Gujarat High Court
Sardar Sarovar Narmada Nigam Ltd vs Recondo Limited on 30 June, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/845/2025 ORDER DATED: 30/06/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 845 of 2025
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2024
In R/FIRST APPEAL NO. 845 of 2025
With
R/FIRST APPEAL NO. 847 of 2025
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2024
In R/FIRST APPEAL NO. 847 of 2025
==========================================================
SARDAR SAROVAR NARMADA NIGAM LTD. & ANR.
Versus
RECONDO LIMITED
==========================================================
Appearance:
MR. G.H.VIRK, ADV. WITH MR MB GOHIL(2702) for the Appellant(s) No. 1,2
MR. ARIF BOOKWALA, SR. ADV. WITH K.G.SUKHWANI, PARAS K
SUKHWANI, C.K.SUKHWANI(8284) 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 : 30/06/2025
COMMON ORAL ORDER
(PER : HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL)
Both the appeals arise out of the common award passed
under Section 34 of the Arbitration and Conciliation Act, 1996.
With the consent of the learned counsels for the parties, they
have been heard together and are being decided by this
common order.
2. Heard the learned counsel Mr. G.H.Virk assisted by the
learned advocate Mr. M.B.Gohil for the appellants and Mr. Arif
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Bookwala, the learned senior advocate assisted by Mr.
K.G.Sukhwania, the learned advocate appearing for the
respondent.
3. By means of the present appeal under Section 37 of the
Arbitration and Conciliation Act, 1996, the appellant namely
Sardar Sarovar Narmada Nigam Limited (SSNL) seeks to
challenge the arbitral award dated 13.11.2023 with respect to
claim No.5 restricting the challenge to claim No.5 pertaining to
“Earth Work of embankment (Construction of AV.Lead = 1/5
Km.).
4. The first submission made by the learned counsel for the
appellant to challenge the Arbitral Award with respect to the
claim No.5 is that the Arbitrator has committed a patent
illegality in awarding more than what was originally claimed by
the claimants in the Statement of Claim submitted before it. It
was further argued that no reason has been given in the
Statement of Claim as to how the claimant had reached at the
computation indicated therein. The submission is that the
claim made by the claimant was bereft of any substantial
material disclosed in the Statement of Claim or filed during the
course of arbitration. It is submitted that the award suffers
from not only patent illegality but is in conflict with the public
policy for the reason that what was due and payable was much
less than what has been awarded by the Arbitrator towards the
claim No.5.
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5. We may record, at the outset, that it is fairly submitted
by the learned counsel Mr. G. H. Virk appearing for the
appellants that the appellants are not contesting on any other
claims awarded by the Arbitrator and the findings of the Court
under Section 34 upholding the award in toto on the issue of
termination of contract by the appellant.
6. The challenge is confined to the amount awarded under
claim No.5. Reading the findings returned by the Arbitrator in
paragraph No. 51 in the award with respect to the claim No.5 ,
we are required to quote the discussion as a whole:-
“51. This Claim No.5 pertains to “Earth Work of embankment
(construction of AV. Lead = 1.5 Km.). On the side of the
claimant-Recondo Ltd., Shri Sukhwani, Learned Counsel for
the claimant-Recondo Ltd during the course of oral arguments
and as stated in the Written Arguments submitted on behalf of
the claimant-Recondo Ltd, it has been submitted that
respondent-Recondo Ltd was requested to revise rates for
items like earthwork in embankment, structure concrete,
cement concrete lining and steel, etc. and rate analysis were
also submitted. It is based on BOQ Item No.4 (Earth work in
embankment by bringing suitable earth from borrow area/pits
including breaking clods, depositing in uniform layers of 15 to
23 cm, dressing to designed sections with all lift and lead up
to 100 m. clearing the site etc. complete.)It is further submitted that as can be seen from letter dated
05/03/1990 (Ex.101, page-298) directions were given to
borrow earth from leads varying from 0.5 Kms to 5 Kms, since
such leads were not mentioned in any of tender items which
required excess machineries such as excavators, loaders,
dozer, tippers, etc. therefore Respondent No.2 the Executive
Engineer was requested to provide certain instructions. It is
further submitted on behalf of the claimant that as can be
