Patna High Court
The Bihar State Food and Civil Supplies Corporation Ltd.versusRam Uday Singh
- Decided
- Disposal
- PARTLY ALLOWED (DISPOSAL)
Holding
The court held that the arbitrator exceeded his jurisdiction by awarding sums for Madhubani and Bhagalpur and by granting interest prohibited by the contract, so those portions of the award are set aside, while the award for Munger and post‑award interest are upheld.
Summary
The Bihar State Food and Civil Supplies Corporation (BSFC) entered into a 2014 transport‑handling agreement with Ram Uday Singh for the Munger district, later extending the work to Madhubani and Bhagalpur. After disputes over GPS tracking and alleged contract breaches, BSFC cancelled the agreement in 2017; the cancellation was partially quashed, and the parties resorted to arbitration. The sole arbitrator awarded Rs 1,22,01,098 for claims across all three districts, Rs 25 lakhs compensation under Section 54 of the Indian Contract Act, and both pre‑award (10 %) and post‑award (18 %) interest, despite the contract’s prohibition on interest. BSFC challenged the award under Section 34 of the Arbitration Act, and the Principal District Judge upheld it. On appeal under Section 13(1A) of the Commercial Courts Act and Section 37 of the Arbitration Act, the High Court held the arbitrator had exceeded his jurisdiction by granting sums for Madhubani and Bhagalpur and by awarding interest contrary to the agreement, setting aside those portions while confirming the award for Munger and post‑award interest. The appeal was partly allowed, modifying the award accordingly.
Issues considered
- The arbitrator’s jurisdiction to award amounts for districts not covered by the 2014/2017 agreements.
- Whether the award of pre‑award (pendente lite) interest violated the contractual bar on interest.
- The applicability of Section 34(2‑A) and the public‑policy ground to set aside the award.
- The power of the court under Section 37 to modify or set aside an arbitral award.
- The validity of the compensation award under Section 54 of the Indian Contract Act.
Legislation cited
- Arbitration and Conciliation Act, 1996 — s. 11(6), 18, 24, 28, 31, 34, 34(2‑A), 34(2)(b)(ii), 39
- Code of Civil Procedure, 1908 — s. 41
- Commercial Courts Act, 2015 — s. 13(1A), 37
- Indian Contract Act, 1872 — s. 54
- Interest Act, 1978 — s. 3
Subjects
- Arbitration
- Section 34
- Section 37
- Award modification
- Jurisdiction
- Interest
- Compensation
- Contract termination
- Public policy
- Patent illegality
Judgment
IN THE HIGH COURT OF JUDICATURE AT PATNA
COMMERCIAL APPEAL No.9 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, Road No.2, Patna-800001.
3. The District Manager, The Bihar State Food and Civil Supplies Corporation
Ltd., Munger.
... ... Appellant/s
Versus
Ram Uday Singh Son of Late Ram Pratap Singh, Resident of Paspura, P.O.
Paspura, P.S. Muffasil, District- Begusarai.
... ... Respondent/s
======================================================
with
COMMERCIAL APPEAL No. 15 of 2025
======================================================
1. The Bihar State Food and Civil Supplies Corporation Ltd. Sone Bhawan, 5th
Floor, Birchand Patel Path, Patna, at present Khadya Bhawan, R. Block,
Patna.
2. The Managing Director, The Bihar State Food and Civil Supplies
Corporation Ltd., Sone Bhawan, 5th Floor, Birchand Patel Path, Patna, at
present Khadya Bhawan, R. Block, Patna.
3. The District Manager, The Bihar State Food and Civil Supplies Corporation,
Munger, District- Munger.
... ... Appellant/s
Versus
Ram Uday Singh Son of Late Ram Pratap Singh Resident of Paspura, P.O.-
Paspura, P.S.- Muffasil, District- Begusarai.
... ... Respondent/s
======================================================
Appearance :
(In COMMERCIAL APPEAL No. 9 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. 15 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.9 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. 9 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. 25 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 6.8.2014, 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-Munger 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-
Munger. 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 2014 to
2017. A bare perusal of the statement of claim filed by the
claimant before the learned Sole Arbitrator would show that the
claimant-respondent was again allotted work of Transport-cum-
handling Agent for the District Munger for a further period of
two years from the date of execution of the agreement i.e.
06.08.2017, however some dispute arose with regard to the
computer of the headquarters being not been able to record the
movements of trucks from Godown, Tarapur to TDPS Godown,
Tarapur through GPS, leading to issuance of a show cause dated
08.08.2017 by the Appellants, which was replied to by the
claimant-respondent vide letter dated 09.08.2017, whereafter
another show cause dated 16.08.2017 was issued by the Deputy
Chief, Transportation Corporation Headquarters, Patna, as to
why the agreement be not cancelled and the claimant be not put
in the blacklist as also the security deposit and the bank
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guarantee be not forfeited, which was also replied to by the
claimant-respondent vide letter dated 24.08.2017, nonetheless
the Managing Director, BSFC, Patna had passed a reasoned
order dated 11.09.2017 cancelling the agreement entered into
with the claimant as also blacklisting the claimant-respondent
for three years. The said order dated 11.09.2017 was though
challenged by the petitioner by filing a writ petition bearing
CWJC No. 3088 of 2019, however a learned Single Judge of
this Court had though, by an order dated 06.05.2019 quashed
the said order dated 11.09.2017, to the extent the same relates to
blacklisting of the claimant-respondent, but as far as the order of
cancellation of contract and recovery of the bills from the
petitioner are concerned, the counsel for the petitioner had
sought to seek remedy in terms of arbitration clause.
3. The claimant-Respondent had then sent a notice to the
appellants on 01.04.2019 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. 62 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
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of the agreement dated 06.08.2014 and 06.08.2017. The Hon’ble
Chief Justice of this Court by an order dated 06.09.2019, passed
in Request Case No. 62 of 2019 and other analogous cases, in
exercise of 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. 62 of 2019 and
other analogous cases, leading to registration of Arbitration
Case No. 04 of 2019, whereafter the claimant-Respondent had
filed a detailed statement of claim on 11.10.2019, raising a
claim of a sum of Rs. 2,61,23,216.67. A bare perusal of the
statement of claim filed by the claimant-Respondent before the
Ld. Sole Arbitrator on 11.10.2019 would show that as far as the
claim for the District-Munger is concerned, the same totals up to
a sum of Rs. 51,14,605/- while that for the district-Madhubani
totals up to a sum of Rs. 56,17,210/- and that for Bhagalpur
totals up to a sum of Rs. 14,69,283/-.
5. The appellants had then filed statement of defence on
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13.1.2020, inter alia 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 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 and moreover, no agreement has
been annexed for the Districts-Madhubani and Bhagalpur and
only calculation chart has been annexed to the claim petition
without any supporting document, hence the same is not
maintainable. 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, photo copies of several bills
have been annexed at running Pg. Nos. 192 to 231 of the brief
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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 14.6.2020, wherein
it has been stated that a claim to the tune of Rs. 54,65,252/- has
already been raised on account of illegal and unjustified
premature termination of the contract, apart from having raised
a claim of estimated loss for the period of 24 months to the tune
of Rs. 54,65,252/- on the basis that the Charted Accountant has
issued a certificate that the taxable income of the claimant-
Respondent for the financial year 2016-2017 was Rs.
27,32,626/-, 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. However, neither in the claim petition nor in the
rejoinder affidavit, the claimant-Respondent has stated anything
about execution of agreement for carrying out transportation
work for the districts of Madhubani and Bhagalpur.
7. It may be relevant to mention here that a bare perusal of
the statement of claim filed by the claimant-Respondent on
11.10.2019 before the Ld. Sole Arbitrator would show that the
claimant-Respondent has stated therein that the District
Manager, Bihar State Food and Civil Supplies Corporation Ltd.
