Gujarat High Court
Nirma Limited vs Slipco Constructions Private Limited on 12 August, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/4031/2017 ORDER DATED: 12/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 4031 of 2017
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NIRMA LIMITED
Versus
SLIPCO CONSTRUCTIONS PRIVATE LIMITED
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Appearance:
MR SHALIN MEHTA, SR. ADVOCATE with MR GAURAV S
MATHUR with MR ABHISHEK SHAH, for the Appellant(s) No. 1
MR ANSHIN DESAI, SR. ADVOCATE with SHRINEEL M SHAH
with MR KARMANYA SIGNH RORE (9374) for the Defendant(s) No.
1
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 12/08/2025
ORAL ORDER
(PER : HONOURABLE THE CHIEF JUSTICE
MRS. JUSTICE SUNITA AGARWAL)
1. Heard Mr. Shalin Mehta, learned Senior advocate
assisted by Mr. Gaurav S. Mathur and Mr. Abhishek Shah
learned advocates for the appellant and Mr. Anshin Desai,
learned Senior advocate with Mr. Shrineel M. Shah with Mr.
Karmanya Singh Rore learned advocates for the respondent,
and perused the record.
2. This is an Appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (in short as “the Act’ 1996”),
challenging the judgment and order dated 10.11.2017 passed
by the Commercial Judge, City Civil Court, Ahmedabad in
Commercial Civil Misc. Application No. 68 of 2016 (Old Civil
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Misc. Application No. 828 of 2012) registered under Section
34 of the Act’ 1996, whereby the Commercial Court has
dismissed the application under Section 34 refusing to
interfere in the arbitral award dated 14.06.2012. The
challenge, in essence, in this appeal is to the arbitral award
dated 14.06.2012 passed by the Arbitral tribunal, to the
extent of Claims No. 1 and 5 awarded by the tribunal.
3. Mr. Shalin Mehta, learned Senior counsel appearing for
the appellant herein also made submissions on the validity of
the entire arbitral award with the assertion that the Arbitral
tribunal has erred in deciding the Issues no.1 to 3, i.e. in
holding that there was a delay on the part of both the sides
and major delay was on the part of the appellant herein. It
was vehemently argued that the Arbitral tribunal has
committed a patent illegality in ignoring the fact that the
claimant-contractor failed to complete the work of
construction of the chimney efficiently and within the timeline
agreed under the contract.
4. It was vehemently argued that as per the contract, the
work of construction of chimney was required to be completed
by 31.12.2007 and the claimant-contractor had failed to even
start piling work and it did not mobilise the site with adequate
equipment and sufficient resources. This fact was
acknowledged by the claimant-contractor in its email dated
03.05.2007. It was placed before the learned arbitrators that
the machines deployed by the claimant-contractor were of
inferior quality and the progress of the work was very slow.
The claimant had already admitted this fact in its another
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email dated 06.05.2007.
5. The submission is that the work of construction of
chimney involves a highly technical and specialised work as
also extreme precision so as to ensure a workable, effective
and stable structure. A chimney is founded upon a number of
concrete pillars called ‘piles’, which are constructed
underground by using a piling machine. In the instant case,
96 pillars/piles were to be constructed at 20-22 metres depth.
In order to construct the piles, a simultaneous action of
extracting muck from the earth and inserting a steel cage into
which concrete mix is poured was required to be taken. For
the said purpose, two pits were needed adjacent to the site
and for further work of softening of the earth, the removal of
mixture of water and sand, putting up steel cage deeper in the
ground to complete the piling work was needed. For
construction of the chimney, 96 piles were found to be
necessary and the claimant contractor was required to have
enough facility, machinery and manpower to complete this
activity by 30.05.2007. The structure/body/shaft of the
chimney was a tapering design to be constructed by slip-form
method, which involves creating a distinguishable linear form
by slipping concrete and pushing it upwards in the structure
so created.
6. From the arbitral award, it is placed before us that the
learned arbitrators have noted all aspects of construction of
chimney, which was an exercise of extreme precision and
skill.
7. It was placed by the learned Senior counsel for the
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appellant herein that even a slight let-off may have caused
inherent and irreparable damage to the structure. The work
of construction of chimney was not completed by the claimant
contractor in time under the contract, i.e. by 31.12.2007 or
even during the extended period. The stand of the appellant
herein before the learned arbitrators was that the
workmanship by the claimant was defective and the work
done by the claimant was very poor and of inferior quality.
Moreover, the claimant-contractor did not complete the work
as per the terms and conditions of the contract and had left
the site abandoning the work without handing over the
chimney to the appellant herein.
8. It was then argued by the learned Senior counsel for the
appellant herein that the appellant sent emails dated
15.05.2007 and 17.05.2007 highlighting the shortcomings in
the progress and the quality of the work and the
claimant/contractor, in response, vide email dated 29.05.2007
had accepted those shortcomings, but assured of completion
and handing over the project by December’ 2007 as promised.
9. In another email dated 30.05.2007, the claimant
expressed its deep regrets for negligence in the completion of
work that had taken place and assured that such things would
not reoccur. The submission, thus, is that in view of the
admission on the part of the claimant-contractor about the
negligence on its part, its claim for payment could not have
been awarded by the Tribunal. Moreover, the work done by
the claimant was defective and of inferior quality, inasmuch
as, the ’tilt’ in the body of the chimney at 39 degree at 45
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meter was noticed by the appellant herein on or around
19.12.2007 and the claimant-contractor was immediately
directed to stop further work vide email dated 19.12.2007,
pointing out the defect.
10. In its reply dated 15-16.01.2008, the claimant-contractor
assured improvement to the satisfaction of the respondent
though admitting that “it is not possible to undo it what has
been done”. The claimant, however, had admitted that the tilt
was noticed at the height of 80 metres and upwards as per
the report of the Consultant.
11. On 06.05.2008, an accident occurred when refractory
lining work which had reached upto 101 metre level, had
collapsed creating pile of 215 tons of broken bricks at the
bottom of the chimney. As per the case of the appellant
herein before the Tribunal, this incident was a result of
distortion and deviation in the chimney and poor performance
and workmanship of the claimant contractor. It was argued
that the learned arbitrators have noticed the contention of the
appellant herein that the claimant was informed about the
incident on the same date, but nothing was done.
12. A letter of regret was sent by the claimant on 13.05.2008
and thereafter, vide another letter dated 20.05.2008, the
claimant-contractor gave a target of further 40 days for
completion of the project, i.e. by 30.06.2008.
13. It was contended before the learned arbitrators by the
appellant herein that for the huge investment of Rs. 55 crores
already made by it, it was not possible to leave or scrap the
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project and hence, the appellant had allowed the claimant-
contractor to proceed with the work. Inspite of that, the
claimant-contractor had failed to complete the work within
the timeline and there was admission in the letter dated
25.06.2008 written by the claimant-contractor to the appellant
herein that only 70% of the work could be completed and the
desired progress could not be achieved.
14. The submission is that, in view of own admission on the
part of the claimant-contractor, the appellant herein cannot
be said to be wrong in submitting that in all possibility, the
project could not have been completed within the stipulated
time, i.e. by 30.06.2008. The claim of the contractor before
the arbitral tribunal that substantial work was over and only
minor work remained was not correct in view of its own
admission in the letter dated 25.06.2008.
15. The submission, thus, is that the appellant herein cannot
be said to be in error in taking the stand before the arbitral
tribunal that the claimant-contractor had abandoned the work
and left the site and hence, it was not permissible to pay any
of the claims of the claimant contractor. Rather, the counter
claim of the appellant was required to be allowed by providing
damages for the defective work carried out by the claimant
and leaving the project halfway.
16. Further, on the award of various claims, it was argued
by the learned Senior counsel for the appellant that the
learned Arbitral tribunal has erred in holding that the
claimant is entitled to the amount of Rs.93,72,722/- (in total
from the appellant along with simple interest @ 9% p.a. from
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January 2009 till the date of payment). The submission is that
some of the claims awarded by the arbitral tribunal were
such, which were not even included nor claimed in the
statement of claim submitted by the claimant respondent
before the tribunal. Two of such payments toward Running
Bill No. 09 (RA No.09) for Rs.10,68,548/- and retention money
of Rs. 17,98,726/- were assailed by the learned Senior
counsel for the appellant being the claims awarded by the
tribunal illegally, beyond the Statement of claim put forth by
the claimant-contractor.
17. The submission is that, in the statement of claim itself,
the claimant-contractor had submitted that it had requested
the appellant for release of the payments against RA Bills nos.
10, 11, 12, 13, 14 and 14 and Bill No. T-16, which were
agreed by the appellant on the other claims having been
foregone by the claimant. The statement of claim contained
Claim no.1 as balance payment for the work done with the
statement that the claimant was making a claim for the
payment of the outstanding bill and release of the equipments
as it was facing financial crises.
18. Further, out of 11 claims in total, there was no claim
towards the retention money, and it was even not included in
Claim no.1 as balance payment for the work done. The
submission, thus, is that the Tribunal’s award cannot be
sustained for the admitted fact that the claims not
incorporated in the statement of claim by the claimant-
contractor were awarded in the arbitral award.
19. It was further argued that even otherwise, the Retention
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Money could have been claimed only after the defect liability
period was over, which never came into picture in the facts
and circumstances of the present case because the project
was not completed by the claimant.
20. The attention of the Court is invited to Clause 12 of the
Specific Conditions of the Work Order dated 12.01.2007,
which reads as under :-
“RETENTION :
10 % will be deducted from each running bill and will be
released after the completion of the all the work against
the Work Order and expiry of defect liability period of 6
months from the date of completion of the work.”
21. In rebuttal, it was argued by Mr. Anshin Desai, the
learned Senior counsel for the respondent claimant that the
present case requires no interference within the scope of
Section 37 of the Act’ 1996, inasmuch as, the factual findings
returned by the arbitral tribunal is that there was an error in
the action of the appellant in not permitting the claimant to
complete the project though the claimant was ready and
willing to perform contractual obligations under the
agreement. While this was the factual position recorded by
the arbitral tribunal after considering the evidence on record,
the scope of interference under Section 37 of the Act’ 1996 on
the grounds stated in the unamended Section 34 of the Act’
1996 becomes limited. None of the ground can be said to be
available, to argue otherwise.
