Patna High Court
The Bihar State Food and Civil Supplies Corporation Ltd.versusDinkar Choudhary
- Decided
- Disposal
- PARTLY ALLOWED (DISPOSAL)
Holding
The Court held that the arbitral award contained a computational error and impermissible awards of compensation and pendente‑lite interest, which must be set aside, while the corrected claim amount and post‑award interest are upheld, thereby partially allowing the appeal.
Summary
The Bihar State Food & Civil Supplies Corporation entered into a three‑year transport‑handling agreement with Dinkar Choudhary, who later claimed delayed payments amounting to over ₹4.44 crore. The parties failed to appoint an arbitrator, leading to a sole arbitrator’s award on 17 Oct 2020 granting the claimant ₹2.06 crore, a compensation of ₹25 lakh, pendente‑lite interest at 10 % and post‑award interest at 18 %. The corporation challenged the award under Sections 34 and 37 of the Arbitration Act, and the Principal District Judge upheld it. On appeal, the Patna High Court held that the award contained a computational error, that the compensation award and pendente‑lite interest were impermissible under the contract and the Arbitration Act, and that the court could correct the award’s amount and uphold post‑award interest. Consequently, the award was partially set aside and modified, and the appeal was partly allowed. A related commercial appeal concerning execution proceedings was held infructuous.
Issues considered
- Whether the arbitral award can be set aside or modified under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
- Whether a computational error in the award amount warrants correction.
- Whether the compensation award under Section 54 of the Indian Contract Act is valid.
- Whether pendente‑lite interest can be awarded despite an express contractual bar.
- Whether post‑award interest is permissible under Section 31(7)(b) of the Arbitration Act.
- Scope of the Commercial Courts Act, 2015 (Section 13(1A)) in appeals from arbitration awards.
- Whether the court may exercise severability and modify an award without re‑appreciating evidence.
Legislation cited
- Arbitration and Conciliation Act, 1996 — s. 24, 28, 31(7)(a), 31(7)(b), 33, 34, 37, 39
- Commercial Courts Act, 2015 — s. 13(1A)
- Indian Contract Act, 1872 — s. 54
- Interest Act, 1978 — s. 3
Subjects
- Arbitration
- Arbitral award
- Section 34
- Section 37
- Commercial Courts Act
- Compensation
- Interest
- Public policy
- Patent illegality
- Modification of award
- Severability
- Contractual bar on interest
Judgment
IN THE HIGH COURT OF JUDICATURE AT PATNA
COMMERCIAL APPEAL No.10 of 2025
======================================================
1. The Bihar State Food and Civil Supplies Corporation Ltd. Sone Bhawan,
Daroga Prasad Rai Path, R. Block, Road No.2, Patna-800001, through its
Managing Director.
2. The Managing Director, The Bihar State Food and Civil Supplies
Corporation Ltd., Khadya Bhawan, R.Block, Rd. No.2, Patna-800001.
3. The District Manager, The Bihar State Food and Civil Supplies Corporation
Ltd., Khagariya.
... ... Appellant/s
Versus
Dinkar Choudhary Son of Sri Raj Ram Choudhary, Resident of Bgwara, P.O.
Suhird Nagar, P.S. Muffasil, District- Begusarai.
... ... Respondent/s
======================================================
with
COMMERCIAL APPEAL No. 13 of 2025
======================================================
1. The Bihar State Food and Civil Supplies Corporation Ltd. Khadya Bhawan,
Daroga Prasad Rai Path, R. Block, Road No.- 2, Patna- 800001, through its
Managing Director.
2. The Managing Director, The Bihar State Food and Civil Supplies
Corporation Ltd., Khadya Bhawan, Daroga Prasad Path, R. Block, Rd. No.-
2, Patna- 800001.
3. The District Manager, The Bihar State Food and Civil Supplies Corporation
Ltd., Khagariya.
... ... Appellant/s
Versus
Dinkar Choudhary Son of Sri Raj Ram Choudhary Resident of Bgwara, P.O.-
Suhird Nagar, P.S.- Muffasil, District- Begusarai.
... ... Respondent/s
======================================================
Appearance :
(In COMMERCIAL APPEAL No. 10 of 2025)
For the Appellant/s : Mr.Shailendra Kumar Singh, Adv.
For the Respondent/s : Mr. Prashant Kumar, Adv.
Mr. Manish Prakash, Adv.
Mr. Kumar Anjaneya Shanu, Adv.
Mr. Rohit Raj, Adv.
Mr. Ranvir Pratap Singh, Adv.
(In COMMERCIAL APPEAL No. 13 of 2025)
For the Appellant/s : Mr.Shailendra Kumar Singh, Adv.
For the Respondent/s : Mr. Prashant Kumar, Adv.
Mr. Manish Prakash, Adv.
Mr. Kumar Anjaneya Shanu, Adv.
Mr. Rohit Raj, Adv.
Mr. Ranvir Pratap Singh, Adv.
======================================================
Patna High Court COMMERCIAL APP No.10 of 2025 dt.23-05-2026
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CORAM: HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH
and
HONOURABLE MR. JUSTICE ARUN KUMAR JHA
CAV JUDGMENT
(Per: HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH)
Date : 23-05-2026
COMMERCIAL APPEAL No. 10 of 2025
1. The present appeal has been filed under Section 13 (1A)
of the Commercial Courts Act, 2015 (herein after referred to as
the “Act, 2015”) read with Section 37 of the Arbitration and
Conciliation Act, 1996 (herein after referred to as the “Act,
1996”) against the Judgment dated 25.07.2025, passed by the
Ld. Court of Principal District Judge, Patna (herein after
referred to as the “learned PDJ, Patna”) in Miscellaneous
(Arbitration) Case No. 01 of 2021.
Facts of the Case:
2. The genesis of the present appeal lies in an agreement
executed in between the appellants and the claimant-Respondent
herein dated 28.1.2014, pursuant to issuance of notice inviting
tender from eligible candidates, for being appointed as
transporting-cum-handling agent for a period of three years for
the revenue District-Khagaria and acceptance of the tender
submitted by the claimant-Respondent. The claimant-
Respondent was entrusted with the work of transportation of
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food-grains and other commodities including edible oil to the
destinated godown, as directed by or on behalf of the appellants
and according to the route chart fixed for the said purpose. The
period of contract was for three years pertaining to the District-
Khagaria. The claimant-Respondent is stated to have executed
the work of transporting-cum-handling agent under the
agreement and had submitted several bills in between the years
2015 to 2019. It is the claim of the claimant-Respondent that the
payments of bills were delayed. It appears that disputes had
erupted in between the parties, leading to claims and counter
claims being asserted.
3. The claimant-Respondent had then sent a notice to the
appellants on 02.04.2019 for appointing an arbitrator suggesting
three names, however the appellants did not respond to the said
notice as also failed to appoint any arbitrator within a reasonable
time, leading to filing of a request case bearing Request Case
No. 63 of 2019 under Section 11(6) of the Act, 1996 by the
claimant-Respondent, inter alia praying therein for appointment
of an independent and impartial arbitrator, in view of Clause 17
of the agreement dated 28.01.2014. The Hon’ble Chief Justice
of this Court by an order dated 06.09.2019, passed in Request
Case No. 63 of 2019 and other analogous cases, in exercise of
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the powers U/s. 11(6) of the Act, 1996 had appointed Hon’ble
Mr. Justice Sadananad Mukherjee, a retired Judge of the Patna
High Court as the sole Arbitrator to enter upon the disputes and
render his award in terms of the provisions of the Act, 1996.
4. The claimant-Respondent had then approached the Ld.
Sole Arbitrator on 13.09.2019 with a copy of the aforesaid order
dated 06.09.2019, passed in Request Case No. 63 of 2019 and
other analogous cases, leading to registration of Arbitration
Case No. 05 of 2019, whereafter the claimant-Respondent had
filed a detailed statement of claim on 25.10.2019, raising a
claim of a sum of Rs. 4,44,79,872.58. The total amount of the
balance payment due (Column No.8) of the summary of claim
annexed as Annexure-7 to the statement of claim would show
that the same totals up to a sum of Rs. 2,11,08,521.56/-,
however the said amount also includes detention charges.
5. The appellants had then filed statement of defence on
13.1.2020, inter alia stating therein stating therein that the
claimant-Respondent has submitted calculation chart with the
claim petition without any supporting documents and the
admitted amount has already been paid long back. It has also
been stated that as per Clause 18 of the agreement, the claimant-
Respondent is not entitled to claim any compensation for
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detention of trucks at the godown gates or by law enforcing
agencies during transit or at any other place. The appellants
have also stated that the claim raised by the claimant-
Respondent is time barred under Section 43 of the Act, 1996. It
was also averred that the claimant-Respondent has engaged in
breach of the terms and conditions of the contract and he has
already received all the admissible outstanding amount against
the bills submitted by him, hence the claims raised by him is not
admissible in the eyes of law.
6. The Respondent-claimant had then filed a rejoinder to the
statement of defence on 11.2.2020, stating therein that in
support of the statement of claim annexed as Annexure -7, photo
copies of several bills have been annexed as Annexure- 6/1 to
6/52, to the statement of claim wherein each and every fact as
well as supporting documents have been furnished in detail. The
claimant-Respondent had also filed a supplementary statement
of claim on 14.06.2020, wherein it has been stated that a sum of
Rs. 7,94,500/- has already been claimed on the head of truck
idling charges, apart from claiming a sum of Rs. 1,50,000/- as
travelling expenses for attending arbitral proceedings at Patna
and a sum of Rs. 1,60,000/- on the head of fees of the Ld.
Advocate.
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7. The learned Sole Arbitrator had then framed the following
issues for consideration:-
“(i) Whether there is any cause of action for the present
proceeding.
(ii) Whether the reference is barred by limitation.
(iii) Whether the petitioner/claimant is entitled to the
claims as per statement of claims.
(iv) What relief or reliefs the petitioner is entitled?”
8. The Ld. Sole Arbitrator had thereafter, passed an arbitral
award dated 17.10.2020, holding that the claimant shall be
entitled to the following award:-
“1. The claimant petitioner shall be paid Rs.
2,06,13,021/- (Two Crores six lakhs thirteen thousand
and twenty-one rupees) only towards claim amount.
2. The claimant petitioner shall be entitled to
compensation amount of Rs. 25,00,000/- (Twenty-five
lakhs) only under Section 54 of the Indian Contract Act.
3. The claimant petitioner shall be entitled to simple
interest @10% p.a. from 13.09.2019 till the date of
award and further 18% interest over awarded sum from
the date of award till realization over the awarded
amount.
4. The claimant petitioner shall be entitled to cost
towards fees and expenses of the Arbitrator and Courts
and other legal expenses.
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5. Since the Arbitrator's fees has not been paid by the
respondent, the same shall be treated as 'unpaid cost' of
the Award, under Section 39 of the Arbitration and
Conciliation Act, 1996, and accordingly Arbitrator shall
have lien over the award, the respondent shall be liable
for making payment of the fees of the Arbitrator before
pursuing the matter before the Court.”
9. The Ld. Sole Arbitrator by the aforesaid award dated
17.10.2020 has though held (at internal Pg. No. 11 of the said
award) that Clause 18 of the agreement clearly provides that the
second party would not be entitled to claim any compensation
for detention of the trucks at the godown gates or detention by
law enforcing agency during transit, hence no compensation is
payable to the claimant on the said head, however only a sum of
Rs. 1,95,500/- (should be Rs. 1,90,500/-) has been taken to be
the amount of detention bill (at internal Pg. No. 12 of the said
award). The bill containing the said detention charge can be
found at running page no. 156 of the brief, which is a bill for the
month of February, 2017, however we find from the bills
annexed as Annexure- 6/1 to 6/52, to the statement of claim that
a sum of Rs. 22,94,000/- has been raised by the claimant-
Respondent on the head of detention charges, but the same
appears to have escaped the attention of the Ld. Sole Arbitrator.
Moreover, without there being any specific claim for
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compensation, the Ld. Sole Arbitrator by the aforesaid award
dated 17.10.2020 has awarded compensation to the tune of Rs.
25,00,000/- under Section 54 of the Indian Contract Act.
10. The aforesaid award dated 17.10.2020 passed by the Ld.
Sole Arbitrator was challenged before the Ld. Court of Principal
District Judge, Patna by the appellants 34 (2) & (2A) of the Act,
1996, which was numbered as Miscellaneous (Arbitration) Case
No. 01 of 2021 (arising out of award dated 17.10.2020 passed in
Arbitration Case No. 5 of 2019). The grounds which can be
culled out from the petition of the said Miscellaneous Case No.
25 of 2021 are enumerated herein below:-
(i) The Sole Arbitrator has passed the award only on the
basis of calculation chart produced by the claimant-
respondent without any supporting documents.
(ii) The appellants had filed statement of defence before
the learned Sole Arbitrator and prayed for directing the
claimant-respondent to produce supporting documents
against his claims as also examine witnesses but the
learned Sole Arbitrator neither followed the provisions
contained in the Act, 1996 nor examined the records/
witnesses.
(iii) The learned Sole Arbitrator failed to consider that
several claims raised by the claimants are de hors the
agreement.
(iv) The learned Sole Arbitrator has awarded two
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penalties against the appellants i.e. compensation amount
and interest on belated payment of the outstanding
amount although the admitted claims of the claimant-
respondent have already been paid by the appellants well
within time.
(v) The learned Sole Arbitrator failed to consider that the
claimant-respondent had failed to adhere to the terms of
the agreement regarding installing truck with GPS Load-
Cells at the time of lifting food grains, hence appropriate
deductions were made from the bills. The learned Sole
Arbitrator failed to consider that the appellants had
passed the admitted amount of bills of the claimant-
Respondent, which he had received without any
objection.
(vi) The impugned award is against the provisions of the
Act, 1996.
(vii) The learned Sole Arbitrator was though appointed to
consider the disputes arising out of the agreement in
question, however he has considered several claims based
on different contracts and agreements.
11. The claimant-respondent had filed reply on 23.12.2021 to
the aforesaid Misc. Case No.01 of 2021 inter alia stating therein
that the said petition filed by the appellants is not maintainable
in view of the observations of the learned Sole Arbitrator to the
effect that since the arbitration fees has not been paid by the
appellants, same shall be treated as unpaid cost of the award
under Section 39 of the Act, 1996 and accordingly, Arbitrator
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shall have lien over the award and the appellants shall be liable
to make payment of the fees of the Arbitrator before pursuing
the matter before the Court. The claimant-respondent had also
raised an objection regarding the aforesaid petition filed by the
appellants being in violation of the mandatory provisions
contained under Section 34 (5) of the Act, 1996, as no prior
notice was issued to the claimant-Respondent before filing of
the said petition. The claimant-respondent had also raised the
issue of jurisdiction inasmuch as the award under challenge
being in respect of commercial dispute as defined under Section
2(1)(c)(xviii) of the Commercial Courts, Commercial Division
and Commercial Appellate Division of the High Courts Act,
2015, the appellants were required to invoke the provisions of
the Act, 2015, which has not been invoked, thus the learned
Court is not vested with the jurisdiction to decide the case in
hand. The claimant-respondent had refuted the contentions
made by the appellants in the aforesaid Misc. (Arbitration) Case
No. 01 of 2021 and had stated that in pursuance to the
agreement dated 28.01.2014 executed in between the claimant-
respondent and the appellants, the claimant-respondent had
diligently completed the assignment as a Transporting-cum-
Handling Agent within the framework of the said agreements
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and in fact the calculation chart produced by the claimant-
respondent with his claim petition is supported by month-wise
bills of transport and handling charges as well as other relevant
documents which were brought on record before the learned
Sole Arbitrator along with the statement of claim filed by the
claimant-respondent.
12. It has also been stated by the claimant-respondent in his
reply that as per Clause 12 A of the agreement, the appellants
were under contractual obligation to make payments of the bills
of the claimant-respondent herein within a period of 15 days of
submission of bills (Note:-There is no such stipulation in the
agreement), however none of the bills were paid within time by
the appellants. It has also been stated that the appellants never
received the bills with any objection, nonetheless huge
deductions were made by the appellants from the bills without
assigning any reason. It has also been stated that the appellants
did not file any affidavit of admission/denial of documents of
the claimant-respondent before the learned Sole Arbitrator,
hence all the documents filed by the claimant-respondent would
be deemed to have been accepted. It has also been stated that the
claims have only been raised with regard to the district-
Khagaria for which the claimant-respondent was appointed as
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Transporter-cum-Handing Agent vide agreement dt. 28.01.2014.
Thus, the allegations regarding award of such amount which
were not pertaining to the contract in question and were in
connection with other districts is baseless. Lastly, it was stated
in the reply filed by the claimant-respondent that it is a well
settled law, as propounded by the Hon’ble Supreme Court in a
catena of cases that any error on the face of the award or in case
there is any patent illegality then the same should be examined
by the learned Court U/s. 34 of the Act, 1996, however the facts
cannot be re-appreciated by the learned Court at the appellate
stage.
13. The claimant-respondent had also filed a supplementary
reply on 14.02.2022 to the said Misc.(Arbitration) Case No. 01
of 2021, inter alia stating therein that the statement of claim
filed by the claimant-respondent before the learned Sole
Arbitrator was duly supported by relevant documents which
have already been submitted to the concerned officials of the
appellants from time to time in accordance with the terms and
conditions of the agreement. It has also been stated that interest
was claimed on the ground of delay and for the same notice
under Section 3 of the Interest Act was sent to the appellants
with regard to each and every outstanding amount of bills and
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the same were also produced before the learned Sole Arbitrator.
