Ashok Thakur vs State Of Himachal Pradesh Through ...
2023 Latest Caselaw 14996 HP

     IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

                                              Arb. Case No. 52 of 2011




                                                                                   .

                                              Date of Decision: 29.09.2023





    Ashok Thakur                                                                    ...Petitioner

                                           Versus





    State of Himachal Pradesh through Secretary HP PWD and
    another
                                                                                 ...Respondent


    Coram
    Hon'ble Mr. Justice Rakesh Kainthla, Judge.
    Whether approved for reporting?1 No.



    For the Petitioner                 :        Mr. Sumeet Raj Sharma, Advocate.




    For the Respondents               :         Mr. Navlesh Verma, Additional
                                                Advocate General, Mr. R.P. Singh





                                                and Mr. Prashant Sen, Deputy
                                                Advocates General.





    Rakesh Kainthla, Judge (Oral)

The present objection petition has been filed against

the award dated 18.7.2011, passed by learned Arbitrator-cum-

Superintending Engineer, Arbitration Circle, HP PWD, Solan

pertaining to the work S/R to NH-21 Km. 156/750 to 308/0 (SH:-

Whether reporters of Local Papers may be allowed to see the judgment? Yes.

Improving the riding quality in Km. 257/0 to 270/0). (Parties

shall hereinafter referred to in the same manner as they were

.

arrayed before the learned Arbitrator for convenience).

2. Briefly stated, the facts giving rise to the present

objection petition are that the work mentioned above was

allotted to the claimant-contractor vide letter no. 2795-2801,

dated 21.7.2001/5.8.2001. The work was required to be completed

within three months from the date of the award. There was a

delay in the execution of the work. Both parties blamed each

other for the delay. This led to a dispute between the parties,

which was referred to the learned Arbitrator.

3. The claimant-contractor filed a statement of claim

asserting that the agreement between the parties consisted of

reciprocal promises as per which the claimant was to execute

the work on the site made available by the department and as

per the design and drawings given to the claimant by the

department. The department was required to ensure the

availability of the materials and the funds. The designs and

drawings were required to be supplied before the

commencement of the work. The claimant started the work on

10.8.2001 but the work remained held up w.e.f. 1.11.2001 till

30.6.2002 due to the laying of the sewerage line by the I&PH

.

Department in Km. 257/0 to 260/0 and non-availability of a site

for the construction of side drain etc. in Km. 250/700 to 260/0.

This fact was brought to the notice of the department by the

claimant repeatedly. The Executive Engineer, National

Highways Division, HP PWD, Pandoh agreed to take up the

matter with the I&PH Department to complete the work and

clear the site; however, the site could not be cleared till

30.6.2009. The machinery and the labour deployed by the

claimant remained idle for eight months. The claimant suffered

a loss of more than ₹1 crore. The claimant completed the work in

October 2003 and also submitted an intimation report. He

requested the department to get the final bill prepared, passed

and paid but no action was taken by the department. Hence, the

claim before the learned Arbitrator.

4. The department filed a reply denying the contents of

the statement of claim. It was asserted that the work was to be

completed on 3.11.2001 but was completed on 28.12.2003. The

site was made available on the very first day to the claimant by

the department. The funds were available. The bills were to be

prepared and submitted by the contractor to the department

within the stipulated time but the contractor failed to submit the

.

bill. No specific drawing and design was required for the

execution of the work. There was no hindrance at the site of the

work. The I&PH Department was laying the sewerage pipe

roadside drain for RD 257/700 to 260/0. The hindrance was only

for ₹4,78,643/-, which is 2.43% of the total award. The claimant

could have completed 97.57% work within the stipulated period;

however, he had executed the work to the extent of ₹56,11,472/-

i.e., 28.53% of the total amount. No special machinery or skilled

labour was required to execute the work. The final bill was

prepared and the amount was paid to the claimant. The claimant

was unable to do the work within the stipulated period due to his

failed planning and mismanagement of the labour force and

machinery. The department also made a counterclaim for the

payment of user charges and prayed that the claim be dismissed.

5. A rejoinder denying the contents of the reply and

affirming those of the statement of claim was filed.

6. The parties led the evidence. The learned Arbitrator

held that the tender mentioned a period of six months for

completion of the work, which period was reduced to three

months during negotiations. The work was completed in 29

.

months. The contractor requested the department vide letter

No.160-61, dated 20.8.2001 to place an indent on Indian Oil

Corporation for the supply of bituminous material; however, the

department requested the Manager, Indian Oil Corporation,

Mandi vide letter No.7526-29, dated 19th September 2001 to

authorize 50 MT bitumen emulsion and 822 MT 80/100 bulk

bitumen from Panipat Refinery. Thus, the department delayed

the requisition of the bituminous material by almost one month.

The items of road work were exposed to the atmosphere and

could not have been executed during the rains. Thus, with the

delayed requisition of bituminous material and the monsoon,

the claimant was left with practically one month for the

execution of the work up to a stipulated period of 4th November

2001. This period was utterly inadequate to complete the work

and the progress achieved by the claimant by executing work of

₹56.11 lac could not be said to be bad. No slackness in the

execution of the work could be attributed to the claimant. The

contractor could have technically completed the work by the end

of April 2002 in 10 kilometres length of the road; however,

tarring work could not have been done in low atmosphere

temperature. The contractor executed the work amounting to

.

