Orissa High Court
(In The Matters Of Appeals Under Section ... vs Ramesh Ch. Samantaray &Anr on 15 May, 2026
Author: Sanjeeb K Panigrahi
Bench: Sanjeeb K Panigrahi
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 22-May-2026 18:56:53
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.19 of 2019
along with
ARBA No.13 of 2019
(In the matters of Appeals under Section 37 of the Arbitration and
Conciliation Act, 1996)
Executive Engineer, Rural Works ... Appellant (s)
Division-II, Kendrapara
-versus-
Ramesh Ch. Samantaray &Anr ... Respondent (s)
Advocates appeared in the case through Hybrid Mode:
For Appellant (s) : Mr. D. Nayak, AGA
For Respondent (s) : Mr. S.K. Panda, Adv.
on behalf of
Mr. K.B. Panda, Sr. Adv.
CORAM:
DR. JUSTICE SANJEEB K PANIGRAHI
DATE OF HEARING:-21.04.2026
DATE OF JUDGMENT:-15.05.2026
Dr. Sanjeeb K Panigrahi, J.
1. These appeals have been filed challenging judgment and order dated 25.6.2018 passed in ARBP No.60 of 2012 and judgment and order dated 25.6.2018 passed in ARBP No.61 of 2012 by the Ld. District Judge, Kendrapara wherein the Ld. District Judge was pleased to uphold the arbitral award dated 17.3.2007 passed by the Ld. Arbitrator Sri Justice D.M. Patnaik in ARBP No.57 of 2004 and arbitral award dated Page 1 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 17.10.2007 passed by the Ld. Arbitrator Sri Justice Choudhury Pratap Keshari Mishra in ARBP No.58 of 2004.
I. FACTUAL MATRIX:
2. The disputes in the present matters arise out of two public works contracts executed between the Executive Engineer, Rural Works Division-II, Kendrapada, acting on behalf of the Orissa State Disaster Mitigation Authority, and Shri Ramesh Chandra Samantaray, a registered contractor. Both contracts were part of the State's programme for construction of cyclone shelters under the World Bank-
assisted Orissa Cyclone Reconstruction and Rehabilitation Project. The purpose of the projects was to provide permanent, disaster-resilient structures in the coastal belt of Kendrapada District, one at Talchua U.P. School in Rajnagar Block and another at Dalaisahi near Market in Rajnagar Blockunder a parallel component of the same reconstruction scheme.
3. The first contract, concerning the Talchua U.P. School Cyclone Shelter, was valued at ₹53,74,237. The formal agreement stipulated that the works would commence on 28.7.2003 and be completed within eight months, with the stipulated completion date fixed as 27.3.2004.
4. The second contract, concerning the Dalaisahi Shelter was also valued at ₹53,74,237. Its commencement and completion schedule mirrored that of the first.
5. The progress of work continued through late 2003 and early 2004.
However, in the first week of April 2004, before completion of the stipulated period, the contractor submitted letters seeking closure of Page 2 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 both contracts. These communications, dated 5.4.2004, indicated that the contractor intended to contest the forthcoming Legislative Assembly elections and was, therefore, unable to execute the projects. The request was unprecedented, as no provision existed under the contractual terms for suspension or closure on such personal grounds. Nevertheless, the department took cognisance of the request and placed the matter before the competent authority.
6. On administrative consideration, the Executive Engineer conveyed to the contractor that his request for termination was accepted. This communication was issued on 30.4.2004 in both contracts. The termination was made under Clause 59 of the conditions of contract and was expressly stated to be without prejudice to the employer's right to claim compensation as per the agreement.
7. After issuance of the termination letter, the departmental officers took final measurements of the work already executed. The measurements were carried out jointly and recorded in the measurement books. The contractor signed the entries in token of acceptance. The value of the work executed up to the date of termination was assessed and certified by the Engineer-in-Charge. The certified value in the first contract amounted to ₹10,03,205, and in the second contract ₹11,12,879. These amounts were recorded as the value of work done up to the date of closure, subject to adjustment of liabilities and recoveries in accordance with the contractual clauses.
8. On 19.5.2004, after the election results were declared, the contractor addressed fresh representations to the Executive Engineer. In those Page 3 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 letters, he acknowledged the final measurements taken during termination and requested that the contracts be revived. He expressed readiness to resume the works from the stage at which they had been left, citing that the elections were over and he was now available to continue having been unsuccessful. Along with this, he demanded payment for the portion of work already completed and certified. The department, however, found no provision for revival once termination under Clause 59 had taken effect and did not entertain the request.
9. Thereafter, correspondence ensued between the contractor and the department over several months. The department maintained that the termination was final and that the contractor's request for payment could only be considered within the contractual framework. As no mutual resolution was reached, the contractor invoked the arbitration clause. Invocations of arbitration were made through letters dated 21.8.2004, one for each contract. The invocations were accepted, and the disputes were referred to arbitration in accordance with the governing contract conditions under the Arbitration and Conciliation Act, 1996.
10. Separate references were registered before the learned Arbitrators. In the case of the Talchua U.P. School Cyclone Shelter contract the Ld. Arbitrator Sri Justice D.M. Patnaik was seized of the matter in ARBP No. 57 of 2004 and for the Dalasahi contract, Ld. Arbitrator Sri Justice Choudhury Pratap Keshari Mishra heard the matter as ARBP No. 58 of 2004.
11. The learned Arbitrators conducted proceedings after issuing notices to both parties. Statements of claim and counter-statements were filed.
Page 4 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 The contractor claimed amounts under several heads, including payment for work done and certified, compensation for delay, interest on delayed payments, and arbitration costs. The department resisted the claims on the ground that the contractor had voluntarily abandoned the contract for personal reasons and that no amount was payable beyond what was already adjusted.
