Interpretation of limitation of liability clause in contract is within arbitrator's domain, section 34 court cannot substitute its own view: Bombay high court

"Legal Authority Confirmed: Bombay High Court affirms that interpreting limitation of liability clauses in contracts remains within the arbitrator's jurisdiction, emphasizing non-interference by courts under section 34."

Case Name: Conso Feeds v. Alfa Laval (India) Pvt. Ltd.

Citation: (2026) ibclaw.in 4335 HC

Coram: Justice Sharmila U. Deshmukh The Bombay High Court has dismissed a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, holding that the Arbitral Tribunal's interpretation of a limitation of liability clause in a Techno Commercial Agreement was a possible view that did not warrant interference.

The dispute arose from a Techno Commercial Agreement dated 10th September, 2013 and a Purchase Order dated 11th September, 2013 for the purchase, erection and commissioning of a fishmeal plant. The plant could not be commissioned despite several trial runs, and the Claimant sought refund of the price along with other heads of loss, including excise duty, sales tax, freight charges, expenses for accommodation of the Respondent's engineers, infrastructure upgradation costs, raw material costs for trial runs, bank interest and damages for business loss.

The Arbitrator held that the Respondent had breached the contract and directed refund of the purchase price of Rs. 4,45,00,000 with interest at 9% per annum from the date of the Award. However, Claims 15(2) to 15(8) were held to fall within Clause 10(a) and (b) of the General Terms and Conditions, which excluded consequential damages and capped the Respondent's liability to the value of the performance bank guarantee. These claims were accordingly restricted to the amount of the bank guarantee already invoked and encashed by the Claimant.

The Claimant challenged this capping, contending that the claims were direct losses and not consequential damages, that there was an inherent contradiction in the Arbitrator's reasoning at paragraph 126 of the Award, that the warranty clause superseded Clause 10 by virtue of Clause 10(h), and that the rule of contra proferentem ought to have been applied against the Respondent as the drafter of the agreement.

The Respondent supported the Award, submitting that the Arbitrator's interpretation of the contract was a possible view which could not be re-appreciated in a Section 34 proceeding, and that the Arbitrator had rightly exercised discretion under Section 31(7) of the Act in declining to grant pendente lite interest.

The Court held that construction of the terms of a contract is primarily for the Arbitrator to decide, and interference is warranted only where the interpretation is one that no fair-minded or reasonable person could arrive at. Reading paragraphs 126, 129 and 130 of the Award together, the Court found no inconsistency, holding that the Arbitrator had first placed all claims within the ambit of Clause 10(a) and (b) and then, by an interpretative process, held that the claim for refund of purchase price was a direct consequence of the Respondent's failure and stood excluded from the clause, while the remaining claims fell within the clause and were capped to the bank guarantee amount.

On the argument concerning interest, the Court held that Claim 15(7), being bank interest claimed as a head of loss and not as interest pendente lite, had been rightly treated as falling within the capped claims, and that the Arbitrator had validly exercised discretion under Section 31(7) in declining pendente lite interest by way of the additional award under Section 33.

On the warranty clause, the Court upheld the Arbitrator's finding that the warranty clause did not apply since the plant had never been commissioned or handed over to the Claimant.

Holding that the interpretation of Clause 10(a) was not only a possible but a plausible view, the Court found no patent illegality or violation of the fundamental policy of Indian law, and dismissed the petition.