₹1,57,91,761/- up to 30th June 2002 when the hindrance in 257/0

to 260/0 lasted. The amount of the work executed after

30.6.2002 was ₹10,44,780/-. There was perceptible slackness on

the part of the contractor in the execution of the work after 4th

November 2001 but it could not be said that no machinery

remained idle at any stage or the claimant was not put to any

loss by the non-handing over of the site between 257/0 to 260/0

kilometers. The claimant could not complete the work by the

stipulated period due to the laying of the sewerage line by the

I&PH Department from 1.11.2001 to 30.6.2002 in Kms. 257/0 to

260/0 and due to the non-availability of the site for the

construction of a roadside drain in the Bazar portion in Km.

257/700 to 260/0 besides intervening rainy and winter seasons.

The plea of the department that there was no hindrance on the

spot was not acceptable. Even the department had written a

letter to the Executive Engineer, I&PH, Kullu, requesting him to

ensure the completion of the sewerage work. The claimant

executed the work amounting to ₹10,44,780/- after 30.6.2003.

Had the claimant been pragmatic and had he utilized his

machinery optimally, he could have completed the remaining

work for which the site was available by the end of April 2002.

.

The machinery of the claimant contractor remained idle and

unutilized for four months. The claimant and the contractor

were responsible for the same. Therefore, the share of the

department came to be ₹10,44,780/- x 2 x 30 / 1,68,36,541/- =

3.72 days or say 4 days. The machinery was deployed

continuously at the site and the department is liable only for

four days. The claimant did not submit the final bill to the

department or any notice that proved the demand of the interest

on the delayed payment against the final bill. Hence, the

claimant was not entitled to claim interest on delayed payment.

There was cost escalation and an amount of ₹2,18,333/- along

with simple interest @7.55% per annum was awarded to the

claimant. The counterclaim of the department regarding the

payment of user charges was rejected.

7. Being aggrieved from the award passed by the

learned Arbitrator, the present objection petition has been filed,

asserting that the award is not as per law and terms of the

contract between the parties. The award is contrary to a

fundamental policy of Indian law and substantive law of India.

The department failed to provide the site and requisite material

for about two months. However, the learned Arbitrator erred in

.

awarding the compensation of idle machinery and labour for

four days by applying a formula which has no relevance to the

present case. The department is liable to compensate the

claimant for two months as held by the learned Arbitrator. There

was no fault on the part of the contractor as the work could not

be executed during peak monsoon season and due to the non-

availability of bituminous material. Learned Arbitrator erred in

not awarding the interest to the claimant despite the fact that

the department had withheld the amount for about three years.

The department admitted that the sewerage pipe was being laid

between RD KMs. 257/0 to 260/0 and the claim of the contractor

that machinery and labour remained idle should have been

accepted. Hence, it was prayed that the present objection

petition be allowed and the award passed by the learned

Arbitrator be set aside.

8. The objection petition was opposed by filing a reply,

taking preliminary objection regarding lack of maintainability.

It was asserted that the award passed by the learned Arbitrator is

well reasoned, legal and valid. The objection petition is not as

per the law. The claimant failed to execute the work during the

stipulated period and repeated extensions had to be granted to

.

him. The extension was subject to the condition that nothing

would be paid against clauses 10(c) and 10(cc). A stretch of the

portion of the work from Km.257/0 to 280/0 was handed over to

the claimant well in time after the award of the work. The

claimant made excuses regarding the laying of the water

pipeline by the I&PH Department. I&PH Department did not

commence the work in April 2002. The rainy season was almost

over and three months were more than sufficient to complete

the work. The department had authorized the claimant to

procure the bitumen from Indian Oil Corporation vide letter

No.7495-98. No objection was raised by the claimant at the time

of the payment of the final bill. Hence, it was prayed that the

present petition be dismissed.

9. A rejoinder denying the contents of the reply and

affirming those of the petition was filed.

10. The affidavit of the claimant and Superintending

Engineer were also filed.

11. I have heard Mr. Sumeet Raj Sharma, learned counsel

for the petitioner and Mr. Prashant Sen, learned Deputy

.

Advocate General for the respondents-State.

12. Mr. Sumeet Raj Sharma, learned counsel for the

petitioner submitted that the learned Arbitrator erred in

reducing the period for which the labour and machinery

remained idle to four days after holding that the machinery and

labour remained idle for two months. This was done by applying

a formula, which is unknown in Engineering or Judicial circles.

The learned Arbitrator erred in declining the interest to the

claimant after holding that he was entitled to the payment of the

amount. Therefore, he prayed that the present objection petition

be accepted and the award passed by the learned Arbitrator be

set aside.

13. Mr. Prashant Sen, learned Deputy Advocate General

for the respondent-State supported the award of the learned

Arbitrator. He submitted that the learned Arbitrator had applied

the 'proportionate formula' to ascertain the share of fault of the

respondent and there was no error in the same. The award is

well-reasoned and does not require any interference. Hence, he

prayed that the present objection petition be dismissed.

.

14. I have given considerable thought to the rival

submissions at the bar and have gone through the record

carefully.

15. The scope of interference with the arbitral award

considered by rthe to under Section 34 of the Arbitration and Conciliation Act was

Hon'ble Supreme Court in Reliance

Infrastructure Vs. State of Goa 2023 SCC Online SC 604 and it was

observed:-

The scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the Act

47. Having regard to the contentions urged and the issues raised, it shall also be apposite to take note of the

principles enunciated by this Court in some of the relevant decisions cited by the parties on the scope of

challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the Act of 1996.

