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The Bombay High Court has granted an interim stay on an arbitral award that ordered the Mumbai civic body to pay a company Rs 1.25 billion as damages in a dispute over an agreement to put up street furniture and signages in the southern part of the city.
The Brihanmumbai Municipal Corporation (BMC) had approached the high court challenging a July 2017 order by the arbitrator directing the civic body to pay the amount to the company, Clear Channel Mumbai Private Limited.
In an interim order on October 29, Justice S C Gupte stayed the enforcement of the arbitrator's award.
The BMC's dispute with the company is over the civic body's decade-old initiative to provide world-class facilities to Mumbai citizens by way of street furniture and signages such as billboards, benches, litter bins, drinking fountains and beautification of traffic islands.
The BMC had issued a public notice in 2008, inviting tenders for the initiative for seven zones in the city.
It selected Clear Channel Mumbai Pvt Ltd and entered into a 20-year contract with it in 2010, allotting it prime zone I area -- Marine Drive to Cuffe Parade -- in south Mumbai.
The company later claimed that after signing the contract, the civic body insisted on certain "unauthorised conditions".
The civic body issued a show cause notice to the firm and terminated its agreement in January 2012. After this, Clear Channel Mumbai Pvt Ltd approached the high court, challenging the validity of the agreement's cancellation.
The high court then sent the dispute for arbitration.
In July 2017, the arbitrator declared the contract was liable to be implemented and "had not been terminated at all".
The arbitrator directed setting aside of the BMC's decision to cancel the contract and granted the company its claim of Rs 1.25 billion "towards loss of profits from January 2012 till July 2017".
The BMC then moved the high court and its counsel Jimmy Pochkhanawalla argued that the arbitrator had erred.
Justice Gupte observed that there was prima facie merit in the civic body's case.
"It appears doubtful if specific performance of such a contract is permissible," the court order said.
"The award of damages has been granted on the basis of loss of prospective and presumptive profits for the project. The estimation of losses appears to be a matter of speculation," it said.
The high court, while staying enforcement of the arbitrator's award, allowed the BMC to substitute a bank guarantee that it deposited for Rs 1.25 billion into fixed deposits and also expedited hearing of its appeal.
