In a recent judgement that reinforces the sanctity of a contract, the Division Bench ("DB") of the Delhi High Court ("DHC") in Oil and Natural Gas Corporation v. JSIW Infrastructure Private Limited1has re-affirmed the foundational principle of contractual interpretation, that is when the language of a contract is clear and unambiguous, its meaning must be interpreted strictly within the four corners of the contract. This decision highlights that the interpretation of a contract should be confined to the language of the contract.
Factual Background
The case arose out of a lump-sum contract awarded to JSIW Infrastructure Private Limited ("JSIW") by Oil and Natural Gas Corporation ("ONGC") for undertaking a pipeline replacement project. Owing to the unavailability of local pipes, JISW decided to import the pipes and accordingly sought an amendment to the General Conditions of Contract ("GCC") for reimbursement of the countervailing duty ("CVD") paid on the import of the pipes. The parties agreed to reimburse the duty paid by JSIW to the manufacturer. Accordingly, Clause 3.4.1.5 of the GCC was amended, and a contract was executed between the parties.
Thereafter, a dispute emerged between the parties as JISW eventually procured the pipes domestically and sought reimbursement of the excise duty paid. But ONGC rejected the same on the ground that excise duty needs to be paid directly to the authorities, not via the manufacturer, JISW contested it by placing reliance on the amended clause 3.4.1.5 of the GCC, which did not require payment of excise duty directly to the authorities. This led to the commencement of arbitration proceedings and related court proceedings.
To resolve the dispute between the parties, two outside expert committees were constituted. ONGC disagreed with the rulings, subsequently an arbitral tribunal was constituted whose award was set aside with the mutual consent of the parties. Thereafter, a single arbitrator was appointed by the DHC, which rejected JSIW's claim of JISW based on a letter exchanged between parties, to conclude that the amendment was meant to cover only CVD on the imported pipes and not the excise duty on domestic procurement.
This award was challenged before the DHC by JISW under section 34 of the Arbitration and Conciliation Act, 1996 ("Act"). The award was set aside on the ground of patent illegality by the DHC ("Impugned Judgement"). The reasoning employed by the DHC was that clause 1.2.5 of the GCC clearly states that the terms of this contract shall supersede all negotiations and communications made between the parties prior to the execution of the contract, therefore, there was no requirement to refer to the contents of the letter. It was against this decision that ONGC filed an appeal before the DB.
Point of Contention
The point of contention was whether pre-contractual correspondence between the parties can be referred to for the purposes of contractual interpretation.
Delhi High Court Ruling
The DB upheld the Impugned Judgment and ruled that the award of the single arbitrator be set aside on the ground of being patently illegal. The reasoning provided by the DB was that if the language of a contract is plain, clear and unambiguous, then recourse to the internal aids of interpretation is impermissible. Further, the DB remarked on the usage of the "Entire Agreement" clause in a contract, stating that the presence of this clause supersedes all past negotiations, communications, and agreements entered between the parties prior to the execution of the contract, and any reference to pre-contractual correspondences would amount to ignoring an explicit clause of the contract.
Resolving Disputes: Role of Clear Terms and Entire Agreement Clauses
Drafting contracts using plain and unambiguous language can go a long way in avoiding prolonged litigation stemming from interpretation of the contract. It is only when there is an ambiguity that the courts advance to the golden rule of construction2.
Further, boilerplate clauses, specifically an "Entire Agreement" clause, that provides that a contract will supersede any previous agreement or understanding between the parties and the contract constitutes the entire agreement between the parties is an essential clause to be considered. The purpose of such a clause is to ensure that courts are precluded from considering matters outside the four corners of a contract3.
This judgment highlights the importance of drafting contracts in a clear and concise manner and how unambiguous contracts leave no room for creativity thereby circumventing parties the hassle from protracted litigation.
Footnotes
1. 2025 SCC OnLine Del 3811.
2. Annaya Kocha Shetty (Dead) through LRs v. Laxmibai Narayan Satose, 2025 SCC OnLine SC 758.
3. Stephen Gaw, 'Are Entire Agreement Clauses Entirely Effective?' (2018) ALTA Conference James Crook University <https://researchonline.jcu.edu.au/54942/1/54942_Graw_2018.pdf>.
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