Delhi High Court: Arbitral Award Can Be Partly Set Aside Where Invalid Claims Are Severable

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 11.09.2026

Delhi High Court: Arbitral Award Can Be Partly Set Aside Where Invalid Claims Are Severable

The Delhi High Court has partly set aside an arbitral award in favour of NCC Limited, holding that the award suffered from “patent illegality” insofar as it related to two claims concerning contractual payment and prolongation costs. The Court, however, refused to interfere with the remainder of the award and upheld the arbitrator’s grant of interest.

The judgment was delivered by Justice Mini Pushkarna on 9 September 2026 in a petition filed by the Union of India under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute arose from a contract dated 9 March 2010 between the Union of India, through the Director General, Married Accommodation Project (DG MAP), and NCC Limited.

Dispute Over Defence Housing Construction Project

• NCC Limited had been awarded a contract for construction of dwelling units for officers of the Army, Navy and Air Force at Binnaguri and Cooch Behar in West Bengal, for a contract value of approximately ₹190.58 crore. The project, originally scheduled for completion within two years, was ultimately delayed substantially and completed on 18 July 2016.
• Disputes subsequently arose regarding payment of the final bill, leading NCC Limited to invoke arbitration. The sole arbitrator published an award on 18 March 2019, allowing wholly or partly 10 out of NCC’s 15 claims and awarding ₹12,14,18,020 along with interest. The award also directed release of NCC’s performance bank guarantee of ₹9.53 crore and rejected all four counterclaims raised by the Union of India.
• The Union of India challenged the award under Section 34, raising several grounds including denial of adequate opportunity, violation of natural justice, questions concerning the arbitrator’s independence and mandate, excessive interest, and patent illegality in awarding damages.

Section 34 Court Cannot Re-Appreciate Evidence

• The High Court reiterated the limited nature of judicial interference with arbitral awards. It observed that a court exercising jurisdiction under Section 34 does not sit in appeal over an arbitral tribunal and ordinarily cannot re-appreciate evidence merely to reach a different factual conclusion.
• At the same time, the Court recognised that interference is permissible where an award suffers from patent illegality, including where an arbitrator ignores a clear contractual prohibition, reaches a conclusion based on no evidence, or adopts an interpretation of the contract that is not a plausible one.

No Denial of Natural Justice

• One of the principal challenges raised by the Union of India was that it had not been afforded sufficient opportunity to present its case and that requests for adjournment and change of venue had been rejected.
• The High Court rejected this challenge. It held that the requirement of a “full opportunity” under the Arbitration Act must be assessed on the standard of reasonableness, and every refusal of an adjournment does not automatically constitute denial of a fair hearing.
• The Court found that sufficient notice and multiple opportunities had been afforded during the arbitral proceedings. Consequently, it found no infirmity in the award on grounds relating to natural justice, the independence or impartiality of the arbitrator, or the continuation of the arbitrator’s mandate.

Award Set Aside on Claim Nos. 7 and 9

• The crucial relief granted to the Union of India concerned Claim Nos. 7 and 9.
• Claim No. 7 concerned the difference in payment under Special Condition 19 of the contract vis-à-vis Condition 13 of the General Conditions of Contract. The arbitrator had awarded ₹1,31,71,996 to NCC Limited.
• Claim No. 9 concerned additional expenditure allegedly incurred because of prolongation of the contract, including overheads, site establishment and deployment of manpower beyond the stipulated completion period. NCC had claimed more than ₹16.15 crore under this head, against which the arbitrator awarded approximately ₹6.94 crore.
• After examining the contractual provisions and the manner in which these claims had been adjudicated, the High Court concluded that the award suffered from patent illegality in respect of Claim Nos. 7 and 9.
• Importantly, the Court held that these portions of the award were capable of being separated from the remainder. It therefore adopted the principle of severability and restricted the setting aside of the award only to those two claims, rather than disturbing the entire arbitral award.

12% Interest Upheld as Reasonable

• The Union of India also challenged the award of 12% simple interest, but the High Court declined to interfere.
• The Court held that Section 31(7) of the Arbitration Act gives an arbitral tribunal wide discretion in awarding interest. It found that the award of pendente lite and future interest at 12% per annum could not be regarded as arbitrary or punitive.
• The Court further rejected the argument that pre-reference interest could not be granted without a notice under the Interest Act, 1978. It recognised the arbitrator’s statutory power under Section 31(7) to award interest, including on damages, subject to the contractual framework.

Section 34 Petition Partly Allowed

• The Delhi High Court ultimately held that only the amounts awarded under Claim Nos. 7 and 9 were liable to be set aside for patent illegality, while the remaining portions of the arbitral award were left undisturbed.
• The Court also vacated the interim stay on execution of the award granted on 26 November 2021 and all consequential orders. The connected enforcement proceedings were directed to be placed before the Roster Bench on 28 September 2026 for determination of the final amount payable under the surviving portions of the award, including interest.

Key Takeaway

The judgment reinforces two important principles governing challenges to arbitral awards. Section 34 does not permit a court to reassess an arbitral dispute as an appellate court, but judicial restraint does not protect an award where a particular claim suffers from patent illegality. At the same time, where the defective portion of an award is independently severable, the court may set aside only that part instead of nullifying the entire award.

The decision also reiterates the broad discretion available to arbitrators under Section 31(7) of the Arbitration and Conciliation Act in awarding reasonable pre-award, pendente lite and future interest.

Connected Matter

Supreme Court: “Patent Illegality” Cannot Be Invoked to Re-Appreciate Evidence or Substitute Court’s View for Arbitrator’s Findings

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Source: Delhi High Court

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