THERMAX LTD v. RASHTRIYA CHEMICALS AND FERTILIZERS LIMITED RCF
Setting Aside Arbitral Award: High Court Finds Perversity and Patent Illegality Due to Disregard of Evidence and Failure to Properly Consider Contractual Terms.
Court: Bombay High Court
Citation: 2025:BHC-OS:24006
Decision Date: 09-12-2025
List of Laws
The Arbitration & Conciliation Act, 1996; The Indian Contract Act, 1872; The Indian Evidence Act, 1872
- Facts: Thermax Limited (Petitioner) and Rashtriya Chemicals & Fertilizers Ltd. (RCF, Respondent) entered into a contract in 2016 for Thermax to set up Gas Turbine Generators (GTGs) at RCF's plant. The contract stipulated that RCF would operate the plant only after successful completion of a Performance Guarantee Test (PG Test). A Preliminary Acceptance Certificate (PAC) would be issued by RCF upon compliance with certain conditions by Thermax. After successful completion of PG Tests in April/May 2018, RCF demanded a re-test. GTG-2 broke down in March 2019. RCF claimed the GTGs were defective and invoked arbitration, seeking damages of Rs. 173.72 Crores for losses due to the non-availability of the GTGs. Thermax filed a counter-claim for a refund of Mutually Agreed Damages (MAD) deducted by RCF. The Arbitrator awarded damages to RCF. Thermax challenged the award.
- Procedural Posture: This is a Commercial Arbitration Petition filed by Thermax Limited challenging the award passed by the learned Sole Arbitrator under Section 34 of the Arbitration & Conciliation Act, 1996.
- Issue: Was the Arbitrator's award, holding Thermax liable for damages due to the breakdown of the GTGs, justified, considering the contractual terms, evidence presented, and allegations of RCF's operational failures and the impact of a force majeure event (COVID-19)? Specifically, did the Arbitrator err in awarding damages for additional expenditure on power, and in rejecting Thermax's counterclaim for a refund of MAD?
- Holding: The High Court allowed the Commercial Arbitration Petition and set aside the impugned award dated 5th June 2023.
- Reasoning: The Court found that the Arbitrator had side-stepped the issue of RCF taking over and using the plant for commercial purposes before issuing the PAC, and had ignored vital evidence. The Arbitrator based the findings solely on contractual provisions, disregarding evidence of RCF's operational failures and the impact of the force majeure event. The Court noted that the Arbitrator failed to consider that RCF had been operating the plant commercially and deriving benefit from it. The court also found that the award was based on no evidence or by disregarding vital evidence, resulting in perversity and patent illegality. The award was also found to be bereft of reasons. The court held that the claim for damages due to additional expenditure on power sourced from alternate sources was an "indirect" or "consequential" claim, which was expressly waived by the parties.
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