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Delhi High Court
Union Of India Through General Manager vs M/S V.K. Sood Engineer &Contractors … on 13 May, 2025
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 18th February 2025
Pronounced on: 13th May 2025
+ O.M.P.(COMM.) 486/2018
UNION OF INDIA THROUGH GENERAL MANAGER
.....Petitioner
Through: Mr. Ruchir Mishra, Mr. Sanjiv
Saxena, Mr. Mukesh K. Tiwari,
Ms. Poonam Shukla, Ms. Reba
Jena Mishra & Ms. Harshita
Sharma, Advocates
versus
M/S V.K. SOOD ENGINEER &CONTRACTORS THROUGH
ITS MANAGING DIRECTOR ....Respondent
Through: Mr. Manoj Swarup, Sr. Adv. with
Mr. Anil Mittal, Mr. Neelmani
Pant & Mr. Yash Singhal,
Advocates
CORAM:
HON'BLE MR. JUSTICE ANISH DAYAL
JUDGMENT
ANISH DAYAL, J.
1. This petition has been filed under Sections 34 of the Arbitration
and Conciliation Act, 1996 (‘A&C Act’) for setting aside the Award
dated 9th June 2018 passed by the Sole Arbitrator in the matter of M/s.
V.K. Sood Engineer and Contractor DDSJV v. Union of India
(through General Manager Northern Railway).
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
Signing Date:15.05.2025 O.M.P.(COMM.) 486/2018 Page 1 of 41
17:49:48
Factual Background
2. Petitioner / Union of India (Railways) invited tenders for
fabrication, supplying, assembling, erection and launching at site (across
river Ganga at Garhmukteshwar bridge railway station on Ghaziabad /
Muradabad section of Muradabad Division) of 11x 61m spans, along
with loading, leading, unloading materials and other connected works.
3. The entire work was to be completed within 18 months from the
date of issue of acceptance letter. The work was awarded to the
respondent vide letter of acceptance dated 1st May 2006. A formal
agreement was executed on 21st June 2006. The maintenance period was
for a period of 12 months from the certified date of completion.
Contract value was Rs. 22,50,29,745/- (after second corrigendum this
was Rs. 24,42,41,284.82) against which earnest money and performance
bank guarantee had to be deposited.
4. Work was awarded to M/s. V.K. Sood Engineer and Contractor
DDSJV, which subsequently merged with M/s. V.K. Sood Engineer and
Contractor Pvt. Ltd. (the current respondent) vide merger agreement
dated 27th March 2012, which was accepted by the petitioner.
5. Original date of completion was 31st October 2007, but the actual
completion date was 25th May 2013. Completion Certificate was issued
on 21st July 2014 by the Northern Railway. The respondent requested
the petitioner to settle long-outstanding claims. On failure to respond,
respondent requested for appointment of an Arbitrator which ultimately
led to the commencement of arbitration.
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
Signing Date:15.05.2025 O.M.P.(COMM.) 486/2018 Page 2 of 41
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6. Arbitration was invoked by the respondent in 2013; Sole
Arbitrator was appointed by this Court on 6th December 2016. Award
was passed by the sole Arbitrator on 9th June 2018. The Arbitrator
allowed Claim Nos.2, 3, 4, 6, & 12 b of the respondent’s claim and
dismissed the counterclaims filed by the petitioner.
Claims and Counter Claims
7. The claims asserted by the respondent are tabulated as under,
followed by tabulation of counterclaims by petitioner:
Claims By Claimant/Respondent
Claim Claim Amount Amount
No. Claimed Awarded
1-A Work done up to 29.10.2009: Rs.2,62,78,660 Rejected
Claimant submitted bill
no.00033 dated 29.10.2009, but
amount was not paid. Interim
arbitration was invoked.
1-B Work done after 29.10.2009 till Rs.1,28,85,540 Rejected
25.5.2013: Additional work
including channel sleepers.
1-C Supply of Neoprene Pads: Due Rs.29,06,740 Rejected
to change in size/weight of
sleepers and fittings, additional
cost incurred.
2 Refund of illegal penalty of 1% Rs.21,33,262 Partly Allowed
under Clause 28 deducted from (Rs.14,36,529)
bills due to alleged shortfall in
progress, even though delay was
due to Respondent.
3 Wrong deduction of 0.10% Rs.2,06,000 Allowed
rebate: Claimant was not (Rs. 2,06,000)
allowed to fabricate at Samba
workshop as agreed.
4 Reimbursement of bank charges Rs.28,65,182 Allowed
for extension of BGs due to (Rs. 28,65,182)
delay in work completion for no
fault of Claimant.
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
Signing Date:15.05.2025 O.M.P.(COMM.) 486/2018 Page 3 of 41
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5 Rent Paid by Claimant Withdrawn -
6 Reimbursement of insurance Rs. 5,31,660 Allowed
premium paid by Claimant due (Rs.5,31,660)
to delay beyond original contract
period and extensions granted
under Clause 17A (not 17B) of
GCC.
7 Earthwork for casting pedestals- Rs. 56,90,000 Rejected
additional work executed by
Claimant after failure of other
civil contractor, including
building coffer dams and trestles
for spans.
8 Casting of pedestals -- extra Rs. 8,80,000 To Be
work executed by Claimant, Considered
originally to be done by other When Final Bill
civil contractor; included Is Prepared
making shuttering, concrete
work, bunds, and platform for
44 pedestals in river bed.
9 Reimbursement of loss caused Rs. 12,72,000 Rejected
due to payment of bank interest
beyond the original contract
period as the project was
delayed due to Respondent's
lapses.
10 Compensation on account of Rs. 8,00,000 Rejected
death of two workers due to
Respondent's failure to restrict
traffic during work, forcing
Claimant to work under unsafe
conditions.
11 Loss of profit/turnover due to Rs.11,60,000 Dropped by
prolongation of contract Claimant
12-A Admitted payment of final bill Rs.52,46,000 Under Relief and
Cost
12-B Balance Price Variation (PVC) Rs.1,55,00,000 Allowed
[In principle
(PVC
Entitlement At
20%), but
quantum to be
settled later.]
12-C Balance Performance Security Rs.9,15,000 Under Relief and
Signature Not Verified
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By:MANISH KUMAR
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Cost
12-D Interest on delayed payment Matter of Under Relief and
@12% per annum calculation Cost
12-E Other payments for work done Matter of Not Pressed
calculation
13-A Interest @12% P.A from due Rs.1,73,39,420 Under Relief and
date till 25.05.2013 Cost
13-B Interest @12% P.A from Rs.3,07,37,968 Under Relief and
25.05.2013 to 15.10.2016 Cost
13-C Interest from 15.10.2016 to date Matter of Under Relief and
of award calculation Cost
14 Future interest @18% P.A on Matter of Under Relief and
awarded amount (post-award to calculation Cost
actual payment)
15 Cost of arbitration including Matter of Shall Be Borne
fees, etc. calculation Equally by
Parties
* Under Relief and Cost – Arbitrator directed that if the total amount is not paid on or
before 30th September 2018, it will carry interest @ 18% per annum from 30th September
2018 till payment.
Claims by Counter-Claimant/Petitioner
Claim Claim Amount Award
No. Claimed
1 Overpayment of PVC. Rs. 1,79,00,000 Rejected
Claimant was overpaid
beyond the 10% limit per
Clause 25.7(b). Railway
Vigilance held officials
responsible. Claimant advised
to return the amount.
