O.M.P. (COMM) 181/2024 Page 1 of 32

$~9

* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 09.04.2026

+ O.M.P. (COMM) 181/2024 & I.A. 9043/2024 (Ex.)

KRISHNA UDYOG .....Petitioner

Through: Mr. Kamlesh Ojha, Advocate.

versus

UNION OF INDIA .....Respondent

Through: Ms. Radhika Bishwajit Dubey,

CGSC along with Ms. Gurleen

Kaur Waraich, Mr. Kritarth

Upadhyay, Mr. Vivek Sharma

and Mr. Amulya Dev Mishra,

Advocates.

CORAM:

HON'BLE MR. JUSTICE HARISH VAIDYANATHAN

SHANKAR

JUDGMENT (ORAL)

HARISH VAIDYANATHAN SHANKAR, J.

1. The present Petition has been instituted under Section 34 of the

Arbitration and Conciliation Act, 1996

1

, assailing the Award dated

14.11.2023

2

. By way of the Impugned Award, a three-member

Arbitral Tribunal dismissed the claims preferred by the Petitioner

herein.

I. On preliminary objection concerning the delay

2. At the outset, the learned Central Government Standing

Counsel appearing on behalf of the Respondent raises a preliminary

objection to the maintainability of the present Petition on the ground

1

A&C Act

2

Impugned Award

O.M.P. (COMM) 181/2024 Page 2 of 32

that it is barred by limitation.

3. This Court proposes to consider and decide the said preliminary

objection at the first instance.

4. At this juncture, this Court finds it apposite to reproduce the

bare provision of Section 34 of the A&C Act, as the same is necessary

for the proper adjudication of the present case:

“34. Application for setting aside arbitral award. -

*****

(3) An application for setting aside may not be made after three

months have elapsed from the date on which the party making that

application had received the arbitral award or, if a request had been

made under section 33, from the date on which that request had

been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was

prevented by sufficient cause from making the application within

the said period of three months it may entertain the application

within a further period of thirty days, but not thereafter.

….”

5. A plain reading of Section 34(3) of the A&C Act makes it

abundantly clear that the period prescribed therein is mandatory and

inflexible. An application for setting aside an arbitral award must be

filed within three months from the date of receipt of the award,

extendable by a further period of thirty days, but not thereafter. The

law in this regard has been succinctly reiterated by the Hon‟ble

Supreme Court in Chintels India Ltd. v. Bhayana Builders Pvt. Ltd.

3

,

which reads as follows:

“10. Sections 34(2) and (2-A) then sets out the grounds on which

an arbitral award may be set aside. Section 34(3), which again is

material for decision of the question raised in this appeal, reads as

follows:

“34. (3) An application for setting aside may not be made

after three months have elapsed from the date on which

the party making that application had received the arbitral

award or, if a request had been made under Section 33,

3

2021 SCC Online SC 80

O.M.P. (COMM) 181/2024 Page 3 of 32

from the date on which that request had been disposed of

by the Arbitral Tribunal:

Provided that if the Court is satisfied that the applicant

was prevented by sufficient cause from making the

application within the said period of three months it may

entertain the application within a further period of thirty

days, but not thereafter.”

11. A reading of Section 34(1) would make it clear that an

application made to set aside an award has to be in accordance with

both sub-sections (2) and (3). This would mean that such

application would not only have to be within the limitation period

prescribed by sub-section (3), but would then have to set out

grounds under sub-sections (2) and/or (2-A) for setting aside such

award. What follows from this is that the application itself must be

within time, and if not within a period of three months, must be

accompanied with an application for condonation of delay,

provided it is within a further period of 30 days, this Court having

made it clear that Section 5 of the Limitation Act, 1963 does not

apply and that any delay beyond 120 days cannot be condoned —

see State of H.P. v. Himachal Techno Engineers

at para 5.”

(emphasis added)

6. Section 34(3) of the A&C Act prescribes a strict and

peremptory period of limitation for filing a petition for setting aside an

arbitral award. The provision mandates that such a petition must be

filed within a period of three months from the date on which the party

making the application received the arbitral award. The proviso

thereto, however, vests a limited discretion in the Court to entertain

the petition within a further period of thirty days, provided sufficient

cause is shown for the delay, albeit with an express legislative

embargo that no application may be entertained beyond the said

extended period. Thus, the statutory scheme makes it abundantly clear

that while a marginal delay beyond the initial three-month period is

condonable, the outer limit of three months and thirty days is absolute

and admits of no further extension.

7. In the backdrop of the aforesaid statutory position, and

adverting to the facts of the present case, it is a matter of record and

O.M.P. (COMM) 181/2024 Page 4 of 32

indeed undisputed between the parties that the arbitral award was

finally published on 24.12.2023. Even if reckoned from the said date,

the prescribed period of three months under Section 34(3) of the A&C

Act would expire on or about 24.03.2024. The record further reflects

that the present Petition was instituted on 09.04.2024, which is

evidently beyond the initial period of limitation; however, it squarely

falls within the further grace period of thirty days contemplated under

the proviso thereto, the outer limit whereof would expire on or about

23.04.2024.

8. Though this Court notices that no formal application seeking

condonation of delay has been preferred along with the Petition, it

cannot be lost sight that the statutory timelines engrafted under

Section 34 are stringent, yet structured to permit a narrowly

circumscribed window for condonation. In such circumstances, where

the Petition is instituted within the aggregate period of three months

and thirty days, the absence of a formal application for condonation

would not, ipso facto, denude the Court of its jurisdiction to entertain

the Petition, particularly when the delay is marginal and falls squarely

within the statutorily permissible bracket. The legislative intent

underlying the proviso is not to defeat substantive rights on hyper-

technical grounds, but to balance finality with fairness within a rigid

temporal framework.

9. Accordingly, this Court is of the considered view that since the

present Petition has been filed within the outer limit of three months

and thirty days as prescribed under Section 34(3) of the A&C Act, the

same is amenable to consideration and does not merit rejection at the

threshold on the ground of limitation.

O.M.P. (COMM) 181/2024 Page 5 of 32

II. On the merits of the Petition

10. The challenge to the Impugned Award, as set out in the present

Petition, is founded upon two principal grounds.

11. First, the Petitioner assails the very constitution of the Arbitral

Tribunal by invoking Section 12(5) of the A&C Act, contending that

the Award stands vitiated in law owing to the unilateral appointment

of the Tribunal by the Respondent. Secondly, the Petitioner impugns

the Award on the ground that the imposition of Liquidated Damages

4

by the Respondent, subsequently upheld by the learned Arbitral

Tribunal in the Impugned Award, is contrary to the settled legal

position embodied in Sections 73 and 74 of the Indian Contract Act,

1872

5

.

12. At this stage, it is apposite to note that this Court remains

conscious of the limited scope of its jurisdiction while examining an

objection petition under Section 34 of the A&C Act. There is a

consistent and evolving line of precedents whereby the Hon‟ble

Supreme Court has authoritatively delineated and settled the contours

of judicial intervention in such proceedings.

13. In this regard, a three-Judge Bench of the Hon‟ble Supreme

Court, after an exhaustive consideration of a catena of earlier

judgments, in OPG Power Generation (P) Ltd. v. Enexio Power

Cooling Solutions (India) (P) Ltd.

6

, while dealing with the grounds of

conflict with the public policy of India and patent illegality, grounds

which have also been urged in the present case, made certain pertinent

observations, which are reproduced hereunder:

“Relevant legal principles governing a challenge to an arbitral

4

LD

5

Contract Act

6

(2025) 2 SCC 417

O.M.P. (COMM) 181/2024 Page 6 of 32

award

30. Before we delve into the issue/sub-issues culled out above, it

would be useful to have a look at the relevant legal principles

governing a challenge to an arbitral award. Recourse to a court

against an arbitral award may be made through an application for

setting aside such award in accordance with sub-sections (2), (2-A)

and (3) of Section 34 of the 1996 Act. Sub-section (2) of Section 34

has two clauses, (a) and (b). Clause (a) has five sub-clauses which

are not relevant to the issues raised before us. Insofar as clause (b)

is concerned, it has two sub-clauses, namely, (i) and (ii). Sub-

clause (i) of clause (b) is not relevant to the controversy in hand.

