[Cites 19, Cited by 0]
Delhi High Court
Mmtc Limited vs M/S Knowledge Infrastructure & Anr on 19 March, 2026
Author: Subramonium Prasad
Bench: Subramonium Prasad
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 19th MARCH, 2026
IN THE MATTER OF:
+ O.M.P. (COMM) 404/2020 & I.A. 3167/2020, I.A. 7887/2025, I.A.
28279/2025
MMTC LIMITED .....Petitioner
Through: Mr. Akhil Sachar, Ms. Sunanda
Tulsyan, Ms. Babita Rawat, Ms.
Kashish Maheshwari, Advs.
versus
M/S KNOWLEDGE INFRASTRUCTURE & ANR. .....Respondents
Through: Mr. Darpan Wadhwa, Sr. Advocate
with Ms.Manali Singhal Adv and Mr
Santosh Sachin Adv and Ms. Tarini
Khurana Adv
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD
JUDGMENT
1. The instant petition is filed under Section 34 of the Arbitration &
Conciliation Act, 1996, challenging an Award dated 07.11.2019 passed by
the Sole Arbitrator in the arbitration proceedings between the Petitioner and
the Respondents.
2. Shorn of unnecessary details, the facts leading to the filing of the
instant petition are as follows:-
i. Damodar Valley Corporation required supply of non-cooking
steam coal for its thermal power stations situated at Koderma,
Mejia and Durgapur.
ii. Damodar Valley Corporation entered into an agreement with the
Petitioner herein on 27.07.2012 for supply of non-cooking steam
coal to its thermal power stations at Koderma, Mejia and
Durgapur. The scope of work under the contract included
arranging vessels, stevedoring, handling, storage port clearances,
arranging railway rakes etc. at the various power stations for
which coal was required.
iii. The Petitioner, thereafter, issued a Notice Inviting Tender (NIT)
for the procurement of imported non-cooking steam coal on
'Freight on Road (FOR) Destination Basis' to the thermal power
stations of the Damodar Valley Corporation. Respondent No.1
was declared as one of the successful bidders.
iv. The Petitioner, Respondent No.1 and Respondent No.2 entered
into a tripartite agreement on 01.08.2012 for the supply of 1.119
metric tonnes of imported non-cooking steam coal to the thermal
power stations under the Damodar Valley Corporation.
v. As per the tripartite agreement, the Respondent No. 1 had to
arrange for stevedoring, handling, clearing, storage, port
clearances, arranging railway rakes, loading, transporting and
delivering at the Damodar Valley Corporation Power Stations.
vi. The tripartite agreement provided that all activities such as
forwarding and clearing of consignments, customs clearance etc.
was in the scope of work of the Respondents. The NIT and the
terms and conditions stipulated therein form a part of the tripartite
agreement.
vii. It is the case of the Respondents that they have duly performed
their obligations under the tripartite agreement in a timely manner.
Disputes arose between the parties in the matter of payment. Since
the agreement provided that the disputes were to be resolved
through arbitration, an Arbitral Tribunal, comprising of Sole
Arbitrator, was constituted. The following claims were raised by
the Respondents before the Arbitral Tribunal:-
viii. The learned Arbitrator awarded a sum of Rs.2,51,85,670/- to the
Respondents for contractual payment towards stevedoring,
handling, clearing and forwarding charges. The learned Arbitrator
awarded a sum of Rs. 1,64,38,456/- towards railway surcharge
which was retained by the Petitioner and a sum of Rs. 56,93,579/-
towards railway detention charges which were also retained by the
Petitioner. The Petitioner had approached this Court challenging
these three amounts i.e., Claim Nos. 1, 3 and 4 which have been
awarded against the Petitioner and in favour of the
Respondents/Claimants.
3. It is an admitted case of the Petitioner that Claim No.1 which is
towards stevedoring, handing, clearing and forwarding charges and Claim
No.5 which is for withholding the amount towards entry tax stand already
paid and therefore this case is restricted only to Claim No.3 and 4.
