2025 INSC 1457 Page 1 of 28

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO OF 2025

(Arising out of SLP (C) No. 14529 of 2023)

RAMESH KUMAR JAIN ….APPELLANT

VERSUS

BHARAT ALUMINIUM CO MPANY

LIMITED (BALCO) ….RESPONDENT

J U D G M E N T

ARAVIND KUMAR , J.

1. Heard. Leave Granted.

2. We have been called upon to examine the correctness of the Judgement and

order dated 03.05.2023 passed by the High Court of Chhattisgarh at Bilaspur

in ARBA No. 05 of 2017 whereby the arbitral award dated 15.07.2012 passed

by the sole Arbitrator awarding a sum of Rs. 3,71,80,584 (Three crores seventy-

one lacs eighty thousand five hundred eighty-four only) along with the statutory

Page 2 of 28

interest to the appellant, affirmed by the Commercial Court by judgement and

order dated 02.01.2017 in MJC No. 33/16 while exercising jurisdiction under

section 34 Arbitration and Conciliation Act, 1996 (hereinafter “A&C Act”) has

been set aside by the High Court in exercise of its limited appellate jurisdiction

under section 37 of the A&C Act.

3. The facts shorn of unnecessary details are set forth herein under:

3.1. The respondent-Bharat Aluminum Company Limited (in short

“BALCO”) invited a tender for the purpose of mining and transporting

3,70,000 Metric Tons (MTs) of Bauxite from Mainpat mines to

respondent’s Korba Alumina plant. The appellant submitted his bid at

Rs. 697/- per metric ton which happened to be the lowest among all the

bids received. Therefore, the respondent, after negotiation, entered into

an agreement with the appellant for mining and transporting of 2,22,000

MTs of Bauxite from the Mainpat Mines to Alumina plant at rate of Rs.

634.20 per MT on 11.12.1999. The said work had to be completed

within a period of 18 months i.e., by May 2001 but it was extended up

to September 2001. After the appellant had completed supplying the

agreed quantity of bauxite, the respondent by letter dated 05.01.2002

requested the appellant to continue the work of mining and transporting

and the rate for the extra work was agreed to be decided in due course

of time after consulting with the appellant. Thereafter, appellant

Page 3 of 28

continued the work and supplied total quantity of 1,95,000 MT of

Bauxite between 16.06.2001 to 31.03.2002. Subsequently, dispute

arose between the parties regarding the payment of extra work

performed by the appellant which led to invocation of arbitration clause

and the claimant approached the High Court by filing an application

seeking appointment of an arbitrator under section 11(6) of the A&C

Act. The High Court by way of order dated 12.04.2007 in MCC No.

192 of 2006 referred the said dispute to the Tribunal as per clause J of

the agreement between the parties.

3.2. The sole arbitrator after considering the pleadings filed by the appellant

and respondent formulated 13 (Thirteen) issues. The learned sole

arbitrator after hearing both the parties at length passed the arbitral

award dated 15.07.2012 in favour of the appellant as follows:

Claim

Heading

Description Amount Awarded

Para 19.1 Claim for extra work of

1,95,000 MT allowed

@Rs. 10 per metric ton

Rs.31,85,000/-

(including interest

@10% p.a. from

31.03.2001 till Aug

2007

Para 19.2 Claim for restriction and

quantity of Trucks

Rs.1,23,06,058/-

(including interest

Page 4 of 28

resulting in extra cost of

transportation

@10% p.a. from March

2002 till July 2007)

Para 19.3 Claim for removal of extra

overburden

Nil

Para 19.4 Claim for idle manpower

and machinery during the

strike period of 67 days

Rs.71,36,568/-

(including interest

@10% p.a. from

13.03.2001 till

25.08.2007

Para 19.5 Claim on interest on

account of delay in respect

of 15

th

R.A. Bill

Rs.8,30,157/- (Interest

has been awarded

@18% p.a. for a period

of 90 days and thereafter

from 01.06.2001 to

31.08.2007

TOTAL Rs. 2,34,57,783/-

3.3. On the above sum, 12% p.a. interest was awarded from 01.09.2007 to

15.07.2012 which came to Rs. 1,37,22,801 (One crore thirty-seven lacs

twenty-two thousand eight hundred and one only). Hence, on adding

the said sum the total award of Rs. 3,71,80,584 and statutory interest as

per section 31(7)(b) of the A&C Act from the date of award till payment

by the respondent was ordered by the arbitral tribunal.