12. In the first arbitration, i.e. Arbitration Case No.57 of 2004, the learned Arbitrator framed eleven issues for determination. These included questions relating to whether the termination of the contract was initiated by the employer or by the contractor, whether any amount was payable to the claimant, and whether the claimant was liable to pay twenty per cent of the contract value as liquidated damages. The Ld. Arbitrator also considered whether the contract had been lawfully terminated and whether compensation could be awarded under the circumstances of voluntary withdrawal.
13. In the second arbitration, i.e. Arbitration Case No. 58 of 2004, eight issues were framed, including whether the termination by the employer was correct when the contractor had himself applied for closure, and whether any payment remained due to the contractor. Both proceedings involved examination of the same documentary record, which included the contract agreements, correspondence between the parties, measurement books, and departmental notes.
14. Upon completion of the hearings, the learned Arbitrator delivered awards in both cases. The first award, relating to the Talchua U.P. School project, was dated 17.3.2007. The second, concerning Daliasahi, Page 5 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 was rendered on 17.10.2007. In both awards, the learned Arbitrators accepted that the contractor had requested closure but treated the termination as one falling under Clause 59.4, described as "termination for the employer's convenience." The finding was based on departmental correspondence noting that contesting elections was a right and beyond the control of the contractor.
15. On that premise, the learned Arbitrators held that the contractor was entitled to payment for the value of the work executed, together with certain incidental amounts. In the first award, the total sum granted was ₹14,87,948, comprising ₹10,03,205 towards certified work, ₹3,10,993 towards interest at twelve per cent per annum, ₹50,000 as compensation for delay attributed to the employer, and ₹1,23,750 as arbitration cost. The Ld. Arbitrator directed that the total would carry future interest at eighteen per cent per annum if not paid within ninety days.
16. In the second award, the learned Arbitrator assessed the total at ₹16,28,970. This included ₹11,12,879 for certified work, ₹1,10,129 as interest at twelve per cent, ₹1,00,000 as compensation for idle men and machinery, ₹50,000 as arbitration cost, and ₹2,55,962.17 as further interest on the principal amount for the period from 13.11.2005 to 12.10.2007. The same rate of future interest--eighteen per cent per annum--was prescribed for delayed payment.
17. After receipt of the awards, the department filed petitions under Section 34 of the Arbitration and Conciliation Act, 1996 before the District Judge, Kendrapada. In both petitions, the State sought setting Page 6 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 aside of the awards, alleging that the learned Arbitrator had acted in disregard of the terms of the contracts and the provisions of the Contract Act. The petitions were finally registered as ARBP. No. 60/2012 and ARBP. No. 61/2012 and heard together, as they involved identical issues, parties, and contractual stipulations. Records of both arbitral proceedings were summoned and examined.
18. The contractor filed counter-affidavits before the District Judge, supporting the awards and contending that the Arbitrator's findings were based on admitted measurements and certified amounts. The learned District Judge took up the matters for hearing and reserved judgment after hearing both sides. The entire documentary evidence produced before the Arbitrator was perused, including the contract data, the termination letters, and the measurement books.
19. On 25.6.2018, the learned District Judge, Kendrapada, delivered two separate judgments in the matters owing to the fact that they arose out of different contracts. The learned Judge held in both the Petitions that under Section 34(2) and (3) of the Arbitration Act, the Court was not empowered to reappraise evidence or substitute its own conclusions on factual matters determined by the Arbitrator. It was observed that the Arbitrator had considered all relevant materials and that no jurisdictional error or procedural irregularity was apparent on record.
20. The learned District Judge accordingly dismissed both Section 34 petitions and confirmed the awards dated 17.3.2007 and 17.10.2007. It was recorded that the Ld. Arbitrator's determination of entitlement and interest was within his authority and that the awards did not Page 7 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 contravene any explicit provision of law or the fundamental policy of India. Certified copies of the judgment were communicated to the parties thereafter.
21. Aggrieved by the dismissal of their objections, the Executive Engineer has preferred the present appeals before this Court under Section 37 of the Arbitration and Conciliation Act, 1996. The appeals were registered as ARBA Nos. 13 of 2019 and 19 of 2019. Both appeals being materially similar were heard together and are being disposed off by this common judgment.
22. This Court shall now endeavour to summarise the contentions of the Parties and the broad grounds that have been raised to seek the exercise of this Court's limited jurisdiction available under S. 37 of the A&C Act. II. APPELLANT'S SUBMISSIONS:
23. The Ld. Counsel for the appellant Mr. D. Nayak, AGA contended that the learned Arbitrator committed a manifest error in treating the termination of both contracts as one effected "for the employer's convenience." According to the department, the record unmistakably showed that the contractor had himself sought closure on 5.4.2004, before expiry of the stipulated completion period, solely to contest the Legislative Assembly elections. Such voluntary withdrawal, being neither compelled by force majeure nor by any default of the employer, amounted to an express breach under Clause 59 of the contract. The department accepted the request for termination only to regularise the closure and safeguard public interest, specifically reserving its right to claim compensation. By ignoring these undisputed facts and converting Page 8 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 a contractor-initiated withdrawal into an employer-initiated termination, the Ld. Arbitrator had, in the appellant's view, rewritten the contract.
