Orissa High Court
M/S. Essel Mining And Industries vs M/S Ravi Udyog Private Limited on 20 June, 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: 24-Jun-2025 16:53:35
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No. 5 of 2024
(From the judgment dated 13.3.2024 passed by the learned District
Judge, Keonjhar in Arbitration Petition No.5 of 2022 arising out of
award dated 25.9.2019 passed by the Ld. Sole Arbitrator in Arbitration
Proceeding No.1 of 2009, further modified on 15.2.2020 and 10.6.2020.)
M/s. ESSEL MINING AND INDUSTRIES .... Appellant (s)
LTD (EMIT) & Anr.
-versus-
M/s Ravi Udyog Private Limited .... Respondent (s)
Advocates appeared in the case through Hybrid Mode:
For Appellant (s) : Ms. Pami Rath, Sr. Advocate
along with
Mr. Ipsit Aurobindo Acharya,
Advocate
For Respondent (s) : Mr. Biplaba P. B. Bahali,
Advocate
CORAM:
DR. JUSTICE S.K. PANIGRAHI
DATE OF HEARING:-02.04.2025
DATE OF JUDGMENT:-20.06.2025
Dr. S.K. Panigrahi, J.
1. This Appeal under Section 37 of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as "A&C Act") has been filed against the
judgment dated 13.3.2024 passed by the learned District Judge,
Location: ORISSA HIGH COURT, CUTTACK
Keonjhar in Arbitration Petition No. 5 of 2022 arising out of award
dated 25.9.2019 passed by the Ld. Sole Arbitrator in Arbitration
Proceeding No. 1 of 2009, further modified on 15.2.2020 and 10.6.2020.
I. FACTUAL MATRIX OF THE CASE:
2. For the sake of brevity, the facts involved in the appeals are pithily
discussed herein:
a. The Appellant is a company incorporated under the
Companies Act,1956 forming the mining division of the
Aditya Birla Group and being a leading player in the
mining sector. Similarly, the Respondent is also a
company incorporated under the Companies Act,1956
having its registered office at 190, Purbalok, 9th Street, PO-
Kalikapur, Near Calcutta Public School, Kolkota-700099.
b. On 19.12.2000, the Appellant issued a letter of intent for
excavation, drilling, blasting and transportation of iron ore
and overburden in its mine at Barbil, Odisha for a period
of 36 months with stipulation that the Respondent would
be paid hire charges at the consolidated rate of Rs.36.50 per
M.T of material handled which was based on the diesel
price of Rs.16.38 per ltr.
c. It was agreed between the Parties that the rate would be
revised suitably pro-rata in increase in diesel price. It was
further agreed that the rate would be increased by 5%
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towards employee cost i.e. Rs.1.90 per annum after
31.3.2002.
d. Pursuant to the contract, the Respondent mobilized its
equipment and staff to the site on 12.2.2001 and
satisfactorily executed the work. However, allegedly the
Appellant did not increase the employee cost of 5% despite
being reminded to do so.
e. Ultimately on 4.8.2003, the Appellant wrote to the
Respondent that, it has revised the rate with effect from
1.7.2003 which would be valid till 30.04.2004. However, the
Respondent submitted on this front that, the revision of
rate ought to have been given effect from 1.4.2003 and not
from 1.7.2003 and had it been given effect from 1.4.2003,
the Respondent would have received Rs.18,55,884.30 more.
f. Again on 25.06.2004, the Appellant wrote to the
Respondent to submit its revised offer taking the diesel
rate of Rs.25.31 per ltr for its consideration and
accordingly, the Respondent vide letter dated 16.7.2004
intimated the Appellant about the revised rate, however,
the same was not revised.
g. On 10.1.2005 the Appellant executed another agreement
with the Respondent extending the original and first
agreement dated 19.12.2000 with similar scope of work
with a little variation and it was made valid till 31.12.2005.