Page 5 of 28

3.4. Being aggrieved by the arbitral award, the respondent preferred an

objection petition under section 34 of the A&C Act bearing no. MJC

No. 33/16 before the Commercial court. On meticulous consideration

the civil court came to the conclusion that the sole arbitrator had given

a well-reasoned findings on each claim after considering the oral and

documentary evidence which could not be regarded as arbitrary or

capricious especially in the light of section 34(2)(b)(ii) of A&C Act and

therefore, refused to interfere and affirmed the arbitral award dated

15.07.2002 by way of judgement and order dated 02.01.2017.

3.5. The respondent being not satisfied with the findings of civil court

invoked the limited appellate jurisdiction of the High Court under

Section 37 of A&C Act by preferring ARBA No. 05 of 2017 against

judgement and order dated 02.01.2017. The said appeal came to be

allowed by the impugned judgement and the arbitral award dated

15.07.2012 affirmed by civil court by order dated 02.01.2017 has been

set aside.

3.6. Aggrieved by the same, the appellant, the original claimant, is in appeal

before us.

REASONING ASSIGNED UNDER THE IMPUGNED JUDGEMENT

4. At the outset, before examining the submissions made by the learned Senior

counsels appearing on behalf of the parties, we deem it apt and appropriate to

examine the reasonings given by the high court for setting aside the concurrent

Page 6 of 28

findings in favour of the appellant. Hence the same has been encapsulated

hereinbelow.

5. The first and foremost reason given by the High Court is that fixation of

additional cost from Rs. 634.20 PMT to the tune of Rs. 644.20 PMT by addition

of Rs. 10/- per metric ton for the extra work determined by the sole arbitrator

on the basis of principle of “quantum meruit” was without jurisdiction since

the letter dated 05.01.2002 whereunder the appellant was obligated to perform

extra work of excavation did not fix any rate. Therefore, in the absence of the

agreement, the arbitrator could not have fixed the rate, as such it amounted to

rewriting of the contract. The High Court further relied upon the decision of

this court in Mahanagar Telephone Nigam Limited v. Tata Communications

Limited

1

to arrive at an conclusions that principle of “quantum meruit” could

not have been applied since its application is limited to cases wherein the price

has not been fixed by the contract but in the instant case since previously the

rate was accepted and work was done, fixation of amount of compensation

additionally by Rs. 10/- PMT was erroneous which falls under the realm of

exceeding jurisdiction or rewriting of the contract which according to the High

Court tantamounts to “patent illegality”.

6. Another reason assigned by the High Court for allowing the appeal of the

respondent was that the learned arbitrator had assessed the damages only on the

basis of oral statement and on the guess work, therefore, the same was not

sustainable and according to the High Court it also fell within the sweep of

1

(2019) 5 SCC 341

Page 7 of 28

patent illegality. Further, the High Court while considering the award with

respect to extra cost for transportation borne due to restriction on carrying

capacity of trucks relied upon the specific statement made by the claimant

during the trial in respect of Question No. 45 to arrive at conclusion that

respondent was not prima facie responsible for any reduction in weight, hence

the loss caused on transportation cannot be attributed to the respondent. It was

held that arbitrator had merely relied upon the tabular statement given by the

appellant without examining the basis of rate and calculation on which the loss

was determined. Hence, it was of the opinion that claim of appellant was not

based on the evidence and facts relied upon. Therefore, in the absence of any

documentary evidence on record to show that appellant was restricted to carry

only 10.2 MT, the award on the basis of alleged loss was only a guess work. In

this regard, the High Court placed reliance on the decisions of this court

rendered in Kailash Nath Associates v. Delhi Development Authority and

Anr.

