Orissa High Court
National Aluminium Company vs M/S. Maheswari Brothers Coal .... ... on 24 July, 2025
Author: S.K. Panigrahi
Bench: S.K. Panigrahi
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 01-Aug-2025 18:12:48
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.P.(C) No.5028 of 2025
(In the matter of an application under Articles 226 and 227 of the
Constitution of India, 1950).
National Aluminium Company .... Petitioner(s)
Ltd., Bhubaneswar & Ors.
-versus-
M/s. Maheswari Brothers Coal .... Opposite Party (s)
Ltd., Hyderabad
Advocates appeared in the case through Hybrid Mode:
For Petitioner(s) : Mr. Manoj Kumar Mishra, Sr. Adv.
Along with associates
For Opposite Party (s) : Mr. Swayamjit Rout, Adv.
CORAM:
DR. JUSTICE S.K. PANIGRAHI
DATE OF HEARING:-15.07.2025
DATE OF JUDGMENT: -24.07.2025
Dr. S.K. Panigrahi, J.
1. The present Writ Petition is preferred by the Petitioners challenging
the judgment dated 28.08.2024 passed by the learned District Judge,
Khurda at Bhubaneswar in ARBA Case No.7 of 2023 wherein the
learned Appellate Court was pleased to dismiss the appeal filed by
the present Petitioners under Section 37 of the A&C Act.
I. FACTUAL MATRIX OF THE CASE:
2. The present Opposite Party pursuant to an open tender dated
21.10.2008 was given the purchase order dated 29/30.4.2009 for supply
Location: ORISSA HIGH COURT, CUTTACK
of 1,00,000 MT of washed coal at a price inclusive of basic price of
coal, railway freight, logistic charges, taxes, etc. on a continuous basis
to be completed within a period of 3 months from the date of the
purchase order.
3. The specifications for supply of washed coal were mentioned at
Clause 1 of the purchase order which also included other terms and
conditions pertaining to the delivery schedule, contracts cum
performance bank guarantee, acceptance with penalty and rejection,
payment terms, termination, arbitration, etc.
4. The present Opposite Party accordingly started dispatching the
washed coal through rail as per the dispatch schedule. Dispute arose,
when the Petitioner observed that the coal supplied through Rake
Nos. 16 to 23 from Vishakapatnam siding contains a higher moisture
than the acceptable limit specified in Clause 1 of the purchase order.
5. Relying on the analysis report of the washed coal provided by Mitra
S.K. Coal Inspection Private Limited dated 22.7.2009, 23.7.2009 and
27.7.2009 for Rake Nos. 16, 17 and 18 the present Petitioner vide letter
dated 31.7.2009 intimated to the Opposite Party that the moisture
content for the rakes have exceeded the acceptable range and hence as
per the terms of the purchase order, these rake loads will be rejected
and no payment against the same will be made.
6. A similar letter dated 14.8.2009 was issued by the Petitioner
intimating the Opposite Party of the same issue qua Rake Nos.
19,20,21,22 and 23.
Location: ORISSA HIGH COURT, CUTTACK
7. In response, vide letter dated 3.9.2009, the Opposite Party stated that
all the parameters except total moisture are in conformity with the
specifications laid out in the purchase order. The reason for higher
moisture was ascribed to the heavy rainfall which, despite precautions
might have entered the rakes in transit.
8. Vide letter dated 17.6.2011, the Opposite Party requested release of
payment for Rake Nos. 16 to 23. A meeting was convened on 27.9.2011
between the officials of both parties for reconciliation of outstanding
amounts as the Opposite Party contended that it continued
dispatching rakes during heavy monsoon due to the constant demand
put forth by the Petitioner who was facing an acute shortage of coal
and would have had to shut down if not for the deliveries made by
the Opposite Party. The Opposite Party in the meeting was asked to
recast their outstanding amounts for further review.
9. However, on 5.4.2012, the Opposite Party referred the dispute for
arbitration and sought appointment of an arbitrator by invoking
Clause 15 of the purchase order. Accordingly Retd. Justice Basudev
Panigrahi was appointed as the Ld. Sole Arbitrator to adjudicate upon
the dispute between the present Parties vide letter dated 2.8.2012.
10.The Ld. Sole Arbitrator after referring to the pleadings and evidence
led in the arbitration proceeding, vide award dated 24.6.2017 directed
the present Petitioners to pay Rs. 26,77,38,990/- to the present
Opposite Party within a period of 3 months from the date of order
failing which, the entire awarded amount would carry interest at the
rate of 12% p.a.
Location: ORISSA HIGH COURT, CUTTACK
11.Being aggrieved, the present Petitioners resorted to an application u/s
34 of the A&C Act before the Ld. Senior Civil Judge (Commercial
Court), Bhubaneswar, praying for setting aside the award. The Ld.
Senior Civil Judge (Commercial Court), Bhubaneswar vide order
dated 28.8.2023 after referring to the materials placed on record,
dismissed the arbitration petition with the observation that the
present Petitioners have failed to make out a case requiring
interference with the award.
12.Still aggrieved, the present Petitioners preferred an application u/s 37
of the A&C Act before the Court of the Ld. District Judge, Khurda at
Bhubaneswar. Vide order dated 28.8.2024, the Ld. District Judge was
of the view that there is neither any 'patent illegality' nor violation of
any 'public policy' in the arbitral award. Furthermore it was observed
that the errors alleged do not go to the root of the matter, warranting
interference and therefore the order dated 28.8.2023 passed by the Ld.
Senior Civil Judge (Commercial Court), Bhubaneswar was upheld.
13.At this stage, the present Petitioners approached the Supreme Court
of India in SLP(C) Diary No. 57336/2024, wherein the Apex Court vide
order dated 15.1.2025 was pleased to permit the present Petitioners to
approach this Court in its writ jurisdiction. Hence, the present
Petition.
14.Now that the broad facts leading up to the instant Petition have been
laid down, this Court shall endeavour to fully summarise the
contentions of the Parties and the broad grounds that have been urged
to seeking the exercise of this Court's writ jurisdiction.
