The Delhi High Court has set aside a portion of an arbitral award directing GAIL (India) Limited to pay Rs. 2.27 crore towards Goods and Services Tax (GST) to a contractor now in liquidation.
The bench of Justice Jyoti Singh held that the Arbitrator’s direction was contrary to law under the GST regime and amounted to rewriting the contract between the parties.
The dispute arose out of a contract which clearly stipulated that GST was a reimbursable item. The liability of GAIL to pay GST reimbursement arose only after the contractor had discharged its primary liability of depositing GST with the authorities and filing returns.
The Arbitrator, while noting that the contractor had admittedly not deposited the GST nor filed returns, nonetheless directed GAIL to release ₹2,27,11,007/- to the contractor. The direction was made subject to the Liquidator furnishing an affidavit of undertaking to deposit the amount with the GST authorities.
The Court found this direction untenable. It observed that once the Respondent had failed to deposit GST or file returns, no liability could be imposed on GAIL to release the funds. It emphasized that the Arbitrator had “virtually rewritten the contract”, something impermissible under the Arbitration and Conciliation Act, 1996.
The Bench also highlighted the double prejudice that would be caused to GAIL if the award was implemented. Since the contractor never deposited GST or filed returns, GAIL would now be unable to claim input tax credit for a like value, even if the amount was deposited belatedly.
While the Court upheld the Arbitrator’s findings on other aspects—such as reimbursement of wrongly encashed bank guarantees—it categorically ruled that the GST reimbursement award could not be sustained. Accordingly, that portion of the award was set aside.
Case Details
Case Title: GAIL (INDIA) LIMITED Versus PETRON ENGINEERING CONSTRUCTION LIMITED
Case No.: O.M.P. (COMM) 445/2023 and I.A. 21460/2023
Date: 18th August, 2025
Counsel For Petitioner: Rajshekhar Rao, Senior Advocate
Counsel For Respondent: Sandeep Bajaj
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