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(hereinafter referred to as “the BSFC”) Munger, vide letter dated
20.2.2016 had written to the Managing Director, Corporation
Headquarter, Patna that approval has been granted to the
claimant-Respondent for carrying out the transport work of
food-grains in the district of Bhagalpur and vide letter dated
24.2.2016, the District Manager, BSFC, Bhagalpur had directed
the claimant-Respondent to immediately make available a list of
vehicles installed with GPS in his office so that office order can
be issued for transportation of food-grains, apart from the
claimant-Respondent being given responsibility of transport-
cum-handling agent for the district of Madhubani vide memo
dated 12.8.2016, issued by the Transport-cum-handling agent,
Bhagalpur. Nonetheless, no reference has been made to any
agreement entered into between the Appellants and the
claimant-Respondent regarding the transportation work of
Bhagalpur and Madhubani, much less any such agreement
having been produced on the records of the arbitral proceedings,
except the agreement dated 06.08.2014, which admittedly
pertains to the district-Munger.
8. The learned Sole Arbitrator had then framed the following
issues for consideration:-
“(i) Whether there is any cause of action for the present
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proceeding.
(ii) Whether arbitration proceeding in respect of the
disputed claimed is barred by limitation.
(iii) Whether the deductions from several bills of the
petitioner/claimant by the respondents are valid and
justified even without giving any opportunity to show
cause in this regard.
(iv) Whether the termination of contract is according to
the terms of contract.
(v) Whether the petitioner/claimant is entitled to the
claims as per statement of claims.
(vi) What relief or reliefs the petitioner is entitled?”
9. 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 entitled to
1,22,01,098/- (One crore twenty two lakhs one thousand
and ninety eight rupees) only towards claim amount.
Note:- The breakup of the said amount is as follows:-
Sl. No. District Amount
1. Munger Rs. 51,14,605.00
2. Madhubani Rs. 56, 17,210.00
3. Bhagalpur Rs. 14,69,283.00
Total Amount Rs. 1,22,01,098.00
One crore twenty-two lakhs one thousand ninety-
eight rupees only.
2. The claimant petitioner shall be entitled to
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compensation amount of Rs. 25,00,000/- (Twenty five
lakhs) only under section 54 of 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.
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.”
10. The aforesaid award dated 17.10.2020, passed by the
learned Sole Arbitrator was challenged by the appellants before
the learned Court of Principal District Judge, Patna by filing a
petition on 18.01.2021 under Section 34 (2) & (2A) of the Act,
1996, which was numbered as Miscellaneous (Arbitration) Case
No. 25 of 2021 (arising out of award dated 17.10.2020 passed in
Arbitration Case No. 4 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:-
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(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
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.
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(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 herein had filed reply on
14.02.2022 to the aforesaid Misc. (Arbitration) Case No.25 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 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
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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. 25 of 2021 and
had stated that in pursuance to the agreements dated 06.08.2014
and 06.08.2017 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 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 in the reply filed by 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
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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 herein before the learned Sole
Arbitrator, hence all the documents filed by the claimant-
respondent herein would be deemed to have been accepted. It
has also been stated that the claims have only been raised with
regard to the district Munger for which the claimant-respondent
was appointed as Transporter-cum-Handing Agent vide
agreement dated 06.08.2014. 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 per pointed 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 under
Section 34 of the Act, 1996, however the facts cannot be re-
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appreciated by the learned Court at the appellate stage.
13. In paragraph No.17 of the reply filed in Misc.
(Arbitration) Case No. 25 of 2021 the claimant-respondent
herein has specifically stated that the claims have been raised
only in connection with one revenue district for which the
defendant was appointed as Transporter-cum-Handling Agent
vide agreement dated 06.08.2014, hence any allegation by the
appellants to the effect that claims over and above the
agreement in question pertaining to other districts have been
raised by the claimant-respondent herein is denied.
14. The claimant-respondent herein has also stated that the
statement of claim filed by the claimant-respondent herein
before the learned Sole Arbitrator was duly supported by
relevant documents which had 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 the same were also produced
before the learned Sole Arbitrator.
15. The learned court of Principal District Judge, Patna
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(hereinafter referred to as the ‘PDJ, Patna’) by a judgment dated
25.07.2025 passed in Miscellaneous (Arbitration) Case No.25 of
2021 of 2020 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 in his award dated 17.10.2020 has correctly
recorded that no breach of contractual obligation was
committed by the claimant-respondent, rendering the
deductions from the bills not justified. The learned PDJ,
Patna has come to a finding that since the appellants had
themselves conducted inquiry wherein it was
categorically concluded that there were neither any
shortage of food grains nor any actual financial loss
sustained by the appellants and moreover, upon careful
perusal of the letters issued by the Department of
Finance, BSFC as well as its Managing Director, it is
evident that the learned Sole Arbitrator has rightly held
that no breach of contractual terms was committed by the
claimant-respondent, consequentially the termination of
the agreement by the appellants was devoid of justifiable
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grounds, hence the learned Sole Arbitrator has
appropriately adjudicated that the deduction of a sum of
Rs.51,14,605/- pertaining to the district of Munger was
wrongful and unlawful and has rightly awarded the said
amount in favour of the claimant-respondent.
(ii) Though the learned PDJ, Patna, in paragraph No.43 of
the judgment dated 25.07.2025 has considered the main
issue urged by the appellants herein that the learned Sole
Arbitrator has committed an error in rendering the arbitral
award dated 17.10.2020 inasmuch as he has acted beyond
the scope of his jurisdiction, since the claims raised by the
claimant-respondent before the learned Sole Arbitrator
pertains to the district of Munger, nonetheless the learned
Sole Arbitrator has adjudicated and allowed claims
related to the districts-Madhubani and Bhagalpur,
rendering the award liable to be set aside, however in
paragraph No.47 of the aforesaid judgment dated
25.07.2025, the learned PDJ, Patna has held that owing to
the exigent circumstances, the appellants entrusted the
claimant-respondent with additional responsibilities
pertaining to the transportation and handling of food
grains for the revenue districts of Madhubani and
Bhagalpur. The learned PDJ has held, in this regard, that
all claims were made by the claimant-respondent solely
under a single agreement whereby the claimant-
respondent herein was appointed as the Transporter-cum-
Handling Agent for the relevant revenue district and
though the agreement was executed only in respect of
revenue district of Munger, owing to exigent
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circumstances, the claimant-respondent herein was
entrusted with additional responsibilities as Transporter-
cum-Handling Agent for the revenue districts of
Bhagalpur and Madhubani, nonetheless these facts have
not been denied by the appellants in the statement of
defence/reply filed before the learned Sole Arbitrator,
hence they have failed to raise such objections at the
appropriate stage of the arbitral proceedings, thus they are
now precluded from doing so, hence the learned Sole
Arbitrator has rightly adjudicated and awarded amounts
of Rs.56,17,210/- and Rs.14,69,283/- for the districts of
Madhubani and Bhagalpur respectively which has been
deducted by the appellants herein.
(iii) 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 herein 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 and justifiably awarded
compensation of Rs. 25 lakhs in favour of the claimant-
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respondent herein.
(iv) 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
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.
(v) 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,
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1996.
(vi) 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.
(vii) 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
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.
16. 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:
17. The learned counsel for the appellants has submitted that
the Ld. Sole Arbitrator has passed the award dated 17.10.2020
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only on the basis of the calculation chart produced by the
claimant-Respondent without any supporting documents and the
Ld. Principal District Judge, 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 witnesses in support of his claim. It is also
submitted that the 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
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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.”