24. The appellant further urged that the Ld. Arbitrator and subsequently the Ld. District Judge failed to appreciate the legal effect of Sections 73 and 74 of the Indian Contract Act, 1872. The employer, having suffered loss due to the non-completion of the works, was entitled to recover compensation quantified by the parties themselves at the rate of twenty per cent of the contract value. The Ld. Arbitrator's decision to grant payment to the defaulting contractor, rather than hold him accountable for the stipulated damages, was said to be contrary to settled contractual principles. The appellant emphasised that the respondent's reason for withdrawal and participation in an election was purely personal and could never be construed as a circumstance beyond control. It was thus argued that the awards effectively rewarded a breach, while denying the employer its rightful remedy envisaged under Clause 60.1, thereby producing a result contrary to both the contract and the law governing compensation for breach.
25. The appellant also challenged the inclusion of ancillary amounts in the awards such as ₹50,000 towards delay and ₹1,00,000 towards idle men and machinery, on the ground that no evidence had been produced to substantiate such claims. According to the appellant, the Ld. Arbitrator's findings were based on conjecture and sympathy rather than on proof or contractual entitlement. It was further submitted that the Ld. District Judge, by observing that reappraisal of evidence was Page 9 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 beyond his jurisdiction, abdicated his responsibility to examine patent errors apparent on the face of the award. The appellant maintained that the learned court below ought to have held the awards to be contrary to the fundamental policy of Indian law, inasmuch as they violated the statutory scheme of the Contract Act and ignored the binding stipulations of the agreement. Consequently, the appellant prays before this Court that both the arbitral awards and the judgments dated 25.10.2018 affirming them be set aside in their entirety. III. RESPONDENT'S SUBMISSIONS:
26. Per contra, the Ld. Counsel for the respondent Mr. S.K. Panda, submitted that the awards of the learned Arbitrator were founded on admitted and undisputed facts, particularly the measurements and certification of work executed prior to termination. It was pointed out that the departmental officers had taken joint measurements and duly certified the quantum of work to the tune of ₹10,03,205 in the first contract and ₹11,12,879 in the second, which the Executive Engineer himself had verified. The respondent maintained that payment of certified work is an obligation independent of the question of breach or termination, since the employer had derived tangible benefit from that portion of construction. It was further submitted that once the department accepted the termination and took possession of the partly completed structures, it could not withhold payment for the work already executed. The respondent asserted that the Ld. Arbitrator had only directed payment of the legitimate value of completed works, with Page 10 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 modest compensation and interest, which was both equitable and consistent with contractual fairness.
27. The respondent also contended that the reasons for seeking closure of the contract were bona fide and transparent, arising from his temporary engagement in the electoral process. It was emphasised that the request for closure had been made in writing, was duly considered by the department, and was formally accepted through a letter dated 30.4.2004. The respondent submitted that once the employer accepted termination without imposing any penalty or counterclaim for damages, the closure assumed the character of mutual termination. Having accepted such termination and finalised measurements without dispute, the employer could not later claim that the contractor had committed a breach. The respondent highlighted that no contemporaneous notice or demand for liquidated damages had ever been raised by the department before or during arbitration. The Ld. Arbitrator, therefore, acted correctly in proceeding on the basis of the record and awarding only such sums as were objectively due.
28. The respondent further submitted that the Ld. District Judge, Kendrapada, had rightly declined to interfere with the arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. It was urged that the jurisdiction under that provision is limited to cases of patent illegality, procedural impropriety, or violation of natural justice, none of which had been demonstrated by the appellant. The respondent emphasised that both awards were based on detailed examination of the contract, evidence, and contemporaneous records, Page 11 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 and reflected a reasonable exercise of arbitral discretion. It was also pointed out that the contractor had neither sought damages for loss of profit nor exaggerated his claims, but confined himself to the payment of work already done and certified by the Engineer. The learned District Judge, in confirming the awards, had therefore merely upheld the sanctity of arbitral determination as intended by law. On these premises, the respondent prayed that the appeals be dismissed with costs.
IV. ISSUE FOR CONSIDERATION
29. Having heard the parties and perused the materials available on record, this court here has identified the following solitary issue to be determined:
A. Whether the order of the Ld. District Judge warrants interference keeping in mind the limitations of this court's powers under Section 37 of the A&C Act?
V. ISSUE A: WHETHER THE ORDER OF THE LD. DISTRICT JUDGE WARRANTS ANY INTERFERENCE KEEPING IN MIND THE LIMITATIONS OF THIS COURT'S POWERS UNDER SECTION 37 OF THE A&C ACT?
30. First things first, it would be apposite to refer to the provisions of Section 34 & 37 of the Act, which provisions 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 subsection (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if-
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(a) the party making the application establishes on the basis of the record of the arbitral tribunal 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.
Page 13 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 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.
(3) An application for setting aside may not be made after three months have elaaed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
Page 14 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 (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.
37. Appealable orders.--(1) (Notwithstanding anything contained in any other law for the time being in force, an appeal) shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the Court passing the order, namely:--
((a) refusing to refer the parties to arbitration under Section 8;
(b) granting or refusing to grant any measure under Section 9;
(c) setting aside or refusing to set aside an arbitral award under Section 34.) (2) An appeal shall also lie to a court from an order of the arbitral tribunal--
(a) accepting the plea referred to in sub-section (2) or sub-section(3) of Section 16; or
(b) granting or refusing to grant an interim measure under Section17.
(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."
31. On a careful perusal of Section 34 of the Act, it is clear that an arbitral award can only be set aside by moving an application on grounds mentioned under sub-section (2) and sub-section (3) of Section 34 of the Page 15 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 Act. An award can be interfered with where it is in conflict with the public policy of India, i.e., if the award is induced or affected by fraud or corruption or is in contravention of the fundamental policy of Indian law, or if it is in conflict with basic notions of morality and justice.