4. Claim No.3 is towards railway surcharge for the sum of
Rs.1,64,38,456/- and Claim No.4 is for an amount of Rs.56,93,579/- towards
detention charges of adjustment of overloaded wagons.
5. It is the case of the Petitioner that under the tripartite agreement, for
the entire works performed under the agreement and the NIT, the liability
towards payment to railways was on the Respondents.
6. It is the case of the Petitioner that the East Central Railways vide its
letter dated 23.01.2014 had placed a combined demand of Rs.4,78,17,458/-
raised against 165 Railway Rakes on the Petitioner for the month of April to
August, 2013 towards surcharge for delay in payment for rakes loaded from
Paradip Port to the thermal power station of the Damodar Valley
Corporation. Out of the said amount, an amount of Rs.1,64,38,456/- is
towards the surcharge demanded by the East Central Railways for 49 Rakes
for the coal supplied by the Respondents. It is the case of the Petitioner that
the amount has not been paid and therefore, the Petitioner is entitled to
withhold the said amount as it was the duty of the Respondents to keep the
Petitioner indemnify against its losses.
7. Similarly, it is the case of the Petitioner that a sum of Rs.56,93,579/-
has been withheld towards performance of contractual obligations on
account of detention charges of adjustment of overloading of wagons. It is
stated that demands have been received from the East Central Railways
towards adjustments of overload wagons. It is the case of the Petitioner that
these amounts are liable to be paid by the Respondents and since they are
not being paid, the said amount has been withheld.
8. The Arbitral Tribunal has allowed the claims stating the amounts have
not been claimed by the East Central Railways for five years and therefore,
the said amount cannot be retained by the Petitioner till the eternity. It is
these findings which are subject matter of challenge in this petition.
9. Pleadings have been completed.
10. Learned Counsel for the Petitioner draws the attention of this Court to
the various clauses under the NIT and the tripartite agreement.
11. The tripartite agreement provides that the part of the NIT would be
read as a part of the said agreement. Attention of this Court has been drawn
at Clause 2.2 and 5.2 of the agreement, which reads as under:-
"2.2 KISPL:-
KISPL shall arrange stevedoring, handling, storage
port clearances, railway rakes, loading transportation
and delivery at DVC's power station. All other
activities for clearing and forwarding of the
consignments like customs clearance, including
payment of customs duty/CVD on behalf of MMTC,
coordination with discharge port(s), railways and any
statutory authorities, all liaison, etc. shall be
obligation and also be a part of the scope of work on
KISPL Unloading of Coal consignment at Power
Station(s) end from Railway Wagons shall be arranged
by DVC.
xxx
5.2 HANDLING CHARGES AND OTHER
REIMBURSABLE EXPENSES PAYABLE TO
KISPL
MMTC shall pay to KISPL the charges for
"Stevedoring, Handling, Clearing & Forwarding
charges and Service Charges" per MT, which will
remain firm during the currency of the Agreement and
other charges like Customs duty, Railway freight (up to
the Coal stack yard of DVC's Thermal Power Plants).
Insurance charges, Service Tax and other statutory
duties and Port charges are payable at actuals".
a) The Price, therefore, shall have two components
namely fixed and actuals as under:
A. Fixed
• Stevedoring, Handling, Clearing & Forwarding
charges, etc.
B. Actuals
• Customs Duty
• Railway freight (delivered at coal stock yard of DVC
Thermal Power Plants)
• Insurance charges
• Port charges
• Service Tax and other statutory duties etc.
(i) The fixed component defined at 'A' above shall
remain firm during the entire period of
Contract/Agreement, including extension(s), if any.
(ii) KISPL has to ensure that there is no under loading
of wagons. However, in case of under loading the
charges on proportionate basis shall be recovered
from KISPL's dues. All other charges like Demurrage/
Dispatch, Wharfage. Overloading/Under loading
charges etc. as applicable for Ports and Railways shall
be to the account of KISPL. Any delay/ detention
charges of Rakes at DVC's Power plants shall be to the
account of MMTC/DVC. " (emphasis supplied)
12. Learned Counsel for the Petitioner, therefore, states that it is the
obligation of the Respondents to pay all the charges due and payable.