2 Cost of packing plates Rs. 15,00,000 Rejected
required for correction of
track parameters on DN Line
Bridge due to fabrication
defects.
3 Loss suffered by Respondent To be advised Rejected
due to speed restriction on
DN Line Bridge because of
fabrication defects. (Amount
being worked out)
4 Cost of metallizing of field Rs. 31,23,484 Rejected
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
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joint rivets of DN Line Bridge
not done by Claimant.
5 Cost of metallizing of field Rs. 30,23,243 Rejected
joint rivets of UP Line Bridge
not done by Claimant.
6 Cost of replacing 1801 loose Rs. 2,29,093 Rejected
rivets on DN Line Bridge.
7 Cost of replacing 1215 loose Rs. 1,55,435 Rejected
rivets on UP Line Bridge.
Crux of respondent’s case as claimant in Arbitration
8. Essentially, the respondent’s claim was based on an allegation that
the petitioner failed to perform various obligations under the agreement.
There were numerous delays and defaults, and despite the respondent’s
best efforts to expedite the work, petitioner failed to perform its
reciprocal obligations and make timely monthly payments. This
adversely impacted the respondent’s productivity and profitability. The
losses broadly claimed on account of extra costs incurred off-site and on-
site overheads, depreciation of tools and plants, and idle labour, staff,
and other resources.
9. As per respondent, the work, which was to be completed within 18
months was delayed by 5.5 years and ultimately completed on 25th May
2013 (84 months instead of 18 months). Thirteen extensions were
granted without levying any penalty. Respondent not only completed the
original allotted work of Rs. 22.5 crores, but also additional work
amounting to approximately Rs. 2.5 crores. The work was completed to
satisfaction, and a Completion Certificate was also issued. Security
deposit was released, but the cash security of Rs. 9.15 lakhs, deducted
from the bills, was not released.
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
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10. The petitioner’s delays were essentially inter alia on account of
material not supplied in time, delays in approval of drawings and
inspections, non-handover of the entire worksite, and delayed payments,
which hampered progress.
Crux of petitioner’s case as respondent in Arbitration
11. To the claims of the respondent, petitioner contended before the
Arbitrator that time extension records and subsequent deliberations
would reveal that delay was primarily on account of the respondent.
However, in order to maintain business harmony and in the interest of
work, petitioner showed some restraint.
12. It was asserted that losses suffered due to the defects in the work
carried out by the respondent. Petitioner had filed counterclaims to
recover excess PVC of Rs.1.79 crores. However, the counterclaims were
rejected by the Arbitrator.
Directions by Arbitrator
13. The following directions were passed by the Arbitrator:
(i) Total amount awarded to the respondent Rs.50,39,371/-
with interest @ 9% per annum from 25th May 2014 to 30th
September 2018 and thereafter @ 18% per annum;
(ii) Petitioner to prepare final bill in accordance with the
arbitral award on or before 30th August 2018 and amount payable
to claimant shall be on or before 30th September 2018.
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
Signing Date:15.05.2025 O.M.P.(COMM.) 486/2018 Page 7 of 41
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(iii) If the total amount is not paid on or before 30th September
2018, it will carry interest @ 18% per annum from that date till
payment;
Objections
14. Essentially, objections to the award, as presented in the petition,
were that it was contrary to public policy and liable to be set aside inter
alia on the following grounds:
a. Respondent was responsible for delay in execution of work since
assembling an election of one span by staging method could be
done in one month whereas it took nine months for completion.
Justification by the respondent was without any substantiation and
mala fide.;
b. Arbitrator did not assign any reasons for rejecting the
counterclaim;
c. Reimbursement of bank charges for extension of BG was beyond
the scope of agreement;
d. Extensions granted to respondent were to save them from penalty
and PVC but could not cover the reimbursement of insurance
premiums paid by the respondent under Clause 17A;
e. Delay was on account of the respondent or at best on account of
both parties and the entire liability could not be fastened on the
petitioner;
f. Clause 17A(iii) specifically precludes any claim for compensation
or damages;
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
Signing Date:15.05.2025 O.M.P.(COMM.) 486/2018 Page 8 of 41
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g. Extension of bank guarantee and insurance is inherent in the
performance of the contract and was in the contemplation of
parties, to be incurred on the currency of the contract;
h. Clause 25.7 provided that if the contract is for 1-2 years, total
recovery due to variation shall be limited to 10%.;
i. Clause 25.9 on the other hand, provided for inclusion of the
extension period also, meaning thereby that variation in prices of
material beyond the date of completion would be considered for
calculation of the variation and would be subject to limitation at
10%. Arbitrator did not interpret this harmoniously.
Principal Argument by Petitioner’s Counsel
15. During the arguments before this Court, however, counsel for
petitioner mounted his case essentially on two grounds, which were not
grounds taken up in the petition:
i) Petitioner contended that the claims were within the
purview of “excepted matter” covered by Clause 63 of General
Conditions of Contract (‘GCC’) and therefore not arbitrable. The
said clause unequivocally stipulates that disputes arising from
designated provisions shall be determined solely by the Railway
Authority and are expressly excluded from the purview of
arbitration. Clause 63 of GCC reads as under:
“63. Matters finally determined by the Railway –
All disputes and differences of any kind what-
soever arising out of or in connection with the
contract, whether during the progress of the work
or after its completion and whether before or afterSignature Not Verified
Digitally Signed
By:MANISH KUMAR
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the determination of the contract shall be referred
by the contractor to the Railway and the Railway
shall within 120 days after receipt of the
Contractor’s representation make and notify
decisions on all matters referred to by the
contractor in writing provided that matters for
which provision has been made in clauses 8 (a),
18,22 (5), 39, 43 (2), 45 (a), 55, 55-A (5), 57, 57A,
61 (1), 61 (2) and 62 (1) (b) of General
Conditions of Contract or in any clause of the
Special Conditions of the Contract shall be
deemed as ‘excepted matters’ and decisions of the
Railway authority, thereon shall be final and
binding on the contractor provided further that
‘excepted matters’ shall stand specifically
excluded from the purview of the arbitration
clause and not be referred to arbitration.”
(emphasis added)
It was submitted that claims arising out of any of the designated
clauses of GCC or in any clause of Special Conditions of Contract
(‘SCC’) would be deemed to be “excepted matters” and decisions
of Railway Authority shall be final and binding and these will be
excluded from the purview of arbitration.
ii) The award of interest against petitioner by Arbitrator was
contrary to the terms of contract. It was argued that on the basis of
Special Tender Conditions & Instructions for Tenderers (‘SIT’)
which form part of the contract, inter alia in Clause 3 did not allow
interest on earnest money, Clause 5 did not allow interest on
security deposit and therefore could not be awarded. Besides Clause
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64.5 of GCC extracted as under, again precluded the award of
interest.
“64.5 Where the arbitral award is for the payment
of money, no interest shall be payable on whole or
any part of the money for any period till the date
on which the award is made.”
Despite these clear prohibitions, the Arbitrator awarded interest at
the rate of 9% per annum from 25th May 2014 to 30th September
2018, and thereafter at an exorbitant rate of 18% per annum till
payment. This finding is patently erroneous and contrary to the
contractual terms binding upon the parties.
16. Counsel for petitioner has also stated that Arbitrator has failed to
appreciate the binding effect of the contract governing parties. The
Impugned Award disregards the following:
a) The clear exclusion of “excepted matters” from arbitration
under Clause 63 of GCC.
b) The express prohibition on the grant of interest under Clause
64.5 of GCC and SIT.
c) The jurisdictional limitation placed upon the Arbitrator in
determining matters beyond the scope of the arbitration
agreement.
