Two conditions slipped into a Railways acceptance letter: Delhi HC restores award Commercial Court threw out
A division bench of Justice Anil Kshetarpal and Justice Bharat Parashar held that a Section 34 court cannot swap the arbitrator reading of the contract correspondence for its own, restored the award declaring the Hazrat Nizamuddin platform contract prematurely terminated, revived the Rs 2.40 lakh EMD refund, Rs 12.09 lakh for irrecoverable advances and Rs 2.50 lakh costs, and left only pre-award interest to Clause 64(5) of the GCC.
A contractor who refused to furnish a bank guarantee for a Hazrat Nizamuddin railway platform job until the Railways withdrew two conditions it had added to the acceptance letter has had its arbitral award restored. The Delhi High Court on 29 October 2026 set aside a Commercial Court judgment that had annulled the award in full.
A division bench of Justice Anil Kshetarpal and Justice Bharat Parashar held that the Commercial Court, sitting under Section 34 of the Arbitration and Conciliation Act, 1996, had not identified any ground for interference. It had simply preferred its own reading of the correspondence to the arbitrator's. Only the direction on pre-award interest, barred by the contract, was left modified.
Platform bid, then a letter with two notes
The Railways invited tenders on 22 September 2016 for improving the platform surface of platforms 2, 3, 4 and 5 at Hazrat Nizamuddin station. M/s Sanmati Builders bid Rs 1,49,51,535 and deposited an earnest money deposit of Rs 2,40,000 as a fixed deposit receipt. The work was to be finished in ten months.
On 27 January 2017 the Railways conveyed acceptance of the bid and told the contractor to contact the railway authorities to begin work. A detailed acceptance letter dated 1 February 2017 followed, delivered on 10 February 2017.
That detailed letter carried two notes the contractor said were new. One provided that if rates for certain non-schedule items in Schedule B decreased, the difference between the last accepted rate and the accepted rate would be recovered for the reduced quantity.
The other said rates for a chapter of Schedule A were on the higher side and would be paid at 3.34 per cent below. Both restricted future variation of quantities and the rates payable if quantities moved beyond set limits.
The contractor objected the same day, 10 February 2017, and asked the Railways either to issue a corrected acceptance letter or to refund the EMD. It did not furnish the performance bank guarantee of Rs 7,47,600, five per cent of the contract value, and did not start work.
The Railways wrote on 27 and 28 February 2017 recording that work had not begun and demanding labour and material within seven days. The contractor wrote again on 6 March and 5 April 2017 seeking withdrawal of the conditions; the Railways on 23 March 2017 asked it to drop its objection.
On 6 April 2017 the Railways terminated the contract under Clause 16(4)(a) of the General Conditions of Contract, 2014 and forfeited the EMD of Rs 2,40,000.
Clause 16(4)(a), as the parties relied on it, requires the successful bidder to furnish the bank guarantee within thirty days of the letter of acceptance. The competent authority may extend that to sixty days on penal interest. Only after sixty days may the contract be terminated, the EMD forfeited and the contractor debarred from the retender.
Arbitrator finds termination premature, awards Rs 16.99 lakh
The contractor first filed a writ petition in December 2017 and withdrew it to pursue arbitration. When the Railways did not appoint an arbitrator, the High Court on 17 May 2019 appointed Raj Kumar Sarkar, retired Chief Engineer, Northern Railway, as sole arbitrator under Section 11(6).
The contractor claimed a declaration that the termination was illegal, refund of the EMD with interest, Rs 12,48,625 for loss of profit and overheads, Rs 18,00,000 for advances rendered irrecoverable, interest and Rs 5,00,000 in costs.
The Railways disputed everything and questioned arbitrability. It counterclaimed Rs 65,34,901 as the difference between the contract value and the price at which the work was later awarded to another agency.
By award dated 27 January 2021, the arbitrator held the termination premature, reckoning the period for the bank guarantee from the detailed acceptance letter. He rejected the objection to his jurisdiction and went to the merits.
He awarded Rs 2,40,000 as EMD refund, Rs 12,09,000 against the Rs 18 lakh claim for advances, and Rs 2,50,000 in costs, with simple interest at 11 per cent on the awarded sum excluding the EMD. Loss of profit and the counterclaim were rejected. The principal came to Rs 16,99,000.
The Railways challenged the award in OMP (COMM) No. 16/2021. On 14 November 2022 the Commercial Court set it aside as perverse and contrary to the GCC. Sanmati Builders appealed under Section 37.
Contractor: Section 34 court reappreciated the evidence
Bhupesh Narula, for the contractor, argued that the Commercial Court had exceeded Section 34 by substituting its own interpretation of the correspondence and reappreciating evidence, contrary to MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163.
Relying on Padia Timber Company (P) Ltd. v. Board of Trustees of Visakhapatnam Port Trust, (2021) 3 SCC 24, he said an acceptance with added conditions is a counter-proposal requiring assent. The Commercial Court had counted the guarantee period from the 27 January letter without engaging with the detailed letter or the objection.
On the Rs 12.09 lakh claim, he said the Commercial Court wrongly proceeded as if no documents had been produced, when the award itself listed vendor particulars, expenditure statements, bank statements, vouchers, income-tax returns and audited accounts.
On interest he argued that the Clause 64(5) bar on pre-award interest did not settle post-award interest under Section 31(7)(b), citing Morgan Securities and Credits v. Videocon Industries. On costs he relied on Section 31A and Union of India v. Om Vajrakaya Construction Company, 2021 SCC OnLine Del 5434.