Learned Counsel for the Petitioner has then taken this Court to various
portions of the evidence and contends that the officer of the Respondents has
in his deposition acknowledged that it was the liability of the Respondents to
pay these amounts. He therefore states that the Petitioner was well within its
right to withhold these amounts.
13. Learned Counsel for the Petitioner contends that the Award should be
set aside because the Arbitrator's findings violated the fundamental policy
of Indian law and basic notions of justice. He contends that regarding Claim
No.4 and 5, the learned Arbitrator has provided an unreasoned Award that
failed to consider the Petitioner's submissions or the material on record. He
states that the Award is contrary to the tripartite agreement between the
parties and therefore, violated Section 28 of the Arbitration & Conciliation
Act, 1996. He also states that the learned Arbitrator has failed to consider
the liability to the Eastern Coast Railways for surcharge and detention which
still persists and has not been revoked.
14. Per contra, learned Senior Counsel for the Respondents contends that
there is no provision in the tripartite agreement which empowers the
Petitioner to withhold the amounts as done by the Petitioner and in the
absence of any specific contractual agreement to withhold the amounts, the
Petitioner cannot claim to have a right to withhold the said amounts. He
states that there are no recovery proceedings which have been initiated by
the East Central Railway against the Petitioner and therefore, the finding of
the learned Arbitrator that the Petitioner cannot withhold the amount for
eternity, does not require any interference.
15. Heard learned Counsel for the parties and perused the material on
record.
16. It is pertinent to note that the Award was passed by the Sole
Arbitrator on 02.11.2019. In the year 2015, an amendment was made to
Section 34 of the Arbitration and Conciliation Act, 1996 wherein
Explaination-1 and Explaination-2 were added to Section 34(2)(b). The said
amendment was made with an objective of removing any doubt to the test of
whether an award is in contravention with the fundamental policy of Indian
law or that the challenge is against the very basic notions of morality and
justice.
17. The scope and ambit of Section 34 of the Arbitration Act has been
crystallized in various judgments of the Apex Court wherein it has been held
that an Award can be challenged only if it is in violation of the principles of
natural justice; or it disregards orders of superior courts in India or the
binding effect of the judgment of a superior court; or it is violating law of
India linked to public good or public interest, are considered contravention
of the fundamental policy of Indian law. The Award can only be challenged
if it is in contravention with the fundamental policy of Indian law; or in
conflict with the 'most basic notions of morality'; or in violation of
principles of natural justice. Similarly, in order to bring a challenge under
the concept 'most basic notions of morality and justice‟, the Award must
have been rendered without following elementary principles of justice and
that violation would be such that it will shock the conscience of a legally
trained mind. Awards are never set aside just because a different or better
view is possible.
18. In its latest Judgment, the Apex Court in OPG Power Generation
Limited v. Enexio Power Cooling Solutions India Private Limited & Anr.,
2025 (2) SCC 417, after taking into account the law on the aforesaid policy
has succinctly laid down as to what is the meaning of the expression 'in
contravention with the fundamental policy of India law‟ and 'in conflict with
the most basic notions of morality and justice‟. The Apex Court in the said
Judgment has observed as under:-
"51. As discussed above, till the 2015 Amendment the
expression "in contravention with the fundamental
policy of Indian law" was not found in the 1996 Act.
Yet, in Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] ,
in the context of enforcement of a foreign award, while
construing the phrase "contrary to the public policy",
this Court held that for a foreign award to be contrary
to public policy mere contravention of law would not
be enough rather it should be contrary to:
(a) the fundamental policy of Indian law; and/or
(b) the interest of India; and/or
(c) justice or morality.
52. In the judicial pronouncements that
followed Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] ,
already discussed above, the domain of what could be
considered contrary to the "public policy of
India"/"fundamental policy of Indian law" expanded,
resulting in much greater interference with arbitral
awards than what the lawmakers intended. This led to
the 2015 Amendment in the 1996 Act.