Location: ORISSA HIGH COURT, CUTTACK
II. PETITIONERS' SUBMISSIONS:
15.It is submitted by Ld. Counsel for the Petitioners that the impugned
award suffers from patent illegality and is contrary to the public
policy of India, hence, deserves to be set aside vis-a-vis the impugned
order passed by Ld. Senior Civil Judge (Commercial Court),
Bhubaneswar, being illegal & arbitrary, is also liable to be set aside.
He further contended that the reasons assigned by the Arbitral
Tribunal while deciding the arbitration proceeding are irrational and
perverse to the settled position of law, which on perusal will shock the
conscience of the Court. He again contended that the glaring fact that
the Respondent failed to supply washed coal in eight Rakes, i.e., Rake
Nos.16 to 23, as per the specifications provided in the Purchase Order,
leading to non-performance in term of the Purchase Order, makes the
Respondent solely responsible for its own loss and the same was not
taken into account in its proper perspective by the Arbitral Tribunal,
resulting in passing an erroneous award.
16.It was also contended that the letters of the Opposite Party stating that
due to heavy rainfall, the moisture percentage has gone up beyond
the stipulated parameters has not been taken into account by the Ld.
Arbitral Tribunal as the same is a material admission of their own
breach of the terms of the purchase order.
III. OPPPOSITE PARTY'S SUBMISSIONS:
17.Per contra, it is submitted by Ld. Counsel for the Opposite Party that
the interference of this Court under writ jurisdiction is restricted to
Location: ORISSA HIGH COURT, CUTTACK
orders that are passed which are patently lacking in inherent
jurisdiction which requires a perversity that stares one in the face. The
same not being the case, this Writ Petition is bad in law and ought to
be dismissed.
18.It is also earnestly contended that the scope of Section 37 of the A&C
Act being limited to reviewing the order passed u/s 34 of the A&C Act
essentially means that this Court also ought not to undertake an
independent assessment of the merits or the evidence in the matter
and ought to restrict itself to only reviewing whether the Ld. Courts
below have committed any inherent error in adjudicating the matter.
19.It is further brought to this Court's notice that the present Petitioners
have consumed the entire coal delivered in Rake Nos. 16 to 23 and
have subsequently questioned its moisture percentage to avoid
payment. When the coal itself was consumed, there is no scope for the
present Opposite Party to withdraw the said rakes. The mere fact of
consumption also amounts to satisfaction of the purchase order and
therefore, the Opposite Party is liable to receive the price of coal
delivered in the alleged rakes.
IV. ISSUES FOR CONSIDERATION:
20.Having heard the parties and perused the materials available on
record, this court has identified the singular following issue that has
to be determined which have emerged contentiously during the
course of the hearing and is germane to finally decide the lis at hand;
Location: ORISSA HIGH COURT, CUTTACK
A. WHETHER THIS COURT OUGHT TO INTERFERE WITH THE
IMPUGNED ORDER?
21.The law is well settled that Arbitral Tribunals are a species of
tribunals over which the High Court exercises writ jurisdiction.
Challenge to an order of an arbitral tribunal can be raised by way of a
writ petition. In Union of India v. R. Gandhi, President Madras Bar
Association1 the Supreme Court observed on the question as to what
constitutes 'Courts' and 'Tribunals' as under:
"38. The term 'Courts' refers to places where justice is
administered or refers to Judges who exercise judicial
functions. Courts are established by the state for
administration of justice that is for exercise of the judicial
power of the state to maintain and uphold the rights, to
punish wrongs and to adjudicate upon disputes. Tribunals
on the other hand are special alternative institutional
mechanisms, usually brought into existence by or under a
statute to decide disputes arising with reference to that
particular statute, or to determine controversies arising out
of any administrative law. Courts refer to Civil Courts,
Criminal Courts and High Courts. Tribunals can be either
private Tribunals (Arbitral Tribunals), or Tribunals
constituted under the Constitution (Speaker or the
Chairman acting under Para 6(1) of the Tenth Schedule) or
Tribunals authorized by the Constitution (Administrative
Tribunals under Article 323A and Tribunals for other
matters under Article 323B) or Statutory Tribunals which
are created under a statute (Motor Accident Claims
Tribunal, Debt Recovery Tribunals and consumer fora).
Some Tribunals are manned exclusively by Judicial Officers
(Rent Tribunals, Motor Accidents Claims Tribunal, Labour
Courts and Industrial Tribunals). Other statutory
(2010) 11 SCC 1
Location: ORISSA HIGH COURT, CUTTACK
Tribunals have Judicial and Technical Members
(Administrative Tribunals, TDSAT, Competition Appellate
Tribunal, Consumer fora, Cyber Appellate Tribunal, etc)."
22. Similar observations were made by the Supreme Court in SREI
Infrastructure Finance Limited2as under:
"14. Arbitration is a quasi judicial proceeding, equitable in
nature or character which differs from a litigation in a
Court. The power and functions of arbitral tribunal are
statutorily regulated. The tribunals are special arbitration
with institutional mechanism brought into existence by or
under statute to decide dispute arising with reference to that
particular statute or to determine controversy referred to
it. The tribunal may be a statutory tribunal or tribunal
constituted under the provisions of the Constitution of
India. Section 9 of the Civil Procedure Code vests into the
Civil Court jurisdiction to entertain and determine any civil
dispute. The constitution of tribunals has been with intent
and purpose to take out different categories of litigation into
the special tribunal for speedy and effective determination of
disputes in the interest of the society. Whenever, by a
legislative enactment jurisdiction exercised by ordinary civil
court is transferred or entrusted to tribunals such tribunals
are entrusted with statutory power. The arbitral tribunals
in the statute of 1996 are no different, they decide the lis
between the parties, follows Rules and procedure
conforming to the principle of natural justice, the
adjudication has finality subject to remedy provided under
the 1996 Act. Section 8 of the 1996 Act obliges a judicial
authority in a matter which is a subject of an agreement to
refer the parties to arbitration. The reference to arbitral
tribunal thus can be made by judicial authority or an
arbitrator can be appointed in accordance with the
arbitration agreement under Section 11 of the 1996 Act."
(2018) 11 SCC. 470
Location: ORISSA HIGH COURT, CUTTACK
23.Thus, the Apex Court held that arbitral tribunals are private tribunals
unlike those tribunals set up under the statute or specialized tribunals
under the Constitution of India. Thus, a Petition under Article 227
challenging orders of an Arbitral Tribunal would be maintainable.