48. In MMTC Limited (supra), this Court took note of various decisions including that in the case of Associate Builders (supra) and exposited on the limited scope of interference under Section 34 and further narrower scope of appeal under Section 37 of the Act of 1996, particularly when dealing with the concurrent findings (of the Arbitrator and then of the Court). This Court, inter alia, held as under:--

"11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on

.

merits on the limited ground provided under Section

34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the

1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent

illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance

with the principles of natural justice, and Wednesbury

[Associated Provincial Picture Houses v. Wednesbury Corpn., [1948] 1 K.B. 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India,

contravention of the 1996 Act, and contravention of the terms of the contract.

12. It is only if one of these conditions is met that

the Court may interfere with an arbitral award in

terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the

arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204]. Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445];

and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181])

.

13. It is relevant to note that after the 2015

Amendment to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of

contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of

the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic

arbitrations, violation of Indian public policy also

includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the grounds of an erroneous application of the law or by reappreciation

of evidence.

14. As far as interference with an order made under

Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37

cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award,

and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."

49. In the case of Ssangyong Engineering (supra), this Court has set out the scope of challenge under Section 34

of the Act of 1996 in further detail in the following words:--

"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 the 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 of Associate 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 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 of Associate 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 grounds 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 a decision is not based on evidence led by the parties, and therefore, would also have to be

characterised as perverse."

50. The limited scope of challenge under Section 34 of the Act was once again highlighted by this Court in the case of PSA SICAL Terminals (supra) and this Court

particularly explained the relevant tests as under:--

"43. It will thus appear to be a more than settled legal position, that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of the "public policy of India", which has been held to mean "the fundamental policy of Indian

law". A judicial intervention on account of interfering on the merits of the award would not be permissible. However, the principles of natural justice as contained

.

in Sections 18 and 34(2)(a)(iii) of the Arbitration Act

would continue to be the grounds of challenge of an award. The ground for interference on the basis that the award is in conflict with justice or morality is now

to be understood as a conflict with the "most basic notions of morality or justice". It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground. An award would be set

aside on the ground of patent illegality appearing on the face of the award and as such, which goes to the roots of the matter. However, an illegality with regard to a mere erroneous application of law would not be a

ground for interference. Equally, reappreciation of

evidence would not be permissible on the grounds of patent illegality appearing on the face of the award.

44. A decision which is perverse, though would not be a ground for challenge under "public policy of

India", would certainly amount to a patent illegality appearing on the face of the award. However, a finding based on no evidence at all or an award which ignores

vital evidence in arriving at its decision would be

perverse and liable to be set aside on the grounds of patent illegality.

45. To understand the test of perversity, it will also

be appropriate to refer to paragraphs 31 and 32 from the judgment of this Court in Associate Builders (supra), which read thus:

"31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

(i) a finding is based on no evidence, or(ii) an Arbitral Tribunal takes into account something

irrelevant to the decision which it arrives at; or(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be

.

perverse.

32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum- Assessing Authority v. Gopi Nath & Sons [1992 Supp (2)

SCC 312], it was held : (SCC p. 317, para 7)

"7. ... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant

material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the

finding is rendered infirm in law."

51. In Delhi Airport Metro Express (supra), this Court again surveyed the case law and explained the contours of the Courts' power to review the arbitral awards. Therein, this Court not only reaffirmed the principles aforesaid but

also highlighted an area of serious concern while pointing out "a disturbing tendency" of the Courts in setting aside arbitral awards after dissecting and re-assessing factual

aspects. This Court also underscored the pertinent features and scope of the expression "patent illegality"

while reiterating that the Courts do not sit in appeal over the arbitral award. The relevant and significant passages

of this judgment could be usefully extracted as under:--

"26. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section

34. While deciding applications filed under Section 34 of the Act, Courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or reappreciation of matters of fact as well as law. (See Uttarakhand Purv

Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. [Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455 : (2020)

.

1 SCC (Civ) 570], Bhaven Construction v. Sardar Sarovar

Narmada Nigam Ltd. [Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75] and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram

Saran [Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306].)

*********

28. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by Courts while examining the validity of the arbitral awards. The limited grounds

available to Courts for annulment of arbitral awards

are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the Courts. There is a disturbing

tendency of Courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs

intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart

from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to

preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.

29. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall

within the expression "patent illegality". Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not

.

linked to public policy or public interest is beyond the

scope of the expression "patent illegality". What is prohibited is for Courts to reappreciate evidence to conclude that the award suffers from patent illegality

appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent

illegality is when the arbitrator takes a view which is not even a possible one or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits

an error of jurisdiction by wandering outside the

contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are

based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also,

consideration of documents which are not supplied to the other party is a facet of perversity falling within

the expression "patent illegality".

30. Section 34(2)(b) refers to the other grounds on

which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject matter of the award or if the award is in conflict with the public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression "public policy of India" and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with the public policy of India only when it is induced or affected by fraud or corruption or is in

violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic

.

notions of morality or justice.