seen from letter dated 12/3/1990 (Ex.102 Page-300), once
again attention of Respondent No.2 the Executive Engineer
was drawn to the fact that as per tender items, earth required
for embankment was to be borrowed from side borrow pitsPage 3 of 20
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with a maximum lead of 100 Mtrs, and accordingly the
claimant had arranged machineries and equipments to cater
for 100 Mtrs, lead. Since Respondent No.2 the Executive
Engineer had proposed to bring earth from village tanks
(ponds) with leads varying from 0.5 to 5.0 Kms. certain
information was sought for. Therefore, the claimant by letter
dated 5/4/1990 (Ex. 108, Page-312) sought confirmation
regarding acceptance of quoted rates which were based on
quantity to be executed, condition of haul roads, resources
available and to be specially arranged for execution of this
work so as to enable the claimant to arrange resources within
2 to 3 weeks to start the work. It is further submitted that
claimant by letter dated: 9/4/1990 (Ex/109, Page-314)
provided extra rate for extra lead per CM. Thereafter, the
claimant by letter dated 30/4/1990 (Ex.115, Page-334)
provided the statement showing the extra cost and vide letter
dated 12/7/1990 (Ex.126, Page-362) requested Chief Engineer
to finalize extra items/issues which were not settled till date.
Moreover, the claimant by Letter dated 16/7/1990 (Ex.128,
Page-367) requested Respondent No.2 the Executive Engineer
as well to finalize extra items/issues which were not settled till
date. That the reminders were sent by the claimant to the
Chief Engineer by letter dated 12/09/1990 (Ex.134, page-381)
and to the Executive Engineer by letter dated 28/09/1990 (Ex.
139, page-389) to finalize extra items / issues which were not
settled till 2 date.
It is submitted that with respect to ‘Pending Extra Items’,
Respondent No.2 the Executive Engineer replied by letter
dated. 8/10/1990 (Ex. 191 Colly in Volume-R, produced by the
respondent-SSNN Ltd. relevant page 28-29) and in para 5 on
page-29, it is stated as under:
“(5) You are well aware that the proposal of your pending
extra items which are considered by this Office are submitted
to higher authorities for finalizing the same. You are also
being kept aware of the position of each case and its
compliance. However, this being a policy questions, requiring
order and approval from top authorities, the finalization will
take some time.
Summing up the issues, it is to assure you that all the possible
co-operation will be imparted to you and it will be seen that
work may not suffer want of any reason, All your
pending/extra items are already submitted to higher
authorities for finalization and will be perused vigorously so as
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to finalize them as early as possible. In the meanwhile, it is
requested to start with the work without losing the time so as
to complete the work even in the extended time limit.”
It is therefore submitted on behalf of the claimant-Recondo
Ltd that thus as per directions given by Respondent No.2 the
Executive Engineer in view of Clause-32 (Extra Items) of
General Condition of Contract contained in the Agreement Ex.
38 and fact that rates were considered by office of
Respondent No.2 Executive Engineer and submitted to higher
authorities for finalization and since it will take some time for
finalization, the claimant executed total Earth Work of
1520371.60 CM of BOQ ‘Item No.4-Earth work’ (Ex.188, R A
Bill No.119 dated: 29/06/1995, relevant page no.-3) and for
which, the payment was made at the rate of Rs.6.80p,
Rs.6.65p and Rs.6.40p respectively on 10/07/1995 for
quantities of 780430.40; 676769.14 and 63172.06 against
rate analysis of Rs.87/- per CM. It is therefore submitted that
considering rate of Rs.87/- for total quantity of 1520371.60
CM, an amount of Rs.13,22,72,329.20 was required to be paid,
however, an amount of Rs.1,02,11,742.68 was paid in R. A. Bill
No.119 dated: 29/6/1995 and paid on 10/7/1995. Ultimately, it
is submitted considering the undisputed rate quoted by the
claimant and the rate applied by the respondent-SSNN Ltd in
the said R.A. Bill; an amount of Rs. 13,22,72,329.20 is
required to be paid by the respondent-SSNN Ltd to the
claimant-Recondo Ltd. but, an amount of Rs.1,02,11,742.68
was paid in R. A. Bill No. 119 dated 29/06/1995, paid on
10/07/1995 and therefore the claim should be of
Rs.12,20,60,586.52 which is required to be paid to the
claimant-Recondo Ltd. However, since the claimant-Recondo
Ltd. has claimed Rs.12,16,29,760/-(rounded off to
Rs.12,16,30,000/-) under this head in their Statement of
Claims, therefore, the claimant restricts the claim for Rs.