24.At this juncture, it is necessary to set out certain provisions of the
Arbitration and Conciliation Act, 1996.
Section 5 states:
"5. Extent of judicial intervention.--Notwithstanding
anything contained in any other law for the time being in
force, in matters governed by this Part, no judicial
authority shall intervene except where so provided in this
Part."
Section 37 which is also material states as follows:
"37. Appealable orders.--(1) An appeal shall lie from the
following orders (and from no others) to the court
authorised by law to hear appeals from original decrees of
the Court passing the order, namely--
(a) refusing to refer the parties to arbitration under
Section 8;
(b) granting or refusing to grant any measure under
Section 9;
(c) setting aside or refusing to set aside an arbitral
award under Section 34.
(2) An appeal shall also lie to a court from an order granting
of the Arbitral Tribunal--
(a) accepting the plea referred in sub-section (2) or sub-
section (3) of Section 16; or
(b) granting or refusing to grant an interim measure
under Section 17.
Location: ORISSA HIGH COURT, CUTTACK
(3) No second appeal shall lie from an order passed in appeal
under this section, but nothing in this section shall affect or
take away any right to appeal to the Supreme Court."
25. What is also important to note is that under Section 29-A of the Act
which was inserted by the Amendment Act, 2016 a time-limit was
made within which arbitral awards must be made, namely, 12 months
from the date the Arbitral Tribunal enters upon the reference. Also, it
is important to note that even so far as Section 34 applications are
concerned, Section 34(6) added by the same amendment states that
these applications are to be disposed of expeditiously, and in any
event, within a period of one year from the date on which the notice
referred to in sub-section (5) is served upon the other parties.
26.Given the aforesaid statutory provision and given the fact that the
1996 Act repealed three previous enactments in order that there be
speedy disposal of all matters covered by it, it is clear that the
statutory policy of the Act is that not only are time-limits set down for
disposal of the arbitral proceedings themselves but time-limits have
also been set down for Section 34 references to be decided. Equally, in
Union of India v. Varindera Constructions Ltd.3 The Supreme Court
has imposed the selfsame limitation on first appeals under Section 37
so that there be a timely resolution of all matters which are covered by
arbitration awards.
27.Most significant of all is the non obstante clause contained in Section 5
which states that notwithstanding anything contained in any other
(2020) 2 SCC 111
Location: ORISSA HIGH COURT, CUTTACK
law, in matters that arise under Part I of the Arbitration Act, no
judicial authority shall intervene except where so provided in this
Part. Section 37 grants a constricted right of first appeal against certain
judgments and orders and no others. Further, the statutory mandate
also provides for one bite at the cherry, and interdicts a second appeal
being filed [see Section 37(2) of the Act].
28.Coming now to the question as to what would be the scope of
interference under Article 226/227 against orders passed by the
Arbitral Tribunals, though, a number of judgments have been cited by
both parties, recent decisions of the Supreme Court and of this Court
have settled the issue.
29.While there is no doubt that the arbitral tribunal is a tribunal over
which writ jurisdiction can be exercised, the said interference by a
writ court is limited in nature. Recently, in Deep Industries
Ltd. v. ONGC Ltd.4 decided on 28th November, 2019, the Supreme
Court considered S.B.P. & Company v. Patel Engineering Ltd.5
and Fuerst Day Lawson Limited v. Jindal Exports Limited6 and
observed as under:
"17. This being the case, there is no doubt whatsoever that if
petitions were to be filed Under Articles 226/227 of the
Constitution against orders passed in appeals Under
Section 37, the entire arbitral process would be derailed and
would not come to fruition for many years. At the same
time, we cannot forget that Article 227 is a constitutional
(2020) 15 SCC 706
(2005) 8 SCC 618
(2011) 8 SCC 333
Location: ORISSA HIGH COURT, CUTTACK
provision which remains untouched by the non-obstante
Clause of Section 5 of the Act. In these circumstances, what
is important to note is that though petitions can be filed
Under Article 227 against judgments allowing or
dismissing first appeals Under Section 37 of the Act, yet the
High Court would be extremely circumspect in interfering
with the same, taking into account the statutory policy as
adumbrated by us herein above so that interference is
restricted to orders that are passed which are patently
lacking in inherent jurisdiction."
30.Recently, in Surender Kumar Singhal v. Arun Kumar Bhalotia7 the
Delhi High Court, after considering all the decisions, of the Supreme
Court, Deep Industries (supra); Bhaven Construction v. Sardar
Sarovar Narmada Nigam Ltd.8; Punjab State Power Corpn.
Ltd. v. EMTA Coal Ltd.9; Virtual Perception OPC (P)
Ltd. v. Panasonic India (P) Ltd.10 and Ambience Projects &
Infrastructure (P) Ltd. v. Neeraj Bindal11 has laid down circumstances
in which such petitions ought to be entertained. The relevant portion
of the said judgment reads as under:
"24. A perusal of the abovementioned decisions, shows that
the following principles are well settled, in respect of the
scope of interference under Articles 226/227 in challenges to
orders by an Arbitral Tribunal including orders passed
under Section 16 of the Act:
(i) An Arbitral Tribunal is a tribunal against which a
petition under Articles 226/227 would be maintainable.
2021 SCC OnLine Del 3708
(2022) 1 SCC 75
(2020) 17 SCC 93
2022 SCC OnLine Del 566
2021 SCC OnLine Del 4023
Location: ORISSA HIGH COURT, CUTTACK
(ii) The non obstante clause in Section 5 of the Act does
not apply in respect of exercise of powers under Article
227 which is a constitutional provision.
(iii) For interference under Articles 226/227, there have
to be exceptional circumstances.
(iv) Though interference is permissible, unless and until
the order is so perverse that it is patently lacking in
inherent jurisdiction, the writ court would not interfere.
(v) Interference is permissible only if the order is
completely perverse i.e. that the perversity must stare in
the face.
(vi) High Courts ought to discourage litigation which
necessarily interfere with the arbitral process.
(vii) Excessive judicial interference in the arbitral
process is not encouraged.
(viii) It is prudent not to exercise jurisdiction under
Articles 226/227.
