Delhi District Court
Union Of India vs Sea Rock ( Contractors ) on 30 August, 2025
IN THE COURT OF SH. SACHIN SOOD
DISTRICT JUDGE - 01, CENTRAL
TIS HAZARI COURTS, DELHI.
ARB No. 84270/2016
CNR No DLCT-01 002891 2015
UNION OF INDIA
Through Executive Engineer
'N' Division, CPWD, I.P. Bhawan,
New Delhi-110002 ...............Petitioner
Versus
1. M/S SEA ROCK (CONTRACTOR)
Through Its Proprietor
Sh. R.C. Pandey
At A-37, Rama Park, Main Najafgarh Road,
Uttam Nagar, New Delhi-59
2. VINOD KUMAR MALIK
Sole Proprietor
3rd Floor, Room No. C-316
Indraprashta Bhawan, I.P. Estate (Near Vikas Minar, ITO)
New Delhi-02. ............Respondents
Date of Institution : 29.10.2015
Date of Reserving : 30.07.2025
Date of decision : 30.08.2025
JUDGMENT
1. The present objections have been filed under Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) seeking setting aside of the Arbitration Award dated 31.07.2015 made and signed by Ld. Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 1/26 Sole Arbitrator Sh. Vinod Kumar Malik in Arbitration case bearing No. ARB/VKM/269 titled as "M/s Sea Rock Contractor vs. Union of India".
BRIEF FACTS LEADING TO FILING OF THE OBJECTIONS:-
i. That the tender for the work "S/R to 400-E Type Flats at Pandara Road, New Delhi dg. 2011-12 (SH water proofing treatment of roof chhajja and parapet and below tanks after removing and re-fixing after treatment) was invited by the petitioner and the respondent submitted their rates for the specified quantities and period only annexed to the tender.
ii. That the work was awarded by the petitioners to the respondent and a contract was executed being agreement No. 53/EE/NDN/2011-12. The awarded work was to be commenced w.e.f the 12 th day of the issuance of Commencement order dated 04.10.2011 and its date of completion was 15.04.2011 i.e. within 6 months.
iii. As per the respondent the work could not be completed in due time due to various hindrances, lapses, defaults and breaches on the part of the petitioner. As per the respondent the work continued even after the stipulated date of completion which was declared complete on 29.06.2012. As per the respondent the work was delay about 2 months solely due to reasons attributable to the petitioner.
iv. Since, certain disputes had arisen out of the contract as awarded by the petitioner the same as per the contract were to be resolved through arbitration in terms of Clause No. 25 of the agreement between the parties is reproduced herein below:
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 2/26 "Clause 25- Except where otherwise provided in the contract, all questions and disputes relating to the meaning of the specifications, designs, drawings, and instructions mentioned herein before and as to the quality of workmanship or materials used on the work, or as to any other question, claim, right, matter, or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders, or these conditions, or otherwise concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the cancellation, termination, completion, or abandonment thereof, shall be dealt with as mentioned hereinafter:
(i) If the contractor considers any work demanded of him to be outside the requirements of the contract, or disputes any drawings, record, or decision given in writing by the Engineer-in-Charge on any matter in connection with or arising out of the contract or carrying out the work, to be unacceptable, he shall promptly within 15 days request the Superintending Engineer in writing for written instructions or decision. Thereupon, the Superintending Engineer shall give his written instructions or decision within a period of one month from the receipt of the contractor's letter. If the Superintending Engineer fails to give his instructions or decision in writing within the aforesaid period, or if the contractor is dissatisfied with the instructions or decision of the Superintending Engineer, the contractor may, within 15 days of receipt of the Superintendent Engineer's decision, appeal to the Chief Engineer, who shall afford an opportunity to the contractor to be heard, if the latter so desires, and to offer evidence in support of his appeal. The Chief Engineer shall give his decision within 30 days of receipt of the contractor's appeal. If the contractor is dissatisfied with this decision, the contractor shall, within a period of 30 days from receipt of the decision, give notice to the Chief Engineer for appointment of arbitrator on prescribed proforma as per Appendix XV, failing which the said decision shall be final binding and conclusive and referable to adjudication by the arbitrator.