53. In Ssangyong Engg. [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 :
(2020) 2 SCC (Civ) 213] , this Court dealt with the
effect of the 2015 Amendment. While doing so, it took
note of a supplementary report of February 2015 of the
Law Commission of India made in the context of the
proposed 2015 Amendments. The said supplementary
report has been extracted in para 30 of that judgment.
The key features of it are summarised below:
(a) Mere violation of law of India would not be a
violation of public policy in cases of international
commercial arbitrations held in India.
(b) The proposed 2015 Amendments in the 1996 Act
[i.e. in Sections 34(2)(b)(ii) and 48(2)(b) including
insertion of sub-section (2-A) in Section 34] were on
the assumption that the terms, such as,
"fundamental policy of Indian law" or conflict with
"most basic notions of morality or justice" would
not be widely construed.
(c) The power to review an award on merits is
contrary to the object of the Act and international
practice.
(d) The judgment in Western Geco [ONGC
Ltd. v. Western Geco International Ltd., (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] would expand the
court's power, contrary to international practice.
Hence, a clarification needs to be incorporated to
ensure that the term "fundamental policy of Indian
law" is narrowly construed. The applicability
of Wednesbury [Associated Provincial Picture
Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223
(CA)] principles to public policy will open the
floodgates. Hence, Explanation 2 to Section
34(2)(b)(ii) has been proposed.
54. After taking note of the supplementary report, the
Statement of Objects and Reasons of the 2015
Amendment Act, and the amended provisions of
Sections 28, 34 and 48, this Court held : (Ssangyong
Engg. case [Ssangyong Engg. & Construction Co.
Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ)
213] , SCC pp. 169-71 & 194, paras 34, 37-41 & 69)
"34. What is clear, therefore, is that the expression
"public policy of India", whether contained in Section
34 or in Section 48, would now mean the "fundamental
policy of Indian law" as explained in paras 18 and 27
of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the
fundamental policy of Indian law would be relegated
to Renusagar [Renusagar Power Co. Ltd. v. General
Electric Co., 1994 Supp (1) SCC 644] understanding
of this expression. This would necessarily mean
that Western Geco [ONGC Ltd. v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] expansion has been done away with. In
short, Western Geco [ONGC Ltd. v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] , as explained in paras 28 and 29
of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no
longer obtain, as under the guise of interfering with an
award on the ground that the arbitrator has not
adopted a judicial approach, the court's intervention
would be on the merits of the award, which cannot be
permitted post amendment. However, insofar as
principles of natural justice are concerned, as
contained in Sections 18 and 34(2)(a)(iii) of the 1996
Act, these continue to be the grounds of challenge of an
award, as is contained in para 30 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49
: (2015) 2 SCC (Civ) 204] .
35.-36.***
37. Insofar as domestic awards made in India are
concerned, an additional ground is now available
under sub-section (2-A), added by the Amendment
Act, 2015 to Section 34. Here, there must be patent
illegality appearing on the face of the award, which
refers to such illegality as goes to the root of the
matter, but which does not amount to mere
erroneous application of the law. In short, what is
not subsumed within "the fundamental policy of
Indian law", namely, the contravention of a statute
not linked to public policy or public interest, cannot
be brought in by the backdoor when it comes to
setting aside an award on the ground of patent
illegality.
38. Secondly, it is also made clear that
reappreciation of evidence, which is what an
appellate court is permitted to do, cannot be
permitted under the ground of patent illegality
appearing on the face of the award.
39. To elucidate, para 42.1 ofAssociate
Builders [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204] , namely, a mere
contravention of the substantive law of India, by
itself, is no longer a ground available to set aside an
arbitral award. Para 42.2 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204] , however, would
remain, for if an arbitrator gives no reasons for an
award and contravenes Section 31(3) of the 1996
Act, that would certainly amount to a patent
illegality on the face of the award.
