Delhi High Court
Bharat Heavy Electricals Limited vs Xiamen Longking Bulk Material Science ... on 21 August, 2025
Author: Jasmeet Singh
Bench: Jasmeet Singh
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 21.05.2025
Judgment pronounced on: 21 .08.2025
+ O.M.P. (COMM) 529/2020 & I.A. 10230/2020
BHARAT HEAVY ELECTRICALS LIMITED (BHEL)
.....Petitioner
Through: Mr. Arvind Chaudhary,
Mr. Vinay Kumar & Mr.
Sachin Chaudhary, Advs.
versus
XIAMEN LONGKING BULK MATERIAL SCIENCE & ENGG. CO.
LTD. .....Respondent
Through:
CORAM:
HON'BLE MR. JUSTICE JASMEET SINGH
JUDGMENT
1. This is a petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (for brevity "the Act") challenging the Arbitral
Award dated 03.07.2020 passed by the learned arbitrator in the
arbitration matter titled as "Xiamen Longking Bulk Material Science &
Engg. Co. Ltd. v. Bharat Heavy Electricals Limited (BHEL)".
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
FACTUAL BACKGROUND
2. The brief facts of the case as per the petitioner are that the petitioner is
a public sector undertaking and the respondent is a foreign company
incorporated under the laws of the People's Republic of China.
3. On 17.07.2015, the petitioner floated a tender and the respondent
participated in the same.
4. As part of the bidding process, on 25.04.2016, the respondent had
submitted a Project Execution Methodology (for brevity "the PEM"), in
which the respondent assured the petitioner that it could supply the
equipment and for local supplies, it stated it would either open an office
in India or partner with an Indian firm to handle supply, erection and
commissioning of the Mill Reject System (for brevity "the MRS"). The
two salient conditions of Clause 1 of the PEM were that the respondent
will set up a local office in India and open an Indian bank account to
facilitate the execution of the contract.
5. Based on the same, the petitioner issued three Letters of Award (for
brevity "the LoA") in favour of the respondent dated 01.12.2016.
6. On 14.12.2016, the respondent sent its letter of acceptance to the LoA
issued by the petitioner.
7. Thereafter, on several occasions, the respondent failed to open a local
office in India and did not furnish details of an Indian bank account or
local tax registrations as proposed in the PEM. Instead, the respondent
proposed that it can be permitted to use the office and the bank account
of an associated Indian company, namely, M/s Longking Engineering
India Pvt. Ltd. To which, the petitioner denied and insisted on strict
adherence to the PEM.
8. The respondent insisted upon the petitioner to issue the Purchase
Orders, however, the same could not have been issued until the
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
respondent had opened its India office and an Indian bank account. This
requirement existed because the Purchase Order must necessarily carry
the local Indian address of the seller along with its bank details for
remittance of payments, in accordance with the terms of the Purchase
Order.
9. The respondent sent an e-mail dated 03.06.2017 stating that if it is not
allowed to use the bank account of M/s Longking Engineering India
Pvt. Ltd., then it cannot continue the execution of the contract. The said
e-mail is reproduced as under:
"Dear Gaurav,
This is w.r.t. your mail dtd 2017/05/26 and here is our
response.
According to the previous email, we received the LOAs from
BHEL dtd 2016/12/02. At the same time, we were negotiating
with your company many times for the issue of receiving
rupee. And then we proposed to use the account of M/s
Longking Engineering India to receive rupee and issued a
conditional acceptance of LOA (refer to the mail dtd
2016/12/14), but your company did not accept at that time.
In the spirit of friendly cooperation with BHEL, we accepted
the LOAs on December 27, 2016.
When we visited BHEL-PSSR and BHEL-PEM in January and
April 2017, your people verbally agreed that Xiamen Longking
could sign a JV with Longking India, then the account of
receiving rupee shall be the account of M/s Longking
Engineering India Pvt. Ltd. And as you know, both Xiamen
Longking and Longking India belong to the same parent
company.
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
However, after we prepared all the documents with Longking
India, in the mail dtd 2017/05/26, you denied the JV with
Longking India and informed that the PO & WO have to be
issued in the name of M/s Xiamen Longking Bulk Materials
Science and Engg. Co. Ltd. and all legal and financial
registrations in the name of M/s Xiamen Longking Bulk
Materials Science and Engg. Co. Ltd. only can be accepted.
We have tried a lot of times on opening the bank account of
Xiamen Longking but it is still not feasible.
In a word, we hope BHEL will consider the actual situation of
our company and agree us to use the account of M/s Longking
Engineering India to receive rupee. Otherwise, we have no
way to continue the execution of the project."
10. On 17.07.2017, the petitioner issued a communication to the respondent
invoking the "risk and cost" clause under the contract.
11. On 30.11.2017, the petitioner issued a letter to the respondent, stating
that an amount of Rs. 2,12,47,107.40/- was recoverable on account of
the risk and cost amount. The letter further stated:
"This is to inform you that, since you have failed to honour
and deliver as per the provisions of the contract referred to in
the subject line, we have initiated procurement of the said
material from an alternate source."