22. The submission is that it cannot be argued that the
award was defective on any of the available grounds under
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Section 34 (unamended) Act’ 1996. The award passed by the
Arbitral tribunal, thus, was rightly not interfered with by the
Court under Section 34, recording that for the work of
chimney so done by the claimant, which was used by the
appellant without any protest and objection, the conclusion
drawn by the Arbitral tribunal that the claimant was entitled
to the amount for the work which he had done and also for the
work for which he was ready and willing to do under the
contract, does not warrant any interference by the Court.
23. The findings of the Arbitral tribunal that the appellant
had not allowed the claimant-contractor to enter into the
premises and to carry out and complete the work in question
has been affirmed by the Court under Section 34 of the Act’
1996. The concurrent findings of fact of the Arbitral tribunal
and the Court under “Section 34“, may not be interfered,
within the scope of this appeal under Section 37, which is
even narrower than the scope of inquiry under Section 34 of
the Act’ 1996. The findings by the Court under Section 34
that the award of payment so made by the Arbitral tribunal,
were duly certified and approved by the consultant of the
appellant and that at no point of time, any objection has ever
been raised, cannot be interfered with being the findings of
fact.
24. As regards the claim awarded by the Arbitral tribunal
against the RA Bill No.09, the attention of the Court is invited
to the statement of claim for Claim no.1, which reads as
under:-
“Claim No.1: Balance Payment for work done –
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Rs.1,00,84,865/-
Claimant is entitled for payment of Rs.89,54,865/-
towards work done. The computation of the claim is
encløsed as Annexure C-13. The Respondent has not
released payment against R.A. Bill No. 10,11,12,13,14,
15 and Bill T-16 to the Claimant. The Claimant has time
and again called upon Respondent to release the
payment, which Respondent failed to release. In fact
Claimant even offered to forgo its other claims in case
Respondent release payment of the outstanding Bill and
release the equipment as Claimant was facing financial
crisis.
The Respondent after agreeing to the same had backed.
Beside the above, Claimant is entitled for doing re-
engineering of the drawings and design of the Chimney
after Consultant of the Respondent vide letter
dt.11.7.2007 made various changes. The Claimant is
entitled for cost of re-engineering i.e. 5% of the total
cost. The Claimant had considered charge of 5% towards
Design and Drawing while quoting its rates and same is
also the practice in the indemnity. Re-Engineering was
done due to reasons attributable to the Respondent, thus
Claimant is liable to pay the additional cost to the
Claimant i.e. Rs.9.50 lacs i.e. 5% of the value of the
Chimney.
That Respondent vide letter dt.24.7.2007 (Annexure
C-40) provided drawing of M/s. ILJ for Chimney insert
Plate for Respondents machinery installation. Claimant
was called upon to do the extra work which is not its
scope. The Claimant is entitled for an amount of Rs.1.80
lacs for doing the extra work.
In view of the above it is prayed that Claimant be
awarded an amount of Rs.1,00,84,865/-.”
25. It is submitted that though the RA Bill No. 09 was not
specifically stated in the Statement of claim, as above, but
Annexure ‘C-13’ which is the computation of the claim
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enclosed with the statement of claim, incorporated RA Bill No.
09. The attention of the Court was drawn to the account
statement, viz. the details of the bills submitted and payments
received upto 01.04.2007 to 01.08.2010, which finds place at
page “95” of the paper book. It was placed before us that the
pending claim towards RA Bill No.09 dated 02.02.2008 was
specifically incorporated in the total bill amount sought after
deduction of the TDS etc. Towards the claim of Rs.
2,61,73,110/-, if the amount of Rs. 1,68,78,210/- paid to the
claimant through various cheques upto 05.06.2008
incorporated in the detailed statement at page “95”, is
deducted, the amount due would come to Rs.92,94,900/-. And
with the further deduction of TDS of Rs. 3,40,035/- against the
certificates received, balance would be Rs. 89,54,865/-
towards the work done which was the claim incorporated in
the Claim No.1, of the State of Claim extracted hereinabove.
The amount of Rs.1,00,84,865/- as per Claim no.1, however,
would be arrived with the additional cost of Rs.9.50 lacs, i.e.
5% of the value of the chimney as incorporated in Claim no.1
therein. The submission, thus, is that the contention of the
learned Senior counsel for the appellant herein that the
Statement of claim did not incorporate the RA Bill No.09 and,
hence, the Arbitral tribunal has erred in awarding the same, is
liable to be turned down.
26. The attention of the Court is further invited to the
statements made in the Statement of Claim filed by the
respondent claimant, which read as under :-
“That against bill dt. 12.1.2008 of Rs.21.68 lacs payment
of Rs.10 lacs was released by Respondent on 26.4.2008Page 11 of 59
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i.e. after 3 months. Till date balance payment of over
Rs.81 lacs towards the work done has not been released
by the Respondent despite repeated reminders.
c) That after completion of structure of the Chimney and
practically all the work on 20.5.2008 it was agreed that
the Respondent will release payment against the
outstanding bills and issue Gate Passes for removal of
the Equipments, which were not required and the
Claimant shall submit the schedule for completion of the
balance work. That the Respondent agreed to release
payment against the R.A. Bill No.9 of Rs. 19.30 lacs and
R.A. Bill No.10 of Rs.10.84 lacs. Despite agreeing
Respondent had not released the said payment to the
Claimant till date.
27. The submission is that the stand of the claimant-
contractor before the Arbitral Tribunal in the Statement of
Claim itself was that after completion of the structure of the
chimney and practically all work done on 20.05.2008, it was
agreed that the respondent will release payment against the
outstanding bills and issue Gate Pass for removal of the
equipments which were not required and the claimant shall
submit the schedule for completion of the balance work. The
respondent had agreed to release payment against the RA Bill
No.09 of Rs. 19.30 lakhs and RA Bill No. 10 of Rs.10.84 lakhs,
but the said payments had not been released till date.
28. It was, thus, argued that in view of the above categorical
statement made in the Statement of Claim, the appellant can
not be permitted to contend that the payments allowed under
the award against the outstanding of RA Bill No.09 were not
included in the Statement of Claim. No infirmity, therefore,
can be attached to the award of payments towards the work
done by the claimant-contractor.
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29. As regards the Retention Money, it was submitted that
the Retention Money amounting to Rs. 17,98,726/- deducted
from various RA Bills was incorporated even in the billing
details given by the appellant herein before the learned
arbitral tribunal. It was, thus, an admission on the part of the
appellant that the amount of Rs. 17,98,726/- was deducted as
Retention Money from RA Bill No. 01 to RA Bill No. 08. As the
deductions made by the appellant were towards the RA Bills
submitted for the work done and were clearly visible from the
billing details given before the learned arbitrator in a
statement of the appellant herein which finds place at page
‘176’ of the paper book, no error can be said to have been
committed by the Arbitral Tribunal in allowing the payment of
the said amount as Item no.5 of Claim no.1. Once it was held
by the tribunal that the appellant had wrongly and illegally
prevented claimant from completing the work and reaching
the stage of final bill and handing over the chimney by the
claimant, and the appellant had taken over the work by itself
by expelling the claimant, the conclusion that the claimant is
entitled for the retention money of Rs. 17,98,726/- kept on
hold against the RA Bill No.01 to RA Bill No. 08, cannot be
said to be patently illegal.
30. The submission is that no error can be attached to the
findings of fact returned by the Arbitral Tribunal that for the
construction of chimney, part completed by the claimant, the
claimant is entitled for the release of payments against the RA
Bills for the actual work done upto 100 metres as against 110
meters as per the agreement.
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31. In the crux, it was argued by the learned Senior counsel
for the claimant-contractor that in view of the settled legal
position of the scope of interference under Section 37 appeal
being limited, no interference can be made in the award of the
learned Arbitral Tribunal on the arguments made by the
learned Senior counsel for the appellant to assail the same.
32. Taking note of the above submissions made by the
learned counsels for the parties and perused the record,
pertinent is to note, at the outset, that no fault can be
attached to the findings of the learned Arbitral Tribunal that
the appellant had failed to prove that the claimant-contractor
had abandoned the work by absconding/leaving the site,
rather, the contention of the claimant that the appellant did
not allow the manpower of the appellant to execute the
balance work after 14.06.2008, was much more probable. The
allegations made by the respondent claimant that the security
staff of the appellant stopped the claimant’s manpower to
enter into the premises from 14.06.2008 onwards, not
allowing them to execute the work, was proved from the
correspondences made by the claimant with the letters dated
25.06.2008 and 01.07.2008.
33. The findings returned by the arbitral tribunal on Issue
nos.1 to 3 are relevant to be extracted herein as under :-
“We have considered rival version of the opposing
parties. We have also perused the relevant record
produced by both the sides.
It is the case of the claimant that from 14 June
2008 onwards, Security Staff or the respondent did notPage 14 of 59
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allow manpower to proceed further with the work. On 20
June 2008 Gate Passes were also taken away from them.
In support of the above version, the claimant had
placed reliance on Ex. C/23 letter dated, 25 June 2008
and letter dated 01 July 2008. In the letter dated 25 June
2008, the claimant stated that in the previous week, the
site management of the respondent without any written
or verbal notice asked the staff of the claimant to be
shifted out of the site and campus. In the letter of 01 July
2008, the claimant requested the respondent to issue
Gate Passes for machinery if it did not want the claimant
to carry out the work. A report said to have been
submitted by Mr. Rajesh Jaiswal was also annexed to the
letter which reflected all the facts stated by the
claimant.
It is no doubt true that the respondent denied the
averments made by the claimant in the claim petition. It
also denied having received the letters referred to by the
claimant in his pleadings.
We are, however, of the view that the case put
forward by the claimant appears to be much more
probable and acceptable. Mr. Grover, CW1, in his
deposition also reiterated what was stated in the claim
petition as to taking away Gate Passes from the Staff of
the claimant on 20 June 2008. Moreover, we have not
believed the case of the respondent that the claimant
has absconded the work and left the site. We, therefore,
hold that it was the respondent who did not allow the
manpower of the claimant to execute the balance work.