Sub-clause (ii) of clause (b) provides that if the Court finds that the

arbitral award is in conflict with the public policy of India, it may

set aside the award.

Public policy

31. “Public policy” is a concept not statutorily defined, though it

has been used in statutes, rules, notification, etc. since long, and is

also a part of common law. Section 23 of the Contract Act, 1872

uses the expression by stating that the consideration or object of an

agreement is lawful, unless, inter alia, opposed to public policy.

That is, a contract which is opposed to public policy is void.

*****

37. What is clear from above is that for an award to be against

public policy of India a mere infraction of the municipal laws of

India is not enough. There must be, inter alia, infraction of

fundamental policy of Indian law including a law meant to serve

public interest or public good.

*****

The 2015 Amendment in Sections 34 and 48

42. The aforementioned judicial pronouncements were all prior to

the 2015 Amendment. Notably, prior to the 2015 Amendment the

expression “in contravention with the fundamental policy of Indian

law” was not used by the legislature in either Section 34(2)(b)(ii) or

Section 48(2)(b). The pre-amended Section 34(2)(b)(ii) and its

Explanation read:

*****

44. By the 2015 Amendment, in place of the old Explanation to

Section 34(2)(b)(ii), Explanations 1 and 2 were added to remove

any doubt as to when an arbitral award is in conflict with the public

policy of India.

45. At this stage, it would be pertinent to note that we are dealing

with a case where the application under Section 34 of the 1996 Act

was filed after the 2015 Amendment, therefore the newly

substituted/added Explanations would apply [Ssangyong Engg. &

Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131].

46. The 2015 Amendment adds two Explanations to each of the

two sections, namely, Section 34(2)(b)(ii) and Section 48(2)(b), in

place of the earlier Explanation. The significance of the newly

O.M.P. (COMM) 181/2024 Page 7 of 32

inserted Explanation 1 in both the sections is two-fold. First, it does

away with the use of words : (a) “without prejudice to the

generality of sub-clause (ii)” in the opening part of the pre-

amended Explanation to Section 34(2)(b)(ii); and (b) “without

prejudice to the generality of clause (b) of this section” in the

opening part of the pre-amended Explanation to Section 48(2)(b);

secondly, it limits the expanse of public policy of India to the three

specified categories by using the words “only if”.

Whereas, Explanation 2 lays down the standard for adjudging

whether there is a contravention with the fundamental policy of

Indian law by providing that a review on merits of the dispute shall

not be done. This limits the scope of the enquiry on an application

under either Section 34(2)(b)(ii) or Section 48(2)(b) of the 1996

Act.

47. The 2015 Amendment by inserting sub-section (2-A) in Section

34, carves out an additional ground for annulment of an arbitral

award arising out of arbitrations other than international

commercial arbitrations. Sub-section (2-A) provides that the Court

may also set aside an award if that is vitiated by patent illegality

appearing on the face of the award. This power of the Court is,

however, circumscribed by the proviso, which 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.

48. Explanation 1 to Section 34(2)(b)(ii), specifies that an arbitral

award is in conflict with the public policy of India, only if:

(i) the making of the award was induced or affected by fraud or

corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law;

or

(iii) it is in conflict with the most basic notions of morality or

justice.

49. In the instant case, there is no allegation that the making of the

award was induced or affected by fraud or corruption, or was in

violation of Section 75 or Section 81. Therefore, we shall confine

our exercise in assessing as to whether the arbitral award is in

contravention with the fundamental policy of Indian law, and/or

whether it conflicts with the most basic notions of morality or

justice. Additionally, in the light of the provisions of sub-section

(2-A) of Section 34, we shall examine whether there is any patent

illegality on the face of the award.

50. Before undertaking the aforesaid exercise, it would be apposite

to consider as to how the expressions:

(a) “in contravention with the fundamental policy of Indian law”;

(b) “in conflict with the most basic notions of morality or justice”;

and

(c) “patent illegality” have been construed.

In contravention with the fundamental policy of Indian law

51. As discussed above, till the 2015 Amendment the expression

O.M.P. (COMM) 181/2024 Page 8 of 32

“in contravention with the fundamental policy of Indian law” was

not found in the 1996 Act. Yet, in Renusagar Power Co.

Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, in the

context of enforcement of a foreign award, while construing the

phrase “contrary to the public policy”, this Court held that for a

foreign award to be contrary to public policy mere contravention of

law would not be enough rather it should be contrary to:

(a) the fundamental policy of Indian law; and/or

(b) the interest of India; and/or

(c) justice or morality.

*****

55. The legal position which emerges from the aforesaid discussion

is that after “the 2015 Amendments” in Section 34(2)(b)(ii) and

Section 48(2)(b) of the 1996 Act, the phrase “in conflict with the

public policy of India” must be accorded a restricted meaning in

terms of Explanation 1. The expression “in contravention with the

fundamental policy of Indian law” by use of the word

“fundamental” before the phrase “policy of Indian law” makes the

expression narrower in its application than the phrase “in

contravention with the policy of Indian law”, which means mere

contravention of law is not enough to make an award vulnerable.

To bring the contravention within the fold of fundamental policy of

Indian law, the award must contravene all or any of such

fundamental principles that provide a basis for administration of

justice and enforcement of law in this country.

56. Without intending to exhaustively enumerate instances of such

contravention, by way of illustration, it could be said that:

(a) violation of the principles of natural justice;

(b) disregarding orders of superior courts in India or the binding

effect of the judgment of a superior court; and

(c) violating law of India linked to public good or public interest,

are considered contravention of the fundamental policy of

Indian law.

However, while assessing whether there has been a contravention

of the fundamental policy of Indian law, the extent of judicial

scrutiny must not exceed the limit as set out in Explanation 2 to

Section 34(2)(b)(ii).

*****

Patent illegality

65. Sub-section (2-A) of Section 34 of the 1996 Act, which was

inserted by the 2015 Amendment, provides that an arbitral award

not arising out of international commercial arbitrations, may also

be set aside by the Court, if the Court finds that the award is visited

by patent illegality appearing on the face of the award. The proviso

to sub-section (2-A) 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.

66. In ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, while

O.M.P. (COMM) 181/2024 Page 9 of 32

dealing with the phrase “public policy of India” as used in Section

34, this Court took the view that the concept of public policy

connotes some matter which concerns public good and public

interest. If the award, on the face of it, patently violates statutory

provisions, it cannot be said to be in public interest. Thus, an award

could also be set aside if it is patently illegal. It was, however,

clarified that 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

public policy.

67. In Associate Builders v. DDA, (2015) 3 SCC 49, this Court

held that an award would be patently illegal, if it is contrary to:

(a) substantive provisions of law of India;

(b) provisions of the 1996 Act; and

(c) terms of the contract [See also three-Judge Bench decision of

this Court in State of Chhattisgarh v. SAL Udyog (P) Ltd.,

(2022) 2 SCC 275].

The Court clarified that if an award is contrary to the substantive

provisions of law of India, in effect, it is in contravention of

Section 28(1)(a) of the 1996 Act. Similarly, violating terms of the

contract, in effect, is in contravention of Section 28(3) of the 1996

Act.

68. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)

15 SCC 131 this Court specifically dealt with the 2015

Amendment which inserted sub-section (2-A) in Section 34 of the

1996 Act. It was held that “patent illegality appearing on the face

of the award” refers to such illegality as goes to the root of matter,

but which does not amount to mere erroneous application of law. It

was also clarified that 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 [ See Ssangyong Engg. &

Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131]. Further, it

was observed, reappreciation of evidence is not permissible under

this category of challenge to an arbitral award [See Ssangyong

Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131].