17. Counsel submitted that it is well settled that an arbitral award that
contravenes fundamental contractual stipulations or is in conflict with
public policy is liable to be set aside under Section 34 of A&C Act.
Signature Not Verified
Digitally Signed
By:MANISH KUMAR
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Response by respondents to the Objections
18. The primary objection raised by petitioner related to “excepted
matters” and award of interest being precluded by the contract. Senior
counsel for the respondents submitted that, as regards the objections
which were taken in the OMP by petitioner, these were mostly issues
relating to the merits of the matter, which could not have been examined,
and which cannot form a ground under Section 34 A&C Act, particularly
in view of Section 34 (2) (b) (ii) Explanation 2, which precludes a
review on the merits of the dispute.
19. As regards the issue relating to “excepted matters” and award of
interest by the Arbitrator being not permitted by the contract, it was
submitted that these arguments had been raised for the first time before
this Court and were neither raised before the Arbitrator nor in the
petition filed. The occasion for the Arbitrator to deal with the same in the
award therefore did not arise. Petitioner mounting its Section 34 petition
on the basis of these two principal objections and clubbing them under
issues of conflict with public policy and in contravention with the
fundamental policy of Indian law, was therefore untenable.
Analysis
20. The objections which were raised on each of the claims are
essentially based upon who was responsible for the resulting delay.
Perusal of the arbitral award, in respect of the findings arrived at, would
be useful for assessment as to whether the arbitral award has veered
outside the contract or there is fundamental flaw or does it shock the
conscience of the Court, for assessment under Section 34 A&C Act.
Signature Not Verified
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This is notwithstanding that the Court is not expected to entertain a
review on the merits of the matter.
Document References
21. For the purposes of assessment, it is important to clarify the
reference to various documents made by the parties and by the
Arbitrator, and in this assessment as under:
22. The petitioner was assigned the work under Contract Agreement
dated 21st June 2006 (‘the agreement’). There are various parts of the
agreement which are as under:
(i) Modified Price Bid and Technical Bid;
(ii) Special Tender Contract and Instructions to Tenderers. This
runs from Clause 1 to 26 (SIT);
(iii) Special Conditions relating to Site, Data and Specifications
(‘SCSDS’). This runs from Clause 1 to 32;
(iv) Guidelines for joint venture for tender costing more than Rs.5
crores.
(v) GCC published as part of the Works Handbook Part – I & II,
of which the GCC is in Part II (GCC).
The description of various parts is being stated since there is some
confusion in the reference employed, of these parts of agreement, by the
parties as well as the Arbitrator. The clauses which the petitioner is
relying up and which have been noted by the Arbitrator, mostly form
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part either of SIT or SCSDS. SCSDS has sometimes been referred to as
the SCC or ‘the agreement.’
Claims Assessment
23. Regards Claim 2, as per Clause 28 of SCSDS a total penalty of
one percent if there is a shortfall in providing a consistent progress of a
minimum of Rs.50 lakh per month would be imposed. The arbitral
award notes that the respondent did not achieve progress of a minimum
of Rs.50 lakh per month was not disputed, however the question was
whether there was any deliberate delay on the part of the respondent and
it could not achieve the targeted progress.
24. Notice was taken of the communication dated 31st July 2012 by
the Deputy Chief Engineer (TNC) which was an internal letter which
noted as under:
“it was not practically feasible to achieve the desired
progress of minimum of Rs.50 lakhs per month due to
various problems at site of work, which are not
attributable to the agency and applicability of Penalty
Clause 28 regarding achieving the progress of Rs.50
lakhs per month appears to be defective, as scope of
work decreases with progress of work, the minimum
progress of Rs.50 lakhs does not sustain as the
workload of the contractor reduces with reduced
number of items of the contract to be executed. There is
no fault on account of contractor for not achieving
progress of Rs, 50 Lacs per month”.
(emphasis added)
25. It was further noted that the majority of the extension work was
given under Clause 17-A of the GCC and not under Clause 17-B of
Signature Not Verified
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GCC. Clause 17-A of GCC provided for extension of time at the request
of the respondent/ contractor due to issues which were beyond control
whereas Clause 17-B required extension of time for delay due to
contractor. It was noted by the Arbitrator that the respondent had
communicated his grievance to petitioner dated 18th November 2006
subsequent to which response of 31st July 2012 was available. In the
view of this Court, the Arbitrator was not incorrect in noting that the
letter of 31st July 2012 amounted to a recognition of the fact that the
respondent could not be blamed for the delay of achieving minimum
progress of Rs.50 lakhs per month.
26. Regards Claim 3, a rebate of 0.10% was offered to the respondent
to carry out the fabrication work in Samba at its site. However, the
respondent fabricated the girders at the bridge site only as desired by the
petitioner. The deduction therefore which was made was wrongful. The
extra cost which was incurred by the respondent in this regard would not
entail a deduction of 0.10% from the running bills.
27. In this regard a communication of 31st July 2012 by the Deputy
Chief Engineer was noted which read as under:
“…agency has given rebate of 0.10% to carry out
fabrication work in contractor’s heavy plant yard
workshop at Samba only to avoid extra expenditure,
and to have close supervision, Railway has decided
fabrication work at site itself. Therefore, the deduction
made on account of rebate 0.10% Form entire account
bill amounting to Rs.2.24,675/- may be released to
agency as the agency has fabricated the girders at
Bridge site as desired by the Railway Department.”
(emphasis added)
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28. In view of this matter, the Court does not consider this issue
sustains an objection under Section 34 petition.
29. Regards Claim 4 for reimbursement of bank charges for extension
of bank guarantees, it is noted that bank guarantee had been given by the
respondent as performance guarantee, but since there was a delay of 5.5
years, the contract was extended from time to time. Respondent had to
provide commission to the bank for the extension of the bank guarantee
for which Rs. 28,65,182/- was claimed. Petitioner objected under Clause
17 A (iii) GCC on the ground that for the extended period no
compensation would be payable. The Arbitrator rightly held that once
the period was extended for no fault of the respondent and the delay was
actually due to the petitioner, the additional cost for extension of bank
guarantee ought to be reimbursed by the petitioner.
30. Regards Claim 6 for reimbursement of insurance premium,
respondent claimed that it had to incur extra premium for getting
insurance on various machinery, stocks, and materials to cover up for the
extended period, which was refuted by the petitioner on the basis of
Clause 29 of the SCSDS, stating that railways would not be responsible
for any loss of machinery, material, or equipment. It was rightly noted
by the Arbitrator that the respondent was not seeking any compensation
for the loss of any equipment or machinery but only additional expenses
since the contract period had been extended for no fault of theirs. This
view of the Arbitrator is also therefore merited and an objection under
Section 34 A&C Act cannot sustain.
Signature Not Verified
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31. The other issue which was raised by the petitioner was the
dismissal of the Claim 12B. Respondent claimed that the petitioner
inadvertently reimbursed the amount in excess of 10% of the amount
payable to the respondent and the sum of Rs.1.79 crores was paid in
excess to the respondent and the petitioner was entitled to (refund of) the
same. In this regard, Clause 25.7 SCSDS was considered as per which
contracts of 1 and 2 years, the total amount of reimbursement/recovery
due to variation in price was limited to 10% whereas contracts of more
than 2 years of duration, the limitation was 20%.