At the same time, the case of the claimant that
‘substantial work’ was over and only ‘minor work’
remained was also not correct. According to the
respondent ‘major’ part of the work remained incomplete
and it was not possible for the claimant to complete the
project within the extended time of 30 June 2008. This
appears to be plausible.
Even the letter dated 25 June 2008 (Ex. C/23) said
to have been written by the claimant to the respondentPage 15 of 59
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(which was denied to have received by the respondent)
stated as under;
Unfortunately the desired progress could not be
achieved by site despite my best efforts and
intentions. (Only 70% was achieved of planned).
Job completion and project is priority in my career
too and will stand by that.
It is, therefore, clear that even according to the
claimant, desired progress could not be achieved and
70% work had been done. The respondent, thus, appears
to be right in submitting that the project could not have
been completed within the stipulated time, i.e. by 30
June 2008.
On overall considerations, we hold that it was not
proved by the respondent that the claimant had
abandoned the work and left the site. We also hold that
time was not of essence of the contract. There was delay
on the part of both the sides. The claimant, however,
was ready and willing to perform contractual obligations
under the agreement but it was the respondent who did
not allow the claimant to complete the project.
Issue Nos. 1 and 3 are, therefore, decided in the
affirmative while Issue No. 2 is decided in the negative.”
34. We may also note issues no. 1, 2 and 3 framed by the
learned arbitral tribunal, as under :-
(1) Whether the Claimant proves that it was wrongfully
not permitted to execute the work by the Respondent?
(2) Whether the Respondent proves that the Claimant
is in breach of contract and has abandoned and failed to
complete the contracted task as per contract?
(3) Whether claimant proves that the project was
delayed by the Respondent?
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35. Taking note of the above, suffice it to record that we
cannot attach any illegality to the decision of the learned
Arbitral Tribunal in deciding issues no. 1 and 3 in favour of
the claimant and issue no.2 against the appellant herein,
inasmuch as, no factual inquiry or re-appreciation of evidence
as a court of appeal is permitted within the scope of Section
37 of the Act’ 1996.
36. The fact remains that the appellant has failed to prove
that the claimant was in breach of the contract and has
abandoned the work and failed to complete the contracted
task, as per the contract. The Arbitral tribunal found that the
delay was on the part of both the sides and the claimant was
illegally stopped from performing its contractual obligations
under the agreement though it was ready and willing to do so
and for that the fault lies at the end of the appellant.
Pertinent is note that various submissions were made by the
learned Senior counsel for the appellant herein in an effort to
demonstrate before us that the delay in completion of work
was on the part of the claimant, inasmuch as, the claimant
itself had admitted in the communication dated 25.06.2008
that the desired progress could not be achieved and only 70%
was achieved of the planned. And as such, as per the own
admission of the claimant, the project could not have been
completed within the stipulated time, which was upto
30.06.2008. No fault, thus, could be attached to the action of
the appellant by forming an opinion that it was impossible for
the claimant to achieve the target of completion of work the
by 30.06.2008.
37. It was argued that there was, thus, no justification for
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the Arbitral Tribunal to hold that the claimant was ready and
willing to perform contractual obligations under the
agreement, but it was the appellant who did not allow the
claimant to complete the project. This was all the more not
acceptable for the findings recorded by the learned Arbitral
Tribunal that the stand of the appellant that major part of the
work remained incomplete and it was not possible for the
claimant to complete the project within the extended time
upto 30.06.2008, appears to be plausible.
38. Once the learned Arbitral Tribunal has reached at the
said conclusion that even according to the claimant, desired
progress could not be achieved and only 70% of the work had
been done and the appellant was right in submitting that the
project could not have been completed within the stipulated
time, i.e. by 30.06.2008, nothing could have been paid. The
submission is that the learned Arbitral Tribunal has erred in
answering Issue no.2 against the appellant that the claimant
was not in breach of the contract. The breach of the contract
because of the failure on the part of the claimant to complete
the contracted task as per the contract by the extended period
upto 30.06.2008, was proved from the facts noted by the
learned Arbitral Tribunal. The submission, thus, is that the
conclusion drawn by the learned Arbitral Tribunal in awarding
the claimant’s claim would be in contravention to the
fundamental policy of India and, thus, in conflict with the
basic notions of justice.
39. Analysing the above submissions, suffice it to say that
there is no explanation on the part of the appellant nor any
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submissions could be made before us to explain the action of
the appellant in stopping the manpower of the claimant to
enter into the premises after 14.06.2008 onwards. Still 15
days were left for completion of the project within the
extended time agreed between the parties, which was upto
30.06.2008. No explanation is forthcoming as to whether any
notice of breach of contract for non-completion of the work
within the time agreed under the contractual terms arrived
between the parties, was issued to the claimant contractor.
No notice was issued to the claimant-contractor to say that
the work executed by it was not as per the technical
specifications required for construction of chimney. The
issues raised about the “tilt” observed by the appellant and
the assertions that the work undertaken and done by the
claimant was defective has been decided against the appellant
with the findings by the learned Arbitral Tribunal that the
work done by the claimant was certified, approved, and
accepted by the appellant and part payment was released.
40. There was absolutely no notice on allegations that the
work done by the claimant was not in accordance with the
specifications under the contract. For any abrasion occurred
during the execution of the work, corrections had been made
by the claimant and further work was executed as per the
agreed terms arrived between the parties, whereunder, it was
agreed that the claimant-contractor would complete the
project within the extended time which was upto 30.06.2008.
For any own understanding of the appellant that it was not
possible for the claimant-contractor to complete the work
within the stipulated period for stopping manpower of the
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claimant to enter into the premises from 14.06.2008 onwards,
we cannot attach any infirmity to the arbitral award.
41. The facts of the case present a story where the appellant
was found to be at fault in not permitting the claimant
contractor to enter into the premises to perform its
contractual obligations under the agreement by stopping the
contractor to work when 15 days time was left for completion
of the project, as agreed between the parties. The opinion
drawn by the Court under Section 34 that the work of
chimney so done by the claimant was being used by the
appellant without any protest or objection could not be
assailed before us. And as such, the conclusion drawn by the
arbitral tribunal that the claimant is entitled to the amount for
the work which he has done and also for the work which he
was ready and willing to do under the contract, does not
warrant any interference by this Court. On the Issue nos. 1, 2
and 3 adjudicated by the learned arbitrator, the submissions
made by the learned Senior counsel for the appellant, are
liable to be turned down. The rejection of the counter claim
by the learned Arbitral Tribunal is found to be justified in the
facts and circumstances of the present case.
42. As regards the submissions of the appellant that the
learned arbitral tribunal has awarded claimant, amounts
beyond the Statement of Claim made by the claimant-
contractor, pertinent is to record that no dispute can be raised
about the incorporation of RA Bill No. 09 in the Statement of
Claim “Annexure C-13” enclosed as computation of claimant
under Claim no.1 extracted hereinbefore. The details of the
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bills submitted as Annexure C-13 at page ’95’ of the paper
book being part of the Statement of Claim, it cannot be
argued successfully by the learned Senior counsel for the
appellant that there was no claim towards the pending
payment under RA Bill No.09 dated 02.02.2008 of Rs. 21.68
lakhs against which payment of Rs. 10 lakhs (Rs.999,000.00)
was already made by the appellant on 26.04.2008. It seems
that the said amount towards payment has been adjusted in
the Statement of Claim by the claimant-contractor towards RA
Bill No. 10, whereas in the statement of billing details
submitted by the appellant herein, the paid amount was
adjusted against RA Bill No.09.
43. In any case, there is no dispute about the total amount of
Rs. 1,68,78,210/- paid to the claimant contractor against the
RA Bill Nos. 01 to 08 and RA Bill No. 09 as is clear from the
statements of bills submitted and the payment received upto
01.04.2007 to 01.08.2010, submitted by the rival parties
before the learned arbitrator.
44. We, therefore, do not find any infirmity in the arbitral
award for granting the unpaid amount towards RA Bill No. 09
incorporated in the summary of claims allowed under Claim
No.1, which reads as under :-
Sr. Item No. Bill No. Claim No. Amount On acct. of
No.
1 1 9 1 10,68,548 Completed chimney
2 4 10 10,67,420 Cage-ladder & Platform
3 5 17,98,726 Retention Money
4 6 11 9,60,678 Aviation light, painting
5 7 12 16,01,130 Refractory workPage 21 of 59
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6 8 13 2,75,000 Wind breaker
7 9 12 TDS Declaration
8 10 14 Work contract tax Declaration
9 13 16 28,420 Transportation charges
Total 67,99,922
45. The only issue now remains is as to whether the claimant
is entitled to the payment of retention money of
Rs.17,98,726/-, which was deducted from the RA Bill Nos. 01
to 08 and was payable with the final bill and handing over of
chimney. There is no dispute about the fact that the said
amount was deducted from RA Bill Nos. 01 to 08 and was
payable as per the conditions of the Work Order, noted
hereinbefore.
46. The findings of the learned Arbitral Tribunal on Item No.
5 as retention money incorporated in Claim no.1, in the award
reads as under :-
“Item No. 5: Retention Money – Rs. 17,98,726/-
The claimant had submitted that on 20 November 2008
(Vol. III; p.359), it was agreed that the Retention Money
deducted is Rs.17,98,726/-. It was also agreed that this
amount shall be paid with final bill and handing over of
Chimney. The Respondent at Vol. III; p.365 has stated
that the Retention Money deducted is Rs.21,07,726/-,
which include Retention Money of Rs.3,09,000/-
deducted against R.A. Bill Nos.9 and 10. As the R.A. Bill
Nos.9 and 10 have not been paid fully and there is
separate claim for same (without deducting Retention
Money), thus balance Retention Money is Rs. 17,98,726/-
as per Respondent. The amount claimed by the Claimant
towards Retention Money is payable.
The respondent has submitted (Vol.III; p.354) that the
claimant claims the security deposit of Rs. 17,98,726/-.
No security deposit was furnished by the Claimant. In
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any case, it is an admitted fact that on 13 May 2008,
when the claimant wrote the letter appearing on Vol. III;
p. 354, the work was not completed and the claimant
was still to give the programme for completion on or
before 30 June 2008. The retention money were to be
retained till after the expiry of defect liability period.