Perversity as a ground of challenge

69. Perversity as a ground for setting aside an arbitral award was

recognised in ONGC Ltd. v. Western Geco International Ltd.,

(2014) 9 SCC 263. Therein it was observed that an arbitral decision

must not be perverse or so irrational that no reasonable person

would have arrived at the same. It was observed that if an award is

perverse, it would be against the public policy of India.

70. In Associate Builders v. DDA, (2015) 3 SCC 49 certain tests

were laid down to determine whether a decision of an Arbitral

Tribunal could be considered perverse. In this context, it was

observed that where:

(i) a finding is based on no evidence; or

O.M.P. (COMM) 181/2024 Page 10 of 32

(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.

However, by way of a note of caution, it was observed that when a

court applies these tests it does not act as a court of appeal and,

consequently, errors of fact cannot be corrected. Though, 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. It was also observed that 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

that score.

71. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)

15 SCC 131, which dealt with the legal position post the 2015

Amendment in Section 34 of the 1996 Act, it was observed that a

decision which is perverse, 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. It was

pointed out that an award based on no evidence, or which ignores

vital evidence, would be perverse and thus patently illegal. It was

also observed that 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 [ See Ssangyong Engg. & Construction

Co. Ltd. v. NHAI, (2019) 15 SCC 131].

72. The tests laid down in Associate Builders v. DDA, (2015) 3

SCC 49 to determine perversity were followed in Ssangyong

Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 and

later approved by a three-Judge Bench of this Court in Patel Engg.

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

167.

73. In a recent three-Judge Bench decision of this Court in DMRC

Ltd. v. Delhi Airport Metro Express (P) Ltd., (2024) 6 SCC 357,

the ground of patent illegality/perversity was delineated in the

following terms: (SCC p. 376, para 39)

“39. In essence, the ground of patent illegality is available

for setting aside a domestic award, if the decision of the

arbitrator is found to be perverse, or so irrational that no

reasonable person would have arrived at it; or the

construction of the contract is such that no fair or

reasonable person would take; or, that the view of the

arbitrator is not even a possible view. 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 under the head of “patent illegality”.

An award without reasons would suffer from patent

O.M.P. (COMM) 181/2024 Page 11 of 32

illegality. The arbitrator commits a patent illegality by

deciding a matter not within its jurisdiction or violating a

fundamental principle of natural justice.”

Scope of interference with an arbitral award

74. The aforesaid judicial precedents make it clear that while

exercising power under Section 34 of the 1996 Act the Court does

not sit in appeal over the arbitral award. Interference with an

arbitral award is only on limited grounds as set out in Section 34 of

the 1996 Act. A possible view by the arbitrator on facts is to be

respected as the arbitrator is the ultimate master of the quantity and

quality of evidence to be relied upon. It is only when an arbitral

award could be categorised as perverse, that on an error of fact an

arbitral award may be set aside. Further, a mere erroneous

application of the law or wrong appreciation of evidence by itself is

not a ground to set aside an award as is clear from the provisions of

sub-section (2-A) of Section 34 of the 1996 Act.

75. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.,

(2019) 20 SCC 1, paras 27-43, a three-Judge Bench of this Court

held that courts need to be cognizant of the fact that arbitral awards

are not to be interfered with in a casual and cavalier manner, unless

the court concludes that the perversity of the award goes to the root

of the matter and there is no possibility of an alternative

interpretation that may sustain the arbitral award. It was observed

that jurisdiction under Section 34 cannot be equated with the

normal appellate jurisdiction. Rather, the approach ought to be to

respect the finality of the arbitral award as well as party's autonomy

to get their dispute adjudicated by an alternative forum as provided

under the law.”

14. This Court would now proceed to examine the contentions of

the Petitioner on the anvil of the limited and circumscribed

jurisdiction available under Section 34 of the A&C Act, and in the

light of the principles authoritatively laid down by the Hon‟ble

Supreme Court in OPG Power Generation (supra).

(a) Unilateral appointment

15. On the first limb concerning the unilateral appointment of the

Arbitrators, it is the specific case of the Petitioner that the Respondent

- being a party to the dispute and, in effect, an interested litigant -

proceeded to constitute the Arbitral Tribunal comprising its own

retired officials, without any meaningful participation of the Petitioner

O.M.P. (COMM) 181/2024 Page 12 of 32

in the appointment process. Such a course of action, it is urged, strikes

at the root of the arbitral process, inasmuch as it compromises the

foundational requirement of neutrality, independence, and impartiality

of the learned Arbitral Tribunal.

16. The factual matrix of the present petition would indicate that the

disputes between the parties arose out of a tender dated 08.06.2021

and subsequent contractual arrangements entered into with the

Respondent-Authorities. Upon invocation of arbitration, the tribunal

comprising Shri J. N. Lal Das (Retd. IRSE) as the Presiding

Arbitrator, along with Shri Dinesh Kumar (Retd. PRCEE) and Shri

Hare Krushna Sahu (Retd. FA & CAO) as Co-Arbitrators, came to be

constituted by the Respondent.

17. The Petitioner contends that such a constitution was neither

preceded by any consensual procedure nor in consonance with the

principles of party autonomy as embodied under the A&C Act. It is

further urged that the appointment of arbitrators, all of whom were

erstwhile employees of the Respondent organization, gives rise to

justifiable doubts as to their independence and impartiality, thereby

rendering the entire arbitral process legally unsustainable.

18. In this backdrop, reliance has been placed by the learned

counsel for the Petitioner on the authoritative pronouncement of the

Hon‟ble Supreme Court in Perkins Eastman Architects DPC v.

HSCC (India) Ltd.

7

, wherein the Apex Court, after a consideration of

the statutory scheme and prior precedents, has held that a party

interested in the outcome of the dispute cannot unilaterally appoint the

arbitrator(s).

19. The issue of unilateral appointment of arbitrators has repeatedly

O.M.P. (COMM) 181/2024 Page 13 of 32

engaged the attention of the High Courts as well as the Hon‟ble

Supreme Court, particularly in the wake of the 2015 amendment to the

A&C Act and the evolving jurisprudence on the subject.

20. Recently, the Constitution Bench of the Hon‟ble Supreme Court

in Central Organisation for Railway Electrification v. ECI SPIC

SMO MCML (JV )

8

, while examining the validity of unilateral

appointments and affirming the principles enunciated in Perkins

(supra), has authoritatively clarified that a clause enabling unilateral

appointment of an arbitrator by an interested party gives rise to

justifiable doubts as to the independence and impartiality of the

arbitral tribunal. In such circumstances, the same would be legally

untenable, being contrary to the mandate of fairness and equality

embedded in Article 14 of the Constitution of India.

21. However, the aforesaid principle applies only in cases where the

element of unilateralism subsists in the constitution of the tribunal.

Where the appointment procedure reflects participation, mutual

consent, and a valid waiver in terms of the statutory framework

contemplated under the proviso to Section 12(5) of the A&C Act, the

mischief sought to be addressed in the aforesaid judgments would not

arise. The relevant paragraphs of Central Organisation for Railway

Electrification (supra) are reproduced herein below:

“63. Although the Arbitration Act recognises the autonomy of

parties to decide on all aspects of arbitration, it also lays down a

procedural framework to regulate the composition of the Arbitral

Tribunal and conduct of arbitral proceedings. The incorporation of

Section 12(5) is a recognition of the well-established principle that

quasi-judicial proceedings should be conducted consistent with the

principles of natural justice. Section 18 serves as a guide for

Arbitral Tribunals to follow the principles of equality and fairness

during the conduct of arbitral proceedings. Thus, the Arbitration

7

(2020) 20 SCC 760

8

(2025) 4 SCC 641

O.M.P. (COMM) 181/2024 Page 14 of 32

Act requires the Arbitral Tribunals to act judicially in determining

disputes between parties. [Engg. Mazdoor Sabha v. Hind Cycles

Ltd., 1962 SCC OnLine SC 134, para 5; Dewan

Singh v. Champat Singh, (1969) 3 SCC 447, para 9]

*****

74. Under Sections 12(1) and 12(5), the Arbitration Act recognises

certain mandatory standards of independent and impartial tribunals.

