Gujarat High Court
Nirma Limited vs Slipco Constructions Private Limited on 12 August, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/4031/2017 ORDER DATED: 12/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 4031 of 2017
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NIRMA LIMITED
Versus
SLIPCO CONSTRUCTIONS PRIVATE LIMITED
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Appearance:
MR SHALIN MEHTA, SR. ADVOCATE with MR GAURAV S
MATHUR with MR ABHISHEK SHAH, for the Appellant(s) No. 1
MR ANSHIN DESAI, SR. ADVOCATE with SHRINEEL M SHAH
with MR KARMANYA SIGNH RORE (9374) for the Defendant(s) No.
1
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 12/08/2025
ORAL ORDER
(PER : HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL)
1. Heard Mr. Shalin Mehta, learned Senior advocate assisted by Mr. Gaurav S. Mathur and Mr. Abhishek Shah learned advocates for the appellant and Mr. Anshin Desai, learned Senior advocate with Mr. Shrineel M. Shah with Mr. Karmanya Singh Rore learned advocates for the respondent, and perused the record.
2. This is an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (in short as "the Act' 1996"), challenging the judgment and order dated 10.11.2017 passed by the Commercial Judge, City Civil Court, Ahmedabad in Commercial Civil Misc. Application No. 68 of 2016 (Old Civil Page 1 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined Misc. Application No. 828 of 2012) registered under Section 34 of the Act' 1996, whereby the Commercial Court has dismissed the application under Section 34 refusing to interfere in the arbitral award dated 14.06.2012. The challenge, in essence, in this appeal is to the arbitral award dated 14.06.2012 passed by the Arbitral tribunal, to the extent of Claims No. 1 and 5 awarded by the tribunal.
3. Mr. Shalin Mehta, learned Senior counsel appearing for the appellant herein also made submissions on the validity of the entire arbitral award with the assertion that the Arbitral tribunal has erred in deciding the Issues no.1 to 3, i.e. in holding that there was a delay on the part of both the sides and major delay was on the part of the appellant herein. It was vehemently argued that the Arbitral tribunal has committed a patent illegality in ignoring the fact that the claimant-contractor failed to complete the work of construction of the chimney efficiently and within the timeline agreed under the contract.
4. It was vehemently argued that as per the contract, the work of construction of chimney was required to be completed by 31.12.2007 and the claimant-contractor had failed to even start piling work and it did not mobilise the site with adequate equipment and sufficient resources. This fact was acknowledged by the claimant-contractor in its email dated 03.05.2007. It was placed before the learned arbitrators that the machines deployed by the claimant-contractor were of inferior quality and the progress of the work was very slow. The claimant had already admitted this fact in its another Page 2 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined email dated 06.05.2007.
5. The submission is that the work of construction of chimney involves a highly technical and specialised work as also extreme precision so as to ensure a workable, effective and stable structure. A chimney is founded upon a number of concrete pillars called 'piles', which are constructed underground by using a piling machine. In the instant case, 96 pillars/piles were to be constructed at 20-22 metres depth. In order to construct the piles, a simultaneous action of extracting muck from the earth and inserting a steel cage into which concrete mix is poured was required to be taken. For the said purpose, two pits were needed adjacent to the site and for further work of softening of the earth, the removal of mixture of water and sand, putting up steel cage deeper in the ground to complete the piling work was needed. For construction of the chimney, 96 piles were found to be necessary and the claimant contractor was required to have enough facility, machinery and manpower to complete this activity by 30.05.2007. The structure/body/shaft of the chimney was a tapering design to be constructed by slip-form method, which involves creating a distinguishable linear form by slipping concrete and pushing it upwards in the structure so created.
6. From the arbitral award, it is placed before us that the learned arbitrators have noted all aspects of construction of chimney, which was an exercise of extreme precision and skill.
7. It was placed by the learned Senior counsel for the Page 3 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined appellant herein that even a slight let-off may have caused inherent and irreparable damage to the structure. The work of construction of chimney was not completed by the claimant contractor in time under the contract, i.e. by 31.12.2007 or even during the extended period. The stand of the appellant herein before the learned arbitrators was that the workmanship by the claimant was defective and the work done by the claimant was very poor and of inferior quality. Moreover, the claimant-contractor did not complete the work as per the terms and conditions of the contract and had left the site abandoning the work without handing over the chimney to the appellant herein.
8. It was then argued by the learned Senior counsel for the appellant herein that the appellant sent emails dated 15.05.2007 and 17.05.2007 highlighting the shortcomings in the progress and the quality of the work and the claimant/contractor, in response, vide email dated 29.05.2007 had accepted those shortcomings, but assured of completion and handing over the project by December' 2007 as promised.
9. In another email dated 30.05.2007, the claimant expressed its deep regrets for negligence in the completion of work that had taken place and assured that such things would not reoccur. The submission, thus, is that in view of the admission on the part of the claimant-contractor about the negligence on its part, its claim for payment could not have been awarded by the Tribunal. Moreover, the work done by the claimant was defective and of inferior quality, inasmuch as, the 'tilt' in the body of the chimney at 39 degree at 45 Page 4 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined meter was noticed by the appellant herein on or around 19.12.2007 and the claimant-contractor was immediately directed to stop further work vide email dated 19.12.2007, pointing out the defect.
10. In its reply dated 15-16.01.2008, the claimant-contractor assured improvement to the satisfaction of the respondent though admitting that "it is not possible to undo it what has been done". The claimant, however, had admitted that the tilt was noticed at the height of 80 metres and upwards as per the report of the Consultant.
11. On 06.05.2008, an accident occurred when refractory lining work which had reached upto 101 metre level, had collapsed creating pile of 215 tons of broken bricks at the bottom of the chimney. As per the case of the appellant herein before the Tribunal, this incident was a result of distortion and deviation in the chimney and poor performance and workmanship of the claimant contractor. It was argued that the learned arbitrators have noticed the contention of the appellant herein that the claimant was informed about the incident on the same date, but nothing was done.
12. A letter of regret was sent by the claimant on 13.05.2008 and thereafter, vide another letter dated 20.05.2008, the claimant-contractor gave a target of further 40 days for completion of the project, i.e. by 30.06.2008.
13. It was contended before the learned arbitrators by the appellant herein that for the huge investment of Rs. 55 crores already made by it, it was not possible to leave or scrap the Page 5 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined project and hence, the appellant had allowed the claimant- contractor to proceed with the work. Inspite of that, the claimant-contractor had failed to complete the work within the timeline and there was admission in the letter dated 25.06.2008 written by the claimant-contractor to the appellant herein that only 70% of the work could be completed and the desired progress could not be achieved.
14. The submission is that, in view of own admission on the part of the claimant-contractor, the appellant herein cannot be said to be wrong in submitting that in all possibility, the project could not have been completed within the stipulated time, i.e. by 30.06.2008. The claim of the contractor before the arbitral tribunal that substantial work was over and only minor work remained was not correct in view of its own admission in the letter dated 25.06.2008.
15. The submission, thus, is that the appellant herein cannot be said to be in error in taking the stand before the arbitral tribunal that the claimant-contractor had abandoned the work and left the site and hence, it was not permissible to pay any of the claims of the claimant contractor. Rather, the counter claim of the appellant was required to be allowed by providing damages for the defective work carried out by the claimant and leaving the project halfway.
16. Further, on the award of various claims, it was argued by the learned Senior counsel for the appellant that the learned Arbitral tribunal has erred in holding that the claimant is entitled to the amount of Rs.93,72,722/- (in total from the appellant along with simple interest @ 9% p.a. from Page 6 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined January 2009 till the date of payment). The submission is that some of the claims awarded by the arbitral tribunal were such, which were not even included nor claimed in the statement of claim submitted by the claimant respondent before the tribunal. Two of such payments toward Running Bill No. 09 (RA No.09) for Rs.10,68,548/- and retention money of Rs. 17,98,726/- were assailed by the learned Senior counsel for the appellant being the claims awarded by the tribunal illegally, beyond the Statement of claim put forth by the claimant-contractor.