40. The change made in Section 28(3) by the
Amendment Act really follows what is stated in
paras 42.3 to 45 in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] , namely, that the construction of the
terms of a contract is primarily for an arbitrator to
decide, unless the arbitrator construes the contract
in a manner that no fair-minded or reasonable
person would; in short, that the arbitrator's view is
not even a possible view to take. Also, if the
arbitrator wanders outside the contract and deals
with the matters not allotted to him, he commits an
error of jurisdiction. This ground of challenge will
now fall within the new ground added under Section
34(2-A).
41. What is important to note is that a decision
which is perverse, as understood in paras 31 and 32
ofAssociate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while
no longer being a ground for challenge under
"public policy of India", would certainly amount to
a patent illegality appearing on the face of the
award. Thus, a finding based on no evidence at all
or an award which ignores vital evidence in arriving
at its decision would be perverse and liable to be set
aside on the ground of patent illegality. Additionally,
a finding based on documents taken behind the back
of the parties by the arbitrator would also qualify as
a decision based on no evidence inasmuch as such
decision is not based on evidence led by the parties,
and therefore, would also have to be characterised
as perverse.
***
69. We therefore hold, following the aforesaid
authorities, that in the guise of misinterpretation of
the contract, and consequent "errors of
jurisdiction", it is not possible to state that the
arbitral award would be beyond the scope of
submission to arbitration if otherwise the aforesaid
misinterpretation (which would include going
beyond the terms of the contract), could be said to
have been fairly comprehended as "disputes" within
the arbitration agreement or which were referred to
the decision of the arbitrators as understood by the
authorities above. If an arbitrator is alleged to have
wandered outside the contract and dealt with
matters not allotted to him, this would be a
jurisdictional error which could be corrected on the
ground of "patent illegality", which, as we have
seen, would not apply to international commercial
arbitrations that are decided under Part II of the
1996 Act. To bring in by the backdoor grounds
relatable to Section 28(3) of the 1996 Act to be
matters beyond the scope of submission to
arbitration under Section 34(2)(a)(iv) would not be
permissible as this ground must be construed
narrowly and so construed, must refer only to
matters which are beyond the arbitration agreement
or beyond the reference to the Arbitral Tribunal."
(emphasis supplied)
55. The legal position which emerges from the
aforesaid discussion is that after "the 2015
Amendments" in Section 34(2)(b)(ii) and Section
48(2)(b) of the 1996 Act, the phrase "in conflict with
the public policy of India" must be accorded a
restricted meaning in terms of Explanation 1. The
expression "in contravention with the fundamental
policy of Indian law" by use of the word
"fundamental" before the phrase "policy of Indian
law" makes the expression narrower in its application
than the phrase "in contravention with the policy of
Indian law", which means mere contravention of law is
not enough to make an award vulnerable. To bring the
contravention within the fold of fundamental policy of
Indian law, the award must contravene all or any of
such fundamental principles that provide a basis for
administration of justice and enforcement of law in this
country.
56. Without intending to exhaustively enumerate
instances of such contravention, by way of illustration,
it could be said that:
(a) violation of the principles of natural justice;
(b) disregarding orders of superior courts in India or
the binding effect of the judgment of a superior court;
and
(c) violating law of India linked to public good or
public interest, are considered contravention of the
fundamental policy of Indian law.
However, while assessing whether there has been a
contravention of the fundamental policy of Indian law,
the extent of judicial scrutiny must not exceed the limit
as set out in Explanation 2 to Section 34(2)(b)(ii).
Most basic notions of morality and justice
57. In Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644]
this Court held that an arbitral award is in conflict
with the public policy of India if it is, inter alia,
contrary to "justice and morality". Explanation 1,
inserted by the 2015 Amendment, makes it clear that an
award is in conflict with the public policy of India,
inter alia, if it conflicts with the "most basic notions of
morality or justice".
