{"id":384939,"date":"2026-05-22T17:30:09","date_gmt":"2026-05-22T12:00:09","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=384939"},"modified":"2026-05-22T17:11:52","modified_gmt":"2026-05-22T11:41:52","slug":"del-hc-sets-aside-arbitral-award-over-mgcc-deduction","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2026\/05\/22\/del-hc-sets-aside-arbitral-award-over-mgcc-deduction\/","title":{"rendered":"No Clause, No Deduction: Delhi HC Sets Aside Arbitral Award Allowing MGCC Shortfall Deduction as Patently Illegal"},"content":{"rendered":"
\n

Delhi High Court:<\/span> In a petition filed under Section 34<\/a>, Arbitration and Conciliation Act, 1996<\/a> (A&C Act) challenging the arbitral award dated 24 May 2024, whereby it was held that deduction made by the respondents on account of shortfall in Minimum Guaranteed CENVAT Credit (MGCC) was legal and the petitioner was not entitled to reimbursement of the deducted amount, the Single Judge Bench of Avneesh Jhingan*, J.<\/span>, set aside the impugned order, holding that the arbitral award passed by the arbitrator was vitiated by patent illegality. The Court held that an arbitrator cannot permit deduction for MGCC shortfall from the invoices in absence of any clause in the contract permitting so.<\/p>\n

Also Read: Issue of genuineness of arbitration agreement be decided by Arbitrator as preliminary issue under Section 11(6-A): Supreme Court<\/a><\/p>\n

Factual Matrix<\/h3>\n

In the instant matter, the dispute arose from a contract dated 12 October 2007 for installation of “Power Supply Facility (Package-II) for 700 TPD ASU-4 in Oxygen Plant No. II” at Bhilai Steel Plant for ₹18,45,54,310. The petitioner was required to complete the work within 15 months. The project was eventually completed, whereafter the commissioning certificate was issued on 20 June 2012 and the final acceptance certificate on 12 December 2013.<\/p>\n

Subsequently, the petitioner submitted final invoices on 12 February 2019. At this stage, the respondents deducted a sum of ₹1,07,61,378 alleging shortfall in the MGCC. Conciliation efforts between the parties failed, resulting in invocation of arbitration under Clause 6, General Conditions of Contract (GCC) on 7 February 2022.<\/p>\n

Before the Arbitral Tribunal, the dispute narrowed down to two claims, namely, whether the deduction made by the respondents on account of shortfall in MGCC was illegal and whether the petitioner was entitled to reimbursement of the deducted amount. The Tribunal decided both issues against the petitioner, leading to the filing of the present petition under Section 34.<\/p>\n

Also Read: Section 29-A doesn’t mandate automatic substitution of Arbitrator; Supreme Court set asides order terminating mandate<\/a><\/p>\n

Issue for Determination<\/h3>\n

Whether shortfall in MGCC, though not reimbursed, could be deducted from the contractor’s invoices in absence of an express contractual clause?<\/p>\n

Analysis<\/h3>\n

At the outset, the Court noted that execution of work and commissioning of facilities were undisputed. It was also admitted that there existed a shortfall of ₹1,07,61,378 in MGCC, and that the respondents had deducted this amount from the invoices raised by the petitioner.<\/p>\n

The Court analysed the structure of the contract value. It observed that Article 2.1 merely required passing on of MGCC but was silent regarding consequences of any shortfall. Clause 14.5.2 only contemplated non-reimbursement of excise duty where necessary documents were not submitted. Further, there existed no contractual stipulation authorising deduction of the shortfall amount from invoices. The Court reiterated the settled principle that no clause can be read into a contract by implication where parties themselves had not provided for it.<\/p>\n

Rejecting the respondents’ argument that Article 2.1 overrode the GCC, the Court held that Article 2.1 did not prescribe any mechanism for recovery or deduction in case of shortfall. Therefore, reliance on Article 2.1 alone could not justify deduction from contractual dues.<\/p>\n

The Court further distinguished between “contract price” and “MGCC”. The contract price represented payment for work executed inclusive of taxes and duties, whereas MGCC represented reimbursement of duty paid, which could fluctuate because of changes in tax rates and prices of inputs.<\/p>\n