32. On a careful perusal of Section 34 of the Act, it is clear that an arbitral award can only be set aside by moving an application on grounds mentioned under sub-section (2) and sub-section (3) of Section 34 of the Act. An award can be interfered with where it is in conflict with the public policy of India, i.e., if the award is induced or affected by fraud or corruption or is in contravention of the fundamental policy of Indian law, or if it is in conflict with basic notions of morality and justice.
33. A plain reading of Section 34 reveals that the scope of interference by the Court with the arbitral award under Section 34 is very limited, and the Court is not supposed to travel beyond the aforesaid scope to determine whether the award is good or bad. Even an award that may not be reasonable or is non-speaking to some extent cannot ordinarily be interfered with by the Courts.
34. It is also a well settled proposition in law that the jurisdiction of the Court under Section 34 of the Act is neither in the nature of an appellate remedy or akin to the power of revision. It is also well ordained in law that an award cannot be challenged on merits except on the limited grounds that have been spelt out in sub-sections (2), (2-A) and (3) of Section 34 of the Act, by way of filing an appropriate application.
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35. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the principles enunciated by the Hon'ble Supreme Court in some of the relevant decisions cited by the parties on the scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the 1996 Act.
36. Before undertaking the aforesaid exercise, it would be apposite to consider as to how the expressions (a) "in contravention with the fundamental policy of Indian law"; (b) "in conflict with the most basic notions of morality or justice"; and (c) "patent illegality" have been construed.
37. The phrase "fundamental policy of Indian law" entered arbitral discourse long before the 2015 amendments, when Renusagar Power Co. Ltd. v. General Electric Co.1confined "public policy" challenges to three narrow heads: (i) fundamental policy of Indian law, (ii) interests of India, and (iii) justice or morality.
38. Subsequent decisions, most notably ONGC v. Western Geco2 which stretched that first head by equating "fundamental policy" with Wednesbury-style reasonableness review, permitting courts to re-enter the merits on the pretext of testing arbitral reasoning. Because that approach threatened the speedy, final nature of arbitration, Parliament rolled it back through the Arbitration and Conciliation (Amendment) Act, 2015.
1 (1984) 4 SCC 679 2 (2014) 9 SCC 263 Page 17 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53
39. Explanation 1 to Section 34(2)(b)(ii) and 48(2)(b) now insists that an award offends public policy 'only' if it violates India's "fundamental policy," a concept deliberately narrower than "contrary to the policy of Indian law." Ssangyong Engg. &Construction Co. Ltd. v. NHAI3 crystallised the post-amendment position: "fundamental policy"
reverts to the Renusagar (supra) standard, and Western Geco's (supra) judicial-review expansion "no longer obtains." Mere statutory error or even an award at odds with substantive Indian law will not suffice unless the breach strikes at bedrock norms that undergird the administration of justice, such as disregard of natural justice guarantees, wilful disobedience of binding precedents, or flouting statutes integrally linked to public interest. Crucially, courts must respect Explanation 2, which bars merits review under this ground;
their scrutiny stops at identifying systemic, structural affronts to India's legal order, not re-weighing evidence or legal interpretation.
40. Associate Builders v. DDA4 had assimilated Western Geco (supra) -
style "perversity" and "judicial approach" tests into public-policy analysis; Ssangyong (supra) decisively excised those limbs, ruling that courts may not treat facial misinterpretations of law or contract as "fundamental-policy" breaches. Likewise, contraventions of statutes unconnected to public interest i.e. stamp-duty underpayment which lie outside this head. The result is a calibrated, high-bar standard:
intervention is warranted only where the award undermines essential legal tenets that any fair-minded observer would recognise as 3 (2019) 15 SCC 131 4 (2015) 3 SCC 49 Page 18 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 indispensable to India's justice system. By retrenching the scope, the 2015 amendments realign Indian arbitration with the UNCITRAL model and global best practice, ensuring that "fundamental policy"
remains an exceptional filter, not a backdoor appeal on facts and law.
41. The "morality or justice" limb, present since Renusagar (supra), was likewise tightened in 2015. Explanation 1 now demands conflict with the "most basic notions" of morality or justice language intentionally inserted to prevent subjective or elastic expansion. Indian courts have long recognised that justice and morality are context-sensitive; what shocks one era may not perturb another. Therefore, post-amendment jurisprudence treats this ground as a safety valve for truly egregious awards those outrage the court's conscience because they subvert elementary fairness intelligible to any reasonable layperson, whether legally trained or not. The Law Commission's 246th Report, echoed by Ssangyong (supra), wherein it was emphasised that importing Wednesbury or proportionality tests here would "open the floodgates,"
defeating legislative intent. Consequently, an award may be annulled under this head only if it institutionalises manifest injustice, for example, sanctions fraud, enforces a contract obtained by duress, or imposes liabilities that blatantly contradict mutual assent thereby eroding society's faith in adjudicatory fairness.
42. In practice, Indian courts deploy a conscience-shock test grounded in universal principles rather than parochial moral codes. For instance, in Ssangyong (supra), the majority of an arbitral tribunal unilaterally rewrote a price-adjustment formula by applying an internal NHAI Page 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 circular never agreed to by the contractor, effectively creating a new bargain. The Supreme Court held that foisting a unilateral modification on an unwilling party violated "the most basic notions of justice," as voluntariness lies at the heart of contract law. Similarly, awards enforcing contracts tainted by corruption or transactions forbidden by law (e.g., betting agreements) would offend basic morality. By contrast, awards involving commercial hardship, uneven economic results, or arguable legal mistakes ordinarily pass muster, for equity courts cannot rewrite bargains ex post. The guiding principle is restraint: morality-oriented intervention is reserved for circumstances where a lay observer would perceive the outcome as plainly unconscionable where the tribunal's decision legitimises wrongdoing rather than merely errs in quantification or interpretation. This cautious approach upholds arbitral autonomy, protecting parties' bargain to accept a chosen tribunal's view, while ensuring that arbitration does not become a cloak for fundamental injustice.
