The Bombay High Court dismisses Oil and Natural Gas Corporation’s (ONGC) petition against an arbitration award in favour of Sapura Fabrication over payment for additional work on an offshore Mumbai oil and gas redevelopment.
In the case of Oil and Natural Gas Corporation Ltd v Sapura Fabrication SDN BHD, now known as VTEB Fabrication SDN BHD (2026), the Bombay High Court said the award in an international commercial arbitration could not be challenged on the grounds of patent illegality.
The case involved the completion of a contract for the development of ONGC’s Mumbai High South redevelopment phase III project that had been awarded to Malaysian engineering company Sapura.
ONGC, a government public sector undertaking involved in the exploration and extraction of oil and natural gas in India, signed a contract for the development project on 27 June 2015 and for works to be completed by 30 April 2017.
ONGC has large-scale petroleum operations in Mumbai High Field, an offshore natural gas and oil asset 160 kilometres west-northwest of the city. Sapura specialises in manufacturing oil and gas facilities.
The work was finished on time and ONGC paid Sapura after being fully satisfied with the results. However, Sapura raised six claims for additional works, covered under a change order in the contract. ONGC acknowledged only two. Sapura said ONGC made a payment less than the amount stated in the contract for those two claims.
ONGC rejected the remaining four claims and both parties then began arbitration proceedings for all six claims with Mumbai as its seat.
The arbitration award on 4 May 2024 rejected one claim, partly allowed two and fully allowed the remaining three. The tribunal also rejected Sapura’s claim for pre-award or pendente lite interest but allowed post-award interest on claims and costs of INR18.78 million (USD197,264) with 9% interest per annum from the date of the award.
ONGC challenged this when it brought a petition before the Bombay High Court.
In court, ONGC argued that one claim was already part of the works in the contract and not an additional work. Another claim was duly paid for as per the quoted lump-sum amounts by Sapura in the contract. For a claim about deck extensions, ONGC argued that it was a mere offshoot of the broad work mentioned in the contract.
For the deck extension, ONGC had also sought documents from Sapura, which were never provided. This claim was also barred by limitation.
Arguing about the claim on standby charges, ONGC said the tribunal had erroneously assumed the work date was mutually preponed. In reality, preponement was a request by Sapura and it was conditioned on carrying out simultaneous operations, which the Malaysian company agreed to with full knowledge of other works.
For a claim on modifying a platform, ONGC argued that bidders were required to quote lump-sum prices for different tasks and materials involved, including surveys.
For the two claims that ONGC had earlier acknowledged and paid Sapura, the company did not contest them before the court. However, it argued that the rates on these claims had been calculated incorrectly. Under their contract, the rates Sapura cited were never agreed to and that it was entitled to apply prevalent market rates for such works.
Sapura argued that the petition challenging the arbitration award effectively made it an appeal in disguise before the court.
It was argued that the present matter was an international commercial arbitration as Sapura was a Malaysian company, which meant the grounds of patent illegality was not available to ONGC to challenge the arbitration award. Sapura also argued that none of the challenges and issues raised fell within the parameters provided in law.
Sapura relied on Ssangyong Engineering & Construction Company v National Highways Authority of India (2019), Associate Builders v Delhi Development Authority (2014), Punjab State Civil Supplies Corporation v M/s Sanman Rice Mills & Ors. (2024), and Prakash Atlanta (JV) v National Highways Authority of India (2026) to defend its positon.
Sapura also argued ONGC’s submission that the lump-sum contract disentitled the Malaysian company to additional claims was incorrect.
The Malaysian company said that had it been a lump-sum contract, ONGC would not have acknowledged and paid for two of Sapura’s six claims.
Sapura also said the tribunal’s overall findings were correct, conclusive and rational, thus, no interference was warranted under the law.
While observing that arbitration in international commercial disputes could not be challenged on the grounds of patent illegality, the court said that, where the arbitration was seated in India, it could be challenged on the grounds that the award was against the public policy of India, among other grounds.
However, ONGC only made submissions on patent illegality and perversity, the court said. Since the ground of perversity was relatable to patent illegality, it was not available to ONGC, it said.
The court relied on Vijay Karia and Ors v Prysmian Cavi E Sistemi SRL and Ors (2020), PSA Sical Terminals v VO Chiambranar Port Trust and Ors (2021), OPG Power Generation v Enexio Power Cooling Solutions India and Anr (2024), to emphasise that perversity could not be used as grounds for setting aside an arbitral award under the phrase “in conflict with the public policy of India” as provided in law.
“The ground of patent illegality is not available for challenging the impugned award … in an international commercial arbitration held in India. Also, perversity, if any, in findings recorded by the arbitral tribunal would constitute the vice of patent illegality and would not come in the ambit of the expression ‘in conflict with public policy of India’,” the court said.