(ix) The power should be exercised in "exceptional
rarity" or if there is, "bad faith" which is shown.
(x) Efficiency of the arbitral process ought not to be
allowed to diminish and hence interdicting the arbitral
process should be completely avoided."
26. A perusal of the above would show that it is only under
exceptional circumstances or when there is bad faith or
perversity that writ petitions ought to be entertained."
31.The power of superintendence vested in High Courts under Article
227 of the Constitution of India is a constitutional safeguard designed
to ensure that subordinate courts and tribunals act within their
jurisdiction and adhere to principles of fairness, legality, and
procedural propriety. However, the exercise of this power in the
Location: ORISSA HIGH COURT, CUTTACK
context of arbitration proceedings governed by the Arbitration and
Conciliation Act, 1996, has been subject to considerable judicial
scrutiny and debate. The Arbitration Act is a self-contained code
aimed at promoting minimal judicial interference and ensuring the
speedy resolution of disputes through a quasi-judicial process. Section
5 of the Act categorically mandates that judicial authorities shall not
intervene in matters governed by the Act, except where expressly
provided. This non obstante clause, coupled with the limited appellate
mechanism under Section 37, underscores a deliberate legislative
intent to restrict court involvement and expedite the arbitral process.
The Supreme Court in SBP & Co. v. Patel Engg. Ltd.12 emphasized the
autonomy of the arbitral process, affirming that courts must respect
the statutory scheme. While Article 227 is a constitutional provision
and therefore cannot be ousted by statutory language, the Courts have
repeatedly held that this extraordinary jurisdiction must be exercised
with great restraint, especially in arbitration matters. Any intervention
should be confined to cases where there is a patent lack of jurisdiction
or perversity that is apparent on the face of the record. The
overarching goal is to preserve the integrity and efficiency of the
arbitral process.
32.In recent judicial pronouncements, including Deep Industries (supra),
the Apex Court has emphasized that although Article 227 cannot be
curtailed by any statutory enactment like Section 5 of the Arbitration
and Conciliation Act, the High Courts must exercise self-restraint
(2005) 8 SCC 618
Location: ORISSA HIGH COURT, CUTTACK
while considering interference in arbitral proceedings. The Court
acknowledged the supremacy of the constitutional provision but
cautioned that indiscriminate use of writ jurisdiction would
undermine the legislative objective of speedy and efficient dispute
resolution through arbitration. It observed that entertaining petitions
under Articles 226 or 227 against interlocutory or even final orders
passed under Sections 16 or 17 of the Arbitration Act would result in
delaying the arbitral process and open floodgates for unwarranted
challenges. Importantly, the Court held that only in instances where
the order suffers from a patent lack of jurisdiction or where there is a
manifest miscarriage of justice should the High Court step in. The
rationale was rooted in the principle that arbitral tribunals, while not
civil courts, are adjudicatory bodies that derive their authority from
party autonomy and statutory recognition. Excessive judicial
interference in this sphere would erode the foundational principles of
arbitration and compromise its purpose as an alternate dispute
resolution mechanism. The Court thus laid down a threshold of
"exceptional rarity" as a guiding principle. Consequently, even if
maintainability under Article 227 is established, the jurisdiction ought
not to be exercised merely because an error of law or fact exists, unless
such error amounts to perversity or a jurisdictional transgression. The
Court was particularly wary of the potential derailment of the arbitral
process if supervisory jurisdiction were exercised routinely over
orders passed either by arbitral tribunals or in first appeals under
Section 37 of the Act. Acknowledging the supremacy of the
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Constitution and the enduring nature of Article 227, the Court
nevertheless maintained that statutory policy must be respected and
judicial review should not be used as a backdoor appeal mechanism.
The Court held that although the power under Article 227 is
untouched by the non obstante clause in Section 5, such power must
be exercised with utmost circumspection and only in cases where
orders are so patently lacking in inherent jurisdiction or are manifestly
perverse that judicial conscience is shocked. This nuanced stance
balances constitutional principles with statutory purpose. The Court
further explained that if Article 227 petitions were freely entertained
against Section 37 orders, it would negate the legislative scheme that
provides for only a single appeal and bars second appeals under
Section 37(3). Consequently, High Courts must tread carefully,
ensuring that their intervention does not undermine the finality and
expedition that the Arbitration Act seeks to promote. This decision
thus reinforces the principle that while constitutional remedies remain
available, they are not to be used as substitutes for appeals explicitly
barred by a self-contained statute such as the Arbitration and
Conciliation Act.
33.The decision in Surender Kumar Singhal (supra), further crystallized
the judicial standards governing Article 227 interference in arbitral
matters. After analyzing key Supreme Court precedents, the Delhi
High Court unequivocally held that the supervisory power under
Article 227 can only be exercised when there is demonstrable
perversity or the order of the arbitral tribunal is patently without
Location: ORISSA HIGH COURT, CUTTACK
jurisdiction. The Court noted that arbitral tribunals, being private
adjudicatory bodies created under the Arbitration and Conciliation
Act, 1996, are distinct from statutory or constitutional tribunals.
Despite this, given their function of adjudicating legal disputes and
their obligation to adhere to principles of natural justice, they fall
within the scope of judicial review under Article 227. However, the
Act's statutory framework, particularly Sections 5 and 37, reflects a
clear legislative intent to restrict judicial intervention. Section 5's non
obstante clause ensures that in matters governed by the Act, no
judicial authority shall intervene unless specifically provided. Section
37, by allowing a limited and exhaustive list of appealable orders,
reinforces the notion of finality and minimal interference. The Court
warned that permitting Article 227 challenges as a routine remedy
would effectively create a "second bite at the cherry," contrary to the
Arbitration Act's policy and purpose. Therefore, only orders reflecting
egregious illegality or mala fides warrant constitutional scrutiny. The
judgment also crystallized the principles governing the exercise of
writ jurisdiction over arbitral orders, emphasizing that such powers
under Article 227 must be exercised only in the rarest of rare cases.