43. Section 34(2-A), inserted in 2015, introduced "patent illegality appearing on the face of the award" as a separate annulment ground for domestic awards (it does not apply to foreign or Part II enforcement). The provision codifies and confines the doctrine earlier derived from ONGC v. Saw Pipes5, which had blended patent illegality with public policy. Parliament's aim was twofold: (i) retain a mechanism to nullify awards that flout obvious legal mandates, yet (ii) bar disguised appeals on facts or law. Accordingly, the proviso forbids 5 (2003) 5 SCC 705 Page 20 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 setting aside "merely on the ground of erroneous application of law" or "re-appreciation of evidence." Ssangyong (supra) interprets patent illegality as errors that "go to the root of the matter" but are not subsumed within fundamental policy covering blatant violations of substantive statutes, the Arbitration Act itself, or contract terms, provided they are manifest on the award's face. Notable examples include deciding disputes beyond the contract's scope, granting relief contrary to an express prohibition, or ignoring mandatory statutory caps. The test is objective and record-based: the error must be apparent without forensic excavation; hidden or debatable mistakes remain immune.
44. Courts evaluating patent illegality utilise the "perversity" benchmarks articulated in Associate Builders (supra) and reaffirmed in Delhi Metro Rail Corporation v. DAMEPL6. An award is perverse and hence patently illegal when (i) findings rest on no evidence, (ii) irrelevant factors decisively influence the outcome, (iii) vital evidence is ignored,
(iv) reasons are wholly absent, or (v) the tribunal addresses matters beyond its jurisdiction. However, even these indicators must reveal themselves plainly on the award or arbitral record; courts cannot marshal new material or conduct painstaking re-evaluation. The focus is procedural and jurisdictional fidelity, not substantive correctness.
45. In MMTC Ltd. v. Vedanta Ltd.7, the Supreme Court took note of various decisions including that in Associate Builders (supra) and exposited on the limited scope of interference under Section 34 and 6 2024 INSC 292 7 (2019) 4 SCC 163 Page 21 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 further narrower scope of appeal under Section 37 of the 1996 Act, particularly when dealing with the concurrent findings (of the arbitrator and then of the Court). The Supreme Court, inter alia, held as under :
"11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of the Hon'ble Supreme Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 Page 22 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 SCC 49 : (2015) 2 SCC (Civ) 204] Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] ; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445] ; and McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] )
13. It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality.
Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section
34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the Court under Section 34 and by the Court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."
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46. The limited scope of challenge under Section 34 of the Act was once again highlighted by the Supreme Court in PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust8 and the Supreme Court particularly explained the relevant tests as under :
"40. It will thus appear to be a more than settled legal position, that in an application under Section 34, the Court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of "public policy of India", which has been held to mean "the fundamental policy of Indian law". A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained in Sections 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. 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". It is only such arbitral awards that shock the conscience of the Court, that can be set aside on the said ground. An award would be set aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a ground for interference. Equally, reappreciation of evidence would not be permissible on the ground of patent illegality appearing on the face of the award.
41. A decision which is perverse, though would not be a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. However, a finding based on no 8 2021 SCC OnLine SC 508 Page 24 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 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.
42. To understand the test of perversity, it will also be appropriate to refer to paras 31 and 32 from the judgment of this Court in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , which read thus : (SCC pp. 75-76) '31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
47. In Delhi Airport Metro Express (P) Ltd. v. DMRC9 , the Supreme Court again surveyed the case law and explained the contours of the Courts' power to review the arbitral awards. Therein, the Supreme Court not only reaffirmed the principles aforesaid but also highlighted an area of serious concern while pointing out "a disturbing tendency" of the Courts in setting aside arbitral awards after dissecting and reassessing factual aspects. The Supreme Court also underscored the pertinent features and scope of the expression "patent illegality" while reiterating that the Courts do not sit in appeal over the arbitral award. 9 (2022) 1 SCC 131 Page 25 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53
48. The position in Associate Builders (supra) was recently summarised as hereinbelow recorded by Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum10:
"42. In Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204 (two-Judge Bench)] , this Court held that an award could be said to be against the public policy of India in, inter alia, the following circumstances:
42.1. When an award is, on its face, in patent violation of a statutory provision.
42.2. When the arbitrator/Arbitral Tribunal has failed to adopt a judicial approach in deciding the dispute. 42.3. When an award is in violation of the principles of natural justice.
42.4. When an award is unreasonable or perverse. 42.5. When an award is patently illegal, which would include an award in patent contravention of any substantive law of India or in patent breach of the 1996 Act.
42.6. When an award is contrary to the interest of India, or against justice or morality, in the sense that it shocks the conscience of the Court."
49. In Haryana Tourism Ltd. v. Kandhari Beverages Ltd.11, the Supreme Court yet again pointed out the limited scope of interference under Sections 34 and 37 of the Act; and disapproved interference by the High Court under Section 37 of the Act while entering into merits of the claim in the following words :
"8. So far as the impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High (2022) 4 SCC 463 10 (2022) 3 SCC 237 11 Page 26 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 Court quashing and setting aside the award and the order passed by the Additional District Judge under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal under Section 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers under Section 37 of the Arbitration Act.
9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India.
The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to :
(a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High Court is hence not sustainable."
50. As regards the limited scope of interference under Sections 34/37 of the Act, this Court also considers it apposite to refer to the following observations of a three-Judge Bench of the Supreme Court in UHL Power Co. Ltd. v. State of H.P.12:
"15. This Court also accepts as correct, the view expressed by the appellate court that the learned Single (2022) 4 SCC 116 12 Page 27 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 Judge committed a gross error in reappreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant clauses of the implementation agreement governing the parties inasmuch as it was not open to the said court to do so in proceedings under Section 34 of the Arbitration Act, by virtually acting as a court of appeal.