12. On 14.12.2017, the respondent sent a letter questioning the cancellation
of contract by the petitioner and thereafter, on 12.10.2018, the
respondent invoked the arbitration clause of the General Conditions of
Contract (for brevity "the GCC"), being Clause 32.1, which reads as
under:
"32. ARBITRATION
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
32.1 In the event of any dispute or difference arising out of
execution of order/ contract or the respective rights and
liabilities of the parties or in relation to interpretation of any
provision by Seller/ Contractor in any manner touching upon
order/ contract, such dispute or difference shall (except as to
any matters, the decision of which is specifically provided for
therein) be referred to the arbitration of the person appointed
by the competent authority of Purchaser.
Subject as aforesaid, the provisions of Arbitration and
Conciliation Act, 1996 (India) or statutory modifications or
reenactments thereof and the rules made thereunder and for
the time being in force shall apply to the arbitration
proceedings under this clause. The venue of arbitration shall
be at New Delhi."
13. The respondent raised the following claims before the learned
arbitrator:
S. No. Particulars/Claims Amount (In INR)
i. Preparation of bid. 26,95,000/-
ii. Design and engineering cost. 29,75,000/-
iii. Cost of preparation of 65 drawings. 13,65,000/-
iv. Copyright fee. 52,50,000/-
v. Travel expenses. 17,50,000/-
vi. Public management fee. 10,50,000/-
vii. Loss of profit and overhead for 83,27,768/-
unexecuted work of contract.
viii. Pre suit pendente lite and future interest
@ 18% p.a. on all claims.
ix. Cost of Arbitration and Litigation 70,00,000/-
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
TOTAL AMOUNT CLAIMED 3,04,12,768/-
14. The petitioner filed a counter-claim on account of risk and cost amount
equivalent to Rs. 2,12,47,107.04/- and litigation cost of Rs. 35,00,000/-.
Thus, the total amount claimed by the petitioner by way of its counter
claims was Rs. 2,47,47,104.04/-.
15. On 03.07.2020, the learned arbitrator passed the impugned arbitral
award, wherein the learned arbitrator directed payment of a sum of Rs.
13,65,000/- along with pendente lite and future interest @ 6% per
annum with effect from 01.01.2019 till realisation, towards the cost of
preparation of 65 drawings, including the cost of draftsman, printing
and preparation charges.
16. The relevant paragraphs of the impugned arbitral award read as under:
"100. I find that the claimant has considered it to be an
opportunity to claim a huge amount from the respondent.
However, all the same, it (the claimant) is entitled to claim the
amount under clause (C). It is Rs. 13,65,000/(Rupees Thirteen
Lakhs Sixty Five Thousand Only) being the cost of preparation
of 65 drawings. It is a fact that the 65 drawings submitted by
the claimant were neither returned nor rejected. The claimant
is justified to claim this particular amount.
...
119. The claimant is accordingly awarded interest @ 6% per
annum on Rs. 13,65,000/- (Rupees Thirteen Lakhs Sixty Five
Thousand Only) from 01.01.2019 till the payment is made."
17. Aggrieved by the impugned arbitral award, the petitioner has filed the
present petition.
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
SUBMISSIONS ON BEHALF OF THE PETITIONER
18. Mr. Chaudhary, learned counsel for the petitioner, states that the
impugned arbitral award is ex facie illegal, arbitrary and passed without
the application of the judicial mind and is therefore liable to be set
aside.
19. It is stated that the impugned arbitral award is against both the settled
principles of law and the facts on record. The learned arbitrator, being a
creature of the contract, could not travel beyond its express terms, yet
has done so by giving an interpretation to the contract and the
communications exchanged between the parties that is extraneous to the
record. This renders the award irrational and perverse.
20. The specific instances of such deviation are as follows:
A. The findings in paragraph 63 of the impugned arbitral award are
contrary to the PEM.
B. The conclusion that payment was to be made after execution of
the contract is contrary to the contractual terms.
C. The finding regarding the person representing the respondent, in
paragraph 37 of the impugned arbitral award, is inconsistent with
the documents placed on record, despite the said person having
appeared as a witness.
D. The learned arbitrator erred in holding that time was not the
essence of the contract, in paragraphs 54 and 55 of the impugned
arbitral award, despite the LoA, the GCC and the Special
Conditions of Contract specifically stipulating otherwise.
21. Reliance is placed on the following judgments to submit that the
learned arbitrator cannot render findings contrary to contractual terms:
A. Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15
SCC 131;
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
B. Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644;
C. Shri Lal Mahal Ltd. v. Progetto Grano SpA, (2014) 2 SCC 433;
and
D. Vijay Karia v. Prysmian Cavi E Sistemi SRL, (2020) 11 SCC 1.
22. It is further stated that the impugned arbitral award is against the public
policy of India and suffers from violations of the principles of natural
justice. In particular, the reliance by the learned arbitrator on the Note
to Clause 9.6 of the GCC, in paragraphs 77 and 79 of the impugned
arbitral award, is arbitrary, as the respondent never pleaded or argued
that it sought payment through a Letter of Credit (for brevity "an LC").
