Primacy of Clear Contractual Language in Arbitration:
Delhi High Court’s Division-Bench Judgment in Oil & Natural Gas Corporation Ltd. v. JSIW Infrastructure Pvt. Ltd. (2025 DHC 4430-DB)

1. Introduction

The Division Bench of the Delhi High Court in its judgment dated 27 May 2025 has laid down an important rule governing contractual interpretation in arbitration proceedings. In Oil & Natural Gas Corporation Ltd. (“ONGC”) v. JSIW Infrastructure Pvt. Ltd. (“JSIW”), the Court:

• Confirmed the Single-Judge decision that had set aside two arbitral awards for patent illegality under §34 of the Arbitration & Conciliation Act, 1996 (“the Act”).
• Clarified the boundaries of appellate review under §37 of the Act.
• Re-emphasised that when the language of a contract clause is plain, clear and unambiguous, an arbitral tribunal cannot dilute or vary it by referring to pre-contract negotiations, correspondence, or “surrounding circumstances”.

The ruling follows a tussle dating back to 2008 over reimbursement of indirect taxes (excise duty/Countervailing Duty) on “line pipes” in a lump-sum offshore pipeline project awarded by ONGC to JSIW.

2. Summary of the Judgment

3. Detailed Analysis

3.1 Precedents and Authorities Referenced

• Bombay Slum Redevelopment Corp. v. Samir Narain Bhojwani (2024) 7 SCC 218 — scope of §37 review confined to checking if §34 court exceeded jurisdiction.
• Pandit Chunchun Jha v. Sheikh Ebadat Ali (1955) 1 SCR 174; United India Insurance v. Harchand Rai (2004) 8 SCC 644 — bar on using external aids where contractual language is plain.
• South East Asia Marine Engg. & Construction Ltd. v. Oil India Ltd. (2020) 5 SCC 164; Patel Engineering Ltd. v. NEEPCO (2020) 7 SCC 167 — awards contrary to express terms are perverse/patently illegal.
• Raghunath Builders (P) Ltd. v. Anant Raj Ltd. 2023 SCC OnLine Del 7202 — relied on by appellant for limited §34 scope but distinguished because arbitral interpretation here was not “plausible”.
• Provash Chandra Dalui v. Biswanath Banerjee 1989 Supp.(1) SCC 487 — contextual interpretation; court clarified it applies only where ambiguity exists.
• State of Chhattisgarh v. Sal Udyog Pvt. Ltd. 2021 SCC OnLine SC 1027 — ignoring contract terms constitutes patent illegality; relied upon to uphold Single-Judge view.

3.2 Court’s Legal Reasoning

1. Hierarchy & Entire Agreement Clauses Prevail
   • Recital-(b) in the contract fixed a document-priority regime: General Conditions of Contract (“GCC”) outrank bidding documents/communications.
   • GCC 1.2.5 (“Entire Agreement”) expressly superseded all prior negotiations/correspondence.
   • Therefore, the pre-contract letter of 27-08-2008 could not override the final GCC text.
2. Unambiguous Language Requires No External Aids
   GCC 3.4.1.5 (post-amendment) unambiguously stated that, “only for line pipes, Company shall reimburse the Excise Duty paid by the manufacturer … and invoiced to the Contractor”. • The clause did not impose any requirement that the contractor must itself pay excise duty directly to the authorities. • Because the wording is clear, reliance on negotiations, assumptions, or surrounding circumstances was legally impermissible.
3. Arbitral Tribunal Breached §28(3)
   • By giving primacy to the 27-08-2008 letter and reading an additional pre-condition (direct payment to tax authorities) into GCC 3.4.1.5, the tribunal disregarded the contract.
   • Such disregard constitutes a patent illegality on the face of the award, warranting annulment (cf. Sal Udyog, South East Asia Marine).
4. Scope of Appellate Review under §37
   • The Division Bench reiterated that it cannot conduct a “second-look” on merits.
   • Its only enquiry: did the §34 court apply correct tests? Answer: Yes; the Single Judge acted within §34 boundaries because the award violated express contract terms.

3.3 Potential Impact of the Decision

• Arbitration Practice: Re-affirms that tribunals must scrupulously respect contractual hierarchies and entire-agreement clauses. Awards that attempt to “re-write” contracts by importing pre-contractual communications are vulnerable.
• Contract Drafting: Emphasises the value of explicit “entire agreement” and “priority of documents” clauses; parties can safely rely on them to insulate final terms from earlier negotiations.
• Litigation Strategy: Provides a blueprint for challenging arbitral awards under §34 on patent-illegality grounds where tribunals stray from clear wording.
• Tax-reimbursement Clauses: Clarifies that, absent specific conditions, reimbursement promises cannot be nullified by procedural technicalities (such as who remitted the tax) if the contract language covers the scenario.
• Judicial Economy: Limits wasteful appeals by clarifying that §37 courts will not entertain merits-based challenges once a §34 court’s intervention is found lawful.

4. Complex Concepts Simplified

Patent Illegality

A ground added to §34 in 2015 permitting courts to set aside awards that are flagrantly contrary to law, public policy, or (relevant here) the express terms of the contract.

Entire Agreement Clause

A contractual provision stating that the written contract supersedes all prior negotiations and documents. It prevents parties from later relying on earlier emails, letters, assurances, etc., to vary the signed contract.

Hierarchy of Documents

A clause listing which contract parts prevail in case of conflict—e.g., GCC over Special Conditions, over Drawings, etc.

Section 28(3) of the Act

Mandates that arbitrators “shall decide in accordance with the terms of the contract”. Disregarding a clear clause is therefore a statutory violation.

Section 34 vs. Section 37

§34: first stage—petition to set aside award on limited grounds. §37: appeal against a §34 decision. The appellate court’s remit is even narrower: it checks whether the §34 court observed its limits.

5. Conclusion

The Division Bench in ONGC v. JSIW crystallises a key principle: Where contractual text is unambiguous, arbitral tribunals must give it full effect and may not dilute it by invoking earlier correspondence or presumed commercial intentions. Any award ignoring this command is tainted by patent illegality and is liable to be set aside under §34; an appellate court under §37 will not resuscitate such an award.

Practitioners should treat this judgment as a cautionary tale—both in arbitral drafting and conduct. Tribunals must remain faithful to the four corners of the written contract; parties must ensure that their contracts contain robust hierarchy and entire-agreement clauses; and litigants should recognise the stringent limits on appellate interference once a §34 court has spoken.