Patent illegality in arbitration: award set aside for ignoring clear contractual terms and the entire agreement clause.

An arbitral award refusing reimbursement of excise duty was found unsustainable because it ignored the plain language of Clause 3.4.1.5 of the GCC and the contract's entire agreement clause. The Delhi HC held that where contractual wording is clear and unambiguous, prior negotiations and later correspondence cannot be used to rewrite the bargain, and an award that reads in a condition not found in the contract suffers from patent illegality. In Section 37 review, the appellate court was limited to examining whether the Section 34 court stayed within its permissible bounds, and no error was found in setting aside the award.

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Issues: Whether the arbitral awards rejecting reimbursement of excise duty were liable to be restored, or whether the Section 34 court rightly set them aside for patent illegality in ignoring the clear contractual terms and the entire agreement clause.

Analysis: The dispute turned on the interpretation of Clause 3.4.1.5 of the GCC and the effect of the later correspondence, particularly the letter dated 27.08.2008. The Court held that the clause was plain, clear and unambiguous, and therefore there was no warrant to rely on internal aids of interpretation or prior negotiations. The contract's entire agreement clause excluded pre-contract communications and agreements from interpretive use. It was also held that an arbitral award which ignores the express terms of the contract, or reads into it a condition not found there, suffers from patent illegality and may be interfered with under Section 34. In an appeal under Section 37, the appellate court was concerned only with whether the Section 34 court had acted within its permissible limits, and no error was found in the impugned judgment.

Conclusion: The award rejecting reimbursement of excise duty was correctly set aside, and the challenge to the Section 34 judgment failed.

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