The parties were given no opportunity to present arguments on this
issue. Once the parties had agreed that the respondent would open an
Indian bank account in compliance with the Reserve Bank of India (for
brevity "the RBI") guidelines, the matter was not open to
reinterpretation by the learned arbitrator.
23. The learned arbitrator failed to appreciate the contentions of the
petitioner, the facts of the case and specific clauses of the contract,
including the PEM agreed between the parties. Under the PEM,
opening of a project office in India for execution of the Indian
component, as per the RBI guidelines, was a pre-requisite. The Indian
and foreign components of the contract were not severable, making this
a mandatory condition for execution. The respondent itself had
proposed to set up an Indian office and open an Indian bank account to
receive Indian Rupee, instead of opting for an LC. The finding of the
learned arbitrator that payment could have been made through an LC or
that meetings could have been arranged via video conference is beyond
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
the pleadings, arbitrary and whimsical, especially when such an
argument was never raised by either party.
24. The learned arbitrator ignored the vital evidence of the incapacity of the
respondent and refusal to fulfil its obligation to open a project office
and an Indian bank account for receiving Indian Rupee (vide email and
letter dated 23.01.2017). Instead, the respondent sought to use the bank
account of a third party, M/s Longking Engineering India Pvt. Ltd., a
complete stranger to the contract. At no stage was it agreed that
payment could be made through an LC. It is impermissible in law to
remit contractual payments to a third party unconnected with the
contract.
25. The learned arbitrator failed to appreciate the evidence of the witness of
the petitioner, who categorically stated that the details of the Indian
office and bank account were required before issuance of the Purchase
Order. This critical evidence was overlooked, resulting in an erroneous
finding.
26. The learned arbitrator failed to appreciate that the contract stood
repudiated by the email dated 03.06.2017 sent by the respondent,
wherein it expressly refused to continue execution unless allowed to use
the bank account of M/s Longking Engineering India Pvt. Ltd. for
receipt of the Rupee component. Following this, the petitioner, by letter
dated 17.07.2017, invoked the risk-and-cost clause and accepted the
repudiation. The learned arbitrator ignored Section 39 of the Indian
Contract Act, 1872 (for brevity "the ICA"), which entitles the promisee
to terminate the contract upon such refusal or inability to perform.
Reliance is placed on Ashling v. L.S. John, (1984) 1 SCC 205 and
Jawahar Lal Wadhwa & Anr. v. Haripada Chakraborty, (1989) 1
SCC 76.
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
27. Furthermore, the award of Rs. 13,65,000/- towards design and
engineering costs is based on no evidence. The calculation was
arbitrarily derived from total employee salaries for a certain period, on
the assumption that the employees were exclusively engaged on this
project. This assumption is irrational and unsupported. Out of 65
drawings submitted by the respondent, only 18 were approved by the
petitioner. The contract required detailed engineering drawings to be
approved and many initial submissions required significant revisions.
Unapproved drawings, being of no utility to the petitioner, could not
have formed the basis for any award.
28. In addition, in awarding pendente lite interest future interest, the
learned arbitrator failed to consider Clause 9.11 of the GCC. The
learned Arbitrator relied on Ambica Construction v. Union of India,
(2017) 14 SCC 323, but ignored binding precedent prohibiting such
award in the present circumstances, namely:
A. Garg Builders v. BHEL, (2022) 11 SCC 697;
B. Union of India v. Manraj Enterprises, (2022) 2 SCC 331; and
C. Jaiprakash Associates v. Tehri Hydro Development
Corporation India Ltd., AIR 2019 SC 5006.
29. Lastly, on the consequences of repudiation, Section 75 of the ICA
stipulates that a party rightfully rescinding a contract is entitled to
compensation for damage sustained through non-performance. Since
the respondent wrongfully repudiated the contract, it had no entitlement
to raise claims. Further reliance is placed on Sections 57 and 60 of the
Sale of Goods Act, 1930, to contend that once the respondent
committed anticipatory breach, it was barred from setting up claims
against the petitioner.
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
30. However, the learned arbitrator failed to appreciate that the inability of
the petitioner to produce proof of certain payments could not negate the
fact of wrongful repudiation. Moreover, the LoA issued by the
petitioner to the subsequent vendor, duly placed on record, was ignored.
31. Hence, the impugned arbitral award is based on conjectures and
surmises, ignoring the express terms of the contract, the pleadings and
the evidence on record, rewriting the terms of the contract and thus, is
liable to be set aside as it is in conflict with the public policy of India
under Section 34(2)(b)(ii) of the Act.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
32. The respondent has been served in the petition and has filed its reply to
the petition. Vide the Order dated 30.04.2025 passed by this Court, a
court notice was served to the respondent at their e-mail addresses,
namely, [email protected] and [email protected] and as per
the service report, the respondent has been served. However, nobody
has been appearing on behalf of the respondent. Hence, I proceed to
adjudicate the present matter with the reply of the respondent already
on record.