17. The submission is that, in the statement of claim itself, the claimant-contractor had submitted that it had requested the appellant for release of the payments against RA Bills nos. 10, 11, 12, 13, 14 and 14 and Bill No. T-16, which were agreed by the appellant on the other claims having been foregone by the claimant. The statement of claim contained Claim no.1 as balance payment for the work done with the statement that the claimant was making a claim for the payment of the outstanding bill and release of the equipments as it was facing financial crises.
18. Further, out of 11 claims in total, there was no claim towards the retention money, and it was even not included in Claim no.1 as balance payment for the work done. The submission, thus, is that the Tribunal's award cannot be sustained for the admitted fact that the claims not incorporated in the statement of claim by the claimant- contractor were awarded in the arbitral award.
19. It was further argued that even otherwise, the Retention Page 7 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined Money could have been claimed only after the defect liability period was over, which never came into picture in the facts and circumstances of the present case because the project was not completed by the claimant.
20. The attention of the Court is invited to Clause 12 of the Specific Conditions of the Work Order dated 12.01.2007, which reads as under :-
"RETENTION :
10 % will be deducted from each running bill and will be released after the completion of the all the work against the Work Order and expiry of defect liability period of 6 months from the date of completion of the work."
21. In rebuttal, it was argued by Mr. Anshin Desai, the learned Senior counsel for the respondent claimant that the present case requires no interference within the scope of Section 37 of the Act' 1996, inasmuch as, the factual findings returned by the arbitral tribunal is that there was an error in the action of the appellant in not permitting the claimant to complete the project though the claimant was ready and willing to perform contractual obligations under the agreement. While this was the factual position recorded by the arbitral tribunal after considering the evidence on record, the scope of interference under Section 37 of the Act' 1996 on the grounds stated in the unamended Section 34 of the Act' 1996 becomes limited. None of the ground can be said to be available, to argue otherwise.
22. The submission is that it cannot be argued that the award was defective on any of the available grounds under Page 8 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined Section 34 (unamended) Act' 1996. The award passed by the Arbitral tribunal, thus, was rightly not interfered with by the Court under Section 34, recording that for the work of chimney so done by the claimant, which was used by the appellant without any protest and objection, the conclusion drawn by the Arbitral tribunal that the claimant was entitled to the amount for the work which he had done and also for the work for which he was ready and willing to do under the contract, does not warrant any interference by the Court.
23. The findings of the Arbitral tribunal that the appellant had not allowed the claimant-contractor to enter into the premises and to carry out and complete the work in question has been affirmed by the Court under Section 34 of the Act' 1996. The concurrent findings of fact of the Arbitral tribunal and the Court under "Section 34", may not be interfered, within the scope of this appeal under Section 37, which is even narrower than the scope of inquiry under Section 34 of the Act' 1996. The findings by the Court under Section 34 that the award of payment so made by the Arbitral tribunal, were duly certified and approved by the consultant of the appellant and that at no point of time, any objection has ever been raised, cannot be interfered with being the findings of fact.
24. As regards the claim awarded by the Arbitral tribunal against the RA Bill No.09, the attention of the Court is invited to the statement of claim for Claim no.1, which reads as under:-
"Claim No.1: Balance Payment for work done -Page 9 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025
NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined Rs.1,00,84,865/-
Claimant is entitled for payment of Rs.89,54,865/- towards work done. The computation of the claim is encløsed as Annexure C-13. The Respondent has not released payment against R.A. Bill No. 10,11,12,13,14, 15 and Bill T-16 to the Claimant. The Claimant has time and again called upon Respondent to release the payment, which Respondent failed to release. In fact Claimant even offered to forgo its other claims in case Respondent release payment of the outstanding Bill and release the equipment as Claimant was facing financial crisis.
The Respondent after agreeing to the same had backed. Beside the above, Claimant is entitled for doing re- engineering of the drawings and design of the Chimney after Consultant of the Respondent vide letter dt.11.7.2007 made various changes. The Claimant is entitled for cost of re-engineering i.e. 5% of the total cost. The Claimant had considered charge of 5% towards Design and Drawing while quoting its rates and same is also the practice in the indemnity. Re-Engineering was done due to reasons attributable to the Respondent, thus Claimant is liable to pay the additional cost to the Claimant i.e. Rs.9.50 lacs i.e. 5% of the value of the Chimney.
That Respondent vide letter dt.24.7.2007 (Annexure C-40) provided drawing of M/s. ILJ for Chimney insert Plate for Respondents machinery installation. Claimant was called upon to do the extra work which is not its scope. The Claimant is entitled for an amount of Rs.1.80 lacs for doing the extra work.
In view of the above it is prayed that Claimant be awarded an amount of Rs.1,00,84,865/-."
25. It is submitted that though the RA Bill No. 09 was not specifically stated in the Statement of claim, as above, but Annexure 'C-13' which is the computation of the claim Page 10 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined enclosed with the statement of claim, incorporated RA Bill No.
09. The attention of the Court was drawn to the account statement, viz. the details of the bills submitted and payments received upto 01.04.2007 to 01.08.2010, which finds place at page "95" of the paper book. It was placed before us that the pending claim towards RA Bill No.09 dated 02.02.2008 was specifically incorporated in the total bill amount sought after deduction of the TDS etc. Towards the claim of Rs. 2,61,73,110/-, if the amount of Rs. 1,68,78,210/- paid to the claimant through various cheques upto 05.06.2008 incorporated in the detailed statement at page "95", is deducted, the amount due would come to Rs.92,94,900/-. And with the further deduction of TDS of Rs. 3,40,035/- against the certificates received, balance would be Rs. 89,54,865/- towards the work done which was the claim incorporated in the Claim No.1, of the State of Claim extracted hereinabove. The amount of Rs.1,00,84,865/- as per Claim no.1, however, would be arrived with the additional cost of Rs.9.50 lacs, i.e. 5% of the value of the chimney as incorporated in Claim no.1 therein. The submission, thus, is that the contention of the learned Senior counsel for the appellant herein that the Statement of claim did not incorporate the RA Bill No.09 and, hence, the Arbitral tribunal has erred in awarding the same, is liable to be turned down.
26. The attention of the Court is further invited to the statements made in the Statement of Claim filed by the respondent claimant, which read as under :-
"That against bill dt. 12.1.2008 of Rs.21.68 lacs payment of Rs.10 lacs was released by Respondent on 26.4.2008 Page 11 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined i.e. after 3 months. Till date balance payment of over Rs.81 lacs towards the work done has not been released by the Respondent despite repeated reminders.
c) That after completion of structure of the Chimney and practically all the work on 20.5.2008 it was agreed that the Respondent will release payment against the outstanding bills and issue Gate Passes for removal of the Equipments, which were not required and the Claimant shall submit the schedule for completion of the balance work. That the Respondent agreed to release payment against the R.A. Bill No.9 of Rs. 19.30 lacs and R.A. Bill No.10 of Rs.10.84 lacs. Despite agreeing Respondent had not released the said payment to the Claimant till date.
27. The submission is that the stand of the claimant- contractor before the Arbitral Tribunal in the Statement of Claim itself was that after completion of the structure of the chimney and practically all work done on 20.05.2008, it was agreed that the respondent will release payment against the outstanding bills and issue Gate Pass for removal of the equipments which were not required and the claimant shall submit the schedule for completion of the balance work. The respondent had agreed to release payment against the RA Bill No.09 of Rs. 19.30 lakhs and RA Bill No. 10 of Rs.10.84 lakhs, but the said payments had not been released till date.