There can be no question of release of security deposit
as claimed in the letter dated 13 May 2008 and such
amount could not have been shown as outstanding.
Vol III, p.363 clearly mentions that this amount of
security deposit will be paid “on the final bill and
handing over”. There was no dispute about the amount
and the liability to the claimant. The time for payment
was “on the final bill and handing over”.
We have already held that the respondent has wrongfully
and illegally prevented claimant from completing the
work and reaching the stage of final Bill and handing
over by the claimant. The respondent had taken over by
itself by expelling the claimant. The claimant is, hence,
entitled to this amount from the respondent and the
respondent is liable to pay this amount of Rs. 17,98,726/-
to the claimant. Item no. 5 of claim No. 1.
47. We may note that the learned Arbitral Tribunal has
recorded that the claimant-contractor had demanded the
retention money against the RA Bill Nos. 09 and 10, inasmuch
as, in the Statement of Claim, the entire amount towards RA
Bill Nos. 09 and 10 which have not been paid fully without
deducting retention money has been claimed.
48. It is contended by the learned counsel for the appellant
that there is no claim in the Statement of Claim submitted by
the claimant contractor before the learned Arbitral Tribunal
for payment of retention money of Rs.17,98,726/- deducted
from RA Bill No.01 to RA Bill No. 08, which was payable only
after the final bill was submitted and handing over of chimney
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on completion of the project.
49. It was submitted that it can not be demonstrated by the
learned counsel for the claimant-contractor that the retention
money of Rs.17,98,726/- which was kept on hold after
deductions from the RA Bill no. 01 to RA Bill no.08 was part of
the Statement of Claim submitted by it. The entire Statement
of Claim is silent about the said amount.
50. It is further contended that as per the statement made in
the Statement of Claim, the claimant had offered to forgo its
other claims in case the appellant (respondent therein)
releases payment of the outstanding bills and equipments.
The statement in Claim No. 1 for the balance amount of Rs.
89,54,865/- towards the work done as per the details of the
bills submitted by the claimant in the Table at page ’95’ of the
paper book, does not incorporate the deducted amount of
retention money kept on hold to the tune of Rs. 17,98,726/-
against the RA Bill No. 01 to RA Bill No.08.
51. It was, thus, submitted that the deducted amount of
retention money of Rs. 17,98,726/- from RA Bill No. 01 to RA
Bill No. 08 was forgone by the claimant contractor. There is
nothing on record nor it could be demonstrated that the said
amount was added by making any additional claim or
amendment in the Statement of Claim by the claimant-
contractor before the learned arbitrators. It is not clear as to
how the Item No.5 towards retention money of Rs. 17,98,726/-
was added in the Statement of Claim no.1 by the learned
Arbitral Tribunal while deciding the Issue no.4 in the final
table extracted hereinbefore.
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52. Dealing with the above, we may note the issue no.4
framed by the learned Arbitrator, which reads as under :-
“(4) Whether the Claimant proves its claim of
Rs.1,00,84,865/- (or any other amount) against the
respondent on account of the balance payment for the
work done?
53. The discussion by the learned Arbitrator while deciding
Issue no.4 on Claim no.1, included Items (13 in number), in a
table under various heads, which is extracted hereinunder :-
“We may consider the following 13 items under this head.
Each items requires separate consideration. They are as
followsItem No. Bill No. Claim No. Amount On acct. of
1 9 1 10,68,548 Completed chimney
2 9,50,000 Re-engineering
3 1,80,000 Extra work
4 10 10,67,420 Cage-ladder & platform
5 17,98,726 Retention Money
6 11 9,60,678 Aviation light, painting
7 12 16,01,130 Refractory work
8 13 3,08,990 Wind breaker
9 12 3,44,035 TDS Declaration
10 14 8,52,138 Work contract tax
Declaration
11 15 4,20,676 Rental for non-release of
equipment from June 2008 to
February 2009
12 15 Rental for non-release of
equipment from February
2009
13 16 28,420 Transportation charges”
54. The summaries of claim allowed under Claim No.1 has
already been extracted in para ’43’ hereinbefore. It is evident
that while partly answering the issue no.4 in the affirmative
under Claim no.1 and holding that the claimant is entitled to a
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sum of Rs.67,49,992/- from the appellant, Item no.5 towards
retention money of Rs. 17,98,726/- was incorporated, both in
the table containing 13 items and summaries of claim allowed
under Claim no.1.
55. A perusal of the details of bills and payments received
upto 01.04.2007 – 01.08.2010, i.e. the computation of claims
enclosed as Annexure ‘C-13’ of the Statement of claim by the
claimant-contractor indicates that the claim was made for the
entire amount of Rs. 2,38,29,655.00 against recurring bills,
viz. RA Bill No.01 to RA Bill No. 15 and T-16 submitted for the
period from 09.04.2007 till 20.02.2009. The total bill amount
after inclusion of the service tax has been given in the table to
the tune of Rs. 2,61,73,110.00 and as noted hereinbefore,
after deduction of the payments made through the cheques
against RA Bill No.01 to RA Bill No.09 (RA Bill No. 10) for the
total amount of Rs. 1,68,78,210.00 and the TDS for the
amount of Rs. 3,40,035.00, the balance of Rs.89,54,865.00
towards the work done and completed by the claimant
contractor uptil 14.06.2008, when the manpower of the
claimant contractor was denied entry into the premises, was
incorporated in the Statement of Claim.
56. We may note from the billing details given by the
appellant in their Written Statement before the arbitral
tribunal appended at page ‘774’ of the paper book that there
was no dispute about the retention money kept on hold to the
tune of Rs. 17,98,726/- against the payments made towards
RA Bill No. 01 to RA Bill No. 08.
57. At the cost of repetition, it may be reiterated here that
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the total amount claimed by the claimant-contractor to the
tune of Rs. 89,54,865/- towards the work done, is comparable
with the statement of the billing details given by the appellant
before the Arbitral Tribunal, appended at page ‘774’ of the
paper book. It is, thus, clear that the claimant in the
computation of claim appended at Annexure ‘C-13 to the
Statement of Claim though did not make a specific demand
towards the retention money of Rs. 17,98,726/- (deducted
from RA Bill No. 01 to RA Bill No. 08), but the demand
towards the entire payment for the work done against the said
RA bills was included in the computation of unpaid amount.
58. We may note, at this juncture, that at the first blush,
during the course of arguments, while disposing of the
present appeal pending reasoned judgment, we were of the
tentative view that the Arbitral Tribunal has erred in awarding
retention money of Rs. 17,98,726/- kept on hold against the
RA Bill No. 01 to RA Bill No. 08, but on a deeper scrutiny of
the Statement of Claim, the computation of claim appended as
Annexure ‘C-13’ and billing details submitted by the appellant
in response to the Statement of Claim, we find that the
Arbitral Tribunal cannot be said to have erred in law in
awarding the retention money deducted by the appellant to
the tune of Rs. 17,98,726/- (RA Bill No. 01 to RA Bill No. 08).
59. The only argument made by the learned Senior counsel
appearing for the appellant that the said amount was not a
part of the Statement of Claim submitted by the claimant
contractor before the Arbitral Tribunal and the decision of the
Arbitral Tribunal came out of the blue without there being any
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claim thereof, does not appeal to us for the reasoning given by
the Arbitral Tribunal as extracted hereinbefore.
60. A perusal of the reasoning given by the Arbitral Tribunal
as noted hereinbefore indicates that the appellant was found
to be at fault for stopping the entry of the manpower of the
claimant-contractor from 14.06.2008 onwards, even when the
stipulated time agreed between the parties for completion of
the project, i.e. by 30.06.2008, was not over. The whole case
of the appellant that the claimant-contractor had abandoned
the work and left the site was disbelieved by the Arbitral
Tribunal and we do not find any infirmity in the said finding.
61. The reasoning given by the Arbitral Tribunal for
awarding the retention money (deducted) to the tune of
Rs.17,98,726/- is that once it had reached at the conclusion
that the appellant had wrongly and illegally prevented the
claimant contractor from completing the work and reaching
the stage of final bill and handing over the chimney by the
claimant, the claimant-contractor is entitled to payment of the
entire amount towards recurring bills submitted by him for
the work done, and hence the claimant is entitled for the
deducted amount of retention money from RA Bill No. 01 to
RA Bill No. 08.
62. From the reasoning given by the Arbitral Tribunal, it can
be discerned that the Tribunal has reached at the conclusion
that once the appellant had taken over the project by itself by
expelling the claimant, there was no question to agitate that
the retention money was to be paid only on the final bill and
handing over of the project, as initially agreed between the
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parties.
63. This reasoning given by the Arbitral Tribunal for award
of retention money cannot be said to be unsound or perverse,
being contrary to the material on record. The conclusion
drawn by the Tribunal that as the appellant was at fault in
taking over the project by throwing out the claimant
contractor before the stipulated period for completion of
project was over, cannot be said to be on extraneous
consideration.
64. Moreover, it is settled law that in the inquiry under
Section 37 of the Act’ 1996, even a mistake of fact and law
would not be a reason to upset the award unless and until the
award shocks the conscience of the Court to hold that the
view of the Arbitral Tribunal was not a plausible view based
on the material on record, in line with the Wednesbury
Principles of enquiry at the threshold of opinion formed by a
reasonable man of ordinary prudence.
65. It is settled that the scope of inquiry under Section 37 of
the Act’ 1996 is not an inquiry as a Court of appeal and re-
appreciation of evidence is impermissible so as to draw a
different conclusion than the conclusion drawn by the arbitral
tribunal. Upsetting the view of the Arbitral Tribunal on re-
appreciation of evidence on record, terming it as arbitrary or
perverse, is wholly impermissible.