The parties have to challenge the independence or impartiality of

the arbitrator or arbitrators in terms of Section 12(3) before the

same Arbitral Tribunal under Section 13. [Chennai Metro Rail

Ltd. v. Transtonnelstroy Afcons (JV), (2024) 6 SCC 211, para

33] If the tribunal rejects the challenge, it has to continue with the

arbitral proceedings and make an award. Such an award can always

be challenged under Section 34. However, considerable time and

expenses are incurred by the parties by the time the award is set

aside by the courts. Equal participation of parties at the stage of the

appointment of arbitrators can thus obviate later challenges to

arbitrators.

*****

116. Section 12(5) automatically disqualifies any person whose

relationship with the parties or counsel or subject-matter of the

dispute falls under any of the categories mentioned under the

Seventh Schedule. The categories listed in the Seventh Schedule in

essence denote situations where an arbitrator might have a

pecuniary, proprietary, or cause-based interest in the arbitration.

For instance, employees of either of the parties are barred from

acting as an arbitrator because they have an immediate financial

and cause-based interest in the arbitration. If such an employee is

appointed as an arbitrator, they would be sitting as a Judge in their

cause because they have a pecuniary interest in the outcome of the

case.

*****

120. The categories mentioned under the Seventh Schedule are

such that it is difficult to distinguish the interests of an arbitrator

from those of a party to which an arbitrator is connected. In such

cases, the issue is whether the outcome of the arbitration will

realistically affect the arbitrator's interests. The law prioritises the

objective criterion of independence over the subjective criterion of

impartiality. Once it is established that an arbitrator falls under any

of the categories mentioned in the Seventh Schedule, they are

automatically disqualified without any investigation into whether

or not there is any real likelihood of bias. Since the ineligibility

envisaged under Section 12(5) goes to the root of the appointment,

an application may be filed under Section 14(2) of the Arbitration

Act to the Court to decide on the termination of the arbitrator's

mandate. [HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471,

para 12]

121. An objection to the bias of an adjudicator can be waived.

O.M.P. (COMM) 181/2024 Page 15 of 32

[Supreme Court Advocates-on-Record Assn. v. Union of India,

(2016) 5 SCC 808, para 30] A waiver is an intentional

relinquishment of a right by a party or an agreement not to assert a

right. [State of Punjab v. Davinder Pal Singh Bhullar, (2011) 14

SCC 770, para 41] The Arbitration Act allows parties to waive the

application of Section 12(5) by an express agreement after the

disputes have arisen. However, the waiver is subject to two factors.

First, the parties can only waive the applicability of Section 12(5)

after the dispute has arisen. This allows parties to determine

whether they will be required or necessitated to draw upon the

services of specific individuals as arbitrators to decide upon

specific issues. To this effect, Explanation 3 to the Seventh

Schedule recognises that certain kinds of arbitration such as

maritime or commodities arbitration may require the parties to

draw upon a small, specialised pool. The second requirement of the

proviso to Section 12(5) is that parties must consciously abandon

their existing legal right through an express agreement. Thus, the

Arbitration Act reinforces the autonomy of parties by allowing

them to override the limitations of independence and impartiality

by an express agreement in that regard.

122. The proviso to Section 12(5) is a reflection of the common

law doctrine of necessity. The nemo judex rule is subject to the

doctrine of necessity and yields to it. [Union of India v. Tulsiram

Patel, (1985) 3 SCC 398, para 101; Swadeshi Cotton

Mills v. Union of India, (1981) 1 SCC 664] The doctrine of

necessity allows an adjudicator who may be disqualified because of

their interest in the matter to continue to adjudicate because of the

necessity of the circumstances. [Charan Lal Sahu v. Union of

India, (1990) 1 SCC 613, para 105] The proviso to Section 12(5)

allows parties to exercise their autonomy to determine if there is a

necessity to waive the applicability of the ineligibility prescribed

under Section 12(5). Thus, common law principles and doctrines

are adjusted to subserve the fundamental principles of arbitration

by giving priority to the autonomy of parties.

123. In Bharat Broadband Network Ltd. v. United Telecoms Ltd.,

(2019) 5 SCC 755, this Court held that the proviso to Section 12(5)

requires an express agreement in writing, that is, an agreement

made in words as opposed to an agreement that can be inferred by

conduct. It was explained that such an agreement must be made by

both parties with full knowledge of the fact that although a

particular person is ineligible to be appointed as an arbitrator, the

parties still have full faith and confidence in them to continue as an

arbitrator. [Bharat Broadband Network, (2019) 5 SCC 755, p.

771, para 20. This Court observed: “20. … It is thus necessary that

there be an “express” agreement in writing. This agreement must

be an agreement by which both parties, with full knowledge of the

fact that Shri Khan is ineligible to be appointed as an arbitrator,

still go ahead and say that they have full faith and confidence in

O.M.P. (COMM) 181/2024 Page 16 of 32

him to continue as such.”] The principle of express waiver

contained under the proviso to Section 12(5) also applies to

situations where the parties seek to waive the allegation of bias

against an arbitrator appointed unilaterally by one of the parties.

After the disputes have arisen, the parties can determine whether

there is a necessity to waive the nemo judex rule. This balances the

autonomy of parties and the principles of an independent and

impartial Arbitral Tribunal.

*****

129. Equal treatment of parties at the stage of appointment of an

arbitrator ensures impartiality during the arbitral proceedings. A

clause that allows one party to unilaterally appoint a sole arbitrator

is exclusive and hinders equal participation of the other party in the

appointment process of arbitrators. Further, arbitration is a quasi-

judicial and adjudicative process where both parties ought to be

treated equally and given an equal opportunity to persuade the

decision-maker of the merits of the case. An arbitral process where

one party or its proxy has the power to unilaterally decide who will

adjudicate on a dispute is fundamentally contrary to the

adjudicatory function of arbitral tribunals.

*****

169. In the present reference, we have upheld the decisions of this

Court in TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC

377 and Perkins Eastman Architects DPC v. HSCC (India) Ltd.,

(2020) 20 SCC 760 which dealt with situations dealing with sole

arbitrators. Thus, TRF Ltd. v. Energo Engg. Projects Ltd., (2017)

8 SCC 377 and Perkins Eastman Architects DPC v. HSCC

(India) Ltd., (2020) 20 SCC 760 have held the field for years now.

However, we have disagreed with Voestalpine Schienen

GmbH v. DMRC Ltd., (2017) 4 SCC 665 and Central

Organisation for Railway Electrification v. ECI-SPIC-SMO-

MCML (JV), (2020) 14 SCC 712 which dealt with the

appointment of a three-member Arbitral Tribunal. We are aware of

the fact that giving retrospective effect to the law laid down in the

present case may possibly lead to the nullification of innumerable

completed and ongoing arbitration proceedings involving three-

member tribunals. This will disturb the commercial bargains

entered into by both the government and private entities. Therefore,

we hold that the law laid down in the present reference will apply

prospectively to arbitrator appointments to be made after the date

of this judgment. This direction only applies to three-member

tribunals.

J. Conclusion

170. In view of the above discussion, we conclude that:

170.1. The principle of equal treatment of parties applies at all

stages of arbitration proceedings, including the stage of

appointment of arbitrators;

O.M.P. (COMM) 181/2024 Page 17 of 32

170.2. The Arbitration Act does not prohibit PSUs from

empanelling potential arbitrators. However, an arbitration clause

cannot mandate the other party to select its arbitrator from the

panel curated by PSUs;

170.3. A clause that allows one party to unilaterally appoint a sole

arbitrator gives rise to justifiable doubts as to the independence and

impartiality of the arbitrator. Further, such a unilateral clause is

exclusive and hinders equal participation of the other party in the

appointment process of arbitrators;

170.4. In the appointment of a three-member panel, mandating the

other party to select its arbitrator from a curated panel of potential

arbitrators is against the principle of equal treatment of parties. In

this situation, there is no effective counterbalance because parties

do not participate equally in the process of appointing arbitrators.