The decision made clear that arbitral tribunals, though private in
nature, are still "tribunals" within the meaning of Article 227 and
therefore subject to the High Court's supervisory control. However,
this supervisory control is not equivalent to appellate review. Rather,
the writ court's role is confined to correcting manifest illegality, bad
faith, or perversity so glaring that it indicates a patent lack of
Location: ORISSA HIGH COURT, CUTTACK
jurisdiction. The High Court reiterated that if orders passed by
arbitral tribunals were routinely challenged and overturned under
Article 227, it would nullify the entire purpose of a separate
arbitration regime and revert the process to the very judicial delays it
sought to eliminate. The judgment stressed the necessity of
discouraging such litigation unless the arbitral order offends the basic
structure of justice.
34.While Article 227 cannot be statutorily ousted due to its constitutional
origin, its invocation must be exercised with extreme caution in
arbitration matters. If High Courts were to routinely entertain
petitions under Article 227 against orders passed under Section 37 of
the Arbitration Act, the entire purpose of creating a streamlined
arbitral regime would be frustrated. Arbitration proceedings, by their
very nature, are intended to be quick and efficient alternatives to
traditional litigation. Excessive judicial interference undermines this
objective and delays finality in commercial disputes. Interference of
this Court under Article 227 is not only exceptional but should be
exercised in situations where the order in question is so perverse that
it lacks inherent jurisdiction. It reaffirmed that routine errors of law or
fact, or disagreements on the merits, cannot be grounds for invoking
this extraordinary jurisdiction. The policy underlying the Arbitration
Act, reinforced by its non obstante clause in Section 5 and constricted
appellate structure in Section 37, demands judicial deference to
arbitral decisions. Therefore, unless there is an egregious illegality or
Location: ORISSA HIGH COURT, CUTTACK
an abuse of power that offends basic judicial conscience, this Court
must refrain from invoking Article 227.
35.This Court shall keep these principles in mind as it adjudicates upon
the contentions of the Parties. Before undertaking the aforesaid
exercise, it would be apposite to consider as to how the expressions (a)
"in contravention with the fundamental policy of Indian law"; (b) "in
conflict with the most basic notions of morality or justice"; and (c)
"patent illegality" have been construed.
36.The phrase "fundamental policy of Indian law" entered arbitral
discourse long before the 2015 amendments, when Renusagar Power
Co. Ltd. v. General Electric Co.13 confined "public policy" challenges
to three narrow heads: (i) fundamental policy of Indian law, (ii)
interests of India, and (iii) justice or morality.
37.Subsequent decisions--most notably ONGC v. Western Geco14--
stretched that first head by equating "fundamental policy" with
Wednesbury-style reasonableness review, permitting courts to re-
enter the merits on the pretext of testing arbitral reasoning. Because
that approach threatened the speedy, final nature of arbitration,
Parliament rolled it back through the Arbitration and Conciliation
(Amendment) Act, 2015.
38.Explanation 1 to Section 34(2)(b)(ii) and 48(2)(b) now insists that an
award offends public policy 'only' if it violates India's "fundamental
(1984) 4 SCC 679
(2014) 9 SCC 263
Location: ORISSA HIGH COURT, CUTTACK
policy," a concept deliberately narrower than "contrary to the policy
of Indian law." Ssangyong Engg. & Construction Co. Ltd. v. NHAI15
crystallised the post-amendment position: "fundamental policy"
reverts to the Renusagar (supra) standard, and Western Geco's (supra)
judicial-review expansion "no longer obtains." Mere statutory error--
or even an award at odds with substantive Indian law--will not
suffice unless the breach strikes at bedrock norms that undergird the
administration of justice, such as disregard of natural-justice
guarantees, wilful disobedience of binding precedents, or flouting
statutes integrally linked to public interest. Crucially, courts must
respect Explanation 2, which bars merits review under this ground;
their scrutiny stops at identifying systemic, structural affronts to
India's legal order, not re-weighing evidence or legal interpretation.
39.To determine whether an award crosses that threshold, courts apply a
two-step lens. First, they must ask whether the complained-of rule is
itself "fundamental": does it form part of the basic architecture that
sustains the rule of law--e.g., audi alteram partem, jurisdictional
competence, adherence to superior-court decrees, etc. Second, they
ought to examine whether the tribunal's conduct amounts to
'contravention', not merely imperfect application. Thus, failure to
supply any reasons, refusal to hear a party on pivotal issues, or
adjudicating matters wholly outside the reference may qualify; but a
plausible yet contestable contractual construction, or even wrongful
exclusion of a document, ordinarily will not.
(2019) 15 SCC 131
Location: ORISSA HIGH COURT, CUTTACK
40.Associate Builders v. DDA16 had assimilated Western Geco (supra) -
style "perversity" and "judicial approach" tests into public-policy
analysis; Ssangyong (supra) decisively excised those limbs, ruling that
courts may not treat facial misinterpretations of law or contract as
"fundamental-policy" breaches. Likewise, contraventions of statutes
unconnected to public interest--say, stamp-duty underpayment--lie
outside this head. The result is a calibrated, high-bar standard:
intervention is warranted only where the award undermines essential
legal tenets that any fair-minded observer would recognise as
indispensable to India's justice system. By retrenching the scope, the
2015 amendments realign Indian arbitration with the UNCITRAL
model and global best practice, ensuring that "fundamental policy"
remains an exceptional filter, not a backdoor appeal on facts and law.
41.The "morality or justice" limb, present since Renusagar (supra), was
likewise tightened in 2015. Explanation 1 now demands conflict with
the "most basic notions" of morality or justice--language
intentionally inserted to prevent subjective or elastic expansion.
Indian courts have long recognised that justice and morality are
context-sensitive; what shocks one era may not perturb another.
Therefore, post-amendment jurisprudence treats this ground as a
safety valve for truly egregious awards--those that outrage the
court's conscience because they subvert elementary fairness
intelligible to any reasonable layperson, whether legally trained or
not. The Law Commission's 246th Report, echoed by Ssangyong
(2015) 3 SCC 49
Location: ORISSA HIGH COURT, CUTTACK
(supra), emphasised that importing Wednesbury or proportionality
tests here would "open the floodgates," defeating legislative intent.
Consequently, an award may be annulled under this head only if it
institutionalises manifest injustice--e.g., sanctions fraud, enforces a
contract obtained by duress, or imposes liabilities that blatantly
contradict mutual assent--thereby eroding society's faith in
adjudicatory fairness.