32. It is stated in Clause 25.7 SCSDS that duration of the contract
shall be prescribed in the tender documents at the time of inviting
tenders and will not include the extended period due to extension of any
kind. Clause 25.9 A SCSDS was noted which specifically dealt with
price issue during extension of contract and provided that the price
adjustment would either increase or decrease as applicable to the
stipulated date of completion and for all extensions of time granted,
except extensions granted under Clause 17-B of the GCC. The Arbitrator
noted that there were 8 extensions under Clause 17-A of the GCC and
since it was for a more than 2-year period, the total reimbursement due
to part price variation should be 20%. In view of Clause 25.9-A SCSDS,
this plea of the petitioner was rejected.
33. The attempt to recover the amount from the respondent on the
ground that there was excess payment was found to be misplaced.
34. The Court does not find any basis to object to the findings of the
Arbitrator on these aspects, since neither they come within the purview
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of conflict with public policy or are in contravention with fundamental
policy of Indian law or in conflict with basic notions of morality or
justice. In fact, as per Explanation 2 to Section 34 (2) (b) (ii), the test of
fundamental policy of Indian law shall not entail a review on the merits
of the dispute.
35. The Supreme Court in MMTC Ltd. v. Vedanta Ltd.1, held that
interference with an arbitral award under Section 34(2)(b)(ii) of A&C
Act is limited to grounds of public policy, including fundamental policy
of Indian law, conflict with justice or morality, and patent illegality, but
does not entail a review on merits unless the findings are arbitrary,
capricious, perverse, or shock the conscience of the Court. Relevant
paragraphs are extracted as under:
“11. As far as Section 34 is concerned, the position is
well-settled by now that the Court does not sit in
appeal over the arbitral award and may interfere on
merits on the limited ground provided under Section
34(2)(b)(ii) i.e. if the award is against the public policy
of India. As per the legal position clarified through
decisions of this Court prior to the amendments to the
1996 Act in 2015, a violation of Indian public policy, in
turn, includes a violation of the fundamental policy of
Indian law, a violation of the interest of India, conflict
with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the
concept of the “fundamental policy of Indian law”
would cover compliance with statutes and judicial
precedents, adopting a judicial approach, compliance
with the principles of natural justice,
and Wednesbury [Associated Provincial Picture
Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)]
reasonableness. Furthermore, “patent illegality” itself
1
(2019) 4 SCC 163
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has been held to mean contravention of the substantive
law of India, contravention of the 1996 Act, and
contravention of the terms of the contract.
12. It is only if one of these conditions is met that the
Court may interfere with an arbitral award in terms of
Section 34(2)(b)(ii), but such interference does not
entail a review of the merits of the dispute, and is
limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or
when the conscience of the Court is shocked, or when
the illegality is not trivial but goes to the root of the
matter. An arbitral award may not be interfered with if
the view taken by the arbitrator is a possible view
based on facts. (See Associate
Builders v. DDA [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204]. Also see ONGC
Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd.,
(2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends
Coal Carbonisation [Hindustan Zinc Ltd. v. Friends
Coal Carbonisation, (2006) 4 SCC 445];
and McDermott International Inc. v. Burn Standard
Co. Ltd. [McDermott International Inc. v. Burn
Standard Co. Ltd., (2006) 11 SCC 181]).”
(emphasis added)
Re: Arbitrability
36. As regards the issue of “excepted matters,” the Court was not
convinced of the argument raised by the petitioner. Nowhere on the
record can it be ascertained that the argument was raised before the
Arbitrator or indeed raised before this Court in the section 34 petition.
These arguments were clearly raised and substantiated during oral
arguments. Petitioner states that Clause 63 of the GCC would except out
any matter which would arise under specified clauses of the GCC or ‘any
clause of the Special Conditions of Contract’. If the interpretation of the
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petitioner was to be accepted, then any dispute arising under the contract
would be outside the arbitration clause. That can never be the intention
of a contract of this nature where the arbitration clause provided as
under:
“64(1)(i) — Demand for Arbitration.- In the event of
any dispute or difference between the parties hereto as
to the construction or operation of this contract, or the
respective rights and liabilities of the parties n any
matter in question, dispute or difference on any
account or as to-the withholding by the Railway of any
certificate to which the contractor may claim to be
entitled to, or if the Railway fails to make a decision
within 120 days, then and in any such case, but except
in any of the ‘excepted matters’ referred to in clause 63
of these conditions, the contractor, after 120 days but
within 180 days of his presenting his final claim on
disputed matters, shall demand in writing that the
dispute or difference be referred to arbitration.
64 (1)(ii) –The demand for arbitration shall specify
the matters which are in question or subject of the
dispute or difference as also the amount of claim
itemwise: Only such dispute(s) or difference (s) in
respect of which the demand has been made, together
with counter claims or set off shall be referred to
arbitration and other. matters shall not be included in
the reference.
64 (1)(ii)(a) — the Arbitration proceeding shall be
assumed to have commenced from the day, a written
and valid demand for arbitration is received by the
Railway.
(b) The claimant shall submit his claim stating the facts
supporting the claim along with all relevant documents
and the relief or remedy sought against each claim
within a period of 30 days from the date of.
appointment of the Arbitral Tribunal.
(c) The Railway shall submit its defence statement and
counter claims), it any, within a period of 60 days of
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receipt of copy of claim from Tribunal thereafter unless
otherwise extension has been granted by Tribunal.
64(1)(iii)–No new claim shall be added during
proceedings by either party. However, a party may
amend or supplement the original, claim or defence
thereof during the course of arbitration proceedings
subject to acceptance by Tribunal having due regard to
the delay in making it.
64(1)(iv)–If the contractors) does/do not prefer
his/their specific and final claim in writing, within a
period of 90 days of receiving the intimation from the
Railways that the final bill is ready for payment,
he/they will be deemed to have waived his/their claims)
and the Railway shall be discharged and released of
all liabilities under the contract in respect of these
claims:
64(2)–Obligation during pendency of arbitration. —
Work under the contract shall, unless otherwise
directed by the Engineer, continue during the
arbitration proceeding, and no payment due or payable
by the Railway shall be withheld on account of such
proceedings, provided, however, it shall be open for
Arbitral Tribunal to consider and decide whether or
not such work should continue during arbitration
proceedings.
64 (3)(a)(i)–In cases where the total value of all
claims in question added together does not exceed R$
10,00,000/- (Rupees ten lakhs only), the Arbitral
Tribunal consist of a sole arbitrator who shall be
either the General Manager or a gazetted officer of
Railway not below the grade of JA grade nominated by
the General Manager in that behalf. The sole
arbitrator shall be appointed within 60 days from the
day when a written and valid demand for arbitration is
received by Railway.
64 (3)(a)(ii) –In cases not covered by clause 64(3) (a)
(i), the Arbitral Tribunal shall consist of a panel of
three Gazetted Rly. officers not below JA grade, as the
arbitrators. For this purpose, the Railway will send a
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panel of more than 3 names of Gazetted Fly. Officers
of one or more departments, of the Rly. to the
contractor who will be asked to suggest to General
Manager up to 2 names out of panel for appointment
as contractor’s nominee. The General Manager shall
appoint at least one out of them as the contractor’s
nominee and will, also simultaneously appoint the
balance number of arbitrators either from the panel or
from outside the panel, duly indicating the ‘presiding
arbitrator from amongst the 3 arbitrators so
appointed. While nominating the arbitrators It will be
necessary to ensure that one of them is from the
Accounts department. An officer of Selection Grade of
the Accounts department shall be considered of equal
status to the officers in SA grade of other departments
of the Railways for the purpose of appointment of
arbitrators.