It has also been stated that the calculation chart produced by the
claimant-respondent was duly supported by month-wise bill of
transport and handling charges as well as other documents
which were brough on record of the arbitral proceedings along
with the statement of claim filed by the claimant-respondent
herein by way of monthly bills as contained in Annexures 6/1 to
6/52 to the statement of claims. Thus, the contention of the
appellants that no proof/documents were produced is denied.
14. The learned court of PDJ, Patna by a judgment dated
25.07.2025 passed in Miscellaneous (Arbitration) Case No.01 of
2021 has been pleased to dismiss the said case holding that no
valid ground has been made out under Section (2) or (2A) of
Section 34 of the Arbitration and Conciliation Act, 1996 so as to
warrant interference with the impugned arbitral award or the
findings of the learned Sole Arbitrator. At this juncture, it would
be relevant to enumerate in brief, the findings recorded by the
learned PDJ, Patna in the aforesaid judgement dated 25.07.2025,
herein below:-
(i) The learned PDJ, Patna has held that the learned Sole
Arbitrator has adjudicated the disputes strictly within the
confines of the agreement executed between the parties as
also the findings are clear and the rational adopted by the
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Ld. Sole Arbitrator in arriving at the conclusion is sound,
coherent and well-reasoned, hence the award cannot be
regarded as patently illegal, perverse or contrary to the
public policy of India.
(ii) As regards compensation amount of Rs.25 lakhs
awarded by the learned Sole Arbitrator taking into
account the provisions contained in Section 54 of the
Indian Contract Act, the learned PDJ, Patna has come to a
finding that since the claimant-respondent ought not to
have been subjected to loss arising from the default
committed by the appellants and on account of delayed
payments causing wrongful loss, as is reflected from the
arbitral award, the appellants failed to perform their part
of the agreement, hence they cannot claim the
performance of reciprocal promise from the claimant-
respondent, thus in view of the undue hardship and
financial loss suffered due to delayed payment and
defaults on the part of the appellants, the learned Sole
Arbitrator has rightly & justifiably awarded compensation
of Rs. 25 lakhs in favor of the claimant-respondent.
(iii) The learned PDJ, Patna has further held that it is well
settled established legal principal that a Court, while
adjudicating a petition under Section 34 of the Act, 1996
is empowered to set aside an arbitral award where it is
found to be devoid of reasoning, or where its outcome is
so unjust and irrational as to shock the judicial conscience
and similarly an award may be invalidated if it is based
on evidence and resulting conclusions which no prudent
or reasonable person could reasonably reach. The learned
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PDJ, Patna has also held that the Arbitrator remains the
ultimate master of the quality and quantity of evidence
and unless the Arbitrator’s approach is demonstrably
arbitrary or capricious, the Court shall refrain from
revisiting or re-evaluating factual determinations already
placed on record.
(iv) The learned PDJ has come to a finding that none of
the grounds enumerated under sub-Sections (2) or (2A) of
Section 34 of the Act, 1996 have been substantiated in the
challenge to the arbitral award. It has also been held that
it is a settled law that the proceedings instituted under
Section 34 of the Act, 1996 do not partake the nature of
an appeal or revision and the jurisdiction conferred upon
the Court is inherently limited as also the Court is neither
empowered to re-evaluate the findings and conclusions
recorded in the award nor substitute its own views or
effect any modification thereof and furthermore, the
Court is also not required to delve into or adjudicate the
merits of the award in a petition filed U/s. 34 of the Act,
1996.
(v) The learned PDJ, Patna has thus held that the learned
Sole Arbitrator has justifiably rendered the arbitral award
dated 17.10.2020, having duly considered and evaluated
the evidentiary material placed on record and delivered a
well-reasoned and a legally sound award.
(vi) In conclusion, the learned PDJ, Patna has held that
considering the materials on record, it is manifest that the
appellants have failed to establish any of the ground
enumerated under sub-Sections (2) or (2A) of Section 34
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of the Act, 1996, hence the circumscribed jurisdiction
conferred under Section 34 of the Act, 1996 has not been
satisfied in the present case so as to warrant setting aside
of the impugned arbitral award. The learned PDJ, Patna
has also held that the Ld. Sole Arbitrator has adjudicated
the disputes strictly within the confines of the agreement
executed between the parties and the documents placed
on record in that regard as also the findings are clear and
the rationale adopted by the learned Sole Arbitrator in
arriving at the conclusion is sound, coherent and well-
reasoned, hence the award cannot be regarded as patently
illegal, perverse or contrary to the public policy of India.
15. The aforesaid judgment dated 25.07.2025 passed by the
learned PDJ, Patna has been challenged in the present appeal.
Submissions of the Ld. Counsel for the Appellants:
16. The learned counsel for the appellants has submitted that
the Ld. Sole Arbitrator has passed the award dated 17.10.2020
only on the basis of the calculation chart produced by the
claimant-Respondent without any supporting documents and the
Ld. PDJ, Patna has similarly erred by not considering the said
aspect of the matter. It has been stated that the claimant-
Respondent has failed to produce any supporting documents
against his claims like truck challan, store issue order etc., apart
from the fact that the claimant-Respondent did not examine any
witness in support of his claim. It is also submitted that the
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learned Ld. PDJ, Patna had neither called for the arbitral records
nor had examined the records and in an arbitrary manner has
upheld the arbitral award dated 17.10.2020 by the impugned
judgment dt. 25.7.2025. In fact, the Ld. PDJ, Patna failed to
consider that all the admitted outstanding amount of bills/claims
have been paid to the claimant-Respondent. It is next submitted
that it has been wrongly stated on behalf of the claimant-
respondent that as per Clause 12 A of the agreement, the
appellants were under contractual obligations to make payments
of the bills of the claimant-respondent within a period of 15
days of submission of bills, inasmuch as Clause 12 A of the
agreement reads as follows:-
“The second party will immediately submits his
transporting bills within a maximum period of three
months from the date of completion of particular work to
the concerned district manager with entire connected
documents and the district manager will process the said
bill and after checking and verifying the same, will send
the bills to head office for further steps for passing and
payment of the same without any delay. In case, the
second party fails to submit his bills with required
documents within the aforesaid maximum period, his
working will be treated unsatisfactory and he will be
deemed to be disqualified for any extension or
participating in any tender thereafter.”
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17. The learned counsel for the appellants has submitted that
though the Ld. Sole Arbitrator has at internal page no. 11 of the
impugned arbitral award dated 17.10.2020 held that Clause 18
of the agreement clearly provides that the second party would
not be entitled to claim any compensation for detention of the
trucks at the godown gates or detention by law enforcing agency
during transit to any other authorized persons of the corporation
while the delivery of the consignment is to be obtained or the
delivery is to be given, hence no compensation is payable to the
claimant on this head and in fact, the Ld. Sole Arbitrator has
also directed to deduct a sum of Rs. 1,95,500/- (should be Rs.
1,90,500/-) on the head of detention charges, pertaining to the
bill of the month of February, 2017, which can be found at
running page no. 156 of the brief, however the detention charges
claimed by the claimant-respondent in other bills have not been
directed to be deducted from the claim of the claimant-
Respondent.
18. The learned counsel for the appellants has further
submitted that the Ld. Sole Arbitrator as also the Ld. PDJ Judge,
Patna in the impugned arbitral award and judgment dated
17.10.2020 and 25.7.2025 respectively, have failed to consider
that several claims raised by the claimant-Respondent are de
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hors the agreement, apart from the fact that though there is no
provision for payment of interest and grant of compensation in
the agreement entered into between the parties, however both
the Ld. Sole Arbitrator as also the Ld. PDJ, Patna have, in utter
disregard to the provisions of the agreement allowed the claim
of the claimant-Respondent pertaining to interest and
compensation. Thus, in nutshell, it is the contention of the
learned counsel for the appellants that the impugned judgment
dated 25.7.2025, passed by the Ld. Court of PDJ, Patna is in
teeth of the provisions contained under Section 34(2)(a), (b) and
(2)(A) of the Act, 1996.
19. The learned counsel for the appellants has referred to a
judgment rendered by the Hon’ble Apex Court in the case of
Gayatri Balasamy vs. ISG Novasoft Technologies Limited,
reported in (2025) 7 SCC 1 to submit that Section 34 Court can
apply the doctrine of severability and modify a portion of the
award while retaining the rest, however the same is subject to
parts of the award being separable, legally and practically. In
fact, the Courts are empowered to modify the arbitral award
under Section 34 and 37 of the Act, 1996, nonetheless the same
is limited and can be exercised when the award is severable, by
severing the “invalid” portion from the “valid” portion of the
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award by correcting any clerical, computational or
typographical errors, which appear erroneous on the face of the
record and post-award interest can also be modified in some
circumstances as mentioned in the said judgment. Reference has
also been made to a judgment rendered by the Hon’ble Apex
Court in the case of North Delhi Municipal Corporation vs.
S.A. Builders Limited, reported in (2025) 7 SCC 132 to submit
that the arbitral tribunal does not have the power to award
interest upon interest or compound interest either for the pre-
award period or the post-award period.
20. The learned counsel for the appellants has also referred to
a judgment rendered by the Hon’ble Apex Court in the case of
Union of India vs. Ambica Construction, reported in (2016) 6
SCC 36 to submit that reference has been made in the said
judgment to a Constitution Bench judgment of the Hon’ble
Apex Court, rendered in the case of Secretary, Irrigation
Department, Government of Orissa & Ors. vs. GC Roy,
reported in (1992) 1 SCC 508, wherein it has been held that if
the arbitration agreement or the contract itself provides for
interest, the arbitrator would have the jurisdiction to award
interest, however where the agreement expressly provides that
no interest pendente lite shall be payable on the amount due, the
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arbitrator has no power to award pendente lite interest. It would
be apt to reproduce para nos. 12, 14 & 34 of the said judgment,
rendered in the case of Ambica Construction (supra), herein
below:-
“12. A Constitution Bench of this Court in G.C. Roy
[Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1
SCC 508] has considered the question of power of the
arbitrator to award pendente lite interest and it has been
laid down that if the arbitration agreement or the
contract itself provides for interest, the arbitrator would
have the jurisdiction to award the interest. Similarly,
where the agreement expressly provides that no interest
pendente lite shall be payable on the amount due, the
arbitrator has no power to award pendente lite interest.
In G.C. Roy [Irrigation Deptt., State of Orissa v. G.C.
Roy, (1992) 1 SCC 508] this Court has held thus : (SCC
p. 514, para 7)
“7. … If the arbitration agreement or the contract itself
provides for award of interest on the amount found due
from one party to the other, no question regarding the
absence of arbitrator's jurisdiction to award the
interest could arise as in that case the arbitrator has
power to award interest pendente lite as well. Similarly,
where the agreement expressly provides that no interest
pendente lite shall be payable on the amount due, the
arbitrator has no power to award pendente lite interest.
But where the agreement does not provide either for
grant or denial of interest on the amount found due, the
question arises whether in such an event the arbitrator
has power and authority to grant pendente lite interest.
14. Ultimately, in G.C. Roy [Irrigation Deptt., State of
Orissa v. G.C. Roy, (1992) 1 SCC 508] , this Court has
answered the question whether the arbitrator has the
power to award interest pendente lite. Their Lordships
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have reiterated that they have dealt with the situation
where the agreement does not provide for grant of such
interest nor does it prohibit such grant when the
agreement is silent as to award of interest. This Court
has laid down various principles in paras 43-44 of the
Report thus : (SCC pp. 532-34)
“43. The question still remains whether arbitrator has
the power to award interest pendente lite, and if so, on
what principle. We must reiterate that we are dealing
with the situation where the agreement does not
provide for grant of such interest nor does it prohibit
such grant. In other words, we are dealing with a case
where the agreement is silent as to award of interest.
On a conspectus of the aforementioned decisions, the
following principles emerge:
(i) A person deprived of the use of money to which he
is legitimately entitled has a right to be compensated
for the deprivation, call it by any name. It may be
called interest, compensation or damages. This basic
consideration is as valid for the period the dispute is
pending before the arbitrator as it is for the period
prior to the arbitrator entering upon the reference.
This is the principle of Section 34 of the Civil
Procedure Code and there is no reason or principle to
hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for
resolution of disputes arising between the parties. If
so, he must have the power to decide all the disputes
or differences arising between the parties. If the
arbitrator has no power to award interest pendente
lite, the party claiming it would have to approach the
court for that purpose, even though he may have
obtained satisfaction in respect of other claims from
the arbitrator. This would lead to multiplicity of
proceedings.
(iii) An arbitrator is the creature of an agreement. It is
open to the parties to confer upon him such powers
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and prescribe such procedure for him to follow, as
they think fit, so long as they are not opposed to law.
(The proviso to Section 41 and Section 3 of the
Arbitration Act illustrate this point). All the same, the
agreement must be in conformity with law. The
arbitrator must also act and make his award in
accordance with the general law of the land and the
agreement.
(iv) Over the years, the English and Indian courts
have acted on the assumption that where the
agreement does not prohibit and a party to the
reference makes a claim for interest, the arbitrator
must have the power to award interest pendente lite.
Thawardas Pherumal v. Union of India [Thawardas
Pherumal v. Union of India, AIR 1955 SC 468] has not
been followed in the later decisions of this Court. It
has been explained and distinguished on the basis that
in that case there was no claim for interest but only a
claim for unliquidated damages. It has been said
repeatedly that observations in the said judgment were
not intended to lay down any such absolute or
universal rule as they appear to, on first impression.
Until Deptt. of Irrigation v. Abhaduta Jena [Deptt. of
Irrigation v. Abhaduta Jena, (1988) 1 SCC 418]
almost all the courts in the country had upheld the
power of the arbitrator to award interest pendente lite.
Continuity and certainty is a highly desirable feature
of law.
(v) Interest pendente lite is not a matter of substantive
law, like interest for the period anterior to reference
(pre-reference period). For doing complete justice
between the parties, such power has always been
inferred.
44. Having regard to the above consideration, we
think that the following is the correct principle which
should be followed in this behalf:
Where the agreement between the parties does not
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prohibit grant of interest and where a party claims
interest and that dispute (along with the claim for
principal amount or independently) is referred to the
arbitrator, he shall have the power to award interest
pendente lite. This is for the reason that in such a case
it must be presumed that interest was an implied term
of the agreement between the parties and therefore
when the parties refer all their disputes—or refer the
dispute as to interest as such—to the arbitrator, he
shall have the power to award interest. This does not
mean that in every case the arbitrator should
necessarily award interest pendente lite. It is a matter
within his discretion to be exercised in the light of all
the facts and circumstances of the case, keeping the
ends of justice in view.”
(emphasis in original)
The Constitution Bench of this Court has laid down that
where the agreement between the parties does not
prohibit grant of interest and where the party claims
interest and that dispute is referred to the arbitrator, he
shall have the power to award interest pendente lite. The
law declared has been held applicable prospectively.
34. Thus, our answer to the reference is that if the
contract expressly bars the award of interest pendente
lite, the same cannot be awarded by the arbitrator. We
also make it clear that the bar to award interest on
delayed payment by itself will not be readily inferred as
express bar to award interest pendente lite by the
Arbitral Tribunal, as ouster of power of the arbitrator
has to be considered on various relevant aspects referred
to in the decisions of this Court, it would be for the
Division Bench to consider the case on merits.”
21. The learned counsel for the appellants has next referred to
a judgment rendered by the Hon’ble Apex Court in the case of
Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.,
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reported in (2003) 5 SCC 705, paragraphs no. 13, 15 to 22 and
31 whereof are reproduced herein below:-
“13. The question, therefore, which requires
consideration is — whether the award could be set aside,
if the Arbitral Tribunal has not followed the mandatory
procedure prescribed under Sections 24, 28 or 31(3),
which affects the rights of the parties. Under sub-section
(1)(a) of Section 28 there is a mandate to the Arbitral
Tribunal to decide the dispute in accordance with the
substantive law for the time being in force in India.
Admittedly, substantive law would include the Indian
Contract Act, the Transfer of Property Act and other such
laws in force. Suppose, if the award is passed in violation
of the provisions of the Transfer of Property Act or in
violation of the Indian Contract Act, the question would
be — whether such award could be set aside. Similarly,
under sub-section (3), the Arbitral Tribunal is directed to
decide the dispute in accordance with the terms of the
contract and also after taking into account the usage of
the trade applicable to the transaction. If the Arbitral
Tribunal ignores the terms of the contract or usage of the
trade applicable to the transaction, whether the said
award could be interfered. Similarly, if the award is a
non-speaking one and is in violation of Section 31(3), can
such award be set aside? In our view, reading Section 34
conjointly with other provisions of the Act, it appears that
the legislative intent could not be that if the award is in
contravention of the provisions of the Act, still however, it
couldn't be set aside by the court. If it is held that such
award could not be interfered, it would be contrary to the
basic concept of justice. If the Arbitral Tribunal has not
followed the mandatory procedure prescribed under the
Act, it would mean that it has acted beyond its jurisdiction
and thereby the award would be patently illegal which
could be set aside under Section 34.
15. The result is — if the award is contrary to the
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substantive provisions of law or the provisions of the Act
or against the terms of the contract, it would be patently
illegal, which could be interfered under Section 34.
However, such failure of procedure should be patent
affecting the rights of the parties.