18. The learned counsel for the appellants has submitted that
the reference made to the Ld. Sole Arbitrator by an order dated
6.9.2019, passed in Request Case No. 62 of 2019 and other
analogous cases was in reference to an agreement dated
6.8.2014, pertaining to the district-Munger, however the Ld.
Sole Arbitrator has committed a patent illegality while rendering
the arbitral award dated 17.10.2020, inasmuch as he has acted
beyond the scope of his jurisdiction and travelled beyond the
parameters of the agreement dated 6.8.2014 entered into
between the parties for the district-Munger by awarding the
claims raised by the claimant-Respondent pertaining to the
transporting and handling bills for the district-Madhubani and
Bhagalpur to the tune of Rs. 56,17,210/- and Rs. 14,69,283/-
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respectively. Thus, it has been submitted that the Ld. Principal
District Judge, Patna has committed a grave error while
delivering the impugned judgment dated 25.7.2025 by holding
in paragraph no. 47 thereof that owing to the exigent
circumstances, the appellants entrusted the claimant-Respondent
herein with additional responsibilities, pertaining to the
transportation and handling of food-grains for the revenue
districts of Madhubani and Bhagalpur and since this fact has not
been denied by the appellants in the statement of defence / reply
filed before the Ld. Sole Arbitrator, consequently they have
failed to raise such objections at the appropriate stage of the
arbitral proceedings, thus they are now precluded from doing so,
hence the Ld. Principal District Judge, Patna has come to the
conclusion that the Ld. Sole Arbitrator has rightly allowed the
claim to the tune of Rs. 56,17,210/- and Rs. 14,69,283/- for the
districts Madhubani and Bhagalpur respectively, by failing to
consider the fact that the Ld. Sole Arbitrator had to make the
award within the parameters of the agreement dated 6.8.2014
entered into between the parties for the district Munger.
19. 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
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17.10.2020 and 25.7.2025 respectively, have failed to consider
that several claims raised by the claimant-Respondent are de
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 grant of interest and
compensation. It is further submitted that the Ld. Sole Arbitrator
has though been appointed to consider the disputes arising out
of the agreement dated 06.08.2014 for the district-Munger,
however he has considered and allowed several claims based on
different contract and agreement. 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 mandate of the provisions contained
under Section 34(2)(a), (b) and (2)(A) of the Act, 1996.
20. 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
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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
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.
21. 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
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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
arbitrator has no power to award pendente lite interest. It would
be apt to reproduce paragraph nos. 12, 14 and 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
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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
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
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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
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
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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
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
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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.”
22. 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.,
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
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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
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
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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
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
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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
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
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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
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
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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
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
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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
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
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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
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
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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
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
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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
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
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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
(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.”
23. 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:
24. Per contra, the Ld. counsel for the claimant-Respondent
has submitted that it is wrong to say that no supporting
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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
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/annexures/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.
25. 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
06.08.2014, pertaining to the district-Munger. 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.
26. The learned counsel for the claimant-Respondent has next
submitted that Section 34 of the Act, 1996 provides for certain
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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
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
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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
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
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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
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
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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
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.”
27. 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
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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,
(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
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Section 34(2)(b)(ii), but such interference does not
entail a review of the merits of the dispute, and is
limited to situations where the findings of the arbitrator
are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the
illegality is not trivial but goes to the root of the matter.
An arbitral award may not be interfered with if the
view taken by the arbitrator is a possible view based on
facts. (See Associate Builders v. DDA [Associate
Builders v. DDA, (2015) 3 SCC 49] 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,
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and must only ascertain that the exercise of power by
the Court under Section 34 has not exceeded the scope
of the provision. Thus, it is evident that in case an
arbitral award has been confirmed by the Court under
Section 34 and by the Court in an appeal under Section
37, this Court must be extremely cautious and slow to
disturb such concurrent findings.”
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
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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
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
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position, that in an application under Section 34, the
Court is not expected to act as an appellate court and
reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34
of the Arbitration Act. The interference would be so
warranted when the award is in violation of “public
policy of India”, which has been held to mean “the
fundamental policy of Indian law”. A judicial
intervention on account of interfering on the merits of
the award would not be permissible. However, the
principles of natural justice as contained in Sections 18
and 34(2)(a)(iii) of the Arbitration Act would continue
to be the grounds of challenge of an award. The ground
for interference on the basis that the award is in
conflict with justice or morality is now to be
understood as a conflict with the “most basic notions of
morality or justice”. It is only such arbitral awards that
shock the conscience of the Court, that can be set aside
on the said ground. An award would be set aside on the
ground of patent illegality appearing on the face of the
award and as such, which goes to the roots of the
matter. However, an illegality with regard to a mere
erroneous application of law would not be a ground for
interference. Equally, reappreciation of evidence would
not be permissible on the ground of patent illegality
appearing on the face of the award.
41. A decision which is perverse, though would not be
a ground for challenge under “public policy of India”,
would certainly amount to a patent illegality appearing
on the face of the award. However, a finding based on
no evidence at all or an award which ignores vital
evidence in arriving at its decision would be perverse
and liable to be set aside on the ground of patent
illegality.
42. To understand the test of perversity, it will also be
appropriate to refer to paras 31 and 32 from the
judgment of this Court in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49], which read thus:
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(SCC pp. 75-76)
‘31. The third juristic principle is that a decision
which is perverse or so irrational that no reasonable
person would have arrived at the same is important
and requires some degree of explanation. It is settled
law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
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)
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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
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
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judicial pronouncements of this Court would become a
dead letter if arbitral awards are set aside by
categorising them as perverse or patently illegal
without appreciating the contours of the said
expressions.
29. Patent illegality should be illegality which goes to
the root of the matter. In other words, every error of
law committed by the Arbitral Tribunal would not fall
within the expression “patent illegality”. Likewise,
erroneous application of law cannot be categorised as
patent illegality. In addition, contravention of law not
linked to public policy or public interest is beyond the
scope of the expression “patent illegality”. What is
prohibited is for Courts to reappreciate evidence to
conclude that the award suffers from patent illegality
appearing on the face of the award, as Courts do not sit
in appeal against the arbitral award. The permissible
grounds for interference with a domestic award under
Section 34(2-A) on the ground of patent illegality is
when the arbitrator takes a view which is not even a
possible one, or interprets a clause in the contract in
such a manner which no fair-minded or reasonable
person would, or if the arbitrator commits an error of
jurisdiction by wandering outside the contract and
dealing with matters not allotted to them. An arbitral
award stating no reasons for its findings would make
itself susceptible to challenge on this account. The
conclusions of the arbitrator which are based on no
evidence or have been arrived at by ignoring vital
evidence are perverse and can be set aside on the
ground of patent illegality. Also, consideration of
documents which are not supplied to the other party is
a facet of perversity falling within the expression
“patent illegality”.
30. Section 34(2)(b) refers to the other grounds on
which a court can set aside an arbitral award. If a
dispute which is not capable of settlement by
arbitration is the subject-matter of the award or if the
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award is in conflict with public policy of India, the
award is liable to be set aside. Explanation (1),
amended by the 2015 Amendment Act, clarified the
expression “public policy of India” and its
connotations for the purposes of reviewing arbitral
awards. It has been made clear that an award would be
in conflict with public policy of India only when it is
induced or affected by fraud or corruption or is in
violation of Section 75 or Section 81 of the 1996 Act, if
it is in contravention with the fundamental policy of
Indian law or if it is in conflict with the most basic
notions of morality or justice.
***
42. The Division Bench referred to various factors
leading to the termination notice, to conclude that the
award shocks the conscience of the Court. The
discussion in SCC OnLine Del para 103 of the
impugned judgment [DMRC v. Delhi Airport Metro
Express (P) Ltd., 2019 SCC OnLine Del 6562] amounts
to appreciation or 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.
