Sanjay Iron And Steel Limited vs Steel Authority Of India Ltd. & Anr.

Court
Delhi High Court

$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 07.08.2026
Judgment pronounced on: 02.09.2026

# CNR No. DLHC011798302016
+ O.M.P. (COMM) 441/2024
M/S SANJAY IRON STEEL .....Petitioner
Through: Mr. Praveen Chauhan, Ms.
Malvica Satija and Mr. Sarthak
Sawhney, Advs.
versus
STEEL AUTHORITY OF INDIA AND ANR. .....Respondents
Through: Mr. Ashish Rana, Adv. for R-1

CORAM:
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT
% 02.09.2026
1. The present petition has been filed under Section 34 of the
1
Arbitration and Conciliation Act, 1996 by the Petitioner, challenging
2
the arbitral Award dated 22.07.2024 passed by the learned Sole
Arbitrator.

2. The dispute arises out of an online tender invited by Steel
3
Authority of India Limited on 25.06.2019 for appointment of a
distributor for the Panchkula Cluster, for the purchase, transportation,
handling, storage, processing and sale of TMT/TMT Coils to dealers.
The Petitioner participated in the tender process and emerged as the

1
“the Act” hereinafter
2
“impugned Award” hereinafter
3
“Respondent” hereinafter
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successful bidder. Pursuant thereto, the parties entered into a
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Distributorship Agreement , under which the Petitioner was appointed
as the distributor for the Panchkula Cluster.

3. The distributorship was initially to remain in force for a period
of five years and was governed by the terms and conditions contained
in the tender documents. As per the agreed terms and conditions, the
Petitioner was required, inter alia , to achieve the prescribed sales and
maintain the requisite inventory. Clause 16.3 of the Instructions to
Tenderers further required the Petitioner to furnish a Performance
5
Bank Guarantee . The Petitioner, accordingly, furnished the PBG in
the sum of Rs.1,28,00,000/-, which was initially valid up to
22.10.2020.

4. During the subsistence of the distributorship, the Petitioner
raised a grievance that the Respondent was itself supplying material to
certain customers and dealers at prices lower than those being offered
to its distributors. According to the Petitioner, such direct supplies
adversely affected its business and made it difficult for the Petitioner
to achieve the stipulated sales targets.

5. When the PBG was nearing expiry on 22.10.2020, the
Respondent called upon the Petitioner to extend the same for a further
period of one year. The Petitioner, however, expressed its
unwillingness to continue with the distributorship and, vide emails

4
“Contract” hereinafter
5
“PBG” hereinafter
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dated 26.10.2020 and 29.10.2020, sought to surrender the Contract,
principally on account of the aforesaid direct supplies allegedly being
made by the Respondent. The Petitioner also declined to extend the
validity of PBG.

6. The Respondent did not accept that the Petitioner had any
contractual right to surrender the distributorship before the expiry of
the agreed tenure and, therefore, repeatedly called upon it to extend
the PBG in terms of the Contract. As the Petitioner failed to do so, the
Respondent issued a notice dated 07.11.2020 and subsequently
invoked and encashed the PBG on 12.11.2020. The Contract was
subsequently terminated on 01.12.2020, and the PBG was forfeited
under Clause 18.4 of the Contract.

7. Aggrieved by the termination of the Contract as well as
invocation of the PBG, the Petitioner invoked the arbitration clause
and, inter alia , sought refund of the PBG amount of Rs.1,28,00,000/-.
The Respondent contested the claims and also raised a counter-claim
of Rs.2,31,80,789/- towards the losses allegedly suffered by it on
account of the Petitioner’s breaches of the Contract.

8. Upon consideration of the terms of the Contract and the
material on record, the learned Arbitral Tribunal came to the
conclusion that the Petitioner had no right to surrender or abandon the
distributorship before the expiry of the contractual period and that its
failure to extend the PBG amounted to a breach of its contractual
obligations. The learned Arbitral Tribunal, accordingly, upheld the
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termination and held that the Respondent rightly invoked the PBG,
thereby rejecting the Petitioner’s claim for refund of the PBG. The
counter-claim of the Respondent for Rs.2,31,80,789/-, however, came
to be rejected on the ground that the losses alleged by the Respondent
had not been substantiated by evidence.