16. The next clause which requires interpretation is clause
(ii) of sub-section (2)(b) of Section 34 which inter alia
provides that the court may set aside the arbitral award if
it is in conflict with the “public policy of India”. The
phrase “public policy of India” is not defined under the
Act. Hence, the said term is required to be given meaning
in context and also considering the purpose of the section
and scheme of the Act. It has been repeatedly stated by
various authorities that the expression “public policy”
does not admit of precise definition and may vary from
generation to generation and from time to time. Hence,
the concept “public policy” is considered to be vague,
susceptible to narrow or wider meaning depending upon
the context in which it is used. Lacking precedent, the
court has to give its meaning in the light and principles
underlying the Arbitration Act, Contract Act and
constitutional provisions.
17. For this purpose, we would refer to a few decisions
referred to by the learned counsel for the parties. While
dealing with the concept of public policy, this Court in
Central Inland Water Transport Corpn. Ltd. v. Brojo Nath
Ganguly [(1986) 3 SCC 156] has observed thus: (SCC
pp. 217-19, paras 92-93)
“92. The Indian Contract Act does not define the
expression ‘public policy’ or ‘opposed to public policy’.
From the very nature of things, the expressions ‘public
policy’, ‘opposed to public policy’, or ‘contrary to
public policy’ are incapable of precise definition.
Public policy, however, is not the policy of a particular
Government. It connotes some matter which concerns
the public good and the public interest. The concept of
what is for the public good or in the public interest or
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what would be injurious or harmful to the public good
or the public interest has varied from time to time. As
new concepts take the place of old, transactions which
were once considered against public policy are now
being upheld by the courts and similarly where there
has been a well-recognized head of public policy, the
courts have not shirked from extending it to new
transactions and changed circumstances and have at
times not even flinched from inventing a new head of
public policy. There are two schools of thought — ‘the
narrow view’ school and ‘the broad view’ school.
According to the former, courts cannot create new
heads of public policy whereas the latter countenances
judicial law-making in this area. The adherents of ‘the
narrow view’ school would not invalidate a contract on
the ground of public policy unless that particular
ground had been well established by authorities.
Hardly ever has the voice of the timorous spoken more
clearly and loudly than in these words of Lord Davey in
Janson v. Driefontein Consolidated Gold Mines Ltd.
[1902 AC 484, 500: (1900-03) All ER Rep 426 : 87 LT
372 (HL)]: ‘Public policy is always an unsafe and
treacherous ground for legal decision.’ That was in the
year 1902. Seventy-eight years earlier, Burrough, J., in
Richardson v. Mellish [(1824) 2 Bing 229, 252 : 130
ER 294] described public policy as ‘a very unruly
horse, and when once you get astride it you never know
where it will carry you’. The Master of the Rolls, Lord
Denning, however, was not a man to shy away from
unmanageable horses and in words which conjure up
before our eyes the picture of the young Alexander the
Great taming Bucephalus, he said in Enderby Town
Football Club Ltd. v. Football Assn. Ltd. [1971 Ch 591,
606] : ‘With a good man in the saddle, the unruly horse
can be kept in control. It can jump over obstacles’. Had
the timorous always held the field, not only the doctrine
of public policy but even the common law or the
principles of equity would never have evolved. Sir
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William Holdsworth in his ‘History of English Law’,
Vol. III, p. 55, has said:
‘In fact, a body of law like the common law, which has
grown up gradually with the growth of the nation,
necessarily acquires some fixed principles, and if it is
to maintain these principles it must be able, on the
ground of public policy or some other like ground, to
suppress practices which, under ever new disguises,
seek to weaken or negative them.’
It is thus clear that the principles governing public
policy must be and are capable, on proper occasion, of
expansion or modification. Practices which were
considered perfectly normal at one time have today
become obnoxious and oppressive to public conscience.
If there is no head of public policy which covers a case,
then the court must in consonance with public
conscience and in keeping with public good and public
interest declare such practice to be opposed to public
policy. Above all, in deciding any case which may not
be covered by authority our courts have before them
the beacon light of the preamble to the Constitution.
Lacking precedent, the court can always be guided by
that light and the principles underlying the
fundamental rights and the directive principles
enshrined in our Constitution.
93. The normal rule of common law has been that a
party who seeks to enforce an agreement which is
opposed to public policy will be non-suited. The case of
A. Schroeder Music Publishing Co. Ltd. v. Macaulay
[(1974) 1 WLR 1308 : (1974) 3 All ER 616 (HL)],
however, establishes that where a contract is vitiated as
being contrary to public policy, the party adversely
affected by it can sue to have it declared void. The case
may be different where the purpose of the contract is
illegal or immoral. In Kedar Nath Motani v. Prahlad
Rai [AIR 1960 SC 213 : (1960) 1 SCR 861], reversing
the High Court and restoring the decree passed by the
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trial court declaring the appellants' title to the lands in
suit and directing the respondents who were the
appellants' benamidars to restore possession, this
Court, after discussing the English and Indian law on
the subject, said (at p. 873):
‘The correct position in law, in our opinion, is that
what one has to see is whether the illegality goes so
much to the root of the matter that the plaintiff cannot
bring his action without relying upon the illegal
transaction into which he had entered. If the illegality
be trivial or venial, as stated by Williston and the
plaintiff is not required to rest his case upon that
illegality, then public policy demands that the
defendant should not be allowed to take advantage of
the position. A strict view, of course, must be taken of
the plaintiff's conduct, and he should not be allowed to
circumvent the illegality by resorting to some
subterfuge or by misstating the facts. If, however, the
matter is clear and the illegality is not required to be
pleaded or proved as part of the cause of action and
the plaintiff recanted before the illegal purpose was
achieved, then, unless it be of such a gross nature as to
outrage the conscience of the court, the plea of the
defendant should not prevail.’
The types of contracts to which the principle
formulated by us above applies are not contracts which
are tainted with illegality but are contracts which
contain terms which are so unfair and unreasonable
that they shock the conscience of the court. They are
opposed to public policy and require to be adjudged
void.”
(emphasis supplied)
18. Further, in Renusagar Power Co. Ltd. v. General
Electric Co. [1994 Supp (1) SCC 644] this Court
considered Section 7(1) of the Arbitration (Protocol and
Convention) Act, 1937 which inter alia provided that a
foreign award may not be enforced under the said Act, if
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the court dealing with the case is satisfied that the
enforcement of the award will be contrary to the public
policy. After elaborate discussion, the Court arrived at the
conclusion that public policy comprehended in Section
7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961 is the “public policy of India”
and does not cover the public policy of any other country.
For giving meaning to the term “public policy”, the
Court observed thus: (SCC p. 682, para 66)
“66. Article V(2)(b) of the New York Convention of
1958 and Section 7(1)(b)(ii) of the Foreign Awards Act
do not postulate refusal of recognition and enforcement
of a foreign award on the ground that it is contrary to
the law of the country of enforcement and the ground of
challenge is confined to the recognition and
enforcement being contrary to the public policy of the
country in which the award is set to be enforced. There
is nothing to indicate that the expression ‘public policy’
in Article V(2)(b) of the New York Convention and
Section 7(1)(b)(ii) of the Foreign Awards Act is not
used in the same sense in which it was used in Article
I(c) of the Geneva Convention of 1927 and Section 7(1)
of the Protocol and Convention Act of 1937. This would
mean that ‘public policy’ in Section 7(1)(b)(ii) has been
used in a narrower sense and in order to attract the bar
of public policy the enforcement of the award must
invoke something more than the violation of the law of
India. Since the Foreign Awards Act is concerned with
recognition and enforcement of foreign awards which
are governed by the principles of private international
law, the expression ‘public policy’ in Section 7(1)(b)(ii)
of the Foreign Awards Act must necessarily be
construed in the sense the doctrine of public policy is
applied in the field of private international law.
Applying the said criteria it must be held that the
enforcement of a foreign award would be refused on the
ground that it is contrary to public policy if such
enforcement would be contrary to (i) fundamental
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policy of Indian law; or (ii) the interests of India; or
(iii) justice or morality.”
(emphasis supplied)
The Court finally held that: (SCC p. 685, para 76)
“76. Keeping in view the aforesaid objects underlying
FERA and the principles governing enforcement of
exchange control laws followed in other countries, we
are of the view that the provisions contained in FERA
have been enacted to safeguard the economic interests
of India and any violation of the said provisions would
be contrary to the public policy of India as envisaged
in Section 7(1)(b)(ii) of the Act.”
19. This Court in Murlidhar Aggarwal v. State of U.P.
[(1974) 2 SCC 472] while dealing with the concept of
“public policy” observed thus: (SCC pp. 482-83, paras
31-32)
“31. Public policy does not remain static in any given
community. It may vary from generation to generation
and even in the same generation. Public policy would
be almost useless if it were to remain in fixed moulds
for all time.
32. … The difficulty of discovering what public policy
is at any given moment certainly does not absolve the
Judges from the duty of doing so. In conducting an
enquiry, as already stated, Judges are not hidebound by
precedent. The Judges must look beyond the narrow
field of past precedents, though this still leaves open
the question, in which direction they must cast their
gaze. The Judges are to base their decisions on the
opinions of men of the world, as distinguished from
opinions based on legal learning. In other words, the
Judges will have to look beyond the jurisprudence and
that in so doing, they must consult not their own
personal standards or predilections but those of the
dominant opinion at a given moment, or what has been
termed customary morality. The Judges must consider
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the social consequences of the rule propounded,
especially in the light of the factual evidence available
as to its probable results. … The point is rather that
this power must be lodged somewhere and under our
Constitution and laws, it has been lodged in the Judges
and if they have to fulfil their function as Judges, it
could hardly be lodged elsewhere.”
(emphasis supplied)
20. Mr Desai submitted that the narrow meaning given to
the term “public policy” in Renusagar case [1994 Supp
(1) SCC 644] is in context of the fact that the question
involved in the said matter was with regard to the
execution of the award which had attained finality. It was
not a case where validity of the award is challenged
before a forum prescribed under the Act. He submitted
that the scheme of Section 34 which deals with setting
aside the domestic arbitral award and Section 48 which
deals with enforcement of foreign award are not identical.
A foreign award by definition is subject to double
exequatur. This is recognized inter alia by Section 48(1)
and there is no parallel provision to this clause in Section
34. For this, he referred to Lord Mustill & Stewart C.
Boyd, Q.C.'s Commercial Arbitration 2001 wherein (at p.
90) it is stated as under:
“Mutual recognition of awards is the glue which holds
the international arbitrating community together, and
this will only be strong if the enforcing court is willing
to trust, as the convention assumes that they will trust
the supervising authorities of the chosen venue. It
follows that if, and to the extent that the award has
been struck down in the local court it should as a
matter of theory and practice be treated when
enforcement is sought as if to the extent it did not
exist.”
21. He further submitted that in foreign arbitration, the
award would be subject to being set aside or suspended
by the competent authority under the relevant law of that
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country whereas in the domestic arbitration the only
recourse is to Section 34.
22. The aforesaid submission of the learned Senior
Counsel requires to be accepted. From the judgments
discussed above, it can be held that the term “public
policy of India” is required to be interpreted in the
context of the jurisdiction of the court where the validity
of award is challenged before it becomes final and
executable. The concept of enforcement of the award after
it becomes final is different and the jurisdiction of the
court at that stage could be limited. Similar is the position
with regard to the execution of a decree. It is settled law
as well as it is provided under the Code of Civil
Procedure that once the decree has attained finality, in an
execution proceeding, it may be challenged only on
limited grounds such as the decree being without
jurisdiction or a nullity. But in a case where the judgment
and decree is challenged before the appellate court or the
court exercising revisional jurisdiction, the jurisdiction of
such court would be wider. Therefore, in a case where the
validity of award is challenged, there is no necessity of
giving a narrower meaning to the term “public policy of
India”. On the contrary, wider meaning is required to be
given so that the “patently illegal award” passed by the
Arbitral Tribunal could be set aside. If narrow meaning
as contended by the learned Senior Counsel Mr Dave is
given, some of the provisions of the Arbitration Act would
become nugatory. Take for illustration a case wherein
there is a specific provision in the contract that for
delayed payment of the amount due and payable, no
interest would be payable, still however, if the arbitrator
has passed an award granting interest, it would be
against the terms of the contract and thereby against the
provision of Section 28(3) of the Act which specifically
provides that “Arbitral Tribunal shall decide in
accordance with the terms of the contract”. Further,
where there is a specific usage of the trade that if the
payment is made beyond a period of one month, then the
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party would be required to pay the said amount with
interest at the rate of 15 per cent. Despite the evidence
being produced on record for such usage, if the arbitrator
refuses to grant such interest on the ground of equity, such
award would also be in violation of sub-sections (2) and
(3) of Section 28. Section 28(2) specifically provides that
the arbitrator shall decide ex aequo et bono (according to
what is just and good) only if the parties have expressly
authorised him to do so. Similarly, if the award is patently
against the statutory provisions of substantive law which
is in force in India or is passed without giving an
opportunity of hearing to the parties as provided under
Section 24 or without giving any reason in a case where
parties have not agreed that no reasons are to be
recorded, it would be against the statutory provisions. In
all such cases, the award is required to be set aside on the
ground of “patent illegality”.
31. Therefore, in our view, the phrase “public policy of
India” used in Section 34 in context is required to be
given a wider meaning. It can be stated that the concept
of public policy connotes some matter which concerns
public good and the public interest. What is for public
good or in public interest or what would be injurious or
harmful to the public good or public interest has varied
from time to time. However, the award which is, on the
face of it, patently in violation of statutory provisions
cannot be said to be in public interest. Such
award/judgment/decision is likely to adversely affect the
administration of justice. Hence, in our view in addition
to narrower meaning given to the term “public policy” in
Renusagar case [1994 Supp (1) SCC 644] it is required to
be held that the award could be set aside if it is patently
illegal. The result would be — award could be set aside if
it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
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(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award
is against the public policy. Award could also be set aside
if it is so unfair and unreasonable that it shocks the
conscience of the court. Such award is opposed to public
policy and is required to be adjudged void.”
22. Thus, it is submitted by the learned counsel for the
appellants by relying on the aforesaid judgment rendered by the
Hon’ble Apex Court in the case of Saw Pipes Ltd. (supra) that
the arbitral award dated 17.10.2020, passed by the Ld. Sole
Arbitrator is patently illegal, hence is fit to be set aside and this
Court is fully empowered to do so by virtue of the provisions
contained under Section 37 of the Act, 1996.
Submissions of the Ld. Counsel for the claimant-
Respondent:
23. Per contra, the Ld. counsel for the claimant-Respondent
has submitted that it is wrong to say that no supporting
documents were annexed by the claimant-Respondent in his
claim petition filed before the Ld. Sole Arbitrator in support of
his claims, inasmuch as the bills for various months have been
annexed, wherein each and every fact as well as supporting
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documents have been furnished in detail, duly supported by
month wise bills of transport and handling charges as well as
other relevant documents, however the appellants did not file
any affidavit/annexure/denial of documents of the claimant-
Respondent before the Ld. Sole Arbitrator, hence all the
documents filed by the claimant-Respondent would be deemed
to have been accepted.
24. The learned counsel for the claimant-Respondent has
further submitted that all the claims have been awarded within
the ambit of the agreement in question i.e. the one dated
28.01.2014, pertaining to the district-Khagaria. It is also
submitted that there is no bar under the agreement to award
interest and compensation, hence the arbitral award dated
17.10.2020 as upheld by the judgment dated 25.7.2025, passed
by the Ld. Court of PDJ, Patna under Section 34 of the Act,
1996 does not suffer from any infirmity.
25. The learned counsel for the claimant-Respondent has next
submitted that Section 34 of the Act, 1996 provides for certain
grounds on which the competent Court can interfere with the
arbitral award, however no interference is permissible if the
grounds urged for setting aside of arbitral award is not within
the contours of Section 34 of the Act, 1996. Reference has also
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been made to Section 5 of the Act, 1996 to submit that an
arbitration award, which is governed by Part-I of the Act, 1996
can only be set aside on the grounds mentioned under Section
34 (2) and (3) and not otherwise. The Ld. Counsel has referred
to a judgment rendered by the Hon’ble Apex Court in the case
of Associate Builders vs. Delhi Development Authority,
reported in (2015) 3 SCC 49, paragraphs no. 33, 34, 52 and 56
whereof are reproduced herein below:-
“33. It must clearly be understood that when a court is
applying the “public policy” test to an arbitration
award, it does not act as a court of appeal and
consequently errors of fact cannot be corrected. A
possible view by the arbitrator on facts has necessarily
to pass muster as the arbitrator is the ultimate master of
the quantity and quality of evidence to be relied upon
when he delivers his arbitral award. Thus an award
based on little evidence or on evidence which does not
measure up in quality to a trained legal mind would not
be held to be invalid on this score [Very often an
arbitrator is a lay person not necessarily trained in law.
Lord Mansfield, a famous English Judge, once advised a
high military officer in Jamaica who needed to act as a
Judge as follows:
“General, you have a sound head, and a good heart;
take courage and you will do very well, in your
occupation, in a court of equity. My advice is, to make
your decrees as your head and your heart dictate, to
hear both sides patiently, to decide with firmness in the
best manner you can; but be careful not to assign your
reasons, since your determination may be substantially
right, although your reasons may be very bad, or
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essentially wrong”.
