Arbitral Tribunal Relied on Undecided and Unproved GST Receipts; Delhi High Court Sets Aside Award for Patent Illegality
Facts
Spectrum Power Generation Limited operates a natural-gas-based power plant. GAIL India Limited is engaged in the sale and supply of natural gas and other gases.
The parties entered into a Gas Sale Agreement dated 18 December 2015 for supply of natural gas to Spectrum Power. The agreement remained operative until 5 July 2021.
After implementation of the Goods and Services Tax regime, GAIL began raising invoices requiring Spectrum Power to reimburse GST charged on the transmission component of the natural gas supplied under the agreement.
Spectrum Power made the demanded payments for more than three years. It later disputed the liability and claimed that the GST amounts reimbursed to GAIL were not legally recoverable under the contract.
According to Spectrum Power, the sale of natural gas was governed by the Andhra Pradesh Value Added Tax Act, 2005, and GST was not leviable on the transaction in the manner claimed by GAIL. It further contended that there was no independent transmission of gas by GAIL to Spectrum Power. The movement of gas, according to the petitioner, was merely from one unit of GAIL to another before delivery.
Spectrum Power commenced arbitration seeking refund of the GST amounts reimbursed to GAIL.
The arbitral tribunal rejected the claim. It held that:
- under the Gas Sale Agreement, Spectrum Power was liable to reimburse the tax paid by GAIL;
- VAT was payable on the sale price inclusive of the GST component incurred on transmission;
- Spectrum Power had failed to dispute the invoices within fourteen days as required by Clause 12.6;
- after paying the amounts for approximately three years, Spectrum Power was estopped from challenging the liability;
- its conduct amounted to waiver of the right to object;
- GAIL’s interpretation of the agreement was bona fide; and
- GST collected from Spectrum Power and similarly placed customers had been deposited with the tax authorities, meaning that GAIL had not been unjustly enriched.
Spectrum Power challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.
The Delhi High Court was therefore called upon to examine whether the arbitral findings regarding contractual liability, proof of GST payment, waiver, estoppel and the effect of Clause 12.6 could survive the limited but substantive scrutiny available under Section 34.
Relevant Contractual Provisions
Clause 4.2(c): Passing of Title and Risk
Clause 4.2(c) provided that title, control and risk in the gas would pass from GAIL to Spectrum Power at the contractual delivery point.
This clause became relevant because the tribunal used the delivery-point structure to support the conclusion that transmission occurred before title passed to Spectrum Power and that the transmission-related tax component could form part of the price payable by the buyer.
Clause 12.6: Disputes Relating to Invoices
Clause 12.6 required Spectrum Power to pay invoices in full even where it disputed their correctness.
After making full payment, the buyer could lodge a quantified claim with GAIL within fourteen days from receipt of the invoice. Failure to submit such a claim within the stipulated period was contractually described as an “absolute waiver” of the claim.
The clause did not permit Spectrum Power to withhold the disputed portion of an invoice pending resolution.
Clause 18.1: Waiver
Clause 18.1 provided that no breach of the agreement would be waived except with the express written consent of the non-defaulting party.
It further clarified that waiver or delay concerning one default would not operate as waiver of any separate default.
Spectrum Power relied upon this clause to argue that the tribunal could not infer waiver merely from conduct when the contract required express written consent.
Issues
The principal issues before the Delhi High Court were:
1. Whether the tribunal’s interpretation of the Gas Sale Agreement, requiring Spectrum Power to reimburse the GST component incurred on transmission of natural gas, was a plausible contractual interpretation immune from interference under Section 34.
2. Whether the tribunal could rely upon GST deposit receipts annexed to the affidavit of GAIL’s witness when their admissibility had been specifically challenged and never decided.
3. Whether four general GST payment receipts were sufficient to prove that GAIL had deposited GST specifically in relation to transmission charges recovered from Spectrum Power.
4. Whether the tribunal’s finding that GAIL had deposited the collected GST and had not been unjustly enriched was based on admissible evidence.
5. Whether Spectrum Power’s payment of GST-inclusive invoices for more than three years amounted to a conscious and intentional waiver of its right to dispute liability.
6. Whether the doctrines of waiver and estoppel were correctly invoked by the tribunal.
7. Whether GAIL had proved the essential elements of estoppel, including a clear representation by Spectrum Power, reliance by GAIL and an alteration of GAIL’s position.
8. Whether Clause 12.6 completely extinguished Spectrum Power’s claims merely because invoice disputes were not raised within fourteen days.