The process of appointing arbitrators in Central Organisation for

Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2020)

14 SCC 712 is unequal and prejudiced in favour of the Railways;

170.5. Unilateral appointment clauses in public-private contracts

are violative of Article 14 of the Constitution;

170.6. The principle of express waiver contained under the proviso

to Section 12(5) also applies to situations where the parties seek to

waive the allegation of bias against an arbitrator appointed

unilaterally by one of the parties. After the disputes have arisen, the

parties can determine whether there is a necessity to waive

the nemo judex rule; and

170.7. The law laid down in the present reference will apply

prospectively to arbitrator appointments to be made after the date

of this judgment. This direction applies to three-member tribunals.”

(emphasis supplied)

22. Turning to the factual matrix of the present case, this Court

takes note of the correspondence exchanged between the parties,

particularly the letters dated 08.02.2023 and 28.04.2023, which have a

direct bearing on the issue concerning the constitution of the learned

Arbitral Tribunal.

23. The letter dated 08.02.2023, issued by the Petitioner in response

to the Respondent‟s communication dated 31.01.2023, was

accompanied by an agreement evidencing a waiver under Section

12(5) of the A&C Act. A careful perusal of the said letter reveals that

the Petitioner expressly acknowledged and accepted the condition

relating to the waiver of the applicability of Section 12(5) of the A&C

O.M.P. (COMM) 181/2024 Page 18 of 32

Act. The contents of the communication clearly demonstrate that the

Petitioner, being fully conscious of the legal implications of such

waiver, conveyed its unequivocal consent to waive the applicability of

Section 12(5) of the A&C Act and to proceed in accordance with the

appointment mechanism proposed by the Respondent.

24. This position is further reinforced by the subsequent

communication dated 28.04.2023 issued by the Petitioner, wherein, in

terms of the applicable contractual framework, the Petitioner selected

two arbitrators from a panel of four retired Railway officers forwarded

by the Respondent. The said sequence of correspondence, when read

holistically, evidences a mutual and informed participation of both

parties in the process of constitution of the learned Arbitral Tribunal.

The relevant portion of the Petitioner‟s letters dated 08.02.2023 and

28.04.2023 reads as follows:

i) Letter Dated 08.02.2023:

“…

*****

Subject: - Acceptance of Waiver of u/s 12(5) under the process of

Appointment of Arbitrator under Clause 2900 of IRS Conditions of

Contract for Adjudication the dispute (s) Regarding the Railways'

Claim for imposition of Risk Purchase (RP) amount for

Rs.61,23,790/- against P.O. No. 08215078206307 dt. 22.12.2021 &

08215380201008 dt. 18.02.22 For Supply of 30X1.5 Signaling

Cable placed by, Northern Railway/Delhi.

Ref. No.:- Your Letter No. ARB/ P-08/LD/M/s Krishna

Udyog/2022 Dated 31.02.2023

Respected sir,

“We have received your letter No. ARB/ P-08/LD/M/s Krishna

Udyog/2022 monitoring of Arbitration Cases Dated 31.01.2023

against our legal notice dated 18.01.2023 for appointment of

Arbitrator under the above mentioned Risk Purchase Dispute,

mentioned with acceptance of waive off the applicability of Section

12 (5) of arbitration & Conciliation Act.

O.M.P. (COMM) 181/2024 Page 19 of 32

Further, we hereby enclosing our acceptance with annexure as

mentioned in your above said Letter.

Kindly appoint the Arbitrator for justice against not applicability of

Risk Purchase & release the deducted amount with Interest as per

MSME Act. under the Said P.O.

*****

…….”

(emphasis supplied)

ii) Letter Dated 28.04.2023:

“….

*****

Sub: Appointment of Sole Arbitrator against P.O No.

08215078206307 dated 22.12.2021 & P.O No. 08215380201008

dated 18.02.202.

Ref: Letter No. ARB/P-08/LD/M/s Krishna Uydog/2023 dated

05.04.2023.

“This has refer to caption subject and cited reference

regarding appointment of Arbitrator in terms of Railway Board's

letter No. 2018/TF/Civil/Arbitration Policy dated 12.12.2018 and

clause 2905 a(i) of IRS Conditions of Contract.

We hereby suggest the following two person out of four

retired Railway Officers panel, which has been approved by

Hon'ble General Manager/N Rly

1. Sh. Pradeep Kumar, Retd. PCMM/NR

2. Sh. Dinesh Kumar, Retd. PCEE/RCF/KXH

Hope you would find the above in order and appoint the Arbitrator

accordingly.”

(emphasis supplied)

25. A perusal of the aforesaid communications clearly demonstrates

that the Petitioner had, with full awareness and deliberation,

consciously and unequivocally agreed to the procedure governing the

constitution of the learned Arbitral Tribunal, including the waiver of

the statutory ineligibility contemplated under Section 12(5) of the

A&C Act. The proviso to Section 12(5) expressly permits such a

waiver, provided it is effected through an express agreement in writing

O.M.P. (COMM) 181/2024 Page 20 of 32

after the disputes have arisen.

26. In the present case, the Petitioner‟s letter dated 08.02.2023

satisfies this statutory requirement, as it constitutes a clear and

unambiguous written waiver of the applicability of Section 12(5) of

the A&C Act. This position stands further fortified by the Petitioner‟s

subsequent conduct, particularly its active participation in the process

of nominating and forwarding a panel of arbitrators, from which the

Respondent proceeded to make its selection in terms of the contractual

framework.

27. In light of the foregoing, this Court is of the considered opinion

that the Petitioner, having expressly consented to the agreed procedure

and participated in its implementation, cannot now be permitted to

resile from its earlier position and assail the constitution of the learned

Arbitral Tribunal on the ground of unilateral appointment or alleged

lack of independence. The challenge to the Impugned Award on this

count is, therefore, devoid of merit and does not warrant acceptance.

(b) Imposition of liquidated damages (LD)

28. Turning to the second plank of challenge, the Petitioner

contends that the imposition of LD by the Respondent, as upheld by

the learned Arbitral Tribunal, is contrary to the mandate of Sections

73 and 74 of the Contract Act.

29. It is the case of the Petitioner that, in the absence of any

quantification or proof of actual loss, the levy and recovery of LD is

impermissible in law. On this basis, it is urged that the Impugned

Award, insofar as it sustains such recovery, is liable to be set aside.

30. This Court has carefully examined the Impugned Arbitral

Award, particularly the findings returned on the issue of imposition of

O.M.P. (COMM) 181/2024 Page 21 of 32

LD, which constituted the first issue for determination before the

learned Arbitral Tribunal. The relevant discussion and conclusions of

the Tribunal on this aspect are reproduced hereunder:

“4.1 Deliberations by the AT:

4.1.1 Issue No.1: Whether imposition of LD was justified and

valid

i. LD has been imposed on the PO No.8215078206307 dated

22.12.2022 under Rate Contract No.08215078/01/KRISHNNP-

08/2021 dated 20/12/21 for Rs.61,23,790/- for delay of supplies

beyond 15.06.2022.

ii. Both Parties agree that the Contract has provision for Liquidated

Damages in Para 4.0 of the Special Conditions of the Contract.

It reads as follows:

"4.0 LIQUIDATED DAMAGES

4.1 In case of failure on the part of the supplier to arrange supplies

as per the delivery schedule/instalments fixed in advance, save

force majeure conditions and delays attributable to purchaser,

the purchaser reserves the right to levy liquidated damages

which shall be as per Para 702(a) of IRS Conditions of

Contract for delayed quantity which have remained unsupplied

for that period.