It is very important to bear this in mind when awards of
lay arbitrators are challenged.]. Once it is found that the
arbitrators approach is not arbitrary or capricious, then
he is the last word on facts. In P.R. Shah, Shares & Stock
Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1
SCC 594], this Court held : (SCC pp. 601-02, para 21)
“21. A court does not sit in appeal over the award of an
Arbitral Tribunal by reassessing or reappreciating the
evidence. An award can be challenged only under the
grounds mentioned in Section 34(2) of the Act. The
Arbitral Tribunal has examined the facts and held that
both the second respondent and the appellant are
liable. The case as put forward by the first respondent
has been accepted. Even the minority view was that the
second respondent was liable as claimed by the first
respondent, but the appellant was not liable only on the
ground that the arbitrators appointed by the Stock
Exchange under Bye-law 248, in a claim against a non-
member, had no jurisdiction to decide a claim against
another member. The finding of the majority is that the
appellant did the transaction in the name of the second
respondent and is therefore, liable along with the
second respondent. Therefore, in the absence of any
ground under Section 34(2) of the Act, it is not possible
to re-examine the facts to find out whether a different
decision can be arrived at.”
34. It is with this very important caveat that the two
fundamental principles which form part of the
fundamental policy of Indian law (that the arbitrator
must have a judicial approach and that he must not act
perversely) are to be understood.
52. It is most unfortunate that the Division Bench did not
advert to this crucial document at all. This document
shows not only that the Division Bench was wholly
incorrect in its conclusion that the contractor has tried
to pull the wool over the eyes over the DDA but it should
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also have realised that the DDA itself has stated that the
work has been carried out generally to its satisfaction
barring some extremely minor defects which are capable
of rectification. It is clear, therefore, that the Division
Bench obviously exceeded its jurisdiction in interfering
with a pure finding of fact forgetting that the arbitrator
is the sole Judge of the quantity and quality of evidence
before him and unnecessarily bringing in facts which
were neither pleaded nor proved and ignoring the vital
completion certificate granted by the DDA itself. The
Division Bench also went wrong in stating that as the
work completed was only to the extent of Rs 62,84,845,
Hudson's formula should have been applied taking this
figure into account and not the entire contract value of
Rs 87,66,678 into account.
56. Here again, the Division Bench has interfered
wrongly with the arbitral award on several counts. It had
no business to enter into a pure question of fact to set
aside the arbitrator for having applied a formula of 20
months instead of 25 months. Though this would inure in
favour of the appellant, it is clear that the appellant did
not file any cross-objection on this score. Also, it is
extremely curious that the Division Bench found that an
adjustment would have to be made with claims awarded
under Claims 2, 3 and 4 which are entirely separate and
independent claims and have nothing to do with Claims
12 and 13. The formula then applied by the Division
Bench was that it would itself do “rough and ready
justice”. We are at a complete loss to understand how
this can be done by any court under the jurisdiction
exercised under Section 34 of the Arbitration Act. As has
been held above, the expression “justice” when it comes
to setting aside an award under the public policy ground
can only mean that an award shocks the conscience of
the court. It cannot possibly include what the court
thinks is unjust on the facts of a case for which it then
seeks to substitute its view for the arbitrator's view and
does what it considers to be “justice”. With great respect
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to the Division Bench, the whole approach to setting
aside arbitral awards is incorrect. The Division Bench
has lost sight of the fact that it is not a first appellate
court and cannot interfere with errors of fact.”
26. The learned counsel for the claimant-Respondent has
further submitted that it is a settled position of law that the
grounds for interference with the arbitral award under Section
37 of the Act, 1996 is narrower than those under Section 34 of
the Act, 1996, hence if an arbitral award has been upheld in
challenge under Section 34 of the Act, 1996, then the same
should not be disturbed by the Appellate Court. In this regard,
reliance has been placed on a judgment, rendered by the
Hon’ble Apex Court in the case of UHL Power Company Ltd.
vs. State of Himachal Pradesh, reported in (2022) 4 SCC 116
as also upon the one rendered by the Hon’ble Apex Court in the
case of Reliance Infrastructure Ltd. vs. State of Goa, reported
in (2024) 1 SCC 479, paragraphs no. 25 to 33 whereof are
reproduced herein below:-
“25. Having regard to the contentions urged and the
issues raised, it shall also be apposite to take note of the
principles enunciated by this Court in some of the
relevant decisions cited by the parties on the scope of
challenge to an arbitral award under Section 34 and the
scope of appeal under Section 37 of the 1996 Act.
26. In MMTC [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC
163], this Court took note of various decisions including
that in Associate Builders [Associate Builders v. DDA,
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(2015) 3 SCC 49] 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). This Court, inter alia,
held as under: [MMTC Ltd. v. Vedanta Ltd., (2019) 4
SCC 163], SCC pp. 166-67, paras 11-14)
“11. As far as Section 34 is concerned, the position is
well-settled by now that the Court does not sit in
appeal over the arbitral award and may interfere on
merits on the limited ground provided under Section
34(2)(b)(ii) i.e. if the award is against the public policy
of India. As per the legal position clarified through
decisions of this Court prior to the amendments to the
1996 Act in 2015, a violation of Indian public policy, in
turn, includes a violation of the fundamental policy of
Indian law, a violation of the interest of India, conflict
with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the
concept of the “fundamental policy of Indian law”
would cover compliance with statutes and judicial
precedents, adopting a judicial approach, compliance
with the principles of natural justice, and Wednesbury
[Associated Provincial Picture Houses v. Wednesbury
Corpn., (1948) 1 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
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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] 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 [(2006) 4 SCC 445]; and
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
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disturb such concurrent findings.”
27. In Ssangyong Engg. [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131], this
Court has set out the scope of challenge under Section 34
of the 1996 Act in further details in the following words :
(SCC pp. 170-71, paras 37-41)
“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], 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],
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], namely, that the construction
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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 [(2015) 3 SCC 49], 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.”
28. The limited scope of challenge under Section 34 of
the Act was once again highlighted by this Court in PSA
Sical Terminals [PSA Sical Terminals (P) Ltd. v. V.O.
Chidambranar Port Trust, (2023) 15 SCC 781] and this
Court particularly explained the relevant tests as under :
(SCC paras 40 to 42)
“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
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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], 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
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law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in
two judgments. In CCE & Sales v. Gopi Nath & Sons
[1992 Supp (2) SCC 312], it was held:
“7. … It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant
material or by taking into consideration irrelevant
material or if the finding so outrageously defies
logic as to suffer from the vice of irrationality
incurring the blame of being perverse, then, the
finding is rendered infirm in law.”
29. In Delhi Airport Metro Express [Delhi Airport Metro
Express (P) Ltd. v. DMRC, (2022) 1 SCC 131], this Court
again surveyed the case law and explained the contours
of the Courts' power to review the arbitral awards.
Therein, this Court not only reaffirmed the principles
aforesaid but also highlighted an area of serious concern
while pointing out “a disturbing tendency” of the Courts
in setting aside arbitral awards after dissecting and
reassessing factual aspects. This Court also underscored
the pertinent features and scope of the expression “patent
illegality” while reiterating that the Courts do not sit in
appeal over the arbitral award. The relevant and
significant passages of this judgment could be usefully
extracted as under: [Delhi Airport Metro Express (P)
Ltd. v. DMRC, (2022) 1 SCC 131], SCC pp. 147-48, 150-
51 & 155-56, paras 26, 28-30 & 42)
“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
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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.
[(2020) 2 SCC 455], Bhaven Construction v. Sardar
Sarovar Narmada Nigam Ltd. [(2022) 1 SCC 75] &
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
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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 reappreciation of the facts which is
not permissible under Section 34 of the 1996 Act. The
Division Bench further held 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 U/s. 34. [State of Rajasthan
v. Puri Constr. Co. Ltd., (1994) 6 SCC 485] On the
basis of the issues submitted by the parties, the Arbitral
Tribunal framed issues for consideration and answered
the said issues. Subsequent events need not be taken
into account.”
(emphasis supplied)
30. In Haryana Tourism [Haryana Tourism Ltd. v.
Kandhari Beverages Ltd., (2022) 3 SCC 237 : (2022) 2
SCC (Civ) 87] , this Court yet again pointed out the
limited scope of interference under Sections 34 and 37 of
the Act; and disapproved interference by the High Court
under Section 37 of the Act while entering into merits of
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the claim in the following words : (SCC p. 240, paras 8-
9)
“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 U/s. 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 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.”
31. As regards the limited scope of interference under
Sections 34/37 of the Act, we may also usefully refer to
the following observations of a three-Judge Bench of this
Court in UHL Power Co. Ltd. v. State of H.P. [(2022) 4
SCC 116]: (SCC p. 124, paras 15-16)
“15. This Court also accepts as correct, the view
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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 U/s. 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.”
32. The learned Attorney General has referred to another
three-Judge Bench decision of this Court in SAL Udyog
[State of Chhattisgarh v. SAL Udyog (P) Ltd., (2022) 2
SCC 275], wherein this Court indeed interfered with the
award in question when the same was found suffering
from non-consideration of a relevant contractual clause.
In the said decision too, the principles aforesaid in Delhi
Airport Metro Express [(2022) 1 SCC 131], Ssangyong
Engg. [(2019) 15 SCC 131] and other cases were
referred to and thereafter, this Court applied the
principles to the facts of that case. We shall refer to the
said decision later at an appropriate juncture.
33. Keeping in view the aforementioned principles
enunciated by this Court with regard to the limited scope
of interference in an arbitral award by a Court in the
exercise of its jurisdiction U/s. 34 of the Act, which is all
the more circumscribed in an appeal under Section 37,
we may examine the rival submissions of the parties in
relation to the matters dealt with by the High Court.”
27. Thus, it is submitted by the learned counsel for the
claimant-Respondent that the law is now well-settled, inasmuch
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as an arbitral award can be set aside only on the ground of
patent illegality, i.e. where illegalities go to the root of the
matter but re-appreciation of facts and evidence cannot be
permitted under the ground of patent illegality and the
jurisdiction conferred on Courts under Section 34/37 of the Act
is fairly narrow. It is equally a well-settled law that power of
Court under Section 37 of the Act, 1996 is not same as the
power of the Appellate Court under Code of Civil Procedure,
inasmuch as the learned Appellate Court can re-appreciate both
factual and legal position whereas the jurisdiction of the Court
under Section 37 is confined only to see that the power under
Section 34 has been rightly exercised. In fact, neither the Court
exercising jurisdiction under Section 34 nor under Section 37 of
the Act, 1996 can go into finding of facts recorded by the
arbitral Tribunal. Reference has been made to a judgment
rendered by the Hon’ble Apex Court in the case Bombay Slum
Redevelopment Corporation Ltd. vs. Samir Narain Bhojwani,
reported in (2024) 7 SCC 218 as also to the one rendered in the
case of Somdat Builders-NCC-NEC(JV) vs. National
Highways Authority of India & Others, reported in (2025) 6
SCC 757 and the one rendered in the case of Jan De Nul
Dredging India Private Ltd. vs. Tuticorin Port Trust, reported
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in (2026) SCC Online SC 33.
Determination:
28. We have heard the learned counsel for the parties at
length and perused the voluminous records, including the
records of the arbitral proceedings, copies of Misc. (Arbitration)
Case No. 01 of 2021 and the reply filed therein as also the
arbitral award dated 17.10.2020 and the impugned judgement
passed by the learned PDJ, Patna dated 25.07.2025.
29. Shorn of the details, it would suffice to state that an
agreement dated 28.01.2014 was entered into between the
parties for three years whereby the claimant-respondent was
required to execute the work of Transporting-cum-Handling
Agent for the District Khagaria and he was entrusted with the
work of transportation of food-grains and other commodities
including edible oil to the destinated godown, as directed by or
on behalf of the appellants and according to the route chart fixed
for the said purpose. The period of agreement was from
28.01.2014 to 27.01.2017. A bare perusal of the statement of
claim filed by the claimant-respondent before the learned Sole
Arbitrator would show that the Deputy Chief, Transportation,
BSFC, Patna vide letter dated 30.01.2017 had granted approval
for extension of the time period of the work of the claimant-
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respondent as Transport-cum-Handling Agent with effect from
the date of end of the period of the previous agreement dated
28.01.2014, for two years and a copy of the said letter was
marked to the claimant-respondent vide memo dated 09.02.2017
to execute fresh agreement within 24 hours of receipt of the said
letter, whereafter an agreement dated 10.02.2017 was entered
into between the appellants and the claimant-respondent,
however not for two years but only for one year as is apparent
from Clause 14 of the said agreement dated 10.02.2017, hence
the period of agreement was from 10.02.2017 to 09.02.2018,
nonetheless it appears that the claimant had continued to work
for extra one year, inasmuch as the statement of claims
submitted before the learned Arbitrator would show that he has
submitted bills for the period starting from the month of
February 2015 up to the month of February 2019.
30. The claimant-respondent being aggrieved had filed a
detailed statement of claims before the learned Arbitrator on
25.10.2019, inter alia praying for the following reliefs:-
“(i) Respondents be directed to make payment of the claims
of the claimant amounting. to Rs. 4,44,79,872.58 (Rupees four
crore forty-four seventy none thousand eight hundred seventy-
two rupees and fifty-eight paisa) with interest thereon @ 18%
till 31.10.2019 as noted in Annexure - 7 to the statement of
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claims, with further interest thereon at the rate of 18% per
annum from 01.11.2019 up to date of actual receipt of the
awarded amount with interest thereon by the claimant.
(ii) The respondents joint and severally be directed to pay the
cost of arbitration to the claimant.
(iii) The Hon’ble Tribunal may grant any other relief or
relieves which is deemed fit and proper in the ends of justice
to the claimant.”
31. The appellants had then filed statement of defence on
13.01.2020, whereafter the claimant-respondent had filed a
rejoinder dated 11.02.2020 as also a supplementary statement of
claim on 14.06.2020. The learned Sole Arbitrator had then
framed issues for consideration.
32. The learned Sole Arbitrator vide arbitral award dated
17.10.2020 has passed the arbitral award allowing the claim on
the head of outstanding bill amounts, compensation to the tune
of Rs.25 lakhs, simple interest @ 10% for the pendente lite
period and further 18% interest over the awarded sum from the
date of award till realization of the awarded amount, cost
towards fees and expenses of the arbitrator and courts and other
legal expenses apart from considering the unpaid arbitrator’s
fees not paid by the appellants herein as unpaid cost of the
award under Section 39 of the Act. We have already reproduced
the amounts awarded by the learned Sole Arbitrator by the
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arbitral award dated 17.10.2020 hereinabove in paragraph No. 8.
The said award was challenged by the appellants before the
learned Court of PDJ, Patna by filing Misc. (Arbitration) Case
No.01 of 2021 under Section 34 (2) and (2A) of the Act, 1996 to
which the claimant-respondent herein had filed a reply as also
supplementary reply dt. 23.12.2021 & 14.01.2022, respectively.
33. The learned PDJ, Patna by the impugned judgment dated
25.07.2025 has been pleased to dismiss the said Misc.
(Arbitration) Case No. 01 of 2021 filed on 02.01.2021, holding
that no valid ground has been made out under Section (2) or
(2A) of Section 34 of the Act, 1996 so as to warrant interference
with the impugned arbitral award or findings of the learned Sole
Arbitrator. The findings recorded by the learned PDJ, Patna in
the aforesaid judgement dated 25.07.2025 has already been
detailed hereinabove in paragraph No. 14.
34. At the outset, it would be relevant to reproduce
hereinbelow Clauses of the Agreement dated 28.01.2014 entered
into between the parties for the District of Khagaria:-
“10. The First Party shall be liable to pay the second-Party
remuneration for the undertaking in this agreement at the
rates specified below against each item. No other charges
shall be admissible to the second Party for the due
performance to this agreement. These rates are also
subject to revision at any time at the discretion of the first
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Party. If the Second Party agreed to such revisions either
by express consent or by implied action such rates would
automatically by-binding to the second Party.
(Application of rate of Particular slab will be only up to
the maximum distance fixed for the beginning form Zero).
11. No separate handling and stacking charges is payable
in respect of handling work taking place at F.C.I. depot
or rail head/Godown. Schedule of approved rates for
transport and handling is indicated above in this
agreement.
12. The District Manager, Bihar State Food &Civil
Supplies Corporation Ltd shall on completion of each
month, calculate the amount of remuneration for which
the Second Party is entitled to as aforesaid and pay the
same by Account Payee cheque within a reasonable
period after such accounting. However, after the
submission of bills by the Second Party and subject to the
completion of such other formalities as required by the
First party, the payment against bill submitted by the
Second party will be made by the first party in the
manner specified in the Head office Circular No. Audit-
IX 13/96-799 dated 07.02.2001. The First Party reserves
the right to amend the procedure of payment, as and
when so required. No interest shall be payable to the
Second Party for unavoidable delay in the payment. In
special circumstances, the payment may be made even
within the quarter at discretion to the District Manager
with prior approval of the Managing Director while
making the payment the damage like shortage officially,
accident, theft etc. payable by the Second Party will be
deducted and if damage is claimed but not finally
determined payment that extent will be withheld till final
determination which is to be done at the shortest possible
time.
14. The agreement shall remain in operation for the
period of three years from the date of execution of the
agreement or allotment of work. This may be extended by
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mutual consent for a further period of two years or may
be terminated earlier than the period mentioned above on
behalf of the First Party in case if non-lifting of grains,
sugar, edible oil etc. During the specified period if there
is any breach of any of the terms of the agreement by the
second carry, the agreement may be terminated and
blacklisted as well as debarred for future transportation
work, security deposits will be forfeited and Bank
guarantee of 10 lacs (ten lac only) will be utilized and
encashed at once by the First Party. The responsibility of
the second party shall not cease with the termination of
the agreement unless he has redelivered the grains, sugar,
edible oils and etc. entrusted to him and rendered
complete accounts thereof to the satisfaction of the First
Party.