9. Whether each invoice raised by GAIL created a recurring and independent cause of action, particularly where invoices continued to be issued even after Spectrum Power raised an objection in September 2020.
10. Whether the arbitral award suffered from perversity or patent illegality warranting interference under Section 34 of the Arbitration and Conciliation Act.
Petitioner’s Arguments
Spectrum Power argued that the arbitral tribunal had rejected its claim on findings unsupported by legally admissible evidence.
Tribunal relied upon GST receipts without deciding admissibility
GAIL examined Ankur Daruka as RW-2 and annexed certain GST payment receipts to his affidavit.
Spectrum Power objected to the admissibility of those receipts.
By email dated 1 May 2024, the tribunal stated that although the strict rigours of the Code of Civil Procedure did not apply to arbitration, the question of admissibility would be decided after completion of the claimant’s cross-examination.
The tribunal, however, never subsequently decided whether the documents were admissible.
Despite this, it relied upon those very receipts to conclude that GAIL had deposited the GST collected from Spectrum Power and other similarly situated customers.
Spectrum Power contended that the tribunal could not leave an evidentiary objection undecided and thereafter treat the disputed documents as proved.
Receipts did not prove payment connected to Spectrum Power
The receipts produced by GAIL related only to GST deposited in:
- August 2017;
- September 2017;
- February 2021; and
- March 2021.
Spectrum Power argued that these general receipts did not establish that GST had been deposited specifically on transmission charges recovered from it.
GAIL did not produce:
- GST returns;
- transaction-wise details;
- purchase registers;
- sale registers;
- books of account;
- invoice-level tax records; or
- supporting documents filed with the GST returns.
According to Spectrum Power, the receipts merely showed that GAIL had deposited certain GST amounts generally. They did not establish any link between those deposits and the amounts recovered from the petitioner.
RW-2’s answer contradicted GAIL’s case
Spectrum Power relied upon the cross-examination of RW-2.
When asked whether GAIL had deposited GST in Spectrum Power’s account through Form GSTR-1 for the GST claimed on transmission charges, the witness answered in the negative.
The petitioner contended that this answer directly undermined the tribunal’s conclusion that the GST collected in relation to the petitioner had been deposited with the authorities.
Non-cross-examination did not cure lack of proof
GAIL argued before the Court that Spectrum Power had not cross-examined RW-2 regarding the tax receipts.
Spectrum Power responded that it had consciously refrained from cross-examining the witness on documents whose admissibility remained pending.
Since the tribunal had not first determined whether the documents could be read in evidence, the petitioner could not be penalised for declining to cross-examine on them.
It further argued that the burden remained upon GAIL to prove payment of the tax. That burden could not be discharged merely by pointing to an absence of cross-examination.
Waiver was wrongly inferred
Spectrum Power relied upon Clause 18.1, which contemplated an express written waiver.
It argued that there was no written document in which it knowingly surrendered its right to challenge reimbursement of GST.
The petitioner further submitted that waiver requires:
- full knowledge of the relevant facts;
- awareness of the existing legal right; and
- a conscious intention to abandon that right.
Mere payment of invoices did not establish these essential elements.
Spectrum Power explained that during the COVID-19 period it reviewed the agreement and discovered that GST had allegedly been wrongly recovered. It thereafter raised an objection.
The tribunal rejected this explanation as unbelievable, but Spectrum Power contended that disbelief alone could not substitute proof that it had knowingly and intentionally abandoned its right.
Estoppel requirements were not satisfied
Spectrum Power relied upon Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh to contend that estoppel required a clear and unequivocal representation intended to be acted upon.
It argued that GAIL had failed to prove:
- any definite representation by Spectrum Power that the GST reimbursement was legally accepted;
- that GAIL relied upon such representation;
- that GAIL altered its position because of it; or
- that any prejudice was suffered by GAIL due to the petitioner’s earlier payments.
GAIL was independently liable to deposit whatever GST was legally payable. Its statutory liability did not arise because Spectrum Power reimbursed the amount.
Therefore, even assuming that earlier payments constituted some form of representation, GAIL did not alter its legal position in reliance upon those payments.
Payments were made to prevent disruption of gas supply
Spectrum Power argued that it could not simply withhold payment of disputed invoices.
Clause 12.6 expressly required full payment first and permitted a dispute to be raised only thereafter.
Failure to make payment could have resulted in disruption of natural-gas supply and affected the operation of its power plant.
The petitioner therefore submitted that payment under such a contractual framework could not automatically be treated as free and voluntary acceptance of liability.
Each invoice created a fresh cause of action
Spectrum Power contended that the GST reimbursement claims were recurring.
Every new invoice created a separate cause of action.