2

to hold that Arbitrator cannot rewrite the award and the part of findings

of the arbitrator which is without any evidence and beyond the terms of contract

would be a patent illegality.

7. The High court further concluded that the tribunal in respect of idle machinery

and idle manpower merely relied upon the tabular chart tendered by the

appellant which was only a self-declaratory opinion and not based on evidence

of facts.

2

(2015) 4 SCC 136

Page 8 of 28

SUBMISSIONS ON BEHALF OF THE PARTIES

8. Learned Senior Counsel Shri Mukul Rohatgi appearing on behalf of the

appellant submitted that the High Court exceeded its jurisdiction in

reappraising the factual matrix and arriving at a different conclusion to that of

the arbitrator. The High Court was acting as an appellate court while the

jurisdiction in section 37 of A&C Act is restricted by virtue of the act and the

lens of scrutiny under the said provision is very narrow. The High Court went

into the merits of the case and has re-appreciated and re-examined the

documents and evidence on record which was impermissible under section 37

of the A&C Act. To buttress the said contention, the learned senior counsel

relied upon the law laid down by this court in Delhi Airport Metro Express

Pvt. Ltd. v. Delhi Metro Rail Corporation

3

.

9. The learned senior counsel further submitted that under section 34 and section

37 of the Act, the court does not sit in appeal and it cannot go into the merits of

the matter. Hence, in the present case, the High court acted in excess of

jurisdiction conferred upon it by law. In this regard reliance was placed upon

the case of MMTC Limited v. Vedanta Ltd.

4

10. The Learned senior counsel vehemently submitted that arbitral tribunal has

given detailed reasons for the conclusion that it had reached while passing the

award. Further, the claims awarded by the arbitral tribunal have been

supplemented with proper reasons and justifications. The award was upheld by

the commercial court, Raipur and the application under section 34 of the Act

3

(2022) 1 SCC 131

4

(2019) 4 SCC 163

Page 9 of 28

was dismissed as “being without substance”. Hence, it was not proper for the

High Court to set aside the award in the name of patent illegality, merely

because the reason that the High Court’s interpretation of facts were different

than that of the arbitral tribunal.

11. He further submitted that Interpretation of the contract is a matter for the

arbitrator to determine based on evidence and communications and an error in

interpretation is not a basis for interference under section 34 of A&C Act. To

back his contention, he placed reliance upon Hindustan Construction

Company Ltd. v. NHAI

5

, MMTC Ltd. (supra) and Associate Builders v. Delhi

Development Authority

6

.

12. The learned senior counsel while placing reliance upon Parsa Kente Collieries

Ltd. v. RRVUN Ltd.

7

vehemently submitted that arbitral tribunal is the master

of evidence and findings of facts which are arrived at by the arbitrators based

on evidence on record and not to be scrutinized, as if the court was sitting in

appeal.

13. He further submitted that as long as there is material available before the

arbitrator to show damages have been suffered, but such material does not give

him an insight into the granular details, the arbitrator is permitted the leeway to

employ honest guesswork and/or a rough and ready method for quantifying the

damages. To buttress the said contention, the learned senior counsel relied upon

Construction and Design Services v. Delhi Development Authority

8

.

5

(2024) 2 SCC 613

6

(2015) 3 SCC 49

7

(2019) 7 SCC 236

8

(2015) 14 SCC 263

Page 10 of 28

14. He also submitted that High court with respect to extra work from July 2001

to March 2002, was factually not correct in stating that earlier rate was agreed

between the parties. For the subsequent period from July 2001 onwards, the

respondent had taken out fresh tenders which were later withdrawn despite the

petitioner being the lowest bidder. Nonetheless the respondent requested the

petitioner to continue the work but the rates were never agreed between the

parties which is an admitted fact as evident from the letters dated 15.08.2001

and 05.01.2002.