The terms of agreements and contract for transporting
and handling work can be extended for another period of
two years on the recommendations of District Transport
Committee, if the work of the Second Party is found
satisfactory and the recommendation of the District
Transport Committee, reaches Corporation Headquarter,
two months before expiry of agreement and as per
guidelines issued by the corporation from time to time in
this regard.
17. All disputes arising under or in pursuance of this
agreement between the parties, except matters decision of
which herein expressly is otherwise provided, shall be
referred to sole arbitration of the C.M.D./Managing
Director of the Bihar State Food & Civil Supplies
Corporation Ltd. Patna or a person nominated by the
C.M.D/ Managing Director decision of such arbitrator
shall be final and binding on both the parties. The
provisions of the arbitration and conciliation Act 1996
and rules framed there under and statuary modifications
there of shall apply to the proceedings of arbitration and
all such disputes shall be subject to the jurisdiction of
courts at Patna.
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18. The second party would not be entitled to claim any
compensation for detention of their trucks at the godown
gates or detention by law enforcing agencies during
transit any other authorized places of the corporation
from where the delivery of any consignment is to be
obtained or where any delivery is to be given.”
35. At this juncture, we would like to delve upon the scope of
Sections 34 and 37 of the Act, 1996 as has been considered and
settled in a catena of judgments by the Hon’ble Apex Court. In
this regard, we would first refer to the judgment rendered by the
Hon’ble Apex Court in the case of Sepco Electric Power
Construction Corporation vs. GMR Kamalanga Enery Limited
reported in (2026) 2 SCC 542, paragraph Nos. 68, 114 to 116
whereof are reproduced herein below:-
“68. Furthermore, in the process of discussing the jurisdiction
and powers of courts under Sections 34 and 37 of the 1996
Act, a 3-Judge Bench of this Court, in UHL Power Co. [UHL
Power Co. Ltd. v. State of H.P., (2022) 4 SCC 116 : (2022) 2
SCC (Civ) 401] while holding that the learned Single Judge
of the High Court concerned had exceeded his jurisdiction
through interference with the arbitral award, explicated the
reasons of such narrow scope of powers of a court under
Section 34 of the 1996 Act. Referencing extensively on other
decisions of this Court, namely, MMTC [MMTC Ltd. v.
Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] ,
K. Sugumar v. Hindustan Petroleum Corpn. Ltd. [K. Sugumar
v. Hindustan Petroleum Corpn. Ltd., (2020) 12 SCC 539] ,
Dyna Technologies [Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd., (2019) 20 SCC 1] , and Parsa Kente Collieries
[Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut
Utpadan Nigam Ltd., (2019) 7 SCC 236 : (2019) 3 SCC (Civ)
552] , it laid down that the courts do not sit in appeal over
arbitral awards, therefore, the jurisdiction of the courts
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concerned is confined to specific grounds as laid down under
Section 34 of the 1996 Act, for instance, violation of public
policy, patent illegality, or misconduct. Furthermore, it is
based on the principle of party autonomy and the need to
uphold the finality of an arbitral award. Concluding, it
iterated that when the parties have, through conscious
decision-making, opted for arbitration as an alternative
means of dispute mechanism, the courts ought to refrain from
reappreciation of evidence or substitution of interpretation(s),
unless the award is perverse, unreasonable, or contrary to the
mandate of the statute or decisions of court.
114. Summarising the principles as aforesaid, it is undoubtful
that the interference under jurisprudence laid down under
Sections 34 and 37 of the 1996 Act is narrow, while
aforementioned decisions do acknowledge that, SEPCO has
vehemently pushed so in an attempt to persuade us to hold the
Division Bench in error. However, the jurisprudence, as also
identified in the aforesaid issues, clarifies that the principles
of natural justice, and the public policy of India are
paramount and cannot be ignored or sidelined in an attempt
not to frustrate the patent or latent commercial wisdom of the
parties to seek an alternative means of dispute resolution.
Such issues attack the root of the Indian legal system and the
courts cannot be made a mere spectator to such gross
violations.
115. The scope under Section 37, as rightly argued by
SEPCO, is slimmer than that under Section 34, but, in the
instant case, the Section 34 judgment had failed to
appreciate the gross violations of the basic principles of
adjudication of a dispute. While one may argue some of those
may be latent and not a prima facie violation, thereby not
mandating any interference, direct omission of the mandate of
Section 18 and Section 28 sub-section (3) of the 1996 Act are
clearly patent through a skimming of arbitral award. No
contentions appear on behalf of SEPCO vis-à-vis waiver
through the circumstances arising in March 2012, and despite
such a want, the Arbitral Tribunal exceeded the mandate to
deem a waiver on the part of GMRKE Limited for contractual
notices, without any explicit intent. Thereafter, it patently
discriminates against GMRKE Limited to deny their claims
for want of contractual notice(s).
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116. An attack on the fundamental policy of Indian law allows
for reappreciation and thereby, the impugned judgment
cannot be faulted with on the ground of having exceeded its
jurisdiction under Section 37 of the 1996 Act. The Division
Bench was correct in this regard, as to open up the necessary
floodgates of reappreciation of the arbitral award.”
36. Yet another judgment on the aforesaid judgment is the
one rendered by the Hon’ble Apex Court in the case of UHL
Power Company Limited vs. State of Himachal Pradesh
reported in (2022) 4 SCC 116, paragraph Nos. 16 to 19 and 21
whereof reproduced herein below:-
“16. As it is, the jurisdiction conferred on courts under
Section 34 of the Arbitration Act is fairly narrow, when it
comes to the scope of an appeal under Section 37 of the
Arbitration Act, the jurisdiction of an appellate court in
examining an order, setting aside or refusing to set aside an
award, is all the more circumscribed. In MMTC Ltd. v.
Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 :
(2019) 2 SCC (Civ) 293] , the reasons for vesting such a
limited jurisdiction on the High Court in exercise of powers
under Section 34 of the Arbitration Act have been explained
in the following words : (SCC pp. 166-67, para 11)
“11. As far as Section 34 is concerned, the position is well-
settled by now that the Court does not sit in appeal over the
arbitral award and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii) i.e. if the award is
against the public policy of India. As per the legal position
clarified through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a violation of Indian
public policy, in turn, includes a violation of the fundamental
policy of Indian law, a violation of the interest of India,
conflict with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the concept of
the “fundamental policy of Indian law” would cover
compliance with statutes and judicial precedents, adopting a
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judicial approach, compliance with the principles of natural
justice, and Wednesbury [Associated Provincial Picture
Houses Ltd. 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.”
17. A similar view, as stated above, has been taken by this
Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd. [K.
Sugumar v. Hindustan Petroleum Corpn. Ltd., (2020) 12 SCC
539] , wherein it has been observed as follows : (SCC p. 540,
para 2)
“2. The contours of the power of the Court under Section 34
of the Act are too well established to require any reiteration.
Even a bare reading of Section 34 of the Act indicates the
highly constricted power of the civil court to interfere with an
arbitral award. The reason for this is obvious. When parties
have chosen to avail an alternate mechanism for dispute
resolution, they must be left to reconcile themselves to the
wisdom of the decision of the arbitrator and the role of the
court should be restricted to the bare minimum. Interference
will be justified only in cases of commission of misconduct by
the arbitrator which can find manifestation in different forms
including exercise of legal perversity by the arbitrator.”
18. It has also been held time and again by this Court that if
there are two plausible interpretations of the terms and
conditions of the contract, then no fault can be found, if the
learned arbitrator proceeds to accept one interpretation as
against the other. In Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd. [Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd., (2019) 20 SCC 1] , the limitations on the Court
while exercising powers under Section 34 of the Arbitration
Act has been highlighted thus : (SCC p. 12, para 24)
“24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided
therein or as interpreted by various Courts. We need to be
cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless the
Court comes to a conclusion that the perversity of the award
goes to the root of the matter without there being a possibility
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of alternative interpretation which may sustain the arbitral
award. Section 34 is different in its approach and cannot be
equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral
award and the party autonomy to get their dispute
adjudicated by an alternative forum as provided under the
law. If the Courts were to interfere with the arbitral award in
the usual course on factual aspects, then the commercial
wisdom behind opting for alternate dispute resolution would
stand frustrated.”
19. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut
Utpadan Nigam Ltd. [Parsa Kente Collieries Ltd. v.
Rajasthan Rajya Vidyut Utpadan Nigam Ltd., (2019) 7 SCC
236 : (2019) 3 SCC (Civ) 552] , adverting to the previous
decisions of this Court in McDermott International Inc. v.
Burn Standard Co. Ltd. [McDermott International Inc. v.
Burn Standard Co. Ltd., (2006) 11 SCC 181] and Rashtriya
Ispat Nigam Ltd. v. Dewan Chand Ram Saran [Rashtriya
Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC
306] , wherein it has been observed that an Arbitral Tribunal
must decide in accordance with the terms of the contract, but
if a term of the contract has been construed in a reasonable
manner, then the award ought not to be set aside on this
ground, it has been held thus : (Parsa Kente Collieries case
[Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut
Utpadan Nigam Ltd., (2019) 7 SCC 236 : (2019) 3 SCC (Civ)
552] , SCC pp. 244-45, para 9)
“9.1. … It is further observed and held that construction of
the terms of a contract is primarily for an arbitrator to decide
unless the arbitrator construes the contract in such a way that
it could be said to be something that no fair-minded or
reasonable person could do. It is further observed by this
Court in the aforesaid decision in para 33 that when a court
is applying the “public policy” test to an arbitration award, it
does not act as a court of appeal and consequently errors of
fact cannot be corrected. A possible view by the arbitrator on
facts has necessarily to pass muster as the arbitrator is the
ultimate master of the quantity and quality of evidence to be
relied upon when he delivers his arbitral award. It is further
observed that thus an award based on little evidence or on
evidence which does not measure up in quality to a trained
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legal mind would not be held to be invalid on this score.
9.2. Similar is the view taken by this Court in NHAI v. ITD
Cementation India Ltd. [NHAI v. ITD Cementation India Ltd.,
(2015) 14 SCC 21 : (2016) 2 SCC (Civ) 716] , SCC para 25
and SAIL v. Gupta Brother Steel Tubes Ltd. [SAIL v. Gupta
Brother Steel Tubes Ltd., (2009) 10 SCC 63 : (2009) 4 SCC
(Civ) 16] , SCC para 29.”
21. An identical line of reasoning has been adopted in South
East Asia Marine Engg. & Constructions Ltd. (Seamec Ltd.)
v. Oil India Ltd. [South East Asia Marine Engg. &
Constructions Ltd. (Seamec Ltd.) v. Oil India Ltd., (2020) 5
SCC 164 : (2020) 3 SCC (Civ) 1] and it has been held as
follows : (SCC p. 172, paras 12-13)
“12. It is a settled position that a court can set aside the
award only on the grounds as provided in the Arbitration Act
as interpreted by the courts. Recently, this Court in Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd. [Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20
SCC 1] laid down the scope of such interference. This Court
observed as follows : (SCC p. 12, para 24)
‘24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided
therein or as interpreted by various Courts. We need to be
cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless the
Court comes to a conclusion that the perversity of the award
goes to the root of the matter without there being a possibility
of alternative interpretation which may sustain the arbitral
award. Section 34 is different in its approach and cannot be
equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral
award and the party autonomy to get their dispute
adjudicated by an alternative forum as provided under the
law. If the Courts were to interfere with the arbitral award in
the usual course on factual aspects, then the commercial
wisdom behind opting for alternate dispute resolution would
stand frustrated.’
13. It is also settled law that where two views are possible, the
Court cannot interfere in the plausible view taken by the
arbitrator supported by reasoning. This Court in Dyna
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Technologies [Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd., (2019) 20 SCC 1] observed as under : (SCC p.
12, para 25)
‘25. Moreover, umpteen number of judgments of this Court
have categorically held that the Court should not interfere
with an award merely because an alternative view on facts
and interpretation of contract exists. The Courts need to be
cautious and should defer to the view taken by the Arbitral
Tribunal even if the reasoning provided in the award is
implied unless such award portrays perversity unpardonable
under Section 34 of the Arbitration Act.”
37. We may also refer to the judgement rendered in the case
of Jan De Nul Dredging India Private Limited vs. Tuticorin
Port Trust reported in 2026 SCC OnLine SC 33, paragraph
Nos. 36, 37 whereof are reproduced herein below:-
“36. In other words, the scope of interference of the court
with the arbitral matters is virtually prohibited, if not
absolutely barred. The powers of the appellate court are even
more restricted than the powers conferred by Section 34 of the
Act. The appellate power under Section 37 of the Act is
exercisable only to find out if the court exercising power
under Section 34 of the Act, has acted within its limits as
prescribed thereunder or has exceeded or failed to exercise
the power so conferred. The appellate court exercising
powers under Section 37 of the Act has no authority of law to
consider the matter in dispute before the Arbitral Tribunal on
merits so as to hold as to whether the award of the Arbitral
Tribunal is right or wrong. The appellate court in exercise of
such power cannot sit as an ordinary court of appeal and
reappraise the evidence to record a contrary finding. The
award of the Arbitral Tribunal cannot be touched by the court
unless it is contrary to the substantive provision of law or any
provision of the Act or the terms of the agreement.
37. Undoubtedly, in the case at hand, the award of the
Arbitral Tribunal is not contrary to any substantive provision
of law or any provision of the Act. Yet, it has been disturbed
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by the appellate court, apparently by giving a different
interpretation of the clauses of the licence agreement which
jurisdiction was not vested in it. Ordinarily, the interpretation
given by the Arbitral Tribunal, as affirmed by the court in
exercise of powers under Section 34 of the Act ought to have
been accepted.”
38. We have already referred to the judgments rendered in the
case of Saw Pipes Limited (supra), Associate Business (supra),
Reliance Infrastructure Limited (supra), Bombay Slum Re-
development Corporation Limited (supra), Somdat Builders-
NCC-NEC (JB) (supra) and most of other judgments referred to
in the said judgement on the scope of interference under
Sections 34 and 37 of the Act of 1996. We find from the catena
of judgments referred to hereinabove that broadly as far as
Section 34 and 37 of the Act of 1996 is concerned, the Court is
not required to sit in appeal over the arbitral award and
reappreciate the evidence, however the scope of interference
would be permissible in the following situations:-
(i) When the award is in violation of Public Policy of
India i.e. the Fundamental Policy of Indian Law.
(ii) Violation of Principles of Natural Justice as
envisaged under Sections 18 and 34 (2)(a)(iii) of the Act
of 1996.
(iii) If the award is in conflict with justice or morality
i.e. in conflict with the most basic notions of morality
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and justice.
(iv) If the arbitral award shocks the conscience of the
Court.
(v) An arbitral award can also be set aside on the ground
of patent illegality appearing on the face of the award
which goes to the root of the matter.
39. Thus, in a nutshell we find that an award can be
challenged on the ground provided for under Section 34 (2) of
the Act, 1996. It is a well settled law that where a finding is
based on no evidence or an arbitral tribunal takes into account
something irrelevant to the decision which it arrives at or
ignores vital evidence or arrived at its decision, such decision
would necessarily be perverse. A conspectus of the aforesaid
judgement rendered by the Hon’ble Apex Court would
demonstrate that award can be set aside under Sections 34 and
37 of the Act, 1996, if the award is found to be contrary to:-
(a) Fundamental policy of Indian Law; or
(b) The Interest of India.
(c) Justice or morality.
(d) It is patently illegal.
40. Yet another issue which arises for consideration is
whether the powers of the Court under Sections 34 and 37 of the
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Act, 1996 will include the power to modify an arbitral award
and if the power to modify the award is available, whether such
power can be exercised only where the award is severable and a
part thereof can be modified. The said issues have been
answered in a constitution bench judgment rendered by the
Hon’ble Apex Court in the case of Gayatri Balasamy vs. ISG
Novasoft Technologies Limited reported in (2025) 7 SCC 1, to
the effect that the Court has a limited power under Sections 34
and 37 of the Act, 1996 to modify the arbitral award which may
be exercised under the following circumstances:-
(i) When the award is severable, by severing the
“invalid” portion from the “valid” portion of the award;
(ii) By correcting any clerical, computational or
typographical errors which appear erroneous on the basis
of records.
(iii) By modifying post-award interest in some
circumstances; and
41. It would be apt to reproduce paragraph Nos.32 to 34,
38, 39, 41 to 45, 49, 63, 65 and 87 of the judgment rendered
by the Hon’ble Apex in the case of Gayatri Balasamy (supra),
which reads as under:-
“II. Severability of awards
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32. In the present controversy, the proviso to Section 34(2)(a)
(iv) is particularly relevant. It states that if the decisions on
matters submitted to arbitration can be separated from those
not submitted, only that part of the arbitral award which
contains decisions on matters non-submitted may be set aside.
The proviso, therefore, permits courts to sever the non-
arbitrable portions of an award from arbitrable ones. This
serves a twofold purpose. First, it aligns with Section 16 of
the 1996 Act, which affirms the principle of kompetenz-
kompetenz, that is, the arbitrators' competence to determine
their own jurisdiction. Secondly, it enables the Court to sever
and preserve the “valid” part(s) of the award while setting
aside the “invalid” ones. [ The “validity” and “invalidity”,
as used here, does not refer to legal validity or merits
examination, but validity in terms of the proviso to Section
34(2)(a)(iv) of the 1996 Act.] Indeed, before us, none of the
parties have argued that the Court is not empowered to
undertake such a segregation.
33. We hold that the power conferred under the proviso to
Section 34(2)(a)(iv) is clarificatory in nature. The authority to
sever the “invalid” portion of an arbitral award from the
“valid” portion, while remaining within the narrow confines
of Section 34, is inherent in the Court's jurisdiction when
setting aside an award.
