Delhi High Court: In a petition challenging an arbitral award under Section 34, Arbitration and Conciliation Act, 1996, arising out of deductions made towards alleged shortfall in Minimum Guaranteed CENVAT Credit (MGCC) under a contract executed for modernisation works at Bhilai Steel Plant, a Single Judge Bench of Avneesh Jhingan, J., dismissed the petition and upheld the arbitral award in favour of the contractor.
The Court held that the respondent’s claims were within limitation as the cause of action arose only upon actual deduction of the MGCC shortfall from the final invoices in July 2018 and not from the earlier notice contemplating such deduction. The Court further observed that waiver or estoppel could not be inferred merely from execution of discharge certificates or affidavits prior to the deductions, particularly in the absence of conscious relinquishment of rights. Interpreting the contractual clauses governing taxes, duties and CENVAT Credit, the Court held that while the contract disentitled reimbursement of duty in certain contingencies, there was no clause authorising deduction of the alleged shortfall in MGCC from the contract price itself. Holding the arbitrator’s interpretation to be plausible and free from perversity or patent illegality, the Court declined interference with the award, including the grant of interest and costs.
Background
The dispute arose out of a contract dated 1 June 2007 executed between the parties for replacement of the existing MG Sets for Roughing and Finishing Stand Drives Motors of the Plate Mill at Bhilai Steel Plant by Digital Thyristor Converters, at a contract value of ₹44.93 crores. The work was to be completed within 21 months. Upon completion of the project, the commissioning certificate was issued on 3 August 2010 and the final acceptance certificate on 24 May 2013. Subsequently, the respondent submitted its final invoices on 28 May 2018, pursuant to which payment was released on 10 July 2018 after deductions towards liquidated damages and an amount of ₹1,40,38,523 on account of alleged shortfall in MGCC. As conciliation efforts failed, the respondent invoked the arbitration clause contained in Clause 6 of the General Contract Conditions (GCC) on 28 December 2021.
Before the Arbitral Tribunal, disputes primarily centered on limitation, waiver and estoppel, legality of deductions towards MGCC and entry tax, and entitlement to interest and costs. The Tribunal framed 7 issues and ultimately decided Issues 1, 2, 4 and 7 in favour of the respondent/claimant. It held that the claims were within limitation and were not barred by estoppel, waiver or acquiescence. The Tribunal further found the deduction of ₹1,40,38,523 towards shortfall in MGCC to be unsustainable in law and directed reimbursement thereof. Additionally, pendente lite interest at 12 per cent and post-award interest at 9 per cent were awarded along with costs amounting to ₹18,20,644. Aggrieved by the award, the petitioner approached the Court by way of the present petition.
Analysis
The Court upheld the arbitral award and held that the respondent’s claims were within limitation. It noted that though the petitioner had issued a notice dated 17 May 2014 regarding possible deduction towards shortfall in MGCC, no actual deduction or quantification had been made at that stage. The cause of action, therefore, arose only on 10 July 2018 when the petitioner deducted ₹1,40,38,523 from the final invoices submitted after obtaining requisite No Objection Certificates (NOCs), including from the Labour Department. Since arbitration proceedings were invoked on 28 December 2021, the claims were held to be within the prescribed period of limitation, particularly in light of the extension of limitation granted by the Supreme Court during the COVID-19 Pandemic. The Court further rejected the plea of waiver and estoppel, observing that waiver must be specific and based on conscious relinquishment of a known right. The execution of discharge certificates and affidavits prior to the final deduction could not estop the respondent from challenging deductions subsequently made in 2018.
On merits, the Court held that while the contract obligated the respondent to pass on MGCC benefits to the petitioner, there was no contractual clause authorising deduction of the shortfall in MGCC from the contract price. Clause 14.5.2 of the GCC merely stipulated that in the event of failure to furnish documents for availing CENVAT Credit, reimbursement of duty would not be made. The Court observed that the gross contract value was ₹44.93 crores and after accounting for MGCC benefits, the petitioner’s effective cost was reduced to the net contract value. Since the shortfall amount had already not been reimbursed to the respondent, any further deduction from the contract price would amount to an impermissible double benefit to the petitioner. The arbitrator’s interpretation of the contractual clauses was held to be plausible and consistent with the terms of the contract.
Decision
Finding no perversity, patent illegality or violation of public policy, the Court dismissed the petition and upheld the arbitral award, including the award of interest and costs.
[SAIL v. Primetals Technologies India (P) Ltd., 2026 SCC OnLine Del 711, decided on 23-2-2026]
Advocates who appeared in this case:
For the Petitioner: Siddharth Yadav, Sr. Adv with Ashish Tiwari, Anurag Tiwari and Sahib Patel, Advocates
For the Respondents: Rajesh Markanda, Keshri Kumar and Saurav Markanda, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