(ii) Except where the decision has become final, binding, and conclusive in terms of Subparagraph (i) above, Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 3/26 disputes or differences shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, CPWD, in charge of the work, or if there is no Chief Engineer, the Additional Director General of the concerned region of CPWD, or if there is no Additional Director General, the Director General of Works, CPWD. If the arbitrator so appointed is unable or unwilling to act, or resigns his appointment, or vacates his office for any reason whatsoever, another sole arbitrator shall be appointed aforesaid. Such person shall be entitled to proceed with reference to the stage at which it was left by his predecessor.
It is a term of this contract that the party invoking arbitration shall provide a list of disputes, with amounts claimed in respect of each such dispute, along with the notice of appointment of the arbitrator and reference to the Chief Engineer's rejection of the appeal.
It is also a term of this contract that no person, other than a person appointed by such Chief Engineer (CPWD), Additional Director General, or Director General of Works (CPWD), as aforesaid, should act as arbitrator, and if for any reason that is not possible, the matter shall not be referred to arbitration at all.
It is also a term of this contract that if the contractor does not make any demand for the appointment of an arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from the Engineer-in- charge that the final bill is ready for payment, the contractor's claim shall be deemed to have been waived and absolutely barred, and the Government shall be discharged and released from all liabilities under the contract in respect of these claims The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996), or any statutory modifications or reenactments thereof, and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.
It is also a term of this contract that the arbitrator shall adjudicate only such disputes as are referred to him by the appointing authority and give a separate award against Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 4/26 each dispute and claim referred to him. In all cases where the total amount of the claims by any party exceeds Rs. 1,00,000/-, the arbitrator shall give reasons for the award. It is also a term of the contract that if any fees are payable to the arbitrator, these shall be paid equally by both parties It is also a term of the contract that the arbitrator shall be deemed to have entered into on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties. The cost of the reference and of the award (including the fees, if any, of the arbitrator) shall be at the discretion of the arbitrator, who may direct such costs or any part thereof to any party by whom and in what manner, and fix or settle the amount of costs to be so paid.
v. The respondent raised a dispute with the Executive Engineer vide letter dated 16.12.2013. The disputes were referred to the Superintending Engineer vide letter dated 31.12.2013 for settlement. vi. That a conciliation meeting was called by the concerned Superintending Engineer on 09.01.2014 which was duly attended by the petitioner and respondent and it was decided that the EE shall examine the issue and submit his report within 7 days. Accordingly EE has submitted his report vide letter dated 20.01.2014 but no settlement could be reached and the respondent herein was not satisfied with the report given by the EE as intimated by the respondent herein vide letter dated 23.01.2014.
vii. That an appeal was preferred by the respondent herein to the Chief Engineer vide letter dated 17.02.2014 but no decision was received from his end.
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 5/26 viii. The claimant/ respondent, accordingly, invoked arbitration clause no.
25 with the Chief Engineer with the Statement of claim on 24.03.2014 and requested to appoint an arbitrator as per clause no. 25 of the agreement.
ix. The petitioner appointed the Ld. Sole arbitrator vide letter dated 02.12.2014. thereby, referring in total the following 9 claims for adjudication :
S.No. Claims Amount Remarks
1 Claim No-1 - Balance payment for the Rs. 4,00,000/- The Ld. Arbitrator is to
work executed under the contract. determine whether the
claims are within the
ambit of limitation act
and if so whether the
same are justified. If so,
to what extent?
2 Claims No-3 - Release of security Rs. 1,50,000/- -do-
deposit/with held amount on account of
water proofing treatment work.