12,16,30,000/-as claimed in the Statement of Claims.
However, it is submitted that in fact the claimant-Recondo Ltd
had executed the work between 28/6/1995 to 5/12/1995
which is reflected in the Annexure -1 of the letter dated
05/12/1995 by the respondent-SSNN Ltd terminating the
contract with the claimant- Recondo Ltd, at Ex. 182, relevant
page-511, and up to date quantity is 16 lakhs CM for ‘Earth
work’ as admitted by Respondent-SSNN Ltd in said letter;
however claim has restricted for the quantity up to RA Bill
No.119 dated 29/6/1995, i.e. as detailed above and as
pleaded and claimed in the Statement of Claims with regard
to this Claim No. 5. It is therefore submitted that the Claim
No.5 be allowed and Rs. 12,16,30,000/- be awarded to the
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claimant Recondo Ltd.
52. On the side of the respondent-SSNN Ltd, I have heard Shri
Shah, Learned Counsel for the respondent-SSNN Ltd and I
have considered the Written Arguments filed on behalf of the
respondent-SSNN Ltd as well as I have considered the Written
Statement filed by the respondent-SSNN Ltd in connection
with this Claim No.5 made by the claimant-Recondo Ltd. In the
Written Statement filed by the respondent-SSNN Ltd,
regarding the Claim No. 5 made by the claimant- Recondo Ltd,
it is pleaded as under:
“Earthwork of Embankment was as per the tender agreement.
So whatever rates have been paid, they are legal and just and
no more rate can be legally paid and hence, this claim for
Rs.12,16,29,760/- is not legally maintainable under the
provisions of law and as per the provision of the tender
agreement and hence, it is denied and it may be rejected.”
Shri Shah, Learned Counsel for the respondent-SSNN Ltd
submitted that once the respondent-SSNN Ltd had considered
the request of the claimant-Recondo Ltd for the payment
towards Extra Work as per Cl.32 of the Agreement Ex.38 and
paid as per the final decision taken by the competent
authority of the respondent-SSNN Ltd, the claimant is not
entitled to claim any more amount by quoting exorbitant rate
than what was paid to the claimant. Thus, the very demand
made by the claimant is illegal and contrary to the terms and
conditions of the Agreement. It is therefore submitted that this
Claim No.5 may be disallowed and dismissed.
53 . I have considered the pleadings of the parties as referred
above this Award. I have considered the letter correspondence
relied upon both the sides during oral arguments as well as
referred in their Written Arguments in connection with this
Claim No. 5 made by the claimant. I have considered the
documents referred on behalf of both the sides in connection
with this claim.
54. First of all, looking to the letter correspondence referred
on behalf of the claimant-Recondo Ltd and as briefly narrated
in above para 51 of this Award, it is clear that the claimant
had drew the attention of the respondent about the difficulty
faced by the claimant so far as the Earthwork of embankment
was concerned. It transpires that for the earthwork of
embankment, as per the agreement, the earth required for
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embankment was to be borrowed from side borrow pits with a
maximum lead of 100 Mtrs. and accordingly, the claimant had
deployed machinery, equipments etc. but as further transpires
from the letter correspondence that in fact the claimant was
directed to procure earth from the tank (pond) of village and
the distance between the earthwork of embankment and the
procure area was varying from 0.5 Km. to 5.0 Km. This fact
was brought to the notice of the concerned Executive
Engineer as well as Chief Engineer of the respondent-SSNN
Ltd as reflected from the above referred letter
correspondence. Even it has been conveyed by the letter
correspondence by the claimant to the respondent about the
requirement to deploy more machines, vehicles etc. to
procure earth from the distance varying between 0.5 Km to
5.0 Km. The claimant had also annexed required statements
along with their letters showing the extra cost which the
claimant had to bear to procure earth from such a far distance
than the distance of 100 M mentioned in the tender
agreement. Rate analysis was also forwarded by the claimant
to the respondent along with their letter correspondence.