28. It was, thus, argued that in view of the above categorical statement made in the Statement of Claim, the appellant can not be permitted to contend that the payments allowed under the award against the outstanding of RA Bill No.09 were not included in the Statement of Claim. No infirmity, therefore, can be attached to the award of payments towards the work done by the claimant-contractor.
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29. As regards the Retention Money, it was submitted that the Retention Money amounting to Rs. 17,98,726/- deducted from various RA Bills was incorporated even in the billing details given by the appellant herein before the learned arbitral tribunal. It was, thus, an admission on the part of the appellant that the amount of Rs. 17,98,726/- was deducted as Retention Money from RA Bill No. 01 to RA Bill No. 08. As the deductions made by the appellant were towards the RA Bills submitted for the work done and were clearly visible from the billing details given before the learned arbitrator in a statement of the appellant herein which finds place at page '176' of the paper book, no error can be said to have been committed by the Arbitral Tribunal in allowing the payment of the said amount as Item no.5 of Claim no.1. Once it was held by the tribunal that the appellant had wrongly and illegally prevented claimant from completing the work and reaching the stage of final bill and handing over the chimney by the claimant, and the appellant had taken over the work by itself by expelling the claimant, the conclusion that the claimant is entitled for the retention money of Rs. 17,98,726/- kept on hold against the RA Bill No.01 to RA Bill No. 08, cannot be said to be patently illegal.
30. The submission is that no error can be attached to the findings of fact returned by the Arbitral Tribunal that for the construction of chimney, part completed by the claimant, the claimant is entitled for the release of payments against the RA Bills for the actual work done upto 100 metres as against 110 meters as per the agreement.
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31. In the crux, it was argued by the learned Senior counsel for the claimant-contractor that in view of the settled legal position of the scope of interference under Section 37 appeal being limited, no interference can be made in the award of the learned Arbitral Tribunal on the arguments made by the learned Senior counsel for the appellant to assail the same.
32. Taking note of the above submissions made by the learned counsels for the parties and perused the record, pertinent is to note, at the outset, that no fault can be attached to the findings of the learned Arbitral Tribunal that the appellant had failed to prove that the claimant-contractor had abandoned the work by absconding/leaving the site, rather, the contention of the claimant that the appellant did not allow the manpower of the appellant to execute the balance work after 14.06.2008, was much more probable. The allegations made by the respondent claimant that the security staff of the appellant stopped the claimant's manpower to enter into the premises from 14.06.2008 onwards, not allowing them to execute the work, was proved from the correspondences made by the claimant with the letters dated 25.06.2008 and 01.07.2008.
33. The findings returned by the arbitral tribunal on Issue nos.1 to 3 are relevant to be extracted herein as under :-
"We have considered rival version of the opposing parties. We have also perused the relevant record produced by both the sides.
It is the case of the claimant that from 14 June 2008 onwards, Security Staff or the respondent did not Page 14 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined allow manpower to proceed further with the work. On 20 June 2008 Gate Passes were also taken away from them.
In support of the above version, the claimant had placed reliance on Ex. C/23 letter dated, 25 June 2008 and letter dated 01 July 2008. In the letter dated 25 June 2008, the claimant stated that in the previous week, the site management of the respondent without any written or verbal notice asked the staff of the claimant to be shifted out of the site and campus. In the letter of 01 July 2008, the claimant requested the respondent to issue Gate Passes for machinery if it did not want the claimant to carry out the work. A report said to have been submitted by Mr. Rajesh Jaiswal was also annexed to the letter which reflected all the facts stated by the claimant.
It is no doubt true that the respondent denied the averments made by the claimant in the claim petition. It also denied having received the letters referred to by the claimant in his pleadings.
We are, however, of the view that the case put forward by the claimant appears to be much more probable and acceptable. Mr. Grover, CW1, in his deposition also reiterated what was stated in the claim petition as to taking away Gate Passes from the Staff of the claimant on 20 June 2008. Moreover, we have not believed the case of the respondent that the claimant has absconded the work and left the site. We, therefore, hold that it was the respondent who did not allow the manpower of the claimant to execute the balance work.
At the same time, the case of the claimant that 'substantial work' was over and only 'minor work' remained was also not correct. According to the respondent 'major' part of the work remained incomplete and it was not possible for the claimant to complete the project within the extended time of 30 June 2008. This appears to be plausible.
Even the letter dated 25 June 2008 (Ex. C/23) said to have been written by the claimant to the respondent Page 15 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined (which was denied to have received by the respondent) stated as under;
Unfortunately the desired progress could not be achieved by site despite my best efforts and intentions. (Only 70% was achieved of planned). Job completion and project is priority in my career too and will stand by that.
It is, therefore, clear that even according to the claimant, desired progress could not be achieved and 70% work had been done. The respondent, thus, appears to be right in submitting that the project could not have been completed within the stipulated time, i.e. by 30 June 2008.
On overall considerations, we hold that it was not proved by the respondent that the claimant had abandoned the work and left the site. We also hold that time was not of essence of the contract. There was delay on the part of both the sides. The claimant, however, was ready and willing to perform contractual obligations under the agreement but it was the respondent who did not allow the claimant to complete the project.
Issue Nos. 1 and 3 are, therefore, decided in the affirmative while Issue No. 2 is decided in the negative."
34. We may also note issues no. 1, 2 and 3 framed by the learned arbitral tribunal, as under :-
(1) Whether the Claimant proves that it was wrongfully not permitted to execute the work by the Respondent?
(2) Whether the Respondent proves that the Claimant is in breach of contract and has abandoned and failed to complete the contracted task as per contract?
(3) Whether claimant proves that the project was delayed by the Respondent?Page 16 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025
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35. Taking note of the above, suffice it to record that we cannot attach any illegality to the decision of the learned Arbitral Tribunal in deciding issues no. 1 and 3 in favour of the claimant and issue no.2 against the appellant herein, inasmuch as, no factual inquiry or re-appreciation of evidence as a court of appeal is permitted within the scope of Section 37 of the Act' 1996.
36. The fact remains that the appellant has failed to prove that the claimant was in breach of the contract and has abandoned the work and failed to complete the contracted task, as per the contract. The Arbitral tribunal found that the delay was on the part of both the sides and the claimant was illegally stopped from performing its contractual obligations under the agreement though it was ready and willing to do so and for that the fault lies at the end of the appellant. Pertinent is note that various submissions were made by the learned Senior counsel for the appellant herein in an effort to demonstrate before us that the delay in completion of work was on the part of the claimant, inasmuch as, the claimant itself had admitted in the communication dated 25.06.2008 that the desired progress could not be achieved and only 70% was achieved of the planned. And as such, as per the own admission of the claimant, the project could not have been completed within the stipulated time, which was upto 30.06.2008. No fault, thus, could be attached to the action of the appellant by forming an opinion that it was impossible for the claimant to achieve the target of completion of work the by 30.06.2008.
37. It was argued that there was, thus, no justification for Page 17 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined the Arbitral Tribunal to hold that the claimant was ready and willing to perform contractual obligations under the agreement, but it was the appellant who did not allow the claimant to complete the project. This was all the more not acceptable for the findings recorded by the learned Arbitral Tribunal that the stand of the appellant that major part of the work remained incomplete and it was not possible for the claimant to complete the project within the extended time upto 30.06.2008, appears to be plausible.
