fundamentally unfair."

High Court: Failure to Adjust Prior Payments Violates Public Policy
The Karnataka High Court upheld the Arbitral Tribunal’s award on all other aspects but found substantial merit in BBMP’s contention that prior payments had been ignored. It emphasized that double payment for the same claim is impermissible under Indian law and that the Tribunal should have examined whether the ₹3.5 crore payment was towards the claims before it.

"An arbitral award cannot be allowed to stand if it results in manifest injustice. A failure to adjust prior payments not only violates the fundamental policy of Indian law but also conflicts with public policy principles laid down by the Supreme Court."

The Court referred to MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163, which held that judicial intervention in arbitration is restricted but necessary when an award results in blatant unfairness. It also cited Punjab State Civil Supplies Corporation Ltd. v. Sanman Rice Mills (2024 SCC OnLine SC 2632), reaffirming that courts have a duty to interfere when awards contravene basic legal principles.

"Arbitral awards must reflect fairness and justice. The Tribunal failed to consider a legally significant fact—that ₹3.5 crores had already been paid—rendering its award susceptible to judicial scrutiny."

Commercial Court Failed in Its Duty, Must Reconsider the Issue

The Court noted that the Commercial Court, while rejecting BBMP’s challenge under Section 34 of the Arbitration Act, failed to record any findings on whether the ₹3.5 crore payment was towards the claims before the Tribunal.

"The Commercial Court had a duty to evaluate whether the prior payment was towards the same claims. Its failure to do so necessitates limited judicial intervention to uphold principles of fairness and prevent unjust enrichment."

Case Remitted for Limited Reconsideration

While refusing to interfere with the broader findings of the Arbitral Tribunal, the High Court remitted the matter to the Commercial Court only for the limited purpose of determining whether the ₹3.5 crore payment was towards the claims awarded by the Tribunal.

"An arbitral award must ensure that parties do not receive more than what they are rightfully entitled to. The Commercial Court must now examine whether the ₹3.5 crore was paid towards the same claims and, if so, make the necessary adjustment."

The Court directed that: The judgment of the Commercial Court dated 03.08.2024 is set aside only on the issue of prior payment adjustment. The Commercial Court must determine whether the ₹3.5 crore was for the same claims before the Tribunal and, if so, adjust the amount accordingly.

All other findings of the Arbitral Tribunal and Commercial Court remain undisturbed.
The appeal was thus partly allowed, and the case was remitted for reconsideration of the ₹3.5 crore adjustment issue.

This ruling underscores that while courts must exercise minimal interference in arbitral awards, they cannot turn a blind eye to manifest errors. The Karnataka High Court has clarified that prior payments towards a claim must be considered to prevent double compensation, ensuring that arbitration remains a just and equitable dispute resolution mechanism.

The Court’s decision strikes a balance between upholding the finality of arbitral awards and ensuring that they adhere to fundamental legal principles. By remitting the case to the Commercial Court, the High Court has ensured that the ₹3.5 crore payment is properly accounted for, preventing unjust enrichment and reinforcing the rule of law in arbitration proceedings.

Date of Decision: 23 January 2025