64 (3)(a)(iii)–If one or more of the arbitrators
appointed as above refuses to act as arbitrator,
withdraws from his office as arbitrator, or vacates
his/their office/offices or is/are unable or unwilling to
perform his functions as arbitrator for any reason
whatsoever or dies or in the opinion of the General
Manager fails to act without undue delay, the General
Manager shall appoint new arbitrator/arbitrators to
act in his/their place in the same manner in which the
earlier arbitrator/arbitrators had been appointed. Such
re-constituted Tribunal may, at its discretion, proceed
with the reference from the stage at which it was left by
the previous arbitrator(s):
64 (3)(a)(iv)–The arbitral Tribunal shall have power
to call for such evidence by way of affidavits or
otherwise as the Arbitral Tribunal shall think proper,
and it shall be the duty of the parties hereto to do or
cause to be done all such things as may be necessary to
enable the Arbitral Tribunal to make the award
without any delay.
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that he/they is/are not the one/those who had an
opportunity to deal with the matters to which the
contract relates or who in the course of his/their duties
as Railway servants(s) expressed views on all or any of
the matters under dispute or differences. The
proceedings of the Arbitral Tribunal or the award
made by such Tribunal will, however, not be invalid
merely for the reason that one or more arbitrator had,
in the course of his service, opportunity to deal with
the matters to which the contract relates or who in the
course of his/their duties expressed views on all or any
of the matters under dispute.
64(3)(b)(i)–The arbitral award shall state itemwise,
the sum and reasons upon which it is based.
64(3)(b)(ii)– A party may apply for corrections of any
computational errors, any typographical or clerical
errors or any other error of similar nature occurring in
the award and interpretation of a specific point of
award to tribunal within 30 days of receipt of the
award.
64(3)(b(iii)–A party may apply to tribunal within 30
days of receipt of award to, make an additional award
as to claims presented in the arbitral proceedings but
omitted from the arbitral award.
64.4 In case of the Tribunal, comprising of three
members, any ruling or award shall be made by a
majority of Members of Tribunal: in the absence of
such a majority, the views of the Presiding Arbitrator
shall prevail.
64.5 Where the arbitral award is for the payment of
money, no interest shall be payable on whole or any
part of the money for any period till the date on which
the award is made.
64.6 The cost of arbitration shall be borne by the
respective parties. The cost shall inter alia include fee
of the arbitrator(s) as per the rates fixed by the Rly.
Administration from time to time.
64.7 Subject to the provisions of the aforesaid
Arbitration and Conciliation Act 1996 and the rules
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there under and any statutory modification thereof
shall apply to the arbitration proceedings under this
clause.”
(emphasis added)
37. The GCC and SCC usually work in tandem in any large-scale
contract. While the GCC is a generic set of terms and conditions, the
SCC correlates to specific clauses of the GCC in order to provide a
modification, alteration, embellishment, or specification. Therefore,
reference to specific Clauses i.e. 8 (a), 18,22 (5), 39, 43 (2), 45 (a), 55,
55-A (5), 57, 57A, 61 (1), 61 (2) and 62 (1) (b) of GCC refer to particular
clauses of the GCC and necessarily would have to be correlated to
specific clauses of the SCC. The fundamental dispute as to who was
responsible for the delay was a question of fact, but whether the
extensions were granted due to fault of the contractor or otherwise due to
unavoidable reasons, was an issue which arose under Clauses 17A and
17B of the GCC, which in any case did not find mention in Clause 63 of
the GCC.
38. The other clauses under which the issue arose was the
interpretation of, Clauses 28.0 and 29.0 of the SCSDS and Clauses 25.7
and 25.9 of the SCSDS at best. Considering these were not clauses
which were clauses correlated under the GCC, it cannot be argued that
these were non-arbitrable in nature.
39. Petitioner’s argument was that the contract itself referred to the
GCC and had reference at various clauses including Clause 8.1 of the
SIT would bear out that the GCC was in a sense applicable to the
contract.
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40. Aside from the discussion above on the scope of Clause 63 of
GCC defining “excepted matters”, what is more striking is that such a
drastic objection to jurisdiction was not taken by petitioner under section
16 of A&C Act, or at the stage of filing of pleadings or at the stage of
arguments before the Arbitrator, or even at the stage of filing their
objections under section 34 of the A&C Act. This, in the opinion of this
Court, completely divests and disentitles petitioner from raising the
objection at this stage, as a matter of argument.
41. Notwithstanding, that this aspect in any case has been dealt with
by the Court above, it is to be noted that the courts have been quite
categorical in asserting that objections as to jurisdiction of Arbitral
Tribunal ought to be taken at the first instance, in fact not later than the
submission of the statement of defence as per section 16 (2) of A&C
Act. The omission to take such an objection at the earlier stage amounts
to a waiver of the right to object.
42. Arbitral Tribunals are now the first preferred authority to
determine and decide all questions of non-arbitrability. At best, under
Section 34 proceedings, the Court can have a ‘second look’ at it, the first
look being preserved of the Arbitral Tribunal in consonance with the
jurisprudence enunciated with respect to Section 16 A&C Act. In this
regard it will be instructive to peruse the text of Section 16 A&C Act,
which is extracted as under:
“16. Competence of arbitral tribunal to rule on its
jurisdiction. —
(1) The arbitral tribunal may rule on its own
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respect to the existence or validity of the arbitration
agreement, and for that purpose,–
(a) an arbitration clause which forms part of a
contract shall be treated as an agreement independent
of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract
is null and void shall not entail ipso jure the invalidity
of the arbitration clause.
(2) A plea that the arbitral tribunal does not have
jurisdiction shall be raised not later than the
submission of the statement of defence; however, a
party shall not be precluded from raising such a plea
merely because that he has appointed, or participated
in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the
scope of its authority shall be raised as soon as the
matter alleged to be beyond the scope of its authority is
raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases
referred to in sub-section (2) or sub-section (3), admit
a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea
referred to in sub-section (2) or sub-section (3) and,
where the arbitral tribunal takes a decision rejecting
the plea, continue with the arbitral proceedings and
make an arbitral award.
(6) A party aggrieved by such an arbitral award may
make an application for setting aside such an arbitral
award in accordance with Section 34.”
(emphasis added)
43. The Supreme Court and this Court, in spirit of Section 16 of the
A&C Act and in line with the arbitral concept of kompetenz-kompetenz,
have time and again held that objections pertaining to jurisdiction/
authority of the Arbitral Tribunal, cannot, for the first time, be raised in a
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Section 34 A&C Act petition. Relevant paragraph(s) of the decisions in
this regard, are as under:
“10. The learned counsel pointed out that no plea of
lack of jurisdiction of the learned arbitrator was taken
by the appellant in the statement of defence.
Furthermore, the appellant also led evidence in
defence. He also pointed out that the appellant, in fact,
categorically accepted the jurisdiction of the learned
arbitrator by filing a counterclaim in the proceedings.
He submits that, in such circumstances, the appellant
had clearly waived its right to object to the constitution
of the Arbitral Tribunal. Similarly, the plea of excepted
matters was also never raised by the appellant during
the entire arbitration proceedings. All claims have
been decided on merits.