16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed."
51. As noticed, arbitral award is not an ordinary adjudicatory order so as to be lightly interfered with by the Courts under Sections 34 or 37 of the 1996 Act as if dealing with an appeal or revision against a decision of any subordinate Court.
52. It is important to bear in mind that while exercising power under Section 34 of the 1996 Act the Court does not sit in appeal over the arbitral award. Interference with an arbitral award is only on limited grounds as set out in Section 34 of the 1996 Act. A possible view by the arbitrator on facts is to be respected as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon. It is only when an arbitral award could be categorized as perverse, that on an error of fact an arbitral award may be set aside. Further, a mere erroneous application of the law or wrong appreciation of evidence by itself is not a ground to set aside an award as is clear from the provisions of subsection (2-A) of Section 34 of the 1996 Act.
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53. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.13, a three-
Judge Bench of the Supreme Court held that Courts need to be cognizant of the fact that arbitral awards are not to be interfered with in a casual and cavalier manner, unless the court concludes that the perversity of the award goes to the root of the matter and there is no possibility of an alternative interpretation that may sustain the arbitral award. It was observed that jurisdiction under Section 34 cannot be equated with the normal appellate jurisdiction. Rather, the approach ought to be to respect the finality of the arbitral award as well as party's autonomy to get their dispute adjudicated by an alternative forum as provided under the law.
54. It is also a settled proposition that errors of fact cannot be corrected by the court while exercising the jurisdiction under Section 34 of the A&C Act as it does not sit in appeal over the award. In ParsaKente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd.14, it was further inter alia held that a possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitratoris the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. It was further observed that thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Reliance can also be placed upon NHAI v. ITD Cementation (India) (2019) 20 SCC 1 13 (2019) 7 SCC 236 14 Page 29 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 Ltd.15, and SAIL v. Gupta Brother Steel Tubes Ltd.16. The view was reiterated in Dyna Technologies (P) Ltd. (supra) wherein it was inter alia held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. It was reminded that the court should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such an award portrays perversity unpardonable under Section 34 of the A&C Act. In South East Asia Marine Engg. & Constructions Ltd. [SEAMAC Limited] v. Oil India Ltd.17 , it was inter alia held that the courts should not interfere with an award merely because an alternative view on facts and interpretation of the contract exists.
55. This Court also seeks to place further reliance on the Apex Court's judgment in Madnani Construction Corpn. (P) Ltd. v. Union of India18wherein it was held that:
"20. It is well settled that the arbitrator is the master of facts. When the arbitrator on the basis of record and materials which are placed before him by the Railways came to such specific findings and which have not been stigmatised as perverse by the High Court, the High Court in reaching its conclusions cannot ignore those findings. But it appears that in the instant case, the High Court has come to the aforesaid finding that the items mentioned above are excepted matters and non-arbitrable by completely ignoring the factual finding by the 15 (2015) 14 SCC 21 16 (2009) 10 SCC 63 17 (2020) 5 SCC 164 18 (2010) 1 SCC 549 Page 30 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 arbitrator and without holding that those findings are perverse."
56. Therefore, to reiterate, the scope of interference in proceedings under section 34 of the Arbitration and Conciliation Act, 1996 has been laid down by the courts time and time again, more recently summarised in the judgment of the Delhi High Court in Indian Railways Catering and Tourism Corp Ltd. v. Brandavan Foods Products19. The operative portion of which reads as under:
"42. The scope of examination of an arbitral award under Section 34 of the Act can be traced, more significantly so, in Associate Builders v. DDA, 2024 : DHC : 6114 O.M.P. (COMM) 495/2022 & Conn. matters (2015) 3 SCC 49, Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131and Delhi Airport Metro Express (P) Ltd. v. DMRC, (2022) 1 SCC 131. Reliance is also placed upon, inter alia, Dyna Technologies (P) Ltd. v.Crompton Greaves Ltd. (2019) 20 SCC 1; UHL Power Co. Ltd. v. State of H.P. (2022) 4 SCC 116; South East Asia Marine Engineering & Constructions Ltd. v. Oil India Ltd. (2020) 5 SCC 164; Patel Engineering Ltd. v.North Eastern Electric Power Corporation Ltd. (2020) 7 SCC 167; PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508; and Army Welfare Housing Organisation v. Sumangal Services (P) Ltd. (2004) 9 SCC 619.
43. For the sake of brevity, the principles delineated in the aforesaid cases are summarised hereinafter.
44. The award can be set aside on the ground of patent illegality if : a) the view taken by the arbitral tribunal is 2024 : DHC : 6114 19 Page 31 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 impossible or such that no reasonable person could arrive at it; b) if the arbitral tribunal exceeds its jurisdiction by going beyond the contract, and adjudicating upon issues not referred to it; c) the finding of the arbitral tribunal is based on no evidence or it ignores material evidence. Rewriting of contractual terms by the Arbitrator is completely prohibited, and an Award which suffers from such perversity is liable to be set aside. The illegality must go to the root of the matter and does not include mere erroneous application of law or a contravention of law which is unrelated to public policy or public interest. If two views are possible, the Court will not interfere with the view of the arbitral tribunal if it has taken one of the two views. Reappreciation of evidence is also impermissible.