33. It is submitted that the present petition is not maintainable and is devoid
of merit, as the scope of interference under Section 34 of the Act is
narrowly circumscribed and none of the statutory grounds have been
demonstrated. It is well settled that examination of evidence and
interpretation of contractual clauses fall within the exclusive domain of
the learned arbitrator, who is the final arbiter of disputes and the sole
judge of the quality and quantity of evidence before him. In the present
case, the learned arbitrator has duly applied his mind to the material on
record and arrived at a reasoned conclusion. The objections filed
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
amount to a mere attempt at re-examining and re-appreciating evidence
and contractual interpretation, which is impermissible under Section 34
proceedings and therefore, the impugned arbitral award warrants no
interference.
34. The petitioner has admitted that the respondent is a subsidiary of Fujian
Longking and that both entities are part of the same group. In 2015, the
respondent, through its parent company Fujian Longking Co. Ltd.,
approached the petitioner and submitted documents and credentials to
participate in the notice inviting tender. Copies of relevant emails
annexed as Exhibit C-1 (Colly) in the arbitral record substantiates this
position. Furthermore, prior to the notice inviting tender and in
response to the request of the petitioner, the respondent specifically
informed the petitioner of its subsidiary status and supplied supporting
documents via emails dated 19.01.2016 and 06.02.2016, annexed as
Exhibit C-2 (Colly) in the arbitral record.
35. It is denied that the respondent undertook to supply the MRS by
opening its office in India or engaging a local partner for supplies,
erection and commissioning. For the Indian component of the package,
the respondent intended to establish a project office in Delhi at a later
stage, which was unrelated to the foreign supply of the MRS and not a
preliminary work obligation. The PEM clearly outlines the steps
commencing from order acceptance. Under the LoA, MRS drawings
were to be submitted by the respondent and approved by the petitioner
before commencement of MRS spares supply. It is an admitted fact that
the petitioner failed to approve these drawings, making it impossible to
commence subsequent project activities. The LoA expressly stipulated
that completion of the supply portion would be within 12 months from
the date of final drawing/document approval. The learned arbitrator, in
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
paragraph 51 of the impugned award, has duly recorded reasons for
these findings.
36. The allegation that the respondent intended only to delay and litigate is
baseless. The petitioner itself failed to perform reciprocal obligations
and to cooperate. As of the termination notice dated 17.07.2017, the
petitioner had approved only 19 out of 65 submitted drawings.
Consequently, the 12-month completion period had not commenced
and the delay was entirely attributable to the petitioner. The respondent
had commenced execution as per the PEM, but the petitioner hindered
progress and illegally terminated the contract. The learned arbitrator
addressed this comprehensively in paragraphs 59-63 of the impugned
award. A conjoint reading of the LoA and Clause 9.3 of the GCC
confirms that opening an Indian office or bank account was not a
primary precondition for commencing work.
37. While the respondent proposed using the office and bank account of
M/s Longking Engineering India Pvt. Ltd., this was consistent with the
accepted conditional LoA. The respondent was still executing the
project in accordance with the LoA and PEM when the petitioner
illegally terminated the contract. The contention, raised for the first
time in these proceedings, that purchase orders could not be issued until
the respondent opened its Indian office and bank account, was neither
pleaded nor argued before the learned arbitrator. No such requirement
was ever communicated prior to 26.05.2017.
38. The claim that the impugned arbitral award is contrary to the public
policy of India or based on an extraneous interpretation of the contract
is incorrect. The reliance of the learned arbitrator on the Note to Clause
9.6 of the GCC, in paragraphs 77 and 79 of the impugned arbitral
award, is sound and supported by the record. The petitioner itself
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
referred to Clause 9.6 in its written synopsis and arguments, to which
the respondent replied and referred to the Note during oral arguments.
The LoA's payment terms stipulated that 85% payment for imported
supply would be released through a 60-day usance LC against receipted
LR. Payment for imported items was thus to be made only through LC,
rendering the insistence of the petitioner on an Indian bank account
contrary to the contract.
39. As per the LoA, the supply of the main package commissioning spares
and mandatory spares and the erection and commissioning of the MRS,
was to be completed within 12 months from the date of final drawing
approval. Since the petitioner failed to approve the submitted drawings,
the delivery schedule had not commenced, making the termination
illegal. Under the LoA and Clause 9.3 of the GCC, payments were due
after dispatch and issuance of a Material Receipt Certificate, so opening
an Indian bank account before delivery was irrelevant. In fact, the email
of the petitioner dated 15.12.2016 acknowledged there was "enough
time to open the INR account... as the payments are made only after
dispatches have begun", confirming that non-opening of the account
had no bearing on drawing approvals.
40. The learned arbitrator correctly held that setting up a project office was
not a mandatory condition for execution. Paragraph 3 of the PEM
outlines a stepwise process where setting up a site office (step 9)
follows several preliminary steps, including drawing approval. The
petitioner failed to place a Purchase Order on the respondent and never
indicated that Indian office or bank details were required for this. The
petitioner's own witness admitted that drawings for both Indian and
foreign components required prior approval, which the petitioner failed
to provide. The learned arbitrator rightly concluded that the non-
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
opening of a project office and bank account was immaterial at that
stage.
41. The learned arbitrator further held that the contract was wrongly
terminated by the petitioner. Emails dated 03.06.2017 and 04.06.2017
demonstrate the willingness of the respondent to continue execution.