Even after Spectrum Power raised its objection in September 2020, GAIL continued to raise invoices containing the disputed GST component.
Accordingly, earlier failure to dispute some invoices within fourteen days could not extinguish the right to challenge every future invoice.
The tribunal had not dismissed the claim as time-barred. It therefore erred in using Clause 12.6 to reject the entire claim, including claims arising from later invoices.
Respondent’s Arguments
GAIL defended the arbitral award and emphasised the narrow scope of judicial review under Section 34.
GST payment was proved through RW-2
GAIL argued that RW-2 had filed an affidavit and produced the relevant GST deposit receipts.
According to GAIL, these documents sufficiently proved that the tax collected had been deposited with the authorities.
It maintained that Spectrum Power had chosen not to cross-examine RW-2 concerning the receipts and could not later contend that they had not been proved.
The tribunal was not bound by strict evidentiary procedure
GAIL relied upon the tribunal’s email dated 1 May 2024 to argue that the petitioner was reading it selectively.
The tribunal had expressly observed that the strict provisions of the Code of Civil Procedure did not apply to arbitration.
GAIL therefore contended that the tribunal was entitled to adopt a flexible approach to proof and admissibility.
Waiver could arise from conduct
GAIL disputed the contention that Clause 18.1 required waiver to exist only through a formal written instrument.
It argued that contractual rights could also be waived by prolonged and unequivocal conduct.
Spectrum Power had paid invoices carrying the GST component for more than three years without demur. It continued making payments even after it claimed to have developed doubts regarding liability.
GAIL relied upon Sepco Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd. and Abdulla Ahmed v. Animendra Kissen Mitter to support the proposition that waiver may be inferred from conduct despite a contractual clause referring to written waiver.
Spectrum Power accepted GAIL’s interpretation for years
GAIL submitted that throughout the subsistence of the agreement, Spectrum Power did not question the levy of GST on transmission charges.
Its repeated payments demonstrated that both parties had acted upon the same interpretation of the Gas Sale Agreement.
According to GAIL, Spectrum Power could not accept that interpretation for years and later seek a refund merely because it reconsidered the commercial consequences.
Taxability itself was not arbitrable
GAIL argued that the legal issue of whether transmission of natural gas attracted GST fell within the jurisdiction of the statutory GST authorities.
The arbitration concerned only the contractual allocation of the tax burden between the parties.
The Delhi High Court had also recognised this limitation while appointing the arbitrator.
The tribunal therefore correctly confined itself to interpreting the Gas Sale Agreement rather than determining GST liability under the tax statute.
Contract interpretation was within the tribunal’s domain
GAIL relied upon Prakash Atlanta (JV) v. National Highways Authority of India, Ssangyong Engineering and Construction Co. Ltd. v. NHAI and Consolidated Construction Consortium Ltd. v. Software Technology Parks of India.
It argued that:
- interpretation of contractual clauses belongs primarily to the arbitrator;
- appreciation of evidence is also within the tribunal’s exclusive domain;
- a court cannot substitute its preferred view merely because another interpretation is possible; and
- interference is permissible only where the view is irrational, impossible or contrary to the contract.
GAIL maintained that the tribunal’s interpretation of Clauses 4.2, 12.6 and 18.1 was at least a plausible view and therefore could not be disturbed under Section 34.
No unjust enrichment
GAIL submitted that it had not retained the GST amounts for its own benefit.
The amounts collected from Spectrum Power and other similarly placed buyers had been deposited with the statutory authorities.
Accordingly, the dispute involved reimbursement of a tax actually paid and not any wrongful enrichment by GAIL.
On this basis, GAIL requested dismissal of the Section 34 petition.
Analysis of the Law
The Delhi High Court analysed the challenge under Section 34 of the Arbitration and Conciliation Act, 1996 by separating the controversy into three distinct facets:
- Whether, under the Gas Sale Agreement, the GST component on transmission charges could contractually be passed on to Spectrum Power.
- Whether GAIL had actually proved that GST collected on the transmission component was deposited with the tax authorities.
- Whether Spectrum Power had waived its right to object or was estopped from disputing reimbursement after having paid the invoices for more than three years.
First Facet: Contractual Liability to Reimburse GST
The Court first clarified that the actual exigibility of GST on transmission of natural gas was not an issue that could be conclusively determined in arbitration. That question fell within the statutory domain of the GST authorities.
The arbitral tribunal was therefore entitled to confine itself to the contractual question: assuming that GAIL had incurred the tax, did the Gas Sale Agreement permit that burden to be passed on to Spectrum Power?
