Delhi High Court Sets Aside Arbitration Award; Finds Contradictory Calculations, Wrong Interest Benchmark, Ignored Admissions and Undisclosed Material Caused Patent Illegality
Delhi High Court Sets Aside Contractor’s Award Against NCC; Finds Arbitrator Used Wrong Payment Calculations and Failed to Apply Statutory TDS-WCT Deductions Correctly
Facts
NCC Ltd. filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 26 July 2023 passed in favour of Manisha Kulkarni, sole proprietor of M/s Mani Engineers, Pune.
NCC had been awarded part of the redevelopment work undertaken by NBCC at Kidwai Nagar, Delhi. The respondent was the successful bidder for two relevant work packages: plumbing works for the Social Infrastructure Complex under Work-1, valued at ₹3.22 crore, and fire-fighting works for eight Type VI and VII towers and their common basement under Work-2, valued at ₹2.90 crore. A third LOI for separate plumbing work did not form part of the arbitral reference.
The respondent raised claims of about ₹4.36 crore, including alleged unpaid amounts for Work-1 and Work-2, interest and costs. The arbitrator held that work worth ₹3,89,46,103 had been completed and that ₹2,79,10,935 had effectively been received towards Work-1 and Work-2 after adjusting LOI-3. This produced a balance of ₹1,10,35,168. After allowing NCC counter-claims of ₹59,17,085, the arbitrator awarded a principal sum of ₹51,18,083 to the respondent.
The award also granted 13.85% pre-reference and pendente lite interest, 14.85% post-award interest, and ₹20,40,400 as litigation costs.
NCC challenged the award primarily on errors in computation, statutory deductions, interest, failure to deal with admissions and lack of reasons.
Issues
The principal issues were whether the arbitral award was liable to be set aside because:
- the arbitrator wrongly deducted the gross amount of LOI-3 from a net payment figure, thereby giving the respondent a double benefit;
- the TDS and WCT deductions were inconsistently and incorrectly calculated;
- the post-award interest of 14.85% was contrary to Section 31(7)(b) of the Arbitration Act read with Section 2(b) of the Interest Act;
- the 13.85% pre-reference and pendente lite interest was unsupported by reasons;
- the arbitrator relied upon lending-rate material not disclosed to NCC;
- relevant admissions by the respondent regarding risk-and-cost deductions were ignored without reasons; and
- these defects amounted to patent illegality and violation of natural justice under Section 34.
Petitioner’s Arguments
NCC argued that the arbitrator’s calculation was internally contradictory because ₹38,81,575 representing the gross value of LOI-3 was deducted from ₹3,17,92,510, which was a net payment figure.
It submitted that gross and net figures could not be mixed in this manner, since doing so understated the amount already received towards Work-1 and Work-2 and artificially increased the amount payable to the respondent.
NCC further argued that the statutory deductions towards TDS and WCT had not been calculated on the actual certified value of completed work.
It challenged the pre-reference and pendente lite interest at 13.85% and post-award interest at 14.85%, contending that the arbitrator wrongly relied upon the State Bank of India Benchmark Prime Lending Rate rather than the rate applicable to deposits under the statutory definition of “current rate of interest.”
NCC also contended that the lending-rate material had never been put to it and therefore could not have been relied upon.
It further argued that the arbitrator failed to consider the respondent’s own email dated 23 May 2017, which allegedly admitted debits for work carried out by NCC at the respondent’s risk and cost.
Finally, NCC challenged the litigation costs as excessive.
Respondent’s Arguments
The respondent relied on the limited scope of interference under Section 34 and argued that a plausible view taken by an arbitrator cannot be disturbed merely because another view is possible.
She defended the deduction of ₹38,81,575 as a plausible interpretation of the accounting material.
On interest, she argued that the arbitrator had discretion under Section 31(7)(a) to award pre-reference and pendente lite interest and that the post-award rate had been fixed considering prevailing interest rates.
As regards the risk-and-cost deductions, the respondent contended that the debits reflected in her email included work under LOI-3 and therefore NCC’s counter-claim was rightly rejected.
Analysis of the Law
Gross Amount Could Not Be Deducted From Net Payment
The Court first examined the accounting methodology.
The undisputed figures were:
- certified value of Work-1 and Work-2: ₹3,89,46,103;
- net amount paid by NCC: ₹3,17,92,510;
- gross value attributable to LOI-3: ₹38,81,575.
The High Court held that the total payment figure was a net amount, whereas ₹38,81,575 represented the gross value of LOI-3 inclusive of TDS and WCT.
Therefore, the gross LOI-3 amount could not legally or mathematically be deducted from the net payment. Such a calculation effectively gave the respondent a double benefit.
The judgment even used an illustrative chart on page 8 to demonstrate the error: where gross LOI-3 value is deducted from total net payments, the tax component becomes payable once through the award while remaining independently available as tax credit, creating duplication.
Contradictory TDS and WCT Calculations
The arbitrator had accepted ₹11,53,615 as deductions towards TDS and WCT.
However, the completed work had been quantified at ₹3,89,46,103, and the agreed deduction was 5% — 1% TDS and 4% WCT.
The Court observed that ₹11,53,615 corresponded to deductions on work worth only ₹2,30,72,280, not the accepted completed value of ₹3.89 crore.
There were also no reasons explaining why ₹11,53,615 was accepted. The Court therefore found an internal contradiction in the award.