4.2 Recovery of Liquidated Damage (LD) shall be levied @ 112 %

of the price of the store per week or part of the week during

which the delivery is accepted and the upper limit for recovery

of LD in supply contract is 10% (ten percent) of the value of

the contract, irrespective of delays, unless otherwise provided,

specifically in the contract".

iii. Since the above Special Condition of Contract derives its

mandate from Para 702(a) of IRS Conditions of Contract, it

would be appropriate to go through the provisions as well:

"0702 Failure and Termination: If the Contractor fails to

deliver the stores or any instalment thereof within the period

fixed for such delivery in the contract or as extended or at any

time repudiates the contract before the expiry of such period,

the Purchaser may, without prejudice to his other rights:-

(a) Recover from the Contractor as agreed liquidated damages

and not by way of penalty, a sum equivalent to 2 percent of

the price of any stores (including elements of taxes, duties,

freight, etc) which the Contractor has failed to deliver

within the period fixed for delivery in the contract or as

extended for each month or part a month which the delivery

of such stores may be in arrears where delivery thereof is

accepted after expiry of the aforesaid period, ... "

iv. IRS Conditions of Contract govern all stores supply contracts in

Indian Railways. It is clear from the above extracts that the

Special Conditions of the Contract has provision for Liquidated

O.M.P. (COMM) 181/2024 Page 22 of 32

Damages as mandated by Para 702(a) the IRS Conditions of

Contract. Para 702(a) mandates that "wherever the Contractor

has failed to deliver within the period fixed for delivery or as

extended" liquidated damages (LD) will be recovered.

v. In other words, there is no ambiguity in the mutually agreed

Contract Conditions with regard to

1. whether LD can be applied, and if so,

2. when LD will be imposed and

3. at what rates.

The IRS Condition envisages that LD is attracted when the

'Contractor fails to deliver within the period fixed for delivery

or as extended .... '. In other words, the condition stipulates that

LD will be attracted after expiry of original delivery period or

extended delivery period.

vi. In the present case, the delivery period was extended up to

15.06.2022 vide MA-3 (Modification Advice) dated 19.01.2022.

By MA-6 dated 17.06.2022 the delivery period was extended it

up to 15.09.2022 with imposition of LD. However, MA-6

clarifies in the Note below that "..... the above extension of

delivery date is subject to recovery of an amount equal to full

liquidated Damages for delay in supply of stores after the

expiry of the Contract Delivery period notwithstanding grant

of extension". In other words, the MA clarified that the Contract

Delivery Date remained 15.06.2022 and any supply thereafter

will attract full LD. The date 15.09.2022 is time given to

complete the supply with LD, and if the supplier fails to

complete within this date, the Purchaser can resort to other

rights it has under the Contract, such as terminating the Contract

(para-3 of Note).

vii. The Respondent has argued that these are the agreed provisions

of the Contract and therefore, both sides have to adhere to these.

viii. Claimant's argument against LD: The Claimant had

accepted the provisions of the tender and accordingly quoted his

rates and subsequently accepted the condition in the Contract

and continued performing under the contract. However,

Claimant's argument, is that LD provisions in the contract are

not applicable, because the DPs was extended, and by extending

the DPs without LO, the Respondent had repudiated the

principle of 'time being essence of contract' and when 'time is

not the essence of contract' LD is not applicable. Thus,

Claimant's argument stands on two pillars viz.

a) When 'time is not the essence of contract' LD is not

applicable.

b) In the present contract by extending the DPs, the Respondent

has changed the nature of the contract where 'time is not the

essence'.

ix. Source/basis of Claimant's above argument: There is nothing

in IRS Conditions of Contract or elsewhere in the Contract to

O.M.P. (COMM) 181/2024 Page 23 of 32

validate this line of argument. However, the Ld. Counsel of the

Claimant argued referring to two judgements, one from High

Court of Delhi (OMP (COMM) 266/2023, IA13723/2023, IA

1372/2023, IA 13725/2023, IA 13726/2023 in the matter of

Vivek Khanna vs OYO Apartments Investments LLP) and more

importantly, a judgment of the Hon'ble Supreme Court (in Civil

Appeal No.6834 of 2021 arising out of SLP (C) No.19203 of

2012 in ONGC vs Remi Metals Gujarat) to establish their

argument. The Claimant has enclosed copies of the judgments.

x. Supreme Court judgment in appeal case (in Civil Appeal No.

6834 of 2021 arising out of SLP (C) No.19203 of 2012 in

ONGC vs Remi Metals Gujarat): The Ld. Counsel for the

Claimant spent considerable time explaining his logic and

arguments based on this judgment. It would be worthwhile to

discuss the judgment since the Claimant has based its

justification against LD mainly on the Judgment in the above

case. The brief details of the judgements are as follows:

a) There was a contract between ONGC and Remi Metals

Gujarat for supply of seamless steel casing pipes within a

fixed 'delivery date'. The contract had provision for

imposition of LD in case of delay in delivery. The contract

did not have provision for extension of delivery period. Its

provision simply had the delivery period and beyond that

delivery period LD on the delayed supply was provided,

which however, could be waived. ONGC twice extended the

delivery period without LD (after waiving the LD) but,

further extensions of delivery periods were with LD (without

waiving the LD). Accordingly, LD was imposed by ONGC as

per pre-estimated rate given in the Contract. Remi Metals

Gujarat challenged the imposition of LD in an Arbitration.

The Arbitral Tribunal gave its Award against ONGC.

Aggrieved by the Award, ONGC challenged it in the District

Court, which upheld the Award of the Tribunal but made

changes to the Cost of Arbitration. Aggrieved by the

judgment of the District Court, both the parties approached

High Court. The Hon'ble High Court reversed the decision of

the district Court and held that the Arbitral Tribunal as well

as the District Court committed grave errors in arriving at the

conclusion that ONGC had to prove the loss suffered before

imposing LD. This time the Remi Metals Gujarat approached

the Hon'ble Supreme Court with an SLP against the judgment

of the High Court.

b) Hon'ble Supreme Court went into the subject at great lengths

in examining the issues involved in the case, including

discussion on the provisions in Indian Contract Act (Section-

74) for 'Compensation for breach of contract where penalty

stipulated for, and the Apex Court also referred to their own

judgement in ONGC vs Saw Pipes case where they had

O.M.P. (COMM) 181/2024 Page 24 of 32

upheld imposition of LD.

c) However, finally Hon'ble Supreme Court upheld the Award

given by the Arbitral Tribunal with the following rulings:

1. "The Arbitral Tribunal's interpretation of contractual

clauses having extension procedures and imposition of

liquidated damages, are good indicators that 'time was

not the essence of the contract’.

2. The Arbitral Tribunal's view to impose damages on

actual loss basis could be sustained in view of the

waiver of liquidated damages and absence of precise

language which allows for reimposition of liquidated

damages. Such impositior, is in line with the 2nd para

of Section 55 of the Indian Contract Act.

3. The Arbitral Tribunal was correct in distinguishing the

dictum of this Court in ONGC vs Saw Pipes which

validated imposition of liquidated damages in a similar

contract.

4. .. ...... (not quoted as not related to present case)

5. .. ...... (not quoted as not related to present case)"

xi. The above operative part of the judgment has the following

important points:

a) The Apex Court agrees with the Arbitral Tribunal's

interpretation of the contractual clauses in the ONGC

Contract, which made the Tribunal to conclude that in that

contract 'time was not the essence of the contract' since

ONGC waived its right to impose LD while giving extensions

and then reimposed the same in subsequent extensions.

b) The Apex Court also agreed with the Arbitral Tribunal

making a distinction between their decision in ONGC vs Saw

Pipes case where they had upheld imposition of LD in a

similar case, and not in the ONGC vs Remi Metals case as

ONGC waived its right to impose LD.

c) The Apex Court further agreed with the Tribunal's decision to

impose damages on actual calculation of damages to ONGC

in view of „waiver of LD' by ONGC in the first extensions.

xii. Thus, the Hon'ble Supreme Court only agreed with the Arbitral

Tribunal's interpretation of the ONGC contract for imposition of

damages on 'actual evaluation' basis rather than on the pre-

estimated rate stated in the contract, since ONGC allowed -

'waiver' of LD twice before reimposing the same in subsequent

extensions. Even though the Apex Court in a similar case

(ONGC vs Saw Pipes) upheld the imposition of LD at pre-

estimated rate, since there was no waiver of LD, rather the

ONGC exercised it, they agreed with the Tribunal. In the case of

ONGC vs Remi Metals, since there was „waiver of LD' at the

very beginning followed by re-imposition in subsequent

extensions, the Apex Court agreed with the Tribunal's decision

for no 'pre-fixed LD' but damages on 'evaluation basis'.