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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
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
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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
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,
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we may examine the rival submissions of the parties in
relation to the matters dealt with by the High Court.”
28. Thus, it is submitted by the learned counsel for the
claimant-Respondent that the law is now well-settled, inasmuch
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
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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
in (2026) SCC Online SC 33.
Determination:
29. 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. 25 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.
30. Shorn of unnecessary details, it would suffice to state that
an agreement dated 06.08.2014 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 Munger 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
06.08.2014 to 05.08.2017. A bare perusal of the statement of
claim filed by the claimant before the learned Sole Arbitrator
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would show that the claimant-respondent was again allotted
work of Transport-cum-handling Agent for the District Munger
for a further period of two years from the date of execution of
the agreement i.e. 06.08.2017, however some dispute arose with
regard to the computer of the headquarters being not been able
to record the movements of trucks from Godown, Tarapur to
TDPS Godown, Tarapur through GPS leading to issuance of a
show cause dated 08.08.2017 which was replied to by the
claimant-respondent vide letter dated 09.08.2017, whereafter yet
another show cause was issued by the Deputy Chief,
Transportation Corporation Headquarters, Patna, Dated
16.08.2017, as to why the agreement be not cancelled and the
claimant be not put in the blacklist as also the security deposit
and the bank guarantee be not forfeited, which was also replied
to by the claimant-respondent vide letter dated 24.08.2017,
however the Managing Director, BSFC, Patna had passed a
reasoned order dated 11.09.2017 cancelling the agreement
entered into with the claimant as also blacklisting the claimant-
respondent for three years. The said order dated 11.09.2017 was
though challenged by the petitioner by filing a writ petition
bearing CWJC No. 3088 of 2019, however a learned Single
Judge of this Court had though, by an order dated 06.05.2019
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quashed the said order dated 11.09.2017, to the extent the same
relates to blacklisting of the claimant-respondent, but as far as
the order of cancellation of contract and recovery of the bills
from the petitioner are concerned, the counsel for the petitioner
had sought to seek remedy in terms of arbitration clause.
31. The claimant-respondent had then sent a notice to the
appellants on 01.04.2019 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 the claimant-respondent herein filing a request case
before this Court bearing Request Case No. 62 of 2019 under
Section 11(6) of the Act, 1996 for appointment of an
independent and impartial arbitrator in lieu of the provisions in
the agreement in question whereupon the Learned Chief Justice
of this Court by an order dated 06.09.2019 passed in Request
Case No. 62 of 2019 and other analogous cases, had appointed
the Hon’ble Mr. Justice Sadanand 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 provision of the
Act, 1996.
32. The claimant-respondent being aggrieved with the order
dated 11.09.2017, terminating the agreement in question as also
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regarding non-payment/short payment of the bills for
transportation and handling charges had filed a detailed
statement of claim before the learned Arbitrator on 11.10.2019,
inter alia praying for the following reliefs:-
“(i) Respondents jointly and severally be directed to
make payment of the claims of the claimant amounting to
Rs. 2,61,23,216.67/- (Two crore sixty one lakh twenty
three thousand two hundred sixteen rupees and sixty
seven paisa) with interest thereon @ 18% till 31.10.2019
as noted in Annexure - 28 to the statement of 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) It be held and declared that the termination of
agreement vide order contained in Memo No. 9356 dated
11.09.2017 issued under the signature of Managing
Director of the Corporation (contained in Annexure- 14
to the Statement of Claims) is illegal, unjustified and
contrary to the term is of the agreement.
(iii) Respondents jointly and severally be further directed
to make payment of Rs. 5465252/- on account of loss of
profit for 24 months due to illegal and unjustified
premature termination of the contract on 11.09.2017 as
noted in Annexure - 28 to the statement of claims, with
interest thereon at the rate of 18% per annum from the
date of illegal termination of the contract i.e. 11.09.2017
till it's actual receipt of the payment by the
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claimant/petitioner.t
(iv) The respondents jointly and severally be directed to
pay the cost of arbitration to the claimant.
(v) 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.”
33. 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.
34. The learned Sole Arbitrator vide 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 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 arbitral award dated
17.10.2020 hereinabove in paragraph No. 9. The said award was
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challenged by the appellants before the learned Court of PDJ,
Patna by filing Misc. (Arbitration) Case No.25 of 2021 under
Section 34 (2) and (2A) of the Act, 1996 to which the claimant-
respondent herein had filed a reply dated 14.02.2022.
35. The learned PDJ, Patna by the impugned judgment dated
25.07.2025 has been pleased to dismiss the said Misc.
(Arbitration) Case No. 25 of 2021, filed on 18.01.2021, 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. 15.
36. At the outset, it would be apt to reproduce the relevant
Clauses of the Agreement dated 06.08.2014, entered into
between the parties for the District of Munger, herein below:-
“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
Party. If the Second Party agreed to such revisions either
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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
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deducted and if damage is chained bur not finally
determined payment that extent will be withheld till final
determination which is to be done at the shortest possible
time.
12A. 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.
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
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
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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 & 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.
18. The second party would not be entitled to claim any
compensation for detention of their trucks at the godown
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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.”
37. 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
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laid down that the courts do not sit in appeal over
arbitral awards, therefore, the jurisdiction of the courts
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
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(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).
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.”
38. 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)
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“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 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
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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
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
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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 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
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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
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Court in Dyna 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.”
39. 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
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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 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.”
40. 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.
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(iii) If the award is in conflict with justice or morality i.e.
in conflict with the most basic notions of morality 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.
41. Thus, in nutshell we find that an award can be challenged
on the ground provided for under Section 34 (2) of the Act,
1996. Thus, 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.
42. Yet another issue which arises for consideration is
whether the powers of the Court under Sections 34 and 37 of the
Act, 1996 will include the power to modify an arbitral award
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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
43. It would be apropos 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 hereinbelow:-
“II. Severability of awards
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
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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
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strenuously contended that modification and setting aside
are distinct and 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
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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 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
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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
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
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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.
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
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Part XII of our Analysis.”
44. 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. 1,22,01,098/- 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
06.08.2014 as also the one dated 06.08.2017 was entered into
between the parties for the district of Munger and accordingly,
the claimant-Respondent had submitted a claim of Rs.
51,14,605.84 under the head of balance payment due, as is
apparent from the chart containing the summary of claim of the
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 to the
tune of Rs. 56,17,210.11 for the District-Madhubani as also
claim for a sum of Rs. 14,69,283.10, pertaining to the district
Bhagalpur on the head of balance payment due. Surprisingly, the
Ld. Sole Arbitrator has travelled beyond the terms of the
agreement entered into between the parties and awarded the
balance due amount claimed by the claimant-Respondent for the
district of Madhubani and Bhagalpur as well, which are
admittedly not within the parameters of the agreement entered
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into between the parties, thus out of the awarded amount of Rs.
1,22,01,098/- only a sum of Rs. 51,14,605/-, pertaining to the
district Munger could have been allowed, hence the award of a
sum of Rs. 56,17,210/- for the district of Madhubani as also a
sum of Rs. 14,69,283/- for the district of Bhagalpur are beyond
the terms of the contract and the arbitrator could not have
enlarged the scope of reference much less acted outside the
ambit of the contract, thus the amount awarded in favour of the
claimant for the district Madhubani and Bhagalpur is liable to be
set aside.