3 Claim No-4 - Payments due under Rs. 1,50,000/- -do-
clause 10C and clause 10CA
4 Claim No-5 - Rs. 50,000/- -do-
Damages/losses/compensation on
account of staff etc. due to prolongation
of contract.
5 Claim No-6 - Escalation in construction Rs. 1,50,000/- -do-
cost due to market inflation for the
works executed beyond the stipulated
period of contract.
6 Claim No-7 - losses cost by way of Rs. 1,50,000/- -do-
gains prevented.
7 Claim No-8 - Material brought at site Rs. 3,00,000/- -do-
but not utilized due to less work
executed.
8 Claim No-9 - On account of @18% p.a -do-
compensation by way of interest on
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 6/26
account of non-finalization of the bill
from the date of amounts due till the
date of realization.
9 Claim No-10 - Interest for the amounts 18% p.a -do-
due for pre-reference, pendent lite and
future.
x. The respondent herein filed a statement of claim thereby raising 9
claims to which a statement of defense was filed.
xi. The Ld. Sole arbitrator vide the impugned award dated 31.07.2015
awarded the following claims i.e. claim no- 1.01 and 1.05 totaling to Rs. 1,18,602/-, claim no- 5 for an amount of Rs. 9,970/- and accordingly passed an award for a sum of Rs.1,28,572/-together with simple interest @11% w.e.f 25.08.2014 i.e the date of invocation of arbitration till date of payment. All other claims were rejected by the Ld. Sole Arbitrator.
xii. The aforesaid award has been challenged by the petitioner wherein mainly on the following grounds:
(a) Because the impugned Award passed by the learned sole arbitrator is in contravention of the substantive provisions of the law and apparently against the terms of the contract and is liable to set aside on the said ground.
(b) Because the Ld. Sole Arbitrator has failed to consider that the claim of the claimant and the documents relied upon by the respondent no. 1 are contrary to each other because the alleged contract specifically discuss about the time frame of the work and also about the delay and also about the compensation to be paid by the claimant in case of delay. It is an admitted fact even on the part of the Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 7/26 claimant (respondent herein) that there is a delay of about two and half month in completion of the work. It is submitted that the claimant has taken false and frivolous defence regarding delay but has concealed the fact that claimant itself has delayed the work about one and half month, hence, the claimant himself was negligent and breached the terms of the contract. As such the petitioner has rightly imposed the penalty upon the claimant (respondent), but the Ld. Sole arbitrator failed to consider this fact and passed impugned order, hence, same is liable to be set-aside.
(c) Because Ld. Sole Arbitrator has committed grave error while granting the interest @11% per annum on the awarded amount. In this regard it is submitted that the claimant/ respondent herein was not entitled even for the awarded amount but the same were granted to the claimant while acting contrary to he terms and conditions of the contract and also by ignoring the all material submissions and admission made on record. It is further submitted that there is no clause regarding interest in the agreement, hence, awarding interest on any amount is also illegal and arbitrary, hence, the impugned award is liable to be set-aside.
(d) Because the Ld. Sole Arbitrator committed grave error while deciding the claim no. 1.05. In this regard it is submitted that the clause no. 2 specifically finds mention about the word "Breach" not the liquid damage. It is submitted that it is very categorically mentioned in clause no. 2 of the contact that "If the contractor fails to maintain the required progress in terms of clause 5 or to complete the work and clear the site on or before the contract or extended date of Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 8/26 completion, he shall, without prejudice to any other right or remedy available under the law to the Government on account of such breach, pay as agreed compensation the amount calculated at the rates stipulated". The said specific term was duly admitted by the claimant at the time of signing of the contract. It is submitted that the claimant was duly aware of the same but despite this claimant agency delayed work, intentionally and deliberately. Therefore, the petitioner has rightly deducted the amount towards compensation on account of delay from final bill. It is submitted that petitioner is a government department who has been constructing and maintaining the government residential accommodation as well as office. And if the contractors, who have caused delay in work, will not be penalized through deduction towards compensation for causing delay, then every contractor will cause substantial delay in the project and will take the fake plea that Department has not suffered any Liquidated damages due to delay in the work, hence, they should not be penalized/fined for causing the delay. Hence, the observation as made by the Ld. Sole Arbitrator in the present case in hand regarding the delay, is totally illegal and arbitrary and will promote the delay in every work, hence, the impugned award is liable to be set-aside.
