Case Note & Summary
The dispute arises from a contract between Thermax Limited (Petitioner) and Rashtriya Chemicals & Fertilizers Ltd. (Respondent) for the turnkey installation of two 25 MW gas turbine generators and associated balance of plant at RCF's factory in Thal, Maharashtra. Following a tender process, Thermax was awarded the contract in 2016. The contract included provisions for performance guarantee tests, preliminary acceptance certificate, defect liability period, and final acceptance certificate. The gas turbine generators were supplied with Siemens as the original equipment manufacturer. Performance guarantee tests were successfully completed in April and May 2018, but RCF had deducted mutually agreed damages of approximately Rs.19.56 crores in March 2018. After the tests, RCF operated the plant commercially. In February-March 2019, multiple alarms occurred, and Siemens advised immediate compressor washing due to dirt accumulation, which RCF did not implement. On 15 March 2019, RCF issued the preliminary acceptance certificate effective 7 March 2019. Both turbine generators broke down shortly thereafter (20 and 22 March 2019). Siemens' final root cause analysis report attributed the breakdown to compressor fouling from delayed filter replacement and lack of compressor washing. RCF invoked arbitration claiming the generators were defective and sought damages of over Rs.173 crores for additional power expenditure. Thermax filed counterclaims for refund of mutually agreed damages, bank charges, additional costs, and release of retention money. The sole arbitrator framed 16 issues and passed an award on 5 June 2023. Thermax challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the arbitrator erred in holding Thermax liable for the breakdown and in awarding damages. The High Court heard the petition and reserved judgment on 30 June 2025, but the text of the decision is incomplete, providing only the factual background and the opening submissions of the petitioner's counsel.
Issue of Consideration
Whether the arbitral award dated 5 June 2023 should be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, on the grounds that the arbitrator erred in holding Thermax liable for the breakdown of the gas turbine generators and in awarding damages for additional power expenditure and refusing refund of mutually agreed damages.
Case Details
2025 LawText (BOM) (12) 94
Commercial Arbitration Petition No. 394 of 2023 with Interim Application (L) No. 23263 of 2023
Mr. Janak Dwarkadas, Mr. Mustafa Doctor, Mr. Aditya Thakkar, Mr. R. Sudhinder, Mr. Ranjit Shetty, Mr. Rahul Dev, Ms. Monika Vyas (for Petitioner); Mr. Shyam Mehta, Mr. Aditya Bapat, Mr. Mac. C. Bodhanwala, Mr. Sheraj M. Bodhanwalla, Ms. Sayali Puri, Mr. Akash Singh, Mr. Shreyas Thakur (for Respondent)
Rashtriya Chemicals & Fertilizers Ltd.
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Nature of Litigation
Commercial Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award.
Remedy Sought
Petitioner seeks setting aside of the arbitral award dated 5 June 2023 passed by the learned Sole Arbitrator.
Filing Reason
The petitioner contends that the arbitrator erred in holding it liable for defects in the supplied gas turbine generators and in awarding damages for additional power expenditure, and in refusing refund of mutually agreed damages deducted by the respondent.
Previous Decisions
Arbitral award dated 5 June 2023 passed by the learned Sole Arbitrator.
Issues
Whether the arbitral award suffers from patent illegality or is against the fundamental policy of Indian law in holding Thermax liable for the breakdown of the gas turbine generators.
Whether the arbitrator erred in interpreting the contract regarding defect liability period and the cause of breakdown based on the Final Root Cause Analysis Report.
Submissions/Arguments
Petitioner's senior counsel argued that there was no defect in the GTGs supplied; the breakdown was due to RCF's faulty handling and failure to follow Siemens' instructions for immediate compressor washing, and that the Final RCA Report opined that the root cause was fouling due to not replacing filters on time. The MAD was deducted without basis and should be refunded.
Judgment Excerpts
1. By this Commercial Arbitration Petition, the Petitioner has challenged the Award dated 5th June, 2023 (“the said/ subject Award”) passed by the learned Sole Arbitrator, under Section 34 of the Arbitration & Conciliation Act, 1996 (“the Arbitration Act”).
2. The relevant facts are stated under: (i) … (xxx) …
3. Mr. Janak Dwarkadas, learned Senior Counsel appearing for the Petitioner has submitted that there was no defect in the GTGs which had been supplied by Thermax to RCF. He has submitted that the reason for breakdown of the GTGs was on account of faulty handling of the GTGs by RCF.
Procedural History
RCF issued NIT on 19.01.2015. Thermax won bid, LOI on 12.02.2016 and 25.02.2016. Statement of Agreed Variation on 26.02.2016. Contract executed on 03.03.2016. GTGs imported and installed. Load throw off tests on 28.02.2018 and 27.03.2018. RCF deducted MAD on 30.03.2018. PG Tests completed on 24.04.2018 and 10.05.2018. GTG-2 broke down on 20.03.2019, GTG-1 on 22.03.2019. Final RCA Report on 24.06.2019. Notice to Proceed on 02.07.2019. RCF invoked arbitration on 05.11.2019. Arbitral award passed on 05.06.2023. Petition filed under Section 34. Heard by Bombay High Court, judgment reserved on 30.06.2025, pronounced on 09.12.2025.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