45. We find from the records that admittedly the agreements
filed in Request Case No. 66 of 2019 before this Court by the
claimant-Respondent were the ones dated 06.08.2014 and
06.08.2017 for the District Munger and the Ld. Chief Justice of
this Court, by an order dated 06.09.2019, passed in Request
Case No. 62 of 2019 had appointed Mr. Justice Sadanand
Mukherjee, a retired Judge of the Patna High Court as the sole
Arbitrator to enter upon the disputes and render his awards in
terms of the provisions of the Act, 1996, thus when the
agreements filed in the aforesaid Request Case No. 62 of 2019,
dated 06.08.2014 and 06.08.2017 pertain to the district of
Munger, then the claims have also to be limited to the contours
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of the said agreements and the Arbitrator cannot enlarge the
scope of reference. In this regard, it would be relevant to refer to
a judgment rendered by the Hon’ble Apex Court in the case of
State of Rajasthan vs. Nav Bharat Construction Company,
reported in (2006) 1 SCC 86, paragraphs no. 13, 27 to 31
whereof are reproduced herein below:-
“13. So far as the second ground is concerned, we have
seen the two applications made by the respondent. It
prima facie appears that the two applications were for
referring, in all, 28 claims to arbitration. The respondent
then made 39 claims before the arbitrators. The umpire
has awarded in respect of all the 39 claims. If claims not
referred to arbitration have been dealt with and
awarded, the umpire would have exceeded his
jurisdiction. However, Mr Moolchand Luhadia, partner
of the respondent who appeared in person, contended
that all the claims were referred to the arbitrators by the
order dated 1-3-1985. He submitted that this is clear
from the directions to the arbitrators to decide all
disputes arising between the parties. We are unable to
accept this submission. The order dated 1-3-1985 allows
“application dated 9-4-1983 as part of application dated
5-10-1981”. It is in the context of claims raised in these
two applications that the arbitrators are instructed to
decide all disputes between the parties. Mr Luhadia then
submitted that all claims were included in the two
applications made by them. It was submitted that in the
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applications some of the claims were clubbed together
but whilst filing the statement of claims they were
segregated and separated. As we are proposing to refer
the matter back to an umpire, we do not propose to go
into the question as to whether or not the 39 claims were
part of the two applications filed by the respondent. In
our view, this is a question which can be decided by the
umpire. All that we need to clarify is that if any claim did
not form part of the two applications, the same cannot be
arbitrated upon and the umpire will confine the reference
to the claims made in the two applications. It must be
mentioned that in the case of Orissa Mining Corpn. Ltd.
v. Prannath Vishwanath Rawlley [(1977) 3 SCC 535]
this Court has held that when an agreement is filed in
court and an order of reference is made, then the claim
as a result of the order of reference is limited to that
relief and the arbitrator cannot enlarge the scope of
reference and entertain fresh claims without a further
order of reference. It must also be mentioned that Mr
Luhadia had relied upon the case of H.L. Batra & Co. v.
State of Haryana [(1999) 9 SCC 188] . In this case the
award of the arbitrator was set aside and a new
arbitrator was appointed. The order stated that the new
arbitrator was appointed “for settling disputes between
the parties”. Before the new arbitrator seven additional
claims, over and above the 30 claims originally made,
were made. It was held that the award was not vitiated
as the terms of reference did not confine the second
reference to only 30 claims. This authority is of no
assistance to the respondent as it does not lay down that
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the arbitrator can entertain claims not referred to him.
27. There can be no dispute to the well-established
principle set out in these cases. However, these cases do
not detract from the law laid down in Bharat Coking
Coal Ltd. case [(2001) 4 SCC 86] or Continental
Construction Co. Ltd. case [(1988) 3 SCC 82] . An
arbitrator cannot go beyond the terms of the contract
between the parties. In the guise of doing justice he
cannot award contrary to the terms of the contract. If he
does so, he will have misconducted himself. Of course if
an interpretation of a term of the contract is involved
then the interpretation of the arbitrator must be accepted
unless it is one which could not be reasonably possible.
However, where the term of the contract is clear and
unambiguous the arbitrator cannot ignore it.
28. Mr Luhadia submitted that the respondents had made
claims totalling Rs 45,56,155.56p. He submitted that
claims for damages were to the tune of Rs 27.50 lakhs.
He submitted that the claim for final bill was for Rs 2
lakhs. He submitted that the claims for extra items were
for Rs 15,98,495. He submitted that the umpire had only
awarded Rs 29,96,060. He submitted that as the award is
a non-speaking award, even presuming without
admitting that some claims were covered by the terms of
the contract, it still could not be said that the umpire has
awarded towards claims covered by the contract. He
submitted that thus the award could not be set aside. In
support of this submission he relied upon the case of
Paradip Port Trust v. Unique Builders [(2001) 2 SCC
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680 : AIR 2001 SC 846] . In this case the claim had been
for Rs 12,93,260. The arbitrator awarded as follows:
(SCC p. 684, para 7)
“M/s Unique Builders Ltd., the claimant is entitled to
receive from Paradip Port Trust (Respondent 3) a sum of
Rs 8,51,315.00 (Rupees eight lakhs, fifty-one thousand,
three hundred fifteen only) with interest….”
29. It was contended in that case that Claims 2 and 7
(therein) could not have been awarded. This Court held
that as the award was a lump sum award and as only Rs
8,51,315 had been awarded against a claim of Rs
12,93,260 it was not possible to say whether any
amounts had been awarded against Claims 2 and/or 7.
Relying on this Mr Luhadia submitted that even in this
case it cannot be said whether any amounts have been
awarded against claims alleged to be covered by the
contract. We are unable to accept this submission. In this
case the award itself states that the award of Rs
29,96,060 is against Claims 1 to 39, except Claim 30.
Therefore this award is in respect of claims covered by
the contract and to that extent the umpire has
misconducted himself. Even otherwise the claim for
damages is not in a sum of Rs 27.50 lakhs as claimed.
Claims 27 and 28 which deal with damages are for Rs
3,07,038 and Rs 1,58,904.85. The other claims, included
in the figure of Rs 27.50 lakhs given to this Court appear
to be claims at enhanced rates for the contracted work
done during the extended period. Mr Luhadia denied
that the respondents had agreed to do work during the
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extended period at the contracted rate. Thus at this
stage, unlike in Paradip Port Trust case [(2001) 2 SCC
680 : AIR 2001 SC 846] it does appear on the face of the
record that higher rates for items covered by the contract
have been awarded.
30. As regards Claim 2 Mr Luhadia fairly admitted that
clause 5.11(iii) of the contract requires chiselling of
stones on all sides. He however submitted that the rates
given in Schedule ‘G’ were only for chiselling of stones
on one side. He submitted that this was clear from Note 1
under Schedule ‘G’ which stated that Schedule ‘G’ was
based on BSR 1975. He submitted that BSR 1975 showed
that such rates were only for chiselling stones on one
side. He submitted that when the stone has to be
chiselled on all sides the rates given in BSR 1975 were to
be applied. He submitted that Claim 2 was based on
those rates. We are unable to accept this submission of
Mr Luhadia. The contract is very specific. The work
specified in the contract has to be done at the rates
specified in Schedule ‘G’. Even though Schedule ‘G’ may
be based on BSR 1975 it is not exactly as BSR 1975.
Where in respect of a work specified in the contract the
rate has been given in Schedule ‘G’ that work could only
be done at that rate. Work specified in the contract does
not become extra work. It is only in respect of extra work
that rates specified in BSR 1975 can be applied. To us it
is clear that Claim 2 is contrary to the terms of the
contract. It is barred by clauses 57, 60 and 61 of the
contract. As regards Claim 26, Mr Luhadia relied upon
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the case of Tarapore & Co. v. State of M.P. [(1994) 3
SCC 521] In this case, the question was whether the
contractor was entitled to claim extra amounts because
he had to pay increased wages to his workers. This
Court has held that the contractor would have tendered
on the basis of the then prevailing wages and as the
contract required the contractor to pay the minimum
wages and if the minimum wages increased it was an
implied term of the contract that he would not be entitled
to claim the additional amount. However, it must be
noted that, in this case, there was no term in the contract
which prohibited any extra claims being made because
of the increase in wages. Clause 31 of the special
conditions of the contract, which has been reproduced
hereinabove, specifically bars the contractor from
claiming any compensation or an increase in rate under
such circumstances. Not only that but the respondents
had with their initial tender put in a term which provided
that if there was any increase in the minimum wages by
the Government the rates quoted by him would be
increased by the same percentage. At the time of
negotiation this clause was dropped. Thus, the
respondents had themselves specifically agreed not to
claim any compensation or increase by reason of
increase in wages. This claim could therefore not have
been granted.