9. Learned Counsel for the Petitioner submitted that the impugned
Award is contrary to Condition 4 of the terms and conditions agreed in
the Contract. According to him, Condition 4 permits encashment of
the PBG only where the Company has suffered loss or damage on
account of negligence or non-performance by the Distributor. Learned
Counsel pointed out that the learned Arbitral Tribunal itself has
recorded a finding that the losses alleged by the Respondent were not
proved and has, on that basis, rejected the Respondent’s counter-
claim. It is, therefore, contended that having recorded such a finding,
the learned Arbitral Tribunal could not have permitted the Respondent
to retain the PBG amount of Rs.1.28 crores. The submission, in
substance, is that the impugned Award, to that extent, travels beyond
the express terms of the Contract and is consequently vitiated by
patent illegality.

10. Learned Counsel for the Petitioner further submitted that the
retention of the PBG is contrary even to the case set up by the
Respondent before the learned Arbitral Tribunal. According to him,
the Respondent has sought to adjust the amount of the PBG against its
claim of Rs.2,31,80,789/- towards the losses allegedly suffered by it.
Once those losses were found not to have been proved and the
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counter-claim itself stood rejected, there remained, according to the
learned Counsel, no basis for permitting the Respondent to retain the
PBG.

11. Insofar as Clause 18.4 of the Instructions to Tenderers is
concerned, learned Counsel for the Petitioner submitted that the said
clause merely confers a right upon the Respondent to forfeit the PBG
upon termination of the Contract. On the other hand, Condition 4,
according to him, specifically stipulates the circumstances in which
the PBG can be enforced. It is, therefore, submitted that Clause 18.4
cannot be read independently so as to justify retention of the PBG in
the absence of proof of the loss or damage contemplated under
Condition 4.

12. Per contra , learned Counsel appearing for the Respondent
placed reliance upon Clause 18.4 of the Instructions to Tenderers. He
submitted that the said clause specifically provides for forfeiture of the
PBG where the Contract is terminated on account of the Distributor
being unable to perform its obligations to the satisfaction of the
Company. In the present case, the learned Arbitral Tribunal has
recorded a categorical finding that the Petitioner prematurely sought to
surrender the Contract and thereafter failed to extend the PBG despite
being contractually obliged to do so. The Respondent, therefore,
contended that forfeiture of the PBG was fully justified under Clause
18.4.

13. Learned Counsel further submitted on behalf of the Respondent
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that the PBG and the counter-claim stood on entirely different
footings. The counter-claim represented the additional losses which
the Respondent claimed to have suffered on account of the Petitioner’s
breach and was rejected because those losses could not be proved. The
PBG, on the other hand, was forfeited as a consequence flowing from
the Petitioner’s breach and the consequent termination of the Contract.
Rejection of the counter-claim, therefore, according to the
Respondent, has no bearing upon its contractual right to retain the
PBG.

14. Learned Counsel for the Respondent lastly submitted that the
challenge raised by the Petitioner essentially invites this Court to
reconsider the interpretation placed by the learned Arbitral Tribunal
upon the contractual provisions and to re-appreciate the material
which was before it. It is submitted that the view taken by the learned
Arbitral Tribunal, namely, that the Petitioner had breached the
Contract and that the PBG was liable to be forfeited as a consequence
thereof, is at the very least a possible and plausible view of the
contractual provisions. Such a view, it is contended, cannot be
interfered with in proceedings under Section 34 merely because
another interpretation may also be possible.

15. As the present petition is preferred under Section 34 of the Act,
the scope of interference available to this Court must be kept in view.
It is well settled that while exercising jurisdiction under Section 34,
the Court does not sit in appeal over an arbitral Award. The Supreme
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Court in UHL Power Company Ltd. v. State of Himachal Pradesh ,
has reiterated that the jurisdiction under Section 34 is narrow and that
an Award cannot be interfered with merely because the Court may
itself have a different interpretation of the contractual provisions.