34. To this extent, the doctrine of omne majus continet in se
minus—the greater power includes the lesser—applies
squarely. The authority to set aside an arbitral award
necessarily encompasses the power to set it aside in part,
rather than in its entirety. This interpretation is practical and
pragmatic. It would be incongruous to hold that power to set
aside would only mean power to set aside the award in its
entirety and not in part. A contrary interpretation would not
only be inconsistent with the statutory framework but may
also result in valid determinations being unnecessarily
nullified.
III. Difference between setting aside and modification
38. This distinction lies at the heart of many arguments
canvassed before us. The parties opposing the recognition of
a power of modification of the courts have strenuously
contended that modification and setting aside are distinct and
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sui generis powers. While modification involves altering
specific parts of an award, setting aside does not alter the
award but results in its annulment. Their primary concern is
that recognising a power of modification may invite judicial
interference with the merits of the dispute—something
arguably inconsistent with the framework of the 1996 Act.
39. We agree with this argument, but only to a limited extent.
It is true that modification and setting aside have different
consequences: the former alters the award, while the latter
annuls it. [ The words used in the statute must be interpreted
contextually, taking into account the purpose, scope, and
background of the provision. Many words and expressions
have both narrow and broad meanings and thereby open to
multiple interpretations. Legal interpretation should align
with the object and purpose of the legislation. Therefore, we
may not strictly apply a semantic differentiation while
interpreting the words “modification” or “setting aside”.
Instead, a holistic and purposive interpretation of these words
will be consistent with the intent behind the provision and the
1996 Act. Linguistically and even jurisprudentially, a
distinction can be drawn between the expressions —
“modification”, “partial setting aside”, and “setting aside”
of an arbitral award in its entirety. However, we must note
that the practical effect of partially setting aside an award is
the modification of the award.] However, we do not concur
with the view that recognising any modification power will
inevitably lead to an examination of the merits of the dispute.
It will completely depend on the extent of the modification
powers recognised by us. In the following part of our
Analysis, we outline the contours of this limited power and
explain why, in our view, recognising it will ultimately yield
more just outcomes.
41. To deny courts the authority to modify an award—
particularly when such a denial would impose significant
hardships, escalate costs, and lead to unnecessary delays—
would defeat the raison d'être of arbitration. This concern is
particularly pronounced in India, where applications under
Section 34 and appeals under Section 37 often take years to
resolve.
42. Given this background, if we were to decide that courts
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can only set aside and not modify awards, then the parties
would be compelled to undergo an extra round of arbitration,
adding to the previous four stages: the initial arbitration,
Section 34 (setting aside proceedings), Section 37 (appeal
proceedings), and Article 136 (SLP proceedings). In effect,
this interpretation would force the parties into a new
arbitration process merely to affirm a decision that could
easily be arrived at by the Court. This would render the
arbitration process more cumbersome than even traditional
litigation.
43. Equally, Section 34 limits recourse to courts to an
application for setting aside the award. However, Section 34
does not restrict the range of reliefs that the Court can grant,
while remaining within the contours of the statute. A different
relief can be fashioned as long as it does not violate the
guardrails of the power provided under Section 34. In other
words, the power cannot contradict the essence or language
of Section 34. The Court would not exercise appellate power,
as envisaged by Order 41 of the Code of Civil Procedure,
1908 (hereinafter referred to as “the Code”).
44. We are of the opinion that modification represents a more
limited, nuanced power in comparison to the annulment of an
award, as the latter entails a more severe consequence of the
award being voided in toto. Read in this manner, the limited
and restricted power of severing an award implies a power of
the Court to vary or modify the award. It will be wrong to
argue that silence in the 1996 Act, as projected, should be
read as a complete prohibition.
45. We are thus of the opinion that the Section 34 Court can
apply the doctrine of severability and modify a portion of the
award while retaining the rest. This is subject to parts of the
award being separable, legally and practically, as stipulated
in Part II of our Analysis.
49. Notwithstanding Section 33, we affirm that a Court
reviewing an award under Section 34 possesses the authority
to rectify computational, clerical, or typographical errors, as
well as other manifest errors, provided that such modification
does not necessitate a merits-based evaluation. There are
certain powers inherent to the Court, even when not explicitly
granted by the legislature. The scope of these inherent powers
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depends on the nature of the provision, whether it pertains to
appellate, reference, or limited jurisdiction as in the case of
Section 34. The powers are intrinsically connected as they are
part and parcel of the jurisdiction exercised by the Court.
63. We are unable to accept the view taken in Kinnari Mullick
[Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC
328 : (2018) 5 SCC (Civ) 106] , which insists that an
application or request under Section 34(4) must be made by a
party in writing. The request may be oral. Nevertheless, there
should be a request which is recorded by the Court. We are
also unable to agree that the request must be exercised before
the application under Section 34(1) is decided. Section 37
(Annexure A) permits an appeal against any order setting
aside or refusing to set aside an arbitral award under Section
34. To this extent, the appellate jurisdiction under Section 37
is coterminous with, and as broad as, the jurisdiction of the
Court deciding objections under Section 34. Hence, the
contention that the Tribunal becomes functus officio after the
award is set aside is misplaced. The Section 37 Court still
possesses the power of remand stipulated in Section 34(4). Of
course, the appellate court, while exercising power under
Section 37, should be mindful when the award has been
upheld by the Section 34 Court. But the Section 37 Court still
possesses the jurisdiction to remand the matter to the Arbitral
Tribunal.
65. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.
[Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.,
(2019) 20 SCC 1] , this Court emphasised that the issuance of
a reasoned award is not a mere formality under the 1996 Act.
For an award to be termed “reasoned”, it must meet three
essential yardsticks: it must be proper, intelligible, and
adequate. The purpose behind Section 34(4) is clear: it allows
for an award to become enforceable after granting the
Tribunal an opportunity to cure any defects. This power is
exercisable when the Arbitral Tribunal has failed to give any
reasoning or the award exhibits gaps in reasoning and these
defects can be cured, thereby preventing unnecessary
challenges. The underlying intent is to provide an effective,
expeditious forum for addressing curable defects, which
Section 34(4) facilitates.
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Conclusions
87. Accordingly, the questions of law referred to by Gayatri
Balasamy [Gayatri Balasamy v. ISG Novasoft Technologies
Ltd., 2024 SCC OnLine SC 1681] are answered by stating
that the Court has a limited power under Sections 34 and 37
of the 1996 Act to modify the arbitral award. This limited
power may be exercised under the following circumstances:
87.1. When the award is severable, by severing the “invalid”
portion from the “valid” portion of the award, as held in
Part II of our Analysis;
87.2. By correcting any clerical, computational or
typographical errors which appear erroneous on the face of
the record, as held in Parts IV and V of our Analysis;
87.3. Post-award interest may be modified in some
circumstances as held in Part IX of our Analysis; and/or
87.4. Article 142 of the Constitution applies, albeit, the power
must be exercised with great care and caution and within the
limits of the constitutional power as outlined in Part XII of
our Analysis.”
42. Now coming back to the facts of the present case, we find
that the Ld. sole Arbitrator has by his award dated 17.10.2020,
under serial no. 1, awarded a sum of Rs. 2,06,13,021/- towards
the claim raised by the claimant-Respondent with regard to
transport and handling charges. In this regard, we find from the
records of the arbitral proceedings that an agreement dated
28.01.2014 as also the one dated 10.02.2017 was entered into
between the parties for the district of Khagaria and accordingly,
the claimant-Respondent had submitted a claim of Rs.
2,11,08,521.56/- under the head of balance payment due, as is
apparent from the chart containing the summary of claim of the
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claimant-Respondent for the district-Munger, more particularly
column no. 8 thereof, however beyond the scope of the
agreement, the claimant-Respondent had submitted claim
pertaining to detention charges as well. We find from the arbitral
award dated 17.10.2020, passed by the Ld. Sole Arbitrator that
at internal page no. 11, it has been held that Clause 18 of the
agreement clearly provides that the second party would not be
entitled to claim any compensation for detention of trucks,
hence no compensation is payable to the claimant-Respondent
herein on this head and in fact, a sum of Rs. 1,95,500/- (should
be actually Rs. 1,90,500/-) on the head of detention charges,
pertaining to the bill of month of February, 2017, which can be
found at running page no. 156 of the brief has been held to be
not payable, however it appears that a computational error has
been committed by the Ld. Sole Arbitrator, inasmuch as the
detention charges claimed by the claimant-Respondent in other
bills have not been deducted from the claim of the claimant-
Respondent. A bare perusal of the bills annexed by the claimant-
Respondent in the statement of claim filed before the Ld. Sole
Arbitrator would show that though a sum of Rs. 1,90,500/-
(wrongly mentioned as Rs. 1,95,500/-) has been directed to be
deducted, which can be found at running page no. 156 of the
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brief, however the detention bills raised along with the bills at
running page nos. 156, 168 to 170, 172 to 176 of the brief would
show that the detention charges totals up to a sum of Rs.
24,84,500/-, hence upon deduction of the amount already
deducted by the Ld. Sole Arbitrator, i.e. a sum of Rs. 1,95,500/-,
the balance amount of detention charge to the tune of Rs.
22,89,000/- is required to be deducted from the claim awarded
at serial no. 1 of the award dated 17.10.2020 to the tune of Rs.
2,06,13,021/-. Thus, the award at serial no. 1 is required to be
corrected / modified. Hence, the Ld. Sole Arbitrator ought to
have awarded a sum of Rs. 1,83,24,021/- instead of sum of Rs.
2,06,13,021/-, which in any view of the matter is a
computational error, erroneous on the face of the record, hence
we direct that the amount awarded in favor of the claimant-
Respondent by the Ld. Sole Arbitrator vide award dated
17.10.2020, pertaining to item No.1 at internal page No.14 of
the said award would stand corrected as follows:-
“(i) The claimant-respondent shall be paid an amount of
Rs. 1,83,24,021/- only towards the claim amount.”
43. It is a well-settled law that an Appellate Court cannot re-
appreciate the evidence. In the present case the bills submitted
by the claimant before the Ld. Sole Arbitrator along with the
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statement of claim have been marked as Annexure-6/1 to 6/52,
however the same have not been refuted by the appellants,
inasmuch as they did not file any affidavit of admission / denial
of documents of the claimant-Respondent before the Ld. Sole
Arbitrator, hence all the bills filed by the claimant before the Ld.
Sole Arbitrator would be deemed to have been accepted by the
appellants to be correct except to the extent of deduction of
detention bill from various bills, as aforesaid.
44. Now coming to the issue of compensation, we find that
the Ld. Sole Arbitrator has in an ad hoc manner granted
compensation to the tune of Rs. 25,00,000/-, however without
any evidence or proof to substantiate the said claim having been
led by the claimant-Respondent. In this regard, we find from the
statement of claim filed by the claimant-Respondent before the
Ld. Sole Arbitrator that averments have been made in
paragraphs no. 20 and 21 with regard to loss to the claimant-
Respondent to the tune of Rs. 61,76,000/- on account of non-
extension of the agreement for a period of further two years.
The said paragraphs no. 20 and 21 are reproduced herein
below:-
“20. That the claimant vide his letter dated 04.08.2018
addressed to the Collector cum Chairman District
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Transport Committee, Khagaria with a copy to the
District Manger, Khagaria gave his consent for extension
of period of transportation contract under Clause 14 of
the agreement for further period of two (02) years as the
claimant has successfully discharged his contractual
obligations but for the reasons best known to the
respondent authority they allotted the transportation work
to another transporter namely Vikash Kumar at a higher
rate vide Memo No. 48 Dated 14.01.2019 issued under
the signature of District Manager, B.S.F.C, Khagaria
putting the respondent to wrongful loss. It is stated that
the claimant has a right to get the period of contract
extended for a further period of two years but the
respondents in spite of request by the claimant did not
extend the period of agreement for a further period of
two years which resulted in loss of Rs. 61,76,000/- which
the claimant is entitled to recover the above noted
amount as compensation for the losses suffered by the
claimant. It is further stated that the trucks of the
claimant are idle and the claimant has not been selected
as Transport cum Handling Agent by the B.S.F.C in any
of the district though the claimant has participated in the
tender for the District of Begusarai, Khagaria and
Purnea. The details of calculation of the losses suffered
by the claimant would be submitted subsequently during
the pendency of the arbitral proceeding.
21. That during the subsistence period of agreement of
the claimant i.e up to 09.02.2019, the respondents
appointed another Transport cum Handling Agent on
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15.01.2019 and due to which the scope of work of the
claimant was reduced, trucks hired by the claimant fitted
with GPS remained idle and the claimant has to pay
higher charges for the idle period of the trucks also. The
claimant has paid a sum of Rs. 7,94,500/- as hire charges
for the idle trucks, detail of which are noted in Annexure-
6 to this statement of claims. The claimant is entitled to
recover the aforesaid amount of Rs. 7,94,500/- from the
respondents on account of losses suffered by the claimant
due to breach and disregard of contractual obligations by
the respondents.”
45. In this regard, we may mention here that as per the
records of the arbitral proceedings, it is apparent that the first
agreement was signed in between the parties on 28.1.2014 for a
period of three years for the district-Khagaria and after expiry of
the period of the said contract, a fresh contract was entered into
between the parties for a period of one year on 10.2.2017, as
would be apparent from Clause 14 of the said agreement dated
10.2.2017 and it was stipulated in the said Clause 14 that the
agreement may be extended by mutual consent for a further
period of one year, however no extension was granted to the
claimant-Respondent and now shockingly the claimant-
Respondent is claiming compensation to the tune of Rs.
61,76,000/- on the ground of non-extension of the period of
agreement for a further period of two years although there is no
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material on record to show that any promise was made by the
appellants to mandatorily / compulsorily extend the period of
agreement. Therefore, what was required to be seen by the Ld.
Sole Arbitrator is the terms and conditions of the contract/
agreement and he cannot travel beyond the same while making
the award. We also find from the records that though the
agreement dated 28.1.2014 had come to an end on 27.1.2017
while the agreement dated 10.2.2017 had come to an end on
09.02.2018 but the statement of claim filed by the claimant-
Respondent would show that he had continued to work even
beyond the expiry of the period of the agreement, i.e. 09.2.2018
and has submitted bills every month up to the month of
February, 2019, which have also been allowed by the Ld. Sole
Arbitrator, hence in no view of the matter, it can be said that any
loss was caused to the claimant-Respondent on account of any
default on the part of the appellants. Hence, the award of
compensation to the tune of Rs. 25,00,000/- by the Ld. Sole
Arbitrator vide arbitral award dated 17.10.2020 is patently
illegal on the very face of it and this part of the award is not
only unfair but also unreasonable and shocks the conscience of
this Court, hence is liable to be set aside.
46. It is yet another aspect of the matter that the claimant-
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respondent has also failed to bring on record credible evidence
with regard to the aforesaid issue. There is no proof much less
any evidence whatsoever, on the records of the arbitral
proceedings regarding the claimant-respondent having suffered
any loss or injury, hence the award of compensation to the tune
of Rs.25 lakhs is based on no evidence, thus is outrightly
perverse on this score as well. This aspect of the matter stands
fully covered by the judgement rendered by the Hon’ble Apex
Court in the case of Unibros vs. All India Radio, reported in
2023 SCC Online SC 1366 as also in the case of Batliboi
Environmental Engineers Limited vs. Hindustan Petroleum
Corporation Limited and Another, reported in (2024) 2 SCC
375, wherein the judgement rendered by the Hon’ble High
Court of Bombay in the case of Hindustan Petroleum
Corporation Ltd., Mumbai vs. Batliboi Environmental
Engineers Ltd, Mumbai and Another, reported in (2007) SCC
OnLine BOM 1016, has been upheld.
47. The other issue, which arises for consideration is the
award of interest by the Ld. Sole Arbitrator vide arbitral award
dated 17.10.2020 in the following manner:-
“The claimant-petitioner shall be entitled to simple
interest at the rate of 10 % p.a. from 13.9.2019 till the
date of award and further 18 % interest over awarded
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sum from the date of award till realization over the
awarded amount.”
48. The findings of the Ld. Sole Arbitrator with regard to the
aforesaid aspect of the matter is as follows:-
“The Arbitrator shall simply go by section 31(7) of
Arbitration and Conciliation Act 1996 as amended in
granting the interest upon the Awarded amount.
The Arbitrator also finds that the claimant shall be
entitled to award interest at the rate of 10% per annum
aver the award during the pendency of the proceeding
from 13.09.2019 till the date of the award and shall be
granted 18% interest over the final Award from the date
of the award till realisation.”
49. Thus, we find that the Ld. Sole Arbitrator vide arbitral
award dated 17.10.2020 has awarded interest pendente lite as
also interest from the date of award till realization of the
awarded amount. The law in this regard is no longer res integra,
inasmuch as the Hon’ble Apex Court has repeatedly held that if
the arbitration agreement or the contract itself provides for
interest, the Arbitrator would have the jurisdiction to award
interest, however when the agreement expressly provides that
no interest pendente lite shall be payable on the amount due, the
Arbitrator has no power to award pendente lite interest.
Reference in this connection be had to the judgments rendered
by the Hon’ble Apex Court in the case of Ambica Construction
(supra) and the one rendered in the case of GC Roy (supra). In
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this regard, we would also refer to a judgment rendered by the
Hon’ble Apex Court in the case of Union of India & Ors. vs.
