Review Jurisdiction is an Ant-Hole in a Pigeon-Hol: Madras High Court Dismisses Review Plea Against Order Upholding Arbitral Award on Liquidated Damages

“Failure to Refer a Judgment is Not Error Apparent When Legal Position Was Otherwise Considered” – Madras High Court addressing the limited scope of review jurisdiction under the Code of Civil Procedure and reaffirming the enforceability of liquidated damages clauses in commercial lease agreements where the breach and legal injury are established.

Justice N. Anand Venkatesh dismissed the review applications filed by M/s. SCM Silks Private Limited and K. Sivalingam, holding that there was no “error apparent on the face of the record” in the earlier common order dated 08.10.2025, which had refused to interfere with an arbitral award upholding the payment of rent for the remainder of the lock-in period as liquidated damages following premature termination of a lease.

“Pre-Estimated Compensation Need Not Be Proved When Legal Injury is Established” – Court Reaffirms Position Under Section 74 of the Contract Act

The review petitions challenged the High Court’s earlier dismissal of applications under Section 34 of the Arbitration and Conciliation Act, 1996, by contending that the judgment failed to consider the Supreme Court’s ruling in Maula Bux v. Union of India, (1969) 2 SCC 554. It was argued that this omission constituted an error apparent on record, particularly in light of Maula Bux’s interpretation of Section 74 of the Indian Contract Act, 1872, requiring proof of actual loss in cases where it is capable of being proved.

Rejecting this argument, the Court observed: “If a petition under Section 34 is confined to pigeonholes, a review application in such a petition is akin to an ant-hole in a pigeon-hole.”

The dispute arose from lease agreements executed between the Respondents (Sugam Vanijya Holdings Pvt. Ltd. & Prime Store) and the Applicants (SCM Silks Pvt. Ltd. & Sivalingam). The lease deed contained a lock-in period clause requiring the lessee to pay 100% of the remaining rent in the event of premature termination.

The lessees terminated the lease before the end of the lock-in period, prompting arbitration, where the arbitral tribunal upheld the clause and awarded the lessor liquidated damages based on unpaid rent for the remainder of the lock-in period.

This award was challenged under Section 34 and dismissed. The applicants sought review, alleging that the High Court failed to consider binding precedent requiring proof of actual loss.

At the core of the review petition was whether the High Court’s omission to explicitly refer to Maula Bux constituted an error apparent warranting a review.

The applicants relied heavily on the Supreme Court’s classification in Maula Bux, distinguishing between contracts where actual loss can be proved (in which case, proof is essential) and contracts where loss is difficult or impossible to prove (where reasonable pre-estimate suffices).

It was argued that the claimant (lessor) had the ability to prove actual loss but did not do so, thereby rendering the arbitral award unsustainable.

The Court, however, decisively rejected this contention.

“While construing and applying precedents, it is necessary to heed to the word of caution expressed by the Supreme Court... A decision must be read as a whole and not picked apart sentence by sentence.”

The Court emphasized that Maula Bux had not diluted the binding ratio of the Constitution Bench in Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, and had been harmoniously interpreted in ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705.

Justice Venkatesh observed that:

• The lease deed clause (Clause 4.3) providing for payment of 100% rent for the remaining lock-in period was a genuine pre-estimate of damages and not a penalty.

• The claimant had suffered legal injury, as the customized premises could not be re-let due to the lease being registered and reflecting in the Encumbrance Certificate.

• The absence of proof of loss was not fatal in this context, as Section 74 allows for reasonable compensation even without proof of actual loss, provided legal injury is shown.

“Once the case is covered by Section 74 and loss or breach is established, the provision itself says that the aggrieved party would be entitled to receive compensation… ‘whether or not actual damage or loss is proved to have been caused by the breach’.”

The Court reiterated that under Section 34 of the Arbitration Act, it could not re-appreciate evidence or substitute its own interpretation unless there was patent illegality or perversity in the award. It found no such infirmity in the arbitrator’s reasoning.

On the review plea specifically, the Court observed:

“The short point for consideration is whether the perceived failure to advert to Maula Bux constitutes an error apparent on the face of the record. It does not.”

Referring to the ONGC v. Saw Pipes ruling, the Court clarified:

“If the compensation named in the contract is a genuine pre-estimate of loss, there is no question of proving such loss… the burden is on the other party to show that no loss is likely to occur.”

The Court also distinguished the Infotech Ltd. v. Tamil Nadu E-Government Agency ruling (Madras HC, 2019) relied on by the applicants, noting that in that case, the contract expressly referred to ‘penalty’, unlike the present lease agreement.

Thus, the review applications were held to be a thinly disguised attempt to revisit and re-argue the matter already adjudicated, under the garb of an “error apparent”.

The Madras High Court reaffirmed that review is not an appeal in disguise, particularly within the constrained framework of Section 34 of the Arbitration Act. The Court held that no error apparent on the face of the record had been demonstrated and that all relevant judgments, including Fateh Chand, Maula Bux, and Saw Pipes, had been properly considered in the original order.

The review applications were accordingly dismissed without costs.

Date of Decision: 03.02.2026