*********

42. The Division Bench referred to various factors

leading to the termination notice, to conclude that the award shocks the conscience of the court. The discussion in SCC OnLine Del para 103 of the impugned judgment [DMRC v. Delhi Airport Metro Express (P)

Ltd., 2019 SCC OnLine Del 6562] amounts to appreciation or reappreciation of the facts which is not permissible under Section 34 of the 1996 Act. The Division Bench further held [DMRC v. Delhi Airport

Metro Express (P) Ltd., 2019 SCC OnLine Del 6562] that

the fact of AMEL being operated without any adverse event for a period of more than four years since the date of issuance of the CMRS certificate was not given due importance by the Arbitral Tribunal. As the

arbitrator is the sole Judge of the quality as well as the quantity of the evidence, the task of being a Judge on the evidence before the Tribunal does not fall upon the

Court in the exercise of its jurisdiction under Section

34. [State of Rajasthan v. Puri Construction Co.

Ltd., (1994) 6 SCC 485] On the basis of the issues submitted by the parties, the Arbitral Tribunal framed issues for consideration and answered the said issues.

Subsequent events need not be taken into account."

(emphasis supplied)

52. In the case of Haryana Tourism Ltd. (supra), this Court yet again pointed out the limited scope of interference under Sections 34 and 37 of the Act; and disapproved interference by the High Court under Section 37 of the Act while entering into merits of the claim in the following words:

"8. So far as the impugned judgment and order passed by the High Court quashing and setting aside

the award and the order passed by the Additional District Judge under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an

.

appeal under Section 37 of the Arbitration Act, the

High Court has entered into the merits of the claim, which is not permissible in exercise of powers under Section 37 of the Arbitration Act.

9. As per the settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under

Sections 34/37 of the Arbitration Act, if the award is found to be contrary to (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the

aforesaid exceptions shall be applicable to the facts of

the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and

decree passed by the learned trial Court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The

impugned judgment and order passed by the High

Court is hence not sustainable."

53. As regards the limited scope of interference under Sections 34/37 of the Act, we may also usefully refer to

the following observations of a 3-Judge Bench of this Court in the case of UHL Power Company Limited v. State of Himachal Pradesh, (2022) 4 SCC 116:--

"15. This Court also accepts as correct, the view expressed by the appellate court that the learned Single Judge committed a gross error in reappreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant clauses of the implementation agreement governing the parties

inasmuch as it was not open to the said court to do so in proceedings under Section 34 of the Arbitration Act, by virtually acting as a court of appeal.

.

16. As it is, the jurisdiction conferred on courts

under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an

appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed."

54. The learned Attorney General has referred to another 3-Judge Bench decision of this Court in the case of Sal Udyog Private Limited (supra), wherein this Court indeed interfered with the award in question when the

same was found suffering from non-consideration of a

relevant contractual clause. In the said decision too, the principles aforesaid in Delhi Airport Metro Express, Ssangyong Engineering and other cases were referred to and thereafter, this Court applied the

principles to the facts of that case. We shall refer to the said decision later at an appropriate juncture.

16. This position was reiterated in Hindustan

Construction Company Limited Vs. National Highways Authority of

India 2023 SCC Online SC 1063, wherein it was held:-

"26. The prevailing view about the standard of scrutiny- not judicial review, of an award, by persons of the disputants' choice being that of their decisions to stand and not interfered with, [save a small area where it is established that such a view is premised on patent illegality or their interpretation of the facts or terms, perverse, as to qualify for interference, courts have to necessarily chose the path of least interference, except when absolutely necessary]. By training, inclination and experience, judges tend to adopt a corrective lens;

usually, commended for appellate review. However, that lens is unavailable when exercising jurisdiction under Section 34 of the Act. Courts cannot, through the process

.

of primary contract interpretation, thus, create pathways

to the kind of review which is forbidden under Section

34. So viewed, the Division Bench's approach, of appellate review, twice removed, so to say [under Section 37], and

conclusions drawn by it, resulted in displacing the majority view of the tribunal, and in many cases, the unanimous view, of other tribunals, and substitution of another view. As long as the view adopted by the majority

was plausible-and this court finds no reason to hold otherwise (because concededly the work was completed and the finished embankment was made of composite, compacted matter, comprising both soil and

fly ash), such a substitution was impermissible.

27. For a long time, it is the settled jurisprudence of the courts in the country that awards which contain reasons, especially when they interpret contractual terms, ought

not to be interfered with, lightly. The proposition was placed in State of UP v. Allied Constructions:

"[..] It was within his jurisdiction to interpret

Clause 47 of the Agreement having regard to the

fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and an error of law on the

face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for the arbitrator to determine (see Sudarsan Trading Co. v. The Government of Kerala, (1989) 2 SCC 38: AIR 1989 SC 890). Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The

arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the

.

award contains reasons, the. interference therewith

would still be not available within the jurisdiction of the Court unless, of course, the reasons are totally perverse or the judgment is based on a

wrong proposition of law"

28. This enunciation has been endorsed in several cases (Ref McDermott International Inc. v. Burn Standard Co. Ltd.18). In MSK Projects (I) (JV) Ltd v. State of Rajasthan it

was held that an error in interpretation of a contract by an arbitrator is "an error within his jurisdiction". The position was spelt out even more clearly in Associate

Builders (supra), where the court said that:

"[..] 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."

17. A similar view was taken in Konkan Railway Corpn.

Ltd. v. Chenab Bridge Project Undertaking, 2023 SCC OnLine SC

102024, wherein it was held:-

"24. Therefore, the scope of jurisdiction under Section 34 and Section 37 of the Act is not akin to normal appellate jurisdiction. It is well-settled that courts ought not to interfere with the arbitral award in a casual and cavalier manner. The mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal.

In Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1, this Court held:

"24. There is no dispute that Section 34 of the

.