The Court also rejected the respondent’s argument that NCC had failed to prove deposit of the deducted tax. TDS and WCT deductions arose from statutory obligations, and any default in depositing such sums would separately be dealt with by the tax authorities.
Interest
Post-Award Interest
The arbitrator awarded 14.85% post-award interest by reference to SBI’s lending rate.
The High Court held this to be contrary to Section 31(7)(b) of the Arbitration Act.
The statutory “current rate of interest” under Section 31(7)(b), read with Section 2(b) of the Interest Act, refers to the highest maximum rate payable on deposits by scheduled banks, not a lending rate charged by banks to borrowers.
Accordingly, the 14.85% post-award rate was legally unsustainable.
Pre-Reference and Pendente Lite Interest
The Court accepted that Section 31(7)(a) gives an arbitrator discretion to grant pre-reference and pendente lite interest at a reasonable rate.
However, that discretion still requires reasons.
Here, the arbitrator simply adopted the 13.85% lending rate without explaining why it constituted a reasonable rate in the circumstances. The Court held that the interest determination was bereft of reasons, violating Section 31(3).
Undisclosed Material and Natural Justice
The Court additionally found that the lending-rate material itself had not been confronted to NCC before being relied upon.
Referring to Ssangyong Engineering and Construction Co. Ltd. v. NHAI, the Court reiterated that material taken into account by an arbitral tribunal must be communicated to the affected party.
Reliance upon undisclosed material violates Sections 18 and 24(3) and can constitute a ground for setting aside an award under Section 34(2)(a)(iii).
Accordingly, the award of pre-reference, pendente lite and post-award interest was held vitiated by both statutory illegality and violation of natural justice.
Risk-and-Cost Deductions
The work orders permitted NCC, in case of the respondent’s failure to meet the construction schedule, to have the work executed through another agency at the respondent’s risk and cost.
NCC had raised a counter-claim of ₹27,60,266 for such work.
It relied upon the respondent’s email dated 23 May 2017, contending that she had admitted certain deductions relating to work done at her risk and cost.
The High Court held that the effect of those admissions was neither considered nor discussed by the arbitrator. No reasons were given for rejecting them.
The arbitrator had rejected NCC’s journal entries for lack of supporting invoices and vouchers, but simultaneously failed to deal with the respondent’s own admissions.
The Court held that this omission violated the requirement of a reasoned award under Section 31(3).
Precedent Analysis
Megh Varan Sharma v. State of U.P.
The Court relied upon Megh Varan Sharma to explain the statutory meaning of “current rate of interest.”
The Supreme Court had held that the relevant rate is the highest maximum rate payable by scheduled banks on deposits, not the lending rate charged by banks.
The High Court applied this principle to hold the arbitrator’s reliance on SBI’s lending rate legally incorrect.
Ssangyong Engineering and Construction Co. Ltd. v. NHAI
Ssangyong was relied upon for the principle that reliance by an arbitrator upon material obtained or considered behind the back of a party violates Sections 18 and 24(3) and may constitute patent illegality or inability to properly present one’s case under Section 34.
The High Court applied that principle because the lending-rate material used to determine interest had not been furnished to or confronted with NCC.
Hindustan Lever Ltd. v. Shiv Khullar
NCC relied upon this decision in support of its argument that the arbitrator could not selectively rely upon admissions favourable to one party while ignoring the respondent’s own admissions concerning risk-and-cost deductions.
The Court ultimately accepted the underlying grievance by finding that the respondent’s email admissions had not been considered or reasoned upon.
Court’s Reasoning
The Court found that the defects in the award were not mere computational slips or alternative interpretations insulated from review under Section 34.
The central calculation itself mixed gross and net figures, resulting in a double benefit to the respondent.
The award was also internally inconsistent regarding TDS and WCT deductions and contained no reasons explaining the chosen deduction figure.
On interest, the arbitrator:
- relied on lending rates instead of deposit rates required by statute;
- did not explain why 13.85% was reasonable;
- relied upon material not disclosed to NCC; and
- thereby violated Sections 18, 24(3), 31(3) and 31(7).
The arbitrator further ignored potentially significant admissions by the respondent concerning work carried out at her risk and cost without recording reasons.
The High Court therefore concluded that the award suffered from patent illegality, contradictions and violation of natural justice.
The only major part of the award that survived substantive criticism was the litigation cost of ₹20,40,400. The Court held that the arbitrator had discretion under Section 31A(3) to award such costs and that no separate ground for interference with this component was made out.
Conclusion
The Delhi High Court allowed NCC Ltd.’s Section 34 petition and set aside the arbitral award dated 26 July 2023.
It held that the award suffered from:
- patent illegality;
- contradictory calculations;
- reliance on legally incorrect interest benchmarks;
- failure to provide reasons;
- reliance on undisclosed material; and
- violation of principles of natural justice.
The Court specifically found violations of Sections 18, 24(3), 31(3) and 31(7) of the Arbitration and Conciliation Act read with Section 2(b) of the Interest Act.
Case Details
Case: NCC Ltd. v. Manisha Kulkarni
Court: High Court of Delhi at New Delhi
Case Number: O.M.P. (COMM) 464/2023 & I.A. 22700/2023; CNR No. DLHC010458632023
Judge: Justice Avneesh Jhingan
Date: 25 August 2026
Result: Petition allowed; arbitral award dated 26 July 2023 set aside for patent illegality, contradictions and violation of natural justice.
