Calcutta High Court (Appellete Side)
M/S. Beekay Engineering Corporation vs Steel Authority Of India Ltd on 25 July, 2025
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
APPELLATE SIDE
BEFORE:
The Hon'ble Justice Soumen Sen
and
The Hon'ble Justice Biswaroop Chowdhury
FMA 1144 of 2019
M/s. Beekay Engineering Corporation
VS.
Steel Authority of India Ltd.
For the Appellant : Mr. Siddhartha Lahiri, Adv.,
Mr. Soumya Ganguly, Adv.,
Mr. Debraj Dutta, Adv.
For the respondent/SAIL : Mr. L.K. Gupta, Sr. Adv.
Mr. Soumik Nandy, Sr. Adv.
Mr. Arjun Roy Mukherjee
Ms. Debapriya Mitra
Mr. Joydeev Medhi
Hearing concluded on : 18th July, 2025
Judgment on : 25th July, 2025
Soumen Sen, J.:-
1. The present appeal arises out of a judgment dated 28th
February, 2019 passed by the Learned District Judge, Paschim
Bardhaman in Misc (Arbitration) Case No.11 of 2018 whereby the
application under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as “the Act”) filed by the
respondent herein i.e., Steel Authority of India Ltd. (SAIL) was
2
allowed and the Arbitration Award dated 6th November, 2007 was
set aside and the case remanded back to the learned Arbitrator.
2. The appellant contractor who was the claimant in the
arbitration proceedings is a firm carrying on the business of
executing various engineering contract works and maintains
labour forces, equipment and establishments for proper execution
of works undertaken by it. The respondent SAIL situated at
Durgapur was in need of cast iron slag pots and had in
furtherance of the same, invited tenders for purchase of ten cast
iron slag pots for its twin blast furnace in August, 1991.
3. Pursuant to negotiations by and between the parties,
purchase order No. PUR/THF/631.04016 dated 12th December,
1991 was placed by the respondent upon the contractor for
manufacture and supply of cast iron slag pots at a total cost of
Rs.26,01,000/- (excluding Central Tax and Excise Duty applicable)
and to supply them at a total freight of Rs.3,90,000/- on or before
31st March, 1992. There was a delay in supply of slag pots with the
contractor starting supply from 30th July, 1992 and the last pot
being supplied on 16th November, 1992. Out of the said six pots,
five pots having developed cracks and becoming unusable, SAIL
demanded the return of price of the defective five pots which the
3
appellant contractor failed to do leading to SAIL withholding the
bills of the contractor relating to other contracts amounting to
Rs.19,46,242/. Hence, disputes having arisen between the parties
the matter was referred to arbitration. The learned Sole Arbitrator
Sri. P.L Banerjee passed the Arbitral Award dated 6th November,
2007 on the basis of six heads of claim raised by the contractor as
has been reproduced below for convenience. The learned sole
arbitrator awarded a total amount of Rs. 87,46,264.71 to be paid
by the respondent within a period of six weeks, failing which the
respondent would be liable to pay interest at the rate of 18% per
annum on the awarded amount from date of Award.
Head of claim Amount awarded
1. Claim of refund of LD recovered from (50% awarded) Rs.
the bills of the claimant 70,998.08
2. Claim of refund of 1% excess recovery Rs. 12,948.62
of LD deducted from the bills of the
claimant
3. Claim of refund of the amount Rs. 2,37,173.04
deducted Towards performance
guarantee from the bills of the claimant
4
4. Claim of refund of amounts Rs. 27,69,972.09
withheld/deducted/appropriated from
bills of the claimant relating to other
contracts.
5. Interest awarded @ 18% per annum
6. Costs Rs. 1,00,000
4. Before the arbitrator, the contractor made a total claim
of Rs.24,38,359/- pertaining to refund of liquidated damages and
including the contractor’s bill under other contracts amounting to
Rs.19,46,242/- and interest at the rate of 18% per annum and
Rs.1,00,000/- towards costs of arbitration. On the other hand,
SAIL made a counter claim for recovery of Rs.5,30,411/- along
with interest at the rate of 18% after adjusting the price of five slag
pots amounting to Rs.27,13,827/- minus the security deposit and
other sums payable to the claimant totaling Rs.21,83,415/-.
5. The learned District Judge in the impugned judgment
has noted the scope of setting aside of an Arbitral Award to be
primarily on four grounds viz fundamental policy of Indian law,
interest of India, justice or morality and patent illegality. The
learned Judge has noted that the fact of the defects which had
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developed in five slag pots out of six delivered to it by the
contractor and received by SAIL from 30th July, 1992 to 16th
November, 1992 was known to SAIL in the month of January,
1993 itself which was explicit from the complaint made by SAIL
regarding development of cracks to the contractor in January,
1993. Hence the learned Judge opined that it was improper for the
arbitrator to have accepted the contention of the contractor that
SAIL had raised the issue only after four years of delivery of the
pots.
6. It was also observed that the expert committee after
investigation had concluded that the pots had developed cracks
due to absence of stress relieving/annealing on the surface of the
pots. Such report of the committee had not been challenged by
SAIL as also noted by the learned Arbitrator and hence both the
parties were bound by such report. The learned District Judge on
the basis of the records of the arbitration observed that the
learned Arbitrator had not examined the technical expert or
scientific expert to find out whether the absence of stress
relieving/annealing on the surface of the slag pots had resulted
from use of improper raw materials or wrong components or due
to manufacturing defects caused by the wrong drawings and
6
designs supplied by SAIL. The Arbitrator had failed to call the
person who had submitted the report to come to a proper scientific
and technical finding that absence of stress relieving/annealing on
the surface of the pots was not due to the fault of the contractor
and causation of such cracks had no relation with the usage of
improper materials or the manufacturing process.
7. By such reasoning, the learned Judge held that the
learned Arbitrator not being an expert or having technical or
scientific knowledge with regard to manufacturing of cast iron slag
pots should have taken the aid of a technical and scientific person
who had prepared the report, on the basis of which the Award was
passed, to satisfy himself that the absence of stress
relieving/annealing on the surface of the slag pots was actually
not a manufacturing defect or proper or right raw materials were
used in manufacturing or that cracks had developed due to defects
in the design or drawing or improper use of materials so as to
come to a finding as to who was responsible for the development of
the cracks in the slag pots. In the light of the aforesaid, the
learned District Judge was pleased to find that the Arbitral Award
was patently illegal and the very basis on which the Award was
passed was perverse and hence set aside the Award and remanded
7
the matter back to the Arbitrator to pass a fresh Award after
examining the technical or scientific expert who had submitted the
report. Hence the present appeal from this impugned judgment.