Though the work was extended from time to time and the
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last extension was from 30.6.2008 to 30.9.2008 vide letter
dated 25.6.2008, the Appellant did not increase the rate as
stipulated in the first agreement dated 19.12.2000.
h. The work was alleged to be completed in all aspect within
the extended period of 30.9.2008, but the final payment
was not made by the present Appellant. Dispute emerged
on multiple other fronts and the Respondent approached
this Court u/s 11 of the A&C Act for appointment of an
arbitrator.
i. Accordingly, vide order dated 6.3.2009, this Court was
pleased to refer the dispute to Hon'ble Justice C.R.Pal
(Retd.) Judge, Orissa High Court for arbitration.
j. As, Hon'ble Justice C.R.Pal (Retd.) Judge, Orissa High
Court withdrew from the arbitration, this Court vide order
dated 20.7.2012 was pleased to appoint Sri. R.N.Biswal,
Former Judge of the Orissa High Court as the new
arbitrator.
k. It is to be mentioned here that, initially the Respondent
had claimed Rs.7,74,30,837.41/- under four heads, after
adjusting Rs.32,38,505/- which it had received from the
Appellant towards advance. As there was mistake in
calculation in second head of claim, by way of an
amendment application dated 11.5.2013, it was enhanced
from Rs.5,38,77,609.49/- to Rs.14,80,66,355.83/-. So the total
claim amount was enhanced to Rs.17,16,20,583/-. This
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amendment application was allowed on 4.8.2013. Apart
from that, the Respondent had also claimed pre-reference,
pendent lite and future interest at the rate of 18% per
annum upon the amount of Rs.17,16,20,583.75/- to be paid
by the Appellant.
l. The Ld. Arbitrator passed the award of Rs. 3,11,42,207/- in
favour of the Respondent in respect of one Claim, i.e.
Claim No. 2 which pertained to increase towards employee
cost, after deducting the advance payment made to the
Respondent on 25.9.2019. This awarded amount was
modified on account of correction to Rs. 3,18,95,916/- on
15.2.2020. A further modification was made in pursuance
of this Court's order dated 23.2.2022 in W.P.(C) No. 11868
of 2021 and Rs.2,76,49,789/- was added to the awarded
amount, making the total awarded amount - Rs.
5,95,45,705/-. This amount was directed to be paid within a
period of three months, failing which interest was payable
at the rate of 15% per annum till payment.
m. Aggrieved, the Appellant approached the Ld. District
Judge, Keonjhar in Arbitration Petition No. 5 of 2022 u/s 34
of the A&C Act. The same was rejected vide impugned
order and judgment dated 13.3.2024.
3. Now that the facts leading up to the instant Appeals have been laid
down, this Court shall endeavour to summarise the contentions of the
Parties and the broad grounds that have been raised to seek the
Location: ORISSA HIGH COURT, CUTTACK
exercise of this Court's limited jurisdiction available under S. 37 of the
A&C Act.
II. APPELLANTS' SUBMISSIONS:
4. The counsel for the Claimant assails the judgment of the Ld. District
Judge mainly on the ground that the Ld. District Judge has failed to
note that the Ld. Arbitrator has not considered that the claim dated
9.5.2009 in respect of Claim Item No.2 for the Work Order dated
19.12.2000 for the period 19.12.2000 to 31.12.2004 is barred by
limitation under Section 43 read with Section 21 of the Act, 1996 and
Section 2(j), Section 3 and Article 137 of the Limitation Act, 1963 and
therefore, the award in respect of said Claim No.2 is illegal and
violative of Section 34(2A) of the Act, 1996.
5. Moreover, it is submitted that the calculation of interest is without any
basis as there is no existing agreement between the parties regarding
the % of interest and hence 15% interest is high. Therefore, the award
is bad in law and liable to be set aside.