38. Once the learned Arbitral Tribunal has reached at the said conclusion that even according to the claimant, desired progress could not be achieved and only 70% of the work had been done and the appellant was right in submitting that the project could not have been completed within the stipulated time, i.e. by 30.06.2008, nothing could have been paid. The submission is that the learned Arbitral Tribunal has erred in answering Issue no.2 against the appellant that the claimant was not in breach of the contract. The breach of the contract because of the failure on the part of the claimant to complete the contracted task as per the contract by the extended period upto 30.06.2008, was proved from the facts noted by the learned Arbitral Tribunal. The submission, thus, is that the conclusion drawn by the learned Arbitral Tribunal in awarding the claimant's claim would be in contravention to the fundamental policy of India and, thus, in conflict with the basic notions of justice.
39. Analysing the above submissions, suffice it to say that there is no explanation on the part of the appellant nor any Page 18 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined submissions could be made before us to explain the action of the appellant in stopping the manpower of the claimant to enter into the premises after 14.06.2008 onwards. Still 15 days were left for completion of the project within the extended time agreed between the parties, which was upto 30.06.2008. No explanation is forthcoming as to whether any notice of breach of contract for non-completion of the work within the time agreed under the contractual terms arrived between the parties, was issued to the claimant contractor. No notice was issued to the claimant-contractor to say that the work executed by it was not as per the technical specifications required for construction of chimney. The issues raised about the "tilt" observed by the appellant and the assertions that the work undertaken and done by the claimant was defective has been decided against the appellant with the findings by the learned Arbitral Tribunal that the work done by the claimant was certified, approved, and accepted by the appellant and part payment was released.
40. There was absolutely no notice on allegations that the work done by the claimant was not in accordance with the specifications under the contract. For any abrasion occurred during the execution of the work, corrections had been made by the claimant and further work was executed as per the agreed terms arrived between the parties, whereunder, it was agreed that the claimant-contractor would complete the project within the extended time which was upto 30.06.2008. For any own understanding of the appellant that it was not possible for the claimant-contractor to complete the work within the stipulated period for stopping manpower of the Page 19 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined claimant to enter into the premises from 14.06.2008 onwards, we cannot attach any infirmity to the arbitral award.
41. The facts of the case present a story where the appellant was found to be at fault in not permitting the claimant contractor to enter into the premises to perform its contractual obligations under the agreement by stopping the contractor to work when 15 days time was left for completion of the project, as agreed between the parties. The opinion drawn by the Court under Section 34 that the work of chimney so done by the claimant was being used by the appellant without any protest or objection could not be assailed before us. And as such, the conclusion drawn by the arbitral tribunal that the claimant is entitled to the amount for the work which he has done and also for the work which he was ready and willing to do under the contract, does not warrant any interference by this Court. On the Issue nos. 1, 2 and 3 adjudicated by the learned arbitrator, the submissions made by the learned Senior counsel for the appellant, are liable to be turned down. The rejection of the counter claim by the learned Arbitral Tribunal is found to be justified in the facts and circumstances of the present case.
42. As regards the submissions of the appellant that the learned arbitral tribunal has awarded claimant, amounts beyond the Statement of Claim made by the claimant- contractor, pertinent is to record that no dispute can be raised about the incorporation of RA Bill No. 09 in the Statement of Claim "Annexure C-13" enclosed as computation of claimant under Claim no.1 extracted hereinbefore. The details of the Page 20 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined bills submitted as Annexure C-13 at page '95' of the paper book being part of the Statement of Claim, it cannot be argued successfully by the learned Senior counsel for the appellant that there was no claim towards the pending payment under RA Bill No.09 dated 02.02.2008 of Rs. 21.68 lakhs against which payment of Rs. 10 lakhs (Rs.999,000.00) was already made by the appellant on 26.04.2008. It seems that the said amount towards payment has been adjusted in the Statement of Claim by the claimant-contractor towards RA Bill No. 10, whereas in the statement of billing details submitted by the appellant herein, the paid amount was adjusted against RA Bill No.09.
43. In any case, there is no dispute about the total amount of Rs. 1,68,78,210/- paid to the claimant contractor against the RA Bill Nos. 01 to 08 and RA Bill No. 09 as is clear from the statements of bills submitted and the payment received upto 01.04.2007 to 01.08.2010, submitted by the rival parties before the learned arbitrator.
44. We, therefore, do not find any infirmity in the arbitral award for granting the unpaid amount towards RA Bill No. 09 incorporated in the summary of claims allowed under Claim No.1, which reads as under :-
Sr. Item No. Bill No. Claim No. Amount On acct. of No. 1 1 9 1 10,68,548 Completed chimney 2 4 10 10,67,420 Cage-ladder & Platform 3 5 17,98,726 Retention Money 4 6 11 9,60,678 Aviation light, painting 5 7 12 16,01,130 Refractory work Page 21 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined 6 8 13 2,75,000 Wind breaker 7 9 12 TDS Declaration 8 10 14 Work contract tax Declaration 9 13 16 28,420 Transportation charges Total 67,99,922
45. The only issue now remains is as to whether the claimant is entitled to the payment of retention money of Rs.17,98,726/-, which was deducted from the RA Bill Nos. 01 to 08 and was payable with the final bill and handing over of chimney. There is no dispute about the fact that the said amount was deducted from RA Bill Nos. 01 to 08 and was payable as per the conditions of the Work Order, noted hereinbefore.
46. The findings of the learned Arbitral Tribunal on Item No. 5 as retention money incorporated in Claim no.1, in the award reads as under :-
"Item No. 5: Retention Money - Rs. 17,98,726/-
The claimant had submitted that on 20 November 2008 (Vol. III; p.359), it was agreed that the Retention Money deducted is Rs.17,98,726/-. It was also agreed that this amount shall be paid with final bill and handing over of Chimney. The Respondent at Vol. III; p.365 has stated that the Retention Money deducted is Rs.21,07,726/-, which include Retention Money of Rs.3,09,000/- deducted against R.A. Bill Nos.9 and 10. As the R.A. Bill Nos.9 and 10 have not been paid fully and there is separate claim for same (without deducting Retention Money), thus balance Retention Money is Rs. 17,98,726/-
as per Respondent. The amount claimed by the Claimant towards Retention Money is payable.
The respondent has submitted (Vol.III; p.354) that the claimant claims the security deposit of Rs. 17,98,726/-. No security deposit was furnished by the Claimant. In Page 22 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined any case, it is an admitted fact that on 13 May 2008, when the claimant wrote the letter appearing on Vol. III; p. 354, the work was not completed and the claimant was still to give the programme for completion on or before 30 June 2008. The retention money were to be retained till after the expiry of defect liability period. There can be no question of release of security deposit as claimed in the letter dated 13 May 2008 and such amount could not have been shown as outstanding.
Vol III, p.363 clearly mentions that this amount of security deposit will be paid "on the final bill and handing over". There was no dispute about the amount and the liability to the claimant. The time for payment was "on the final bill and handing over".
We have already held that the respondent has wrongfully and illegally prevented claimant from completing the work and reaching the stage of final Bill and handing over by the claimant. The respondent had taken over by itself by expelling the claimant. The claimant is, hence, entitled to this amount from the respondent and the respondent is liable to pay this amount of Rs. 17,98,726/- to the claimant. Item no. 5 of claim No. 1.
47. We may note that the learned Arbitral Tribunal has recorded that the claimant-contractor had demanded the retention money against the RA Bill Nos. 09 and 10, inasmuch as, in the Statement of Claim, the entire amount towards RA Bill Nos. 09 and 10 which have not been paid fully without deducting retention money has been claimed.
48. It is contended by the learned counsel for the appellant that there is no claim in the Statement of Claim submitted by the claimant contractor before the learned Arbitral Tribunal for payment of retention money of Rs.17,98,726/- deducted from RA Bill No.01 to RA Bill No. 08, which was payable only after the final bill was submitted and handing over of chimney Page 23 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined on completion of the project.
49. It was submitted that it can not be demonstrated by the learned counsel for the claimant-contractor that the retention money of Rs.17,98,726/- which was kept on hold after deductions from the RA Bill no. 01 to RA Bill no.08 was part of the Statement of Claim submitted by it. The entire Statement of Claim is silent about the said amount.