(e) Because the Ld. Sole Arbitrator failed to consider that claim No. 05 is not admissible as the award against this claim is wrong as it was not referred by the competent authority and the Sole Arbitrator has no right to take up the matter without referring by the competent authority. The decision of leavy of compensation by the SE for unjustified delay as per clause 2 of contract is final and binding. Being Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 9/26 final and binding it is not referable to Arbitrator as per clause 25 of contract, therefore if at all claimant is not satisfied with the decision remedy lies with adjudication in court of law not with Arbitrator.
Therefore, same is neither requested by the defendant to authority referring disputes/claims to Ld. Arbitrator nor referred. The defendant clandestinely inserted the claim in claim No.1 which was claim for balance payment of work executed and Ld. Arbitrator misconducted by entertaining it in spite of protest by the petitioner.
(f) Because the impugned Award is patently illegal and in contravention of the provisions of the Agreement and the substantive law governing the parties and also against the terms of the contract.
(g) Because the impugned Award is in conflict with the fundamental policy of Indian Law, is in conflict with justice and equity and is patently illegal.
(h) Because the Award is so grossly unfair and unreasonable, this shocks the conscience of this Hon'ble Court.
(i) Because the award on the face of it is nullity and being untenable in the eyes of law contrary to the spirit of the precedents set by Apex court, hence, the same deserves to be set aside/quashed.
2. The respondent no. 1, despite service has not entered appearance before the Court and neither any reply has been filed by respondent no. 1. Arguments on behalf of the petitioner :
3. Ld. Counsel for the petitioner has briefly argued the present matter and had submitted that he has already filed his brief written synopsis which may be considered as his arguments. In the brief written synopsis as filed by the petitioner, it is primarily contended that the Ld. Sole Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 10/26 Arbitrator has illegally passed the impugned order dt. 31.07.2015. It is further contended that the Ld. Sole Arbitrator has wrongfully awarded the claims as raised by the respondent vide claim no- 1.05. It has been contended that the Ld. Sole Arbitrator while awarding the said claim has exceeded the scope of reference and has wrongfully awarded an amount of Rs. 75,066/- to the respondent. It has further been contended that the Ld. Sole Arbitrator has wrongfully awarded claim no-5 proceeding on mere conjectures and surmises. It has further been contended that the Ld. Sole Arbitrator has wrongfully awarded interest @11% upon the awarded amount (Rs. 1,28,572/-). It has been contended that there is no provision in the contract for the award of interest. Accordingly, it is submitted that the award as been passed by Ld. Sole Arbitrator is liable to be set aside.
4. I have carefully gone through the record of the Ld. Sole Arbitrator and have gone through the written submissions as filed by the counsel for the petitioner.
5. Under the provisions of un-amended Section-34 of the Arbitration and Conciliation Act, 1996 an award as passed by the Arbitrator is liable to the said aside in accordance with the provisions of Sub-Section 2 and Sub-Section 3 of the said Section. The un-amended Section-34 of the Arbitration and Conciliation Act, 1996 is reproduced here in below for a ready reference as follows:
Section 34 of the A&C Act, prior to amendment effected vide Act No. 3 of 2016 with retrospective effect from 23.10.2015, reads as under:
Section 34 of the Arbitration Act provides as under :
34. Application for setting aside arbitral award.
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 11/26 (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub- section (2) and sub-section(3).