The tribunal had relied upon:
- Notification No. 11/2017–Central Tax (Rate), dated 28 June 2017;
- Clause 4.2(c) of the Gas Sale Agreement, under which title and risk passed at the delivery point;
- the structure of the contractual price; and
- the parties’ conduct during performance.
It concluded that the transmission-related tax component was reimbursable and that VAT was payable on the price inclusive of that component.
The High Court declined to interfere with this part of the award.
It held that the tribunal had considered the relevant contractual provisions and evidence and had arrived at a plausible interpretation. The tribunal had also correctly refused to use changes made in a subsequent contract to interpret the earlier Gas Sale Agreement.
The Court reiterated that interpretation of a contract primarily belongs to the arbitral tribunal. A Section 34 court cannot replace a plausible contractual interpretation merely because another interpretation may also be possible.
Interference is warranted only where:
- the arbitrator ignores the relevant clause;
- travels beyond the contract;
- adopts an interpretation that no reasonable person could accept; or
- reaches a conclusion fundamentally disconnected from the contractual text.
None of those defects was established in relation to the tribunal’s interpretation that the tax burden was contractually reimbursable, subject to proof that GAIL had actually paid the tax.
Second Facet: Whether GAIL Proved Deposit of GST
This became the decisive evidentiary issue.
Admissibility objection remained undecided
GAIL relied upon GST deposit receipts annexed to the affidavit of RW-2, Ankur Daruka.
Spectrum Power objected to their admissibility. On 1 May 2024, the tribunal stated that it would decide the admissibility issue after completion of the claimant’s cross-examination.
The tribunal never delivered any subsequent ruling on that objection.
Nevertheless, while deciding the case, it relied upon those receipts and recorded a positive finding that GAIL had deposited the GST collected from Spectrum Power and other similarly situated customers.
The High Court held that this approach was impermissible.
Although arbitral proceedings are not bound by the strict procedural rigours of the Code of Civil Procedure or the Indian Evidence Act, a tribunal cannot:
- keep an evidentiary objection pending;
- never decide whether the documents may be read in evidence; and
- thereafter rely upon those documents as though they had been duly admitted and proved.
Procedural flexibility in arbitration does not permit disregard of basic fairness or natural justice.
Non-cross-examination was not fatal
GAIL argued that Spectrum Power had not cross-examined RW-2 on the tax receipts.
The Court rejected this contention.
The petitioner had expressly stated before the tribunal that it was not cross-examining the witness on documents whose admissibility remained unresolved. In those circumstances, non-cross-examination could not cure the foundational defect.
The burden remained upon GAIL to prove that:
- the documents were admissible;
- the amounts reflected in them represented GST actually deposited; and
- the deposits related to transmission charges recovered from Spectrum Power.
The respondent could not shift that burden merely by asserting that the petitioner had not challenged the witness on documents that had never been formally admitted.
Four receipts did not establish invoice-specific payment
Even apart from admissibility, the High Court held that the four GST receipts were inadequate.
The receipts related to deposits made in:
- August 2017;
- September 2017;
- February 2021; and
- March 2021.
They did not establish that the deposits concerned:
- transmission charges under Spectrum Power’s Gas Sale Agreement;
- the specific invoices challenged in arbitration;
- gas transmitted for Spectrum Power; or
- the precise amounts reimbursed by the petitioner.
GAIL did not produce:
- GST returns;
- Form GSTR-1 details linking the invoices to Spectrum Power;
- sales registers;
- purchase registers;
- books of account;
- invoice-wise tax reconciliation;
- supporting schedules filed with the returns; or
- any certificate or statutory record connecting the receipts to the disputed recoveries.
The Court therefore held that the receipts, even if assumed to be admissible, did not by themselves prove the material fact in issue.
Witness evidence did not support the finding
The Court also considered RW-2’s answer in cross-examination.
When asked whether GAIL had deposited GST to Spectrum Power’s account in Form GSTR-1 for the claimed transmission charges, the witness answered in the negative.
This further weakened the tribunal’s conclusion.
The Court observed that the tribunal itself recorded that it had not been apprised whether the relevant pipeline transmission was exclusively for Spectrum Power or was part of a common transmission arrangement serving several entities.
Despite acknowledging this factual uncertainty, the tribunal proceeded to hold that the GST collected from Spectrum Power had been deposited and that there was no undue enrichment.
The High Court found this reasoning internally inconsistent and unsupported by evidence.
Finding was perverse and patently illegal
The tribunal had concluded that:
- GAIL’s interpretation was bona fide;
- all GST collected from similarly situated customers had been deposited;
- no wrongful gain accrued to GAIL; and
- the dispute therefore involved reimbursement rather than undue enrichment.