42.In practice, Indian courts deploy a conscience-shock test grounded in
universal principles rather than parochial moral codes. For instance,
in Ssangyong (supra), the majority of an arbitral tribunal unilaterally
rewrote a price-adjustment formula by applying an internal NHAI
circular never agreed to by the contractor, effectively creating a new
bargain. The Supreme Court held that foisting a unilateral
modification on an unwilling party violated "the most basic notions of
justice," as voluntariness lies at the heart of contract law. Similarly,
awards enforcing contracts tainted by corruption or transactions
forbidden by law (e.g., betting agreements) would offend basic
morality. By contrast, awards involving commercial hardship,
uneven economic results, or arguable legal mistakes ordinarily pass
muster, for equity courts cannot rewrite bargains ex post. The
guiding principle is restraint: morality-oriented intervention is
reserved for circumstances where a lay observer would perceive the
outcome as plainly unconscionable--where the tribunal's decision
legitimises wrongdoing rather than merely errs in quantification or
interpretation. This cautious approach upholds arbitral autonomy,
Location: ORISSA HIGH COURT, CUTTACK
protecting parties' bargain to accept a chosen tribunal's view, while
ensuring that arbitration does not become a cloak for fundamental
injustice. It mirrors international jurisprudence thereby strengthening
India's reputation as an arbitration-friendly jurisdiction that
simultaneously safeguards core ethical minima.
43.Section 34(2-A), inserted in 2015, introduced "patent illegality
appearing on the face of the award" as a separate annulment ground
for domestic awards (it does not apply to foreign or Part II
enforcement). The provision codifies and confines the doctrine earlier
derived from ONGC v. Saw Pipes17, which had blended patent
illegality with public policy. Parliament's aim was twofold: (i) retain a
mechanism to nullify awards that flout obvious legal mandates, yet
(ii) bar disguised appeals on facts or law. Accordingly, the proviso
forbids setting aside "merely on the ground of erroneous application
of law" or "re-appreciation of evidence." Ssangyong (supra)
interprets patent illegality as errors that "go to the root of the matter"
but are not subsumed within fundamental policy--thus covering
blatant violations of substantive statutes, the Arbitration Act itself, or
contract terms, provided they are manifest on the award's face.
Notable examples include deciding disputes beyond the contract's
scope, granting relief contrary to an express prohibition, or ignoring
mandatory statutory caps. The test is objective and record-based: the
error must be apparent without forensic excavation; hidden or
debatable mistakes remain immune.
(2003) 5 SCC 705
Location: ORISSA HIGH COURT, CUTTACK
44.Courts evaluating patent illegality utilise the "perversity" benchmarks
articulated in Associate Builders (supra) and reaffirmed in Delhi
Metro Rail Corporation v. DAMEPL18. An award is perverse--and
hence patently illegal--when (i) findings rest on no evidence, (ii)
irrelevant factors decisively influence the outcome, (iii) vital evidence
is ignored, (iv) reasons are wholly absent, or (v) the tribunal addresses
matters beyond its jurisdiction. However, even these indicators must
reveal themselves plainly on the award or arbitral record; courts
cannot marshal new material or conduct painstaking re-evaluation.
The focus is procedural and jurisdictional fidelity, not substantive
correctness. Importantly, patent illegality is unavailable in
international commercial arbitration seated in India--reflecting
India's commitment to align with the UNCITRAL Model Law and
minimise judicial intrusion where foreign parties are involved. Taken
together, the 2015 framework establishes a tiered control system:
"fundamental policy" and "most basic notions of morality or justice"
guard systemic and ethical frontiers applicable to all awards, while
"patent illegality" offers an additional, carefully cabined safeguard for
domestic awards to weed out egregious but non-fundamental legal
flaws. This architecture balances finality with legitimacy, ensuring
Indian courts remain sentinels of legality without morphing into
appellate arbiters, thereby promoting efficiency and investor
confidence in India-seated arbitration.
2024 INSC 292
Location: ORISSA HIGH COURT, CUTTACK
45.In MMTC Ltd. v. Vedanta Ltd.19, the Supreme Court took note of
various decisions including that in Associate Builders (supra) and
exposited on the limited scope of interference under Section 34 and
further narrower scope of appeal under Section 37 of the 1996 Act,
particularly when dealing with the concurrent findings (of the
arbitrator and then of the Court). The Supreme Court, inter alia, held
as under :
"11. As far as Section 34 is concerned, the position is well-
settled by now that the Court does not sit in appeal over the
arbitral award and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii) i.e. if the award
is against the public policy of India. As per the legal position
clarified through decisions of the Hon'ble Supreme Court
prior to the amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn, includes a
violation of the fundamental policy of Indian law, a
violation of the interest of India, conflict with justice or
morality, and the existence of patent illegality in the arbitral
award. Additionally, the concept of the "fundamental policy
of Indian law" would cover compliance with statutes and
judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice,
and Wednesbury [Associated Provincial Picture
Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)]
reasonableness. Furthermore, "patent illegality" itself has
been held to mean contravention of the substantive law of
India, contravention of the 1996 Act, and contravention of
the terms of the contract.
12. It is only if one of these conditions is met that the Court
may interfere with an arbitral award in terms of Section
34(2)(b)(ii), but such interference does not entail a review of
(2019) 4 SCC 163
Location: ORISSA HIGH COURT, CUTTACK
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 ground of an erroneous
application of the law or by reappreciation of evidence.
14. As far as interference with an order made under Section
34, as per Section 37, is concerned, it cannot be disputed
that such interference under Section 37 cannot travel
beyond the restrictions laid down under Section 34. In other
words, the Court cannot undertake an independent
assessment of the merits of the award, and must only
ascertain that the exercise of power by the Court under
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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."
46.In Ssangyong Engg. (supra), the Supreme Court has set out the scope
of challenge under Section 34 of the 1996 Act in further details 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 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.
Location: ORISSA HIGH COURT, CUTTACK
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
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."
47.The limited scope of challenge under Section 34 of the Act was once
again highlighted by the Supreme Court in PSA Sical Terminals (P)
Ltd. v. V.O. Chidambranar Port Trust20 and the Supreme Court
particularly explained the relevant tests as under :
2021 SCC OnLine SC 508
Location: ORISSA HIGH COURT, CUTTACK
"40. It will thus appear to be a more than settled legal
position, that in an application under Section 34, the Court
is not expected to act as an appellate court and reappreciate
the evidence. The scope of interference would be limited to
grounds provided under Section 34 of the Arbitration Act.