15. He also submitted that the tribunal considered the fact that the strike at

respondent’s plant was an issue between the management and workers of the

respondent. Since there was no Force Majeure clause in the contract and the

strike was not an Act of God, the petitioner was entitled for compensation with

respect to idle machinery and manpower.

16. Per Contra, Learned Senior Counsel Shri Ranjith Kumar appearing for the

respondent submits that there was no clause for in the contract for increasing

the rate except for the diesel variation clause. He further contended that

petitioner from the beginning of the contract, started protesting and raising

unnecessary demands for increasing the price of the contract by comparing it

with the contract awarded by the respondent to a third party. The respondent

through its letter dated 25.03.2000 had already informed the petitioner that it

should not be of his concern who the respondent pays or at what rate, for the

bauxite purchased from outside.

17. He further contended that it was specifically mentioned in the contract that the

contractor should investigate and inspect the work, site and surrounding area

Page 11 of 28

and keep all circumstances in mind before submitting the tender. He also

submitted that the Sole arbitrator after holding that neither party has agreed to

the rate, has proceeded to guess that the prices have arisen by Rs. 10/- without

any evidence or materials to support such findings. He further contended that

additional work was executed at existing rate, and that the additional work was

executed at existing rate, and that the claimant had accepted the amount and did

not challenge the same. The respondent paid the petitioner Rs. 657/- throughout

the period and the rate was impliedly agreed between the parties.

18. With reference to route map, the learned senior counsel contended that there

was no specific route map prescribed in the contract for transportation of the

bauxite. The petitioner contended that they had to carry the bauxite from the

longest route which was costing them additional 50 KM distance for which the

respondent was liable to pay as per the diesel variation clause, which is

completely baseless. It was an admitted fact that the petitioner was not bound

by the contract to follow any particular route. Further, bare perusal of clause

2(a) of the contract i.e., the diesel variation clause shows that it depends on the

rate of the diesel and not on the distance and the word ‘average’ has been

mentioned for the entire contract irrespective of the route which the contractor

choses for transportation.

19. He further submits that the Learned sole arbitrator without appreciating the

specific bar under clause 6 and without giving a simple meaning to the terms

therein, went beyond the terms of the contract to allow the claim for idle

machinery. The arbitrator adopted a hyper-technical approach which is not

permissible while interpreting the terms of the contract.

Page 12 of 28

20. He has also submitted that the arbitrator after holding that the petitioner had not

submitted any documentary evidence on record in respect of the claim for

alleged loss due to idle machinery and manpower, however erroneously granted

75% of the alleged amount claimed. The High Court rightly held that there is

no evidence to show that the mining process came to stand still and there is no

document to show the expenses incurred by the petitioner.

21. He submitted that petitioner continued to work and execute a quantity of

1,95,000 MT from 16.06.2001 to 31.03.2002 and respondent was paying the

petitioner at the existing rate plus Rs. 23/- as diesel escalation. The respondent

paid the petitioner Rs. 657/- inclusive of diesel rate throughout the period and

the rate was impliedly agreed between the parties. The contention of the

petitioner that they were expecting a payment of Rs. 697/- PMT is baseless for

the reason that the tender 01.01.2001 was cancelled because the bidders offered

a very high rate which was not acceptable to the respondent.

22. He further submitted that there was no documentary evidence on record to show

that the penalty was imposed by the respondent over the carrying capacity. The

Arbitrator wrongly allowed the claim for extra cost of transportation to be borne

by the respondent in the absence of any evidence. Only an unsubstantiated

tabular statement was placed on record by the petitioner and the basis on which

the facts and figures were arrived at therein was absent since there was no

evidence.

23. He vehemently submitted that the contract does not permit the Ld. Arbitrator

to decide the rates between the parties. It could not have applied the principle

of quantum meruit and fixed the rates between the parties. The Award, is thus,

Page 13 of 28

against the most basic notions of morality and justice. To buttress his

submissions, he placed reliance upon SsangYong Engineering v. NHAI

9

,

MTNL v. TATA Communications

10

, and Alopi Parshad v. Union of India

11

.