Larsen & Tubro Limited (L&T), reported in 2026 SCC Online
SC 327, para nos. 29, 31, 34, 36, 38, 40, 43, 45, 46, 47, 48, 52,
53, 55, 56, 59, 61 and 62 whereof are reproduced herein below:-
“29. We have heard learned counsel for the parties and
perused the material placed on record. The following
issues are raised for our consideration:—
A. Whether the AT is justified in awarding pre-
award/pendente lite interest, by way of compensation,
while passing the award in favour of the respondent-
claimant, and more particularly in view of Clause
16(3) and Clause 64(5) of GCC.
B. Whether the AT is justified in awarding post award
interest in favour of the respondent-claimant.
C. Whether the Courts below committed any error
while dealing with Issue (A) and Issue (B) referred
hereinabove while exercising the powers under Section
34 and Section 37 of the Act.
31. Clause 16(3) of the GCC reads as under:
“no interest will be payable upon the Earnest Money
and Security Deposit or amounts payable to the
Contractor under the Contract, but Government
Securities deposited in terms of Sub-Clause (1) of this
clause will be payable with interest accrued thereon”.
34. Section 31(7)(a) and 31(7)(b) further clarifies that
the power of the arbitral tribunal to award interest,
which reads as under:—
“31. Form and contents of arbitral award.—
………….
(7) (a) Unless otherwise agreed by the parties, where
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and in so far as an arbitral award is for the payment of
money, the arbitral tribunal may include in the sum for
which the award is made interest, at such rate as it
deems reasonable, on the whole or any part of the
money, for the whole or any part of the period between
the date on which the cause of action arose and the
date on which the award is made.”
(b) A sum directed to be paid by an arbitral award
shall, unless the award otherwise directs, carry interest
at the rate of two per cent. higher than the current rate
of interest prevalent on the date of award, from the date
of award to the date of payment.
Explanation.—The expression “current rate of
interest” shall have the same meaning as assigned to it
under clause (b) of section 2 of the Interest Act, 1978
(14 of 1978).”
36. In the present case, Clause 16(3) of the GCC, as
referred hereinabove, expressly stipulates that no interest
will be payable upon earnest money and security
deposits or amounts payable to the contractor under the
contract.
38. This Court in the decision rendered in the case of
Manraj Enterprises (supra) has considered a similar
submission canvassed on behalf of the party concerned
and thereafter observed and held in para 12.1 as under:
“12.1. It is required to be noted that Clause 16(1) is
with respect to earnest money/security deposit.
However, Clause 16(2) is specifically with respect to
interest payable upon the earnest money or the security
deposit or amounts payable to the contractor under the
contract. The words used in Clause 16(2) is “or”.
Therefore, the expression “amounts payable to the
contractor under the contract” cannot be read in
conjunction with “earnest money deposit” or “security
deposit” by applying the principle of ejusdem generis.
The expression “amounts payable to the contractor
under the contract” has to be read independently and
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disjunctively to earnest money deposit and security
deposit as the word used is “or” and not “and”
between “earnest money deposit”, “security deposit”
and “amounts payable to the contractor under the
contract”. Therefore, the principle of ejusdem generis
is not applicable in the present case.”
40. At this stage, we would also like to refer to the
decision rendered by a three-judge bench of this Court in
Bright Power Projects (India) (P) Ltd. (supra), wherein
in para 10, 11 and 13, it was held as under:
“10. Thus, it had been specifically understood between
the parties that no interest was to be paid on the
earnest money, security deposit and the amount
payable to the contractor under the contract. So far as
payment of interest on government securities, which
had been deposited by the respondent contractor with
the appellant is concerned, it was specifically stated
that the said amount was to be returned to the
contractor along with interest accrued thereon, but so
far as payment of interest on the amount payable to the
contractor under the contract was concerned, there
was a specific term that no interest was to be paid
thereon.
11. When parties to the contract had agreed to the fact
that interest would not be awarded on the amount
payable to the contractor under the contract, in our
opinion, they were bound by their understanding.
Having once agreed that the contractor would not
claim any interest on the amount to be paid under the
contract, he could not have claimed interest either
before a civil court or before an Arbitral Tribunal.
………….
13. Section 31(7) of the Act, by using the words “unless
otherwise agreed by the parties”, categorically
specifies that the arbitrator is bound by the terms of the
contract so far as award of interest from the date of
cause of action to date of the award is concerned.
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Therefore, where the parties had agreed that no interest
shall be payable, the Arbitral Tribunal cannot award
interest.”
43. Now, at this stage, it is pertinent to observe that this
Court, thereafter, in the case of Manraj Enterprises
(supra) had an occasion to consider similar issues
involved in the present matter and had considered all the
aforementioned decisions, including the decisions
rendered in the cases of Bright Power Projects (India)
(P) Ltd. (supra), Raveechee and Company (supra) and
Ambica Construction v. Union of India, (2017) 14 SCC
323 (a three-judge bench judgment of this Court). After
considering the aforesaid decisions as well as several
other decisions referred on the issue, this Court has
observed in para 8 and 11 as under:
“8. After considering various decisions on award of
interest pendente lite and the future interest by the
arbitrator and after discussing the decisions of this
Court in Ambica Construction v. Union of India
[Ambica Construction v. Union of India, (2017) 14
SCC 323 : (2018) 1 SCC (Civ) 257] and Raveechee &
Co. [Raveechee & Co. v. Union of India, (2018) 7 SCC
664 : (2018) 3 SCC (Civ) 711] and other decisions on
the point, this Court has observed in paras 9 to 18 as
under: (Garg Builders [Garg Builders v. BHEL, (2022)
11 SCC 697], SCC paras 9-19)
“9. On the other hand, Mr. Pallav Kumar, learned
counsel for the respondent, submitted that Section
31(7)(a) of the 1996 Act gives paramount importance
to the contract entered into between the parties and
categorically restricts the power of an arbitrator to
award pre-reference and pendente lite interest when the
parties themselves have agreed to the contrary. He
argued that if the contract itself contains a specific
clause which expressly bars the payment of interest,
then it is not open for the arbitrator to grant pendente
lite interest. It was further argued that Ambica
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Construction [Ambica Construction v. Union of India,
(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] is not
applicable to the instant case because it was decided
under the Arbitration Act, 1940 whereas the instant
case falls under the 1996 Act. It was further argued
that Section 3 of the Interest Act confers power on the
court to allow interest in the proceedings for recovery
of any debt or damages or in proceedings in which a
claim for interest in respect of any debt or damages
already paid. However, Section 3(3) of the Interest Act
carves out an exception and recognises the right of the
parties to contract out of the payment of interest
arising out of any debt or damages and sanctifies
contracts which bars the payment of interest arising out
of debt or damages. Therefore, Clause 17 of the
contract is not violative of any the provisions of the
Contract Act, 1872. In light of the arguments advanced,
the learned counsel prays for dismissal of the appeal.
10. We have carefully considered the submissions of the
learned counsel for both the parties made at the Bar.
The law relating to award of pendente lite interest by
arbitrator under the 1996 Act is no longer res integra.
The provisions of the 1996 Act give paramount
importance to the contract entered into between the
parties and categorically restricts the power of an
arbitrator to award pre-reference and pendente lite
interest when the parties themselves have agreed to the
contrary.
11. Section 31(7)(a) of the 1996 Act which deals with
the payment of interest is as under:
‘31.(7)(a) Unless otherwise agreed by the parties,
where and insofar as an arbitral award is for the
payment of money, the Arbitral Tribunal may include in
the sum for which the award is made interest, at such
rate as it deems reasonable, on the whole or any part of
the money, for the whole or any part of the period
between the date on which the cause of action arose
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and the date on which the award is made.’
12. It is clear from the above provision that if the
contract prohibits pre-reference and pendente lite
interest, the arbitrator cannot award interest for the
said period. In the present case, clause barring interest
is very clear and categorical. It uses the expression
“any moneys due to the contractor” by the employer
which includes the amount awarded by the arbitrator.
13. In Sayeed Ahmed & Co. v. State of U.P. [Sayeed
Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 :
(2009) 4 SCC (Civ) 629], this Court has held that a
provision has been made under Section 31(7)(a) of the
1996 Act in relation to the power of the arbitrator to
award interest. As per this section, if the contract bars
payment of interest, the arbitrator cannot award
interest from the date of cause of action till the date of
award.
14. In Sree Kamatchi Amman Constructions v.
Railways [Sree Kamatchi Amman Constructions v.
Railways, (2010) 8 SCC 767 : (2010) 3 SCC (Civ)
575], it was held by this Court that where the parties
had agreed that the interest shall not be payable, the
Arbitral Tribunal cannot award interest between the
date on which the cause of action arose to the date of
the award.
15. BHEL v. Globe Hi-Fabs Ltd. [(2015) 5 SCC 718],
is an identical case where this Court has held as
under : (SCC p. 723, para 16)
‘16. In the present case we noticed that the clause
barring interest is very widely worded. It uses the
words “any amount due to the contractor by the
employer”. In our opinion, these words cannot be read
as ejusdem generis along with the earlier words
“earnest money” or “security deposit”.’
16. In Chittaranjan Maity v. Union of India [ (2017) 9
SCC 611], it was categorically held that if a contract
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prohibits award of interest for pre-award period, the
arbitrator cannot award interest for the said period.
17. Therefore, if the contract contains a specific clause
which expressly bars payment of interest, then it is not
open for the arbitrator to grant pendente lite interest.
The judgment on which reliance was placed by the
learned counsel for the appellant in Ambica
Construction [Ambica Construction v. Union of India,
(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] has no
application to the instant case because Ambica
Construction [Ambica Construction v. Union of India,
(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] was
decided under the Arbitration Act, 1940 whereas the
instant case falls under the 1996 Act. This has been
clarified in Chittaranjan Maity [Chittaranjan Maity v.
Union of India, (2017) 9 SCC 611 : (2017) 4 SCC (Civ)
693] as under: (SCC p. 616, para 16)
‘16. Relying on a decision of this Court in Ambica
Construction v. Union of India [Ambica Construction v.
Union of India, (2017) 14 SCC 323 : (2018) 1 SCC
(Civ) 257], the learned Senior Counsel for the
appellant submits that mere bar to award interest on
the amounts payable under the contract would not be
sufficient to deny payment on pendente lite interest.
Therefore, the arbitrator was justified in awarding the
pendente lite interest. However, it is not clear from
Ambica Construction [(2017) 14 SCC 323] as to
whether it was decided under the Arbitration Act, 1940
(for short “the 1940 Act”) or under the 1996 Act. It has
relied on a judgment of Constitution Bench in
Irrigation Deptt., State of Orissa v. G. C. Roy [(1992) 1
SCC 508]. This judgment was with reference to the
1940 Act. In the 1940 Act, there was no provision
which prohibited the arbitrator from awarding interest
for the pre-reference, pendente lite or post-award
period, whereas the 1996 Act contains a specific
provision which says that if the agreement prohibits
award of interest for the pre-award period, the
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arbitrator cannot award interest for the said period.
Therefore, the decision in Ambica Construction cannot
be made applicable to the instant case.’
18. The decision in Raveechee & Co. [Raveechee &
Co. v. Union of India, (2018) 7 SCC 664] relied on by
the learned counsel for the appellant is again under the
Arbitration Act, 1940 which has no application to the
facts of the present case.
19. Having regard to the above, we are of the view that
the High Court [Garg Builders v. BHEL, 2017 SCC
OnLine Del 12871] was justified in rejecting the claim
of the appellant seeking pendente lite interest on the
award amount.”
……………
11. In the said decision in Bright Power Projects
[Union of India v. Bright Power Projects (India) (P)
Ltd., (2015) 9 SCC 695 : (2015) 4 SCC (Civ) 702], this
Court also considered Section 31(7)(a) of the 1996 Act.
It is specifically observed and held that Section 31(7) of
the 1996 Act, by using the words “unless otherwise
agreed by the parties” categorically specifies that the
arbitrator is bound by the terms of the contract insofar
as award of interest from the date of cause of action to
date of the award is concerned. It is further observed
and held that where the parties had agreed that no
interest shall be payable, the Arbitral Tribunal cannot
award interest. Thus, the aforesaid decision of a three-
Judge Bench of this Court is the answer to the
submission made on behalf of the respondent that
despite the bar under Clause 16(2) which is applicable
to the parties, the Arbitral Tribunal is not bound by the
same. Therefore, the contention raised on behalf of the
respondent that dehors the bar under Clause 16(2), the
Arbitral Tribunal independently and on equitable
ground and/or to do justice can award interest
pendente lite or future interest has no substance and
cannot be accepted. Once the contractor agrees that he
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shall not be entitled to interest on the amounts payable
under the contract, including the interest upon the
earnest money and the security deposit as mentioned in
Clause 16(2) of the agreement/contract between the
parties herein, the arbitrator in the arbitration
proceedings being the creature of the contract has no
power to award interest, contrary to the terms of the
agreement/contract between the parties and contrary to
Clause 16(2) of the agreement/contract in question in
this case.”
45. The provisions of the Act of 1996, including
provisions contained in Section 31(7)(a) give paramount
importance to the contract entered into between the
parties and categorically restrict the power of an
arbitrator to award pre-award/pendente lite interest
when the parties have themselves agreed to the contrary.
Thus, the AT cannot award pre-award/pendente lite
interest, even in the form of compensation, in view of
specific Cl. 16(3) of GCC read with Cl. 64(5) of GCC.
46. At this stage, it is also relevant to observe that the AT
itself acknowledged this prohibition by rejecting Claim
No. 7 seeking pendente lite interest. The relevant
paragraph of the Arbitral Award reads as under:—
“The Interest so claimed is therefore not admissible as
per Section 31(7)(a) of the Act read with Clause 64(5)
of the GCC & Clause 7.35 of SCC of the contract
agreement signed between the two parties. Tribunal did
not therefore consider to award any interest on the
award sum as claimed by the Claimant. Therefore,
Arbitral Tribunal declare Nil Award against this
claim.”
47. With regard to the post-award interest, Section 31(7)
(b) of the Act provides that unless the award otherwise
directs, the sum awarded shall carry interest from the
date of the award till payment. The legislative intent
underlying this provision is twofold: first, to compensate
the successful party for delayed realization of the award,
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and second, to ensure prompt compliance with the award
by the judgment-debtor.
48. Recently, this Court in the case of R.P. Garg (supra),
has observed and held in para 9, 11 and 12 as under:
“9. We are of the opinion that the judgment of High
Court is clearly erroneous. Firstly, the interest granted
by the First Appellate Court only related to post award
period, and therefore, for this period, the agreement
between the parties has no bearing. Section 31(7)(b)
deals with grant of interest for post award period i.e.,
from the date of the award till its realization. The
statutory scheme relating to grant of interest provided
in Section 31(7) creates a distinction between interest
payable before and after the award. So far as the
interest before the passing of the award is concerned, it
is regulated by Section 31(7)(a) of the Act which
provides that the grant of interest shall be subject to the
agreement between the parties. This is evident from the
specific expression at the commencement of the sub-
section which says “unless otherwise agreed by the
parties”.
…………..
11. So far as the entitlement of the post-award interest
is concerned, sub-Section (b) of Section 31(7) provides
that the sum directed to be paid by the Arbitral
Tribunal shall carry interest. The rate of interest can be
provided by the Arbitrator and in default the statutory
prescription will apply. Clause (b) of Section 31(7) is
therefore in contrast with clause (a) and is not subject
to party autonomy. In other words, clause (b) does not
give the parties the right to “contract out” interest for
the post-award period. The expression ‘unless the
award otherwise directs’ in Section 31(7)(b) relates to
rate of interest and not entitlement of interest. The only
distinction made by Section 31(7)(b) is that the rate of
interest granted under the Award is to be given
precedence over the statutorily prescribed rate. The
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assumption of the High Court that payment of the
interest for the post award period is subject to the
contract is a clear error.
12. The clear position of law that granting post-award
interest is not subject to the contract between the parties
was recently affirmed in the decision of this Court in
Morgan Securities & Credits (P) Ltd. v. Videocon
Industries Ltd.,6 wherein the court observed as follows:
“24. The issue before us is whether the phrase “unless
the award otherwise directs” in Section 31(7)(b) of the
Act only provides the arbitrator the discretion to
determine the rate of interest or both the rate of interest
and the “sum” it must be paid against. At this juncture,
it is crucial to note that both clauses (a) and (b) are
qualified. While, clause (a) is qualified by the
arbitration agreement, clause (b) is qualified by the
arbitration award. However, the placement of the
phrases is crucial to their interpretation. The words,
“unless otherwise agreed by the parties” occur at the
beginning of clause (a) qualifying the entire provision.
However, in clause (b), the words, “unless the award
otherwise directs” occur after the words “a sum
directed to be paid by an arbitral award shall” and
before the words “carry interest at the rate of eighteen
per cent”. Thereby, those words only qualify the rate of
post-award interest.
25. Section 31(7)(a) confers a wide discretion upon the
arbitrator in regard to the grant of pre-award interest.
The arbitrator has the discretion to determine the rate
of reasonable interest, the sum on which the interest is
to be paid, that is whether on the whole or any part of
the principal amount, and the period for which
payment of interest is to be made — whether it should
be for the whole or any part of the period between the
date on which the cause of action arose and the date of
the award. When a discretion has been conferred on the
arbitrator in regard to the grant of pre-award interest,
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it would be against the grain of statutory interpretation
to presuppose that the legislative intent was to reduce
the discretionary power of the arbitrator for the grant
of post-award interest under clause (b). Clause (b) only
contemplates a situation where the arbitration award is
silent on post-award interest, in which event the award-
holder is entitled to a post-award interest of eighteen
per cent.”