The reliance of the petitioner on Section 39 of the ICA is an
afterthought and irrelevant.
42. Further, the award of Rs. 13,65,000/- towards design and engineering
cost is supported by evidence, including salary slips, correspondence
relating to the submission of drawings and the petitioner's own
confirmation of receiving all 65 drawings. These drawings were neither
returned nor rejected.
43. Lastly, the reliance on Jaiprakash Associates v. Tehri Hydro
Development Corporation, AIR 2019 SC 5006, is misplaced and
inapplicable, having not been raised before the learned arbitrator. The
award of pendente lite interest is correct and in accordance with law.
44. The learned arbitrator, after considering all evidence and submissions,
allowed one claim of the respondent and rejected the counterclaim of
the petitioner. The allegation that the impugned arbitral award was
passed in an arbitrary manner is unfounded.
ANALYSIS AND FINDINGS
45. I have heard leaned counsel for the petitioner and perused the material
available on record.
46. As is apparent from the above, the controversy that falls for
consideration before this Court is whether the learned arbitrator:
A. Ignored express contractual stipulations in the LoA, GCC and
PEM;
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
B. Rendered findings beyond the pleadings and contrary to the case
of both parties; and
C. Awarded sums without evidentiary foundation.
A. Contractual Precondition of Opening a Local Office and Bank
Account
B. Reliance on the Note to Clause 9.6 of the GCC - Beyond Pleadings
47. Clause 1 of the PEM, which formed part of the bid of the respondent
and was accepted by the petitioner, contained clear undertakings by the
respondent to open an office in India and an Indian bank account before
commencement of execution of the Indian component of the contract.
This was not a mere formality and it was central to compliance with the
RBI guidelines and as per the law. Clause 1 of the PEM reads as under:
"1. Project Office:
In order to implement the Indian component of the package,
Xiamen Longking Bulk Materials Science and Engineering Co.
Ltd. will establish a Project Office at Delhi, India in
accordance with RBI guidelines and as per law. The Office
will be staffed by Xiamen Longking Bulk Materials Science
and Engineering Co. Ltd. China and Indian personnel.
Necessary guidance monitoring and support in terms of
manpower, finances etc. will be provided by Xiamen Longking
Bulk Materials Science and Engineering Co. Ltd. Nationality
to this office.
The Project Office will be headed by a Project Director who
will be the Officer in Charge for this package.
All coordination with Clients will be effected by this office."
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
48. The LoA explicitly incorporated the PEM, stating:
"(vi) For execution of contract, please refer Project Execution
Methodology (attached) submitted by M/s Xiamen Longking
vide email dtd 25.04.2016."
49. Clause 9.10 of the GCC provided for the mode of payment as under:
"9.10 MODE OF PAYMENT
Payments shall be made directly to the Seller/ Contractor by
E-transfer. Seller/ Contractor to provide necessary
information for the same as per Annexure - VII."
50. A conjoint reading of the PEM, LoA and GCC leaves no scope for
payment to any unrelated third party or for waiver of the local
office/bank account requirement without the consent of the petitioner.
51. Further, by email dated 26.05.2017, the petitioner reiterated that the
issuance of Purchase Orders required the local address and bank details
of the seller. The relevant paragraph reads as under:
"BHEL has been repeatedly expressing concern (mail dtd
03/04/2017 attached) in the inordinate delay by M/s Xiamen
Longking Bulk Materials Science and Engg. Co. Ltd. in
initiating the execution of the contract by establishing a
project office at Delhi (India) in accordance with RBI
Guidelines and as per Indian law. This is delaying placement
of formal purchase order by BHEL Power Sector (Southern
Region) office."
52. The finding of the learned arbitrator that the requirement to establish a
project office and bank account could be deferred until after drawing
approval and even substituted by the use of a third party's bank
account, is a direct departure from the contractual framework.
53. The relevant paragraph of the impugned arbitral award reads as under:
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
"63. Otherwise also, the question of payment of any amount by
the respondent would have arisen only after the completion of
the project. It was for this reason that in the email dated
15.12.2016 (Page 165 of SOC), it was asserted by the
respondent that the claimant had enough time to open the INR
account in the name of the claimant. The parties had been
making use of the technology and were exchanging their
views/requirements through emails. The respondent could
have, on finding the response of the claimant that it was not
having any project office in India and was requesting to allow
it to make use of the office of Xiamen Longking in India,
straightway informed the claimant that it would not proceed
further in the matter. However, it did not do so. The non-
opening of the project office and a bank account in India, in
my opinion, were not necessary for proceeding further
particularly when the parties had been exchanging their views
through emails and only the drawings had been submitted. The
discussion, if any, could have been dealt through video
conferencing, which is, nowadays, in vogue. Nowadays
meetings are being arranged and held through video
conferencing and judicial notice of this fact can be taken. The
respondent on its part, as it is a big organization, could have
requested the claimant to clarify its doubts either through
emails or through video conferencing or could have spelt out
in an equivocal terms that it was not going to proceed further
because of non-opening of the project office in Delhi. In my
view, even the respondent did not take it to be a basic necessity
for proceeding further."