24. He also submitted that Ld. Arbitrator has re-written the contract since the rates

were fixed at Rs. 634.20/- PMT and the extension of contract was on the same

terms and conditions. Once the rates are fixed, the arbitrator could not award

an additional amount. To back the said contention, he has placed reliance upon

Satyanarayan Construction Company v. Union of India

12

.

25. He lastly submitted that Ld. Arbitrator while awarding a sum of Rs. 10/- as a

reasonable compensation to the petitioner has not been relied upon any

evidence and merely a guesswork. He has placed reliance upon Kailash Nath

Associates v. DDA

13

, to buttress the said contention.

POINT FOR OUR CONSIDERATION

26. Having heard the learned senior counsels at length on behalf of both the parties

and after examining the material on record, we are of the considered opinion

that the core issue that arises for our consideration is: Whether interference with

the arbitral award by the High Court under Section 37 of the Arbitration and

Conciliation Act, 1996 on the ground of patent illegality is sustainable when

9

(2019) 15 SCC 131

10

(2019) 5 SCC 341

11

AIR 1960 SC 588

12

(2011) 15 SCC 101

13

(2015) 4 SCC 136

Page 14 of 28

once the award has been affirmed under section 34 of the Arbitration and

Conciliation Act, 1996?

DISCUSSION & OUR ANALYSIS

27. The Arbitration and Conciliation Act, 1996 avows to provide a speedy, cost-

effective & efficacious mode of alternative dispute resolution with a policy of

minimal judicial intervention. The same is apparent from the legislative intent

explicitly mandated under section 5 of A&C Act which envisages an embargo

upon the judiciary to interfere in arbitral proceedings save in circumstance

expressly stipulated under Part I of the Act. Hence, it is clear that judicial

interference is circumscribed with only exception being the statutorily

mandated remedies which we find under section(s) 34 and 37 of the A&C Act.

28. The bare perusal of section 34 mandates a narrow lens of supervisory

jurisdiction to set aside the arbitral award strictly on the grounds and parameters

enumerated in sub-section (2) & (3) thereof. The interference is permitted

where the award is found to be in contravention to public policy of India; is

contrary to the fundamental policy of Indian Law; or offends the most basic

notions of morality or justice. Hence, a plain and purposive reading of the

section 34 makes it abundantly clear that the scope of interference by a judicial

body is extremely narrow. It is a settled proposition of law as has been

constantly observed by this court and we reiterate, the courts exercising

jurisdiction under section 34 do not sit in appeal over the arbitral award hence

they are not expected to examine the legality, reasonableness or correctness of

findings on facts or law unless they come under any of grounds mandated in

Page 15 of 28

the said provision. In ONGC Limited. v. Saw Pipes Limited

14

, this court held

that an award can be set aside under Section 34 on the following grounds: “(a)

contravention of 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.”

29. When it comes to section 37 of the A&C Act it provides for a limited appellate

remedy against an order either setting aside or refusing to set aside an arbitral

award passed by civil court in exercise of its power under section 34. This court

in MMTC Ltd. v. Vedanta Ltd.

15

, at Paragraph 14 observed that interference

with an order made under section 37 cannot travel beyond the restrictions laid

down in section 34. Further in Konkan Railway Corporation Limited v.

Chenab Bridge Project Undertaking

16

this court at Paragraph 18 observed that

the scope of appellate scrutiny under section 37 is necessarily co-extensive with

the parameters mandated under section 34 of the Act and hence the said

provision does not enlarge the jurisdiction of the appellate court. Even this court

has observed in M/s. Hindustan Construction Company Limited v. M/s.

National Highways Authority of India

17

, wherein one of us (Justice Aravind

Kumar) was part of the bench at Paragraph 26 that the standard of scrutiny of

an arbitral award is very narrow and it is not the judicial review of an award.