Looking to the letter dated 09/12/1994 at Ex.167 (page 467 to
page 472) forwarded to the respondent, the rate analysis in
detail is given by the claimant and the relevant statement is
at page 469-470. Looking to it, it transpires that Rs. 79/- per
cu.m. up to 1 Km. lead; Rs.87/- per cu.m., up to 2 Km. lead.
and Rs. 96/- per cu.m. up to 3 Km. and onward lead is
mentioned. It is pertinent to note that there is not a single
correspondence from the side of the respondent disputing the
rate analysis of Rs.87/- quoted by the claimant for the extra
work. It may also be noted that the stand taken by the
Executive Engineer of the respondent-SSNN Ltd in his letter
addressed to the claimant dated 8/10/1990 (Ex. 191 produced
by the Colly in Volume-R. respondent-SSNN Ltd. relevant page
28-29) and in para 5 on page-29 is most relevant to answer
this claim no. 5 made by the claimant. As the relevant para 5
of this letter by the Executive Engineer has been reproduced
in above para 51, I need not again reproduce the same here.
Suffice it to say that instead of disputing the rate analysis
made by the claimant and alleging anything against the rate
analysis, the claimant was directed to go ahead of the work.
That the rate analysis and demand made by the claimant was
forwarded for finalizing the same. It is clearly stated in this
letter by the Executive Engineer that, “In the meanwhile, you
should now start with the work without waiting for the
finalization of the cases and losing the time.” Now
subsequently when the R. A. Bill No.119 was prepared on
29/06/1995, the rates awarded to the claimant was Rs.6.80p;
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Rs.6.65p and Rs.6.40p and not according to the rate analysis
submitted by the claimant. When the claimant was advised by
the Executive Engineer by his letter dated 08/10/1990, Ex.
191 Colly in Volume-R, produced by the respondent-SSNN Ltd.
relevant para 5 page 28-29, to start the work without waiting
for finalization of the rate analysis submitted by the claimant,
this itself was sufficient for the claimant to believe that their
rate analysis was to be finalized soon. As a matter of fact,
when the rate analysis already submitted by the claimant to
the respondent, the respondent would have known the
financial implication in it and in that case, it was the duty of
the respondent to inform the claimant before execution of
work to wait till the final orders are received. On the contrary,
the situation that has been created in this case is such that
any contractor will believe that his rate is likely to be
sanctioned. The claimant was directed to go ahead with the
work without waiting for the sanction. As a matter of fact, it
was necessary for the respondent to have communicated the
rates to the claimant before getting the work done. Here, the
Executive Engineer had already communicated his intention
and asked the claimant to go ahead with the work without
waiting for the sanction. Even in this case, the claimant had
also made letter communication about their rate analysis with
Chief Engineer but even the Chief Engineer did not stop the
Executive Engineer from taking such step. Furthermore, in this
case, looking to Cl. 32 of the Agreement, there is a provision
to compensate contractor for extra work. Moreover, there is
no dispute that pursuant to this letter dated 08/10/1990 by
the Executive Engineer to the claimant, the claimant actually
executed the work. This is reflected from the Annex. I
attached to the respondent’s letter dated 05/12/1995 Exh.
182,containing the termination of contract order. Even in R. A.
Bill No. 119, the part payment for the Earthwork has been
made to the claimant at Rs.1,02,11,742. 68p. The only dispute
is about the rate made applicable by the respondent in
making the part payment to the claimant. The stand taken by
the respondent-SSNN Ltd in their Written statement in
connection with this claim no. 5 has been reproduced above in
this Award in para 52 and their stand is that whatever
payment was made and whatever rate was made applicable
was legal and valid. No other stand is taken. No reason is
given as to how the rate made applicable by them was legal
and valid. Last but not the least, it may be noted that as per
the Annex. -I attached to the letter dated 05/12/1995 Ex. 182
regarding the termination of the contract, the earthwork done
is shown to be 16 lacs CM, whereas in the R. A. Bill No.119, Ex.