Digitally Signed
By:DEEPANSHU MALASI _______________________________________________________________________________________
Signing Date:21.08.2025
14:46:24
54. The learned arbitrator held that these requirements were not necessary
for proceeding further and could be substituted with electronic mails or
video conferencing. Such reasoning overlooks that these obligations
were not procedural conveniences but contractual pre-conditions
expressly agreed upon by the parties.
55. The reliance of the learned arbitrator on the email of the petitioner
dated 15.12.2016 is misplaced. The email expressly stated:
"Please plan kick-off meeting for the subject project and
package at the earliest.
Regarding payments in INR, you have enough time to open the
INR account in the name of M/s Xiamen Longking as the
payments are made only after dispatches have begun. LOAs
have been issued keeping in view project execution
methodology furnished by M/s Xiamen Longking.
Unconditional acceptance of 3 Letter of Awards shall be sent
per return mall Immediately for us to place the Purchase
Orders.
Any other matter can be discussed during the kick off
meeting."
This communication reinforces that the PEM obligations were
acknowledged by the petitioner and formed part of the agreed project
execution mechanism.
56. Further, in the communications between the parties, the respondent did
not deny the obligation of opening an Indian office and bank account,
instead only highlighted its inability to do so.
57. By disregarding these stipulations and denying the obligations, the
learned arbitrator has in effect re-written the contract. The PEM was not
ancillary, but was integral to the project framework and together with
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the LoA and GCC, imposed the obligations for execution of the Indian
component, including the establishment of a project office in India and
the opening of an Indian bank account to receive INR payments.
58. The plain language of the PEM, when read with the e-mail dated
26.05.2017 that purchase orders must carry the local address and bank
details of the seller, makes it clear that these were necessary pre-
conditions for issuance of domestic purchase orders. A construction
treating these obligations as optional or deferrable until after material
dispatch is inconsistent with the contractual framework and the
contemporaneous understanding between the parties.
59. The further view of the learned arbitrator that payment could have been
arranged through an LC, by reference to the Note under Clause 9.6 of
the GCC, is inconsistent with the PEM, LoA and GCC when read
together. The PEM expressly contemplated direct INR payments into an
Indian account of the seller and did not envisage LC arrangements as a
substitute.
60. Another contention of the petitioner is that the learned arbitrator
violated principles of natural justice by relying on the Note to Clause
9.6 of the GCC to conclude that payment could have been made
through a Letter of Credit, which was not pleaded or argued by either
parties for such a mode of payment as an alternative to the agreed bank
account arrangement.
61. The relevant extract of the Note to Clause 9.6 of the GCC reads as
under:
"9.6 ...
Note: ...
2) Foreign bidders can opt for payment (less agency
commission, if applicable) through irrevocable and
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unconfirmed letter of credit. In that case for evaluation
purpose, prices of foreign bidders will be loaded on account of
payment through LC, equal to loading specified against
'Payment through Bank' in Annexure-VIII. No loading will be
done if foreign vendors agree for 90 days usance LC or submit
the documents on collection basis for payment within 90 days
of submission of complete documents. ..."
62. The relevant paragraph of the impugned arbitral award reads as under:
"79. It is not in dispute that the claimant is a foreign bidder.
The LOAs (Pages 73, and 79 of SOC) show the ex-works
prices. The same are in INR as well as USD. In my view, the
insistence of the respondent to have a project office in India
ignoring the contents of the 'Note' to clause 9.6 on (Page 111
of SOC) was uncalled for. The respondent had been requesting
the claimant to proceed. If the opening of the project office in
Delhi by the claimant was of such an importance for the
respondent, it should have, at the threshold, informed the
claimant that there would not be any correspondence or
progress in the matter unless the project office is opened in
Delhi and the claimant has a bank account and other related
facilities, as per law, in India."
63. However, the learned arbitrator completely ignored Annexure VIII of
the GCC, mentioned in the Note to Clause 9.6, which clearly states that
no deviation from GCC terms is generally acceptable and only in
exceptional circumstances, the deviations are applicable. The relevant
extract of Annexure VIII is reproduced as as under:
"No deviations in GCC terms and conditions are generally
acceptable, and bids with deviations are liable to be rejected.
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However, in exceptional circumstances, BHEL may accept
deviations with Loading as given below:"
64. The case of the petitioner throughout was that the bank account in India
was mandatory and the suo motu reliance of the learned arbitrator on an
unpleaded ground has prejudiced the position of the petitioner. I am of
the view that by introducing the Note to Clause 9.6 as a determinative
factor, without affording the parties an opportunity to address it,
amounts to a violation of Section 18 of the Act, which guarantees a full
opportunity to present one's case. The prejudice to the petitioner is
manifest as it had no occasion to lead evidence or argue whether the
payment through an LC under the Note to Clause 9.6 of the GCC could
replace the agreed payment mechanism under the PEM. This procedural
shortcoming also vitiates the impugned arbitral award.
65. Where an arbitral interpretation conflicts with the plain contractual
scheme, the Court must examine whether the view of the learned
arbitrator is even a plausible one. In this case, the interpretation not
only lacks plausibility but also substitutes a new contractual regime.