Further in Paragraph 27 it was observed that awards which contains reasons,

especially when they interpret contractual terms, ought not to be interfered with

lightly. This court has also observed in Larsen Air Conditioning and

14

(2003) 5 SCC 705

15

(2019) 4 SCC 163

16

(2023) 9 SCC 85

17

2023 INSC 768

Page 16 of 28

Refrigeration Company v. Union of India and Ors.

18

at Paragraph 15 that the

scope of interference in exercise of appellate power under section 37 is even

narrower to review the findings of the awards, if it has been upheld or

substantially upheld under section 34. Hence, it is very well settled that arbitral

awards are not liable to be set aside merely on the ground of erroneous in law

or alleged misappreciation of evidence and there is a threshold that the party

seeking for the award to be set aside has to satisfy, before the judicial body

could enter into the realm of exercising its power under section(s) 34 & 37. It

is also apt and appropriate to note that re-assessment or re-appreciation of

evidence lies outside the contours of judicial review under section(s) 34 and 37.

This court in Punjab State Civil Supplies Corporation Limited & Anr. v. M/s.

Sanman Rice Mills & Ors.

19

, at Paragraph 12 observed that even when the

arbitral awards may appear to be unreasonable and non-speaking that by itself

would not warrant the courts to interfere with the award unless that

unreasonableness has harmed the public policy or fundamental policy of Indian

law. It might be a possibility that on re-appreciation of evidence, the courts may

take another view which may be even more plausible but that also does not

leave scope for the courts to reappraise the evidence and arrive at a different

view. This court in Batliboi Environmental Engineers Limited v. Hindustan

Petroleum Corporation Limited & Anr.

20

held that the arbitrator is generally

considered as ultimate master of quality and quantity of evidence. Even an

award which is based on little or no evidence would not be held to be invalid

18

(2023) 15 SCC 472

19

2024 INSC 742

20

2023 INSC 850

Page 17 of 28

on this score. At times, the decisions are taken by the arbitrator acting on equity

and such decisions can be just and fair therefore award should not be overridden

under section 34 and 37 of the A&C Act on the ground that the approach of the

arbitrator was arbitrary or capricious.

30. Hence, in the light of the aforesaid discussion, we would deal with the

submissions made by the learned senior counsels on behalf of the parties. But

there is yet another aspect that warrants our attention before delving into the

analysis of submission and that is the setting aside of the impugned order by

the High Court by placing reliance on the ground of “patent illegality”

therefore, it becomes imperative to understand the true import of the said term

before we move further.

31. Prior to 2015 amendment, the ground of “patent illegality” emerged as result

of judicial interpretation in ONGC Ltd. (supra) while interpreting “public

policy” mandated under section 34(2)(b)(ii) of A&C Act wherein this court for

the first time read patent illegality as a sub-ground to set aside the award on the

broader purport of “public policy”. In Paragraph 22 of the decision this court

observed: 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.”

This court went on to illustrate what would constitute patent illegality at

Paragraph 22 and we extract the same for easy reference:

“……Take for illustration a case wherein there is a specific

provision in the contract that for delayed payment of the amount due

Page 18 of 28

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”.”

32. In Associate Builders v. Delhi Development Authority

21

, this court attempted

to filter out what contemplated patent illegality in paras 42.1 to 42.3 under the

following three subheads: firstly, contravention of the substantive law of India;

secondly, contravention of the Arbitration Act itself and thirdly, contravention

of Section 28(3) of the Arbitration Act which mandates the Arbitral Tribunal

to decide the case in accordance with the terms of the contract, taking into

account the usages of the trade applicable to the transaction. With regard to the

third sub-head Justice R.F. Nariman, observed by stating that: if an arbitrator

construes a term of the contract in a reasonable manner, it will not mean that

21

2014 SCC OnLine SC 937

Page 19 of 28

the award can be set aside on this ground. Construction of term 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.

