Delhi High Court Upholds ₹662 Crore Toyo-L&T Award, Says Contract Interpretation Cannot Be Revisited

The Delhi High Court on 15 July upheld an arbitral award of around Rs. 662 crore in favour of the consortium of Toyo Engineering Corporation and Larsen & Toubro Limited, holding that an arbitral tribunal's plausible interpretation of contractual terms cannot be re-examined under Section 34 of the Arbitration and Conciliation Act, 1996.

Justice Amit Bansal dismissed the petition filed by Indian Oil Corporation Limited (IOCL) challenging the award, holding that the arbitral tribunal had adopted a possible interpretation of the contract provisions relating to extension of time and price adjustment. He observed:

“The petitioner, by way of the present petition, in effect, seeks a reappreciation of evidence and an alternative interpretation of clauses the Contract, which is beyond the scope of interference under Section 34 of the Act.”

The dispute arose from an Engineering, Procurement, Construction and Commissioning (EPCC-1) contract awarded by IOCL for its Panipat Naphtha Cracker Project in Haryana.

Toyo Engineering Corporation and Larsen & Toubro Limited formed a consortium and submitted their bid on 24 August 2005. IOCL awarded the contract on 15 May 2006, issued the Detailed Letter of Acceptance on 19 May 2006 and the parties executed the contract on 25 May 2006.

Under the contract, mechanical completion was required within 36 months, along with a two-month grace period. During execution, disputes arose between the parties over delays, extension of time, deductions from the consortium's final bills and a 10% reduction in the contract price.

Although mechanical completion was achieved on 28 February 2010, Engineers India Limited informed the consortium on 2 April 2012 that IOCL had granted extension of time up to that date subject to a 10% reduction in the contract price. Aggrieved by the deductions, the consortium invoked arbitration.

The arbitral tribunal was constituted on 19 December 2014 and passed its award on 11 March 2019. It allowed the consortium's claims relating to price adjustment and excess steam consumption, partly allowed claims concerning miscellaneous recoveries and changes or deviations, and awarded interest and costs.

IOCL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. During the proceedings, it confined its challenge to the tribunal's findings on jurisdiction and delay-related price adjustment.

It argued that the tribunal had effectively rewritten the contract by holding that the extension of time granted under the contract removed the effect of the agreed price reduction. It contended that the tribunal ignored the conditional nature of the extension and failed to determine responsibility for individual delays.

The Toyo-L&T consortium argued that once IOCL granted extension of time under the contract, it necessarily accepted that the delay was justified. It further submitted that IOCL had failed to produce the delay analysis relied upon for imposing the price reduction.

The Court noted that IOCL had never produced the alleged delay analysis before the arbitral tribunal and held that the tribunal was justified in concluding that the grant of extension of time reflected IOCL's satisfaction that the delay was justified under the contract.

Reiterating the limited scope of judicial review in international commercial arbitrations, the Bench held that a court cannot interfere with an arbitral award merely because it prefers another interpretation of the contract. It observed that the tribunal's view on the extension of time and price adjustment clauses was a plausible interpretation and did not warrant interference under Section 34.

Accordingly, the High Court dismissed IOCL's petition, directed that the bank guarantees furnished by the consortium would stand discharged after four weeks and granted liberty to pursue pending applications in execution proceedings.

Appearances for petitioner (Indian Oil Corporation Limited): Advocates Rajeev Sharma, Senior Advocate, Himanshu Gulliya, Arunima Singh, Nishant Kandpal.

Appearances for respondent (Toyo Engineering Corporation & Larsen & Toubro Limited): Advocates Sudipto Sarkar, Senior Advocate, Dayan Krishnan, Senior Advocate, Rajshekhar Rao, Senior Advocate, Susmit Pushkar, Sudip Mullick, Anchit Oswal, Gaurav Sharma.