50. It is further contended that as per the statement made in the Statement of Claim, the claimant had offered to forgo its other claims in case the appellant (respondent therein) releases payment of the outstanding bills and equipments. The statement in Claim No. 1 for the balance amount of Rs. 89,54,865/- towards the work done as per the details of the bills submitted by the claimant in the Table at page '95' of the paper book, does not incorporate the deducted amount of retention money kept on hold to the tune of Rs. 17,98,726/- against the RA Bill No. 01 to RA Bill No.08.
51. It was, thus, submitted that the deducted amount of retention money of Rs. 17,98,726/- from RA Bill No. 01 to RA Bill No. 08 was forgone by the claimant contractor. There is nothing on record nor it could be demonstrated that the said amount was added by making any additional claim or amendment in the Statement of Claim by the claimant- contractor before the learned arbitrators. It is not clear as to how the Item No.5 towards retention money of Rs. 17,98,726/- was added in the Statement of Claim no.1 by the learned Arbitral Tribunal while deciding the Issue no.4 in the final table extracted hereinbefore.
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52. Dealing with the above, we may note the issue no.4 framed by the learned Arbitrator, which reads as under :-
"(4) Whether the Claimant proves its claim of Rs.1,00,84,865/- (or any other amount) against the respondent on account of the balance payment for the work done?
53. The discussion by the learned Arbitrator while deciding Issue no.4 on Claim no.1, included Items (13 in number), in a table under various heads, which is extracted hereinunder :-
"We may consider the following 13 items under this head. Each items requires separate consideration. They are as follows Item No. Bill No. Claim No. Amount On acct. of 1 9 1 10,68,548 Completed chimney 2 9,50,000 Re-engineering 3 1,80,000 Extra work 4 10 10,67,420 Cage-ladder & platform 5 17,98,726 Retention Money 6 11 9,60,678 Aviation light, painting 7 12 16,01,130 Refractory work 8 13 3,08,990 Wind breaker 9 12 3,44,035 TDS Declaration 10 14 8,52,138 Work contract tax Declaration 11 15 4,20,676 Rental for non-release of equipment from June 2008 to February 2009 12 15 Rental for non-release of equipment from February 2009 13 16 28,420 Transportation charges "
54. The summaries of claim allowed under Claim No.1 has already been extracted in para '43' hereinbefore. It is evident that while partly answering the issue no.4 in the affirmative under Claim no.1 and holding that the claimant is entitled to a Page 25 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined sum of Rs.67,49,992/- from the appellant, Item no.5 towards retention money of Rs. 17,98,726/- was incorporated, both in the table containing 13 items and summaries of claim allowed under Claim no.1.
55. A perusal of the details of bills and payments received upto 01.04.2007 - 01.08.2010, i.e. the computation of claims enclosed as Annexure 'C-13' of the Statement of claim by the claimant-contractor indicates that the claim was made for the entire amount of Rs. 2,38,29,655.00 against recurring bills, viz. RA Bill No.01 to RA Bill No. 15 and T-16 submitted for the period from 09.04.2007 till 20.02.2009. The total bill amount after inclusion of the service tax has been given in the table to the tune of Rs. 2,61,73,110.00 and as noted hereinbefore, after deduction of the payments made through the cheques against RA Bill No.01 to RA Bill No.09 (RA Bill No. 10) for the total amount of Rs. 1,68,78,210.00 and the TDS for the amount of Rs. 3,40,035.00, the balance of Rs.89,54,865.00 towards the work done and completed by the claimant contractor uptil 14.06.2008, when the manpower of the claimant contractor was denied entry into the premises, was incorporated in the Statement of Claim.
56. We may note from the billing details given by the appellant in their Written Statement before the arbitral tribunal appended at page '774' of the paper book that there was no dispute about the retention money kept on hold to the tune of Rs. 17,98,726/- against the payments made towards RA Bill No. 01 to RA Bill No. 08.
57. At the cost of repetition, it may be reiterated here that Page 26 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined the total amount claimed by the claimant-contractor to the tune of Rs. 89,54,865/- towards the work done, is comparable with the statement of the billing details given by the appellant before the Arbitral Tribunal, appended at page '774' of the paper book. It is, thus, clear that the claimant in the computation of claim appended at Annexure 'C-13 to the Statement of Claim though did not make a specific demand towards the retention money of Rs. 17,98,726/- (deducted from RA Bill No. 01 to RA Bill No. 08), but the demand towards the entire payment for the work done against the said RA bills was included in the computation of unpaid amount.
58. We may note, at this juncture, that at the first blush, during the course of arguments, while disposing of the present appeal pending reasoned judgment, we were of the tentative view that the Arbitral Tribunal has erred in awarding retention money of Rs. 17,98,726/- kept on hold against the RA Bill No. 01 to RA Bill No. 08, but on a deeper scrutiny of the Statement of Claim, the computation of claim appended as Annexure 'C-13' and billing details submitted by the appellant in response to the Statement of Claim, we find that the Arbitral Tribunal cannot be said to have erred in law in awarding the retention money deducted by the appellant to the tune of Rs. 17,98,726/- (RA Bill No. 01 to RA Bill No. 08).
59. The only argument made by the learned Senior counsel appearing for the appellant that the said amount was not a part of the Statement of Claim submitted by the claimant contractor before the Arbitral Tribunal and the decision of the Arbitral Tribunal came out of the blue without there being any Page 27 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined claim thereof, does not appeal to us for the reasoning given by the Arbitral Tribunal as extracted hereinbefore.
60. A perusal of the reasoning given by the Arbitral Tribunal as noted hereinbefore indicates that the appellant was found to be at fault for stopping the entry of the manpower of the claimant-contractor from 14.06.2008 onwards, even when the stipulated time agreed between the parties for completion of the project, i.e. by 30.06.2008, was not over. The whole case of the appellant that the claimant-contractor had abandoned the work and left the site was disbelieved by the Arbitral Tribunal and we do not find any infirmity in the said finding.
61. The reasoning given by the Arbitral Tribunal for awarding the retention money (deducted) to the tune of Rs.17,98,726/- is that once it had reached at the conclusion that the appellant had wrongly and illegally prevented the claimant contractor from completing the work and reaching the stage of final bill and handing over the chimney by the claimant, the claimant-contractor is entitled to payment of the entire amount towards recurring bills submitted by him for the work done, and hence the claimant is entitled for the deducted amount of retention money from RA Bill No. 01 to RA Bill No. 08.
62. From the reasoning given by the Arbitral Tribunal, it can be discerned that the Tribunal has reached at the conclusion that once the appellant had taken over the project by itself by expelling the claimant, there was no question to agitate that the retention money was to be paid only on the final bill and handing over of the project, as initially agreed between the Page 28 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined parties.
63. This reasoning given by the Arbitral Tribunal for award of retention money cannot be said to be unsound or perverse, being contrary to the material on record. The conclusion drawn by the Tribunal that as the appellant was at fault in taking over the project by throwing out the claimant contractor before the stipulated period for completion of project was over, cannot be said to be on extraneous consideration.
64. Moreover, it is settled law that in the inquiry under Section 37 of the Act' 1996, even a mistake of fact and law would not be a reason to upset the award unless and until the award shocks the conscience of the Court to hold that the view of the Arbitral Tribunal was not a plausible view based on the material on record, in line with the Wednesbury Principles of enquiry at the threshold of opinion formed by a reasonable man of ordinary prudence.
65. It is settled that the scope of inquiry under Section 37 of the Act' 1996 is not an inquiry as a Court of appeal and re- appreciation of evidence is impermissible so as to draw a different conclusion than the conclusion drawn by the arbitral tribunal. Upsetting the view of the Arbitral Tribunal on re- appreciation of evidence on record, terming it as arbitrary or perverse, is wholly impermissible.
