Delhi High Court Revives Otsuka-Trans Engineers 'NIL' Award, Says Extra Work Claim Was Not Proved

The Delhi High Court on 1 September restored a “NIL” arbitral award rejecting Trans Engineers India Pvt. Ltd.'s Rs. 28.37 crore claim for additional work in Otsuka Chemical (India) Pvt. Ltd.'s Rs. 71 crore turnkey “Lion Project” for expansion of its chemical manufacturing plant at Kotputli, Rajasthan.

A Division Bench of Justices Navin Chawla and Madhu Jain held that the Single Judge had exceeded the limited scope of review under Section 34 of the Arbitration and Conciliation Act, 1996 by re-appreciating evidence and substituting the arbitrator's interpretation of the contractual terms with an interpretation it considered more appropriate. The judges held:

“The learned Single Judge, in fact, seems to have proceeded on what would have been a more appropriate interpretation of contractual terms, which, in our respectful opinion, is to travel beyond the scope of scrutiny of an Award under Section 34 of the A&C Act.”

The dispute arose from Otsuka's “Lion Project” to increase the annual manufacturing capacity of its chemical plant at Kotputli from 1,000 MT to 1,500 MT.

Trans Engineers was initially engaged to provide consultancy services for Rs. 3 crore and was subsequently awarded the construction stage of the project on a turnkey basis for a lump sum price of Rs. 71 crore.

Minutes of a meeting held on 15 September 2016 recorded that smaller modifications would not attract additional payment, while major modifications incorporated after 26 July 2016 would be charged at mutually agreed rates. The parties executed the final agreement on 20 January 2017.

Trans Engineers handed over the project on 25 July 2017, following which Otsuka released the Rs. 71 crore contract amount on 15 February 2018.

Between 22 and 27 February 2018, Trans Engineers raised 26 proforma invoices totalling Rs. 28.37 crore, claiming payment for additional work allegedly arising from changes in the project scope.

The dispute was referred to arbitration. By an award dated 7 March 2022, the sole arbitrator rejected Trans Engineers' claims as well as Otsuka's counterclaims, resulting in a “NIL” award.

The arbitrator found that Trans Engineers had failed to establish that the alleged additional work was major or substantial. There were also no written instructions for such work or mutually agreed rates for additional payment. Trans Engineers challenged the award under Section 34 of the Arbitration and Conciliation Act.

On 22 July 2024, the Single Judge set aside the award, finding that the arbitrator had incorrectly interpreted the contractual framework.

Otsuka challenged the decision before the Division Bench under Section 37 of the Act. It argued that the Single Judge had exceeded the limited scope of review under Section 34 by reinterpreting the contract and re-appreciating the evidence considered by the arbitrator.

Trans Engineers supported the Single Judge's decision. It argued that Otsuka had never specifically disputed that the additional work had been carried out. It also relied on Otsuka's Rs. 3 crore “without prejudice” offer to settle the additional-work claim, contending that these circumstances supported its case that the extra work had in fact been performed.

The Division Bench rejected these contentions and restored the arbitral award. It reiterated that a Court cannot interfere with an arbitrator's interpretation merely because it considers another view more appropriate, unless the arbitrator's view is perverse or wholly implausible.

The judges also rejected Trans Engineers' reliance on Otsuka's “without prejudice” settlement offer and its alleged failure to specifically dispute the extra work. They observed:

“Merely 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.”

Holding that the Single Judge had “acted more as a Court of Appeal”, the Division Bench allowed Otsuka's appeal, and set aside the 22 July 2024 judgment.

Accordingly, the High Court restored the “NIL” arbitral award.

Appearances for petitioner (Otsuka Chemical (India) Pvt. Ltd.): Senior Advocate Jayant Mehta with Advocates Amit Dhingra, Rohit Mahajan, Siddharth Agrawal, Kesang Tenzin Doma and Om Shelat.

Appearances for respondent (Trans Engineers India Pvt. Ltd.): Senior Advocate Arvind Nigam with Advocates Binsy Susan, Palak Kaushal and Ananya Dewan.