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