66. We are conscious of the fact that the award in question was rendered before the Amendment Act No. 3 of 2016 came into force with effect from 23.10.2015. The position of law Page 29 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined for the inquiry under Section 37 of the Act' 1996 during the pre-amendment era is governed by the decision of the Apex Court in Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49], wherein considering the parameters laid down as to the limitations with the Court hearing objections to an arbitral award under Section 34 (unamended) read with Section 5 of the Arbitration Act' 1996, it was observed in paragraphs '16' & '17' as under :-
"16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimise the supervisory roles of courts in the arbitral process.
17. It will be seen that none of the grounds contained in sub-section (2)(a) of Section 34 deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances."
67. Further, on the expression "the public policy of India"
contained in Section 34(2)(b)(ii) of the Arbitration Act' 1996, the decisions of the Apex court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705], was noted in paragraph '19' as under :-
"19. When it came to construing the expression "the public policy of India" contained in Section 34(2)(b)(ii) of the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held : (SCC pp. 727-28 & 744-45, paras 31 & 74) Page 30 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined "31. Therefore, in our view, the phrase 'public policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be--award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.
* * *
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:
(i) a party was under some incapacity, or Page 31 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any Page 32 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside mainly on the grounds:
(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was of the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-
estimate of damages;
(iv) on the request of the respondent to extend the time-limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;
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(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable;
(vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract."
68. The Apex Court therein has noted the decision in Renusagar Power Co. Ltd. v. General Electric Co. [1994 Supp (1) SCC 644] and further the decisions rendered following ONGC Ltd. v. Saw Pipes Ltd. (supra), to observe in paragraphs '20', '21', '22', '23', '24', '25' and '26' as under :-
"20. The judgment in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] has been consistently followed till date.
21. In Hindustan Zinc Ltd. v. Friends Coal Carbonisation [(2006) 4 SCC 445] , this Court held :
(SCC p. 451, para 14) "14. The High Court did not have the benefit of the principles laid down in Saw Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629] , and had proceeded on the assumption that award cannot be interfered with even if it was contrary to the terms of the contract. It went to the extent of holding that contract terms cannot even be looked into for examining the correctness of the award. This Court in Saw Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629] has made it clear that it is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."Page 34 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025
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22. In McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , this Court held : (SCC pp. 209-10, paras 58-60) "58. In Renusagar Power Co. Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] this Court laid down that the arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law; (b) the interests of India; or (c) justice or morality. A narrower meaning to the expression 'public policy' was given therein by confining judicial review of the arbitral award only on the aforementioned three grounds. An apparent shift can, however, be noticed from the decision of this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] (for short 'ONGC'). This Court therein referred to an earlier decision of this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC 156 : 1986 SCC (L&S) 429 : (1986) 1 ATC 103] wherein the applicability of the expression 'public policy' on the touchstone of Section 23 of the Contract Act, 1872 and Article 14 of the Constitution of India came to be considered. This Court therein was dealing with unequal bargaining power of the workmen and the employer and came to the conclusion that any term of the agreement which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power would not only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Contract Act, 1872. In ONGC [(2003) 5 SCC 705 : AIR 2003 SC 2629] this Court, apart from the three grounds stated in Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] , added another ground thereto for exercise of the court's jurisdiction in setting aside the award if it is patently arbitrary.
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59. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter.
60. What would constitute public policy is a matter dependent upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular Government. (See State of Rajasthan v. Basant Nahata [(2005) 12 SCC 77] .)"
23. In Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. [(2006) 11 SCC 245] , Sinha, J., held : (SCC p. 284, paras 103-04) "103. Such patent illegality, however, must go to the root of the matter. The public policy, indisputably, should be unfair and unreasonable so as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act.
104. What would be a public policy would be a matter which would again depend upon the nature of transaction and the nature of statute. For the said purpose, the pleadings of the parties and the Page 36 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined materials brought on record would be relevant so as to enable the court to judge the concept of what was a public good or public interest or what would otherwise be injurious to the public good at the relevant point as contradistinguished by the policy of a particular Government. (See State of Rajasthan v. Basant Nahata [(2005) 12 SCC 77] .)"
24. In DDA v. R.S. Sharma and Co. [(2008) 13 SCC 80] , the Court summarised the law thus : (SCC pp. 91-92, para 21) "21. From the above decisions, the following principles emerge:
(a) An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section 34(2) of the Act.
(b) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.
(d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is Page 37 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined patently illegal and opposed to the public policy of India.
With these principles and statutory provisions, particularly, Section 34(2) of the Act, let us consider whether the arbitrator as well as the Division Bench of the High Court were justified in granting the award in respect of Claims 1 to 3 and Additional Claims 1 to 3 of the claimant or the appellant DDA has made out a case for setting aside the award in respect of those claims with reference to the terms of the agreement duly executed by both parties."
25.J.G. Engineers (P) Ltd. v. Union of India [(2011) 5 SCC 758 : (2011) 3 SCC (Civ) 128] held : (SCC p. 775, para 27) "27. Interpreting the said provisions, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 :
AIR 2003 SC 2629] held that a court can set aside an award under Section 34(2)(b)(ii) of the Act, as being in conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian law; or (b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy."
26.Union of India v. Col. L.S.N. Murthy [(2012) 1 SCC 718 : (2012) 1 SCC (Civ) 368] held : (SCC p. 724, para
22) "22. In ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] this Court after examining the grounds on which an award of the arbitrator Page 38 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined can be set aside under Section 34 of the Act has said : (SCC p. 727, para 31) '31. ... However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal'."
69. Considering the grounds to set aside an arbitral award as stated in the aforesaid decisions, namely (a) fundamental policy of Indian law; (b) the interest of India; (c) justice or morality; or in addition (d) if it is patently illegal, laying down the test for each of the grounds in paragraphs '29', '33', '34', '35', '36', '39' and '42', it was held therein as under :-
Fundamental Policy of Indian Law "29. It is clear that the juristic principle of a "judicial approach" demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective."
"33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in Page 39 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined quality to a trained legal mind would not be held to be invalid on this score [Very often an arbitrator is a lay person not necessarily trained in law. Lord Mansfield, a famous English Judge, once advised a high military officer in Jamaica who needed to act as a Judge as follows:"General, you have a sound head, and a good heart; take courage and you will do very well, in your occupation, in a court of equity. My advice is, to make your decrees as your head and your heart dictate, to hear both sides patiently, to decide with firmness in the best manner you can; but be careful not to assign your reasons, since your determination may be substantially right, although your reasons may be very bad, or essentially wrong". It is very important to bear this in mind when awards of lay arbitrators are challenged.] . Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC (Civ) 342] , this Court held : (SCC pp. 601-02, para 21) "21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at."Page 40 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025
NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined
34. It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood.
Interest of India
35. The next ground on which an award may be set aside is that it is contrary to the interest of India. Obviously, this concerns itself with India as a member of the world community in its relations with foreign powers. As at present advised, we need not dilate on this aspect as this ground may need to evolve on a case-by-case basis."
Justice
36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him Rs 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice"
Morality "39. This Court has confined morality to sexual morality so far as Section 23 of the Contract Act, 1872 is concerned, which in the context of an arbitral award would mean the enforcement of an award say for specific performance of a contract involving prostitution.
"Morality" would, if it is to go beyond sexual morality necessarily cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. However, interference on this ground would also be only if something shocks the court's conscience."Page 41 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025
NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined Patent Illegality "42. In the 1996 Act, this principle is substituted by the "patent illegality" principle which, in turn, contains three subheads:
42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:
"28.Rules applicable to substance of dispute.--(1) Where the place of arbitration is situated in India--
(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"
42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality -- for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.