8. Mr. Siddhartha Lahiri, the learned counsel for the
appellant has submitted that as per the stipulation in the
purchase order, the contractor was to guarantee satisfactory
performance for a period of 12 months from the date of
commissioning or 18 months from the date of supply, whichever is
earlier. In case of defects arising due to manufacturing defects,
workmanship or use of improper material the contractor was to
stand responsible for replacing the same or rectifying the mistakes
free of all costs. In support of such performance guarantee, the
claimant was to furnish a bank guarantee to the extent of 7.5% of
the contract price inclusive of service tax and valid tax for 21
months from the date of delivery.
9. It was submitted that the casting of the first slag pot
was commissioned on 27th April, 1992 and casted in presence of
the representative of the respondent on 29th May, 1992. The
second pot was cast on 8th June, 1992 and the third slag pot on
28th June, 1992 and all three pots were inspected by the
representative of the respondent and approved for acceptance on
8
1st July, 1992. Though the casting of the final three slag pots was
not attended to by the representative of the respondent, after
receipt of the six pots. The respondent had duly tested the same
and thereafter used it in their furnace. Although the contractor
had manufactured the slag pot in accordance with the
specifications supplied, the respondent SAIL had on or about
January, 1993 raised allegations of failure of five out of six slag
pots. Pursuant to the same, on 17th November, 1993 in a meeting
between the parties the methodology for investigation was finalized
and accordingly such testing/metallurgical investigation was
conducted by RCL:DSP (Research and Control Laboratory,
Durgapur Steel Plant).
10. In this regard, the learned Counsel has drawn our
attention to the laboratory report dated 16th December, 1993
which clearly stated that there were no manufacturing defects, bad
workmanship or improper materials used by the claimant
contractor, the chemical analysis and tensile strength of the slag
pots were found to be within acceptable limits and hence no
liability for failure could be attributable to the appellant
contractor. To the contrary, reasons for failure of the pots were
attributed to the absence of stress relieving/annealing on the pots,
9
subsequent to casting. In this regard it was submitted by the
learned Counsel that since the appellant had no role to play for
such work in terms of the purchase order and letter of intent and
since the respondent had not specified the same in their technical
specifications the same could not be attributable to the appellant
contractor. The attention of the court was also drawn to the letter
dated 15th September, 1991 wherein the appellant contractor had
quoted Rs.1,50,000/- extra for annealing but the respondent had
not considered the same and hence further quotations were made
by deletion of the quotation for annealing. It was also contended
that it would be explicit from the letter of intent and purchase
order that annealing of the slag pots was not part of the contract.
11. Mr. Lahiri also placed the observation made by the
learned Arbitral Tribunal as to the fact that the additional
deduction of liquidated damages was clearly beyond the
contractual limit of 5% and was deducted arbitrarily and
wrongfully by the respondent and that the delay of supply of the
pots was due to circumstances beyond the control of the parties.
Reliance was also placed on the observation of the learned
Arbitrator that the pots were manufactured conforming to the
respondent’s own drawings and design and there was no
10
deficiency in this regard that could be attributable to the claimant
contractor and in any case the respondent had not challenged the
investigation report produced in this regard.
12. As pointed out by Mr. Lahiri that the contention that
annealing formed a part of the contract was not the stance taken
in the Counter Statement filed by the Respondent before the
Arbitral Tribunal. It was stated that even in the revised offer dated
14th October 1991, the issue regarding annealing or stress
relieving had not been raised by the contractor.
13. Furthermore, Sri Goutam Halder, the Deputy Chief
Material Manager and witness no. 1 on behalf of the respondent in
his affidavit-in-chief has notably stated that the appellant
contractor had submitted a revised bid on 15th September 1991
wherein an extra cost for annealing was charged by it. After
discussions being held, the respondent had given a revised
drawing for the material to which the claimant contractor had
proposed changes. Pursuant to further dialogue between the
parties, another revised bid dated 24th October 1991 was
submitted by the appellant contractor wherein considering the
changes in the design parameters, the price bid did not include
annealing nor did it suggest for annealing. Hence, it was admitted
11
by the respondent’s own witness that the enhanced price bid made
by the contractor did not envisage a cost inclusive of the price of
annealing.
14. It was also submitted by the learned counsel that the
guarantee given by the appellant contractor to be liable for any
manufacturing defects, bad workmanship and use of improper
material and rectify such free of costs, had to be read as a whole
and could not be read disjunctively. Further, the contention that
the guarantee clause had to be read separately in two parts was
never raised before the learned Arbitral Tribunal or in the Section
34 application and was only being raised for the first time in this
appeal by the respondents.
15. Mr. Lahiri has submitted that it was an impeachable
fact that the report of the committee was never challenged by the
respondent during the arbitral proceedings or even in the
application under Section 34 of the Act. The only challenge made
in the Section 34 application was in ground No.37 wherein it was
urged that the investigation report was misconstrued by the
arbitrator who had failed to appreciate that the report did not
exonerate the claimant contractor of its liability for failure of the
pots. The learned District Judge erroneously held that the person
12
who had filed the investigation report was not called for giving
evidence to substantiate the same. It was also strenuously argued
that the learned District Judge had failed to appreciate that the
investigation report dated 16th December, 1993 was prepared by
the expert committee appointed by the respondent and hence was
never challenged by them.
16. It was further contended that the learned district judge
has failed to appreciate that the contours of Section 34 are not like
a civil appeal and setting aside an award under Section 34 must
be on the grounds as enumerated under Section 34. The order of
remand of an arbitral reference cannot be passed by a court under
Section 34 of the Act and that too for passing fresh award
examining the scientific expert to prepare the report was beyond
the scope of Section 34 of the Act.