52. We are of the view that the AT has committed serious
error by awarding pre-award/pendente lite interest qua
Claim Nos. 1, 3 & 6, though AT has observed that the
said amount are awarded by way of compensation,
however, in view of the peculiar clause of GCC as well
as provisions contained in Section 31(7)(a) of the Act of
1996 and the decisions rendered by this Court, the AT
could not have awarded the pre-award/pendente lite
interest.
53. For the above stated reasons, the Commercial Court
and the High Court failed to appreciate that the AT had
awarded pendente lite interest in violation of an express
contractual bar and such failure attracts interference
even within the limited scope of Sections 34 and 37 of the
Act. 55. There is no provision in the GCC which
expressly bars the grant of post-award interest. In the
absence of such an express exclusion, the statutory
mandate under Section 31(7)(b) of the Act must prevail.
56. In RP Garg (supra), in paragraph 11, this Court
reiterated that post-award interest flows as a matter of
law under Section 31(7)(b), unless the parties have
unequivocally agreed to exclude it.
59. In this context, the decision of this Court in Gayatri
Balasamy v. ISG Novasoft Technologies Limited, (2025)
7 SCC 1, is significant. In paragraphs 74 to 78, this
Court has categorically held that courts retain the power
to modify post-award interest under Section 31(7)(b) of
the Act where the facts justify such modification. It has
been clarified that Section 31(7)(b) is a distinct
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legislative creation which prescribes a statutory
standard to guide the determination of post-award
interest and since such interest is inherently future-
oriented, the courts may increase or decrease the rate of
post-award interest where compelling reasons exist. The
Court further observed that when the statute itself
benchmarks a standard, such benchmark must weigh in
the consideration of the rate awarded and that the power
of modification is necessary to avoid unnecessary setting
aside of the entire award merely on the question of
interest.
61. Accordingly, the answer to the issues framed in the
present matter is that:
A. The AT is not justified in awarding pre-
award/pendente lite interest, by way of compensation,
while passing the award in favour of the respondent-
claimant, and more particularly in view of Clause
16(3) and Clause 64(5) of the GCC. The award of such
interest is not in accordance with the agreement, and
liable to be set aside.
B. The AT is justified in awarding post award interest
in favour of the respondent-claimant, however, the rate
of post-award interest is modified from 12% per annum
to 8% per annum from the date of award till
realization.
C. The Courts below committed a serious error while
dealing with Issue (A) and Issue (B) referred
hereinabove while exercising the powers under Section
34 and Section 37 of the Act.
62. In view of the aforesaid discussion, the impugned
judgment dated 25.05.2023 passed by the High Court of
Judicature at Allahabad, the order dated 15.09.2022
passed by the Commercial Court, Jhansi, and the
Arbitral Award dated 25.12.2018, are set aside, to the
extent of the grant of pre-award/pendente lite interest or
amounts in the nature of interest, qua Claim No. 1, 3 and
6. The Arbitral Award dated 25.12.2018 is further
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modified to the extent of the rate of the post-award
interest from 12% per annum to 8% per annum from the
date of award till realization.”
50. It would be apposite to reproduce paragraphs no. 73 and
74 of the Constitution Bench judgment rendered by the Hon’ble
Apex Court in the case of Gayatri Balasamy vs. ISG Novasoft
Technologies Ltd., reported in (2025) 7 SCC 1 herein below:-
“73. The next question that arises is: Do courts possess
the power to declare or modify interest, especially post-
award interest? In respect of pendente lite interest,
Section 31(7)(a)(Annexure A), states that unless
otherwise agreed by the parties, the Arbitral Tribunal
may include in its sum for the award, interest, at such
rate it deems reasonable on whole or part of the money
for whole or part of the period on which the cause of
action arose and the date on which the award is made. In
respect of post-award interest, Section 31(7)(b)
(Annexure A) states that unless an award provides for
interest on a sum directed to be paid by it, the sum will
carry an interest at a 2% higher rate than the current
rate of interest prevalent on the date of the award, from
the date of the award till the date of payment. The
Explanation defines the expression “current rate of
interest”.
74. There can be instances of violation of Section 31(7)
(a), and the pendente lite interest awarded may be
contrary to the contractual provision. We are of the
opinion that, in such cases, the Court while examining
objections under Section 34 of the 1996 Act will have
two options. First is to set aside the rate of interest or
second, recourse may be had to the powers of remand
under Section 34(4).”
51. It would also be gainful to refer to a judgment rendered
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by the Hon’ble Apex Court in the case of PAM Developments
Private Ltd. vs. State of West Bengal & Anr., reported in (2024)
10 SCC 715, paragraphs no. 23, 23.1 to 23.6 whereof are
reproduced herein below:-
“23. The power of the arbitrator to grant pre-reference
interest, pendente lite interest, and post-award interest
under Section 31(7) of the Act is fairly well-settled. The
judicial determinations also highlight the difference in
the position of law under the Arbitration Act, 1940. The
following propositions can be summarised from a survey
of these cases:
23.1. Under the Arbitration Act, 1940, there was no
specific provision that empowered an arbitrator to
grant interest. However, through judicial
pronouncements, this Court has affirmed the power of
the arbitrator to grant pre-reference, pendente lite, and
post-award interest on the rationale that a person who
has been deprived of the use of money to which he is
legitimately entitled has a right to be compensated for
the same. [State of Orissa v. G.C. Roy, (1992) 1 SCC
508, para 43(i). Also see State of Orissa v. N.C.
Budharaj, (2001) 2 SCC 721; Union of India v.
Krafters Engg. & Leasing (P) Ltd., (2011) 7 SCC 279 :
(2011) 3 SCC (Civ) 533] When the agreement does not
prohibit the grant of interest and a party claims
interest, it is presumed that interest is an implied term
of the agreement, and therefore, the arbitrator has the
power to decide the same. [State of Orissa v. G.C. Roy,
(1992) 1 SCC 508, paras 43 (iv) & 44]
23.2. Under the 1940 Act, this Court has adopted a
strict construction of contractual clauses that prohibit
the grant of interest and has held that the arbitrator
has the power to award interest unless there is an
express, specific provision that excludes the jurisdiction
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of the arbitrator [Port of Calcutta v. Engineers-De-
Space-Age, (1996) 1 SCC 516, paras 4 and 5; Madnani
Construction Corpn. (P) Ltd. v. Union of India, (2010)
1 SCC 549 : (2010) 1 SCC (Civ) 168; Tehri Hydro
Development Corpn. Ltd. v. Jai Prakash Associates
Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122,
paras 18-20; Union of India v. Ambica Construction,
(2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36 (First
Ambica Construction Case); Ambica Construction v.
Union of India, (2017) 14 SCC 323 : (2018) 1 SCC
(Civ) 257 (Second Ambica Construction Case);
Raveechee & Co. v. Union of India, (2018) 7 SCC 664 :
(2018) 3 SCC (Civ) 711; Reliance Cellulose Products
Ltd. v. ONGC Ltd., (2018) 9 SCC 266 : (2018) 4 SCC
(Civ) 351] from awarding interest for the dispute in
question [State of U.P. v. Harish Chandra, (1999) 1
SCC 63].
23.3. Under the 1996 Act, the power of the arbitrator to
grant interest is governed by the statutory provision in
Section 31(7). This provision has two parts. Under
clause (a), the arbitrator can award interest for the
period between the date of cause of action to the date
of the award, unless otherwise agreed by the parties.
Clause (b) provides that unless the award directs
otherwise, the sum directed to be paid by an arbitral
award shall carry interest @ 2% higher than the
current rate of interest, from the date of the award to
the date of payment.
23.4. The wording of Section 31(7)(a) marks a
departure from the Arbitration Act, 1940 in two ways :
first, it does not make an explicit distinction between
pre-reference and pendente lite interest as both of them
are provided for under this sub-section; second, it
sanctifies party autonomy and restricts the power to
grant pre-reference and pendente lite interest the
moment the agreement bars payment of interest, even if
it is not a specific bar against the arbitrator. [Sayeed
Ahmed & Co. v. State of U.P., (2009) 12 SCC 26, paras
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14, 23, 24 : (2009) 4 SCC (Civ) 629; Union of India v.
Saraswat Trading Agency, (2009) 16 SCC 504 : (2011)
3 SCC (Civ) 499; Sree Kamatchi Amman Constructions
v. Railways, (2010) 8 SCC 767, para 19 : (2010) 3 SCC
(Civ) 575; Union of India v. Bright Power Projects
(India) (P) Ltd., (2015) 9 SCC 695, para 13 : (2015) 4
SCC (Civ) 702; Reliance Cellulose Products Ltd. v.
ONGC Ltd., (2018) 9 SCC 266, para 24 : (2018) 4 SCC
(Civ) 351; Jaiprakash Associates Ltd. v. Tehri Hydro
Development Corpn. (India) Ltd., (2019) 17 SCC 786,
paras 13-15 : (2020) 3 SCC (Civ) 605; Delhi Airport
Metro Express (P) Ltd. v. DMRC, (2022) 9 SCC 286,
paras 16-20, 24 : (2022) 4 SCC (Civ) 623]
23.5. The power of the arbitrator to award pre-
reference and pendente lite interest is not restricted
when the agreement is silent on whether interest can be
awarded [Jaiprakash Associates Ltd. v. Tehri Hydro
Development Corpn. (India) Ltd., (2019) 17 SCC 786,
para 13.2] or does not contain a specific term that
prohibits the same [Oriental Structural Engineers (P)
Ltd. v. State of Kerala, (2021) 6 SCC 150, paras 15-18:
23.6. While pendente lite interest is a matter of
procedural law, pre-reference interest is governed by
substantive law. [Central Bank of India v. Ravindra,
(2002) 1 SCC 367, para 39 following State of Orissa v.
G.C. Roy, (1992) 1 SCC 508, para 43(v)] Therefore, the
grant of pre-reference interest cannot be sourced solely
in Section 31(7)(a) (which is a procedural law), but
must be based on an agreement between the parties
(express or implied), statutory provision (such as
Section 3 of the Interest Act, 1978), or proof of
mercantile usage [Central Bank of India v. Ravindra,
(2002) 1 SCC 367, para 39; Central Coop. Bank Ltd. v.
S. Kamalaveni Sundaram, (2011) 1 SCC 790, para 13 :
(2011) 1 SCC (Civ) 331] .
52. Thus, we find from the law laid down by the Hon’ble
Apex Court in the aforesaid judgments that the provisions of the
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Act, 1996 including the provisions contained in Section 31(7)(a)
of the Act, 1996 gives paramount importance to the contract
entered into between the parties and categorically restricts the
power of an Arbitrator to pre-award / pendente lite interest when
the parties have themselves agreed to the contrary, hence an
Arbitral Tribunal cannot award pre-award or pendente lite
interest, even under the guise of compensation, where contract
expressly prohibits payment of interest on amounts payable
under the contract, however post-award interest is governed by
Section 31(7)(b) of the Act, 1996 and can be granted unless
expressly barred.
53. Now coming back to the present case, we find that Clause
12 of the agreements dated 28.01.2014 and 10.02.2017
stipulate- “no interest shall be payable to the second party for
unavoidable delay in the payment”. Therefore, it is amply clear
that the agreements entered into between the parties expressly
prohibits payment of interest on amounts payable under the
contract / agreement, hence applying the principles laid down by
the Hon’ble Apex Court in the aforesaid cases, we hold that the
Ld. Sole Arbitrator was not justified in awarding interest
pendente lite @ 10 % per annum from the date of start of the
arbitral proceedings i.e. 13.09.2019 till the date of award, hence
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is liable to be set aside. Moreover, neither any pleading has been
made by the claimant-Respondent nor any evidence has been
brought on record to demonstrate the factum regarding
unavoidable/ avoidable delay in the payments. However, award
of interest @ 18 % over the awarded sum from the date of
award till realization of the awarded amount being covered by
the provision contained in Section 31(7)(b) of the Act, 1996
does not require any interference.
54. Having regard to the facts and circumstances of the case
discussed hereinabove in the preceding paragraphs and for the
foregoing reasons, the arbitral award dated 17.10.2020, passed
by the Ld. Sole Arbitrator as also the impugned judgment dated
25.7.2025, passed by the Ld. Principal District Judge, Patna is
corrected/modified/set aside in terms of this judgment as
follows:-
“(i) The amount of Rs. 2,06,13,021/-, awarded in favor of
the claimant-Respondent by the Ld. Sole Arbitrator,
pertaining to item No.1 at internal page No.14 of the
award dated 17.10.2020 shall stand corrected / modified
to a sum of Rs. 1,83,24,021/- towards the claimed
amount. Accordingly, the finding of the Ld. Principal
District Judge, Patna in the impugned judgment dated
25.7.2025 to the said effect shall also stands corrected /
modified.
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(ii). The award of the Ld. Sole Arbitrator at serial no. 2 at
internal page No.15 of the award dated 17.10.2020,
holding the claimant-Respondent entitled to
compensation of Rs. 25,00,000/- is set aside. Accordingly,
the impugned judgment dated 25.7.2025, passed by the
Ld. Principal District Judge, Patna, upholding this portion
of the award is also set aside.
(iii). The award of the Ld. Sole Arbitrator at serial no. 3 at
internal page No.15 of the award dated 17.10.2020
regarding grant of simple interest @ 10 % per annum
from 13.9.2019 till the date of award is set aside, however
award of interest @ 18 % over the awarded amount from
the date of award till realization of the awarded amount is
upheld. Accordingly, the impugned judgment dated
25.7.2025, passed by the Ld. Principal District Judge,
Patna, upholding this part of the award to the extent of
grant of simple interest @ 10 % per annum from
13.9.2019 till the date of award is also set aside.
55. In view of the aforesaid discussion, the award dated
17.10.2020, passed by the Ld. Sole Arbitrator and the impugned
judgment dated 25.7.2025, passed by the Ld. Court of Principal
District Judge, Patna are corrected/modified/set aside to the
above extent.
56. Accordingly, the present appeal is partly allowed to the
aforesaid extent.
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COMMERCIAL APPEAL No. 13 of 2025
57. The present appeal has been filed by the appellants under
Section 13 (1A) of the Act, 2015 read with Section 37 of the
Act, 1996 against the order dated 31.07.2025, passed by the
learned Principal District Judge, Patna (hereinafter referred to as
the “learned PDJ, Patna”) in Execution Case No. 111 of 2021.
58. Shorn of the unnecessary details, it would suffice to state
here that the claimant-respondent had instituted execution
proceedings by filing the aforesaid Execution Case No. 111 of
2021 under Section 36 of the Act, 1996 for execution of Arbitral
award dated 17.10.2020, passed by the learned Sole Arbitrator,
Patna in Arbitration Case No.5 of 2019. The appellants had filed
rejoinder to the said execution petition raising various
objections and stating therein that the aforesaid award passed by
the learned Sole Arbitrator has been challenged under Section
34 of the Act, 1996 by filing Miscellaneous (Arbitration) Case
No.01 of 2021, hence the Execution Case be listed after disposal
of the said miscellaneous case filed by the appellants.
59. It appears that the learned PDJ, Patna by the impugned
order dated 31.07.2025, passed in Execution Case No. 111 of
2021, had on a petition filed by the claimant-respondent
supported by an affidavit dated 06.05.2025, attached the bank
Patna High Court COMMERCIAL APP No.10 of 2025 dt.23-05-2026
103/104
accounts of the appellants and had directed the Office to issue
warrant of attachment in respect of the bank accounts mentioned
in the said order dated 31.07.2025, in accordance with due
process of law.
60. The Ld. Counsel for the claimant-respondent has further
pointed out that subsequently, the learned PDJ, Patna has passed
an order dated 26.11.2025 in Execution Case No. 111 of 2021
whereby and whereunder the petition filed by the claimant-
respondent herein on 26.11.2025 has been allowed and the
authorities of the Corporation Bank, Boring Canal Road Branch,
Patna have been directed to effect transfer of a sum of Rs.
4,93,16,819/- from the bank account standing in the name of the
award debtor, maintained at the said branch to the bank account
of the claimant-respondent maintained at Indian Bank, Bagwara
Branch, Bihar, whereafter the matter had been directed to be
listed on 11.12.2025.
61. Thus, it is submitted by the Ld. Counsel for the claimant-
respondent that the present petition has been rendered
infructuous on account of passing of the subsequent order dated
26.11.2025 by the learned PDJ, Patna in Execution Case No.
111 of 2021, which has not yet been challenged by the
appellants.
Patna High Court COMMERCIAL APP No.10 of 2025 dt.23-05-2026
104/104
62. Having regard to the facts and circumstances of the case
and without going into the merits of the present appeal, we find
that since the award dated 17.10.2020 passed by the learned
Arbitrator, in Arbitration Case No.5 of 2019 as also the
judgment dated 25.07.2025 passed by the learned PDJ, Patna in
Misc. (Arbitration) Case No.01 of 2021, under Section 34 of the
Act, 1996, dismissing the appeal filed by the appellants have
now been corrected/modified/set aside by the aforesaid
judgment being passed today in the connected Commercial
Appeal No.10 of 2025, we are of the view that the present
appeal has been rendered infructuous, as such the parties would
be well advised to approach the Execution Court, especially in
view of the fact that the execution proceedings are still pending.
63. Accordingly, the present appeal stands disposed of.
(Mohit Kumar Shah, J)
I agree.
Arun Kumar Jha, J:
( Arun Kumar Jha, J)
Ajay/Gaurav
AFR/NAFR AFR
CAV DATE 15.05.2026
Uploading Date 23.05.2026
Transmission Date NA
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