The High Court held that the factual foundation of these conclusions collapsed once the alleged tax payment was found unproved.
An arbitral finding becomes perverse where it is based on:
- no evidence;
- inadmissible evidence;
- material that does not prove the proposition for which it is relied upon; or
- conclusions that contradict the evidentiary record.
The tribunal’s findings regarding deposit of GST therefore suffered from patent illegality and could not be sustained under Section 34.
Third Facet: Waiver and Estoppel
The Court next examined the tribunal’s conclusion that Spectrum Power had waived its objection and was estopped from disputing liability after reimbursing the GST component for more than three years.
The Court held that the tribunal had wrongly treated waiver and estoppel as interchangeable concepts.
Distinction between waiver and estoppel
Waiver involves the voluntary and intentional relinquishment of a known right.
Its essential components are:
- existence of a right;
- knowledge of that right;
- full awareness of the relevant facts; and
- a conscious decision not to assert the right.
Estoppel, by contrast, is concerned with the consequences of a representation or conduct upon another party. It ordinarily requires:
- a clear representation;
- an intention or expectation that the representation would be acted upon;
- reliance by the other party;
- alteration of position; and
- prejudice or detriment resulting from such reliance.
The tribunal failed to separately analyse these distinct requirements.
Waiver was not proved
The Court held that mere payment of invoices for a prolonged period did not automatically establish waiver.
For waiver to operate, GAIL had to prove that Spectrum Power:
- knew that it had a legal or contractual right to resist reimbursement;
- understood the relevant factual basis of that right; and
- deliberately chose to abandon it.
No such evidence was produced.
The tribunal merely disbelieved Spectrum Power’s explanation that it discovered the issue while reviewing the agreement during the COVID-19 period. But disbelief of an explanation does not itself prove conscious abandonment of a known right.
The onus to prove waiver lay upon GAIL. The Court found that GAIL failed to discharge it.
The Court therefore did not find it necessary to conclusively decide whether Clause 18.1 required waiver to be only in writing. Even assuming waiver could arise by conduct, the basic factual requirements were not established.
Estoppel was also not established
The Court held that GAIL failed to prove any unequivocal representation by Spectrum Power that the petitioner permanently accepted legal liability to reimburse GST.
Payment of invoices, particularly where the agreement required payment first and dispute later, could not by itself amount to a representation that no future objection would ever be raised.
More importantly, GAIL did not establish that it altered its position in reliance upon Spectrum Power’s payments.
GAIL’s liability to deposit GST, if legally leviable, arose under the tax law. It did not arise because Spectrum Power agreed to reimburse it.
Thus, even assuming that payment could be treated as a representation, GAIL would still have been required to discharge the tax obligation independently.
There was no evidence that:
- GAIL incurred a new liability because of Spectrum Power’s conduct;
- it changed its commercial position;
- it surrendered any remedy;
- it undertook any irreversible act; or
- it suffered prejudice in reliance upon the petitioner’s payments.
The necessary ingredients of estoppel were therefore absent.
Effect of Clause 12.6
The tribunal had also relied upon Clause 12.6, which required the buyer to:
- pay every invoice in full;
- lodge a quantified dispute within fourteen days; and
- accept that failure to do so would constitute an “absolute waiver.”
The High Court held that the clause could not be applied mechanically to reject the entire claim.
The clause supported the petitioner’s explanation for payment
Spectrum Power argued that it paid the invoices because withholding payment could disrupt the natural-gas supply and affect operation of its power plant.
The tribunal rejected the allegation of coercion for want of proof.
However, the High Court noted that Clause 12.6 itself required payment in full before any dispute could be raised. It prohibited withholding even the disputed portion.
This contractual structure supported the petitioner’s case that payment was necessary to maintain uninterrupted supply.
Therefore, payment could not automatically be treated as free and informed acceptance of the legal basis of every invoice.
Each invoice created a recurring cause of action
The Court further held that the GST reimbursement demand arose afresh with each invoice.
Accordingly:
- failure to dispute an earlier invoice within fourteen days could affect that particular claim;
- but it could not permanently extinguish all future objections;
- subsequent invoices generated independent causes of action; and
- invoices issued after Spectrum Power raised its objection in September 2020 could not be defeated merely by referring to earlier conduct.
The tribunal had not rejected the claim on limitation. It therefore erred in treating earlier payments as a complete bar against every later invoice.
The Court held that payment of previous invoices did not remove the right to challenge subsequent demands.