66. We are conscious of the fact that the award in question
was rendered before the Amendment Act No. 3 of 2016 came
into force with effect from 23.10.2015. The position of law
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for the inquiry under Section 37 of the Act’ 1996 during the
pre-amendment era is governed by the decision of the Apex
Court in Associate Builders v. Delhi Development
Authority [(2015) 3 SCC 49], wherein considering the
parameters laid down as to the limitations with the Court
hearing objections to an arbitral award under Section 34
(unamended) read with Section 5 of the Arbitration Act’
1996, it was observed in paragraphs ’16’ & ’17’ as under :-
“16. It is important to note that the 1996 Act was
enacted to replace the 1940 Arbitration Act in order to
provide for an arbitral procedure which is fair, efficient
and capable of meeting the needs of arbitration; also to
provide that the tribunal gives reasons for an arbitral
award; to ensure that the tribunal remains within the
limits of its jurisdiction; and to minimise the supervisory
roles of courts in the arbitral process.
17. It will be seen that none of the grounds contained in
sub-section (2)(a) of Section 34 deal with the merits of
the decision rendered by an arbitral award. It is only
when we come to the award being in conflict with the
public policy of India that the merits of an arbitral award
are to be looked into under certain specified
circumstances.”
67. Further, on the expression “the public policy of India”
contained in Section 34(2)(b)(ii) of the Arbitration Act’ 1996,
the decisions of the Apex court in ONGC Ltd. v. Saw Pipes
Ltd. [(2003) 5 SCC 705], was noted in paragraph ’19’ as
under :-
“19. When it came to construing the expression “the
public policy of India” contained in Section 34(2)(b)(ii) of
the Arbitration Act, 1996, this Court in ONGC
Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC
2629] held : (SCC pp. 727-28 & 744-45, paras 31 & 74)Page 30 of 59
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“31. Therefore, in our view, the phrase ‘public
policy of India’ used in Section 34 in context is
required to be given a wider meaning. It can be
stated that the concept of public policy connotes
some matter which concerns public good and the
public interest. What is for public good or in public
interest or what would be injurious or harmful to
the public good or public interest has varied from
time to time. However, the award which is, on the
face of it, patently in violation of statutory
provisions cannot be said to be in public interest.
Such award/judgment/decision is likely to adversely
affect the administration of justice. Hence, in our
view in addition to narrower meaning given to the
term ‘public policy’ in Renusagar case [Renusagar
Power Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644] it is required to be held that the
award could be set aside if it is patently illegal. The
result would be–award could be set aside if it is
contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if
the illegality is of trivial nature it cannot be held
that award is against the public policy. Award
could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the
court. Such award is opposed to public policy and
is required to be adjudged void.
* * *
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award
under Section 34(2) of the Act if the party making
the application furnishes proof that:
(i) a party was under some incapacity, or
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(ii) the arbitration agreement is not valid under the
law to which the parties have subjected it or,
failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator
or of the arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of
the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was
not in accordance with the agreement of the
parties,
(b) failing such agreement, the composition of the
Arbitral Tribunal was not in accordance with Part I
of the Act,
(ii) if the arbitral procedure was not in accordance
with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral
procedure was not in accordance with Part I
of the Act.
However, exception for setting aside the award on
the ground of composition of Arbitral Tribunal or
illegality of arbitral procedure is that the
agreement should not be in conflict with the
provisions of Part I of the Act from which parties
cannot derogate.
(c) If the award passed by the Arbitral Tribunal is
in contravention of the provisions of the Act or any
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other substantive law governing the parties or is
against the terms of the contract.
(3) The award could be set aside if it is against the
public policy of India, that is to say, if it is contrary
to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside
mainly on the grounds:
(i) there is specific stipulation in the agreement
that the time and date of delivery of the goods was
of the essence of the contract;
(ii) in case of failure to deliver the goods within the
period fixed for such delivery in the schedule,
ONGC was entitled to recover from the contractor
liquidated damages as agreed;
(iii) it was also explicitly understood that the
agreed liquidated damages were genuine pre-
estimate of damages;
(iv) on the request of the respondent to extend the
time-limit for supply of goods, ONGC informed
specifically that time was extended but stipulated
liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods
were to be recovered by paying authorities from
the bills for payment of cost of material supplied by
the contractor;
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(vi) there is nothing on record to suggest that
stipulation for recovering liquidated damages was
by way of penalty or that the said sum was in any
way unreasonable;
(vii) in certain contracts, it is impossible to assess
the damages or prove the same. Such situation is
taken care of by Sections 73 and 74 of the Contract
Act and in the present case by specific terms of the
contract.”
68. The Apex Court therein has noted the decision in
Renusagar Power Co. Ltd. v. General Electric Co. [1994
Supp (1) SCC 644] and further the decisions rendered
following ONGC Ltd. v. Saw Pipes Ltd. (supra), to observe
in paragraphs ’20’, ’21’, ’22’, ’23’, ’24’, ’25’ and ’26’ as under :-
“20. The judgment in ONGC Ltd. v. Saw Pipes
Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] has been
consistently followed till date.
21. In Hindustan Zinc Ltd. v. Friends Coal
Carbonisation [(2006) 4 SCC 445] , this Court held :
(SCC p. 451, para 14)
“14. The High Court did not have the benefit of the
principles laid down in Saw Pipes [(2003) 5 SCC
705 : AIR 2003 SC 2629] , and had proceeded on
the assumption that award cannot be interfered
with even if it was contrary to the terms of the
contract. It went to the extent of holding that
contract terms cannot even be looked into for
examining the correctness of the award. This Court
in Saw Pipes [(2003) 5 SCC 705 : AIR 2003 SC
2629] has made it clear that it is open to the court
to consider whether the award is against the
specific terms of contract and if so, interfere with it
on the ground that it is patently illegal and opposed
to the public policy of India.”
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22. In McDermott International Inc. v. Burn Standard
Co. Ltd. [McDermott International Inc. v. Burn Standard
Co. Ltd., (2006) 11 SCC 181] , this Court held : (SCC pp.
209-10, paras 58-60)
“58. In Renusagar Power Co. Ltd. v. General
Electric Co. [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] this Court
laid down that the arbitral award can be set aside if
it is contrary to (a) fundamental policy of Indian
law; (b) the interests of India; or (c) justice or
morality. A narrower meaning to the expression
‘public policy’ was given therein by confining
judicial review of the arbitral award only on the
aforementioned three grounds. An apparent shift
can, however, be noticed from the decision of this
Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5
SCC 705 : AIR 2003 SC 2629] (for short ‘ONGC’).
This Court therein referred to an earlier decision of
this Court in Central Inland Water Transport
Corpn. Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC
156 : 1986 SCC (L&S) 429 : (1986) 1 ATC 103]
wherein the applicability of the expression ‘public
policy’ on the touchstone of Section 23 of the
Contract Act, 1872 and Article 14 of the
Constitution of India came to be considered. This
Court therein was dealing with unequal bargaining
power of the workmen and the employer and came
to the conclusion that any term of the agreement
which is patently arbitrary and/or otherwise
arrived at because of the unequal bargaining power
would not only be ultra vires Article 14 of the
Constitution of India but also hit by Section 23 of
the Contract Act, 1872. In ONGC [(2003) 5 SCC
705 : AIR 2003 SC 2629] this Court, apart from the
three grounds stated in Renusagar [Renusagar
Power Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644] , added another ground thereto for
exercise of the court’s jurisdiction in setting aside
the award if it is patently arbitrary.
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59. Such patent illegality, however, must go to the
root of the matter. The public policy violation,
indisputably, should be so unfair and unreasonable
as to shock the conscience of the court. Where the
arbitrator, however, has gone contrary to or
beyond the expressed law of the contract or
granted relief in the matter not in dispute would
come within the purview of Section 34 of the Act.
However, we would consider the applicability of
the aforementioned principles while noticing the
merits of the matter.
60. What would constitute public policy is a matter
dependent upon the nature of transaction and
nature of statute. For the said purpose, the
pleadings of the parties and the materials brought
on record would be relevant to enable the court to
judge what is in public good or public interest, and
what would otherwise be injurious to the public
good at the relevant point, as contradistinguished
from the policy of a particular Government.
(See State of Rajasthan v. Basant Nahata [(2005)
12 SCC 77] .)”
23. In Centrotrade Minerals & Metals Inc. v. Hindustan
Copper Ltd. [(2006) 11 SCC 245] , Sinha, J., held : (SCC
p. 284, paras 103-04)“103. Such patent illegality, however, must go to
the root of the matter. The public policy,
indisputably, should be unfair and unreasonable so
as to shock the conscience of the court. Where the
arbitrator, however, has gone contrary to or
beyond the expressed law of the contract or
granted relief in the matter not in dispute would
come within the purview of Section 34 of the Act.
104. What would be a public policy would be a
matter which would again depend upon the nature
of transaction and the nature of statute. For the
said purpose, the pleadings of the parties and thePage 36 of 59
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materials brought on record would be relevant so
as to enable the court to judge the concept of what
was a public good or public interest or what would
otherwise be injurious to the public good at the
relevant point as contradistinguished by the policy
of a particular Government. (See State of
Rajasthan v. Basant Nahata [(2005) 12 SCC 77] .)”
24. In DDA v. R.S. Sharma and Co. [(2008) 13 SCC 80] ,
the Court summarised the law thus : (SCC pp. 91-92,
para 21)
“21. From the above decisions, the following
principles emerge:
(a) An award, which is
(i) contrary to substantive provisions of law;
or
(ii) the provisions of the Arbitration and
Conciliation Act, 1996; or
(iii) against the terms of the respective
contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section
34(2) of the Act.
(b) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so
unfair and unreasonable that it shocks the
conscience of the court.
(d) It is open to the court to consider whether the
award is against the specific terms of contract and
if so, interfere with it on the ground that it isPage 37 of 59
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patently illegal and opposed to the public policy of
India.
With these principles and statutory provisions,
particularly, Section 34(2) of the Act, let us
consider whether the arbitrator as well as the
Division Bench of the High Court were justified in
granting the award in respect of Claims 1 to 3 and
Additional Claims 1 to 3 of the claimant or the
appellant DDA has made out a case for setting
aside the award in respect of those claims with
reference to the terms of the agreement duly
executed by both parties.”