Citing Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, he added that a defect in one severable part of an award could not justify setting aside the whole.
Railways: the contract was concluded on 27 January
S.C. Rajpal, for the Union of India, said the letter of 25/27 January 2017 concluded the contract and the detailed letter merely clarified the consequences of quantity variations. Notes 1 and 2 added nothing new, so the contractor was bound by the accepted bid.
The contractor had neither furnished the guarantee within the Clause 16(4)(a) period nor begun work, which justified termination and forfeiture. On the advances claim, the work had never started and Clauses 51-A and 62(2)(c) of the GCC did not support the award.
On interest and costs he relied on Clauses 16(3), 64(5) and 64(6), Sections 28(3) and 31(7), and Union of India v. Manraj Enterprises, (2022) 2 SCC 331. The arbitrator, he said, could not award interest against the parties' agreement.
Was there a concluded contract at all?
Justice Kshetarpal, writing for the bench, began with the standard. Under Section 37, the court is not to re-adjudicate the dispute or substitute its own reading merely because another view is possible. MMTC holds that an award founded on a plausible view of the contract and the record is not to be disturbed by reappreciating evidence.
The Commercial Court had treated the 27 January acceptance as conclusive without addressing the substance of the objection to the later conditions. The contractor's case was not merely that the detailed letter arrived late; it was that the letter introduced conditions on rates and quantities that formed no part of the tender or the bid.
Given an opportunity, counsel for the Railways could not show that the two conditions in the 1 February 2017 letter formed part of the original tender terms or of GCC-2014. That raised the question the bench framed as:
“whether a concluded contract came into existence between the parties, having regard to the Appellant’s objection to the additional conditions and the absence of any demonstrated consensus on those terms” (para 24)
A concluded contract needs a meeting of minds on the essential terms, the bench said. Under Padia Timber, an acceptance that materially varies the offer does not establish assent just by calling itself an acceptance. Whether the notes merely explained the tender or altered it required reading the tender, the bid and both letters together.
The failure to furnish the guarantee or start work did not answer that anterior question. The late receipt of the detailed letter would not by itself override Clause 16(4)(a), but the arbitrator's task was not confined to counting sixty days; it included the legal effect of two conditions added without the contractor's concurrence.
The Commercial Court never showed the arbitrator's interpretation was impossible on the record. It preferred its own conclusion that the initial acceptance alone governed the guarantee period. Absent a Section 34 ground, substituting one plausible interpretation for another could not justify setting aside the award. The EMD refund, which flowed from the same finding, fell with it.
Advances, interest, costs and the counterclaim
On the Rs 12,09,000 for irrecoverable advances, the Commercial Court had given two reasons: Clause 62(2)(c) deals with work actually executed, and no documents under Clause 51-A were produced. The bench found both flawed.
The claim was not for measured work but for advances to labour, suppliers and machinery providers made in preparation for the contract. The absence of executed work did not, without examining the claim and the evidence, show that preparatory expenditure could not have been incurred.
The premise that no documents were produced contradicted the award. It recorded vendor particulars, a summary of miscellaneous expenditure, bank statements, vouchers, the income-tax return for 2017-18, the profit and loss account and audited balance sheet as on 31 March 2017, and a break-up of the Rs 18 lakh claim.
Producing documents did not prove every rupee claimed. But it separated this case from one with no evidence at all, and the arbitrator had allowed only part of the claim after weighing that material.
The Commercial Court's contrary conclusion rested on an incomplete reading of the award and, in the bench's words, “amounts to an impermissible reassessment of the claim” (para 37).
Interest was treated differently. Clause 64(5) says no interest is payable on any part of a money award for any period before the award. Read with Manraj Enterprises, that meant the pre-award interest at 11 per cent could not stand to the extent it conflicted with the clause.
But post-award interest is governed by Section 31(7)(b), subject to the contract, and had to be examined separately rather than assumed away with the pre-award component.
The arbitrator had also excluded the EMD from the interest calculation, so the directions had to be read component by component. A conclusion on pre-award interest could not, without separate analysis, carry the setting aside of the substantive sums or the costs.
On the Rs 2,50,000 in costs, the Commercial Court had treated Clause 64(6), which makes each party bear its own arbitration costs, as a bar. The bench pointed to Section 31A and its own ruling in Om Vajrakaya: a pre-dispute agreement on costs cannot override the statutory discretion.
The arbitrator had given a reason, namely that the contractor had to go to court under Section 11(6) to get an arbitrator appointed. No Section 34 ground to disturb that was shown.
Finally, the Commercial Court had called the rejection of the Rs 65,34,901 counterclaim perverse and contrary to public policy without examining its basis, its evidence or the arbitrator's reasons. A court must identify the defect and explain how it fits a Section 34 ground.
The counterclaim rested on the contractor's alleged default forcing a costlier re-award. Once the interference with the termination finding failed, that rejection could not be set aside by a bare label.
Order
The appeal, FAO (COMM) 95/2023, was allowed. The Commercial Court judgment of 14 November 2022 in OMP (COMM) No. 16/2021 was set aside insofar as it annulled the award on termination, refund of the EMD, Claim No. 4, costs and rejection of the counterclaim, and the award of 27 January 2021 was restored on those points.
The pre-award interest direction stands modified to the extent it conflicts with Clause 64(5) of GCC-2014. Post-award interest is to be governed by the contract and Section 31(7)(b), consistent with the judgment. Parties bear their own costs of the appeal. The judgment was reserved on 7 October 2026 and pronounced on 29 October 2026.