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Rajasthan High Court
Arbitration

No Set-Off Across Separate Annual Liquor Contracts: Rajasthan High Court Restores Award for United Spirits Against RSBCL

Published: · NyayVidhan

The Rajasthan High Court set aside a Commercial Court's order quashing an arbitral award in favour of United Spirits, holding that the Section 34 court re-appreciated evidence, relied on documents outside the arbitral record and allowed a set-off across two separate annual supply contracts. The award was restored, reduced for a computational error; the Court also flagged a prima facie case on unpaid customs duty (paras 13-23, 31-33).

No Set-Off Across Separate Annual Liquor Contracts: Rajasthan High Court Restores Award for United Spirits Against RSBCL

Judgment Intelligence

Petition Allowed
United Spirits Limited v. Rajasthan State Beverages Corporation Limited
2026:RJ-JP:28777-DB
D.B. Civil Miscellaneous Appeal No. 1456/2025
Court
Rajasthan High Court
Date of Decision
20 August 2026
Bench
Justice Arun Monga and Justice Maneesh Sharma
Relevant Acts & Sections
Arbitration and Conciliation Act, 1996 — Sections 34, 37; Indian Contract Act, 1872 — Sections 62, 72, 73
Final Outcome

Appeal disposed of: the Commercial Court's order set aside and the award restored, reduced to Rs 8,65,05,938.24; customs and State authorities left free to proceed over the excess duty, with copies sent to them (paras 24, 33-34).

Key holdings

  1. Under Section 37 the appellate court checks only whether the Section 34 court stayed within its limited jurisdiction (para 12.2).
  2. Equitable set-off is unavailable across separate annual contracts without an express term or a counterclaim (paras 13.4-13.6).
  3. A Section 34 court cannot rely on documents handed up at the final hearing that were never part of the arbitral record (para 15.5).
  4. Courts may correct a computational error in an award under Sections 34 and 37, following Gayatri Balasamy (paras 22-23).

Brief Facts

Under annual Liquor Sourcing Policies, United Spirits supplied liquor to the State corporation RSBCL under separate agreements for 2019-20 and 2020-21 (paras 2.2-2.4). Alleging that the supplier had not passed on a reduction in customs duty in 2019-20, RSBCL deducted Rs 10,31,55,549 from payments due under the 2020 agreement (paras 2.5-2.9). The arbitrator held the agreements distinct, rejected the set-off and awarded Rs 9,11,84,395.48 (paras 5.1-5.3). On 07.03.2025 the Commercial Court, Jaipur set the award aside with Rs 40 lakh costs (paras 1, 6.3).

Court's Findings

Under Section 34 the arbitrator is master of the evidence and a possible view cannot be replaced, and under Section 37 the appellate court only checks whether the Section 34 court kept within its limits (paras 11.2-12.3). Clause 9.7 of the policy concerns carried-forward stock, not debt recovery, and the 2020 agreement's clauses reach only dues under that agreement (paras 13.2-13.3). Equitable set-off needs cross-demands from the same transaction; the 2019 agreement stood novated, and RSBCL had filed no counterclaim (paras 13.4-13.9). Mafatlal and the Directive Principles concern tax refunds, not a commercial contract (paras 14.1-14.2). Relying on 'note sheets' outside the arbitral record and probing pricing policy was a jurisdictional error (paras 15-16.3). Applying Gayatri Balasamy, the Court corrected the award by Rs 46,78,457.24 of operational charges (paras 20-23). It added that the ruling did not endorse the supplier's retention of the excess customs duty, which it saw as a prima facie case of systematic fraud, and expected action against erring RSBCL officials (paras 26-32).

Legal Principle

A Section 34 court cannot re-appreciate evidence, substitute a possible view or rely on material outside the arbitral record. Equitable set-off requires cross-demands from the same transaction, so dues under one annual contract cannot be adjusted against another; computational errors may be corrected under Sections 34 and 37 (paras 11-16, 22-23).

Precedents Relied Upon

  1. Associate Builders v. Delhi Development Authority (2015) 3 SCC 49
    Relied Upon Discussed at ¶ 9.1, 11.2

    The arbitrator is the master of the evidence and construction of the contract is primarily for the arbitrator; a Section 34 court does not sit in appeal over the award.

  2. Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (2019) 15 SCC 131
    Relied Upon Discussed at ¶ 11.3

    Patent illegality must go to the root of the matter; it does not cover an erroneous application of law or reappraisal of evidence.

  3. Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2019) 20 SCC 1
    Relied Upon Discussed at ¶ 11.4

    Disagreement with the arbitrator's view of facts or contract does not permit interference if the view is possible.

View all precedents (13)
  1. MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163
    Relied Upon Discussed at ¶ 12.2

    Section 37 does not permit a second look at the merits; scrutiny is confined to the Section 34 court's exercise of its limited jurisdiction.

  2. Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking (2023) 9 SCC 85
    Relied Upon Discussed at ¶ 12.3

    Section 37 does not allow a fresh appraisal of evidence; where two views are possible the appellate court cannot interfere.

  3. PSA Sical Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin (2021) 18 SCC 715
    Relied Upon Discussed at ¶ 12.3

    Reiterated the limited scope of appellate interference with arbitral awards.

  4. UHL Power Co. Ltd. v. State of Himachal Pradesh (2022) 4 SCC 116
    Relied Upon Discussed at ¶ 12.3

    Reiterated the limited scope of appellate interference with arbitral awards.

  5. M/s Lakshmichand and Balchand v. State of Andhra Pradesh (1987) 1 SCC 19
    Applied Discussed at ¶ 8.1, 9.1, 13.8-13.9

    Equitable set-off requires cross-demands arising from the same transaction or so connected as to form one transaction; a disputed, unascertained sum cannot be adjusted against another contract.

  6. Mafatlal Industries Ltd. v. Union of India (1997) 5 SCC 536
    Distinguished Discussed at ¶ 14.1-14.2

    Relied on by the Commercial Court on unjust enrichment in tax refunds; held inapplicable to a commercial contract of sale between parties.

  7. State of Rajasthan v. Puri Construction Co. Ltd. & Ors. (1994) 6 SCC 485
    Relied Upon Discussed at ¶ 15.3

    A court cannot substitute its own evaluation of law or fact to hold that the arbitrator acted contrary to the bargain between the parties.

  8. P.R. Shah, Shares and Stock Broker (P) Ltd. v. B.H.H. Securities (P) Ltd. & Ors. AIR 2012 SC 1866
    Relied Upon Discussed at ¶ 15.4

    An arbitral tribunal cannot decide on personal knowledge outside the record; by extension a Section 34 court cannot rely on extraneous material.

  9. Consolidated Construction Consortium Ltd. v. Software Technology Parks of India (2025) 7 SCC 757
    Relied Upon Discussed at ¶ 16.2

    Section 34 is not an appellate provision; if two views are possible the arbitrator's view prevails.

  10. Gayatri Balasamy v. M/s ISG Novasoft Technologies Ltd. (2025) 4 S.C.R. 2080
    Followed Discussed at ¶ 22-23

    Courts have limited power under Sections 34 and 37 to modify an award to correct clerical, computational or typographical errors apparent on the record.

NyayVidhan
Court Judgments · 2 min read
Decided: August 20, 2026 Justice Arun Monga and Justice Maneesh Sharma
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