Citation Codes: 2025 SCC OnLine Del 170; MANU/DE/0179/2025
Date of Judgement: 14 January 2025
Court: Delhi High Court
Coram: Hon’ble Justice Subramonium Prasad
Factual Background
Background of dispute
M/S Jaiprakash Associates Ltd. (“Petitioner”) submitted its bid and was awarded the tender for execution of one Dulhasti Hydro Electric Project (“Project”) by NHPC Ltd. (“Respondent”). Subsequently, a contract was signed between the parties on 09 April 1997 (“Contract”), with the Project stipulated to be completed by the year 2000. However, it was delayed and finished only in 2007.
Pursuant to the completion of work, the Petitioner raised bills which included additional costs amounting to Rs.360.56 crores, incurred by the Petitioner on account of delay and overstay at the Project site. However, the claim was denied by the Respondent. The Petitioner invoked the Arbitration Clause stipulated in the Contract and an arbitral award was rendered by the Arbitral Tribunal.
Arbitral Award
The majority award failed to find evidence substantiating Petitioner’s claim for additional costs, yet an amount of Rs. 60 crores was awarded on the principle of good conscience by the Tribunal. Thereafter, the Award was challenged by both, the Petitioner for enhancement of the amount awarded, and by the Respondent, with regards to unsustainability of Rs.60 crores.
The Single-Judge Bench of the Delhi High Court set aside the Majority Award, granting Rs. 60 crores as additional compensation. The Court found the Tribunal’s reasoning contradictory— while it held that there is no material evidence substantiating the claim, it awarded the amount based on good conscience, which is against public policy. Further, as the parties had not expressly authorized the Tribunal to apply principles of equity and good conscience, the award violated Section 28(2) of the Arbitration and Conciliation Act, 1996 (“A&C Act”).
On setting aside of the award, the Petitioner approached the Delhi High Court under the present petition for the appointment of an Arbitral Tribunal via Section 11 of the A&C Act.
Issue
Whether the Referral Court should refer the parties for fresh arbitration, after the award concluding that no claim can be granted due to no evidence is set aside.
Petitioner’s Position
On maintainability of the present petition
The Petitioner argued that the Award did not address the underlying dispute and merits of the case. Taking support from Section 43(4) of the A&C Act, the Petitioner contended that when an arbitral award is set aside by a Court, the affected party can file for fresh arbitration, as long as it is within the limitation outlined in the above section.
Moreover, the Petitioner placed reliance on McDermott International Inc. v. Burn Standard Co. Ltd. (2006) and Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Tech. (P) Ltd. (2021), to support their contention that a Court reviewing an arbitral award under Section 34 of the A&C Act does not have the authority to rectify any mistakes made by the arbitrators. Its role is limited to setting aside the award, allowing the parties the option to commence fresh arbitration and have their disputes re-adjudicated.
On claim being barred by res judicata
The Petitioner contended that in the proceedings under Section 11 of the A&C Act, the issue of whether a claim is barred by res judicata is not to be determined. It is a matter that falls within the purview of the Arbitral Tribunal to decide.
In support of this argument, the petitioner cited Indian Oil Corporation Ltd. v. SPS Engineering Ltd. (2011) and Steel Authority of India Ltd. v. Indian Council of Arbitration & Anr. (2016).
Respondent’s Position
On the contrary, the Respondent contended that present petition is entirely mala fide. The Respondent asserted that the Referral Court holds the authority to conduct a prima facie examination to determine whether the claim is evidently a dead one, rather than automatically referring the parties to arbitration.
Moreover, the Respondent argued that the claim is barred by res judicata. This is because the issue regarding additional costs due to delay and overstay, has already been thoroughly examined and decided by the Tribunal on merits. Since the matter has been adjudicated previously, there is nothing new left to be decided.
Decision and Reasoning
Relying on the view of Supreme Court in Vidya Drolia v. Durga Trading Corporation (2021) and SBI General Insurance Co. Ltd v. Krish Spinning (2024), the Delhi High Court observed that the referral court under Section 11 of the A&C Act, has a limited scope of judicial review, primarily assessing the existence of an arbitration agreement and whether disputes have arisen and the principle of “when in doubt, refer” is to be followed.
However, courts may refuse arbitration in manifestly non-arbitrable cases. The Courts can intervene when arbitration agreements are ex facie invalid, non-existent, or when disputes are demonstrably non-arbitrable
Applying the above law, the Court noted that the Tribunal had thoroughly examined the claims and found no supporting evidence. Revisiting the same issue, through referral to arbitration, whether before the same or a new Tribunal, would be redundant, as all issues have been addressed and adjudicated upon.
On the contention of the Petitioner that the award was unreasoned hence has been set aside, the Delhi High Court observed that it is not the correct reading of the judgement, as the learned Single Judge had set aside the Award because the award was contradictory in the sense that it granted Rs.60 crores to the Petitioner despite holding that there is no evidence to substantiate the claim.
Moreover, the Delhi High Court observed that the finding of the Tribunal, holding that there is no substantiating evidence, is not set aside, hence all the issues stand concluded.
The Court underlined the duty of the Referral Court at the post-award stage, which is to safeguard parties from being compelled to arbitrate matters that are evidently non-arbitrable, thus preventing manifest injustice. In the present case, it pointed out— while applying the ‘eye of the needle’ test (limited scrutiny while referring for arbitration)— that the claim was undoubtedly non-arbitrable and fell squarely within the definition of dead wood.
Allowing the Petitioner a fresh round of arbitration proceedings will only undermine the rationale behind the A&C Act, which is to provide speedy justice and bring finality to a dispute.
The Court, consequently, rejected the petition, emphasizing that although disputes are typically referred to arbitration as a norm, the case at hand qualified as an exception.
Author(s)
Shimit Patni
Student at NLU, Jodhpur