42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:
"28.Rules applicable to substance of dispute.--
(1)-
(2)*** (3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."Page 42 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025
NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do."
70. Thus, in the case of Associate Builders (supra), the Apex Court elucidated the contours of patent illegality as a discrete ground under public policy for setting aside awards under Section 34 of the Arbitration and Conciliation Act, 1996. The Court identified three limbs: (a) contravention of substantive law going to the root of the matter; (b) breach of the Arbitration Act itself, e.g., failure to give reasons, violating Section 31(3); and (c) disregard of contractual terms or trade usage, thereby exceeding jurisdiction in terms of Section 28(3). Crucially, it held that an arbitrator's view must be one that no fair-minded or reasonable person could take, such that it is not even a possible view, to trigger patent illegality.
71. Further, while deliberating on the tests to interfere with an arbitral award on any of the aforesaid four grounds stated in ONGC Ltd. v. Saw Pipes Ltd. (supra), considering Renusagar Power Co. Ltd. (supra), it was observed in paragraphs '43', '44', '45' as under :-
43. In McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , this Court held as under :
(SCC pp. 225-26, paras 112-13) Page 43 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined "112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract.
Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil and Natural Gas Commission [(2003) 8 SCC 593 : 2003 Supp (4) SCR 561] and D.D. Sharma v. Union of India [(2004) 5 SCC 325] .]
113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan [(2011) 10 SCC 573 : (2012) 3 SCC (Civ) 818] , the Court held : (SCC pp. 581-82, para 17) "17. If the arbitrator commits an error in the construction of the contract, that is an error45. within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what Page 44 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. (See Gobardhan Das v. Lachhmi Ram [(1954) 1 SCC 566 : AIR 1954 SC 689] , Thawardas Pherumal v. Union of India [AIR 1955 SC 468] , Union of India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362] , Alopi Parshad & Sons Ltd. v. Union of India [AIR 1960 SC 588] , Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC 214] and Renusagar Power Co. Ltd. v. General Electric Co. [(1984) 4 SCC 679 :
AIR 1985 SC 1156] )"
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [(2012) 5 SCC 306] , the Court held : (SCC pp. 320-21, paras 43-45) "43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been summarised in para 18 of the judgment of this Court in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009) 10 SCC 63 : (2009) 4 SCC (Civ) 16] and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] to which one of us (Gokhale, J.) was a party. The observations in para 43 thereof are instructive in this behalf.
45. This para 43 reads as follows : (Sumitomo case [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] , SCC p. 313) Page 45 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined '43. ... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding.'"
72. Applying those tests, while considering the validity of the decision of the Division Bench of the High Court which had interfered with the arbitral award on several counts, it was concluded in paragraph '56', as under :-
"56. Here again, the Division Bench has interfered wrongly with the arbitral award on several counts. It had no business to enter into a pure question of fact to set aside the arbitrator for having applied a formula of 20 months instead of 25 months. Though this would inure in favour of the appellant, it is clear that the appellant did not file any cross-objection on this score. Also, it is extremely curious that the Division Bench found that an adjustment would have to be made with claims awarded under Claims 2, 3 and 4 which are entirely separate and independent claims and have nothing to do with Claims Page 46 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined 12 and 13. The formula then applied by the Division Bench was that it would itself do "rough and ready justice". We are at a complete loss to understand how this can be done by any court under the jurisdiction exercised under Section 34 of the Arbitration Act. As has been held above, the expression "justice" when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the arbitrator's view and does what it considers to be "justice". With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact."
73. The conclusion drawn by the Apex Court in Associate Builders (supra), thus, are that in exercise of jurisdiction under Section 34 of the Arbitration Act on the available grounds, the Court can interfere only if the award shocks the conscience of the Court. It is not open for the Court to substitute its view for the arbitrator's view on the premise that it thinks the arbitrator's view as unjust on the facts of a case or what it considers to be "justice" by forming an alternative view. It is to be kept in mind that the Court under Section 34 is not a first appellate court and cannot interfere with the errors of fact perceived by it on re-appreciation of evidence.
74. The Apex in Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd. reported in (2020) SCC Online SC 466 reaffirmed the statutory incorporation of patent illegality via Section 34(2A), through the 2015 amendment. It underscored that an award may be set aside if Page 47 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined the arbitrator's interpretation is irrational or perverse, if it strays beyond contractual scope, or fails to provide reasons, even post-amendment. The Apex Court in Patel Engineering (Supra) has held as under:-
"18. The Law Commission in its 246th Report recommended the insertion of the ground of 'patent illegality' for setting aside a domestic award by the insertion of clause (2A) in Section 34 of the Act. The relevant extract from the Report of the Law Commission is extracted herein below:-
"35. It is for this reason that the Commission has recommended the addition of section 34 (2A) to deal with purely domestic awards, which may also be set aside by the Court if the Court finds that such award is vitiated by "patent illegality appearing on the face of the award." In order to provide a balance and to avoid excessive intervention, it is clarified in the proposed proviso to the proposed section 34 (2A) that such "an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciating evidence." The Commission believes that this will go a long way to assuage the fears of the judiciary as well as the other users of arbitration law who expect, and given the circumstances prevalent in our country, legitimately so, greater redress against purely domestic awards. This would also do away with the unintended consequences of the decision of the Supreme Court in ONGC v. Saw Pipes Ltd, (2003) 5 SCC 705, which, although in the context of a purely domestic award, had the unfortunate effect of being extended to apply equally to both awards arising out of international commercial arbitrations as well as foreign awards, given the statutory language of the Act. ..."
(emphasis supplied) Page 48 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined To give effect to the said recommendation, it was suggested that:
"18. ... (iii) After the Explanation in sub-section (2), insert sub-section '(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence."
[NOTE: The proposed S.34(2A) provides an additional, albeit carefully limited, ground for setting aside an award arising out of a domestic arbitration (and not an international commercial arbitration). The scope of review is based on the patent illegality standard set out by the Supreme Court in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. The proviso creates exceptions for erroneous application of the law and re- appreciation of evidence, which cannot be the basis for setting aside awards.]"
(emphasis supplied)
19. Pursuant to the recommendations of the Law Commission, the 1996 Act was amended by Act 3 of 2016, which came into force w.e.f. 23.10.2015. The ground of "patent illegality" for setting aside a domestic award has been given statutory force in Section 34(2A) of the 1996 Act. The ground of "patent illegality"
cannot be invoked in international commercial arbitrations seated in India. Even in the case of a foreign award under the New York Convention, the ground of "patent illegality" cannot be raised as a ground to resist enforcement, since this ground is absent in Section 48 of the 1996 Act. The newly inserted sub-section (2A) in Section 34, reads as follows:-
Page 49 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined "34.(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence."
20. In Ssangyong Engineering and Construction Company Limited, this Court was considering a challenge to an award passed in an international commercial arbitration, between the Appellant -
company a foreign entity registered under the laws of Korea, and the Respondent, a Government of India undertaking. In paragraph (19) of the judgment, this Court noted that the expansive interpretation given to "public policy of India" in the Saw Pipes (supra) and WesternGeco International Limited cases, which had been done away with, and a new ground of "patent illegality" was introduced which would apply to applications under Section 34 made on or after 23.10.2015. In paragraphs (36) and (37) of the judgment, this Court held that insofar as domestic awards are concerned, the additional ground of patent illegality was now available under sub-section (2A) to Section 34. However, re-appreciation of evidence was not permitted under the ground of "patent illegality"
appearing on the face of the award."
