Interpretation of Contract Is For The Arbitrator To Decide Unless No Fair-Minded Person Could Accept That View: Delhi High Court

"Court Does Not Sit In Appeal Over Arbitral Awards; Second View No Ground For Interference Under Section 34," Delhi High Court delivered a crucial judgment delineating the narrow scope of judicial interference under Section 34 of the Arbitration and Conciliation Act, 1996, while upholding an arbitral award directing partial refund of advance and delivery of goods. The Court, speaking through Justice Avneesh Jhingan, refused to reappreciate contractual interpretation by the arbitrator and observed that the award did not suffer from perversity, patent illegality, or any conflict with public policy.

The judgment underscores that the arbitrator’s findings on payment obligations, manufacturing responsibilities, and breach of the Vendor Agreement were rooted in the contractual text and the evidence adduced. The Court held: "The view taken by the arbitrator is plausible and is not vitiated by patent illegality, perversity or conflict with the public policy of India."

Dispute Originated from Failed Delivery under Vendor Agreement; Arbitration Led to Refund and Performance Directions

The dispute arose when Zreyah Semiconductors Pvt. Ltd. failed to deliver the full quantity of 52,360 switches under a Purchase Order dated 26.09.2019, governed by a subsequent Vendor Agreement dated 23.12.2019. While the respondent OYO Hotels had paid 50% of the invoice value in advance, Zreyah claimed the remaining 50% was essential for component procurement and that the respondent had breached its obligation by failing to pay the full advance.

However, the arbitrator found otherwise — that no clause in the Vendor Agreement or Purchase Order mandated 100% advance, and that the petitioner was liable for breach due to non-delivery. The award directed Zreyah to:

• Deliver 11,000 switches, which it admitted were ready; and

• Refund ₹2.84 crores, along with 9% interest for the remaining unfulfilled quantity.

Arbitrator’s Interpretation of Payment and Delivery Clauses Upheld by High Court

The core issue before the High Court was whether the arbitrator had erred in interpreting that payment was due only after acceptance of goods, and not in advance. Justice Jhingan found no merit in Zreyah's claim that the respondent was required to pay 100% advance for procurement of components from vendors identified by OYO.

"The only possible interpretation of the Vendor Agreement is that payment was to be made by the respondent to the petitioner after acceptance of goods." the Court held, noting that Clause 4.4 of the VA made this sequencing clear.

Rejecting the petitioner's contention that earlier arrangements entitling it to full advance persisted, the Court emphasized the legal effect of Clause 14.10 of the Vendor Agreement — the "Entire Agreement" clause:

"Clause 14.10 does not cancel the purchase orders placed earlier but settles the terms and conditions for supply of material."

Court Reiterates Narrow Scope Under Section 34: Arbitrator is “Ultimate Master” of Contractual Construction

Relying on a series of Supreme Court judgments including Prakash Atlanta v. NHAI, Ramesh Kumar Jain v. BALCO, and Parsa Kente Collieries v. RRUVNL, the High Court reiterated that:

"Construction and interpretation of a contract and its terms is a matter for the arbitral tribunal to determine."

The Court cited with approval the principle that unless an arbitrator’s view is one that “no fair-minded or reasonable person would arrive at,” judicial interference is unwarranted. Errors of fact or a plausible second view, even if conceivable, are not grounds for setting aside the award.

The Court quoted Associate Builders v. DDA to reiterate that:

"An award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score."

Arguments on Status as Assembler vs Manufacturer and Revised PO Dismissed as Irrelevant

The petitioner had raised various arguments including that it was only an assembler, not a manufacturer, and thus had no obligation to procure components; that the revised purchase order for 11,000 switches was unilaterally imposed by the respondent; and that the prior practice of full advance payments bound OYO.

These were rejected outright. The Court held:

"The issue as to whether the petitioner was a manufacturer or an assembler and whether there was principal to principal relationship between the parties or not loses relevance."

Further, the petitioner’s own email communications did not support the claim that switches were ready for delivery. The email dated 13.08.2020 merely requested the respondent to “pick up the inventory,” without asserting readiness of the full contracted quantity.

Refund Conditions for Defective Goods from Respondent-Identified Vendors Clarified

A significant aspect of the judgment was its upholding of the arbitrator’s nuanced reading of Clause 3.4, which dealt with defects and refund liability. The Court affirmed the arbitrator’s finding that where components were procured from vendors identified by the respondent, the petitioner was entitled to refunds only on a “back-to-back” basis, i.e., if the vendor itself issued a refund.

Thus, the respondent could not be held liable for component deficiencies in absence of vendor refund — a position aligned with the contract’s plain reading.

"Interpretation of Entire Agreement Clause Does Not Extinguish Purchase Order": Delhi High Court Rejects Petitioner’s Novel Argument

One of the more unique contentions by Zreyah was that because Clause 14.10 of the Vendor Agreement stated that it superseded prior negotiations, the purchase order itself stood extinguished, thereby nullifying any claim for breach.

The Court dismissed this as a misreading, holding that:

"From the reading of the clause it is evident that it does not cancel the purchase orders placed earlier but settle the terms and conditions for supply of material."

No Grounds for Interference under Section 34 – Petition Dismissed

In conclusion, Justice Jhingan summed up:

"The view taken by the arbitrator is plausible and is not vitiated by patent illegality, perversity or conflict with the public policy of India. No case is made out for interference by this Court under Section 34 of the Act."

Accordingly, the petition under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed, along with all pending applications.

Date of Decision: 02 February 2026