III. RESPONDENT'S SUBMISSIONS:
6. Per contra, learned counsel for the Respondent submits that this Court
or the court below is not entitled to re-appreciate evidence given the
narrow scope of its powers under Section 34/37 of the A&C Act. It is
submitted that the arbitration proceeding was initiated by the parties
for resolution of their disputes pertaining to non-payment of its
legitimate dues. There is no error evident on the face of the record, nor
any patent illegality in the Arbitral Award, much less the Ld. District
Location: ORISSA HIGH COURT, CUTTACK
Judge's order and therefore, the present Petition is liable to be
dismissed.
IV. ISSUE FOR CONSIDERATION
7. Having heard the parties and perused the materials available on
record, this court here has identified the following solitary issue to be
determined:
A. Whether the order of the Ld. District Judge warrants interference
keeping in mind the limitations of this court's powers under
Section 37 of the A&C Act?
V. ISSUE A: WHETHER THE ORDER OF THE LD. DISTRICT JUDGE
WARRANTS ANY INTERFERENCE KEEPING IN MIND THE
LIMITATIONS OF THIS COURT'S POWERS UNDER SECTION 37
OF THE A&C ACT?
8. First things first, it would be apposite to refer to the provisions
of Section 34 & 37 of the Act, which provisions read as under:
"34. Aplication for setting aside arbitral award. -(1)
Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with subsection (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only
if-
(a) the party making the application establishes on the
basis of the record of the arbitral tribunal that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
Location: ORISSA HIGH COURT, CUTTACK
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission
to arbitration:
Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
(v.) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a
provision of this Part from which the parties cannot
derogate, or, failing such agreement, was not in accordance
with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation 1.--For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy of
India, only if,-
(i) the making of the award was induced or affected by fraud
or corruption or was in violation of Section 75
or Section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
Location: ORISSA HIGH COURT, CUTTACK
(iii) it is in conflict with the most basic notions of morality
or justice.
Explanation 2.--For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the merits
of the dispute.
(2-A) An arbitral award arising out of arbitrations other
than international commercial arbitrations, may also be set
aside by the court, if the court finds that the award is
vitiated by patent illegality appearing on the face of the
award:
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by
reappreciation of evidence.
(3) An application for setting aside may not be made after
three months have elaaed from the date on which the party
making that application had received the arbitral award or,
if a request had been made under Section 33, from the date
on which that request had been disposed of by the arbitral
tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application
within the said period of three months it may entertain the
application within a further period of thirty days, but not
thereafter.
(4) On receipt of an application under sub-section (1), the
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.
37. Appealable orders.--(1) (Notwithstanding anything
contained in any other law for the time being in force, an
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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 of the
arbitral tribunal--
(a) accepting the plea referred to in sub-section (2) or sub-
section(3) of Section 16; or
(b) granting or refusing to grant an interim measure
under Section17.
(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."
9. On a careful perusal of Section 34 of the Act, it is clear that an arbitral
award can only be set aside by moving an application on grounds
mentioned under sub-section (2) and sub-section (3) of Section 34 of
the Act. An award can be interfered with where it is in conflict with
the public policy of India, i.e., if the award is induced or affected by
fraud or corruption or is in contravention of the fundamental policy of
Indian law, or if it is in conflict with basic notions of morality and
justice.
10. On a careful perusal of Section 34 of the Act, it is clear that an arbitral
award can only be set aside by moving an application on grounds
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mentioned under sub-section (2) and sub-section (3) of Section 34 of
the Act. An award can be interfered with where it is in conflict with
the public policy of India, i.e., if the award is induced or affected by
fraud or corruption or is in contravention of the fundamental policy of
Indian law, or if it is in conflict with basic notions of morality and
justice.
11. A plain reading of Section 34 reveals that the scope of interference by
the Court with the arbitral award under Section 34 is very limited, and
the Court is not supposed to travel beyond the aforesaid scope to
determine whether the award is good or bad. Even an award that may
not be reasonable or is non-speaking to some extent cannot ordinarily
be interfered with by the Courts.