31. It prima facie appears that the majority of the claims
are against the terms of the contract. However, there are
also other claims which are not against the terms of the
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contract. To merely set aside the award on the ground of
misconduct would work hardship on the respondents as
they would then be deprived of claims which may be
maintainable. In our view the correct course would be to
set aside the award and refer the matter back to an
independent umpire appointed by this Court. The umpire
will fix his own terms and conditions. We however clarify
that only those claims covered by the two applications
will be considered. Of course the umpire will decide how
many of the 39 claims formed part of the claims made in
the two applications. Needless to state that the terms of
the contract will be kept in mind and claims contrary to
the terms of the contract will undoubtedly not be
allowed. The umpire will also decide whether the
respondent had agreed to do the contracted work done
during the extended period at the same rates and/or
whether the respondent is entitled to increased rates and
if so, at what rate. The umpire shall decide only on the
basis of the materials already placed before the earlier
arbitrators and the earlier umpire.”
46. We would also gainfully refer to yet another judgment
rendered by the Hon’ble Apex Court in the case of Jayesh H.
Pandya & Another vs. Subhtex India Limited & Others,
reported in (2020) 17 SCC 383, paragraphs no. 18, 21 to 23
whereof are reproduced herein below:-
18. It is true that the object of the scheme of the 1996 Act
is to secure expeditious resolution of disputes and it is
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based on the fulcrum of promptitude but at the same time
the arbitrator is required to adjudicate the disputes in
view of the agreed terms of contract and the procedure.
Therefore, the arbitration proceedings are supposed to be
governed and run by the terms as agreed by the parties.
The arbitrator, therefore, cannot go beyond the clause of
the arbitration agreement. We all need to respect the
legislative intent underlying the Act. The speedy and
alternative resolution to the dispute thus cannot be
overlooked but at the same time, proceedings have to be
governed and run by the terms agreed between the
parties in concluding the arbitral proceedings failing
which it will frustrate the mandate of the object of the Act
with which it has been legislated by Parliament to act
upon on agreed terms and conditions of the agreement in
concluding the arbitral proceedings. The exposition of
law has been considered by this Court in NBCC Ltd. case
[NBCC Ltd. v. J.G. Engg. (P) Ltd., (2010) 2 SCC 385 :
(2010) 1 SCC (Civ) 416] in paras 12 and 22 as under:
(SCC pp. 391 & 393)
21. The clause so referred indicates that the parties have
admittedly agreed and the time period so prescribed is
final and binding. It means the arbitration proceedings
should commence and end within the prescribed period
of time which in the instant case was of four months and
expired on 4-9-2007 and, there was no occasion for
either party to raise an objection as long as the time was
available at the command of the arbitrator to conclude
the arbitral proceedings and pass an award within the
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time schedule fixed under the terms of contract as agreed
by the parties.
22. That apart, there is no provision under the arbitration
agreement to condone the delay when agreement between
the parties binds them to see that the arbitration
proceedings should be concluded within the time
prescribed. This time restriction is well within the scope
and purport of the 1996 Act at national and international
arbitrations.
23. The time fixed for the arbitration and/or schedule of
time-limit in such arbitration proceedings, as it is
recognised by law, there is no reason not to accept the
same, basically in the present facts and circumstances
where the parties themselves agreed to bind themselves
by the time-limit. Section 14 read with Section 15 of the
1996 Act also recognise this mechanism and after the
expiry of four months' period from the date of first
preliminary meeting held on 4-5-2007, the arbitrator
indeed became de jure unable to perform his functions
and the mandate to act as an arbitrator in the arbitral
proceedings between the parties as prayed for stood
terminated.”
47. It would be apposite to refer to yet another judgment
rendered by the Hon’ble Apex Court in the case of SEPCO
Electric Power Construction Corporation (supra), reported in
(2026) 2 SCC 542, paragraphs no. 93, 94, 96, 97, 123, 125 and
126 whereof are reproduced herein below:-
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“93. Numerous precedents laid down by this Court have
often emphasised that an arbitrator lacks the power to
deviate from or to reinterpret the terms of the contract
while making an award. The awards must be within the
parameters of the agreement entered between the
parties.
94. This Court in Saw Pipes [ONGC v. Saw Pipes Ltd.,
(2003) 5 SCC 705] has reiterated that any deviation
from the mandate of Section 28 sub-section (3) of the
1996 Act is a valid ground for lambasting an arbitral
award. Commenting on the duty of the arbitrators, this
Court observed as follows: (SCC p. 744, para 73)
“73. It is to be reiterated that it is the primary duty of the
arbitrators to enforce a promise which the parties have
made and to uphold the sanctity of the contract which
forms the basis of the civilized society and also the
jurisdiction of the arbitrators. Hence, this part of the
award passed by the Arbitral Tribunal granting interest
on the amount deducted by the appellant from the bills
payable to the respondent is against the terms of the
contract and is, therefore, violative of Section 28(3) of
the Act.”
96. Further clarification of this proposition is brought
about through observations of this Court in a further
decision by 3-Judge Bench in Union of India v. Bharat
Enterprise [Union of India v. Bharat Enterprise, (2025)
11 SCC 771 : 2023 SCC OnLine SC 369] wherein it was
underlined that the existence and powers of an arbitrator
are a creature of the agreement between the parties, and
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it is the terms of the contract which serves as a
fundamental basis for the procedure to be adopted by the
Arbitral Tribunal. Therefore, the arbitrator concerned is
restricted to the terms of the contract thereof and cannot
go outside its scope or what is, per se, specified. In
words of the Bench, “A disregard of the specific
provisions of the contract would incur wrath of the
award being imperilled. This position cannot be in the
region of dispute.”
97. In order to achieve an enhanced understanding
apropos the scope of the powers and jurisdiction of an
arbitrator, a reference may also be made to a decision of
this Court in Associated Engg. [Associated Engg. Co. v.
State of A.P., (1991) 4 SCC 93] , which was determined
vis-à-vis Section 30 of the Arbitration Act, 1940 wherein,
it was observed that: (SCC pp. 103-105, paras 24-27)
“24. The arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract. His sole
function is to arbitrate in terms of the contract. He has
no power apart from what the parties have given him
under the contract. If he has travelled outside the bounds
of the contract, he has acted without jurisdiction. But if
he has remained inside the parameters of the contract
and has construed the provisions of the contract, his
award cannot be interfered with unless he has given
reasons for the award disclosing an error apparent on
the face of it.
25. An arbitrator who acts in manifest disregard of the
contract acts without jurisdiction. His authority is
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derived from the contract and is governed by the
Arbitration Act which embodies principles derived from
a specialised branch of the law of agency (see Mustill
and Boyd's Commercial Arbitration, 2nd Edn., p. 641).
He commits misconduct if by his award he decides
matters excluded by the agreement (see Halsbury's Laws
of England, Vol. II, 4th Edn., Para 622). A deliberate
departure from contract amounts to not only manifest
disregard of his authority or a misconduct on his part,
but it may tantamount to a mala fide action. A conscious
disregard of the law or the provisions of the contract
from which he has derived his authority vitiates the
award.