Arbitration Act limits a challenge to an award only

on the grounds provided therein or as interpreted by various courts. We need to be cognizant of the fact that arbitral awards should not be interfered

with in a casual and cavalier manner unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative

interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to

respect the finality of the arbitral award and the

party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the courts were to interfere with the arbitral award in the usual course on factual aspects, then the

commercial wisdom behind opting for alternate dispute resolution would stand frustrated.

25. Moreover, umpteen number of judgments of this Court have categorically held that the courts

should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The courts need to be cautious and

should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act."

25. In the present case, the Arbitral Tribunal interpreted the contractual clauses and rejected the Respondent's claims pertaining to Disputes I, III and IV. The findings were affirmed by the Single Judge of the High Court in a challenge under Section 34 of the Act, who concluded that the interpretation of the Arbitral Tribunal was clearly a

possible view, that was reasonable and fair-minded in approach.

xxxxxx

.

28. In an appeal under Section 37 of the Act, the Division Bench of the High Court took a different position. It opined that the construction of the clauses by the Arbitral

Tribunal was not even a possible view, and observed as follows:

"30. ... What is more appropriate is the well-settled principle that if there are two constructions

possible of a contract, then the one that gives effect and voice to all clauses will be preferred over the other that renders one of them otiose or nugatory [Radha Sundar Dutta v. Mohd Jahadur

Rahim, AIR 1959 SC 24]. There is some law to

suggest that if an Award does not construe the contract as a whole then it is not a possible view and it is perverse [South East Asia Marine Engineering and Constructions Ltd. v. Oil India

Ltd, (2020) 5 SCC 164; Patel Engineering Ltd v. North Eastern Electric Power Corporation Ltd, (2020) 7 SCC 167]. As regards the dispute for reimbursement on

account of toll tax effected by the Government of Jammu and Kashmir through various Notifications,

Chenab Bridge's case stands on an even stronger footing. This is because toll tax is specifically

mentioned in Clause 5.1.2 and the arbitral view amounts to an entire deletion of those two words. This is clearly impermissible."

29. The principle of interpretation of contracts adopted by the Division Bench of the High Court that when two constructions are possible, then courts must prefer the one which gives effect and voice to all clauses, does not have absolute application. The said interpretation is subject to the jurisdiction which a court is called upon to exercise. While exercising jurisdiction under Section 37 of the Act, the Court is concerned about the jurisdiction that

the Section 34 Court exercised while considering the challenge to the Arbitral Award. The jurisdiction under Section 34 of the Act is exercised only to see if the Arbitral

.

Tribunal's view is perverse or manifestly arbitrary.

Accordingly, the question of reinterpreting the contract on an alternative view does not arise. If this is the principle applicable to the exercise of jurisdiction under

Section 34 of the Act, a Division Bench exercising jurisdiction under Section 37 of the Act cannot reverse an Award, much less the decision of a Single Judge, on the ground that they have not given effect and voice to all

clauses of the contract. This is where the Division Bench of the High Court committed an error, in re-interpreting a contractual clause while exercising jurisdiction under Section 37 of the Act. In any event, the decision in Radha

Sundar Dutta (supra), relied on by the High Court was

decided in 1959, and it pertains to proceedings arising under the Village Chaukidari Act, 1870 and Bengal Patni Taluks Regulation of 1819. Reliance on this judgment particularly for interfering with the concurrent

interpretations of the contractual clause by the Arbitral Tribunal and Single Judge under Section 34 of the Act is not justified.

30. As far as the decisions in South East Asia Marine

Engineering and Constructions Limited (supra) and Patel Engineering Limited v. North Eastern Electric Power Corporation Limited are concerned, in both cases, this

Court affirmed the interference by a court exercising jurisdiction under Section 37 of the Act, with the concurrent findings of the Arbitral Tribunal as well as the court under Section 34 of the Act, for good and valid reasons. In South East Asia Marine Engineering and Constructions Limited (supra), the Section 37 Court interfered with the Award as the Arbitral Tribunal allowed the claim for price escalation for High-Speed Diesel under the 'Change in Law' clause, by construing the circular increasing the HSD price as having "force of law". The 'Change in Law' clause therein provided for

reimbursement of any additional costs on account of "change in or enactment of any law or interpretation of existing law". The High Court, exercising jurisdiction

.

under Section 37 of the Act, and this Court, found that the

Arbitral Tribunal incorrectly construed the 'Change in Law' clause as akin to a force majeure clause and allowed the claims. This was held to not be a possible

interpretation of the contract and hence, the Award was set aside. Similarly, in Patel Engineering Ltd. (supra), the Arbitral Award was found to be based on irrelevant facts and the outcome was found to result in unjust

enrichment, the latter being in violation of the public policy of India under Section 34(2) of the Act. Therefore, in both these cases, this Court was convinced that the view of the Arbitral Tribunal was not even a possible view,

and hence, perverse in nature.

31. In the present case, we have examined the appreciation of evidence by the Arbitral Tribunal as well as the Single Judge of the High Court. We are convinced that their appreciation of the facts and interpretation of the

contract is reasonable and comprises a possible view. Keeping in mind the mandate of Section 5 of the Act, 1996 we note the observation of this Court in Vidya

Drolia v. Durga Trading Corporation:

"Arbitration is a private dispute resolution mechanism whereby two or more parties agree to resolve their current or future

disputes by an Arbitral Tribunal, as an alternative to adjudication by the courts or a public forum established by law. Parties by mutual agreement forgo their right in law to have their disputes adjudicated in the courts/public forum. Arbitration agreement gives contractual authority to the Arbitral Tribunal to adjudicate the disputes and bind the parties."