45. The award can also be set aside on the ground of it being in contravention with public policy of India, the scope of which includes : a) fraud or corruption; b) violation of Sections 75 and 81 of the Act; c) any contravention with the fundamental policy of Indian law;
d) violation of the most basic notions of justice or morality, so as to shock the conscience of the Court. The Court does not function as a Court of appeal, and errors of fact cannot be corrected. The arbitrator's findings on facts must be accepted, as the arbitrator is the ultimate master of the quantity and quality of evidence in making the award.
46. It is also relevant to note that the Court cannot modify or rewrite the Award, and can only set it aside, post which the parties can re-initiate arbitration proceedings, if they so choose. However, partial setting aside is valid and justified, if the part proposed to be annulled is independent and can be removed without affecting the rest of the award. For this, reliance is placed upon McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181; S.V. Samudram v. State of Karnataka (2024) 3 SCC 623 and National Highways Page 32 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 Authority of India v. Trichy Thanjavur Expressway Ltd. 2023 SCC OnLine Del 5183."
57. Moreover, on the aspect of the Ld. Arbitrator being the master of facts, the Supreme Court has recently in NTPC Ltd. v. Deconar Services (P) Ltd.20, has held as under:
"12. Further, it is also a settled proposition that where the arbitrator has taken a possible view, although a different view may be possible on the same evidence, the court would not interfere with the award. This Court in Arosan Enterprises Ltd. v. Union of India [Arosan Enterprises Ltd. v. Union of India, (1999) 9 SCC 449], held as follows : (SCC p. 475, paras 36-37) "36. Be it noted that by reason of a long catena of cases, it is now a well-settled principle of law that reappraisal of evidence by the court is not permissible and as a matter of fact exercise of power by the court to reappraise the evidence is unknown to proceedings under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. In the event however two views are possible on a question of law as well, the court would not be justified in interfering with the award.
37. The common phraseology "error apparent on the face of the record does not itself, however, mean and imply closer scrutiny of the merits of documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the (2021) 19 SCC 694 20 Page 33 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined."
58. It is well recognized in Arbitration jurisprudence that the scope of interference by the Courts in arbitration proceedings and arbitral awards is narrow and that the Courts ought to be cautious and circumspect in interfering with any award which is passed by an arbitral tribunal which has been appointed pursuant to an agreement between the parties to the dispute. The exceptions of the aforementioned rule finds place in Section 34 and Section 37 of the Act wherein certain instances have been outlined where the Courts can interfere with any award passed by arbitral tribunals and set it aside. This court therefore shall also examine the award with the aforesaid restrictive mandate of law.
59. The record demonstrates that both contracts were governed by identical conditions forming part of the standard "World Bank Assisted Rural Works Contract." Clause 59 of those conditions dealt with termination of contract, setting out the circumstances under which either party could bring the agreement to an end. Clause 59.2 permitted the Contractor to terminate only when the Employer had fundamentally breached the contract. Clause 59.4, on the other hand, empowered the Employer to terminate the contract "for convenience," without assigning cause, subject to payment for the work executed and reasonable demobilisation costs. Any termination by the contractor without legal justification or outside those circumstances was deemed a breach attracting liability under Clause 60.1. Thus, the allocation of Page 34 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 rights and liabilities upon termination was clearly demarcated by the contractual framework itself.
60. Clause 60 of the contract, captioned "Payment upon Termination", provided two distinct regimes. Under Clause 60.1, when termination occurred owing to the contractor's default or withdrawal without just cause, the contractor became liable to pay liquidated damages to the Employer "amounting to twenty per cent of the contract price or such lesser amount as may be determined as reasonable compensation." Conversely, Clause 60.2 stipulated that where termination was for the Employer's convenience or for reasons beyond control, the contractor would be entitled to payment for the value of work completed and materials on site, less recoveries. These clauses mirrored the statutory principle that loss must lie where fault exists, ensuring that compensation corresponded to the source of termination. Their combined effect was to provide a self-contained code for addressing the financial consequences of closure of contract.
61. In applying these provisions, the Arbitrator treated the termination as falling within Clause 59.4, holding it to be "for the Employer's convenience." This conclusion was founded on internal departmental correspondence suggesting that contesting elections was a fundamental right and an event beyond the parties' control. However, it is a fact that the termination letters dated 30.4.2004 themselves were issued in response to the contractor's express request for closure, and contained the reservation that such acceptance was "without prejudice to the Employer's right to claim compensation." The phraseology of those Page 35 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 letters aligns more closely with termination for default than with voluntary convenience termination. The factual premise, therefore, favoured application of Clause 60.1 rather than Clause 60.2. Yet, the Arbitrator's interpretation, though debatable, was not unsupported by the language of the contract, which did not expressly prohibit consensual closure accepted by both parties.
62. Turning to the statutory scheme, the provisions of the Indian Contract Act, 1872 cast important light on the obligations arising from breach. Section 73 stipulates that when a contract has been broken, the party who suffers from such breach is entitled to receive compensation for any loss or damage caused to him, which naturally arose in the usual course of things from such breach. Section 74 proceeds to provide that where a sum is named in the contract to be paid in case of breach, the aggrieved party is entitled to reasonable compensation not exceeding the amount so named, whether or not actual loss is proved. Section 75 further declares that a party who rightfully rescinds a contract is entitled to compensation for damage sustained through non-fulfilment of the contract. Together, these provisions establish that compensation follows the breach, and that the breaching party cannot profit from his own non-performance.
63. When these statutory norms are read with Clauses 59 and 60, the intended symmetry between law and contract becomes apparent. The contract adopted the legislative philosophy of Section 74 by fixing twenty per cent of the contract value as the ceiling for liquidated damages in the event of default. Such pre-estimation of loss ensured Page 36 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 predictability and avoided future disputes on quantum. However, the statutory provisions, while conferring a right to compensation, do not automatically impose liability unless claimed or proved by the aggrieved party. In the present case, the department did not file any counterclaim before the Ld. Arbitrator seeking recovery of the stipulated damages. The Ld. Arbitrator, therefore, confined himself to determining the contractor's positive claim for work done, and had no occasion to offset or adjudicate upon the Employer's potential claim for damages.