25.J.G. Engineers (P) Ltd. v. Union of India [(2011) 5
SCC 758 : (2011) 3 SCC (Civ) 128] held : (SCC p. 775,
para 27)
“27. Interpreting the said provisions, this Court
in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 :
AIR 2003 SC 2629] held that a court can set aside
an award under Section 34(2)(b)(ii) of the Act, as
being in conflict with the public policy of India, if it
is (a) contrary to the fundamental policy of Indian
law; or (b) contrary to the interests of India; or (c)
contrary to justice or morality; or (d) patently
illegal. This Court explained that to hold an award
to be opposed to public policy, the patent illegality
should go to the very root of the matter and not a
trivial illegality. It is also observed that an award
could be set aside if it is so unfair and
unreasonable that it shocks the conscience of the
court, as then it would be opposed to public
policy.”
26.Union of India v. Col. L.S.N. Murthy [(2012) 1 SCC
718 : (2012) 1 SCC (Civ) 368] held : (SCC p. 724, para
22)
“22. In ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC
705 : AIR 2003 SC 2629] this Court after examining
the grounds on which an award of the arbitratorPage 38 of 59
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can be set aside under Section 34 of the Act has
said : (SCC p. 727, para 31)’31. … However, the award which is, on the
face of it, patently in violation of statutory
provisions cannot be said to be in public
interest. Such award/judgment/decision is
likely to adversely affect the administration of
justice. Hence, in our view in addition to
narrower meaning given to the term “public
policy” in Renusagar case [Renusagar Power
Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644] it is required to be held that the
award could be set aside if it is patently
illegal’.”
69. Considering the grounds to set aside an arbitral award
as stated in the aforesaid decisions, namely (a) fundamental
policy of Indian law; (b) the interest of India; (c) justice or
morality; or in addition (d) if it is patently illegal, laying down
the test for each of the grounds in paragraphs ’29’, ’33’, ’34’,
’35’, ’36’, ’39’ and ’42’, it was held therein as under :-
Fundamental Policy of Indian Law
“29. It is clear that the juristic principle of a “judicial
approach” demands that a decision be fair, reasonable
and objective. On the obverse side, anything arbitrary
and whimsical would obviously not be a determination
which would either be fair, reasonable or objective.”
“33. It must clearly be understood that when a court is
applying the “public policy” test to an arbitration award,
it does not act as a court of appeal and consequently
errors of fact cannot be corrected. A possible view by the
arbitrator on facts has necessarily to pass muster as the
arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon when he delivers
his arbitral award. Thus an award based on little
evidence or on evidence which does not measure up inPage 39 of 59
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quality to a trained legal mind would not be held to be
invalid on this score [Very often an arbitrator is a lay
person not necessarily trained in law. Lord Mansfield, a
famous English Judge, once advised a high military
officer in Jamaica who needed to act as a Judge as
follows:”General, you have a sound head, and a good
heart; take courage and you will do very well, in your
occupation, in a court of equity. My advice is, to make
your decrees as your head and your heart dictate, to
hear both sides patiently, to decide with firmness in the
best manner you can; but be careful not to assign your
reasons, since your determination may be substantially
right, although your reasons may be very bad, or
essentially wrong”. It is very important to bear this in
mind when awards of lay arbitrators are challenged.] .
Once it is found that the arbitrators approach is not
arbitrary or capricious, then he is the last word on facts.
In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.
Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC
(Civ) 342] , this Court held : (SCC pp. 601-02, para 21)“21. A court does not sit in appeal over the award
of an Arbitral Tribunal by reassessing or
reappreciating the evidence. An award can be
challenged only under the grounds mentioned in
Section 34(2) of the Act. The Arbitral Tribunal has
examined the facts and held that both the second
respondent and the appellant are liable. The case
as put forward by the first respondent has been
accepted. Even the minority view was that the
second respondent was liable as claimed by the
first respondent, but the appellant was not liable
only on the ground that the arbitrators appointed
by the Stock Exchange under Bye-law 248, in a
claim against a non-member, had no jurisdiction to
decide a claim against another member. The
finding of the majority is that the appellant did the
transaction in the name of the second respondent
and is therefore, liable along with the second
respondent. Therefore, in the absence of any
ground under Section 34(2) of the Act, it is not
possible to re-examine the facts to find out whether
a different decision can be arrived at.”
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34. It is with this very important caveat that the two
fundamental principles which form part of the
fundamental policy of Indian law (that the arbitrator
must have a judicial approach and that he must not act
perversely) are to be understood.
Interest of India
35. The next ground on which an award may be set aside
is that it is contrary to the interest of India. Obviously,
this concerns itself with India as a member of the world
community in its relations with foreign powers. As at
present advised, we need not dilate on this aspect as this
ground may need to evolve on a case-by-case basis.”
Justice
36. The third ground of public policy is, if an award is
against justice or morality. These are two different
concepts in law. An award can be said to be against
justice only when it shocks the conscience of the court.
An illustration of this can be given. A claimant is content
with restricting his claim, let us say to Rs 30 lakhs in a
statement of claim before the arbitrator and at no point
does he seek to claim anything more. The arbitral award
ultimately awards him Rs 45 lakhs without any
acceptable reason or justification. Obviously, this would
shock the conscience of the court and the arbitral award
would be liable to be set aside on the ground that it is
contrary to “justice”
Morality
“39. This Court has confined morality to sexual morality
so far as Section 23 of the Contract Act, 1872 is
concerned, which in the context of an arbitral award
would mean the enforcement of an award say for specific
performance of a contract involving prostitution.
“Morality” would, if it is to go beyond sexual morality
necessarily cover such agreements as are not illegal but
would not be enforced given the prevailing mores of the
day. However, interference on this ground would also be
only if something shocks the court’s conscience.”
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Patent Illegality
“42. In the 1996 Act, this principle is substituted by the
“patent illegality” principle which, in turn, contains
three subheads:
42.1. (a) A contravention of the substantive law of India
would result in the death knell of an arbitral award. This
must be understood in the sense that such illegality must
go to the root of the matter and cannot be of a trivial
nature. This again is really a contravention of Section
28(1)(a) of the Act, which reads as under:
“28.Rules applicable to substance of dispute.–(1)
Where the place of arbitration is situated in India–
(a) in an arbitration other than an international
commercial arbitration, the Arbitral Tribunal shall
decide the dispute submitted to arbitration in
accordance with the substantive law for the time
being in force in India;”
42.2. (b) A contravention of the Arbitration Act itself
would be regarded as a patent illegality — for example if
an arbitrator gives no reasons for an award in
contravention of Section 31(3) of the Act, such award
will be liable to be set aside.
42.3. (c) Equally, the third subhead of patent illegality is
really a contravention of Section 28(3) of the Arbitration
Act, which reads as under:
“28.Rules applicable to substance of dispute.–
(1)-
(2)***
(3) In all cases, the Arbitral Tribunal shall decide in
accordance with the terms of the contract and shall
take into account the usages of the trade applicable
to the transaction.”
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This last contravention must be understood with a
caveat. An Arbitral Tribunal must decide in accordance
with the terms of the contract, but if an arbitrator
construes a term of the contract in a reasonable manner,
it will not mean that the award can be set aside on this
ground. Construction of the terms of a contract is
primarily for an arbitrator to decide unless the arbitrator
construes the contract in such a way that it could be said
to be something that no fair-minded or reasonable
person could do.”
70. Thus, in the case of Associate Builders (supra), the
Apex Court elucidated the contours of patent illegality as a
discrete ground under public policy for setting aside awards
under Section 34 of the Arbitration and Conciliation Act,
1996. The Court identified three limbs: (a) contravention of
substantive law going to the root of the matter; (b) breach of
the Arbitration Act itself, e.g., failure to give reasons, violating
Section 31(3); and (c) disregard of contractual terms or trade
usage, thereby exceeding jurisdiction in terms of Section
28(3). Crucially, it held that an arbitrator’s view must be one
that no fair-minded or reasonable person could take, such that
it is not even a possible view, to trigger patent illegality.
71. Further, while deliberating on the tests to interfere with
an arbitral award on any of the aforesaid four grounds stated
in ONGC Ltd. v. Saw Pipes Ltd. (supra), considering
Renusagar Power Co. Ltd. (supra), it was observed in
paragraphs ’43’, ’44’, ’45’ as under :-
43. In McDermott International Inc. v. Burn Standard
Co. Ltd. [McDermott International Inc. v. Burn Standard
Co. Ltd., (2006) 11 SCC 181] , this Court held as under :
(SCC pp. 225-26, paras 112-13)
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“112. It is trite that the terms of the contract can
be express or implied. The conduct of the parties
would also be a relevant factor in the matter of
construction of a contract. The construction of the
contract agreement is within the jurisdiction of the
arbitrators having regard to the wide nature, scope
and ambit of the arbitration agreement and they
cannot be said to have misdirected themselves in
passing the award by taking into consideration the
conduct of the parties. It is also trite that
correspondences exchanged by the parties are
required to be taken into consideration for the
purpose of construction of a contract.
Interpretation of a contract is a matter for the
arbitrator to determine, even if it gives rise to
determination of a question of law. [See Pure
Helium India (P) Ltd. v. Oil and Natural Gas
Commission [(2003) 8 SCC 593 : 2003 Supp (4)
SCR 561] and D.D. Sharma v. Union of
India [(2004) 5 SCC 325] .]
113. Once, thus, it is held that the arbitrator had
the jurisdiction, no further question shall be raised
and the court will not exercise its jurisdiction
unless it is found that there exists any bar on the
face of the award.”
44. In MSK Projects (I) (JV) Ltd. v. State of
Rajasthan [(2011) 10 SCC 573 : (2012) 3 SCC (Civ)
818] , the Court held : (SCC pp. 581-82, para 17)
“17. If the arbitrator commits an error in the
construction of the contract, that is an error45.
within his jurisdiction. But if he wanders outside
the contract and deals with matters not allotted to
him, he commits a jurisdictional error. Extrinsic
evidence is admissible in such cases because the
dispute is not something which arises under or in
relation to the contract or dependent on the
construction of the contract or to be determined
within the award. The ambiguity of the award can,
in such cases, be resolved by admitting extrinsic
evidence. The rationale of this rule is that the
nature of the dispute is something which has to be
determined outside and independent of what
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appears in the award. Such a jurisdictional error
needs to be proved by evidence extrinsic to the
award. (See Gobardhan Das v. Lachhmi
Ram [(1954) 1 SCC 566 : AIR 1954 SC
689] , Thawardas Pherumal v. Union of India [AIR
1955 SC 468] , Union of India v. Kishorilal Gupta &
Bros. [AIR 1959 SC 1362] , Alopi Parshad & Sons
Ltd. v. Union of India [AIR 1960 SC
588] , Jivarajbhai Ujamshi Sheth v. Chintamanrao
Balaji [AIR 1965 SC 214] and Renusagar Power Co.
