Bombay High Court Quashes ₹173.72 Cr Arbitral Award Against Thermax, Holds Arbitrator's Findings To Be Based On Lack Of Evidence
The Bombay High Court has recently set aside an arbitral award that mandated engineering giant Thermax Limited to pay ₹173 crore in favor of Rashtriya Chemicals & Fertilizers Ltd. (RCF). The award primarily directed payments towards the additional costs RCF incurred for power due to failure of gas turbine generators. Considering a challenge under Section 34 of the Arbitration...
The Bombay High Court has recently set aside an arbitral award that mandated engineering giant Thermax Limited to pay ₹173 crore in favor of Rashtriya Chemicals & Fertilizers Ltd. (RCF). The award primarily directed payments towards the additional costs RCF incurred for power due to failure of gas turbine generators. Considering a challenge under Section 34 of the Arbitration and Conciliation Act, the Bench comprising of Justice R.I Chagla, determined that the findings of the arbitral tribunal were “perverse, patently illegal and based on no evidence” as it did not take the operational failure of Rashtriya Chemicals & Fertilizers Ltd.'s (RCF) into consideration.
The dispute arose out of a 2015 tender wherein Thermax was given a ₹353 crore contract in 2016 to install two Gas Turbine Generators (GTGs) at RCF's Thal facility, Maharashtra. Even though RCF had been using the Siemens-made turbines commercially for eleven months and they were operational by early 2018, a disagreement emerged after both machines experienced breakdowns in March 2019. RCF filed for arbitration, arguing that the malfunctions happened before the Preliminary Acceptance Certificate (PAC) was issued and during the warranty term. Accordingly, the arbitrator, on 5th June, 2023, decided in favor of RCF directing Thermax to fix the machines and reimburse RCF for the expense of alternative power.
The main issue was whether the contractor could be held accountable for mechanical malfunctions under a warranty agreement if the owner had allegedly disregarded the repeated technical warnings by the Original Equipment Manufacturer (OEM). Thermax contested the arbitrator's conclusion that a "design defect" occurred, contending that RCF's neglect to change air filters and carry out required compressor washes caused the build-up of dirt and the resulting failure.
Senior Counsel Janak Dwarkadas, representing Thermax, contended that RCF had "unilateral control" and commercial usage of the plant since March 2018, rendering the formal PAC requirement unnecessary for establishing liability. On the other hand, RCF's Senior Counsel Shyam Mehta contended that a broken alarm system was a major design flaw that prevented RCF from being aware of the severe blockages taking place inside the compressors.
The Court noted that the award qualified for interference under Section 34 as it fell into the three grounds that the Supreme Court had established in the case of OPG Power Generation Pvt. Limited.
Justice Chagla, criticised the arbitrator for "side-stepping one of the principal issues", the fact that RCF had been making money from the plant for almost a year prior to the malfunction. The Court observed that the arbitrator had disregarded Siemens' Final Root Cause Analysis (RCA), which made it clear that "the filters were not replaced on time" and that the damage "would have never occurred" if a compressor wash had been carried out as recommended. The Bench noting that the arbitrator incorrectly imposed liability on Thermax, held that there was "no evidence" to support the award and that the arbitrator had not given sufficient justification for dismissing Thermax's arguments.
The court held “It is clear from a reading of the impugned Award that the learned Arbitrator has completely ignored and/or disregarded the submissions, and oral and documentary vital evidence in support of these submissions” and hence is liable to be set aside.
Consequently, on 9th December, 2025, the bench set aside the decision of the arbitrator and ordered RCF to reimburse Thermax for roughly ₹218.45 crore, including 6% interest within ten days. Further, it has given RCF time to file an appeal by staying an earlier interim order for four weeks.
Case Title: Thermax Limited vs. Rashtriya Chemicals & Fertilizers Ltd.
Case No: Commercial Arbitration Petition No. 394 of 2023
Coram: Justice R.I. Chagla
Date of Decision: December 9, 2025
Appearances: Senior Counsel Janak Dwarkadas a/w Mustafa Doctor (Petitioner); Senior Counsel Shyam Mehta (Respondent)