188, the earthwork done is shown to be 1520371.60 CM. Still
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however, the claimant did not make this claim no. 5 on the
basis of the earthwork done at 16 lacs CM but at the rate
earthwork is shown in the R. A. Bill No.119 at 1520371.60 CM.
The total amount at the rate apply by the claimant comes to
Rs. 13,22,72,329.20p but deducting Rs.1,02,11,742.68 p
already paid by the respondent to the claimant, the net
amount would come to Rs 12,20,60,586.52p. It may be noted
that in the Statement of Claims, for Claim No.5 the claimant
Recondo Ltd has claimed Rs.12,16,29,760/- (rounded off to
Rs.12,16,30,000/-) and therefore, the claimant claimed
Rs.12,16,30,000/- under the Claim No.5.
55. In light of the entire above discussions, the claimant-
Recondo Ltd is held to be entitled to recover Rs.12,16,30,000/-
from the respondents towards the Claim No.5.”
6. A perusal of the discussion made by the Arbitrator
considering the documentary evidences filed by the claimants
clearly show that the claimants made correspondences as
early as on 12.03.1990, 05.04.1990, 09.04.1990, 30.04.1990,
12.07.1990 and 16.07.1990 to draw the attention of the
Executive Engineer, SSNL that as per the agreement, the earth
required for embankment was to be borrowed from side
borrow pits with a maximum lead of 100 Mtrs. and accordingly,
the claimant had arranged machinery and equipments.
However, since the respondent No.2 namely Executive
Engineer had proposed to bring earth from village tanks
(ponds) with leads varying from 0.5 Km. to 5.0 Km. certain
information was sought for. The confirmation regarding
acceptance of the quoted rates which were based on the
quantity to be executed, condition of haul roads, resources
available and to be specially arranged for execution of the
work, was requested. It is noted in the award that in response
to the said communications, the Executive Engineer by its
letter dated 08.10.1990 had requested the petitioner to start
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the work without waiting for finalization of cases forwarded to
the higher authorities. The findings returned by the Arbitrator
is that the earth work done by the claimant as shown in the
letter dated 05.12.1995, Exh. 182, regarding termination of the
contract though was 16 lakhs cubit meters (cm), whereas, the
claimant is entitled for the claim as per the RA Bill No. 119 Exh.
188., where the work done was shown to be 15.20.371.06 cm.
7. Having reached at the above conclusion, the Arbitrator
awarded a sum of Rs. 12,15,29,770/- rounded off to
12.16.30,000/- under claim No.5.
8. Taking note of the findings returned by the Arbitrator, all
the arguments made to assail the award with respect to claim
No.5 are found to be misconceived and untenable. Suffice it to
note that what was due and payable and was quoted by the
claimant in its communications sent in the year 1990, was the
claim in the Statement of Claim, which has been duly awarded
by the Arbitrator. On the submissions made by the learned
counsel for the appellant to assail the aforesaid findings based
on certain material brought on record before us, suffice it to
say that within the limited scope of Section 37 of the Act,
1996, it is not permissible for us to reappreciate the evidence
to reach at a conclusion other than what has been arrived at
by the Arbitrator based on the evidence on record.
9. Before parting with this order, it may also be relevant to
note that no such argument has been placed before the Court
under Section 34 and the arguments with respect to the award
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of claim No. 5 are the submissions made for the first time in
this appeal under Section 37 of the Act, 1996. The grounds to
challenge the arbitral award under Section 34 are all on merits
of the case of the parties, which have been duly dealt with by
the Court under Section 34. We, therefore, do not find any
error in the decision of the Court under Section 34 in rejecting
the application and affirming the award.
