Case: – Nec Corporation India Private Limited (Erstwhile Nec Technologies Private Limited) v/s M/S Plus91 Security Solutions; O.M.P. (COMM) 244 of 2023
The Delhi High Court recently ruled that an arbitral tribunal lacks authority to award damages for a breach of a Memorandum of Understanding (MoU) when it serves as a preliminary agreement with no financial implications.
The dispute arose from an MoU signed on May 16, 2019, between the parties. Despite no financial commitments and a clause explicitly preventing monetary liability for a breach (Clause 10), the Respondent claimed damages for the Petitioner’s alleged breach. The Arbitral Tribunal awarded damages, prompting the Petitioner to challenge the decision under Section 34 of the Arbitration & Conciliation Act.

  1. The MoU lacked consideration, rendering it void under Section 25 of the Indian Contract Act.
  2. Enforcing an agreement that was void violated legal principles governing contracts.
  3. Clause 10 of the MoU barred both parties from claiming indirect, special, or consequential damages.
    The Hon’ble Court scrutinized the MoU, deeming it a facilitative agreement lacking financial consideration. It emphasized that no specific tasks were assigned to the Respondent, and the parties intended to enter definitive agreements on a case-by-case basis in the future. The court held that the MoU represented an exploratory association without definitive commitments.
    The Hon’ble Court further found that the arbitral tribunal misapplied precedent, particularly the judgment in Simplex Concrete Piles. It clarified that Clause 10 cannot be equated with Clauses prohibiting claims, as it merely reinforced the parties’ intent to have no financial commitment with no corresponding claims against each other. Consequently, the court set aside the arbitral award.

Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/

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