Karnataka HC Revives Equipment Supplier’s ₹4.2-Crore Award Against Power Firm, Says MoU Novation Was Not Pleaded Before Arbitrator

The parties entered into a Supply Contract dated 20 May 2015 for the design and supply of electromechanical equipment.

A Memorandum of Understanding (MoU) dated 8 February 2018 recorded an arrangement to settle claims arising under that contract.

After disputes over payment and performance, a three-member arbitral tribunal awarded the appellant ₹3,75,44,030 in interest, ₹45,07,701 in arbitration costs, and interest on the awarded sums; it dismissed the respondent’s counterclaim.

The Commercial Court set aside the award under Section 34, finding that the MoU had novated the Supply Contract, and dismissed the appellant’s Section 9 petition as a consequence.

The appellant challenged both orders under Section 37 of the Arbitration and Conciliation Act, 1996.

Section 34 of the Arbitration and Conciliation Act, 1996 limits judicial interference with arbitral awards; under Section 34(2A), patent illegality may justify setting aside a domestic award, but a court cannot reappreciate evidence or replace a reasonably possible interpretation adopted by the tribunal.

Section 37 review is correspondingly limited to examining whether the Section 34 court exceeded its jurisdiction.

Under Section 62 of the Indian Contract Act, 1872, novation requires the parties’ agreement to substitute a new contract for the earlier one, thereby rescinding, altering, or extinguishing its obligations; the plea must be specifically pleaded and proved.

Lata Construction v. Dr. Rameshchandra Ramniklal Shah, (2000) 1 SCC 586, was relied on for the requirement of complete substitution.

UHL Power Company Ltd. v. State of Himachal Pradesh, (2022) 4 SCC 116, Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking, (2023) 9 SCC 85, and AC Chokshi Share Broker Private Ltd. v. Jatin Pratap Desai, 2025 INSC 174, support the rule that a plausible arbitral interpretation cannot be displaced merely because another view is possible.

Section 9 permits interim measures after an award is made and before it is enforced under Section 36.

The MoU referred to the Supply Contract and arose from claims under it; the tribunal considered its effect and concluded that the Supply Contract continued, subject to the MoU’s modifications.

The respondent had not specifically pleaded or proved novation before the tribunal, and the Commercial Court could not set aside the award on that unraised ground by substituting its own interpretation for the tribunal’s plausible view.

The Commercial Court had otherwise upheld the tribunal’s findings on jurisdiction and limitation.

Because the award was restored, the basis for dismissing the Section 9 petition no longer stood; interim protection could therefore continue pending enforcement.

It disposed of COMAP No. 331/2024 and allowed the Section 9 petition in part, directing the respondent not to alienate or encumber its assets to the extent of the awarded amount pending enforcement; the interim order dated 23 September 2024 was retained.

There was no order as to costs.