Detailed Precedent Analysis
Prakash Atlanta (JV) v. National Highways Authority of India
The Supreme Court reiterated that construction and interpretation of contractual terms fall primarily within the arbitrator’s domain.
Where two interpretations are reasonably possible, a court cannot substitute its own view merely because it considers the alternate interpretation preferable.
The Delhi High Court applied this principle to uphold the tribunal’s interpretation that the Gas Sale Agreement contemplated reimbursement of the transmission-related tax burden.
However, the precedent did not protect the separate factual finding that GAIL had actually deposited the tax. Contractual interpretation may receive deference, but a finding unsupported by evidence remains vulnerable to challenge.
Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd.
This decision explains that a Section 34 court does not act as an appellate forum.
The arbitrator remains the master of the quantity and quality of evidence, and even an award based on limited evidence cannot be set aside merely because a court may have evaluated that evidence differently.
At the same time, the decision recognises that the arbitrator must act within the contract and that patent illegality remains a valid ground of interference.
The High Court distinguished between:
- a plausible evidentiary assessment, which is protected; and
- a conclusion resting on documents whose admissibility was undecided and which did not prove the relevant transaction, which is perverse.
The award fell into the latter category on the GST-deposit issue.
Bi-Water Penstocks Ltd. v. Municipal Corporation of Greater Bombay
The Bombay High Court held that admitting and relying upon documents without requiring them to be proved, despite specific objections, amounts not merely to a procedural irregularity but also to a breach of natural justice.
The Delhi High Court applied this principle directly.
It held that arbitral flexibility does not allow a tribunal to bypass a pending admissibility objection and rely upon disputed documents without a ruling.
This precedent was central to the conclusion that the tribunal’s reliance upon the four GST receipts was legally unsustainable.
Provash Chandra Dalui v. Biswanath Banerjee
The Supreme Court explained that waiver requires voluntary and intentional relinquishment of a known right.
It distinguished waiver from estoppel by noting that intention is essential to waiver but not necessarily to estoppel.
The Delhi High Court used this distinction to hold that the tribunal had conflated two separate doctrines.
Spectrum Power’s prolonged payment history could not establish waiver unless GAIL proved that Spectrum Power knew of its right and consciously abandoned it.
Krishna Bahadur v. Purna Theatre
The Supreme Court described waiver as a conscious agreement not to assert a right, usually with full knowledge of the right being surrendered.
It also held that the burden lies upon the party alleging waiver.
The Delhi High Court relied upon this principle to hold that GAIL had not proved any agreement, express or implied, by which Spectrum Power intentionally relinquished its right to dispute the tax reimbursement.
Hindustan Construction Co. Ltd. v. Bihar Rajya Pul Nirman Nigam Ltd.
The Supreme Court clarified the conceptual differences among waiver, acquiescence and estoppel:
- waiver is intentional relinquishment;
- acquiescence is passive acceptance or delay; and
- estoppel prevents a party from withdrawing from a representation relied upon by another.
The Delhi High Court invoked this decision to demonstrate that mere silence, delay or participation cannot automatically satisfy all three doctrines.
The tribunal was required to identify which doctrine applied and test its separate legal ingredients. It failed to do so.
Kalpraj Dharamshi v. Kotak Investment Advisors Ltd.
The Supreme Court held that waiver cannot be inferred merely from failure to object.
It must first be shown that the party:
- knew the relevant facts;
- was aware of the available right; and
- consciously chose not to enforce it.
The Delhi High Court applied this test and found no evidence that Spectrum Power knew from the outset that it could legally resist reimbursement and intentionally decided to surrender that right.
Accordingly, prolonged payment alone did not establish waiver.
Galada Power & Telecommunication Ltd. v. United India Insurance Co. Ltd.
This decision reiterates that waiver presupposes full knowledge of rights.
A party cannot be treated as having waived an objection merely because it failed to raise it earlier, unless awareness and conscious abandonment are proved.
The High Court used this authority to reject the tribunal’s inference that earlier silence conclusively extinguished Spectrum Power’s rights.
Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh
The Supreme Court set out the essential conditions of promissory estoppel, including:
- a clear and unequivocal promise or representation;
- intention that it be acted upon;
- actual reliance;
- alteration of position; and
- an equitable basis for enforcement.
The Delhi High Court found these ingredients absent.
Spectrum Power had made no unequivocal promise that it would never dispute reimbursement. GAIL also failed to prove that it altered its position in reliance upon the payments.
Chhaganlal Keshavlal Mehta v. Patel Narandas Haribhai
The Supreme Court identified the requirements of estoppel under Section 115 of the Evidence Act, including representation, belief, reliance, alteration of position and prejudice.