26. A dispute as to the jurisdiction of the arbitrator is not
a dispute within the award, but one which has to be
decided outside the award. An umpire or arbitrator
cannot widen his jurisdiction by deciding a question not
referred to him by the parties or by deciding a question
otherwise than in accordance with the contract. He
cannot say that he does not care what the contract says.
He is bound by it. It must bear his decision. He cannot
travel outside its bounds. If he exceeded his jurisdiction
by so doing, his award would be liable to be set aside. As
stated by Lord Parmoor: [Attorney-General for
Manitoba v. Kelly, (1922) 1 AC 268] (AC p. 276)
‘… It would be impossible to allow an umpire to
arrogate to himself jurisdiction over a question which,
on the true construction of the submission, was not
referred to him. An umpire cannot widen the area of his
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jurisdiction by holding, contrary to the fact, that the
matter which he affects to decide is within the
submission of the parties.’
Evidence of matters not appearing on the face of the
award would be admissible to decide whether the
arbitrator travelled outside the bounds of the contract
and thus exceeded his jurisdiction. In order to see what
the jurisdiction of the arbitrator is, it is open to the court
to see what dispute was submitted to him. If that is not
clear from the award, it is open to the court to have
recourse to outside sources. The court can look at the
affidavits and pleadings of parties; the court can look at
the agreement itself. Bunge & Co. v. Dewar & Webb
[Bunge & Co. v. Dewar & Webb, (1921) 8 Ll L Rep 436].’
27. If the arbitrator commits an error in the construction
of the contract, that is an error within his jurisdiction.
But if he wanders outside the contract and deals with
matters not allotted to him, he commits a jurisdictional
error. Such error going to his jurisdiction can be
established by looking into material outside the award.
Extrinsic evidence is admissible in such cases because
the dispute is not something which arises under or in
relation to the contract or dependent on the construction
of the contract or to be determined within the award. The
dispute as to jurisdiction is a matter which is outside the
award or outside whatever may be said about it in the
award. The ambiguity of the award can, in such cases, be
resolved by admitting extrinsic evidence. The rationale
of this rule is that the nature of the dispute is something
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which has to be determined outside and independent of
what appears in the award. Such jurisdictional error
needs to be proved by evidence extrinsic to the award.
[See Alopi Parshad & Sons Ltd. v. Union of India [Alopi
Parshad & Sons Ltd. v. Union of India, 1960 SCC
OnLine SC 13 : (1960) 2 SCR 793 : AIR 1960 SC 588] ;
Bunge & Co. v. Dewar & Webb [Bunge & Co. v. Dewar
& Webb, (1921) 8 Ll L Rep 436] ; Christopher Brown
Ltd. v. Genossenschaft Oesterreichischer [(1954) 1 QB 8
: (1953) 3 WLR 689] ; R. v. Fulham [R. v. Fulham,
(1951) 2 KB 1] ; Falkingham v. Victorian Railways
Commission [Falkingham v. Victorian Railways
Commission, 1900 AC 452 : 69 LJ PC 89] ; R. v. All
Saints, Southampton [R. v. All Saints, Southampton,
(1828) 7 B&C 785 : 1 Man & Rey KB 663] ; Laing
(James) Son & Co. (M/C) Ltd. v. Eastcheap Dried Fruit
Co. [Laing (James) Son & Co. (M/C) Ltd. v. Eastcheap
Dried Fruit Co., (1961) 1 Ll L Rep 142] , Ll L Rep at p.
145; Dalmia Dairy Industries Ltd. v. National Bank of
Pakistan [Dalmia Dairy Industries Ltd. v. National Bank
of Pakistan, (1978) 2 Ll L Rep 223] ; Heyman v.
Darwins Ltd. [Heyman v. Darwins Ltd., 1942 AC 356
(HL)] ; Union of India v. Kishorilal Gupta & Bros.
[Union of India v. Kishorilal Gupta & Bros., 1959 SCC
OnLine SC 6 : AIR 1959 SC 1362 : (1960) 1 SCR 493] ;
Renusagar Power Co. Ltd. v. General Electric Co.
[Renusagar Power Co. Ltd. v. General Electric Co.,
(1984) 4 SCC 679 : (1985) 1 SCR 432] ; Jivarajbhai
Ujamshi Sheth v. Chintamanrao Balaji [Jivarajbhai
Ujamshi Sheth v. Chintamanrao Balaji, 1963 SCC
Patna High Court COMMERCIAL APP No.9 of 2025 dt.23-05-2026
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OnLine SC 285 : (1964) 5 SCR 480 : AIR 1965 SC 214];
Gobardhan Das v. Lachhmi Ram [(1954) 1 SCC 566 :
AIR 1954 SC 689], AIR at p. 692; Thawardas Pherumal
v. Union of India [(1955) 1 SCC 372:(1955) 2 SCR
48:AIR 1955 SC 468]; Omanhene Kobina Foli v. Obeng
Akessee [1934 SCC OnLine PC 11 : AIR 1934 PC 185 :
(1934) 40 LW 138], AIR PC at p. 188; F.R. Absalom Ltd.
v. Great Western (London) Garden Village Society Ltd.
[F.R. Absalom Ltd. v. Great Western (London) Garden
Village Society Ltd., 1933 AC 592 (HL)] and M.
Golodetz v. Schrier [M. Golodetz v. Schrier, (1947) 80 Ll
L Rep 647]”
123. It could, thus, be seen that the Division Bench has
come to a considerable conclusion that the arbitral
award passed by the Arbitral Tribunal was in conflict
with the public policy of India inasmuch as the arbitral
award was passed in violation of the principles of
natural justice. A discriminatory treatment was meted
out by the Arbitral Tribunal to GMRKE Limited as
against SEPCO and that the arbitral award amounted to
modification of the contractual terms. We find that the
findings of the Division Bench are recorded after
considering the entire material on record and are in
consonance with the law laid down by the decisions of
this Court in Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and
Ssangyong Engg. [Ssangyong Engg. & Construction Co.
Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ)
213] Therefore, we see no reason to interfere with the
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well-reasoned findings as recorded by the Division
Bench.
125. We summarize the aforesaid findings as, despite the
limited scope of interference, the Division Bench was
obligated to have interfered with the arbitral award
owing to fulfilment of conditions mandating a
reappreciation of the merits of the award under Section
34 of the 1996 Act. Non-interference and non-setting
aside of the award would have hampered upon the
fundamental policy of Indian law as well as the public
policy of India. The Arbitral Tribunal, itself being a
creature of the EPC agreements, could not have travelled
beyond its mandate to rewrite the constitution of its own
existence through observing the condition of notice
having been waived. It further discriminated between the
parties, showcasing violation of the provisions of the
1996 Act. As this arbitral award could not have been
severed owing to the aforesaid reasons, thereby it is apt
to set aside the whole arbitral award.
126. Resultantly, the impugned judgment [GMR
Kamalanga Energy Ltd. v. SEPCO Electric Power
Construction Corpn., 2023 SCC OnLine Ori 5882] is
upheld and the arbitral award along with Section 34
judgment are observed to have been rightly set aside by
the Division Bench [GMR Kamalanga Energy Ltd. v.
SEPCO Electric Power Construction Corpn., 2023 SCC
OnLine Ori 5882] of the High Court.”
48. Thus, considering the aforesaid well-settled law
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propounded by the Hon’ble Apex Court, we find that an
Arbitrator lacks the power to deviate from or to reinterpret the
terms of the contract while making an award and the award
must be within the parameters of the agreement entered into
between the parties. It is equally a well-settled law that the
arbitrator cannot go beyond the clause of the agreement and the
proceedings have to be governed and run by the terms and
conditions of the agreement, agreed between the parties. Thus,
neither the arbitrator can go beyond the terms of the contract
between the parties nor he can make an award contrary to the
terms of the contract and if he does so he will have
misconducted himself.
