Partial Modification of Arbitral Awards: No Evidence Cannot Sustain Penalty, but Severable Components Can Be Preserved

1. Case Snapshot

• Case Name: D V Anand vs Hindustan Petroleum Corporation Ltd

• Citation: 2026:DHC:5233-DB

• High Court: High Court of Delhi

• Bench: Hon'ble Mr. Justice C. Hari Shankar and Hon'ble Mr. Justice Om Prakash Shukla

• Date of Judgment: July 1, 2026

• Area of Law: Arbitration Law – Section 34 and Section 37 of Arbitration and Conciliation Act, 1996; Severability and Modification of Arbitral Awards; Scope of Judicial Interference; Applicability of 2015 Amendment Act

2. Judgment in Brief

The Division Bench partly allowed an appeal under Section 37 of the Arbitration Act against a Single Judge's judgment upholding an arbitral award. The dispute arose from a penalty imposed by HPCL on an LPG distributor for allegedly maintaining 826 fake LPG connections. The Court upheld the penalty for 446 connections where evidence existed but set aside the penalty for the remaining 380 connections, holding that the finding was based on "no evidence" and was patently illegal. Applying the doctrine of severability from Gayatri Balasamy, the Court modified the award, reducing the penalty from Rs. 2.09 crores to Rs. 25.45 lakhs. The judgment also clarified that Section 12(5) of the 2015 Amendment Act does not apply to arbitral proceedings commenced prior to the amendment.

3. Relevant Facts

• The Appellant was an LPG distributor under a dealership agreement with HPCL since 1981.

• In January 2014, HPCL received a complaint alleging 826 fake LPG connections in the Appellant's database.

• HPCL conducted verification by sending letters to 387 consumers (all returned undelivered) and physical verification in certain areas.

• A Show Cause Notice was issued on March 11, 2014. Annexures containing details of 387 consumers were enclosed.

• The Appellant replied on April 14, 2014, admitting manipulation of customer data by former employees.

• HPCL imposed a penalty of Rs. 2,24,89,020 on May 29, 2014 under the Marketing Disciplinary Guidelines.

• Arbitration was invoked in August 2014; the Sole Arbitrator was appointed in September 2014.

• The Arbitral Award dated December 14, 2016 upheld the Counter-Claim to the extent of Rs. 2,09,27,137.

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