17. To buttress his aforesaid submissions, the learned
counsel placed reliance on the case of Kinnari Mullick & Anr. v
Ghanshyam Damani1 and I-Pay Clearing Services Private
Limited v ICICI Bank Limited2 wherein the Hon’ble Supreme
Court had held only when there is patent illegality and/or no
reasons in the award then only the arbitral award can be set aside
1
(2018) 11 SCC 328
2
(2022) 3 SCC 121
13
and remanded back but such remand cannot be made to fill up
the gaps in the reasoning of the award. It has been consistently
held by the Hon’ble Supreme Court that only when there is
deficiency in the award due to lack of reasoning for a finding
which was already recorded in the award only then can there be a
remand of arbitral proceedings before the same arbitrator and not
otherwise.
18. The learned counsel also cited the cases of NTPC v
Deconar Services Private Limited3, Konkan Railway
Corporation v Chenab Bridge Project Undertaking4, and S.V.
Samudram v State of Karnataka & Anr.5 for the proposition
that the arbitrator is the final authority to appreciate the evidence
and if a plausible view has been taken by the arbitrator the court
ought not to interfere with the arbitral award in a casual and
cavalier manner and the court under Section 34 cannot sub-plant
its view and modify the same. The court under Section 34 can only
confirm the award or set aside the same but cannot modify the
award and if an arbitrator’s view is a plausible view no interference
on the grounds as specified is warranted.
3
(2021) 19 SCC 694
4
(2023) 9 SCC 85
5
(2024) 3 SCC 623
14
19. Per contra, Mr. Gupta, the learned Counsel appearing
on behalf of the respondent SAIL has submitted that the finding of
the learned Arbitrator as to the scope or extent of guarantee given
by the claimant contractor being “restricted to use of proper
materials, good workmanship and proper manufacturing” was
contrary to the written terms of the purchase order and the letter
of the appellant dated 15th November, 1991 during tender
discussions.
20. The learned Counsel contended that the contractual
stipulation for guarantee under Clause 9 of the purchase order
was in two parts. Firstly, Satisfactory performance guarantee for a
period of 12 months from commissioning or 18 months from
supply, whichever is earlier. This was a complete guarantee
regarding performance but limited to 12/18 months only.
Secondly, the appellant would stand responsible for
manufacturing defects, bad workmanship, improper material and
would replace / rectify free of cost. This second guarantee was
restricted to three aspects, manufacturing defects, workmanship
and material, but the guarantee period was unlimited.
21. In order to justify such illegal finding nullifying the
Performance Guarantee clause, the learned arbitrator had
15
recorded an additional justification that “it is not possible for a
manufacturer, who manufactures equipment according to the
drawing, designs and specifications provided by the purchaser and
so does under the supervision of the purchaser, to give a valid
guarantee for the longevity of the equipment. He can give
guarantee as to workmanship, materials used and the quality of
manufacture”. It was submitted that such finding of the arbitrator
was illegal and beyond his jurisdiction in hypothesizing the extent
to which Appellant ought to have limited itself while giving the
Performance Guarantee.
22. Mr. Gupta further submitted that the finding of the
learned Arbitrator that prior to placement of the purchase order,
the claimant contractor had suggested the respondent to provide
for stress reliving on the surface of the pots and given quotation
regarding the same, to which the respondent had not agreed, was
completely erroneous. The appellant contractor had initially in its
offer dated 2nd September, 1991 expressly provided for the pots to
be without un-annealing. Thereafter, the claimant had proposed
“changes in trunnion” in the drawing supplied by SAIL to make
the pots strong enough to sustain service condition and load as
would be evident vide the contractor’s letter dated 7th October,
16
1991. Hence SAIL had submitted the revised drawing which was
accepted by the contractor in its letter dated 9th October, 1991 in
which it was also expressly stated that the price quoted by them
would remain unchanged. This price was the one quoted by the
claimant on 15th September, 1991 of Rs.3,42,000/- per pot for 10
pots or Rs.4,02,000/- per pot for five pots, with an extra
Rs.1,50,000/- for annealing. Upon further discussion, SAIL’s
revised drawing was finalized, as was evident from the letter dated
24th October, 1991 of the contractor which had quoted
Rs.4,33,500/- per pot for six pots.
23. The learned Counsel submitted that this revised
enhanced price bid did not relate to SAIL’s revised drawing as the
claimant contractor had already committed to the unchanged
quoted price in its letter dated 9th October, 1991 and hence this
enhanced price could have only been for annealing. It was
contended in this regard that such composite quotation is a
normal practice in a tender process and stress relieving being a
form of heat treatment and being an essential part of casting job in
absence whereof pots become prone to cracks, it was an
established practice of the industry as also acknowledged by the
17
Bureau of Indian Standards on Heat Treatment of Cast Iron
Products.
24. It was argued that the learned Arbitrator had
misconstrued the point of limitation by overlooking Clause 13 of
the General Conditions of Contract (GCC) which empowered SAIL
to recovers its due under the present or any other contract. Clause
13 has been reproduced below for convenience.
“Replacement of defective work or material – If during the
progress of the work, the Purchaser or his representative
shall decide and notify in writing to the Contractor that the
Contractor has executed any unsound or imperfect work or
has supplied any plant or materials less in quantity or
inferior in quality to those specified, the Contractor on
receiving details of such defects or deficiency shall, at his
own expense, within seven days of his receiving the notice,
or otherwise within such time as may be reasonably
necessary for making it good, proceed to alter, reconstruct,
or remove such work, or supply fresh materials up to the
standard of the particulars and in case the Contractor shall
fail to do so, the Purchaser may, on giving the Contractor
seven days’ notice in writing of his intention to do so,
proceed to remove the work or materials complained of and
at the cost of the Contractor perform all such work or supply
all such materials, provided that nothing in this clause shall
deemed to deprive the purchaser of, or affect, any rights
under the Contract which he may otherwise have in respect
of such defect or deficiencies.”
25. It was contended that such type of a clause also been
upheld in the judgment of H.M. Kamaluddin Ansari & Co. v
18
Union of India,6 and hence there was no illegality on the part of
SAIL in withholding the bills of the appellant contractor. It was
also submitted that award of interest is governed by Section
31(7)(a) and (b) of the 1996 Act in respect of ante lite interest and
Section 31(7)(a) for pendente lite interest and hence the award of
interest at the rate of 18% was contrary to law.