………
15. As noticed above, by order dated 10-7-1998, the
High Court appointed Mr Justice Satyabrata Mitra as
the sole arbitrator. It is important to notice that this
order dated 10-7-1998 was not challenged by the
appellant and, therefore, the same became final and
binding. This apart, the appellant failed to raise any
objection to the lack of jurisdiction of the Arbitral
Tribunal before the learned arbitrator.
16. As noticed above, the appellant not only filed the
statement of defence but also raised a counterclaim
against the respondent. Since the appellant has not
raised the objection with regard to the
competence/jurisdiction of the Arbitral Tribunal before
the learned arbitrator, the same is deemed to have
been waived in view of the provisions contained in
Section 4 read with Section 16 of the Arbitration Act,
1996.
17. Section 16 of the Arbitration Act, 1996 provides
that the Arbitral Tribunal may rule on its own2
(2014) 11 SCC 366
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jurisdiction. Section 16 clearly recognises the principle
of kompetenz-kompetenz. Section 16(2) mandates that
a plea that the Arbitral Tribunal does not have
jurisdiction shall be raised not later than the
submission of the statement of defence. Section 4
provides that a party who knows that any requirement
under the arbitration agreement has not been complied
with and yet proceeds with the arbitration without
stating his objection to such non-compliance without
undue delay shall be deemed to have waived his right
to so object.
18. In our opinion, the High Court has correctly come
to the conclusion that the appellant having failed to
raise the plea of jurisdiction before the Arbitral
Tribunal cannot be permitted to raise for the first time
in the Court. Earlier also, this Court had occasion to
consider a similar objection in BSNL v. Motorola India
(P) Ltd. [(2009) 2 SCC 337 : (2009) 1 SCC (Civ) 524]
Upon consideration of the provisions contained in
Section 4 of the Arbitration Act, 1996, it has been held
as follows: (SCC p. 349, para 39)
“39. Pursuant to Section 4 of the Arbitration
and Conciliation Act, 1996, a party which
knows that a requirement under the arbitration
agreement has not been complied with and still
proceeds with the arbitration without raising
an objection, as soon as possible, waives their
right to object. The High Court had appointed
an arbitrator in response to the petition filed by
the appellants (sic respondent). At this point,
the matter was closed unless further objections
were to be raised. If further objections were to
be made after this order, they should have been
made prior to the first arbitration hearing. But
the appellants had not raised any such
objections. The appellants therefore had clearly
failed to meet the stated requirement to object
to arbitration without delay. As such their right
to object is deemed to be waived.”
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19. In our opinion, the obligations are fully applicable
to the facts of this case. The appellant is deemed to
have waived the right to object with regard to the lack
of jurisdiction of the Arbitral Tribunal.”
(emphasis added)
ii. Gauri Shankar Educational Trust v. Religare Finvest Ltd.3:
“15. In my opinion, the argument urged on behalf of
the petitioners with reference to para 22 of the Fifth
Schedule is without any merit for two reasons. The first
reason is that any objection under Section 16 of the
Arbitration and Conciliation Act with respect to lack of
jurisdiction of the arbitration tribunal has to be taken
up at the very first instance in the arbitration
proceedings. If no such objection is taken in the
arbitration proceedings, then after passing of an
award, such an objection cannot be taken. This issue
has been dealt with by the Hon’ble Supreme Court in
its recent judgment in the case of Madhya Pradesh
Rural Road Development Authority v. L.G. Chaudhary
Engineers and Contractors, (2018) 10 SCC 826.
Therefore, even assuming for the sake of arguments
that the petitioners could have raised a valid objection
under para 22 of the Fifth Schedule for challenging the
jurisdiction of the Ld. Arbitrator, yet this objection is
no longer open to the petitioners for the first time in
this petition at the stage of challenging the Award
under Section 34 of the Act, as no such objection was
raised in the arbitration proceedings at the first
instance as required by Section 16(2) of the Act.
Merely because petitioners chose not to appear in the
arbitration proceedings would not mean that the
provision of Section 16 will not apply inasmuch as the
provision of Section 16 applies to contested arbitration
proceedings and also uncontested arbitration
proceedings resulting in an ex parte Award. Sub-
section 2 of Section 16 leaves no doubt of any manner
with respect to the issue of the arbitral tribunal lacking
3
2019 SCC OnLine Del 6987
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jurisdiction and the same has to be necessarily and
shall be raised before the submission of the defence,
meaning thereby that this objection of lack of
jurisdiction of the arbitrator has to be raised
immediately on service/appearance in the arbitration
proceedings by the respondents i.e. before filing the
statement of defence. Admittedly, since no defence has
been raised under Section 16(2) of the Act in the
arbitration proceedings, the petitioners therefore now
in a Section 34 petition cannot object to the
jurisdiction of the Ld. Arbitrator by placing reliance
upon para 22 of the Fifth Schedule of the Act.
(emphasis added)
iii. Quippo Construction Equipment Ltd. v. Janardan Nirman
(P) Ltd.4:
16. In the circumstances, it is clear that:
(i) Though each of the four agreements provided for
arbitration, the award rendered by the arbitrator was a
common award; and
(ii) In one of the agreements the venue was stated to be
Kolkata and yet the proceedings were conducted at
Delhi;
However, at no stage, the aforesaid objections were
raised by the respondent before the arbitrator and the
respondent let the arbitral proceedings conclude and
culminate in an ex parte award. Therefore, the
question that arises is whether the respondent could be
said to have waived the right to raise any of the
aforesaid objections.
………
24. It was possible for the respondent to raise
submissions that arbitration pertaining to each of the
agreements be considered and dealt with separately. It
was also possible for him to contend that in respect of
the agreement where the venue was agreed to be at
Kolkata, the arbitration proceedings be conducted
4
(2020) 18 SCC 277
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accordingly. Considering the facts that the respondent
failed to participate in the proceedings before the
arbitrator and did not raise any submission that the
arbitrator did not have jurisdiction or that he was
exceeding the scope of his authority, the respondent
must be deemed to have waived all such objections.
(emphasis added)
44. Further, this Court, while deciding a petition under Section 34 of
the A&C Act, is only permitted to take a ‘second-look’, as regards an
objection which primarily falls within the purview of Section 16 of the
A&C Act. The Supreme Court in Vidya Drolia and Others v. Durga
Trading Corporation5, has opined as under:
“154. Discussion under the heading “Who Decides
Arbitrability?” can be crystallised as under:
154.1. Ratio of the decision in Patel Engg. Ltd. [SBP &
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the
scope of judicial review by the court while deciding an
application under Sections 8 or 11 of the Arbitration
Act, post the amendments by Act 3 of 2016 (with
retrospective effect from 23-10-2015) and even post the
amendments vide Act 33 of 2019 (with effect from 9-8-
2019), is no longer applicable.
154.2. Scope of judicial review and jurisdiction of the
court under Sections 8 and 11 of the Arbitration Act is
identical but extremely limited and restricted.
154.3. The general rule and principle, in view of the
legislative mandate clear from Act 3 of 2016 and Act
33 of 2019, and the principle of severability and
competence-competence, is that the Arbitral Tribunal
is the preferred first authority to determine and decide
all questions of non-arbitrability. The court has been
conferred power of “second look” on aspects of non-
arbitrability post the award in terms of sub-clauses (i),
5
(2021) 2 SCC 1
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(ii) or (iv) of Section 34(2)(a) or sub-clause (i) of
Section 34(2)(b) of the Arbitration Act.”