O.M.P. (COMM) 181/2024 Page 25 of 32

xiii. In other words, the decision of the Hon'ble Supreme Court in

the ONGC vs Remi Metals is not an universal dictum relating to

imposition of LD. It is only an approval of the interpretation as

per the wisdom of the Arbitral Tribunal for denial of 'pre-fixed

LD' but imposition of damages on actual basis, because of the

way the contract was executed (first by extensions by waiving

LD and then imposing the LO). AT looked at the various

observations of the Hon'ble Court before they came to the last

operative part of their judgement. The following are the gist of

their observations:

a) Firstly, the Apex Court discussed and emphasised the

principles of Indian Contract Act with regard to 'liquidated

damages' (para-26 of the judgment) as follows:

" ........ Under Indian Contract Law, such liquidated

damages are recognised, subject to the same being

reasonable. Section 7 4 of Indian Contract Act provides

that:

74. Compensation for breach of contract where penalty

stipulated for - When a contract has been broken, if a sum

is named in the contract, as the amount to be paid in case of

such breach, or if the contract contains any other

stipulation by way of penalty, the patty complaining the

breach is entitled whether or not actual damage or loss is

proved to have been caused thereby, to receive from the

party who has broken the contract, reasonable

compensation not exceeding the amount so named, or, as

the case may be, the penalty stipulated for .... "

b) Secondly, while agreeing with the Tribunal's conclusion that

in the Contract execution (ONGC vs Remi Metals) time was

not the essence, the Apex Court recorded (para-29) some

basic principles, viz.

i. The general rule is that promisor is bound to complete

the obligation by the date for completion stated in the

contract.

ii. However, the promisee is not entitled to liquidated

damages, if by his act of omission or commission he

prevented the promisor from completing the work by the

completion date.

iii. These general principles may be amended by the

express terms of contract

c) Thirdly, the Apex Court observed (para-30) that "whether

time is of essence in a contract, has to be culled out from

the reading of the entire contract, as well as the

surrounding circumstances. Merely having an explicit

clause may not be sufficient to make time the essence of the

contract. As the contract was spread over a long tenure, the

intention of the parties to provide for extensions surely

O.M.P. (COMM) 181/2024 Page 26 of 32

reinforces the fact that timely performance was necessary.

The fact that such extensions were granted indicates ONGC's

effort to uphold the integrity of the contract instead of

repudiating the same".

d) Fourthly, and this seems to be the most important to the

present Tribunal, the Apex Court observed (para 32) that in

ONGC vs Saw Pipes they had upheld ONGC's right to

impose LD which derives its strength from Section-73 and

Section-74 of the Indian Contract Act, which envisages that

"when a contract has been broken, if a sum is named in

the contract as the amount to be paid in the case of such

breach, the party complaining of breach is entitled,

whether or not actual loss is proved to have been caused,

thereby to receive from the party who has broken the

contract, reasonable compensation not exceeding the

amount so named". However, while in ONGC vs Saw Pipes,

the purchaser had extended the 'time of supply' subject to

recovery of 'prefixed LD', this pattern of decision was not

followed in the ONGC vs Remi Metals case (they had

extended time by waiving LD twice and then imposed LD),

and the Tribunal distinguished the ONGC vs Remi Metals

case from the ONGC vs Saw Pipes on the ground of

'waiver' of LD and decided that damages can be imposed

on assessment of actual loss and not by pre-estimated rate

of damages.

e) Finally, the Apex Court talked about (para-33) the 'waiver' of

LD specifically as the distinguishing feature between ONGC

vs Remi Metals and ONGC vs Saw Pipes. In the ONGC vs

Remi Metals, the LD was waived twice before giving

extension with pre-estimated damages. Here the Hon'ble

Court agreed with the Tribunal that once LD were waived in

the first extensions, subsequent extensions cannot be coupled

with LD. Therefore, when ONGC waived the LD initially,

they can not be reimposed unless such imposition was clearly

accepted by the parties. The Hon'ble Court stated that this

interpretation of the Tribunal can not be faulted with as being

perverse.

xiv. On the basis of the above discussion on the judgement of the

Apex Court, AT examined whether the present contract under

the AT (Northern Railway vs Krishna Udyog) in its execution,

was similar to ONGC vs Saw Pipes or ONGC vs Remi

Metals, so that the observations/rulings of the Hon'ble SC in the

above judgment can be applied.

xv. AT notes that there are two important differences between the

ONGC contracts (Saw Pipes and Remi Metals) and the present

contract (Krishna Udyog). These differences are the following:

*****

xvi. To elaborate further, AT notes that while ONGC contract does

O.M.P. (COMM) 181/2024 Page 27 of 32

not permit extension of DP without LD, present contract under

consideration (i.e. between Northern Railway and Krishna

Udyog) permits extension of DP and once further extension is

not granted, LD starts for the period beyond the last extended

date, and once LD is imposed, there is no provision to waive the

same. On the other hand, in the ONGC contracts, DP is fixed

and any extension given is with LD only. However, the

competent authority has the power to waive LD. As a result,

while in ONGC vs Saw Pipes case, LD was imposed, not

waived and therefore, the Apex Court upheld ONGC's right to

recover LD, but, in the case of ONGC vs Remi Metals, since LD

was waived twice before being re-imposed by ONGC, the Apex

Court agreed with the interpretation of the Arbitral Tribunal that

once LD has been waived, it could not have been re-imposed.

Therefore, the damages were evaluated by the Tribunal on

actual basis (they imposed damages to the tune of US $ 4,40, 61

0.42) and not on pre-estimated basis (US$ 8,07,804.03 and

Rs.1,05,367 recovered) as the terms of LD stipulated.

xvii. The present AT notes that there is nothing in the above

deliberations to suggest that the Hon'ble Court stipulated in their

judgement relied upon by the Claimant (ONGC vs Remi

Metals), that once extension of time is granted for DP (on any

ground) imposition of LD is prohibited.

xviii. Therefore, AT does not find merit in the claim of the Ld.

Counsel for the Claimant on the basis of their interpretation of

the Hon'ble Supreme Court's judgment in ONGC vs Remi

Metals case.

xix. The Ld. Counsel for the Claimant also referred to Para-20 of

the other Judgement that they referred to (High Court of Delhi

(OMP (COMM) 266/2023, IA 13723/2023, IA 1372/2023, IA

13725/2023, IA 13726/2023 in the matter of Vivek Khanna vs

OYO Apartments Investments LLP). In this case, the Hon'ble

Court observes in Para-20 that sums ascertained as LD in the

contract is not in the nature of penalty, but is a pre-estimate of

loss estimated by the parties likely to be suffered by a party in

the event of breach of contract by the other party. Loss must be

incurred by a party in order to claim the same. LD are not

payable merely as a penalty for breach of contract, if no loss is

suffered .....