10. The Hon’ble Apex Court in Delhi Airport Metro Express
Private Limited vs. Delhi Metro Rail Corporation Limited
[(2022) 1 SCC 131], has laid down the contours of the Court’s
powers to review the arbitral awards in the following terms :-
“22. The 1996 Act was enacted to consolidate and amend
the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral
awards and also to define the law relating to conciliation and
for matters connected therewith, by taking into account the
United Nations Commission on International Trade Law
(“UNCITRAL”) Model Law on International Commercial
Arbitration and the UNCITRAL Conciliation Rules. One of the
principal objectives of the 1996 Act is to minimise the
supervisory role of Courts in the arbitral process. With respect
to Part I of the 1996 Act, Section 5 imposes a bar on
intervention by a judicial authority except where provided for,
notwithstanding anything contained in any other law for the
time being in force. An application for setting aside an arbitral
award can only be made in accordance with provisions of
Section 34 of the 1996 Act.
23. Relevant provisions of Section 34 [as they were prior to
the Arbitration and Conciliation (Amendment) Act, 2015] read
as under:
“34. Application for setting aside arbitral award.–(1)
Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
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(2) An arbitral award may be set aside by the Court only if–
(a) the party making the application furnishes proof that–
(i) a party was under some incapacity; or
(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:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
(v) the composition of the Arbitral Tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision
of this Part from which the parties cannot derogate, or, failing
such agreement, was not in accordance with this Part; or
(b) the Court finds that–
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation.–Without prejudice to the generality of sub-
clause (ii), it is hereby declared, for the avoidance of any
doubt, that an award is in conflict with the public policy of
India if the making of the award was induced or affected by
fraud or corruption or was in violation of Section 75 or Section
81.”
24. An amendment was made to Section 34 of the 1996 Act
by the Arbitration and Conciliation (Amendment) Act, 2015
(hereinafter “the 2015 Amendment Act”). A perusal of the
Statement of Objects and Reasons of the 2015 Amendment
Act would disclose that the amendment to the 1996 Act
became necessary in view of the interpretation of the
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provisions of the 1996 Act by Courts in certain cases which
had resulted in delay of disposal of arbitration proceedings
and increase in interference by Courts in arbitration matters,
which had the tendency to defeat the object of the 1996 Act.
Initially, the matter was referred to the Law Commission of
India to review the shortcomings in the 1996 Act in detail. The
Law Commission of India submitted its 176th Report,
recommending various amendments to the 1996 Act.
However, the Justice Saraf Committee on Arbitration
constituted by the Government, was of the view that the
proposed amendments gave room for substantial intervention
by the court and were also contentious. Thereafter, on
reference, the Law Commission undertook a comprehensive
study of the amendments proposed by the Government,
keeping in mind the views of the Justice Saraf Committee and
other stakeholders. The 246th Report of the Law Commission
was submitted on 5-8-2014. Acting on the recommendations
made by the Law Commission in its 246th Report,
amendments by way of the 2015 Amendment Act were made
to several provisions of the 1996 Act, including Section 34.
25. The amended Section 34 reads as under:
“34. Application for setting aside arbitral award.–(1)
Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if–
(a) the party making the application furnishes proof that–
(i) a party was under some incapacity, or
(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:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; orPage 13 of 20
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(v) the composition of the Arbitral Tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision
of this Part from which the parties cannot derogate, or, failing
such agreement, was not in accordance with this Part; or
(b) the Court finds that–
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation 1.–For the avoidance of any doubt, it is clarified
that an award is in conflict with the public policy of India, only
if–
(i) the making of the award was induced or affected by fraud
or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2.–For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of the
dispute.
(2-A) 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.”
26. A cumulative reading of the UNCITRAL Model Law and
Rules, the legislative intent with which the 1996 Act is made,
Section 5 and Section 34 of the 1996 Act would make it clear
that judicial interference with the arbitral awards is limited to
the grounds in Section 34. While deciding applications filed
under Section 34 of the Act, Courts are mandated to strictly
act in accordance with and within the confines of Section 34,
refraining from appreciation or reappreciation of matters of
fact as well as law. (See Uttarakhand Purv SainikKalyan Nigam
Ltd. v. Northern Coal Field Ltd. [Uttarakhand Purv Sainik
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Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC
455 : (2020) 1 SCC (Civ) 570] , Bhaven Construction v. Sardar
Sarovar Narmada Nigam Ltd. [Bhaven Construction v. Sardar
Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75] and Rashtriya
Ispat Nigam Ltd. v. Dewan Chand Ram Saran [Rashtriya Ispat
Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306] .)