49. Now coming back to the facts of the present case, we find
that the agreements dated 06.08.2014 and 06.08.2017 entered
into between the parties, which is the subject matter of reference
made before the Ld. Sole Arbitrator in Request Case No. 62 of
2019 pertains to the district-Munger, hence the Ld. Sole
Arbitrator could not have deviated from the agreement much
less could have travelled beyond the terms of the contract and
awarded a sum of Rs. 56,17,210/- for the district of Madhubani
as also a sum of Rs. 14,69,283/- for the district of Bhagalpur,
over and above the sum of Rs. 51,14,605/-, pertaining to the
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district Munger. Thus, this part of the award dated 17.10.2020,
pertaining to award of a sum of Rs. 56,17,210/- and Rs.
14,69,283/- pertaining to the district of Madhubani and
Bhagalpur, respectively is fit to be set aside, being beyond the
parameters of the agreement entered into between the parties.
50. The other issue which arises for consideration in the
present case is regarding award of compensation vide arbitral
award dated 17.10.2020, passed by the Ld. Sole Arbitrator, at
serial no. 2 thereof, to the tune of Rs. 25 lakhs under Section 54
of the Indian Contract Act. We find that the Ld. Sole Arbitrator
has awarded the said amount of compensation on an ad hoc
basis without any proof. The findings of the learned Arbitrator
in this regard can be found at internal page No.23 of the award
dated 17.10.2020, which is reproduced herein below:-
“Since the contract between the parties consists of
reciprocal promises, in the circumstances of the case, in
view of the delayed payments causing wrongful loss to
the claimant-petitioner, the claimant-petitioner shall be
paid compensation amount of Rs. 25 lakhs only as per
Section 54 of the Indian Contract Act.”
51. We have already referred to the sequence of events as
narrated in the statement of claim filed by the claimant-
Respondent before the Ld. Sole Arbitrator in the preceding
paragraphs, hence the same are not being repeated for the sake
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of brevity. Nonetheless, we may mention here that the claimant-
Respondent has stated in paragraph no. 72 of the statement of
claim that on account of premature termination of the contract
by the appellants vide order dated 11.9.2017, the claimant-
Respondent was prevented from transporting food-grains for 24
months during the validity period of the agreement, hence he
has suffered a loss of Rs. 54,65,252/- and the said amount has
been claimed by way of estimated loss of profit for 24 months.
It is also a matter of record that the claimant-Respondent had
prayed in paragraph no. 76 of the statement of claim filed
before the Ld. Sole Arbitrator to declare the order of
termination of agreement dated 11.9.2017 to be illegal,
unjustified and contrary to the terms of the agreement and make
an award to the tune of Rs. 54,65,252/- on the head of loss of
profit for 24 months due to illegal and unjustified premature
termination of the contract on 11.9.2017. Nonetheless, we find
from a bare perusal of the award dated 17.10.2020, passed by
the Ld. Sole Arbitrator that though he has at internal page no.
18 of the award passingly observed that the termination of
contract was not on justifiable ground, however no relief has
been granted by the Ld. Sole Arbitrator in favour of the
claimant-Respondent, in the arbitral award dated 17.10.2020, to
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the extent of holding the order of cancellation of agreement
dated 11.9.2017 to be illegal, unjustified and contrary to the
terms of the agreement. Thus, in absence of setting aside of the
order of cancellation of agreement dated 11.9.2017 by the Ld.
Sole Arbitrator, in the arbitral award dated 17.10.2020, no
compensation can be awarded to the claimant-Respondent on
account of estimated loss of profit for 24 months on account of
premature termination of the agreement dated 6.8.2017. Thus,
the compensation of a sum of Rs. 25,00,000/- awarded by the
Ld. Sole Arbitrator vide arbitral award dated 17.10.2020 is
liable to be set aside.
52. It is yet another aspect of the matter that the claimant-
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
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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.
53. 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
sum from the date of award till realization over the
awarded amount.”
54. 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.”
55. Thus, we find that the Ld. Sole Arbitrator vide arbitral
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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
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.
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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
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
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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
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
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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.
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
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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
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.
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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
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.
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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
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.
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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
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.
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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
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.
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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,
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-
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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
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
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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,
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
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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
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
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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
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.”
56. 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
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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).”
57. It would also be gainful to refer to a judgment rendered
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
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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
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
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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
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)
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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] .
58. Thus, we find from the law laid down by the Hon’ble
Apex Court in the aforesaid judgments that the provisions of the
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.
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59. Now coming back to the present case, we find that Clause
12 of the agreements dated 06.08.2014 and 06.08.2017
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
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.
60. 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
Patna High Court COMMERCIAL APP No.9 of 2025 dt.23-05-2026
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by the Ld. Sole Arbitrator as also the impugned judgment dated
25.7.2025, passed by the Ld. Principal District Judge, Patna is
modified/set aside in terms of this judgment as follows:-
“(i) The award of the Ld. Sole Arbitrator at serial no. 1 at
internal page No.23 of the award dated 17.10.2020,
holding the claimant-Respondent entitled to award of a
sum of Rs. 1,22,01,098/- shall stand modified to a sum of
Rs. 51,14,605/-, pertaining to the district Munger and
that portion of the said award amounting to a sum of Rs.
56,17,210/- for the district of Madhubani as also a sum of
Rs. 14,69,283/- for the district of Bhagalpur is set aside,
being beyond the parameters of the agreement entered
into between the parties dated 06.08.2014 and
06.08.2017. Accordingly, the impugned judgment dated
25.7.2025, passed by the Ld. Principal District Judge,
Patna, to the said effect is also modified/set aside.
(ii). The award of the Ld. Sole Arbitrator at serial no. 2 at
internal page No.23 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.24 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
Patna High Court COMMERCIAL APP No.9 of 2025 dt.23-05-2026
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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.
61. In view of the aforesaid discussion, the award dated
17.10.2020 read with order dated 13.11.2020, 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
modified/set aside to the above extent.
62. Accordingly, the present appeal is partly allowed to the
aforesaid extent.
COMMERCIAL APPEAL No. 15 of 2025
63. 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. 113 of 2021.
64. 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. 113 of
2021 under Section 36 of the Act, 1996 for execution of Arbitral
Patna High Court COMMERCIAL APP No.9 of 2025 dt.23-05-2026
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award dated 17.10.2020, passed by the learned Sole Arbitrator,
Patna in Arbitration Case No.4 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.25 of 2021, hence the Execution Case be listed after disposal
of the said miscellaneous case filed by the appellants.
65. It appears that the learned PDJ, Patna by the impugned
order dated 31.07.2025, passed in Execution Case No. 113 of
2021, had on a petition filed by the claimant-respondent
supported by an affidavit dated 06.05.2025, attached the bank
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.
66. 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. 113 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 ICICI Bank, Frazer Road Branch, Patna have
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been directed to effect transfer of amount of Rs. 3,01,20,867/-
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 Bank of Baroda, Begusarai
Branch, Bihar, whereafter the matter had been directed to be
listed on 11.12.2025.
67. 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.
113 of 2021, which has not yet been challenged by the
appellants.
68. 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.4 of 2019 as also the
judgment dated 25.07.2025 passed by the learned PDJ, Patna in
Misc. (Arbitration) Case No.25 of 2021, under Section 34 of the
Act, 1996, dismissing the appeal filed by the appellants have
now been modified/set aside by the aforesaid judgment being
passed today in the connected Commercial Appeal No.9 of
2025, we are of the view that the present appeal has been
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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.
69. 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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