(2) An arbitral award may be set aside by the Court only if (a) the party making the application furnishes proof that--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that-- (I) the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.
Explanation.--Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
(3) An application for setting aside may not be made after three months have elapsed 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. (4) On receipt of an application under sub-section(1),the Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 12/26 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.
6. The law regarding patent illegality, public policy, and fundamental policy of India is no longer res-integra. The scope of Section 34 being very limited in nature, has been thoroughly explored by the Indian legal system.
7. The challenge of an Award under Section 34 arising out of Arbitration proceedings must satisfy the tests laid down by virtue of the provisions of the Act, 1996, and the law settled by way of pronouncements by the Hon'ble Supreme Court. The Act, 1996 has been set forth with the intention to limit the interference of the Courts in the arbitral proceedings.
8. The Arbitral Tribunal, who in its wisdom, passes an Award, upon conducting the arbitration proceedings with the participation of parties to the dispute, considering the Statement of Claim and Statement of Defence presented by and on behalf of the parties, the relevant documents placed on record by the parties, is considered as Court for the purposes of adjudicating the dispute before it. An unfettered scope of intervention in its functioning would defeat the spirit and purpose of the Act, 1996. Therefore, the Hon'ble Supreme Court has time and again reiterated that the scope of intervention of the Courts is limited in the cases of challenge under Section 34.
9. The Hon'ble Supreme Court in Delhi Airport Metro Express (P) Ltd.v.
DMRC, (2022) 1 SCC 131, has observed as under:
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 13/26 "28. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by Courts while examining the validity of the arbitral awards. The limited grounds available to Courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the Courts. There is a disturbing tendency of Courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavors made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.
xxx
30. Section 34(2)(b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression "public policy of India" and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice.
31. In Ssangyong [Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] , this Court held that the meaning of the expression "fundamental policy of Indian law"
would be in accordance with the understanding of this Court in Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] . In Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] , this Court observed that violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the "national economic interest", and disregarding the superior Courts in India Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 14/26 would be antithetical to the fundamental policy of Indian law. Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of "patent illegality" as discussed above. In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice. The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day. [Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213]"
10. The above-mentioned judgment by the Hon'ble Supreme Court states that the concepts which are to be followed under Section 34 of the Act, 1996 is crystal clear. When a court applies the "public policy‟ test to an arbitration award, the court does not function as a court of appeal, and as a result, any mistakes of fact that may have been made, cannot be rectified. This is something that must be recognized very well. Since, the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when delivering his arbitral award, each possible view that the arbitrator may have on the facts needs to pass his approval in order for it to be considered. Therefore, an award that is based on scanty evidence or on evidence that a trained legal mind deems to be of insufficient quality would not be deemed to be invalid on the basis of this criterion. After it has been established that the arbitrator's method is neither arbitrary nor capricious, then it can be said that he has the final word on the facts. There is also no dispute on the position of law that an Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 15/26 Arbitrator being creature of a Contract, has to confine himself to the provisions of the Contract while deciding the dispute.
11. Under Section 34 of the Act, 1996, it is a well-settled position that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground as provided under Section 34(2)(b)(ii) of the Act, 1996, i.e., if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments in the 1996 Act in 2015, a violation of India 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 existence of patent illegality in the arbitral award. The concept of the fundamental policy of Indian Law would cover the compliance with the statutes under judicial precedents adopting a judicial approach, compliance with the principles of nature justice, and reasonableness.
12. It is only if one of the conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii) of the Act, 1996, but the said interference does not entail a review of the merits of the dispute as it is limited to the situations where the findings of the arbitration 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 Ld arbitrator is a possible view based on the facts.
13. Hence, there is a limitation on the powers of this Court while examining its jurisdiction under Section 34 of the Act, 1996, however, at the same time, if the interpretation put forward by the Arbitral Tribunal, on the Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 16/26 face of it is incorrect and rendering a Clause in the Agreement to be redundant, such interpretation cannot be sustained.