Ltd. v. General Electric Co. [(1984) 4 SCC 679 :
AIR 1985 SC 1156] )”
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram
Saran [(2012) 5 SCC 306] , the Court held : (SCC pp.
320-21, paras 43-45)
“43. In any case, assuming that Clause 9.3 was
capable of two interpretations, the view taken by
the arbitrator was clearly a possible if not a
plausible one. It is not possible to say that the
arbitrator had travelled outside his jurisdiction, or
that the view taken by him was against the terms of
contract. That being the position, the High Court
had no reason to interfere with the award and
substitute its view in place of the interpretation
accepted by the arbitrator.
44. The legal position in this behalf has been
summarised in para 18 of the judgment of this
Court in SAIL v. Gupta Brother Steel Tubes
Ltd. [(2009) 10 SCC 63 : (2009) 4 SCC (Civ) 16]
and which has been referred to above. Similar view
has been taken later in Sumitomo Heavy Industries
Ltd. v. ONGC Ltd. [(2010) 11 SCC 296 : (2010) 4
SCC (Civ) 459] to which one of us (Gokhale, J.) was
a party. The observations in para 43 thereof are
instructive in this behalf.
45. This para 43 reads as follows : (Sumitomo
case [(2010) 11 SCC 296 : (2010) 4 SCC (Civ)
459] , SCC p. 313)Page 45 of 59
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’43. … The umpire has considered the fact
situation and placed a construction on the
clauses of the agreement which according to
him was the correct one. One may at the
highest say that one would have preferred
another construction of Clause 17.3 but that
cannot make the award in any way perverse.
Nor can one substitute one’s own view in such
a situation, in place of the one taken by the
umpire, which would amount to sitting in
appeal. As held by this Court in Kwality Mfg.
Corpn. v. Central Warehousing Corpn. [(2009)
5 SCC 142 : (2009) 2 SCC (Civ) 406] the
Court while considering challenge to arbitral
award does not sit in appeal over the findings
and decision of the arbitrator, which is what
the High Court has practically done in this
matter. The umpire is legitimately entitled to
take the view which he holds to be the correct
one after considering the material before him
and after interpreting the provisions of the
agreement. If he does so, the decision of the
umpire has to be accepted as final and
binding.'”
72. Applying those tests, while considering the validity of
the decision of the Division Bench of the High Court which
had interfered with the arbitral award on several counts, it
was concluded in paragraph ’56’, as under :-
“56. Here again, the Division Bench has interfered
wrongly with the arbitral award on several counts. It had
no business to enter into a pure question of fact to set
aside the arbitrator for having applied a formula of 20
months instead of 25 months. Though this would inure in
favour of the appellant, it is clear that the appellant did
not file any cross-objection on this score. Also, it is
extremely curious that the Division Bench found that an
adjustment would have to be made with claims awarded
under Claims 2, 3 and 4 which are entirely separate and
independent claims and have nothing to do with ClaimsPage 46 of 59
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12 and 13. The formula then applied by the Division
Bench was that it would itself do “rough and ready
justice”. We are at a complete loss to understand how
this can be done by any court under the jurisdiction
exercised under Section 34 of the Arbitration Act. As has
been held above, the expression “justice” when it comes
to setting aside an award under the public policy ground
can only mean that an award shocks the conscience of
the court. It cannot possibly include what the court
thinks is unjust on the facts of a case for which it then
seeks to substitute its view for the arbitrator’s view and
does what it considers to be “justice”. With great respect
to the Division Bench, the whole approach to setting
aside arbitral awards is incorrect. The Division Bench
has lost sight of the fact that it is not a first appellate
court and cannot interfere with errors of fact.”
73. The conclusion drawn by the Apex Court in Associate
Builders (supra), thus, are that in exercise of jurisdiction
under Section 34 of the Arbitration Act on the available
grounds, the Court can interfere only if the award shocks the
conscience of the Court. It is not open for the Court to
substitute its view for the arbitrator’s view on the premise
that it thinks the arbitrator’s view as unjust on the facts of a
case or what it considers to be “justice” by forming an
alternative view. It is to be kept in mind that the Court under
Section 34 is not a first appellate court and cannot interfere
with the errors of fact perceived by it on re-appreciation of
evidence.
74. The Apex in Patel Engineering Ltd. v. North Eastern
Electric Power Corporation Ltd. reported in (2020) SCC
Online SC 466 reaffirmed the statutory incorporation of
patent illegality via Section 34(2A), through the 2015
amendment. It underscored that an award may be set aside if
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the arbitrator’s interpretation is irrational or perverse, if it
strays beyond contractual scope, or fails to provide reasons,
even post-amendment. The Apex Court in Patel Engineering
(Supra) has held as under:-
“18. The Law Commission in its 246th Report
recommended the insertion of the ground of ‘patent
illegality’ for setting aside a domestic award by the
insertion of clause (2A) in Section 34 of the Act. The
relevant extract from the Report of the Law Commission
is extracted herein below:-
“35. It is for this reason that the Commission has
recommended the addition of section 34 (2A) to
deal with purely domestic awards, which may also
be set aside by the Court if the Court finds that
such award is vitiated by “patent illegality
appearing on the face of the award.” In order to
provide a balance and to avoid excessive
intervention, it is clarified in the proposed proviso
to the proposed section 34 (2A) that such “an
award shall not be set aside merely on the ground
of an erroneous application of the law or by
reappreciating evidence.” The Commission believes
that this will go a long way to assuage the fears of
the judiciary as well as the other users of
arbitration law who expect, and given the
circumstances prevalent in our country,
legitimately so, greater redress against purely
domestic awards. This would also do away with the
unintended consequences of the decision of the
Supreme Court in ONGC v. Saw Pipes Ltd, (2003) 5
SCC 705, which, although in the context of a purely
domestic award, had the unfortunate effect of
being extended to apply equally to both awards
arising out of international commercial arbitrations
as well as foreign awards, given the statutory
language of the Act. …”
(emphasis supplied)
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To give effect to the said recommendation, it was
suggested that:
“18. … (iii) After the Explanation in sub-section (2),
insert sub-section ‘(2A) An arbitral award arising
out of arbitrations other than international
commercial arbitrations, may also be set aside by
the Court if the Court finds that the award is
vitiated by patent illegality appearing on the face of
the award:
Provided that an award shall not be set aside
merely on the ground of an erroneous application
of the law or by re-appreciating evidence.”
[NOTE: The proposed S.34(2A) provides an
additional, albeit carefully limited, ground for
setting aside an award arising out of a domestic
arbitration (and not an international commercial
arbitration). The scope of review is based on the
patent illegality standard set out by the Supreme
Court in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5
SCC 705. The proviso creates exceptions for
erroneous application of the law and re-
appreciation of evidence, which cannot be the basis
for setting aside awards.]”
(emphasis supplied)
19. Pursuant to the recommendations of the Law
Commission, the 1996 Act was amended by Act 3 of
2016, which came into force w.e.f. 23.10.2015. The
ground of “patent illegality” for setting aside a domestic
award has been given statutory force in Section
34(2A) of the 1996 Act. The ground of “patent illegality”
cannot be invoked in international commercial
arbitrations seated in India. Even in the case of a foreign
award under the New York Convention, the ground of
“patent illegality” cannot be raised as a ground to resist
enforcement, since this ground is absent in Section 48 of
the 1996 Act. The newly inserted sub-section (2A)
in Section 34, reads as follows:-
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“34.(2A) An arbitral award arising out of
arbitrations other than international commercial
arbitrations, may also be set aside by the Court, if
the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside
merely on the ground of an erroneous application
of the law or by reappreciation of evidence.”
20. In Ssangyong Engineering and Construction
Company Limited, this Court was considering a
challenge to an award passed in an international
commercial arbitration, between the Appellant –
company a foreign entity registered under the laws of
Korea, and the Respondent, a Government of India
undertaking. In paragraph (19) of the judgment, this
Court noted that the expansive interpretation given to
“public policy of India” in the Saw Pipes (supra) and
WesternGeco International Limited cases, which had
been done away with, and a new ground of “patent
illegality” was introduced which would apply to
applications under Section 34 made on or after
23.10.2015. In paragraphs (36) and (37) of the
judgment, this Court held that insofar as domestic
awards are concerned, the additional ground of patent
illegality was now available under sub-section (2A)
to Section 34. However, re-appreciation of evidence was
not permitted under the ground of “patent illegality”
appearing on the face of the award.”
75. In Delhi Metro Rail Corporation Ltd v. Delhi Airport
Metro Express Pvt. Ltd. reported in (2024) 6 SCC 357, the
Apex Court sounded a note of caution, warning of a
“disturbing tendency” of courts re-appreciating facts and
using patent illegality as a facade for appellate review of
arbitral awards, a practice that undermines the minimal-
interference ethos of the Arbitration Act. The Apex Court
noted the above-stated judgments and held as under:-
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“35. In Associate Builders vs. Delhi Development
Authority, a two-judge Bench of this Court held that
although the interpretation of a contract is exclusively
within the domain of the arbitrator, construction of a
contract in a manner that no fair-minded or reasonable
person would take, is impermissible. A patent illegality
arises where the arbitrator adopts a view which is not a
possible view. A view can be regarded as not even a
possible view where no reasonable body of persons could
possibly have taken it. This Court held with reference
to Sections 28(1)(a) and 28(3), that the arbitrator must
take into account the terms of the contract and the
usages of trade applicable to the transaction. The
decision or award should not be perverse or irrational.
An award is rendered perverse or irrational where the
findings are:
(i) based on no evidence;
(ii) based on irrelevant material; or
(iii) ignores vital evidence.
36. Patent illegality may also arise where the award is in
breach of the provisions of the arbitration statute, as
when for instance the award contains no reasons at all,
so as to be described as unreasoned.