(emphasis added)
Re: Interest
45. As regards interest, an objection has been taken by petitioner that
as per Clause 64.5 of GCC, no interest could have been awarded by the
Arbitrator. The argument to the contrary, by the respondent, is based on
Section 31 (7) A&C Act which reads as under:
“Section 31. Form and contents of arbitral award
………
(7) (a) Unless otherwise agreed by the parties, where
and in so far as an arbitral award is for the payment of
money, the arbitral tribunal may include in the sum for
which the award is made interest, at such rate as it
deems reasonable, on the whole or any part of the
money, for the whole or any part of the period between
the date on which the cause of action arose and the
date on which the award is made.
1[(b) A sum directed to be paid by an arbitral award
shall, unless the award otherwise directs, carry interest
at the rate of two per cent. higher than the current rate
of interest prevalent on the date of award, from the
date of award to the date of payment.
Explanation. –The expression “current rate of
interest” shall have the same meaning as assigned to it
under clause (b) of section 2 of the Interest Act, 1978
(14 of 1978).]
2[(8) The costs of an arbitration shall be fixed by the
arbitral tribunal in accordance with section 31A.]
Explanation. –For the purpose of clause (a), “costs”
means reasonable costs relating to–
(i) the fees and expenses of the arbitrators and
witnesses,
(ii) legal fees and expenses,
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(iii) any administration fees of the institution
supervising the arbitration, and
(iv) any other expenses incurred in connection with the
arbitral proceedings and the arbitral award.
(emphasis added)
46. The issue would arise whether Clause 64.5 of GCC would act as a
complete exclusion to the grant of interest, or whether Section 31 (7) of
A&C Act would override any such exclusion under the contract.
47. There are three aspects to the issue of interest, the first relates to
all the refunds and reimbursements which have been sought, in respect
of which the Arbitrator has awarded 9% interest from 25th May 2014 till
30th September 2018, and thereafter 18% per annum till the date of
payment. The second aspect pertains to the quantification of amounts
post-preparation of the final bill, which was directed to be prepared and
amounts paid on or before 30th September 2018. The third aspect is that
if the total amount was not paid till 30th September 2018, then it would
carry an interest rate of 18% per annum till the date of payment.
48. Aside from the fact that the petitioner never took up this issue of
bar under Clause 64.5 of GCC, to argue disentitlement of the Arbitrator
from awarding interest, it is evident that the Arbitrator exercised his
power to award interest under Section 31 (7) of A&C Act.
49. This aspect was never raised by the petitioner before the
Arbitrator, and the award of the Arbitrator is, therefore, in consonance
with Section 31 (7) of the A&C Act.
50. As regards the issue of interest, the petitioners, in their reply and
counterclaim, raised objections only with reference to Clauses 52, 52A,
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and 17A(iii) of the GCC. Notably, no objection was raised in relation to
Clause 64.5 of the GCC, which was conspicuously absent.
51. Although we are not invited to speculate why the restriction on
payment of interest as per Clause 64.5 of GCC was not raised by the
petitioner, the fact that it was indeed not raised is indisputable.
Petitioners attempt to rake up this issue at this stage will therefore be hit
by the doctrine of waiver. Petitioner cannot take advantage of it at this
stage of Section 34 of the A & C Act, having given up its option to raise,
what it now professes to be a fundamental ground.
52. Though it may be academic, there is also jurisprudence to suggest
that standard form (dotted line) contracts are prone to be diluted/set aside
as being improvident or unconscionable, since the deprived and affected
party is denied a remedy to which, commercially, they ought to be
entitled. Decisions of the Supreme Court in this regard in Central
Inland Water Transport Corporation. v. Brojo Nath Ganguly and
Another6, LIC of India and Another v. Consumer Education &
Research Centre and Others7 and Lombardi Engineering Ltd. v.
Uttarakhand Jal Vidyut Nigam Limited8 are instructive.
53. In Reliance Cellulose Products Ltd. v. ONGC Ltd.9, the Supreme
Court observed that “since interest is compensatory in nature and
parasitic upon a principal sum not paid in time, courts have generally
disapproved of contractual clauses that bar the payment of interest.”
6
(1986) 3 SCC 156
7
(1995) 5 SCC 482
8
(2024) 4 SCC 341
9
(2018) 9 SCC 266
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This position was further affirmed by the Supreme Court in Ferro
Concrete Construction (India) Pvt Ltd. v. State of Rajasthan10.
Scope of Section 34
54. A brief note may be made on the scope of interference by a Court
under Section 34 of the A&C Act. The decisions passed by the
Supreme Court in this regard have been usefully and succinctly
chronicled by a Coordinate Bench of this Court in NDMC v. R&T
Enterprise11. Relevant paragraphs of the same are extracted hereunder:
“55. The decisions on the scope of Section 34 of the
1996 Act are too numerous to justify any paraphrasing,
but the position is, by now, certain. UHL Power Co.
Ltd. v. State of H.P.[(2022) 4 SCC 116] and Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd.
.[(2019) 20 SCC 1] hold that the jurisdiction of the
Court under Section 34 cannot be likened to normal
appellate jurisdiction. Casual and cavalier interference
with arbitral awards, and proscription from interfering
on the ground that a better, alternative view was
possible, stands clearly foreclosed by Ssangyong
Engineering & Construction Co.
Ltd. v. N.H.A.I..[(2019) 15 SCC 131] and Parsa Kente
Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan
Nigam Ltd.[(2019) 7 SCC 236]. The autonomy of the
Arbitral Tribunal was required to be respected and
interference with arbitral awards on factual aspects
firmly eschewed. At the same time, if the award was
found to be perverse, or that the interpretation of the
contractual covenants by the Arbitral Tribunal was one
which could not possibly be accepted, the Court was
bound to interfere [Dyna Technologies]. Instances
where the construction of the contractual clauses, by
10
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11
2024 SCC OnLine Del 5436
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the Arbitral Tribunal, was found to be so unacceptable
as to justify interference, are South East Asia Marine
Engineering & Constructions Ltd. v. Oil India
Ltd.[(2020) 5 SCC 164] and Patel Engineering
Ltd. v. North Eastern Electric Power Corporation Ltd.
[(2020) 7 SCC 167].
56. “Perversity”, as would justify interference with an
arbitral award, connotes a situation in which the
finding of fact, by the Arbitral Tribunal, was arrived at
by ignoring or excluding relevant material, or by
taking into consideration irrelevant material, or where
the finding is so outrageously in defiance of logic as to
suffer from the viced of irrationality. Associate
Builders v. D.D.A. also placed especial reliance, on the
concept of “perversity”, on the following clarification,
provided in Kuldeep Singh v. Commissioner of Police:
“10. A broad distinction has, therefore, to be
maintained between the decisions which are
perverse and those which are not. If a decision is
arrived at on no evidence or evidence which is
thoroughly unreliable and no reasonable person
would act upon it, the order would be perverse.
But if there is some evidence on record which is
acceptable and which could be relied upon,
howsoever compendious it may be, the
conclusions would not be treated as perverse and
the findings would not be interfered with.”
57. In Associate Builders and Indian Oil Corporation
Ltd. v. Shree Ganesh Petroleum, the Supreme Court
clearly held that an arbitral award can only be set
aside on grounds mentioned under Sections 34(2) and
(3) of the said Act and not otherwise. The Court
considering an application for setting aside an award,
under Section 34 of the 1996 Act, cannot look into the
merits of the award except when the award is in
conflict with the public policy of India as provided in
Section 34(2)(b)(ii) of the 1996 Act. An award could be
said to be in conflict with the public policy of India, as
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per Associate Builders, when it is patently violative of
a statutory provision, or where the approach of the
Arbitral Tribunal has not been judicial, or where the
award has been passed in violation of the principles of
natural justice, or where the award is patently illegal,
which would include a case in which it was in patent
contravention of applicable substantive law or in
patent breach of the 1996 Act, or where it militated
against the interest of the nation, or was shocking to
the judicial conscience.