The interference would be so warranted when the award is
in violation of "public policy of India", which has been held
to mean "the fundamental policy of Indian law". A judicial
intervention on account of interfering on the merits of the
award would not be permissible. However, the principles of
natural justice as contained in Sections 18 and 34(2)(a)(iii)
of the Arbitration Act would continue to be the grounds of
challenge of an award. The ground for interference on the
basis that the award is in conflict with justice or morality is
now to be understood as a conflict with the "most basic
notions of morality or justice". It is only such arbitral
awards that shock the conscience of the Court, that can be
set aside on the said ground. An award would be set aside
on the ground of patent illegality appearing on the face of
the award and as such, which goes to the roots of the matter.
However, an illegality with regard to a mere erroneous
application of law would not be a ground for interference.
Equally, reappreciation of evidence would not be permissible
on the ground of patent illegality appearing on the face of
the award.
41. A decision which is perverse, though would not be a
ground for challenge under "public policy of India", would
certainly amount to a patent illegality appearing on the face
of the award. However, a finding based on no evidence at all
or an award which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside on the
ground of patent illegality.
42. To understand the test of perversity, it will also be
appropriate to refer to paras 31 and 32 from the judgment of
this Court in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ)
204] , which read thus : (SCC pp. 75-76)
Location: ORISSA HIGH COURT, CUTTACK
'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."
48.In Delhi Airport Metro Express (P) Ltd. v. DMRC21 , the Supreme
Court again surveyed the case law and explained the contours of the
Courts' power to review the arbitral awards. Therein, the Supreme
Court not only reaffirmed the principles aforesaid but also
highlighted an area of serious concern while pointing out "a
disturbing tendency" of the Courts in setting aside arbitral awards
after dissecting and reassessing factual aspects. The Supreme Court
also underscored the pertinent features and scope of the expression
"patent illegality" while reiterating that the Courts do not sit in appeal
over the arbitral award. 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
(2022) 1 SCC 131
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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 : (2022) 1 SCC (Civ) 374]
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.
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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 public policy
of India, the award is liable to be set aside. Explanation (1),
amended by the 2015 Amendment Act, clarified the
expression "public policy of India" and its connotations for
the purposes of reviewing arbitral awards. It has been made
clear that an award would be in conflict with public policy
of India only when it is induced or affected by fraud or
corruption or is in violation of Section 75 or Section 81 of
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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 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."
49.The position in Associate Builders (supra) was recently summarised
as hereinbelow recorded by Indian Oil Corpn. Ltd. v. Shree Ganesh
Petroleum22:
"42. In Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204 (two-Judge
Bench)] , this Court held that an award could be said to be
(2022) 4 SCC 463
Location: ORISSA HIGH COURT, CUTTACK
against the public policy of India in, inter alia, the following
circumstances:
42.1. When an award is, on its face, in patent violation of
a statutory provision.
42.2. When the arbitrator/Arbitral Tribunal has failed to
adopt a judicial approach in deciding the dispute.
42.3. When an award is in violation of the principles of
natural justice.
42.4. When an award is unreasonable or perverse.
42.5. When an award is patently illegal, which would
include an award in patent contravention of any
substantive law of India or in patent breach of the 1996
Act.
42.6. When an award is contrary to the interest of India,
or against justice or morality, in the sense that it shocks
the conscience of the Court."
50.In Haryana Tourism Ltd. v. Kandhari Beverages Ltd.23, the Supreme
Court yet again pointed out the limited scope of interference under
Sections 34 and 37 of the Act; and disapproved interference by the
High Court under Section 37 of the Act while entering into merits of
the claim in the following words :
"8. So far as the impugned judgment and order [Kandhari
Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine
P&H 3233] passed by the High 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.
(2022) 3 SCC 237
Location: ORISSA HIGH COURT, CUTTACK
9. As per settled position of law laid down by this Court
in a catena of decisions, an award can be set aside only if the
award is against the public policy of India. The award can
be set aside under Sections 34/37 of the Arbitration Act, if
the award is found to be contrary to : (a) fundamental policy
of Indian Law; or (b) the interest of India; or (c) justice or
morality; or (d) if it is patently illegal. None of the aforesaid
exceptions shall be applicable to the facts of the case on
hand. The High Court has entered into the merits of the
claim and has decided the appeal under Section 37 of the
Arbitration Act as if the High Court was deciding the
appeal against the judgment and decree passed by the
learned trial court. Thus, the High Court has exercised the
jurisdiction not vested in it under Section 37 of the
Arbitration Act. The impugned judgment and order
[Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018
SCC OnLine P&H 3233] passed by the High Court is hence
not sustainable."
51.As regards the limited scope of interference under Sections 34/37 of
the Act, this Court also considers it apposite to refer to the following
observations of a three-Judge Bench of the Supreme Court in UHL
Power Co. Ltd. v. State of H.P.24:
"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.
(2022) 4 SCC 116
Location: ORISSA HIGH COURT, CUTTACK
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."
52.As noticed, arbitral award is not an ordinary adjudicatory order so as
to be lightly interfered with by the Courts under Sections 34 or 37 of
the 1996 Act as if dealing with an appeal or revision against a decision
of any subordinate Court. The expression "patent illegality" has been
exposited by the Supreme Court in the cases referred hereinbefore.
The significant aspect to be reiterated is that it is not a mere illegality
which would call for interference, but it has to be "a patent illegality",
which obviously signifies that it ought to be apparent on the face of
the award and not the one which is culled out by way of a long-drawn
analysis of the pleadings and evidence.