26. The primary issue raised in the present appeal is the
extent and the scope of the performance guarantee supplied by the
appellant contractor and the illegal adjustment of money from the
bills of the contractor by the respondent due to the alleged failure
of the slag pots owing to the contractor.
27. In respect of Claim No.1 which was the claim for refund
of liquidated damages recovered from the bills of the claimant
contractor, the appellant had claimed a sum of Rs.1,41,996.16/-.
The learned Arbitrator considering the nature of transaction,
intention of parties, stipulation in the purchase order, conduct of
parties and surrounding circumstances had come to a finding that
the delay in supply was due to events beyond the control of the
parties and lack of prompt action on their part. Finding it difficult
to precisely ascertain the exact period of delay to be apportioned
6
1983 (4) SCC 417
19
between the parties and since the quantum of liquidated damages
could vary between 1% to 5% of the contract value, the learned
Arbitrator allowed 50% of the value of claim No.1 amounting to
Rs.70,998.08/-.
28. As per claim No.2 relating to claim of refund of 1%
excess recovery of liquidated damages deducted from the bills of
the claimant, the appellant contractor had claimed a sum of
Rs.12,948,62/- which was allowed by the learned Arbitrator who
held that such was clearly beyond the contractual limit of 5%
liquidated damages towards value of delayed supply in this case
and that it had been deducted arbitrarily and wrongfully.
29. Claim No.3 amounting to Rs.2,37,173.04/- related to
claim for refund of the amounts deducted towards performance
guarantee from the bills of the claimant. While adjudicating this
claim, it was observed by the Arbitral Tribunal that in the course
of manufacturing, three of the slag pots were inspected by the
respondent before they were dispatched and testing of trunnion
bars of the other three slag pots was conducted and load testing of
six pots was also done by the respondent who had accepted the
pots without reservation or complaint. In January, 1993 when the
respondent had made a complaint regarding development of
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cracks in five pots, the officers of the contractor had gone to
Durgapur to attend to such complaint. Owing to the controversy
between the parties regarding the probable causes of failure of the
slag pot it was agreed that the reasons of failure would be
investigated by a committee of experts in the respondent’s R.C Lab
and the findings would be binding upon both the parties. The said
committee after investigation had concluded that the pots had
failed due to development of surface fissures or cracks due to
absence of stress relieving/annealing on the surface of the pots.
This report which was produced as document C-128 was not
challenged.
30. The tribunal observed that the prior to placement of the
purchase order, the contractor had suggested to SAIL to provide
for stress reliving/annealing on the surface of the pots and had
even given its quotation for the same but the respondent was not
agreeable to this. The pots were manufactured as per the
drawings, designs and specification of SAIL and hence the
contractor could not be made responsible for the absence of stress
reliving/annealing on the surface of the pots as the reason for the
failure of the pots was beyond the guarantee given by them which
was restricted to use of proper materials, workmanship and
21
manufacturing. SAIL had ignored the basic fact of the pots being
manufactured in conformity with its own drawings and designs,
materials prescribed by it and hence any deficiency in such design
or non-provision of stress reliving/annealing on the surface of the
pots could not be attributed to the contractor.
31. The claimant contractor had given performance
guarantee in respect of the slag pots. There was no allegation
before the learned Tribunal by SAIL that the contractor had
manufactured the pots in a manner that was not in accordance
with the drawings, designs or specification for manufacture given
to it by the respondent itself. The material to be used for
manufacturing the pots was prescribed by the respondent and the
casting of pots was witnessed or otherwise tested to the
satisfaction of the respondent. It was noted by the arbitrator that
bad workmanship or manufacturing defect if any could be possibly
deduced before respondent had accepted them or even during load
testing conducted prior to their commissioning. Furthermore, the
contractor had no control over the exercises to be performed prior
to usage, manner of usage, working condition and maintenance of
the pots after every use and before reuse of the pots by the
22
respondent which were also vital factors on which the longevity of
the pots depended.
32. It was also observed by the learned Tribunal that it was
not possible for a manufacturer who had manufactured equipment
in accordance with the drawing, design and specifications provided
by the purchaser and had done so under the supervision of the
purchaser to give a valid guarantee for the longevity of the
equipment. He could give guarantee as to the workmanship,
material used and quality of manufacture which was done by the
claimant contractor in the present case and the report of
investigation on the failure of the pots exonerated the contractor of
use of any improper material or workmanship or manufacturing
defects by pointing solely to the lack of stress reliving/annealing
on the surface of the pots.
33. The contractor having no say whatsoever in the matter
of finalizing the drawing, design and specification of the slag pots
and stress reliving/annealing on the surface of the pots the
Tribunal found the contactor to be not obligated or liable for the
failure of the same. The respondent not challenging the
investigation report and the failure of the pots being due to
insufficient provision in the specifications governing manufacture,
23
the learned sole arbitrator found the respondent to have no right
to claim the price of slag pots from the bills under the purchase
order for supply of slag pots or from bills under any other prior or
subsequent contract and that too after a lapse of more than three
years when it’s claim was barred by limitation. It was noted that
the controversy regarding failure of pots had started in January,
1993, the expert committee had submitted its report on December,
1993 but the recovery was made from the bills of the years 1999
and 2001 by the respondent. Hence the learned Arbitrator
awarded claim No.3 and claim No.4 amounting to
Rs.2,37,173.04/- and Rs.24,69,972.09/- respectively in view of
the fact that the respondent’s act of deduction, withholding and or
appropriating any amount payable to the claimant was illegal
since the failure of the slag pots could not be attributed to the
claimant.
34. The Laboratory Report dated 16th December, 1993 had
concluded that the failure in all probability had occurred due to
premature crack initiation and their subsequent propagation at a
fast rate at different portions, particularly at the top of the pots. It
was noted that the slag pots had not received any annealing or
ultra relieving treatment after casting. Presence of locked up
24
stresses (in absence of any stress relieving treatment subsequent
to casting) and pre dominantly pearlitic micro structure (which is
prone to cracking on thermal shocks) had initiated cracks in the
pots soon after being put to actual use in twin-hearth furnace.
35. The question of utmost significance for our
consideration as urged, is whether the increased price bid of Rs.
