A Division Bench of the Delhi High Court restored a NIL arbitral award on 1 September 2026, holding that the Single Judge who set it aside had exceeded the jurisdiction conferred by Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act). Justice Navin Chawla and Justice Madhu Jain allowed FAO (OS) (COMM) 234/2024 in Otsuka Chemical (India) Pvt. Ltd. v. Trans Engineers India Pvt. Ltd., setting aside the judgment of 22 July 2024 and reviving the award dated 7 March 2022.
Background
The dispute arose from a turnkey contract for expansion of a chemical manufacturing facility at Kotputli, Rajasthan, raising capacity from 1,000 MT to 1,500 MT per annum. The appellant engaged the respondent first for consultancy-stage services by purchase order dated 27 May 2016 valued at Rs 3 crore, and then for the construction stage by an offer dated 30 August 2016 at Rs 71 crore, given effect through a letter of intent dated 15 September 2016, purchase orders dated 16 September 2016 and an agreement dated 20 January 2017.
In February 2018, after the work was complete and the full contract value of Rs 71 crore had been paid, the respondent raised 26 proforma invoices claiming Rs 28,37,09,384 for additional work said to arise from major modifications to the piping and instrumentation diagrams of 26 July 2016. The Sole Arbitrator dismissed all claims and counter-claims by a NIL award dated 7 March 2022. On a Section 34 petition, the Single Judge set that award aside on 22 July 2024, holding that the arbitrator had misread the contractual framework — in particular by treating diagrams of 20 August 2016 as part of the contract when they were never placed on record. The appellant appealed under Section 37 of the A&C Act.
Key holdings
1. The Section 34 test is not correctness. The Bench recorded that the arbitrator had relied on the offer dated 30 August 2016, the evidence of witnesses, the conduct of the parties during execution — the respondent having made no claim for extra work until completion — and the purchase orders dated 16 September 2016 and 15 November 2017 which defined the scope of work. It then held: "Though the learned Single Judge may have had a view that the above interpretation of the Agreement between the parties by the learned Arbitrator was not correct, this is not the test to be applied under Section 34 of the A&C Act. Interference with the Award is warranted only where such interpretation is perverse and not possible at all. This limited test was not applied by the learned Single Judge in its Impugned Judgment."
2. The contractual scheme required proof of major work. Under Clauses 12.1 and 12.2 read with Schedule 5 of the agreement, not all additional work attracted payment above the lump sum: extra payment arose only where "owner's instructions involves change in the scope of the work, variations and modifications beyond the contractual terms", to be paid "at a mutually agreed price". Schedule 5 required changes to be added or deducted "by variation order" on "mutually agreed procedures/rates". The minutes of meeting dated 15 September 2016 recorded that "no extra amount will be charged by Trans for smaller modifications. However, for any major modifications incorporated in P&IDs after 26.07.2016, Trans will charge extra amount on mutually agreed rates." The arbitrator found that admittedly there was no variation order and no mutually agreed rates, and that the claim rested on charts produced with written submissions rather than on evidence.
3. Non-denial and a without prejudice offer are not proof. The Single Judge had relied on an email dated 3 May 2018 that went unanswered and on a without prejudice offer of Rs 3 crore. The Bench held that "[m]erely because the appellant had not specifically disputed the performance of extra work by the respondent or had made a 'without prejudice' offer to settle this dispute with the respondent, it cannot be said that the burden of proving its claim on the respondent stood discharged", and that in any case this was appreciation of evidence "in the exclusive domain of the learned Arbitrator".
4. The conclusion. The Bench held that "the learned Single Judge has exceeded its jurisdiction under Section 34 of the A&C Act in setting aside the Arbitral Award by re-appreciating the evidence and acting as a Court of Appeal", set aside the impugned judgment, allowed the appeal and directed the parties to bear their own costs. The Bench also applied the principle, drawn from Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust, 2026 INSC 34, that Section 37 jurisdiction is akin to Section 34 jurisdiction, and relied on OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd. for the restricted meaning of the public policy ground.
Implications for practitioners
The judgment restates a familiar principle, but its value to practitioners lies in the specific failure mode it identifies. The Single Judge did not disregard the Section 34 standard in terms; the Bench's criticism is that the standard was recited and then not applied, the court instead re-reading the minutes of meeting to construct its own view of what the contract incorporated. Counsel resisting a Section 34 petition should frame the response around that distinction — not "the arbitrator was right", but "the petition asks the court to prefer a second reading, which is not the statutory question".
For claimants in construction and turnkey matters the operational lesson is contemporaneous documentation. The claim here failed at the arbitral stage on three admitted absences: no variation order, no mutually agreed rates, and no claim raised until after completion and full payment. Where a contract makes extra payment conditional on a variation-order mechanism, a claimant that performs additional work without invoking that mechanism carries an evidentiary burden it will usually be unable to discharge from charts prepared for written submissions.
The treatment of the without prejudice offer deserves particular note. Settlement discussions in Indian construction disputes routinely include a figure offered to close a claim; this judgment confirms that such an offer neither shifts nor discharges the claimant's burden of proof, and that a court cannot use it under Section 34 to characterise an award as perverse. Parties negotiating during arbitration should still mark correspondence clearly, but the risk of an offer being converted into an admission at the challenge stage is reduced by this reasoning.
Finally, the appeal took from 22 July 2024 to 1 September 2026 to conclude, against an award of 7 March 2022 on a contract performed in 2016-2018. Parties weighing a Section 34 challenge on interpretation grounds alone should price that timeline into the decision.