37. A fundamental breach of the principles of natural
justice will result in a patent illegality, where for
instance the arbitrator has let in evidence behind the
back of a party. In the above decision, this Court in
Associate Builders v. DDA observed:
“31. The third juristic principle is that a decision which
is perverse or so irrational that no reasonable person
would have arrived at the same is important and
requires some degree of explanation. It is settled law
that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
42.1 … 42.2. (b) A contravention of the Arbitration
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Act itself would be regarded as a patent illegality, for
example, if an arbitrator gives no reasons for an award
in contravention of Section 31(3) of the Act, such award
will be liable to be set aside.”
(emphasis supplied)
38. In Ssangyong Engineering & Construction Co. Ltd. vs.
NHAI , a two- judge bench of this Court endorsed the position
in Associate Builders (supra), on the scope for interference
with domestic awards, even after the 2015 Amendment:
“40. The change made in Section 28(3) by the
Amendment Act really follows what is stated in paras
42.3 to 45 in Associate Builders, namely, that the
construction of the terms of a contract is primarily for an
arbitrator to decide, unless the arbitrator construes the
contract in a manner that no fair-minded or reasonable
person would; in short, that the arbitrator’s view is not
even a possible view to take. Also, if the arbitrator
wanders outside the contract and deals with matters not
allotted to him, he commits an error of jurisdiction. This
ground of challenge will now fall within the new ground
added under Section 34(2-A).
41. … Thus, a finding based on no evidence at all or an
award which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside on
the ground of patent illegality. Additionally, a finding
based on documents taken behind the back of the parties
by the arbitrator would also qualify as a decision based
on no evidence inasmuch as such decision is not based
on evidence led by the parties, and therefore, would also
have to be characterised as perverse.”
(emphasis supplied)
39. In essence, the ground of patent illegality is available
for setting aside a domestic award, if the decision of the
arbitrator is found to be perverse, or so irrational that no
reasonable person would have arrived at it; or the
construction of the contract is such that no fair or
reasonable person would take; or, that the view of the
arbitrator is not even a possible view. A ‘finding’ based
on no evidence at all or an award which ignores vital
evidence in arriving at its decision would be perverse
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and liable to be set aside under the head of ‘patent
illegality’. An award without reasons would suffer from
patent illegality. The arbitrator commits a patent
illegality by deciding a matter not within his jurisdiction
or violating a fundamental principle of natural justice.”
76. Taken together, these authorities outline a clear
doctrinal trajectory: Associate Builders (Supra) laid down a
principled test for patent illegality, rooted in perverse
reasoning, jurisdictional excess, or failure to reason, later
codified by the 2015 amendment. Patel Engineering
(Supra) confirmed the amendment’s retrospective application
and reinforced the test; and Delhi Metro (Supra) cautioned
courts against overreach in the guise of the doctrine. The
trend thus underscores judicial restraint, fidelity to
contractual terms, and the narrow, face-value character of
patent illegality as a review ground.
77. In light of the above legal position governing the scope
of interference in an arbitral award under under Section 34
(unamended) of the Act’ 1996, we are of the view that it is not
permissible for us to substitute our view with the arbitrator’s
view in awarding the Retention Money, which the Arbitral
Tribunal found just in the facts and circumstances of the case.
The award cannot be said to be unfair and unreasonable so as
to shock the conscience of the Court. The alleged patent
illegality or perversity on the grounds agitated before us in
awarding the Retention Money by the Arbitral Tribunal,
cannot be said to be such which goes to the root of the matter.
78. The interpretation made by the Arbitral Tribunal about
the claims incorporated in the Statement of Claim to award
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the Retention Money cannot be substituted by us as a court of
appeal, inasmuch as, it is not open for the Court making
inquiry into the correctness of the award within the scope of
Section 34/37 of the Act’ 1996, to correct the errors of the
facts perceived by it.
79. At the cost of repetition, we may reiterate, at this
juncture, that the Commercial Court while rejecting the
application under Section 34 of the Act’ 1996 has clearly
noted that the work of chimney completed by the claimant
contractor uptil 14.06.2008, was being used by the appellant
without any protest and objection. It was held that the
conclusion arrived at by the Arbitral Tribunal that the
claimant is entitled to payment for the amount of the work
which he had done and also for the work he was ready and
willing to do under the contract, therefore, does not warrant
any interference by the Court under Section 34 of the Act’
1996. The concurrent findings of fact recorded by the
Arbitral Tribunal and the Court under Section 34 for the
award of claim made towards the work done is not open for
interference within the scope of Section 37 of the Act’ 1996,
which is even narrower than the scope of inquiry under
Section 34 of the Act’ 1996.
80. We may conclude with the observations made by the
Apex Court about the scope of inquiry under Section 37 of the
Act’ 1996 in Punjab State Civil Supplies Corpn. Ltd. v.
Sanman Rice Mills [2024 SCC OnLine SC 2632] and C &
C Constructions Ltd. v. IRCON International Ltd.
[(2025) 4 SCC 234], wherein it was stated that :-
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(1) Punjab State Civil Supplies Corpn.Ltd. (supra) :-
“14. 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.”
“17. In paragraph 14 of MMTC Limited v. Vedanta
Limited,6 it has been held as under:
“14. As far as interference with an order
made under Section 34, as per Section 37, is
concerned, it cannot be disputed that such
interference under Section 37 cannot travel
beyond the restrictions laid down under
Section 34. In other words, the court cannot
undertake an independent assessment of the
merits of the award, and must only ascertain
that the exercise of power by the court under
Section 34 has not exceeded the scope of the
provision. Thus, it is evident that in case an
arbitral award has been confirmed by the
court under Section 34 and by the court in an
appeal under Section 37, this Court must be
extremely cautious and slow to disturb such
concurrent findings.”
18. Recently a three-Judge Bench in Konkan
Railway Corporation Limited v. Chenab Bridge
Project Undertaking7 referring to MMTC Limited
(supra) held that the scope of jurisdiction under
Section 34 and Section 37 of the Act is not like a
normal appellate jurisdiction and the courts should
not interfere with the arbitral award lightly in a
casual and a cavalier manner. The mere possibility
of an alternative view on facts or interpretation of
the contract does not entitle the courts to reverse
the findings of the arbitral tribunal.
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19. In Bombay Slum Redevelopment Corporation
Private Limited v. Samir Narain Bhojwani8, a
Division Bench of this Court followed and
reiterated the principle laid down in the case of
MMTC Limited (supra) and UHL Power Company
Limited v. State of Himachal Pradesh9. It quoted
and highlighted paragraph 16 of the latter
judgment which extensively relies upon MMTC
Limited (supra). It reads as under:
“16. As it is, the jurisdiction conferred on courts
under Section 34 of the Arbitration Act is fairly
narrow, when it comes to the scope of an appeal
under Section 37 of the Arbitration Act, the
jurisdiction of an appellate court in examining
an order, setting aside or refusing to set aside
an award, is all the more circumscribed. In
MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v.
Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC
(Civ) 293], the reasons for vesting such a
limited jurisdiction on the High Court in
exercise of powers under Section 34 of the
Arbitration Act have been explained in the
following words : (SCC pp. 166-67, para 11)“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
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precedents, adopting a judicial approach,Page 56 of 59
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compliance with the principles of natural
justice, and Wednesbury [Associated
Provincial Picture Houses Ltd. v. Wednesbury
Corpn., [1948] 1 K.B. 223 (CA)]
reasonableness. Furthermore, “patent
illegality” itself 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.””
(2) C & C Constructions Ltd. (supra) :-
“34. As far as scope of interference in an appeal
under Section 37 of the Arbitration Act is
concerned, the law is well settled. In Larsen Air
Conditioning & Refrigeration Co. v. Union of
India [Larsen Air Conditioning & Refrigeration
Co. v. Union of India, (2023) 15 SCC 472] in para
15, this Court held thus : (SCC p. 478)
“15. The limited and extremely circumscribed
jurisdiction of the court under Section 34 of
the Act, permits the court to interfere with an
award, sans the grounds of patent illegality
i.e. that ‘illegality must go to the root of the
matter and cannot be of a trivial nature’; and
that the Tribunal ‘must decide in accordance
with the terms of the contract, but if an
arbitrator construes a term of the contract in
a reasonable manner, it will not mean that the
award can be set aside on this ground’
[ref : Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
SCC (Civ) 204] , SCC p. 81, para 42]. The
other ground would be denial of natural
justice. In appeal, Section 37 of the Act grants
narrower scope to the appellate court to
review the findings in an award, if it has been
upheld, or substantially upheld under Section
34.”
(emphasis in original and supplied)
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35. In Konkan Railway Corpn. Ltd. v. Chenab
Bridge Project [Konkan Railway Corpn.
Ltd. v. Chenab Bridge Project, (2023) 9 SCC 85 :
(2023) 4 SCC (Civ) 458] in para 18, this Court held
thus : (SCC p. 93)
“18. At the outset, we may state that the
jurisdiction of the court under Section 37 of
the Act, as clarified by this Court in MMTC
Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta
Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ)
293] , is akin to the jurisdiction of the court
under Section 34 of the Act. [ Id, SCC p. 167,
para 14:”14. As far as interference with an
order made under Section 34, as per Section
37, is concerned, it cannot be disputed that
such interference under Section 37 cannot
travel beyond the restrictions laid down under
Section 34. In other words, the court cannot
undertake an independent assessment of the
merits of the award, and must only ascertain
that the exercise of power by the court under
Section 34 has not exceeded the scope of the
provision.”] 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 and
subject to the same grounds as the challenge
under Section 34 of the Act.”
81. In view of the above discussion, we do not find any error
in the judgment and order dated 10.11.2017 passed by the
Commercial Court, namely Judge, Commerical Court, City
Civil Court, Ahmedabad in rejecting the application under
Section 34 of the Arbitration Act’ 1996 in Commercial Civil
Misc. Application No. 68 of 2016 (Old Civil Misc. Application
No. 828 of 2012), challenging the award dated 14.06.2012
passed by the Arbitral tribunal.
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82. The present appeal stands dismissed, accordingly. No
order as to costs.
(SUNITA AGARWAL, CJ )
(D.N.RAY,J)
BIJOY B. PILLAI
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