xx. Relying upon the above judgment, the Ld. Counsel for the

Claimant stated that LD can not be imposed as a penalty, and

loss needs to be proved to have been actually incurred. AT does

not find much ground for drawing any inference from the above

judgment, firstly because the Section 702 of the IRS Conditions

of Contract, specifically states in respect of LD to be "recovered

from the Contractor as agreed liquidated damages and not by

way of penalty ........ " whereas there is no clarity in the Lease

Agreement between Vivek Khanna and OYO Apartment about

O.M.P. (COMM) 181/2024 Page 28 of 32

the recovery of LD/Penalty in case of termination of Lease

before the expiration of the lock in period, and secondly, after

deliberation of the observations and decisions of the Hon'ble

Supreme Court, in this judgment, there is little left to be further

deliberated or debated on the issue of applicability of LD in

supply contract.

xxi. The Ld. Counsel for the Respondent referred to three

judgments to uphold the correctness of the LD imposition by

them. These cases are the following ones:

i. Calcutta High Court judgment in Bhudar Chandra Goswami

vs CRS Betts on 261h May 2015

ii. Supreme Court judgment in Mahabir Prasad Rugnta vs Durga

Datt on 31st January 1961

iii. Delhi High Court judgment in Haryana Telecom Ltd vs UOI-

11 May 2006.

xxii. The Ld. Counsel for the Respondent emphasised, on the basis

of extracts from the above three judgments that the purchaser is

entitled to compensation in case of breach of contract by the

supplier, and when a pre-estimated damage/loss is provided in

the Contract, the same becomes enforceable. He relied upon

sections 55 and 73 of the Indian Contract Act to support

Imposition of LD at the 'pre-fixed' rate reflected in the contract

and recovery there from the bills of the Claimant at the material

time.

4.1.2 Conclusion of AT in respect of Claim No.1: In the light of

the above deliberations, AT concludes that imposition of LD by the

Respondent in this case as per the terms of the Contract, the

intention was clear and the language was unambiguous and time, as

defined in the Contract Condition (Clause 700 of IRS Conditions of

Contract), remained the 'essence of contract'. Therefore, the action

of the Respondent in imposition and recovery of LD is valid and

does not suffer from any deficiency, either contractual or

procedural.

…..”

31. A bare perusal of the above-extracted portion of the Impugned

Award makes it evident that the learned Arbitral Tribunal has duly

considered the factual matrix, the contractual framework, and the

evidence adduced by the parties in support of their respective

contentions, and thereafter arrived at a reasoned conclusion rejecting

the claim of the Petitioner herein/ Claimant herein. The reasoning

underlying such a conclusion, though not exhaustively set out herein,

O.M.P. (COMM) 181/2024 Page 29 of 32

may be summarised as follows:

(a) The learned Arbitral Tribunal noted that the contract expressly

incorporates provisions for LD under the Special Conditions,

which derive their authority from Paragraph 702(a) of the IRS

Conditions of Contract. These provisions clearly stipulate that

LD becomes applicable in the event of failure by the supplier to

deliver within the prescribed or extended delivery period. The

rate at which LD is to be levied, as well as the maximum

permissible limit, are also specifically defined, thereby leaving

no scope for ambiguity or discretionary interpretation.

(b) The learned Tribunal observed that the delivery period, which

was initially extended up to 15.06.2022, was subsequently

extended further up to 15.09.2022 with an express stipulation

for imposition of LD. Importantly, the extension document

clarified that LD would be recoverable for any delay beyond

15.06.2022, notwithstanding the grant of further time for

completion. Thus, the contractual framework clearly identified

delay beyond the original or extended timeline as the triggering

factor for LD.

(c) The learned Tribunal held that the manner in which extensions

were granted did not dilute the fundamental nature of the

contract. Instead, the structure of the extensions, particularly

those granted with LD, preserved the sanctity of the original

delivery obligations. The grant of additional time was merely a

concession to facilitate completion, subject to consequences,

and did not indicate that timely performance had ceased to be

essential.

O.M.P. (COMM) 181/2024 Page 30 of 32

(d) The Claimant therein/ Petitioner herein contended that once the

delivery period was extended, time ceased to be the essence of

the contract, and consequently, LD could not be imposed.

However, the learned Tribunal found no support for this

proposition within the contractual terms. It was held that mere

extension of time does not negate the applicability of LD,

especially in the absence of any express waiver. Accordingly,

the Claimant‟s argument was rejected as being contrary to the

contractual framework.

(e) The learned Tribunal distinguished the present case from the

decision in O.N.G.C. Ltd. vs. Remi Metals Gujarat Ltd.

9

, where

LD had initially been waived and subsequently reimposed,

leading the Hon‟ble Supreme Court to disallow recovery of pre-

estimated damages. In contrast, in the present case, there was no

waiver of LD at any stage, and all extensions were consistently

granted subject to LD. Therefore, the factual and contractual

matrix being materially different, the ratio of the said judgment

was held to be inapplicable.

(f) The learned Tribunal found that the present case was more

closely aligned with the principles laid down in ONGC v. Saw

Pipes Ltd.

10

, wherein the Hon‟ble Supreme Court upheld the

enforceability of pre-estimated damages in the absence of any

waiver. Since the contract in the present case clearly provided

for LD and the same was consistently enforced, the Respondent

was entitled to recover LD without the necessity of proving

actual loss.

9

C.A. No. 6834/2021

10

(2003) 5 SCC 705

O.M.P. (COMM) 181/2024 Page 31 of 32

(g) The learned Tribunal rejected the Claimant‟s contention that LD

could not be imposed without proof of actual loss. It was

observed that the IRS Conditions of Contract explicitly

characterize LD as agreed compensation and not as a penalty. In

such circumstances, once the parties have mutually agreed upon

a pre-estimated measure of damages, proof of actual loss is not

a prerequisite for recovery.

(h) The Respondent relied on various judicial precedents to

substantiate the enforceability of LD clauses, emphasizing that

pre-estimated damages agreed between the parties are legally

binding. As per the learned Tribunal, these authorities also

reinforce the principle that, in the event of breach, the aggrieved

party is entitled to reasonable compensation under Sections 55,

73, and 74 of the Contract Act, particularly where such

compensation has been contractually predetermined.

(i) In culmination of its analysis, the learned Tribunal concluded

that the contractual terms governing LD were clear,

unambiguous, and binding on the parties. There was no waiver

of LD at any stage, and the extensions granted did not alter the

essence of the contract. Consequently, the imposition and

recovery of LD by the Respondent were held to be valid,

lawful, and in strict conformity with both the contractual

provisions and the applicable legal framework.

32. It is thus evident that the learned Arbitral Tribunal has not

proceeded in a cursory or mechanical manner; rather, it has

undertaken a comprehensive and reasoned evaluation of the

contractual stipulations, the sequence of modification advices, and the

conduct of the parties in the performance of the contract. The finding

O.M.P. (COMM) 181/2024 Page 32 of 32

that the imposition of LD was in accordance with the agreed terms,

and that time continued to remain the essence of the contract, emerges

as a plausible and well-reasoned view based on the material available

on record.

33. In this context, it is apposite to bear in mind the limited scope of

interference under Section 34 of the A&C Act. It is well settled that

this Court does not sit in appeal over the findings of an Arbitral

Tribunal and cannot reappreciate evidence or substitute its own

interpretation merely because another view is possible. Interference is

warranted only where the Award is vitiated by patent illegality,

perversity, or is in conflict with the fundamental policy of Indian law.

34. In the present case, no such infirmity is discernible; nor has the

learned counsel for the Petitioner been able to demonstrate any such

ground. Accordingly, this Court is of the considered opinion that the

view taken by the learned Arbitral Tribunal is a reasonable and

plausible one, based on a correct appreciation of the contractual

provisions and the governing legal principles.

35. In view of the foregoing discussion, this Court finds no merit in

the challenge raised in the present Petition to the Impugned Award

dated 14.11.2023. The said Award does not suffer from any illegality

or perversity warranting interference under Section 34 of the A&C

Act and is, accordingly, upheld.

36. The present Petition, along with pending application(s), is

accordingly dismissed in the aforesaid terms.

37. No Order as to costs.

HARISH VAIDYANATHAN SHANKAR, J.

APRIL 09, 2026/nd/kr