Justice
58. Justice is the virtue by which the
society/court/Tribunal gives a man his due, opposed to
injury or wrong. Justice is an act of rendering what is
right and equitable towards one who has suffered a
wrong. Therefore, while tempering justice with mercy,
the court must be very conscious, that it has to do
justice in exact conformity with some obligatory law,
for the reason that human actions are found to be just
or unjust on the basis of whether the same are in
conformity with, or in opposition to, the law [Union of
India v. Ajeet Singh, (2013) 4 SCC 186, para 26 :
(2013) 2 SCC (Cri) 347 : (2013) 2 SCC (L&S) 321] .
Therefore, in "judicial sense", justice is nothing more
nor less than exact conformity to some obligatory law;
and all human actions are either just or unjust as they
are in conformity with, or in opposition to, the law [P.
Ramanatha Aiyar's Advanced Law Lexicon, 6th Edn.,
Vol. III, p. 2621.] .
59. But, importantly, the term "legal justice" is not
used in Explanation 1, therefore simple conformity or
non-conformity with the law is not the test to determine
whether an award is in conflict with the public policy
of India in terms of Explanation 1. The test is that it
must conflict with the most basic notions of justice. For
lack of any objective criteria, it is difficult to
enumerate the "most basic notions of justice". More
so, justice to one may be injustice to another. This
difficulty has been acknowledged by many renowned
jurists, as is reflected in the observations of this Court
in State (NCT of Delhi) v. Gurdip Singh Uban [State
(NCT of Delhi) v. Gurdip Singh Uban, (2000) 7 SCC
296] , extracted below : (SCC p. 310, para 23)
"23. The words "justice" and "injustice", in our view,
are sometimes loosely used and have different
meanings to different persons particularly to those
arrayed on opposite sides. "One man's justice is
another's injustice" [Ralph Waldo Emerson
: Essays (1803-82), First Series, 1841, "Circles"].
Justice Cardozo said:„The web is entangled and
obscure, shot through with a multitude of shades and
colors, the skeins irregular and broken. Many hues that
seem to be simple, are found, when analysed, to be a
complex and uncertain blend. Justice itself, which we
are wont to appeal to as a test as well as an ideal, may
mean different things to different minds and at different
times. Attempts to objectify its standards or even to
describe them have never wholly succeeded.‟ (Selected
Writings of Cardozo, pp. 223-224, Falcon
Publications, 1947)."
(emphasis in original)
60. In Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while this
Court was dealing with the concept "public policy of
India", in the context of a Section 34 challenge prior to
the 2015 Amendment, it was held that an award can be
said to be against justice only when it shocks the
conscience of the court [ See Associate Builders case,
(2015) 3 SCC 49, para 36 : (2015) 2 SCC (Civ) 204] .
The Court illustrated by stating that where an arbitral
award, without recording reasons, awards an amount
much more than what the claim is restricted to, it
would certainly shock the conscience of the court and
render the award vulnerable and liable to be set aside
on the ground that it is contrary to justice.
61. In Ssangyong [Ssangyong Engg. & Construction
Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC
(Civ) 213] , which dealt with post the 2015 Amendment
scenario, it was observed that an argument to set aside
an award on the ground of being in conflict with "most
basic notions of justice", can be raised only in very
exceptional circumstances, that is, when the conscience
of the court is shocked by infraction of some
fundamental principle of justice. Notably, in that case
the majority award created a new contract for the
parties by applying a unilateral circular, and by
substituting a workable formula under the agreement
by another, dehors the agreement. This, in the view of
the Court, breached the fundamental principles of
justice, namely, that a unilateral addition or alteration
of a contract can never be foisted upon an unwilling
party, nor can a party to the agreement be liable to
perform a bargain not entered with the other party [
See Ssangyong Engg. case, (2019) 15 SCC 131, para
76 : (2020) 2 SCC (Civ) 213] . However, a note of
caution was expressed in the judgment by observing
that this ground is available only in very exceptional
circumstances and under no circumstance can any
court interfere with an arbitral award on the ground
that justice has not been done in the opinion of the
court because that would be an entry into the merits of
the dispute.