12. It is also a well settled proposition in law that the jurisdiction of the
Court under Section 34 of the Act is neither in the nature of an
appellate remedy or akin to the power of revision. It is also well
ordained in law that an award cannot be challenged on merits except
on the limited grounds that have been spelt out in sub-sections (2), (2-
A) and (3) of Section 34 of the Act, by way of filing an appropriate
application.
13. Having regard to the contentions urged and the issues raised, it shall
also be apposite to take note of the principles enunciated by the
Hon'ble Supreme 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 1996 Act.
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14. 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.
15. The phrase "fundamental policy of Indian law" entered arbitral
discourse long before the 2015 amendments, when Renusagar Power
Co. Ltd. v. General Electric Co.1confined "public policy" challenges to
three narrow heads: (i) fundamental policy of Indian law, (ii) interests
of India, and (iii) justice or morality.
16. Subsequent decisions--most notably ONGC v. Western Geco2--
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.
17. 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
policy," a concept deliberately narrower than "contrary to the policy of
Indian law." Ssangyong Engg. & Construction Co. Ltd. v. NHAI3
crystallised the post-amendment position: "fundamental policy"
(1984) 4 SCC 679
(2014) 9 SCC 263
(2019) 15 SCC 131
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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.
18. 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.
19. Associate Builders v. DDA4 had assimilated Western Geco (supra) -
style "perversity" and "judicial approach" tests into public-policy
analysis; Ssangyong (supra) decisively excised those limbs, ruling that
(2015) 3 SCC 49
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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.
20. 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 (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
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that blatantly contradict mutual assent--thereby eroding society's
faith in adjudicatory fairness.
21. 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 Hon'ble 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, 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.
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22. 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 Pipes5, 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.
23. Courts evaluating patent illegality utilise the "perversity" benchmarks
articulated in Associate Builders (supra) and reaffirmed in Delhi
Metro Rail Corporation v. DAMEPL6. An award is perverse--and
hence patently illegal--when (i) findings rest on no evidence, (ii)
(2003) 5 SCC 705
2024 INSC 292
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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.
24. In MMTC Ltd. v. Vedanta Ltd.7, the Hon'ble 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
(2019) 4 SCC 163
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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
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
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Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc
Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445] ;
and McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181] )
13. It is relevant to note that after the 2015 Amendment to
Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2),
the scope of contravention of Indian public policy has been
modified to the extent that it now means fraud or corruption
in the making of the award, violation of Section 75 or
Section 81 of the Act, contravention of the fundamental
policy of Indian law, and conflict with the most basic
notions of justice or morality. Additionally, sub-section (2-
A) has been inserted in Section 34, which provides that in
case of domestic arbitrations, violation of Indian public
policy also includes patent illegality appearing on the face of
the award. The proviso to the same states that an award
shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
14. As far as interference with an order made under Section
34, as per Section 37, is concerned, it cannot be disputed
that such interference under Section 37 cannot travel
beyond the restrictions laid down under Section 34. In other
words, the Court cannot undertake an independent
assessment of the merits of the award, and must only
ascertain that the exercise of power by the Court under
Section 34 has not exceeded the scope of the provision. Thus,
it is evident that in case an arbitral award has been
confirmed by the Court under Section 34 and by the Court
in an appeal under Section 37, this Court must be extremely
cautious and slow to disturb such concurrent findings."
25. 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 :
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"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.
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
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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."
26. 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 Trust8 and the Supreme Court
particularly explained the relevant tests as under :
"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
2021 SCC OnLine SC 508
Location: ORISSA HIGH COURT, CUTTACK
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)
'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.
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27. In Delhi Airport Metro Express (P) Ltd. v. DMRC9 , 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 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
(2022) 1 SCC 131
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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
Location: ORISSA HIGH COURT, CUTTACK
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 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
Location: ORISSA HIGH COURT, CUTTACK
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."