4,33,500/- as submitted by the appellant contractor, included a
price for stress relieving/annealing of the slag pots. If this is held
to be in the affirmative, then it would show that a duty had been
cast upon the appellant contractor to provide for stress annealing
on the surface of the pots so as to prevent future cracks from
developing and such was within the performance guarantee
provided by it. In the alternative, if the contractor is found to have
quoted a price without annealing and if such price was the one
accepted by the respondent, it would insulate the contractor from
any liability in this case, they already having discharged their
contractual duty of manufacturing the pots according to the
designs provided by the respondent and having used proper
material, adequate workmanship and manufacturing.
36. Pursuant to the respondent’s tender enquiry dated 22nd
August, 1991, the appellant contractor had submitted its offer
25
dated 2nd September, 1991 wherein it had quoted the price of
Rs.3,42,000/- per pot for 10 pots with extra freight charges of
Rs.65,000/- per pot for 10 pots. Pertinently, it was mentioned in
the said letter that “slag pot shall be sound free from blow holes
and other defects and shall be in unannealed condition.” Since the
contractor was of the opinion that the slag pots would not be able
to perform adequately during actual work without annealing, the
contractor submitted a revised offer on 15th September, 1991. This
offer quoted a price of Rs.3,42,000/- per pot for 10 pots and
Rs.4,02,000/- for per pot for 5 pots as per drawing No.
A1/203.33.00/45889. In course of arguments the learned Counsel
for the respondent has contended that such pricing followed the
economies of scale. This offer dated 15th September, 1991
specifically quoted an amount of Rs.1,50,000/- per pot “Extra for
annealing”.
37. Subsequently, following further negotiations on 3rd
October, 1991 a revised drawing No.A1/203.33.00/45889A was
handed over to the appellant contractor by the respondent for
assessment. In as much as the design specifications provided by
the respondent in the revised drawing were inadequate in the
opinion of the appellant contractor, the contractor declined to
26
guarantee tensile strength of 12 kg. per m.m. sq. by its letter dated
14th October, 1991. On 24th October, 1991 the appellant
contractor submitted a revised price bid of Rs.4,33,500/- per pot
for 6 pots as per the drawing No. A1/203.33.00/45889A. The
learned Counsel for the respondent argued that this increased
price of Rs.4,33,500/- per pot from Rs.4,02,000/- per pot could
only include a cost for annealing.
38. However, we are of the opinion that the contractor
already having quoted a price of Rs.1,50,000/- extra for annealing
each pot could not, as a commercially aware bidder have agreed to
price of around Rs.31,500/-, for annealing and included it in its
revised price bid Rs.4,33,500/- per pot. The rate quoted by the
contractor could not have possibly included such a drastic
reduction of Rs.1,20,000/- for annealing. Such could not possibly
have been a commercially viable or sensible decision for the
contractor to make being a firm regularly carrying on business of
executing various engineering contracts. Furthermore, the offer
letter dated 24th October, 1991 did not explicitly mention an extra
cost for annealing as it had done in a previous offer dated 15th
September, 1991.
27
39. The claimant contractor had claimed interest at the rate
of 18% per annum on the held-up amounts. The learned Arbitrator
on adjudicating such claim, found that the amounts legally due to
the contractor were wrongfully and deliberately withheld by the
respondent and that the claimant was deprived of use and
enjoyment of its legitimate money and a person deprived of use of
money to which he is legitimately entitled would have a right of
compensation for his deprivation. Finding that the payment
legitimately due to the claimant had been withheld by the
respondent for various periods commencing from 1992 and that
the respondent had sat over the matter, without examining the
legal implication of withholding the bills due to the claimant under
other contracts, the learned Arbitrator found this action of the
respondent to be unilateral and wilful and in his discretion
awarded simple interest ante lite, pendente lite and post award at
18% per annum.
40. In an application for setting aside of the award under
Section 34 of the Arbitration and Conciliation Act, 1996 it is now
well settled by catena of decisions that the Court does not act and
function as a court of appeal over the arbitral award and may
interfere on merits limited to the grounds mentioned in Section 34
28
(2) of the said Act. It is relevant to note that by way of amendment
in 2016 Sub-section (2A) has been inserted in Section 34 which
provided that in case of domestic arbitration violation of public
policy of India would also include patent illegal ex facie must
appear on the face of the award. However, the ground of patent
illegality would not be available in the event an application for
setting aside of the award is filed prior to amendment in 2005 i.e.
23rd October, 2015 [See Ssangyong Engineering and
Construction Company Limited v National Highways
Authority of India (NHAI)7]. By way of clarification in the
amendment it was made clear that the award shall not be set
aside merely on the ground of an erroneous application of law or
by re-appreciation of evidence which is merely a reiteration of the
earlier views expressed by the Hon’ble Supreme Court that in
deciding the application for setting aside the award the court is
not exercising its jurisdiction as an appellate authority and the
powers of the appellate court would not be available to a court
deciding such an application. The scope of jurisdiction under
Section 34 and Section 37 of the Act is not akin to normal
appellate jurisdiction. The powers of the Court are circumscribed
7
(2019) 15 SCC 131
29
by the limited grounds as mentioned in Section 34. The reason
being that the arbitration proceedings are not considered and
comparable to judicial proceedings before the Court and a party
can opt for an arbitration before any person who is not required to
have a degree in law or any prior legal experience. Once the parties
have consented to an appointment of an arbitrator it should be
presumed that they have bestowed their faith and trust on the
arbitrator and wanted a decision in an informal manner. This was
recognised in Dyna Technologies (p) Limited v. Crompton
Greaves Ltd.8 in which it is observed in paragraph 29: “There is
no gainsaying that arbitration proceedings are not per se
comparable to judicial proceedings before the Court. A party under
the Indian Arbitration Law can opt for an arbitration before any
person, even those who do not have prior legal experience as well.
In this regard, we need to understand that the intention of the
legislature to provide for a default rule, should be given rational
meaning in light of commercial wisdom inherent in the choice of
arbitration” and reiterated in K. Suguman vs. Hindustan
Corporation Limited9 in the following words:
8
2019 (20) SCC 1
9
2020(12) SCC 539 at 540
30“When parties have chosen to avail an alternate
mechanism for dispute resolution, they must be left to
reconcile themselves to the wisdom of the decision of the
arbitrator and the role of the court should be restricted to
the bare minimum”.
