“Fair Pre-Estimate” of Damages Valid Even Without Proof of Loss: Delhi High Court Partly Sets Aside Arbitral Award in Carlsberg Dispute

“Where parties have agreed to a genuine pre-estimate of damages in clear contractual terms, proof of actual loss is not necessary under Section 74 of the Indian Contract Act” — Justice Jasmeet Singh

Delhi High Court rendered a detailed decision in Pali Hills Breweries Private Limited v. Carlsberg India Private Limited, addressing the scope of judicial review under Section 34 of the Arbitration and Conciliation Act, 1996, and the application of Section 74 of the Indian Contract Act, 1872 relating to liquidated damages. Justice Jasmeet Singh, sitting in the Commercial Division, upheld an arbitral award granting Carlsberg India ₹25 lakhs as liquidated damages for delay in achieving the contractually defined “Start Date” but partially set aside the award concerning the rejection of a counterclaim over non-removal of equipment, applying the doctrine of severability.

This judgment significantly reaffirms the limited scope of interference with arbitral awards and clarifies the legal threshold for liquidated damages when contractually pre-estimated by parties, especially in commercial disputes.

Arbitral Tribunal’s Interpretation on Liquidated Damages “Commercially Sound and Legally Tenable”: No Proof of Actual Loss Required When Loss Difficult to Quantify

The dispute arose from a Contract Brewing and Packaging Agreement executed on December 11, 2015, between Carlsberg India Pvt. Ltd. (CIPL), a beer manufacturer, and Pali Hills Breweries Pvt. Ltd. (PHB), which operated a brewery in Jharkhand. The agreement required PHB to achieve a “Start Date” within 135 days of the effective date, failing which a fixed sum of ₹25 lakhs would be payable to CIPL under Clause 4.3, as compensation for loss of expected sales.

The Arbitral Tribunal awarded this amount in favour of Carlsberg, despite PHB arguing that there was no evidence of actual loss and that the delay was due to defective equipment supplied by Carlsberg. PHB challenged this award under Section 34, arguing that the Tribunal ignored vital evidence, misapplied Section 74 of the Indian Contract Act, and contradicted its own finding that time had ceased to be the essence of the contract.

Rejecting this challenge, the High Court held: “Clause 4.3 clearly states that the delay in achieving the Start Date shall adversely impact CIPL’s expected sales and that the sum of ₹25 lakhs is a fair pre-estimate of damages. The language used reflects the parties’ mutual acknowledgment of likely commercial consequences, making the clause enforceable without proof of actual loss.”

Justice Jasmeet Singh distinguished the Supreme Court’s ruling in Kailash Nath Associates v. DDA (2015) 4 SCC 136, clarifying that while actual loss must ordinarily be proved, such requirement is dispensed with where damages are difficult or impossible to quantify and the stipulated amount represents a genuine pre-estimate agreed by both parties.

“Award Ignored Vital Evidence of Unremoved Equipment”: Court Applies Doctrine of Severability to Partly Set Aside Tribunal’s Finding

While the Court refused to interfere with the award of liquidated damages and the rejection of counterclaims for electricity charges and broken glass, it partially allowed PHB’s challenge concerning Counter Claim No. 3 — a claim for rent on account of delayed removal of CIPL’s equipment post-termination.

The contract (Clause 20.1.3) required PHB to grant Carlsberg access to remove equipment within five days of termination, and in turn, required Carlsberg to remove it within 15 days. The Tribunal rejected PHB’s claim for rental charges, reasoning that PHB had not proven when access was provided and further opining that the contractual six-month notice period diluted their right.

However, the Court found this reasoning flawed:“The Tribunal's finding that access was not proven is contrary to documentary evidence on record, including emails dated 01.11.2017 and 24.04.2018, and the minutes of meetings in May 2018. Furthermore, the Tribunal entirely ignored cross-examination of Carlsberg’s witness, who admitted the equipment had not been removed as late as March 2019.”

Applying the doctrine of severability, the Court held that this specific finding was severable from the rest of the award and liable to be set aside for being patently illegal and perverse. Reliance was placed on the Supreme Court’s ruling in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2024), which affirmed the Court’s power to sever parts of an arbitral award under Section 34 if those parts are separable in law and fact.

“No prudent person can arrive at such findings in the face of overwhelming documentary and oral evidence. The Tribunal’s conclusions were not merely erroneous—they were fundamentally disconnected from the evidentiary record.”

On Scope of Review under Section 34: “Plausible Interpretations Cannot Be Substituted by Court’s Own View”

The judgment reiterates the well-settled principle that a court under Section 34 is not an appellate authority and must not re-appreciate evidence or substitute its own interpretation for that of the Arbitral Tribunal.

Citing the Supreme Court’s decisions in Associate Builders v. DDA (2015) and Ssangyong Engineering & Construction v. NHAI (2019), Justice Jasmeet Singh observed:

“Even if an alternate interpretation is possible, it is not open to the Court to interfere so long as the arbitrator’s view is commercially reasonable and based on a plausible reading of the contract.”

This principle guided the Court’s decision to uphold the award of liquidated damages, despite PHB’s claim that the delay was mutually attributable or due to Carlsberg’s own failure to supply equipment.

Limitation Defense Rejected: COVID Extension Period Applies

The respondent Carlsberg also raised a limitation objection, arguing that the Section 34 petition was not served within the prescribed period. The Court rejected this, holding that the Supreme Court’s suo motu order in Cognizance for Extension of Limitation applied, thereby extending the limitation period due to the pandemic.

“Since the award was dated 15.09.2020 and the petition was filed on 11.12.2020, it was clearly within time after excluding the period from 15.03.2020 to 28.02.2022 as mandated by the Supreme Court.”

The Delhi High Court's ruling is a strong reaffirmation of arbitral autonomy and contractual sanctity in commercial agreements. It affirms that where parties have consciously agreed to a “fair” and genuine pre-estimate of damages in the event of breach, courts will not insist on separate proof of loss under Section 74 of the Contract Act, especially where loss is inherently difficult to quantify.

However, it equally underscores that where arbitral tribunals ignore vital and undisputed evidence, their findings may be interfered with, albeit only to that limited extent, under the doctrine of severability.

This decision strikes a critical balance between respecting arbitral awards and correcting demonstrable errors that go to the root of the adjudication.

Date of Decision: 22 January 2026