16. At the same time, an Arbitral Tribunal is required to adjudicate
in accordance with the terms of the Contract between the parties. No
doubt, interpretation of contractual terms lies primarily within the
domain of the learned Arbitral Tribunal and the Court would
ordinarily not interfere merely because another interpretation is
possible. That principle, however, does not mean that the learned
Arbitral Tribunal can disregard the terms of the Contract or give them
an interpretation which is not supported by the language of the
contract. Where the interpretation adopted by the learned Arbitral
Tribunal is one that is not even a possible view of the Contract, the
resultant Award may fall within the limited parameters available under
Section 34 of the Act.

17. It is in the backdrop of the aforesaid principles that the findings
rendered by the learned Arbitral Tribunal in the present case are
required to be examined.

18. The controversy, in fact, lies within a fairly narrow compass.
What requires consideration is whether the rejection of the
Respondent’s counter-claim for want of proof of loss is inconsistent
with the learned Arbitral Tribunal’s decision to reject the Petitioner’s

6
(2022) 4 SCC 116
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claim for refund of the PBG and, if so, whether such inconsistency is
of a nature which would render the impugned Award patently illegal.

19. The Petitioner’s case is primarily based on Condition 4 of the
terms and conditions agreed in the Contract, which provides for
enforcement of the PBG where the Respondent suffers loss or damage
due to the Petitioner’s negligence or non-performance. The Petitioner
points out that the learned Arbitral Tribunal, while deciding the
counter-claim, found that the Respondent had not proved any loss and,
according to the Petitioner, Condition 4 was, therefore, not satisfied
and the PBG ought to have been returned. The relevant portion of the
said Condition is reproduced below:

“4.0 Some of the terms for losses/ damages
determination/recoveries, encashment, release will be as under:-

1. If the company suffers any losses or damages due to any
negligence and / or non-performance of the obligations under
the contract by the Distributor they shall on demand pay to
the company the specified sum. However, the company shall
reserve the right to recover such losses and/ or damages by
encashing the security deposit and enforcing the Bank
Guarantee and/ or from any of the bills of the Distributor
pending for payment with the company without prejudice to
any other legal remedies /recourse available to the company
to proceed against the Distributor for recovering such losses/
damages.

2. The decision of the company as to the amount of loss(s) /
damage(s) suffered by the company shall be final and binding
upon the Distributor.


3. The Security Deposit and performance Guarantees (if any)
shall be released only after the expiry / termination of the
contract and satisfactory performance of the work and on
completion of all obligations by the Distributor under the
contract terms.
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4. Before release of SD/PG the Distributor shall also submit a
certificate to the effect that he has no claim(s) against the
company under the contract.”

20. At first blush, the submission of the Petitioner does appear
attractive. The learned Arbitral Tribunal has undoubtedly recorded
that the loss claimed by the Respondent was not proved and has
nevertheless permitted the Respondent to retain the PBG. If Condition
4 were the only contractual provision governing the matter, the
Petitioner could legitimately contend that the learned Arbitral Tribunal
rejection cannot be reconciled with a contractual condition which
predicates enforcement of the PBG upon loss or damage having been
suffered by the Respondent.

21. The matter, however, cannot be examined with reference to
Condition 4 alone. Clause 18.4 of the Instructions to Tenderers has a
direct bearing on the controversy and reads as under:

“18.4: In case of inability on the part of the Distributor to perform
to the full satisfaction of Company under this contract, Company
shall have the right to terminate the contract on serving due notice
and the security deposit as well as the Bank Guarantee would be
forfeited by the company. The Company may also appoint another
Distributor for the same job cost and risk of Distributor.

22. A bare reading of Clause 18.4 shows that where the Distributor
is unable to perform the Contract to the satisfaction of the Company
and the Contract is consequently terminated, the Company is
contractually entitled to forfeit both the security deposit and the PBG.
The right to forfeiture under this clause is linked to the failure of
performance followed by termination. The clause itself does not
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expressly make such forfeiture conditional upon the Respondent first
establishing a quantified loss or damage.

23. Condition 4 and Clause 18.4, therefore, have to be understood
in their respective settings. Condition 4 provides for enforcement of
the PBG where the Respondent seeks to recover loss or damage
suffered on account of negligence or non-performance by the
Distributor. Such a situation may arise even during the subsistence of
the Contract and does not necessarily depend upon termination the
Contract.