41. In Vidya Drolia & Ors. v. Durga Trading
Corporation10 it is stated:
“18. Arbitration is a private dispute resolution
mechanism whereby two or more parties agree to resolve
their current or future disputes by an Arbitral Tribunal,
as an alternative to adjudication by the Court or a public
forum established by law. Parties by mutual agreement
forgo their right in law to have their disputes adjudicated
in the courts/public forum. Arbitration agreement gives
contractual authority to the Arbitral Tribunal to
adjudicate the disputes and bind the parties.” (emphasis
supplied)
42. In Konkan Railway Corporation Ltd v Chenab
Bridge Project Undertaking 11 a three-judge bench in paragraph
18 stated thus:
“Scope of interference by a court in an appeal under
Section 37 of the Act in examining an order, setting
aside or refusing to set aside an award, is restricted
10
2021(2) SCC 1
11
(2023) 9 SCC 85
31and subject to the same grounds as the challenge under
Section 34 of the Act.” (emphasis supplied)
43. The aforesaid view has been reiterated in paragraph 26
in Bombay Slum Redevelopment Corporation Pvt. Ltd. v.
Samir Narain Bhojwani12. It was held thus:
“26. The jurisdiction of the appellate court dealing with an
appeal under Section 37 against the judgment in a petition
under Section 34 is more constrained than the jurisdiction
of the Court dealing with a petition under Section 34. It is
the duty of the appellate court to consider whether Section
34 Court has remained confined to the grounds of challenge
that are available in a petition under Section 34. The
ultimate function of the appellate court under Section 37 is
to decide whether the jurisdiction under Section 34 has
been exercised rightly or wrongly. While doing so, the
appellate court can exercise the same power and
jurisdiction that Section 34 Court possesses with the same
constraints.” (emphasis supplied)
44. In the case of Punjab State Civil Supplies
Corporation Limited and Another v. Sanman Rice Mills and
Others13, it has been held by the Hon’ble Supreme Court that
Section 37 of the Act provides for a forum of appeal inter-
12
2024 (7) SCC 218
13
2024 SCC OnLine SC 2632
32alia against the order setting aside or refusing to set aside an
arbitral award under Section 34 of the Act. The scope of appeal is
naturally akin to and limited to the grounds enumerated under
Section 34 of the Act. It is equally well settled that the appellate
power under Section 37 of the Act is not akin to the normal
appellate jurisdiction vested in the civil courts for the reason that
the scope of interference of the courts with arbitral proceedings or
award is very limited, confined to the ambit of Section 34 of the
Act only and even that power cannot be exercised in a casual and
a cavalier manner.
45. The findings of the learned Arbitral Tribunal show that
after due consideration of the materials placed before it, the
evidence adduced before it and arguments advanced by the
parties, the learned arbitrator has passed the Award dated 6th
November, 2007. He has considered each of the six heads of claim
and recorded appropriate reasons for coming to a finding therein.
He has clearly stated the reason for not allowing the respondent
herein to appropriate money due to the appellant contractor under
other contracts and withholding payments for the five slag pots
becoming unusable. He has given primarily two reasons for such
findings- firstly, the investigation report concluding that there was
33no usage of incorrect raw materials, there were no indications of
bad workmanship or defects in manufacturing and secondly, such
investigation report being accepted by the respondent employer.
46. The respondent’s contention that the guarantee period
in relation to “manufacturing defects, workmanship and material”
was unlimited in contrast to “satisfactory performance” which was
guaranteed for 12 months from commissioning or 18 months from
supply (whichever was earlier) is flawed. A careful reading of
Clause 9 of the Purchase Order would show that the bank
guarantee which was to be supplied by the contractor to the extent
of 7.5% of the contract was with regard to the performance
guarantee of satisfactory performance. Such adequate and
acceptable performance would imply good workmanship, usage of
proper materials and manufacturing failing which such would
have to be rectified or replaced by the contractor free of cost.
Hence, the arbitrator was correct in observing that the scope of
guarantee supplied by the contractor was restricted to use of
proper materials, good workmanship and proper manufacturing
and especially when they carried out such manufacture in
accordance with the designs supplied by the respondent itself. In
any case, once the investigation report dated 16th December 1993
34
had absolved the contractor from any such errors committed by
them.
47. The award can be interfered only on the limited grounds
as envisaged under the Act. Moreover, when the view taken by the
arbitrator is a possible view the court in deciding an application
for setting aside the award shall not interfere with such a view or
substitute such view with its own view. Once the interpretation
given by the arbitrators are backed by logic and are reasonable the
same is required to be upheld as held in MMTC Ltd. v. Vedanta
Ltd.14 and UHL Power Company Ltd. v. State of Himachal
Pradesh15
48. In the case of in UHL Power Company (supra) it was
held that scope of interference under Section 37 is all the more
circumscribed keeping in view the limited scope of interference
with an arbitral award under Section 34 of the 1996 Act. As it is,
the jurisdiction conferred on courts under Section 34 of the 1996
Act is fairly narrow. Therefore, when it comes to scope of an appeal
under Section 37 of the 1996 Act, jurisdiction of the appellate
court in examining an order passed under Section 34, either
14
2019(4) SCC 163
15
2022(4) SCC 116
35
setting aside or refusing to set aside an arbitral award, is all the
more circumscribed.
49. In Somdatt Builders-NCC- CEC(JV) vs. National
Highways Authority of India & Ors.16 the Hon’ble Supreme Court
in referring to M/s. Larsen Air Conditioning and Refrigeration
Company v. Union of India17 and Reliance Infrastructure Ltd.
v. State of Goa18 has observed that:
“It is necessary to remind the courts that a great deal of
restraint is required to be shown while examining the validity
of an arbitral award when such an award has been upheld,
wholly or substantially, under Section 34 of the 1996 Act.
Section 37 of the 1996 Act grants narrower scope to the
appellate court to review the findings in an arbitral award if it
has been upheld or substantially upheld under Section 34.