27. For a better understanding of the role ascribed to Courts
in reviewing arbitral awards while considering applications
filed under Section 34 of the 1996 Act, it would be relevant to
refer to a judgment of this Court in Ssangyong Engg. &
Construction Co. Ltd. v. NHAI [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2
SCC (Civ) 213] wherein R.F. Nariman, J. has in clear terms
delineated the limited area for judicial interference, taking into
account the amendments brought about by the 2015
Amendment Act. The relevant passages of the judgment in
Ssangyong [Ssangyong Engg. & Construction Co. Ltd. v. NHAI,
(2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] are noted as
under : (SCC pp. 169-71, paras 34-41)
“34. What is clear, therefore, is that the expression “public
policy of India”, whether contained in Section 34 or in Section
48, would now mean the “fundamental policy of Indian law” as
explained in paras 18 and 27 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e.
the fundamental policy of Indian law would be relegated to
“Renusagar” understanding of this expression. This would
necessarily mean that Western Geco [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]
expansion has been done away with. In short, Western Geco
[ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of
Associate Builders [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as
under the guise of interfering with an award on the ground
that the arbitrator has not adopted a judicial approach, the
Court’s intervention would be on the merits of the award,
which cannot be permitted post amendment. However, insofar
as principles of natural justice are concerned, as contained in
Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to
be grounds of challenge of an award, as is contained in para
30 of Associate Builders [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204] .
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35. It is important to notice that the ground for interference
insofar as it concerns “interest of India” has since been
deleted, and therefore, no longer obtains. Equally, the ground
for interference on the basis that the award is in conflict with
justice or morality is now to be understood as a conflict with
the “most basic notions of morality or justice”. This again
would be in line with paras 36 to 39 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] , as it is only such arbitral awards that shock the
conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is contrary
to the fundamental policy of Indian law, as understood in
paras 18 and 27 of Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly,
that such award is against basic notions of justice or morality
as understood in paras 36 to 39 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and
Explanation 2 to Section 48(2)(b)(ii) was added by the
Amendment Act only so that Western Geco [ONGC v. Western
Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ)
12] , as understood in Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28
and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned,
an additional ground is now available under sub-section (2-A),
added by the Amendment Act, 2015, to Section 34. Here,
there must be patent illegality appearing on the face of the
award, which refers to such illegality as goes to the root of the
matter but which does not amount to mere erroneous
application of the law. In short, what is not subsumed within
“the fundamental policy of Indian law”, namely, the
contravention of a statute not linked to public policy or public
interest, cannot be brought in by the backdoor when it comes
to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of
evidence, which is what an appellate court is permitted to do,
cannot be permitted under the ground of patent illegality
appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,
namely, a mere contravention of the substantive law of India,
by itself, is no longer a ground available to set aside an
arbitral award. Para 42.2 of Associate Builders [Associate
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Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,
however, would remain, for if an arbitrator gives no reasons
for an award and contravenes Section 31(3) of the 1996 Act,
that would certainly amount to a patent illegality on the face
of the award.
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 [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204] , 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. What is important to note is that a decision which is
perverse, as understood in paras 31 and 32 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204] , while no longer being a ground for
challenge under “public policy of India”, would certainly
amount to a patent illegality appearing on the face of the
award. 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.”
28. This Court has in several other judgments interpreted
Section 34 of the 1996 Act to stress on the restraint to be
shown by Courts while examining the validity of the arbitral
awards. The limited grounds available to Courts for annulment
of arbitral awards are well known to legally trained minds.
However, the difficulty arises in applying the well-established
principles for interference to the facts of each case that come
up before the Courts. There is a disturbing tendency of Courts
setting aside arbitral awards, after dissecting and reassessing
factual aspects of the cases to come to a conclusion that the
award needs intervention and thereafter, dubbing the award
to be vitiated by either perversity or patent illegality, apart
from the other grounds available for annulment of the award.
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This approach would lead to corrosion of the object of the
1996 Act and the endeavours made to preserve this object,
which is minimal judicial interference with arbitral awards.