66. The Hon'ble Supreme Court in PSA Sical Terminals (P) Ltd. v. V.O.
Chidambranar Port Trust, (2023) 15 SCC 781, held that rewriting a
contract for the parties breaches fundamental principles of justice,
falling within the exceptional category warranting interference under
Section 34 of the Act. The Court reiterated that a party cannot be made
liable to perform something for which it has not contracted and
unilateral alterations cannot be foisted upon an unwilling party. The
relevant paragraphs read as under:
"84. After referring to various international treaties on
arbitration and judgments of other jurisdictions, this Court in
Ssangyong Engg. & Construction Co. Ltd. [Ssangyong Engg.
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& Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020)
2 SCC (Civ) 213] , observed thus : (SCC pp. 199-200, para
76)
"76. However, when it comes to the public policy of
India, argument based upon "most basic notions of
justice", it is clear that this ground can be attracted
only in very exceptional circumstances when the
conscience of the Court is shocked by infraction of
fundamental notions or principles of justice. It can
be seen that the formula that was applied by the
agreement continued to be applied till February
2013 -- in short, it is not correct to say that the
formula under the agreement could not be applied in
view of the Ministry's change in the base indices
from 1993-1994 to 2004-2005. Further, in order to
apply a linking factor, a circular, unilaterally issued
by one party, cannot possibly bind the other party to
the agreement without that other party's consent.
Indeed, the circular itself expressly stipulates that it
cannot apply unless the contractors furnish an
undertaking/affidavit that the price adjustment under
the circular is acceptable to them. We have seen
how the appellant gave such undertaking only
conditionally and without prejudice to its argument
that the circular does not and cannot apply. This
being the case, it is clear that the majority award
has created a new contract for the parties by
applying the said unilateral circular and by
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substituting a workable formula under the
agreement by another formula dehors the
agreement. This being the case, a fundamental
principle of justice has been breached, namely, that
a unilateral addition or alteration of a contract can
never be foisted upon an unwilling party, nor can a
party to the agreement be liable to perform a
bargain not entered into with the other party.
Clearly, such a course of conduct would be contrary
to fundamental principles of justice as followed in
this country, and shocks the conscience of this
Court. However, we repeat that this ground is
available only in very exceptional circumstances,
such as the fact situation in the present case. Under
no circumstance can any court interfere with an
arbitral award on the ground that justice has not
been done in the opinion of the Court. That would be
an entry into the merits of the dispute which, as we
have seen, is contrary to the ethos of Section 34 of
the 1996 Act, as has been noted earlier in this
judgment."
(emphasis supplied)
85. As such, as held by this Court in Ssangyong Engg. &
Construction Co. Ltd. [Ssangyong Engg. & Construction Co.
Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] ,
the fundamental principle of justice has been breached,
namely, that a unilateral addition or alteration of a contract
has been foisted upon an unwilling party. This Court has
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further held that a party to the agreement cannot be made
liable to perform something for which it has not entered into a
contract. In our view, rewriting a contract for the parties
would be breach of fundamental principles of justice entitling
a court to interfere since such case would be one which shocks
the conscience of the court and as such, would fall in the
exceptional category."
67. Similarly, this Court in Union of India, Ministry of Railways, Railway
Board & Anr. v. Jindal Rail Infrastructure Limited, 2022 SCC
OnLine Del 1540, held that while commercial interpretation is
permissible where terms are ambiguous, it is impermissible to re-work
a bargain on grounds of commercial difficulty. Altering agreed terms
amounts to rewriting the contract, rendering the award in conflict with
the fundamental policy of Indian law. The relevant paragraphs read as
under:
"75. It is not necessary that all contracts yield a profit; some
result in a loss as well. This is not a factor to permit a party to
avoid its contractual obligations.
76. In cases where it is found that the terms of the contract do
not clearly express the intentions of the parties, it is open to
seek recourse to various tools of interpretation. This would
include interpreting a contract in a manner that would make
commercial sense as it is assumed that men of commerce
would have intended it so. However, it is not open to re-work a
bargain that was struck between the parties on the ground that
it is commercially difficult for one party to perform the same.
77. The decision of the Arbitral Tribunal to award the
difference between the price quoted by the tenderers and the
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price quoted by JRIL, is unsustainable. It amounts to re-
writing the contract between the parties. The impugned award
is in conflict with the fundamental policy of Indian law and is
vitiated by patent illegality."
68. Applying these principles, the impugned arbitral award, by altering the
agreed preconditions under the PEM, LoA and GCC and substituting a
new contractual regime, violates the fundamental policy of Indian law
and the principles of natural justice, and falls within the narrow
exceptions permitting interference under Section 34 of the Act.
C. Award of Rs. 13,65,000/- and No Evidentiary Basis
69. The learned arbitrator awarded Rs. 13,65,000/- towards the cost of
preparation of 65 drawings, including the cost of draftsman, printing
and preparation charges. The finding of the learned arbitrator is as
under:
"100. I find that the claimant has considered it to be an
opportunity to claim a huge amount from the respondent.