Frequent interference with arbitral awards would defeat the
very purpose of the 1996 Act.” (emphasis supplied)
50. The aforesaid view has been reiterated in a fairly recent
decision in C & C Construction Ltd. v. Ircon International
Ltd.19 in which it has been stated that “in appeal, Section 37 of
the Act grants narrower scope to the appellate court to review the
16
2025 SCC OnLine SC 170
17
2023 INSC 708
18
2024 (2) SCC 613
19
2025 SCC OnLine SC 218
36
findings in an award, if it has been upheld, or substantially upheld
under Section 34“. The views expressed by the Arbitral Tribunal
have been accepted by Commercial Court at Asansol and therefore
the court under Section 37 would be extremely chary and
circumspect in scrutinizing the award.
51. When there is a proper submission, whether of fact or of
law, to arbitration, it is not for the court to sit as an ordinary court
of appeal over an arbitral award because the arbitrator has taken
a view of law or of fact which a court of law may not have taken if
such court were trying the dispute. The everlasting principle,
unaffected by the paradigm shift in the arbitration law in this
country, is that except to the extent expressly or by necessary
implication permitted by the governing statute, the court will not
revise, remit or set aside an arbitral award. [See State of West
Bengal v Pam Developments Private Limited20].
52. The learned District Judge held the Award to be
perverse primarily on the ground that the learned Arbitrator had
not examined the expert who had submitted the investigation
report prepared by the expert committee of the respondent and
remanded the matter back to the Arbitral Tribunal. However, in
20
2017 SCC OnLine Cal 13272: (2017) 5 CHN 221 (DB)
37
view of the fact that such investigation report was never objected
to by either party and both had accepted the findings of such
report, the failure of the sole arbitrator to examine any witnesses
in this regard is immaterial.
53. In Kinnari Mullick (supra) wherein a Division Bench of
the High Court had relegated the parties back to the Arbitral
Tribunal by sending the Award back with the direction to assign
reasons in support of its award, a three-judge bench of the Apex
Court held that courts cannot relegate parties to the arbitral
tribunal after having set aside the award. Elucidating upon the
scope of Section 34 (4) of the Act the Court observed that:
“15. On a bare reading of this provision, it is amply clear that
the Court can defer the hearing of the application filed under
Section 34 for setting aside the award on a written request
made by a party to the arbitration proceedings to facilitate the
Arbitral Tribunal by resuming the arbitral proceedings or to
take such other action as in the opinion of the Arbitral
Tribunal will eliminate the grounds for setting aside the
arbitral award. The quintessence for exercising power under
this provision is that the arbitral award has not been set
aside. Further, the challenge to the said award has been set
up under Section 34 about the deficiencies in the arbitral
award which may be curable by allowing the Arbitral Tribunal
to take such measures which can eliminate the grounds for
38setting aside the arbitral award. No power has been invested
by Parliament in the Court to remand the matter to the Arbitral
Tribunal except to adjourn the proceedings for the limited
purpose mentioned in sub-section (4) of Section 34. This legal
position has been expounded in McDermott International
Inc. [McDermott International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181] In para 8 of the said decision, the Court
observed thus: (Bhaskar Industrial case [Bhaskar Industrial
Development Ltd. v. South Western Railway, 2016 SCC
OnLine Kar 8330] , SCC OnLine Kar)“8. … Parliament has not conferred any power of remand to
the Court to remit the matter to the Arbitral Tribunal except to
adjourn the proceedings as provided under sub-section (4) of
Section 34 of the Act. The object of sub-section (4) of Section
34 of the Act is to give an opportunity to the Arbitral Tribunal
to resume the arbitral proceedings or to enable it to take such
other action which will eliminate the grounds for setting aside
the arbitral award.” (emphasis supplied)
16. In any case, the limited discretion available to the Court
under Section 34(4) can be exercised only upon a written
application made in that behalf by a party to the arbitration
proceedings. It is crystal clear that the Court cannot exercise
this limited power of deferring the proceedings before it suo
motu. Moreover, before formally setting aside the award, if the
party to the arbitration proceedings fails to request the Court
to defer the proceedings pending before it, then it is not open
to the party to move an application under Section 34(4) of the
39Act. For, consequent to disposal of the main proceedings
under Section 34 of the Act by the Court, it would become
functus officio. In other words, the limited remedy available
under Section 34(4) is required to be invoked by the party to
the arbitral proceedings before the award is set aside by the
Court.” (emphasis supplied)
54. In MMTC v. Vicnivass Agency21, the Madras High
Court, while dealing with the purport of Section 34(4) of the Act in
para 22(c) of the reported judgment, observed thus:
“22. … (c) … On the other hand, Section 34(4) of the new Act, does
not prescribe any condition precedent on the substance of the matter
but prescribes three procedural conditions, namely, that there
should be an application under Section 34(1) of the new Act and
that a request should emanate from a party and the Court considers
it appropriate to invoke the power under Section 34(4) of the new
Act.”
Again, in para 22(e)(iv) of the reporte/d judgment, it observed
thus:
“22. … (e)(iv) … But under the 1996 Act, the Court has only
two sets of powers after the award is pronounced viz.
(i) to set aside the award under Section 34(2); or
(ii) to adjourn the proceedings to enable the Arbitral Tribunal
to resume the proceedings or to take such other action as in21
2008 SCC OnLine Mad 584
40the opinion of the tribunal will eliminate the grounds for
setting aside the arbitral award.”
55. Furthermore, in I-Pay Clearing Services (supra) it was
observed as follows:
“39. Further, Section 34(4) of the Act itself makes it clear that
it is the discretion vested with the Court for remitting the
matter to Arbitral Tribunal to give an opportunity to resume
the proceedings or not. The words “where it is appropriate”
itself indicate that it is the discretion to be exercised by the
Court, to remit the matter when requested by a party. When
application is filed under Section 34(4) of the Act, the same is
to be considered keeping in mind the grounds raised in the
application under Section 34(1) of the Act by the party, who
has questioned the award of the Arbitral Tribunal and the
grounds raised in the application filed under Section 34(4) of
the Act and the reply thereto.
40. Merely because an application is filed under Section 34(4)
of the Act by a party, it is not always obligatory on the part of
the Court to remit the matter to Arbitral Tribunal. The
discretionary power conferred under Section 34(4) of the Act,
is to be exercised where there is inadequate reasoning or to
fill up the gaps in the reasoning, in support of the findings
which are already recorded in the award.