That apart, several judicial pronouncements of this Court
would become a dead letter if arbitral awards are set aside by
categorising them as perverse or patently illegal without
appreciating the contours of the said expressions.
29. Patent illegality should be illegality which goes to the root
of the matter. In other words, every error of law committed by
the Arbitral Tribunal would not fall within the expression
“patent illegality”. Likewise, erroneous application of law
cannot be categorised as patent illegality. In addition,
contravention of law not linked to public policy or public
interest is beyond the scope of the expression “patent
illegality”. What is prohibited is for Courts to reappreciate
evidence to conclude that the award suffers from patent
illegality appearing on the face of the award, as Courts do not
sit in appeal against the arbitral award. The permissible
grounds for interference with a domestic award under Section
34(2-A) on the ground of patent illegality is when the
arbitrator takes a view which is not even a possible one, or
interprets a clause in the contract in such a manner which no
fair-minded or reasonable person would, or if the arbitrator
commits an error of jurisdiction by wandering outside the
contract and dealing with matters not allotted to them. An
arbitral award stating no reasons for its findings would make
itself susceptible to challenge on this account. The conclusions
of the arbitrator which are based on no evidence or have been
arrived at by ignoring vital evidence are perverse and can be
set aside on the ground of patent illegality. Also, consideration
of documents which are not supplied to the other party is a
facet of perversity falling within the expression “patent
illegality”.
30. Section 34(2)(b) refers to the other grounds on which a
court can set aside an arbitral award. If a dispute which is not
capable of settlement by arbitration is the subject-matter of
the award or if the award is in conflict with public policy of
India, the award is liable to be set aside. Explanation (1),
amended by the 2015 Amendment Act, clarified the
expression “public policy of India” and its connotations for the
purposes of reviewing arbitral awards. It has been made clear
that an award would be in conflict with public policy of India
only when it is induced or affected by fraud or corruption or is
in violation of Section 75 or Section 81 of the 1996 Act, if it is
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in contravention with the fundamental policy of Indian law or if
it is in conflict with the most basic notions of morality or
justice.
31. In Ssangyong [Ssangyong Engg. & Construction Co. Ltd. v.
NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] , this Court
held that the meaning of the expression “fundamental policy
of Indian law” would be in accordance with the understanding
of this Court in Renusagar Power Co. Ltd. v. General Electric
Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994
Supp (1) SCC 644] . In Renusagar [Renusagar Power Co. Ltd.
v. General Electric Co., 1994 Supp (1) SCC 644] , this Court
observed that violation of the Foreign Exchange Regulation
Act, 1973, a statute enacted for the “national economic
interest”, and disregarding the superior Courts in India would
be antithetical to the fundamental policy of Indian law.
Contravention of a statute not linked to public policy or public
interest cannot be a ground to set at naught an arbitral award
as being discordant with the fundamental policy of Indian law
and neither can it be brought within the confines of “patent
illegality” as discussed above. In other words, contravention of
a statute only if it is linked to public policy or public interest is
cause for setting aside the award as being at odds with the
fundamental policy of Indian law. If an arbitral award shocks
the conscience of the court, it can be set aside as being in
conflict with the most basic notions of justice. The ground of
morality in this context has been interpreted by this Court to
encompass awards involving elements of sexual morality,
such as prostitution, or awards seeking to validate
agreements which are not illegal but would not be enforced
given the prevailing mores of the day. [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2
SCC (Civ) 213]”
11. The aforesaid view has once again been affirmed in the
judgment in Curative Petition (C) Nos. 1158-1159 of 2021
in the case of Delhi Metro Rail Corporation Ltd. v/s. Delhi
Airport Metro Express Pvt. Ltd. (2024 INSC 292). We are
of the opinion that the appellant before us has failed to place
its case within the narrow compass of the law as demarcated
by the Hon’ble Apex Court in the aforesaid decisions, which
can be called for examination under Section 37 of the Act.
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12. With the above, the appeals stand dismissed. No order
as to costs. The Civil Applications stand disposed of.
(SUNITA AGARWAL, CJ )
(D.N.RAY,J)
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