28. The position in Associate Builders (supra) was recently summarised as
hereinbelow recorded by Indian Oil Corpn. Ltd. v. Shree Ganesh
Petroleum10:
"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
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.
(2022) 4 SCC 463
Location: ORISSA HIGH COURT, CUTTACK
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."
29. In Haryana Tourism Ltd. v. Kandhari Beverages Ltd.11, 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.
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
(2022) 3 SCC 237
Location: ORISSA HIGH COURT, CUTTACK
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."
30. 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.12:
"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."
31. 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
(2022) 4 SCC 116
Location: ORISSA HIGH COURT, CUTTACK
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.
32. Of course, when the terms and conditions of the agreement governing
the parties are completely ignored, the matter would be different and
an award carrying such a shortcoming shall be directly hit by Section
28(3) of the Act, which enjoins upon an Arbitral Tribunal to decide in
accordance with the terms of contract while taking into account the
usage of trade applicable to the transaction. As said by the Supreme
Court in Associate Builders (supra), if an arbitrator construes the term
of contract in a reasonable manner, the award cannot be set aside with
reference to the deduction drawn from construction. The possibility of
interference would arise only if the construction of the arbitrator is
such which could not be made by any fair-minded and reasonable
person.
33. Keeping in view the aforementioned principles enunciated by the
Supreme Court with regard to the limited scope of interference in an
arbitral award by a Court in the exercise of its jurisdiction under
Section 34 of the Act, which is all the more circumscribed in an appeal
under Section 37, this Court may examine the rival submissions of the
parties in relation to the matters dealt with by the High Court.
34. This Court under Section 37 has only three options:
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(a) Confirming the award of the arbitrator;
(b) Setting aside the award as modified under Section 34; and
(c) Rejecting the application(s) under Sections 34 and 37.
35. Prima facie, a perusal of the impugned judgment and Award
unequivocally demonstrates that the Arbitrator relied upon written
submissions, documentary evidence, and the statements of the parties
involved in the transaction to determine and quantify the claims.
36. At Paragraph 15 of the impugned judgment, the Ld. District Judge
very adroitly has identified the crux of the matter - whether the two
agreements/work orders dated 19.12.2000 and 10.1.2005 were in
continuation or separate. On the basis of the material available on
record, the Ld. Arbitrator framed Issue No. 3 on the same lines and
decided it first. After considering the letter dated 10.1.2005, the
submissions of the counsel and multiple other exhibits, the Ld.
Arbitrator held that the subsequent work order dated 10.1.2005 to be a
continuation of the earlier agreement/work order. The Ld. District
Judge has examined the same and this Court is in agreement with the
conclusion arrived at, as there is no glaring error in the same. A view,
taken by the Arbitrator, cannot be trifled with lightly.
37. Arbitration, by its very nature, departs from the strict procedural
rigidity of formal court trials. The arbitrator, while vested with
substantial discretion, exercises this within a framework that upholds
the core tenets of natural justice. Unlike a judicial officer bound by the
Evidence Act or procedural codes, an arbitrator operates under a more
flexible evidentiary regime. However, this flexibility does not equate
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to unbridled authority. The arbitrator must still adhere to basic
standards of fairness, ensure both parties have an equal opportunity to
present their case, and base the award on material that has been
legitimately placed on record. Arbitrators may adopt procedures
tailored to the dispute at hand, but the credibility and admissibility of
evidence must still be judged against principles of logical relevance
and procedural fairness. The arbitrator's findings must ultimately
reflect a rational evaluation of the materials presented, forming a
coherent and well-reasoned basis for the award. It is this calibrated
balance between discretion and accountability that defines the
arbitrator's role as a fact-finder in arbitration.