14. In the case of Reliance Infrastructure Ltd. v. State of Goa, 2023 SCC OnLine SC 604, wherein, the Hon'ble Supreme Court held as under:
"47. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the principles enunciated by this 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 Act of 1996.
48. In MMTC Limited (supra), this Court took note of various decisions including that in the case of Associate Builders (supra) and exposited on the limited scope of interference under Section 34 and further narrower scope of appeal under Section 37 of the Act of 1996, particularly when dealing with the concurrent findings (of the Arbitrator and then of the Court).
This 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 this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law"
would 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 K.B. 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
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 Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 17/26 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 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."
15. The limited scope of challenge under Section 34 of the Act was once again highlighted by Hon'ble Apex Court in the case of PSA SICAL Terminals which explained the relevant tests as under:
"43. 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 Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 18/26 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 Section 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.
44. 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 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.
45. To understand the test of perversity, it will also be appropriate to refer to paragraph 31 and 32 from the judgment of this Court in Associate Builders (supra), which read thus:
"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.
32. A good working test of perversity is contained in two judgments.
In Excise and Taxation Officer cum-Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was held : (SCC p. 317, para 7) "7. ... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 19/26 consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."...."
16. In the wake of, the aforesaid authoritative judgments as quoted above the first contention of the Ld. Counsel for the petitioner to the effect that the Ld. Sole Arbitrator has wrongfully awarded the claims as raised by the respondent vide claim no-1.05 which came has not been referred for adjudication. It has been contended that the Ld. Sole Arbitrator while awarding the said claim has exceeded the scope of reference and has wrongfully awarded an amount of Rs. 75,066/- to the respondent. A careful perusal of the scope of reference goes to show that in total 9 claims were referred for adjudication. The first claim referred for adjudication is as follows:
S.No. Claims Amount Remarks
1 Claim No-1 - Balance payment Rs. 4,00,000/- The Ld. Arbitrator is to
for the work executed under the determine whether the claims
contract. are within the ambit of
limitation act and if so whether
the same are justified. If so, to
what extent?
17. The respondent herein, has subdivided the aforesaid claim no 1 into 5 sub heads/ parts i.e. 1.01 ( work executed but not paid Rs. 48,832/-), 1.02 (less rate paid of alleged substituted item no. 1 i.e., providing and laying broken tiles over water proofing membrane Rs. 1,87,452/-), 1.03 (claim towards not returning dismantled materials Rs. 16,519/-), 1.04 (claim towards un-contractual and arbitrary recovery in final bill on account of not engaging site engineer Rs. 30,000/-) and 1.05 (claim towards illegal, un-contractual and arbitrary recovery in final bill on account of EOT Rs.
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 20/26 75,066/-). The mere fact that claim no.1 as referred for adjudication has been subdivided into 5 different heads, it cannot be said that the aforesaid subheads are beyond the terms of the reference.
18. The Ld. Sole Arbitrator vide award dt. 31.07.2015, taking into consideration, that liquidated damages have been levied and recovery for an amount of Rs. 75,066/- has been effected from the final bill without the petitioner herein having proved the losses having being suffered by the petitioner, awarded an amount of Rs. 75,066/- to the claimant/respondent herein. The Ld Sole Arbitrator has given detailed reasons and has discussed at length the judgment of BWL Limited Vs MTNL 2000 (2) Arb LR 190 (Delhi), DDA Vs Bharat Furnishing Company, J G Engineers Vs UOI 2011 (2) Arb LR 84 (SC) and also the judgments of Maula Bux Vs Union of India and Indian Oil Corporation Vs Llyods Steel Industries Ltd 2007 (4) Arb LR 84 (Delhi) to highlight that in the absence of any loss, liquidated damages cannot be levied. It has been discussed by Ld Sole Arbitrator that no evidence has been led by the petitioner of suffering any financial loss because of the delayed completion of work. It has further been observed by the Ld Sole Arbitrator that the Engineer In-Charge has certified on EOT that the government has not suffered any loss due to delay in the work.