The Delhi High Court applied those requirements and held that GAIL could not invoke estoppel merely because Spectrum Power had earlier paid invoices.
There was no demonstrated causal link between the petitioner’s conduct and any prejudicial change in GAIL’s position.
Sepco Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd.
GAIL relied upon this decision to argue that waiver may arise from conduct and that every factual or legal error does not justify interference under Section 34.
The High Court did not reject that general proposition.
It held, however, that waiver by conduct still requires proof of conscious abandonment of a known right. Since those foundational facts were absent, Sepco Electric did not assist GAIL.
Consolidated Construction Consortium Ltd. v. Software Technology Parks of India
GAIL relied upon this authority to emphasise that a plausible arbitral view should not be disturbed.
The Court accepted the limited-review principle but held that it protects only a view supported by the contractual text and evidentiary record.
It does not immunise a finding based on unproved documents or a legal conclusion reached without satisfying the essential ingredients of waiver and estoppel.
Court’s Reasoning
The Delhi High Court held that the arbitral award could not be sustained because the tribunal’s decisive findings on proof of GST payment, waiver and estoppel were legally defective and unsupported by the evidentiary record.
At the same time, the Court carefully distinguished those infirmities from the tribunal’s interpretation of the Gas Sale Agreement. It accepted that contractual interpretation ordinarily falls within the arbitrator’s domain and that a plausible view cannot be displaced merely because another view is possible.
The Court therefore did not set aside the award simply because it disagreed with the tribunal’s understanding of the contract. It intervened because the award ultimately rested upon findings that were perverse, unsupported by admissible evidence and contrary to settled legal principles governing waiver and estoppel.
Contractual Interpretation Was Plausible
The tribunal had interpreted the Gas Sale Agreement to mean that Spectrum Power was contractually required to reimburse the tax component incurred by GAIL on transmission of natural gas.
The High Court found that this interpretation was based upon the relevant clauses of the agreement, including the provision under which title and risk in the gas passed at the delivery point.
The Court also agreed that the tribunal could not use provisions contained in a later contract to reinterpret the earlier agreement.
Since the tribunal’s contractual view was a possible one, the Court declined to interfere with it under Section 34.
However, this did not end the matter. Even where the contract permits reimbursement, the party claiming reimbursement must still prove that the underlying tax was actually paid.
The tribunal’s failure occurred at this second stage.
GAIL Did Not Prove Deposit of GST
The Court found that the tribunal’s conclusion regarding deposit of GST was unsupported by admissible evidence.
Spectrum Power had specifically objected to the GST deposit receipts annexed to the affidavit of RW-2. The tribunal expressly kept the question of admissibility pending but never subsequently decided it.
Despite that, it treated the receipts as valid evidence and relied upon them to conclude that GAIL had deposited the tax collected from Spectrum Power and other customers.
The High Court held that such an approach violated basic procedural fairness.
An arbitral tribunal may adopt a flexible evidentiary procedure, but flexibility cannot mean that objections may be left unresolved and disputed documents relied upon without proof.
The absence of strict application of the Code of Civil Procedure or the Evidence Act does not authorise a tribunal to disregard natural justice.
The Receipts Did Not Establish the Material Fact
The Court further held that the receipts were inadequate even on their own terms.
They merely showed certain GST deposits made in four months. They did not demonstrate that:
- the deposits corresponded to the disputed invoices;
- the tax related to transmission charges recovered from Spectrum Power;
- the amounts were reflected in GSTR-1 against Spectrum Power;
- the gas transmission concerned the petitioner specifically; or
- the deposited amounts matched the reimbursement collected under the Gas Sale Agreement.
The tribunal itself acknowledged that it had not been informed whether the pipeline was used exclusively for Spectrum Power or was common to several entities.
Once that uncertainty remained, the tribunal could not conclusively hold that the GST collected from the petitioner had been deposited.
GAIL’s failure to produce GST returns, books of account, sales records, purchase records and invoice-wise reconciliation further weakened its case.
The Court therefore held that the tribunal’s finding was not merely based on insufficient evidence but on material that did not prove the proposition for which it was relied upon.
Non-Cross-Examination Did Not Relieve GAIL of Its Burden
The Court rejected GAIL’s argument that the receipts stood proved because Spectrum Power did not cross-examine RW-2 on them.
Spectrum Power had expressly maintained that the documents were inadmissible and that the tribunal had not decided the objection.
In such circumstances, the petitioner’s decision not to cross-examine the witness on the disputed documents could not validate them.