24. Clause 18.4, on the other hand, specifically deals with a
situation where the Distributor has failed to perform the Contract to
the satisfaction of the Respondent and the Contract is terminated on
that account. It expressly provides for forfeiture of the security deposit
as well as the PBG as a consequence of such termination. The two
provisions, therefore, operate in different situations, and the
requirement relating to proof of loss under Condition 4 cannot, merely
by implication, be read into Clause 18.4 when the latter contains no
such stipulation.

25. Coming then to the facts of the present case, the learned
Arbitral Tribunal has found that the Petitioner prematurely sought to
surrender the Contract and thereafter failed to extend the PBG despite
its obligation under the Contract. On that basis, the learned Arbitral
Tribunal upheld the termination effected by the Respondent.
Significantly, the finding of breach on the part of the Petitioner and
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the validity of the consequent termination are not under challenge in
the present proceedings. Having upheld the termination, the learned
Arbitral Tribunal further held that the Respondent was entitled, under
the “ terms of Contract ”, to invoke and retain the PBG.

26. In view of this Court, once the breach stood established and
termination was held to be valid, the conclusion of the learned Arbitral
Tribunal that the claim of refund of PBG is not admissible finds
support from terms of Contract i.e. Clause 18.4, which expressly
provides for such forfeiture upon termination in the circumstances
contemplated therein. Such conclusion also finds support from the
Condition 4.3, which provides that the PBG shall be released only
after the expiry/termination of the Contract, satisfactory performance
of the work and completion of all obligations by the Distributor under
the terms of the Contract.

27. The Petitioner nevertheless contends that Clause 18.4 merely
confers a power of forfeiture whereas Condition 4 exclusively sets out
the circumstances in which the PBG may actually be enforced. I am
unable to accept this submission in the manner it is urged. Nothing in
the impugned Award indicates that the learned Arbitral Tribunal
adopted such a construction of the two provisions. This Court, while
exercising jurisdiction under Section 34, cannot substitute its own
interpretation of the Contract merely because another construction
may also appear possible. The rejection of the counter-claim for want
of proof of quantified loss, therefore, does not by itself render the
learned Arbitral Tribunal’s conclusion regarding forfeiture of the PBG
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inconsistent or perverse. Clause 18.9 is also of no avail to the
Petitioner in this regard.

28. Further, the Petitioner has also vehemently contended that
permitting encashment and retention of the PBG in the absence of
proof of loss would amount to undue enrichment of the Respondent.
The submission again has to be tested on the touchstone of the
contractual provisions. Whether proof of loss is a prerequisite to
retention of the PBG must necessarily depend upon the terms agreed
between the parties. In the present case, Clause 18.4 does not make
such forfeiture consequent upon termination dependent upon prior
proof of loss. Neither the learned Arbitral Tribunal nor this Court can
introduce such an additional requirement into the clause when the
parties themselves have not chosen to incorporate one, as that would
amount to rewriting the bargain between them.

29. As regards the contention that the Respondent itself had
proceeded before the learned Arbitral Tribunal on the footing that the
PBG was to be adjusted only against the losses forming subject matter
of the counter-claim, this also does not appear to be borne out from
the record. The Statement of Defence and the submissions recorded by
the learned Arbitral Tribunal indicate that the Respondent had
defended forfeiture of the PBG by placing reliance upon Clause 18.4
of the Instructions to the Tenderers.

30. Viewed thus, there is no inherent inconsistency between the
rejection of the Respondent’s counter-claim and the learned Arbitral
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Tribunal’s decision permitting retention of the PBG. The counter-
claim was rejected because the Respondent was unable to establish by
evidence the losses quantified and claimed by it. The PBG, however,
was held liable to forfeiture as a contractual consequence of the
Petitioner’s breach followed by a valid termination under Clause 18.4.
The two conclusions operate in distinct fields and are capable of
standing together. Therefore, the findings of the learned Arbitral
Tribunal cannot be said to be inconsistent, nor do they disclose any
patent illegality.

31. In view of the foregoing discussion, I find that no ground is
made out which would warrant interference with the impugned Award
in exercise of jurisdiction under Section 34 of the Act. The present
petition is, accordingly, dismissed.

32. All pending applications, if any, also stand disposed of.


OM PRAKASH SHUKLA, J
SEPTEMBER 02, 2026/ ss



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