Delhi High Court Upholds Tribunal's Practical Interpretation Of Contract In ₹67 Cr BHEL-TBEA Dispute

The Delhi High Court on 1 July held that an arbitral tribunal's practical and commercial interpretation of a contract does not warrant interference under Section 34 of the Arbitration and Conciliation Act, 1996 and partly upheld an arbitral award arising from a Rs. 67 crore transformer supply contract, modifying it only to grant statutory post-award interest.

Justice Subramonium Prasad partly allowed the petition filed by TBEA Energy India Private Limited and dismissed the petition filed by Bharat Heavy Electricals Limited (BHEL), challenging different parts of an arbitral award concerning liquidated damages, an additional performance bank guarantee (APBG) and costs. He observed:

“There is a fine distinction between the interpretation of a contract and disregard of the terms of the Contract. It can be said that instead of giving a restrictive meaning to the terms of the contract, the Arbitrator took a practical and commercial approach.”

The dispute arose after BHEL issued a purchase order to TBEA Energy India Private Limited for the manufacture and supply of inter-connection transformers for a project executed for Tamil Nadu Transmission Corporation Limited (TANTRANSCO). Following delays in supply, TANTRANSCO imposed liquidated damages on BHEL.

BHEL subsequently withheld amounts payable to TBEA. Disputes also arose over the furnishing of an additional performance bank guarantee (APBG) by TBEA's parent company and other monetary claims, prompting TBEA to invoke arbitration.

By an award dated 6 January 2022, the arbitral tribunal directed BHEL to pay TBEA Rs. 3,92,70,552 towards 50% of the liquidated damages deducted by it, release the withheld amount of Rs. 5,23,76,868 upon TBEA furnishing the requisite APBG, and pay proportionate costs. The tribunal, however, declined to grant post-award interest.

Aggrieved by different parts of the award, TBEA and BHEL filed separate petitions under Section 34 of the Arbitration and Conciliation Act, 1996.

TBEA argued that the tribunal wrongly imposed liquidated damages despite delays attributable to BHEL, impermissibly interpreted the contractual requirement relating to the APBG and erroneously rejected several of its claims. BHEL contended that the tribunal correctly appreciated the contractual terms and evidence and that no ground existed for judicial interference.

The Court held that the tribunal correctly found TBEA responsible for a 70-day delay in supplying the transformers, which contributed to TANTRANSCO imposing Rs. 8.77 crore as liquidated damages on BHEL. It found no perversity in directing TBEA to bear Rs. 3.93 crore, representing 50% of those damages after accounting for delays attributable to multiple agencies.

It also upheld the tribunal's decision permitting TBEA to furnish the APBG on behalf of its parent company upon due authorisation for release of the withheld Rs. 5.24 crore, observing that this merely facilitated compliance with the contract and did not rewrite its terms. It likewise affirmed the award of proportionate costs.

Reiterating the limited scope of interference under Section 34, it held that the tribunal's findings were based on a reasonable appreciation of the evidence and a plausible interpretation of the contract. It also found no patent illegality, perversity, jurisdictional error or violation of the principles of natural justice.

However, the Bench held that the tribunal erred in refusing post-award interest, observing that such interest is a statutory mandate under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.

Accordingly, the High Court dismissed BHEL's petition and partly allowed TBEA's petition by granting post-award interest at 2% above the prevailing current rate from the date of the award until payment, while affirming the arbitral award on all other issues.

Appearances for petitioner (TBEA Energy India Private Limited): Advocates Vinam Gupta, Pragya Narayan and Nabam Yama.

Appearances for respondent (M/s Bharat Heavy Electricals Limited): Senior Advocate Priya Kumar with Advocates Atul Shaker Mathur, Priya Singh, Umang Katariya, Sarvapreya Makkar and Ghanishtha Mishra.