The Court emphasised that a party relying upon documents must independently establish their admissibility and probative value.
The burden upon GAIL could not be displaced merely by pointing to the petitioner’s limited cross-examination.
The Tribunal Wrongly Conflated Waiver and Estoppel
The Court held that the tribunal had used the concepts of waiver and estoppel interchangeably, although they rest upon different legal foundations.
Waiver requires intentional abandonment of a known right.
Estoppel requires a representation, reliance and alteration of position.
The tribunal did not separately examine whether these requirements were satisfied. Instead, it inferred both doctrines largely from the fact that Spectrum Power had paid invoices for more than three years.
The Court held that prolonged payment, by itself, could not establish either doctrine.
No Conscious Abandonment of a Known Right
To establish waiver, GAIL had to prove that Spectrum Power:
- knew the relevant facts;
- knew it had a right to object;
- understood the legal basis of that right; and
- deliberately decided not to assert it.
There was no evidence of such conscious abandonment.
The tribunal disbelieved Spectrum Power’s explanation that the issue was discovered during a contractual review in the COVID-19 period. But the Court held that rejection of this explanation did not positively establish that the petitioner had earlier known of the right and intentionally surrendered it.
The onus remained upon GAIL, and that onus was not discharged.
Accordingly, the finding of waiver suffered from patent illegality.
No Representation or Alteration of Position
The ingredients of estoppel were also absent.
Spectrum Power had not made any clear representation that it accepted permanent liability to reimburse GST or that it would never raise an objection.
Its earlier payments were made under a contractual scheme requiring full payment before an invoice could be disputed.
More importantly, GAIL did not prove that it changed its position because of those payments.
Any GST liability arose from the tax statute and was independently payable by GAIL. Reimbursement by Spectrum Power did not create that statutory obligation.
Therefore, even assuming that the petitioner’s payments could be treated as conduct amounting to representation, GAIL did not show any corresponding reliance or prejudicial alteration of position.
The tribunal’s invocation of estoppel was consequently unsustainable.
Clause 12.6 Could Not Defeat the Entire Claim
The tribunal had treated Spectrum Power’s failure to challenge invoices within fourteen days as an absolute bar.
The High Court held that this conclusion ignored the recurring nature of the claim.
Each invoice raised a separate demand and therefore generated a fresh cause of action.
Failure to object to one invoice could not permanently extinguish the right to dispute later invoices.
This was particularly significant because GAIL continued to issue invoices even after Spectrum Power raised an express objection in September 2020.
The tribunal had not dismissed the claim as barred by limitation. It therefore could not use Clause 12.6 to reject the entire claim, including disputes arising from later invoices.
The Court also noted that Clause 12.6 required the buyer to pay first and dispute later. This supported Spectrum Power’s explanation that payment was made to avoid disruption of gas supply and operation of its power plant.
Thus, payment under the contractual compulsion of Clause 12.6 could not, by itself, establish voluntary acceptance, waiver or estoppel.
Conclusion
The Delhi High Court allowed the petition under Section 34 of the Arbitration and Conciliation Act, 1996 and set aside the arbitral award dated 30 September 2024.
The Court upheld the tribunal’s interpretation that the Gas Sale Agreement plausibly contemplated reimbursement of tax paid on transmission charges.
However, the award could not survive because its decisive factual and legal findings were fundamentally flawed.
The Court held that:
- GAIL failed to prove that GST recovered from Spectrum Power on transmission charges had actually been deposited with the tax authorities;
- the tribunal relied upon GST receipts whose admissibility had never been decided;
- the receipts did not establish any transaction-specific connection with Spectrum Power;
- the finding that GAIL had not been unjustly enriched was therefore without evidentiary foundation;
- waiver could not be inferred without proof of conscious abandonment of a known right;
- estoppel could not operate without representation, reliance and alteration of position;
- Clause 12.6 could not extinguish all future claims arising from subsequently issued invoices; and
- each invoice created a recurring and independent cause of action.
The Court consequently held that the findings on GST deposit, waiver and estoppel suffered from patent illegality and perversity.
The award was set aside in its entirety, and the pending application was disposed of.
Case Details
Case: Spectrum Power Generation Limited v. GAIL India Limited
Court: High Court of Delhi at New Delhi
Case Number: O.M.P. (COMM) 64 of 2025 with I.A. 2952 of 2025
Judge: Justice Avneesh Jhingan
Judgment Reserved On: 7 July 2026
Judgment Pronounced On: 23 July 2026
Nature of Proceedings: Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 30 September 2024
Agreement Involved: Gas Sale Agreement dated 18 December 2015