Examining the financial effect of the deduction, the Court noted that despite the shortfall in MGCC, the respondents ultimately paid ₹17,37,92,932 instead of the gross contract value of ₹18,45,54,310. Thus, the respondents already retained the amount corresponding to the unreimbursed duty. The Court stated that the shortfall in MGCC had already been neutralised by non-reimbursement of duty, and therefore additional deduction from invoices amounted to unjustified double recovery.<\/p>\n

The Court observed that while the arbitrator recognised that MGCC formed the basis of tender valuation, however, failed to appreciate that the net contract value remained unaffected despite the shortfall. The Court held that the arbitrator was correct in holding that shortfall in MGCC was not reimbursable but erred in allowing deduction of such shortfall from invoices in absence of any contractual clause, thereby, travelling beyond the 4 corners of the terms and conditions of the contract. It was held that “the venture of the arbitrator beyond the terms and conditions vitiates the award by patent illegality”.<\/span><\/p>\n

The Court relied on Indian Oil Corpn. Ltd.<\/span> v. Shree Ganesh Petroleum<\/span>, (2022) 4 SCC 463<\/a>, wherein it was held that an award becomes patently illegal where the Arbitral Tribunal fails to act in terms of the contract or ignores specific contractual provisions and Bharat Coking Coal Ltd.<\/span> v. Annapurna Construction<\/span>, (2003) 8 SCC 154<\/a>, where the Supreme Court distinguished between an error within jurisdiction and an error in excess of jurisdiction, observing that an arbitrator has no authority beyond the contract itself.<\/p>\n

Also Read: Time-Barred Claim \u00e2\u2030\u00a0 Time-Barred Section 11 Petition: Punjab and Haryana High Court appoints Second Arbitrator<\/a><\/p>\n

Decision<\/h3>\n

The Court held that:<\/p>\n

1. No clause in the contract permitted deduction on account of shortfall in MGCC.<\/p>\n

2. Clause 14.5.2 only authorised non-reimbursement of duty where requisite documents were not furnished.<\/p>\n

3. The net contract value remained unaffected despite the shortfall in MGCC.<\/p>\n

4. Reliance on a non-existent clause rendered the award patently illegal.<\/p>\n

5. The award suffered from jurisdictional error because the arbitrator travelled beyond the contractual framework.<\/p>\n

Accordingly, the Court allowed the petition under Section 34 and set aside the impugned arbitral award dated 24 May 2024.<\/p>\n

Also Watch: Cyprus Arbitration Day 2026 at a Glance: SCC Times as Sole Media Partner<\/a><\/p>\n

[Primetals Technologies India (P) Ltd.<\/span> v. SAIL<\/span>, 2026 SCC OnLine Del 713<\/a>, decided on 23-2-2026<\/span>]<\/p>\n

*Judgment authored by Justice Avneesh Jhingan<\/span><\/strong><\/p>\n\n

Advocates who appeared in this case:<\/p>\n

Mr. Rajesh Markanda, Mr. Keshri Kumar, Mr. Arshdeep Singh & Mr. Saurav Markanda, Advs., Counsel for the Appellants<\/span><\/p>\n

Mr. Siddharth Yadav, Sr. Adv with Mr. Ashish Tiwari, Mr. Anurag Tiwari and Mr. Sahib Patel, Advs., Counsel for the Respondent\/State<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“There cannot be quarrel with the proposition that no clause can be read into the contract entered between the parties.”<\/p>\n","protected":false},"author":67514,"featured_media":384940,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[2633,10131,34164,105052,2543,61833,105051,104837,35210,27524],"class_list":["post-384939","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-arbitral_award","tag-arbitration-and-conciliation-act","tag-cenvat-credit","tag-contract-interpretation","tag-Delhi_High_Court","tag-justice-avneesh-jhingan","tag-mgcc","tag-minimum-guaranteed-cenvat-credit","tag-patent-illegality","tag-section-34"],"yoast_head":"\nDel HC Sets Aside Arbitral Award Over Minimum Guaranteed CENVAT Credit Deduction | SCC Times<\/title>\n<meta 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