41. Under the guise of additional reasons and filling up the
gaps in the reasoning, no award can be remitted to the
arbitrator, where there are no findings on the contentious
41
issues in the award. If there are no findings on the
contentious issues in the award or if any findings are
recorded ignoring the material evidence on record, the same
are acceptable grounds for setting aside the award itself.
Under the guise of either additional reasons or filling up the
gaps in the reasoning, the power conferred on the Court
cannot be relegated to the arbitrator. In absence of any
finding on contentious issue, no amount of reasons can cure
the defect in the award.” (emphasis supplied)
56. Section 34(4) of the Act has been reproduced below for
convenience:
“34. (4) On receipt of an application under sub-section (1), the
court may, where it is appropriate and it is so requested by a
party, adjourn the proceedings for a period of time determined
by it in order to give the Arbitral Tribunal an opportunity to
resume the arbitral proceedings or to take such other action
as in the opinion of Arbitral Tribunal will eliminate the
grounds for setting aside the arbitral award.”
57. As emanates from the position of law in this regard, it is
evident that for exercise of powers conferred under sub-section (4)
of Section 34 of the Act, firstly, the request should emanate from a
party and there should be an application under Section 34(1) of
the Act, secondly, the Court should find it necessary and
42
appropriate to invoke the power to remand the matter back to the
arbitral tribunal and thirdly, the proceedings should be adjourned
and the award should not have been set aside before invocation of
such power. In the present case, the learned District Judge having
set aside the award, and the appeal no longer being pending before
the Court, the learned judge has erred in invoking the Court’s
powers under Section 34 (4) of the Act to facilitate the arbitral
tribunal to take rectificatory steps to examine an expert. Neither is
this a case wherein the learned sole arbitrator has not recorded
reasons for coming to a finding on the issues raised before it nor a
situation wherein there are gaps in the reasoning adopted by the
arbitrator. Moreover, neither of the contesting parties in this
dispute had applied for the same under Section 34 (1) of the Act or
requested the Court to remand the matter back to the Tribunal.
58. The learned District Judge while deciding the
application under Section 34 of the Act set aside the Award
observing that the Arbitrator was not an expert having scientific or
technical knowledge regarding manufacture of cast iron slag pots
and that he should have called upon an expert to supplement the
investigation report submitted. However, the learned District
Judge seems to have overlooked the settled position of law that the
43
learned Arbitrator is the master of facts and if he passes a well-
reasoned award after going through all the materials before the
Arbitral Tribunal and analyses the same based on cogent evidence,
such Award ought to be given primacy and cannot said to be
perverse or against the policy of India especially in a case where
neither of the parties had raised any objection as to the
appointment of the arbitrator. Although the agreement between
the parties provided for reference of the dispute to an arbitrator to
be appointed by each of the respective parties and in the event of
dispute between them to the joint arbitrator chosen by such
elected arbitrators, the respondent themselves in this case had
suggested that the reference of the dispute be made to a sole
arbitrator to which the claimant had agreed and hence Sri P.L
Banerjee was appointed the sole arbitrator in this matter.
59. In the present case, a rational, plausible and possible
approach has been adopted by the learned sole arbitrator in
adjudicating the claims of the contractor and hence the Court in
an application under Section 37 of the Act should not step in to
interfere with a well-reasoned Award only on the basis that
another possible approach could have been adopted by the
Tribunal.
44
60. Our attention was also drawn to the recent case of
Gayatri Balasamy v M/S. ISG Novasoft Technologies Limited22
decided on 30th April, 2025 wherein the Hon’ble Supreme Court
was deciding whether the Courts had the power to modify arbitral
awards in exercise of powers under Sections 34 and 37 of the
Arbitration and Conciliation Act. It was observed that not all
awards can be severed or segregated into separate silos. Partial
setting aside may not be feasible when the “valid” and “invalid”
portions are legally and practically inseparable. In simpler words,
the “valid” and “invalid” portions must not be inter-dependent or
intrinsically intertwined. If they are, the award cannot be set aside
in part. The majority view held that:
“85. Accordingly, the questions of law referred to by
Gayatri Balasamy (supra) are answered by stating that
the Court has a limited power under Sections 34 and 37
of the 1996 Act to modify the arbitral award. This limited
power may be exercised under the following
circumstances:
I. when the award is severable, by severing the “invalid”
portion from the “valid” portion of the award, as held in
Part II of our Analysis.
22
(2025) INSC 605: 2025 SCC OnLine SC 986
45
II. by correcting any clerical, computational or
typographical errors which appear erroneous on the face
of the record, as held in Part IV and V of our Analysis;
III. post award interest may be modified in some
circumstances as held in Part IX of our Analysis; and/or
IV. Article 142 of the Constitution applies, albeit, the
power must be exercised with great care and caution and
within the limits of the constitutional power as outlined in
Part XII of our Analysis.”
61. We are of the opinion that no question of severability of
the award arises in the present situation. Neither is there a case
for modification on the ground of severing the ‘valid’ portions of
the award from the ‘invalid’ portions or for fixing any clerical or
typographical errors in the present circumstances. In any case as
discussed hereinabove neither was any application filed under
Section 34(1) of the Act before the learned District Judge for
remanding the case back to learned arbitrator nor had the learned
District Judge passed a direction for remand before setting aside
the award.
62. On similar reasoning we also hold that the Court at this
stage of exercising powers under Section 37 of the Act cannot
modify the interest awarded by the learned Arbitral Tribunal. As
discussed hereinabove, the learned Arbitrator observing that
46
payment legitimately due to the claimant contractor had been
withheld by the respondent for various periods wilfully and
wrongfully, had in his discretion awarded an interest of 18% per
annum to the appellant contractor. In such a case, we do not find
that any of the grounds enumerated in Gayatri Balasamy
(supra), for exercising the limited power of modification by the
Courts have been satisfied for us to intervene and alter the
amount of interest awarded by the learned Arbitral Tribunal.
63. Hence, we are of the considered view that the order of
the learned District Judge dated 28th February, 2019 is bad in law
and it is set aside.
64. We reinstate the validity of the arbitral award dated 6th
November, 2007 and allow the present appeal.
65. There shall be no order as to costs.
66. Certified photocopy of this order, if applied for, be
supplied to the parties upon compliance with all requisite
formalities.
I agree, (Soumen Sen, J.) (Biswaroop Chowdhury, J.)
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