18. It is apparent from the judgments of the Hon'ble

Supreme Court that the Court will not sit in an appeal over the

.

award of the learned Arbitrator. It will not interfere with the

award of the learned Arbitrator merely because an alternative

view is possible. The Court will only interfere when there is a

violation of the Public Policy or some patent illegality going to

the root of the case.

19. In the present case, the learned Arbitrator

contradicted himself while recording the findings. Initially, he

held in para 9 of the award that the documents placed on record

revealed that the request was made to the department for the

supply of the bituminous material and the department delayed

the requisition of the bituminous material by almost one month.

He held in the same paragraph that the work was awarded when

the monsoon was at its peak and the work of tarring and cement

could not have been done in the rains. He further held that the

delayed requisition of the bituminous material and the monsoon

left the claimant with practically about one month for execution

of the work till the stipulated date of completion of 4.11.2001,

which period was utterly inadequate to complete the work. He

held that progress achieved by the claimant-contractor by

executing work of the value of ₹56,11 lac during the stipulated

period, cannot be said to be bad and no slackness in the

.

execution of the work could be attributed to him up to the

stipulated date of completion of 4.11.2001. He held that the work

could have been technically completed by the end of April, 2002

which was available during the intervening winter season but

the work could not have been done due to low atmospheric

temperature. He held that according to the price value of the

work done by the claimant, he actually executed the work

amounting to ₹1,68,36,541/-. In the next line, he stated that the

executed work amounting to ₹1,57,91,761/- up to 30.6.2002, the

date to which the hindrance in the Km. 257/0 to 260/0 lasted.

However, he ultimately held that there was a perceptible

slackness on the part of the claimant in the execution of the

work after 4.11.2001.

20. The learned Arbitrator held on page 21 that restraint

to execute the work from Km. 257/0 to 260/0 existed as tarring

before laying the sewerage line was highly undesirable and

would have been damaged if the sewerage line was laid later on.

He found in para-11 that the machinery of the claimant-

contractor remained idle/under-utilized for a period equivalent

to two months. Then he concluded that both the claimant and

respondent-Executive Engineer were responsible. The share of

.

the respondents was 3.72 days (say 4 days) after applying some

formula.

21. Mr. Sumeet Raj Sharma, Advocate submitted that the

adoption of this formula by the learned Arbitrator is unknown to

Engineering and Legal Circles. He relied upon the judgment of

the Hon'ble Supreme Court in McDermott International Inc. v.

Burn Standard Co. Ltd., (2006) 11 SCC 181: 2006 SCC OnLine SC 600

to submit that only the Hudson formula, Emden formula and

Eichleay formula have been recognized by the Engineers as well

as the Judicial authorities. He relied upon the following

paragraphs:-

" Method for computation of damages

102. [Ed. : Para 102 corrected vide Official Corrigendum

No. F.3/Ed.B.J./52/2006 dated 31-7-2006]. What should, however, be the method of computation of damages is a question which now arises for consideration. Before we advert to the rival contentions of the parties in this behalf, we may notice that in M.N. Gangappa v. Atmakur Nagabhushanam Setty & Co. [(1973) 3 SCC 406] this Court held that the method used for computation of damages will depend upon the facts and circumstances of each case.

102-A. In the assessment of damages, the court must consider only strict legal obligations, and not the expectations, however reasonable, of one contractor that

.

the other will do something that he has assumed no legal

obligation to do. (See Lavarack v. Woods of Colchester Ltd. [[1967] 1 Q.B. 278 : [1966] 3 All ER 683 : [1966] 3 WLR 706 (CA)], All ER p. 690 G.)

103. The arbitrator quantified the claim by taking recourse to the Emden Formula. The learned arbitrator also referred to other formulae, but, as noticed hereinbefore, opined that the Emden Formula is a widely

accepted one.

104. It is not in dispute that MII had examined one Mr. D.J. Parson to prove the said claim. The said witness

calculated the increased overheads and loss of profit on

the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled "Change Orders, Overtime, Productivity" commonly known as the Emden Formula. The said

formula is said to be widely accepted in construction contracts for computing increased overheads and loss of profit. Mr. D.J. Parson is said to have brought out the

additional project management cost at US$ 1,109,500. We

may at this juncture notice the different formulas applicable in this behalf.

(a) Hudson Formula: In Hudson's Building and

Engineering Contracts, Hudson Formula is stated in the following terms:

"Contract head office overhead and profit × Contract sum × Period of percentage delay"

Contract period

In the Hudson Formula, the head office overhead percentage is taken from the contract. Although the Hudson Formula has received judicial support in many cases, it has been criticised principally because it adopts

the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the

.

contractor.

(b) Emden Formula: In Emden's Building Contracts and Practice, the Emden Formula is stated in the following terms:

"Head office overhead and profit × Contract Sum × Period of delay"

100 Contract period

Using the Emden Formula, the head office overhead percentage is arrived at by dividing the total overhead cost and profit of the contractor's organisation as a whole by the total turnover. This formula has the

advantage of using the contractor's actual head office

overhead and profit percentage rather than those contained in the contract. This formula has been widely applied and has received judicial support in a number of

cases including Norwest Holst Construction Ltd. v. Coop. Wholesale Society Ltd. [Decided on 17-2-1998, [1998] EWHC Technology 339], Beechwood Development Co.