38. The autonomy of the arbitrator in assessing facts is intrinsic to the
finality and efficacy of arbitral adjudication. Courts consistently
refrain from substituting their own assessment of evidence for that of
the arbitrator, even where an alternative view may be plausible. This
judicial restraint is premised on the consensual nature of arbitration--
the parties, having elected to resolve their dispute through an arbitral
process, implicitly accept the arbitrator's factual conclusions as
binding. The limited grounds for judicial interference under Sections
34 and 37 of the Arbitration and Conciliation Act, 1996 underscore this
principle. A court will intervene only where the arbitrator's approach
is shown to be perverse, in violation of public policy, or lacking in
jurisdiction. The prohibition against re-appreciation of evidence
ensures that arbitral awards are not undermined by endless litigation.
In this context, the arbitrator's primacy in fact-finding is not only a
Location: ORISSA HIGH COURT, CUTTACK
procedural convenience but a doctrinal imperative that upholds the
integrity and independence of the arbitral process.
39. A perusal of the arbitral award would elucidate that the sole
Arbitrator has considered the facts of the case, the contentions of both
the parties and other documentary and oral evidence on record to take
a decision. Now, even if one might feel that the evidence could be
clearer and its quality could be higher to buttress the award, however,
the same does not by itself warrant interference by this Court given
the restrictive scope of this Court's powers u/s 37 of the A&C Act.
40. What the Arbitral Tribunal has held in the Award has exclusively been
its view on the evidence on record and the relevant surrounding
facts/factors. The view so taken by the Arbitral Tribunal cannot be said
to be wholly perverse or suffering from patent illegality so as to be
interfered with. Needless to observe that even if two views are
possible, the Court cannot substitute its own view with that of the
Arbitral Tribunal.
41. The Arbitral Tribunal has taken a particular view of the evidence
before it. If it were an appeal against the award, the approach of the
Court could have been different but, not so while examining the
award within the confines of Section 34 of the Act. This Court would
hasten to observe in this regard too that even in a regular appeal
against a decree of the trial court, the appellate court would not
substitute its own views without specifically recording a finding as to
the error in the decision under challenge. In any case, if the approach
of this Court in the present case is countenanced, the result would only
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be of making every award susceptible to challenge before the Court on
those very grounds which are, otherwise, of appeal or revision and
which are not permitted by the legislature to be taken under Section 34
of the 1996 Act.
42. The narrow scope of "patent illegality" cannot be breached by mere
use of different expressions which nevertheless refer only to "error"
and not to "patent illegality". This Court is impelled to reiterate what
has been stated and underscored by the Supreme Court in Delhi
Airport Metro Express (supra) that restraint is required to be shown
while examining the validity of arbitral award by the Courts, else
interference with the award after reassessing the factual aspects would
be defeating the object of the 1996 Act. This is apart from the fact that
such an approach would render several judicial pronouncements of
the Hon'ble Supreme Court redundant if the arbitral awards are set
aside by categorizing them as "perverse" or "patently illegal" without
appreciating the contours of these expressions.
43. Fact of the matter remains that nothing of a patent illegality apparent
on the face of the award has been pointed out. The submissions
essentially are of indicating some alleged errors on the merits of the
case which, as noticed, do not fall within the parameters of Section 37
of the 1996 Act.
VI. CONCLUSION:
44. In light of the discussion above, keeping the settled principles of law
in mind and for the reasons given above, this Court is of the
considered view that judgment dated 13.3.2024 passed by the learned
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District Judge, Keonjhar in Arbitration Petition No. 5 of 2022 arising
out of award dated 25.9.2019 passed by the Ld. Sole Arbitrator in
Arbitration Proceeding No. 1 of 2009, further modified on 15.2.2020
and 10.6.2020 is not liable to be interfered with.
45. ARBA No. 5 of 2024 is disposed of on the abovementioned terms. No
order as to costs.
46. Interim order, if any, passed earlier stands vacated.
(Dr.S.K. Panigrahi)
Judge
Orissa High Court, Cuttack,
Dated the 20th June, 2025/