64. The learned District Judge, when seized of the Section 34 challenge, recorded that the Ld. Arbitrator's construction of the contract might be arguable but not perverse. He observed that re-evaluation of factual findings was outside the scope of supervisory jurisdiction. The crucial point, however, lies in whether the awards violated the "fundamental policy of Indian law." The concept of fundamental policy includes adherence to the rule that no one should be enriched by his own breach. Here, although the contractor had withdrawn voluntarily, the Ld. Arbitrator's award was restricted to payment for work actually executed and certified. There was no windfall or speculative gain; rather, the award recognised only measurable work completed to the satisfaction of the Engineer. On that limited footing, the awards did not transgress the statutory principle of Section 74.
65. The departmental officers had recorded final measurements, which the contractor signed without protest. The Engineer-in-Charge certified the quantities and values, confirming that certain portions of work had Page 37 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 been executed satisfactorily before termination. Such certification operates as a quasi-accounting acknowledgment of indebtedness, distinct from the question of who caused the contract's end. In the absence of any challenge to those measurements, payment for the work done became an administrative obligation. Hence, even though the contractor's withdrawal was voluntary, the department could not, in law or equity, appropriate the benefit of that work without making payment of its assessed value. The Ld. Arbitrator's decision to direct such payment was, therefore, grounded in the record.
66. The amounts awarded under the ancillary heads of ₹50,000 and ₹1,00,000 respectively, though loosely termed as compensation for delay or idle labour, were in substance nominal adjustments rather than punitive or compensatory damages. They represented, as the Ld. Arbitrator observed, minor equitable considerations towards administrative inconvenience and procedural delay in closure. Such token amounts, viewed in the context of overall project value exceeding ₹53 lakhs each, did not distort the contractual equilibrium. The inclusion of arbitration costs and interest was likewise within the Ld. Arbitrator's discretion under the governing statute. The Ld. District Judge, in affirming these findings, correctly, found no perversity or excess of jurisdiction.
67. On a cumulative appreciation, the arbitral awards were founded on contemporaneous records and recognised contractual entitlements. The Ld. Arbitrator's reliance on Clause 59.4 may have stretched the textual interpretation, yet the resultant outcome that is the payment for Page 38 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 certified work did not offend any fundamental legal or contractual principle. The department, having omitted to claim liquidated damages, could not later invoke Section 74 to reverse the financial effect of its own inaction. In this context, the arbitral determination cannot be said to contravene the statutory scheme or the fundamental policy of law.
68. Accordingly, the discussion leads to the conclusion that the learned Arbitrator's awards, as affirmed by the learned District Judge, Kendrapada, rested on plausible interpretation of the contract and consistent application of the governing law. The payment directed was confined to the executed portion of the works, duly measured and certified. Neither the quantum nor the approach displayed arbitrariness or patent illegality. The contractual clauses, read harmoniously with Sections 73 to 75 of the Contract Act, were applied in substance if not in strict form. Therefore, the awards withstand judicial scrutiny on merits, and no ground is made out for their interference. VI. CONCLUSION:
69. In the calm deliberation that the law demands of this Court under Section 37, one principle stands steadfast: the arbitral tribunal is the final judge of facts and evidence. The jurisdiction conferred upon this Court is neither appellate in character nor supervisory in scope. It exists not to re-weigh materials, nor to substitute one view for another, but to ensure that the arbitral process has remained faithful to law, reason, and fairness.
Page 39 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53
70. The arbitrator, chosen by the parties, occupies a domain where factual appreciation and evidentiary evaluation rest exclusively within their authority. Once such findings are arrived at through a process that is neither perverse nor palpably unlawful, judicial restraint must prevail. The court's compass, in such circumstances, is narrow yet precise--it points not to correctness, but to legality; not to what the court might have decided, but to whether the arbitrator has remained within the bounds of their mandate.
71. Even if, on a meticulous reading, another conclusion could have emerged, that possibility alone does not invite intervention. The law values finality in arbitral adjudication as much as it values justice itself, for certainty is the twin of justice. To reopen appreciation of evidence under the guise of scrutiny would be to unravel the very fabric of arbitral autonomy, a principle the legislature has sought to preserve.
72. Thus, where the award discloses a rational nexus between evidence and inference, where it rests upon a discernible chain of reasoning, this Court has no warrant to trespass into that domain. The sanctity of arbitral determination must be honoured unless tainted by patent illegality or stark disregard of fundamental norms. Within those boundaries, the arbitrator's view is tested, reasoned, and lawful which commands respect, and this Court, in fidelity to that principle, must let it stand.
73. Consequently, judgments and order dated 25.6.2018 in ARBP No.60 of 2012 and judgment and order dated 25.6.2018 in ARBP No.61 of 2012 by the Ld. District Judge, Kendrapara are upheld. Arbitral award dated Page 40 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-May-2026 18:56:53 17.3.2007 by Ld. Arbitrator Sri Justice D.M. Patnaik in ARBP No.57 of 2004 and arbitral award dated 17.10.2007 by Ld. Arbitrator Sri Justice Choudhury Pratap Keshari Mishra in ARBP No.58 of 2004 are, therefore, confirmed.
74. ARBA Nos.13 of 2019 and 19 of 2019 are dismissed. No order as to costs.
(Dr. Sanjeeb K Panigrahi) Judge Orissa High Court, Cuttack, Dated the 15th May, 2026/-
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