Delhi High Court Sets Aside Arbitral Award In Power Generation Dispute

SUMMARY:

[1]The Delhi High Court set aside an arbitral award that had granted over ₹34.7 lakh to E.M. Services (I) Pvt. Ltd., holding that the arbitrator erred in ignoring the petitioner’s counterclaim. The Court ruled that failure to frame an issue and consider a counterclaim—despite it being properly pleaded—amounts to violation of the principles of natural justice and renders the award vulnerable under Section 34 of the Arbitration and Conciliation Act, 1996.

FACTS:

• Indraprastha Power Generation Co. Ltd. awarded a contract to E.M. Services for supply and commissioning of turbine spares.
• There was a delay of 33 days, causing alleged losses of over ₹11.88 crore to the petitioner.
• E.M. Services initiated arbitration, claiming payment of dues, while the petitioner raised a counterclaim for damages due to delay.
• The sole arbitrator, however, refused to frame an issue on the counterclaim, reasoning that no specific prayer had been made and no document in support thereof has been supplied.
• An award dated 18.06.2010 directed payment of ₹34.7 lakh to E.M. Services, leading to a challenge under Section 34 before the Delhi High Court.

ISSUES:

• Whether the arbitral tribunal erred in refusing to frame an issue on the counterclaim raised by the petitioner.
• Whether ignoring the counterclaim amounts to a violation of natural justice under Section 34(2)(b)(ii).

JUDGEMENT:

• Section 23(2A) of the Arbitration Act allows counterclaims if raised before or with the statement of defence. The petitioner had specifically raised and quantified its counterclaim, which was also denied in the respondent’s rejoinder.
• By refusing to frame an issue, the arbitrator foreclosed the petitioner’s right to lead evidence, resulting in denial of fair hearing.
• Such an omission went to the root of the matter and violated the “most basic notions of justice.”
• The award was therefore contrary to the fundamental policy of Indian law and liable to be set aside.
• Accordingly, the Court allowed the petition and set aside the award dated 18.06.2010.

ANALYSIS:

This decision highlights that tribunals cannot disregard counterclaims once they are part of the pleadings. Even if the prayer clause is not perfectly worded, the existence of a specific, quantified counterclaim makes it a live issue requiring adjudication. Arbitrators must frame issues covering all claims and counterclaims, failing which their award risks being invalidated under Section 34. The ruling underscores the Court’s commitment to procedural fairness in arbitration.

[1] BEFORE THE HON’BLE HIGH COURT OF DELHI

Indraprastha Power Generation Co. Ltd. v. E.M. Services (I) Pvt. Ltd.

O.M.P. 717 of 2010

Judgment Dated: August 13, 2025