However, all the same, it (the claimant) is entitled to claim the
amount under clause (C). It is Rs. 13,65,000/(Rupees Thirteen
Lakhs Sixty Five Thousand Only) being the cost of preparation
of 65 drawings. It is a fact that the 65 drawings submitted by
the claimant were neither returned nor rejected. The claimant
is justified to claim this particular amount."
70. The petitioner contends that the same is unsupported by evidence and
that it is simply the sum total of employee salaries for a certain period,
on the assumption that the employees were exclusively engaged on this
project. Further, the claim of the respondent was premised on the
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submission of 65 drawings, however, only 18 were approved and the
rest required significant revisions.
71. The PEM expressly linked the procurement of material by the
respondent based on the approved and utilised drawings by the
petitioner. By awarding costs for all 65 drawings without proof of their
approval, utilisation or benefit to the petitioner, the learned arbitrator
acted on conjectures rather than evidence. Clause 8 of the PEM reads as
under:
"8. Material Procurement:
Xiamen Longking Bulk Materials Science and Engineering Co.
Ltd. starts with the procurement of material based on the
tender requirements and as soon as drawings and data sheets
are approved by customer the procurement position is re
checked for compliance with approved documents. The
dispatch shall be scheduled in stages to assure availability of
the requisite materials based on the mile stones."
72. Significantly, the learned arbitrator himself recorded that an aggregated
salary data, without proof of exclusive engagement on the project, was
unreasonable. The relevant paragraph of the impugned arbitral award
reads as under:
"96. I have carefully gone through pages 223 to 467 of
Volume-II. It appears that the claimant treated it to be an
opportunity to claim everything from the respondent. It is
claiming the salaries of its four employees for seven months
and seven employees for five months. This is evident from
Pages 223 to 330 of Volume-H. The copyright fee for the
drawings is shown in Ex.CW-1/37. The travelling expenses are
shown in Ex. CW-1/38. The salary of Sh. Anmol, CW-1, from
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July 2015 to June 2017 has been claimed vide Pages 441 to
467 of Volume-H. The claimant wants this tribunal to accept
its claim that all these employees did not do anything for these
several months except the project assigned to them through the
LOAs."
73. On perusal, it is expressly noted that the respondent expected the
learned arbitrator to accept, without corroboration, that the employees
worked solely on this project for the claimed periods, remarking under
paragraph 97 of the impugned arbitral award, that "one has to be fair
while claiming the amount" and "there has to be justification for each
and every claim".
74. Despite rejecting other such claims for lack of exclusive project
engagement, the learned arbitrator, in contradiction to his own
reasoning, allowed the entire claimed amount of Rs. 13,65,000/-
towards 65 drawings. The record indicates that this figure too was
derived from salary payslips for a five to seven months period, without
any evidence of approval or use of the drawings by the petitioner, nor
any demonstrated value derived therefrom.
75. Further, no reasoning or calculation method was provided by the
learned arbitrator behind allowing the whole claimed amount of Rs.
13,65,000/- to cover the design and engineering cost of all the 65
drawings.
76. In Satluj Jal Vidyut Nigam Ltd. v. Jaiprakash Hyundai Consortium &
Ors., 2023 SCC OnLine Del 4039, this Court underscored the need for
caution in entertaining financial claims without proper evidentiary
basis. The relevant paragraph reads as under:
"57. Entertaining financial claims based on novel
mathematical derivations, without proper foundation in the
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pleadings and/or without any cogent evidence in support
thereof can cause great prejudice to the opposite party.
Especially in the context of construction contracts where
amounts involved are usually astronomical, any laxity in
evidentiary standards and absence of adequate diligence on
the part of an arbitral tribunal in closely scrutinizing financial
claims advanced on the basis of mathematical derivations or
adoption of novel formula, would cast serious aspersions on
the arbitral process. The present case is an example where
substantial liability has sought to be fastened on one of the
contracting parties based on specious paper calculations. It
cannot be overemphasized that arbitral tribunals must exercise
due care and caution while dealing with such claims."
77. Hence, in the present case, the award of Rs. 13,65,000/- is not the
outcome of a reasoned evaluation based on cogent evidence but is
instead a conclusion based on guesswork and not supported by any
evidence. Thus, it is in conflict with the most basic notions of justice.
78. In view of the findings above, the challenge by the petitioner to the
award of Rs. 13,65,000/- along with interest @ 6% per annum with
effect from 01.01.2019 till realisation, is upheld.
CONCLUSION
79. Consequently, the present petition under Section 34 of the Act is
allowed and the Arbitral Award dated 03.07.2020 passed by the learned
arbitrator in the arbitration matter titled as "Xiamen Longking Bulk
Material Science & Engg. Co. Ltd. v. Bharat Heavy Electricals Limited
(BHEL)", is hereby set aside, being in conflict with the fundamental
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policy of Indian law as well as the fundamental principles of natural
justice under Section 34(2)(b)(ii) of the Act.
80. The amount deposited by the petitioner with the Registrar General,
Delhi High Court, vide the Order dated 09.11.2020 passed by this Court
in I.A. 10230/2020, shall be released to the petitioner along with the up-
to-date accrued interest, within 4 weeks from today.
81. Accordingly, the petition is allowed.
JASMEET SINGH, J
AUGUST 21, 2025 / shanvi
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