62. In the light of the discussion above, in our view,
when we talk about justice being done, it is about
rendering, in accord with law, what is right and
equitable to one who has suffered a wrong. Justice is
the virtue by which the society/court/Tribunal gives a
man his due, opposed to injury or wrong. Dispensation
of justice in its quality may vary, dependent on person
who dispenses it. A trained judicial mind may dispense
justice in a manner different from what a person of
ordinary prudence would do. This is so, because a
trained judicial mind is likely to figure out even minor
infractions of law/norms which may escape the
attention of a person with ordinary prudence.
Therefore, the placement of words "most basic
notions" before "of justice" in Explanation 1 has its
significance. Notably, at the time when the 2015
Amendment was brought, the existing law with regard
to grounds for setting aside an arbitral award, as
interpreted by this Court, was that an arbitral award
would be in conflict with public policy of India, if it is
contrary to:
(a) the fundamental policy of Indian law;
(b) the interest of India;
(c) justice or morality; and/or is
(d) patently illegal.
63. As we have already noticed, the object of
inserting Explanations 1 and 2 in place of earlier
explanation to Section 34(2)(b)(ii) was to limit the
scope of interference with an arbitral award, therefore
the amendment consciously qualified the term
"justice" with "most basic notions" of it. In such
circumstances, giving a broad dimension to this
category [ In conflict with most basic notions of
morality or justice.] would be deviating from the
legislative intent. In our view, therefore, considering
that the concept of justice is open-textured, and notions
of justice could evolve with changing needs of the
society, it would not be prudent to cull out "the most
basic notions of justice". Suffice it to observe, they [
Most basic notions of justice.] ought to be such
elementary principles of justice that their violation
could be figured out by a prudent member of the public
who may, or may not, be judicially trained, which
means, that their violation would shock the conscience
of a legally trained mind. In other words, this ground
would be available to set aside an arbitral award, if
the award conflicts with such elementary/fundamental
principles of justice that it shocks the conscience of the
Court.
Morality
64. The other ground is of morality. On the question of
morality, in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] , this Court, after referring to the provisions
of Section 23 of the Contract Act, 1872; earlier
decision of this Court in Gherulal [Gherulal
Parakh v. Mahadeodas Maiya, 1959 SCC OnLine SC 4
: AIR 1959 SC 781] ; and Indian Contract Act by
Pollock and Mulla, held that judicial precedents have
confined morality to sexual morality. And if "morality"
were to go beyond sexual morality, it would cover such
agreements as are not illegal but would not be
enforced given the prevailing mores of the day. The
Court also clarified that interference on this ground
would be only if something shocks the Court's
conscience [ See Associate Builders case, (2015) 3
SCC 49, para 39 : (2015) 2 SCC (Civ) 204] ."
19. In the present case, the learned Arbitrator has taken a view that the
demands were made in the year 2014 and that the Award was rendered in
the year 2019. Five years have passed since the demands were raised and
yet, the Railways had not processed the claims raised by the Respondents,
particularly Claim No. 3 and 4, thereby withholding the same. The view
taken by the learned Arbitrator that the claims cannot be withheld till
eternity, cannot come within the four corners of the expression 'in
contravention with the fundamental policy of India law‟ or 'in conflict with
the most basic notions of morality and justice‟.
20. In any event, there is an indemnity given by the Respondents to the
Petitioner. What is the nature of indemnity and whether that claim is
enforceable or not at the relevant point of time, would be seen as and when a
claim is made by the Railways. A mere apprehension that these claims can
be adjusted by the Railways in other ongoing contracts with the Petitioner
cannot be a valid reason to retain these amounts till eternity. The view of the
Arbitrator that these claims cannot be withheld till eternity is a plausible
view. Further, if such amounts are deducted then it is always open for the
Petitioner to invoke the indemnity given by the Respondents by taking
appropriate steps. In view of the fact that the view of the Arbitrator is a
plausible view, it does not warrant any interference from this Court under
Section 34 of the Arbitration Act and the same is upheld.
21. Resultantly, the present petition is dismissed along with pending
application(s), if any.
SUBRAMONIUM PRASAD, J
MARCH 19, 2026/hsk