19. Recently the Hon'ble High Court of Delhi in the matter of Sedershan Kumar Bhayana Vs Vinod Seth 2023 Livelaw (Del) 924 has held as follows:
"39. In Kailash Nath Associates v. Delhi Development Authority & Anr.2, the Supreme Court had referred to Section 74 of the Indian Contract Act, 1872 and has held as under:
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 21/26 "43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:
43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation.
43.2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. 43.4. The section applies whether a person is a plaintiff or a defendant in a suit.
43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre- estimate of damage or loss, can be awarded.
43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."
"40. The aforesaid principles have been reiterated and followed in several decisions of this Court.
"41. It is well settled that there are three essential ingredients that are required to be pleaded and established by a party claiming damages. First, that there is a breach of the Contract by the counter party. Second, that the party complaining of such breach has suffered an injury as a result of the breach of the contract by the counter Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 22/26 party. And third, that the injury suffered is proximate and a direct result of the breach committed.
"42. In the present case, the Owners had in their Statement of Claims pleaded as under: "11. That when the builder failed to complete the building within the stipulated period and even after the expiry of about 18 months the owner had no alternative but to invoke the clauses 7 and 12 of the Agreement and forfeited the Earnest Money as well as the Compensation Money as stated in the foregoing paras."
"43. It is material to note that the Owners had not made any categorical averments that the delay had resulted in them suffering any damages. There is no averment that the Owner's incurred costs, which were higher than the value of the second floor of the reconstructed building.
"44. Absent any pleadings that the owners had suffered damages or incurred loss on account of the delay in construction of the work, a claim of damages would not be sustainable. In addition, as noted above, admittedly there is no evidence or material on record to establish that the owners had suffered any loss or the quantum of such loss. The owners have simply relied on Clause 7 of the Collaboration Agreement. It is material to note that there is also no averment that the penalty as contemplated under Clause 7 of the Collaboration Agreement is a genuine pre-estimate of damages. "46. In Hindustan Petroleum Corporation Ltd., Mumbai v. Offshore Infrastructure Ltd., Mumbai, the Bombay High Court following the decision of the Supreme Court in Kailash Nath Associates v. Delhi Development Authority & Anr. had observed that "Unless loss is pleaded and proved, where it capable of being proved, it cannot be recovered. There cannot be any windfall in favour of the respondent to recover liquidated damages even if no loss is suffered or proved."
"47. The Division Bench of this Court in Hindustan Petroleum Corporation Ltd. v. M/s Dhampur Sugar Mills had upheld the decision of the learned Single Judge setting aside an arbitral award awarding damages on the basis of a penalty clause. In the aforesaid context, the Division Bench of this Court had observed as under:
"11.2. A careful perusal of the same would show that the appellant claimed "penalty". Penalty is generally construed as a sum stipulated in terrorem. On the other hand, damages, liquidated or unliquidated, when awarded, have a compensatory flavour to it. Liquidated damages are awarded by a court only if it construed as a genuine pre- estimate of the loss that is caused in the event of breach. It is no Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 23/26 different from unliquidated damages i.e., it cannot be granted if there is no loss or injury. Where parties have agreed to incorporation of a liquidated damages clause in the contract, the Court will grant only reasonable compensation, not exceeding the sum stipulated. Liquidated damages does away with proof where loss or damage cannot be proved, but not otherwise. Thus, the party suffering damages can be awarded only a reasonable compensation, which would put such party in the same position, in which the party would have been had the breach not been committed. The appellant's pleadings are woefully deficient in this regard. Unless loss is pleaded and proved, where it capable of being proved, it cannot be recovered."
Thus, in view of the reasoned adjudication made by Ld Sole Arbitrator upon claim no 1.05, no interference thus is warranted.