58. An award which ignores the specific terms of the
contract, but is not merely a case of erroneous
contractual interpretation, is patently illegal. The
Supreme Court, in Indian Oil Corporation Ltd., found
the case before it to be one such. Ssangyong
Engineering also demonstrates an interesting example
of a case in which the error in interpretation of the
contract was so fundamental as to render the award in
conflict with the public policy of India:
“76. However, when it comes to the public policy
of India, argument based upon “most basic
notions of justice”, it is clear that this ground can
be attracted only in very exceptional
circumstances when the conscience of the Court is
shocked by infraction of fundamental notions or
principles of justice. It can be seen that the
formula that was applied by the agreement
continued to be applied till February 2013 – in
short, it is not correct to say that the formula
under the agreement could not be applied in view
of the Ministry’s change in the base indices from
1993-1994 to 2004-2005. Further, in order to
apply a linking factor, a circular, unilaterally
issued by one party, cannot possibly bind the
other party to the agreement without that other
party’s consent. Indeed, the circular itself
expressly stipulates that it cannot apply unless the
contractors furnish an undertaking/affidavit that
the price adjustment under the circular is
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acceptable to them. We have seen how the
appellant gave such undertaking only
conditionally and without prejudice to its
argument that the Circular does not and cannot
apply. This being the case, it is clear that the
majority award has created a new contract for the
parties by applying the said unilateral circular
and by substituting a workable formula under the
agreement by another formula dehors the
agreement. This being the case, a fundamental
principle of justice has been breached, namely,
that a unilateral addition or alteration of a
contract can never be foisted upon an unwilling
party, nor can a party to the agreement be liable
to perform a bargain not entered into with the
other party. Clearly, such a course of conduct
would be contrary to fundamental principles of
justice as followed in this country, and shocks the
conscience of this Court. However, we repeat that
this ground is available only in very exceptional
circumstances, such as the fact situation in the
present case. Under no circumstance can any
court interfere with an arbitral award on the
ground that justice has not been done in the
opinion of the Court. That would be an entry into
the merits of the dispute which, as we have seen,
is contrary to the ethos of Section 34 of the 1996
Act, as has been noted earlier in this judgment.”
59. Yet another such example was highlighted by the
Supreme Court in PSA Sical Terminals (P) Ltd. v. V.O.
Chidambranar Port Trust:
“85. As such, as held by this Court in Ssangyong
Engg. & Construction, the fundamental principle
of justice has been breached, namely, that a
unilateral addition or alteration of a contract has
been foisted upon an unwilling party. This Court
has further held that a party to the agreement
cannot be made liable to perform something for
which it has not entered into a contract. In our
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view, re-writing a contract for the parties would
be breach of fundamental principles of justice
entitling a court to interfere since such case
would be one which shocks the conscience of the
Court and as such, would fall in the exceptional
category.”
60. PSA Sical, therefore, holds that if the Arbitral
Tribunal travels beyond the contract, it acts without
jurisdiction, being a creature of the contract, and the
award stands vitiated thereby. Following the precedent
in Army Welfare Housing Organisation v. Sumangal
Services (P) Ltd., it was held that an Arbitral Tribunal
had strictly to act within the boundaries of the
contract, and could not proceed ex debito justitiae. For
example, as observed in Satyanarayana Construction
Co. v. U.O.I., the Arbitral Tribunal could not award a
claim at a rate higher than that specified in the
contract. Rewriting of the contract is completely
proscribed, and fatally imperils the arbitral award, as
held in N.H.A.I. v. Bumihiway DDB (JV), Union
Territory of Pondicherry v. P.V. Suresh, Shree Ambica
Medical Stores v. Surat People‘s Co-operative Bank
Ltd.. IFFCO Tokio General Insurance Co. v. Pearl
Beverages Ltd., Tata Consultancy Services v. Cyrus
Investments (P) Ltd. and Maharashtra State Electricity
Distribution Co. v. Maharashtra Electricity Regulatory
Commission.
61. Comprehensively examining and analysing the
entire gamut of existing case laws and reiterating the
above principles, the Supreme Court, in S.V.
Samudram v. State of Karnataka, further clarified that
an arbitral award could not be modified by the Court,
as held in N.H.A.I. v. M. Hakeem and Dakshin
Haryana Bijli Vitran Nigam Ltd. v. Navigant
Technologies (P) Ltd. The latter decision, it was noted,
further held that, where the Court set aside the award
of the Arbitral Tribunal, the underlying dispute would
be required to be decided afresh in an appropriate
proceeding. In the event of the Court finding the
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arbitral award to justify evisceration, the Court, it was
held in McDermott International and Larsen Air
Conditioning & Refrigeration Co. v. U.O.I, could only
quash the award leaving the parties to reinitiate
arbitration should they so choose, but could not itself
rewrite or modify the award.
62. As held by a coordinate Bench of this Court in
N.H.A.I. v. Trichy Thanjavur Expressway Ltd., the M.
Hakeem proscription against modification of an
arbitral award by Court does not extend to setting
aside of the award in part, where that part is found to
be severable from the rest of the award.
63. These principles also stand exhaustively delineated
in Reliance Infrastructure Ltd. v. State of Goa.”
(emphasis added)
55. There are various judicial deliberations on the scope of Section 34
of the A&C Act, and there is no necessity for reiterating the same.
Essentially recourse against an arbitral award can only be made by an
aggrieved party and can be set aside by the Court only if, inter alia, the
award is in conflict with the public policy of India or is vitiated by patent
illegality, in addition to other procedural objections. Firstly, an award is
considered to be in conflict with the public policy of India as per
Explanation 1 to Section 34 (2) (b) if it is induced by fraud or
corruption, is in contravention with fundamental policy of Indian law, or
is in conflict with the most basic notions of morality and justice.
Secondly, patent illegality, though not embellished in Section 34 (2) (a),
has been deliberated, as noted above by the Courts. Distinctive exception
to both aspects of fundamental policy and patent illegality has been
provided in the Act, specifically through Explanation 2 to Section 34 (2)
(b) and to Section 34 (2) A, essentially excluding review on the merits of
dispute, erroneous application of law, or re-appreciation of evidence.
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The objections raised by the petitioner clearly fall within these
exceptions and do not persuade this Court to set aside the award.
56. For the purpose of assessing these objections, the petitioner has
invited the Court to review merits of the dispute, re-appreciate evidence,
and has drawn attention to an erroneous application of law. These,
having statutorily excluded from the purview of Section 34 assessment,
persuade the Court to dismiss this petition and the petitioner’s objections
for setting aside the award.
57. Moreover, there is nothing in the award which shocks the
conscience of the Court, or is fundamentally illegal, or is so perverse as
to go to the root of the matter.
58. The fulcrum of petitioner’s assertion were arguments which do not
stand their ground, besides they have not been raised before the
Arbitrator or even in Section 34 A & C Act petition, and have merely
been trussed up at this stage, only to result in rejection by this Court.
59. Accordingly, this petition stands dismissed in above terms.
60. Judgement be uploaded on the website of this Court.
(ANISH DAYAL)
JUDGE
MAY 13, 2025/SM/tk-kp
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