75. In Delhi Metro Rail Corporation Ltd v. Delhi Airport Metro Express Pvt. Ltd. reported in (2024) 6 SCC 357, the Apex Court sounded a note of caution, warning of a "disturbing tendency" of courts re-appreciating facts and using patent illegality as a facade for appellate review of arbitral awards, a practice that undermines the minimal- interference ethos of the Arbitration Act. The Apex Court noted the above-stated judgments and held as under:-
Page 50 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined "35. In Associate Builders vs. Delhi Development Authority, a two-judge Bench of this Court held that although the interpretation of a contract is exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would take, is impermissible. A patent illegality arises where the arbitrator adopts a view which is not a possible view. A view can be regarded as not even a possible view where no reasonable body of persons could possibly have taken it. This Court held with reference to Sections 28(1)(a) and 28(3), that the arbitrator must take into account the terms of the contract and the usages of trade applicable to the transaction. The decision or award should not be perverse or irrational.
An award is rendered perverse or irrational where the findings are:
(i) based on no evidence;
(ii) based on irrelevant material; or
(iii) ignores vital evidence.
36. Patent illegality may also arise where the award is in breach of the provisions of the arbitration statute, as when for instance the award contains no reasons at all, so as to be described as unreasoned.
37. A fundamental breach of the principles of natural justice will result in a patent illegality, where for instance the arbitrator has let in evidence behind the back of a party. In the above decision, this Court in Associate Builders v. DDA observed:
"31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
42.1 ... 42.2. (b) A contravention of the Arbitration Page 51 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined Act itself would be regarded as a patent illegality, for example, if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside."
(emphasis supplied)
38. In Ssangyong Engineering & Construction Co. Ltd. vs. NHAI , a two- judge bench of this Court endorsed the position in Associate Builders (supra), on the scope for interference with domestic awards, even after the 2015 Amendment:
"40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. ... Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
(emphasis supplied)
39. In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view. A 'finding' based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse Page 52 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined and liable to be set aside under the head of 'patent illegality'. An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice."
76. Taken together, these authorities outline a clear doctrinal trajectory: Associate Builders (Supra) laid down a principled test for patent illegality, rooted in perverse reasoning, jurisdictional excess, or failure to reason, later codified by the 2015 amendment. Patel Engineering (Supra) confirmed the amendment's retrospective application and reinforced the test; and Delhi Metro (Supra) cautioned courts against overreach in the guise of the doctrine. The trend thus underscores judicial restraint, fidelity to contractual terms, and the narrow, face-value character of patent illegality as a review ground.
77. In light of the above legal position governing the scope of interference in an arbitral award under under Section 34 (unamended) of the Act' 1996, we are of the view that it is not permissible for us to substitute our view with the arbitrator's view in awarding the Retention Money, which the Arbitral Tribunal found just in the facts and circumstances of the case. The award cannot be said to be unfair and unreasonable so as to shock the conscience of the Court. The alleged patent illegality or perversity on the grounds agitated before us in awarding the Retention Money by the Arbitral Tribunal, cannot be said to be such which goes to the root of the matter.
78. The interpretation made by the Arbitral Tribunal about the claims incorporated in the Statement of Claim to award Page 53 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined the Retention Money cannot be substituted by us as a court of appeal, inasmuch as, it is not open for the Court making inquiry into the correctness of the award within the scope of Section 34/37 of the Act' 1996, to correct the errors of the facts perceived by it.
79. At the cost of repetition, we may reiterate, at this juncture, that the Commercial Court while rejecting the application under Section 34 of the Act' 1996 has clearly noted that the work of chimney completed by the claimant contractor uptil 14.06.2008, was being used by the appellant without any protest and objection. It was held that the conclusion arrived at by the Arbitral Tribunal that the claimant is entitled to payment for the amount of the work which he had done and also for the work he was ready and willing to do under the contract, therefore, does not warrant any interference by the Court under Section 34 of the Act' 1996. The concurrent findings of fact recorded by the Arbitral Tribunal and the Court under Section 34 for the award of claim made towards the work done is not open for interference within the scope of Section 37 of the Act' 1996, which is even narrower than the scope of inquiry under Section 34 of the Act' 1996.
80. We may conclude with the observations made by the Apex Court about the scope of inquiry under Section 37 of the Act' 1996 in Punjab State Civil Supplies Corpn. Ltd. v. Sanman Rice Mills [2024 SCC OnLine SC 2632] and C & C Constructions Ltd. v. IRCON International Ltd. [(2025) 4 SCC 234], wherein it was stated that :-
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"14. It is equally well settled that the appellate power under Section 37 of the Act is not akin to the normal appellate jurisdiction vested in the civil courts for the reason that the scope of interference of the courts with arbitral proceedings or award is very limited, confined to the ambit of Section 34 of the Act only and even that power cannot be exercised in a casual and a cavalier manner."
"17. In paragraph 14 of MMTC Limited v. Vedanta Limited,6 it has been held as under:
"14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."
18. Recently a three-Judge Bench in Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking7 referring to MMTC Limited (supra) held that the scope of jurisdiction under Section 34 and Section 37 of the Act is not like a normal appellate jurisdiction and the courts should not interfere with the arbitral award lightly in a casual and a cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle the courts to reverse the findings of the arbitral tribunal.
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19. In Bombay Slum Redevelopment Corporation Private Limited v. Samir Narain Bhojwani8, a Division Bench of this Court followed and reiterated the principle laid down in the case of MMTC Limited (supra) and UHL Power Company Limited v. State of Himachal Pradesh9. It quoted and highlighted paragraph 16 of the latter judgment which extensively relies upon MMTC Limited (supra). It reads as under:
"16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293], the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act have been explained in the following words : (SCC pp. 166-67, para 11) "11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, Page 56 of 59 Uploaded by BIJOY B. PILLAI(HC00202) on Fri Aug 29 2025 Downloaded on : Fri Aug 29 22:54:08 IST 2025 NEUTRAL CITATION C/FA/4031/2017 ORDER DATED: 12/08/2025 undefined compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., [1948] 1 K.B. 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.""
(2) C & C Constructions Ltd. (supra) :-
"34. As far as scope of interference in an appeal under Section 37 of the Arbitration Act is concerned, the law is well settled. In Larsen Air Conditioning & Refrigeration Co. v. Union of India [Larsen Air Conditioning & Refrigeration Co. v. Union of India, (2023) 15 SCC 472] in para 15, this Court held thus : (SCC p. 478) "15. The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality i.e. that 'illegality must go to the root of the matter and cannot be of a trivial nature'; and that the Tribunal 'must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground' [ref : Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , SCC p. 81, para 42]. The other ground would be denial of natural justice. In appeal, Section 37 of the Act grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section
34."
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35. In Konkan Railway Corpn. Ltd. v. Chenab Bridge Project [Konkan Railway Corpn.
Ltd. v. Chenab Bridge Project, (2023) 9 SCC 85 :
(2023) 4 SCC (Civ) 458] in para 18, this Court held thus : (SCC p. 93) "18. At the outset, we may state that the jurisdiction of the court under Section 37 of the Act, as clarified by this Court in MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , is akin to the jurisdiction of the court under Section 34 of the Act. [ Id, SCC p. 167, para 14:"14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision."] Scope of interference by a court in an appeal under Section 37 of the Act, in examining an order, setting aside or refusing to set aside an award, is restricted and subject to the same grounds as the challenge under Section 34 of the Act."
81. In view of the above discussion, we do not find any error in the judgment and order dated 10.11.2017 passed by the Commercial Court, namely Judge, Commerical Court, City Civil Court, Ahmedabad in rejecting the application under Section 34 of the Arbitration Act' 1996 in Commercial Civil Misc. Application No. 68 of 2016 (Old Civil Misc. Application No. 828 of 2012), challenging the award dated 14.06.2012 passed by the Arbitral tribunal.
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82. The present appeal stands dismissed, accordingly. No order as to costs.
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