20. Coming to the next contention of the Ld. Counsel for the petitioner to the effect that the Ld. Sole Arbitrator has wrongfully awarded claim no-5 proceeding on mere conjectures and surmises, it is worth mentioning that the said contention is without merit. Vide claim no.5, damages, losses, compensation on account of staff etc., due to prolongation of contract to the tune of Rs. 83,080/- had initially been claimed by the claimant. The said amount was thereafter, restricted to Rs. 50,000/. The Ld. Sole Arbitrator returned a finding to the effect that since extension of time w.e.f. 15.04.2012 to 12.05.2012 have been approved by the SE without compensation and extension for rest of period from 13.05.2012 to date of completion on 29.06.2012 has been approved with compensation. Thus as per Ld Sole Arbitrator since the extension of time from 15.04.2012 to 12.05.2012 have been approved without compensation, the claimant is entitled to loss of overhead for the said period i.e. 15.04.2012 to 12.05.2012. The said finding of Ld Sole Arbitrator is well reasoned and Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 24/26 requires no interference in the exercise of power u/s 34 of Arbitration and Conciliation Act 1996.
21. Further more while adjudicating claim no 10, interest for the amount due from the date of invocation of arbitration till date of payment @ 11% simple interest has been granted. Ld. Counsel for the petitioner in his written submissions has contended that the Ld. Sole Arbitrator could not have been granted any interest since there is no clause in the entire contract with respect to payment of interest. The said argument is clearly misconceived. In the entire contract as entered into between the two parties and more particularly the conditions of the contracts, there is no provision therein which prohibits the grant of interest on the delayed payments, the power to award the same is thus governed by section 31(7) of the Arbitration and Conciliation Act 1996. Section 31(7) of the Arbitration and Conciliation Act prior to its amendment is reproduced herein below for a ready reference as follows:
" 31 (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 18% p.a. from the date of the award to the date of payment.
22. As stated in the forgoing paras, there is no contract between the parties which prohibits the grant of interest and keeping in view the fact that section 31 (7) permits the grant of interest, no illegality has been committed by the Ld. Sole Arbitrator in as much as granting simple Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 25/26 interest @ 11% p.a. w.e.f the date of invocation of arbitration till the date of payment on the adjudicated amount of Rs. 1,28,572/-.
23. The Hon'ble Apex Court in the matter of M/s Interstate Construction vs National Projects Construction Corporation Ltd 2025 INSC 699 affirmed the decision rendered in Pam Development Pvt Ltd Vs State of West Bengal (2024) 10 SCC 715, North Delhi Municipal Corporation Vs S A Builders Ltd (2024) SCC online SC 3768, on the interpretation of Section 31 (7) of the Arbitration and Conciliation Act 1996. It has been held that the Arbitral Tribunal has the discretion to include in the sum awarded, interest at such rate as it deems reasonable on the whole or any part of the money awarded for the whole or any part of the period from the date on which the cause of action arose till the date on which the award is made.
24. Thus there is no infirmity in the award dt 31.07.2015 as passed by Ld Sole Arbitrator. The Arbitral award as passed by the Ld Sole Arbitrator is not liable to be interfered with in the exercise of powers u/s 34 of Arbitration and Conciliation Act 1996 since the same is well reasoned and this court does not function as a court of appeal over the said award. The petitioner has not been able to establish that the findings returned by the Ld Sole Arbitrator are arbitrary, capricious or perverse. Hence, the present petition being devoid of any merits is dismissed accordingly.
25. File be consigned to record room after due compliance.
Digitally signed Announced in the open court (Sachin
SOOD Sood)
by SACHIN
SACHIN
SOOD
Date:
2025.08.30
30th August 2025. DJ-01 (Central)
15:12:19 +0530
THC, Delhi.
Arb No : 58270/16 Union of India Vs M/s Sea Rock (Contractors) Page no 26/26