(Scotland) Ltd. v. Mitchell [Decided on 21-2-2001, (2001) CILL 1727] and Harvey Shopfitters Ltd. v. Adi Ltd. [Decided

on 6-3-2003, [2004] 2 All ER 982 : [2003] EWCA Civ 1757].

(c) Eichleay Formula: The Eichleay Formula was evolved in America and derives its name from a

case heard by the Armed Services Board of Contract Appeals, Eichleay Corporation. It is applied in the following manner:

Step 1

Contract billings           × Total    overhead   for = Overhead allocable               to
                              contract period           the contract

Total    billings     for
contract period










Step 2

Allocable overhead       =                          Daily overhead rate




                                                                 .
Total days of contract





Step 3

Daily         contract × Number of days of delay = Amount of unabsorbed





overhead rate                                      overhead"

This formula is used where it is not possible to prove loss of opportunity and the claim is based on actual cost.

It can be seen from the formula that the total head office overhead during the contract period is first determined by comparing the value of work carried out in the contract period for the project with the value of work

carried out by the contractor as a whole for the contract

period. A share of head office overheads for the contractor is allocated in the same ratio and expressed as a lump sum to the particular contract. The amount of head office overhead allocated to the particular contract

is then expressed as a weekly amount by dividing it by the contract period. The period of delay is then multiplied by the weekly amount to give the total sum

claimed. The Eichleay Formula is regarded by the Federal Circuit Courts of America as the exclusive means for

compensating a contractor for overhead expenses.

105. Before us several American decisions have been

referred to by Mr. Dipankar Gupta in aid of his submission that the Emden Formula has since been widely accepted by the American courts being Nicon Inc. v. United States [Decided on 10-6-2003 (USCA Fed Cir), 331 F. 3d 878 (Fed. Cir. 2003)], Gladwynne Construction Co. v. Mayor and City Council of Baltimore [Decided on 25- 9-2002, 807 A. 2d 1141 (2002): 147 Md. App. 149] and Charles G. William Construction Inc. v. White [271 F 3d 1055 (Fed. Cir. 2001)].

106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to

.

whether damages should be computed by taking recourse

to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator.

107. If the learned arbitrator, therefore, applied the Emden Formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court."

22.

The Hon'ble Supreme Court approved the method for

calculating the loss arising due to the delay in Batliboi

Environmental Engineers Ltd. v. Hindustan Petroleum Corp. Ltd.,

2023 SCC OnLine SC 120830, wherein it was held:-

"15. McDermott International Inc. refers to Sections 55 and 73 of the Indian Contract Act, 1872, which deal with the effect of failure to perform at a fixed time in contracts

where time is of the essence, and computation of damages caused by breach of contract, respectively, and

states that these Sections neither lay down the mode nor how and in what manner computation of damages for compensation has to be made. As computation depends

upon attendant facts, circumstances and methods to compute damages, how the quantum thereof should be determined is a matter which would fall within the domain and decision of the arbitrator.

16. This is, without a doubt, a sound legal and correct proposition. However, the computation of damages should not be whimsical and absurd resulting in a windfall and bounty for one party at the expense of the other. The computation of damages should not be disingenuous. The damages should be commensurate

with the loss sustained. In a claim for loss on account of delay in work attributable to the employer, the contractor is entitled to the loss sustained by the breach of contract

.

to the extent and so far as money can compensate. The

party should be placed in the same situation, with the damages, as if the contract had been performed. The principle is that the sum of money awarded to the party

who has suffered the injury should be the same quantum as s/he would have earned or made if s/he had not sustained the wrong for which s/he is getting compensated.

17. We shall subsequently catechise Hudson's formula, suffice at this stage is to notice that the learned arbitrator does not specifically refer to any formula or the method, and the figures to compute damages under the head of

loss on account of overheads and profits/profitability.

The award, as quoted above, does refer to Sections 55 and 73 of the Contract Act.

23. Mr. Prashant Sen, learned Deputy Advocate General

submitted that the learned Arbitrator had applied a

'proportionate formula' to determine the share of the

department. However on the query by the Court as to how this

proportionate formula would be able to reduce the loss of two

months to four days, he had no answer.

24. It is apparent from the award that the learned

Arbitrator committed two errors while applying this

proportionate formula. After categorically holding that only one

month was available with the claimant instead of the three

months specified in the contract and there was no fault on the

part of the claimant, he attributed fault to the claimant without

recording any specific finding to that effect. Secondly, he

.

applied an unknown proportionate formula after having found

that the machinery of the claimant remained idle or

underutilized for two months. Once the fault of the contractor

was not found and once it was held that the machinery and

labour remained idle/underutilized for a period of two months,

no reasonable person could have reduced the period from two

months to four days that too by applying a 'proportionate

formula', the explanation of which is not available on record. No

reasonable person would have reduced the period by applying

some formula, especially after finding out that there was no

fault of the contractor. Therefore, the award suffers from a

perversity because the learned Arbitrator has taken a view that

no reasonable person would have taken. It is patent illegality

staring at the face of the award, which makes the same bad. It

was laid down by the Hon'ble Supreme Court in Patel Engg. Ltd.

v. North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC 167:

(2020) 4 SCC (Civ) 149: 2020 SCC OnLine SC 466 that a view which

no reasonable person would take is perverse. It was observed:

22. The present case arises out of a domestic award between two Indian entities. The ground of patent illegality is a ground available under the statute 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 the same; 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.