53.From the materials on record, it is evident that the dispute between
the parties is limited to the supply of washed coal in 8 Rakes, namely
Rake Nos. 16 to 23, which were delivered between 17.07.2009 and
01.08.2009. The Petitioners assert that the washed coal supplied in
these 08 Rakes contained moisture levels exceeding 20%, thereby
violating Clause 10(c) and 10(d) of the Purchase Order, and as such,
the Opposite Party is not entitled to receive payment for this
consignment. It is clear from the materials and arguments presented
that the crux of the dispute centers around Clauses 1 and 10 of the
Purchase Order, particularly Clause 1(c) read with Clause 10(c) and its
Location: ORISSA HIGH COURT, CUTTACK
general instructions. These provisions must be duly considered when
examining the claims and assessing entitlement. Accordingly, this
Court finds it appropriate to first reproduce Clause 10 of the Purchase
Order for reference:
"10. Acceptance with Penalty and Rejection:
...
(c) Total Moisture: Prorate quantity reduction shall be
made when total moisture are analyzed and found to be
more than 12% and up to the maximum of 20% as per
formula given below.
(For x% increase over the total moisture content, the weight
will be reduced by x%)
Rake load material with total moisture contents above 20%
will be rejected. No payments will be made to the party.
...
In case washed coal supplied is not acceptable even after
applying penalty clause(s), the entire rake load of coal will
be rejected. Since our siding is not open for dispatch of
rejected coal by rail it will not be possible for NALCO to
dispatch or the supplier to take back the rejected coal by rail.
Hence, suppliers willing to take back the rejected material
may have to make their own alternate arrangement. It will
be the sole responsibility of the supplier to take back the
rejected materials from NALCO, CPP at their own expense
within 15 days from the date of intimation of rejection. In
case the rejected coal is not taken back within the time limit,
the material shall be forfeited by NALCO and no payment
will be made to the supplier for the cost of the coal including
railway freight whatsoever for such rejected coal. Any
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rejection shall call for replacement with fresh supply within
the contract will delivery period."
54.Clause 1 of the Purchase Order stipulates the specifications for coal,
and specifically in Clause 1(c), it is mentioned that the total moisture
content should not exceed 12%. A combined reading of Clause 1(c)
with Clause 10(c) clarifies that where the moisture content of the
supplied washed coal exceeds 12% but remains within 20%, the
quantity will be proportionately reduced as per the specified formula.
However, if the moisture content is found to be above 20%, the entire
rake load must be rejected, and no payment is to be made.
55.Furthermore, the general instructions at the end of Clause 10 lay
down the procedure to be followed upon rejection of the rake load of
washed coal, which is binding on both parties. In this case, however,
the washed coal supplied in the aforementioned 08 Rakes was
immediately consumed by the Appellants. They then informed the
Respondent that the moisture content exceeded 20%, thereby treating
the coal as rejected. This was done without granting the Respondent
the stipulated 15 days to respond or make arrangements to take back
the rejected material, which constitutes a breach of the general
instructions under Clause 10 by the Appellants.
56.Alternatively, learned counsel for the Appellants has argued that if at
all the Respondent is entitled to payment for the delivery of these 08
Rakes, the value of the rejected coal as per the Purchase Order would
be Rs. 10,38,43,552/-, and not the amount awarded by the Arbitral
Tribunal. However, a perusal of the award shows that the Arbitrator
Location: ORISSA HIGH COURT, CUTTACK
has provided detailed reasoning for the conclusions reached. The
alleged irregularities pointed out by the Appellants are minor and do
not amount to "patent illegality," nor do they go to the root of the
matter. Likewise, the award does not contravene "Public Policy," as
there is no substantial evidence on record to suggest this. The
precedents cited by the Appellants to support the claim of "patent
illegality" or violation of "Public Policy" do not apply to the facts of
the present case.
57.The Arbitral Tribunal, in deciding the claims, has carefully evaluated
the evidence presented and passed a well-reasoned award. The
impugned order of the learned Senior Civil Judge (Commercial
Court), Bhubaneswar is also a speaking order, passed within the
bounds of its jurisdiction. Given that the scope under Section 37 of the
Act is limited to reviewing whether the arbitral award could be set
aside under Section 34 of the Act, there is no need to reiterate these
findings further.
58.Therefore, it becomes clear that there is no patent illegality, bad faith,
or perversity in the arbitral tribunal's or the appellate court's order
that would justify interference under Article 227. The High Court's
supervisory jurisdiction is not meant to serve as an additional layer of
appeal or to re-examine findings of fact or law unless there is a gross
miscarriage of justice or a clear absence of jurisdiction. The impugned
order does not exhibit any such glaring defect. The alleged errors
pointed out are at best errors of law or fact that do not reach the
threshold of "perversity" or "patent illegality" required for writ
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intervention. There is no indication of malafide, bias, or a
jurisdictional overreach that would warrant setting aside or
interfering with the decision. Mere disagreement with the merits does
not convert the petition into a fit case for extraordinary jurisdiction.
The High Court must not allow itself to be drawn into acting as a
quasi-appellate forum, especially where the statutory framework
intends the arbitral process to be insulated from excessive judicial
scrutiny. Consequently, this case clearly lacks any exceptional or rare
circumstances that would justify exercising the High Court's
constitutional power under Article 227 to interfere. The writ
jurisdiction, therefore, must be exercised sparingly and respectfully in
alignment with the statutory objectives of arbitration.
V. CONCLUSION:
59.In conclusion, while the High Court undeniably possesses supervisory
jurisdiction under Article 227 over arbitral tribunals, this jurisdiction
is inherently limited and must be exercised with utmost caution and
restraint. Interference under Article 227 is permissible only in
exceptional cases marked by patent illegality, bad faith, or a gross
absence of jurisdiction. The present matter falls far short of this high
threshold. The impugned arbitral and appellate orders do not suffer
from any manifest error or jurisdictional defect warranting
supervisory interference. Permitting writ jurisdiction to be exercised
lightly in such matters would undermine the Arbitration Act's
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fundamental purpose of providing a self-contained, efficient, and
expeditious dispute resolution mechanism.
60.In view of the above, this Court does not find any reason to invoke its
supervisory power in the present matter as there is no exceptional
rarity, bad faith or perversity in the impugned order and thus, there is
no reason to interfere with the arbitral process.
61.As an upshot of the above, present Writ Petition is dismissed. Pending
applications, if any, also stand disposed of in the aforesaid terms.
62.No order as to costs. Ordered accordingly.
63. Interim order, if any, passed earlier stands vacated.
(Dr.S.K. Panigrahi)
Judge
Orissa High Court, Cuttack,
Dated the 24th July, 2025/
