Delhi HC Restores Railway Contractor’s ₹16.99 Lakh Award Over Premature Termination, But Bars Pre-Award Interest

The Union of India accepted Sanmati Builders’ bid for railway-platform works through a communication dated 27 January 2017.

A detailed acceptance letter dated 1 February 2017 contained two additional conditions concerning rates and quantities.

Sanmati objected to those conditions and did not furnish the Performance Bank Guarantee (PBG).

The Union terminated the contract on 6 April 2017 under Clause 16(4)(a) of GCC-2014 and forfeited the EMD.

The sole arbitrator found the termination premature and awarded the EMD, part of the claim for allegedly irrecoverable advances, and costs; it rejected the Union’s counterclaim.

The Commercial Court set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996.

Sanmati appealed under Section 37.

Under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, an appellate court reviewing an order setting aside an award must remain within Section 34’s limited grounds and cannot substitute its own interpretation or reappreciate evidence merely because another view is possible; a plausible arbitral interpretation is ordinarily not displaced (*MMTC Ltd. v. Vedanta Ltd.*).

An acceptance that materially varies an offer may constitute a counter-proposal requiring assent (*Padia Timber Company (P) Ltd. v. Board of Trustees of Visakhapatnam Port Trust*).

An express contractual bar on pre-award interest must be given effect (*Union of India v. Manraj Enterprises*); post-award interest is separately considered under Section 31(7)(b), subject to applicable contractual terms.

Section 31A governs costs, and a pre-dispute agreement allocating costs cannot, by itself, override the statutory costs regime; Clause 64(6) was not an absolute bar (*Union of India v. Om Vajrakaya Construction Company*).

The Commercial Court treated the 27 January acceptance as conclusive without adequately addressing whether the later letter introduced unaccepted material conditions.

The High Court held that the arbitrator’s view on the correspondence was plausible and that the Commercial Court had not demonstrated a Section 34 ground for substituting its own conclusion; the consequential setting aside of the EMD refund therefore could not stand.

On Claim No. 4, the award recorded documentary material, including bank statements, vouchers and financial records, contrary to the Commercial Court’s premise that no evidence had been produced.

The Court held that the claim for preparatory expenditure could not be rejected solely because work had not commenced, and that reassessing the evidence was impermissible absent a recognised ground for interference.

Clause 64(5) barred pre-award interest, but the post-award interest direction required separate consideration under Section 31(7)(b).

Clause 64(6) did not, by itself, prohibit the arbitrator from awarding costs under Section 31A, and the Commercial Court had not adequately justified setting aside the rejection of the counterclaim.

The Commercial Court’s judgment was set aside insofar as it set aside the award concerning termination, refund of the EMD, Claim No. 4, costs and rejection of the Union’s counterclaim; those determinations were restored.

The pre-award interest direction was modified to the extent inconsistent with Clause 64(5), while post-award interest was left to the applicable contractual terms and Section 31(7)(b).

The parties were directed to bear their own costs of the appeal.