25. The term patent illegality was explained in State of

Chhattisgarh v. SAL Udyog (P) Ltd., (2022) 2 SCC 275: 2021 SCC

OnLine SC 1027 as under:

14. The law on interference in matters of awards under

the 1996 Act has been circumscribed with the object of minimising interference by courts in arbitration matters. One of the grounds on which an award may be set aside is "patent illegality". What would constitute "patent

illegality" has been elaborated in Associate Builder v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], where "patent illegality" that broadly falls

under the head of "Public Policy", has been divided into three sub-heads in the following words : (SCC p. 81, para

42) "42. In the 1996 Act, this principle is substituted by

the "patent illegality" principle which, in turn, contains three sub-heads:

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 sub-head 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.'

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."

(emphasis supplied)

15. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI [Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213], speaking for the Bench, R.F. Nariman, J. has spelt out the contours of the limited scope of judicial interference in reviewing the arbitral awards under the 1996 Act and observed thus : (SCC pp.

169-71, paras 34-41)

"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or 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" understanding of this expression. This would necessarily mean that Western Geco [ONGC 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 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 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. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.

36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as

.

understood in paras 18 and 27 of Associate

Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as

understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]. Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii)

was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as understood in Associate Builders [Associate Builders v. DDA, (2015) 3

SCC 49 : (2015) 2 SCC (Civ) 204], and paras 28 and 29 in

particular, is now done away with.

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 the 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 of Associate 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 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 of Associate 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 grounds 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 a decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."

(emphasis supplied)

16. In Delhi Airport Metro Express (P) Ltd. [Delhi Airport Metro Express (P) Ltd. v. DMRC, (2022) 1 SCC 131] referring

to the facets of patent illegality, this Court has held as under : (SCC p. 150, para 29) "29. Patent illegality should be illegality which goes to

.

the root of the matter. In other words, every error of

law committed by the Arbitral Tribunal would not fall within the expression "patent illegality". Likewise, erroneous application of law cannot be categorised as

patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression "patent illegality". What is prohibited is for Courts to reappreciate evidence to

conclude that the award suffers from patent illegality appearing on the face of the award, as Courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under

Section 34(2-A) on the ground of patent illegality is

when the arbitrator takes a view which is not even a possible one or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of

jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make

itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no

evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the

ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality"."

26. Hence, the objection that the award is not

sustainable has to be upheld.

27. It was laid down by the Hon'ble Supreme Court in

NHAI v. M. Hakeem, (2021) 9 SCC 1: 2021 SCC OnLine SC 473 that

the Court has no power to modify the award passed by the

learned Arbitrator. It was observed at page 30:-

.

"48. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice

of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no

power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration

Act, 1996, and bring it in line with other legislations the

world over."

28. Therefore, it is not permissible for the Court to

modify the part of the award by substituting its opinion.

29. It was laid down by Hon'ble Supreme Court in

Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 :

(2018) 5 SCC (Civ) 106: 2017 SCC OnLine SC 528 that the Court

cannot remit the matter to Arbitral Tribunal after setting it

aside. It was observed:-

"14. In this backdrop, the question which arises is: whether the highlighted portion in the operative part of the impugned judgment of the Division Bench can be sustained in law? For that, we may advert to Section 34(4) of the Act which is the repository of power invested in the Court. The same reads thus:

"34. (4) On receipt of an application under sub- section (1), the court may, where it is appropriate and it is so requested by a party, adjourn the

.

proceedings for a period of time determined by it in

order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of Arbitral Tribunal

will eliminate the grounds for setting aside the arbitral award."

15. On a bare reading of this provision, it is amply clear

that the Court can defer the hearing of the application filed under Section 34 for setting aside the award on a written request made by a party to the arbitration proceedings to facilitate the Arbitral Tribunal by

resuming the arbitral proceedings or to take such other

action as in the opinion of the Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award. The quintessence for exercising power under this provision is that the arbitral award has not been set aside.

Further, the challenge to the said award has been set up under Section 34 about the deficiencies in the arbitral award which may be curable by allowing the Arbitral

Tribunal to take such measures which can eliminate the

grounds for setting aside the arbitral award. No power has been invested by Parliament in the Court to remand the matter to the Arbitral Tribunal except to adjourn the

proceedings for the limited purpose mentioned in sub-section (4) of Section 34. This legal position has been expounded in McDermott International Inc. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] In para 8 of the said decision, the Court observed thus : (Bhaskar Industrial case [Bhaskar Industrial Development Ltd. v. South Western Railway, 2016 SCC OnLine Kar 8330], SCC OnLine Kar) "8. ... Parliament has not conferred any power of remand to the Court to remit the matter to the Arbitral Tribunal except to adjourn the proceedings as provided under sub-section (4)

of Section 34 of the Act. The object of sub-section (4) of Section 34 of the Act is to give an opportunity to the Arbitral Tribunal to resume the arbitral proceedings or to

.

enable it to take such other action which will eliminate

the grounds for setting aside the arbitral award." (emphasis supplied).

30. Therefore, the Court cannot refer the matter to the

same Arbitrator; however, it will be open for the parties to seek

an appointment of a fresh Arbitrator if deemed proper by them.

Final order:

31. In view of the above, the present objection petition is

allowed and the award dated 18.7.2011 is ordered to be set aside.

Pending application(s), if any, stand(s) disposed of.

(Rakesh Kainthla)

Judge 29th September, 2023 (Chander)