33. In 2015, by way of the Arbitration and Conciliation (Amendment) Act a new

sub-section (2A) to section 34 of A&C Act was inserted which in addition to

statutorily recognizing the ‘patent illegality’ ground for setting aside a domestic

arbitral award made it an independent and distinct ground from ‘public policy’

under section 34. The proviso to the newly inserted clause further provided that

an award “shall not be set aside merely on the ground of an erroneous

application of the law or by reappreciation of evidence”. The legislative intent

behind insertion of this proviso was to avoid excessive intervention to arbitral

award by the courts under the ground of ‘patent illegality’. However, the

Amendment clarified that “an erroneous application of the law” or “re-

appreciation of evidence” does not fall under patent illegality. Hence, the courts

are not to treat every factual error or every divergent interpretation as an

illegality. The illegality must be of a kind that strikes at the heart of the award’s

validity. For instance, if an arbitrator ignores a binding precedent or a clear

prohibition in the contract, that may be patent illegality. Likewise, a finding

based on no evidence at all can be said to be perverse and thus patently illegal.

But where there is some evidence and a reasonably plausible inference has been

drawn by the arbitrators, the courts should ordinarily refrain themselves from

supplanting the views arrived by the arbitrator as that would be the true import

of the legislative intent inherent in the Amendment Act.

Page 20 of 28

34. Thereafter, this court elucidated the meaning of the expression ‘patent

illegality’ in Ssangyong Engg. & Construction Co. Ltd. v. NHAI

22

while

taking into consideration the amendment act of 2015 and held it as a glaring,

evident illegality that goes to the root of the award. This includes: (a) an award

deciding matters outside the scope of the arbitration (beyond the contract or

submission); (b) an award contradicting the substantive law of India or the

Arbitration Act itself; (c) an award against the terms of the contract; and (d) an

award so unreasoned or irrational that it manifests an error on its face.

35. Considering the aforesaid precedents, in our considered view, the said

terminology of ‘patent illegality’ indicates more than one scenario such as the

findings of the arbitrator must shock the judicial conscience or the arbitrator

took into account matters he shouldn’t have, or he must have failed to take into

account vital matters, leading to an unjust result; or the decision is so irrational

that no fair or sensible person would have arrived at it given the same facts. A

classic example for the same is when an award is based on “no evidence” i.e.,

arbitrators cannot conjure figures or facts out of thin air to arrive at his findings.

If a crucial finding is unsupported by any evidence or is a result of ignoring

vital evidence that was placed before the arbitrator, it may be a ground the

warrants interference. However, the said parameter must be applied with

caution by keeping in mind that “no evidence” means truly no relevant

evidence, not scant or weak evidence. If there is some evidence, even a single

witness’s testimony or a set of documents, on which the arbitrator could rely

22

(2019) 15 SCC 13

Page 21 of 28

upon or has relied upon to arrive at his conclusions, the court cannot regard the

conclusion drawn by the arbitrator as patently illegal merely because that

evidence has less probative value. This thin line is stood crossed only when the

arbitral tribunal’s conclusion cannot be reconciled with any permissible view

of the evidence.

36. Having discussed the said law, we move ahead to another limb of the

submission which was espoused by the respondent particularly with reference

to obligations of the arbitrator to decide the dispute in accordance with the

terms of the contract. It is a fundamental principle that the arbitrator cannot

award anything that is contrary to the contract. The arbitrator is bound by clear

stipulations inter se the parties, and an award ignoring such stipulations would

violate public policy by undermining freedom of contract. However, that does

not mean that not every award which gives a benefit not expressly mentioned

in the contract is in violation. The arbitral tribunal in exercise of their power

can very well interpret the implied terms or fill gaps where the contract is silent,

so long as doing so does not contradict any express term. For example, if a

contract is silent on interest on delayed payments, an arbitrator awarding

reasonable interest is not contradicting the contract rather it is a power

exercised by the arbitrator to fulfill the gap on the basis of equity which also

mandated under Section 31(7)(a) of the A&C Act. Similarly, if a contract does

not say either way about compensating extra work done at request, the arbitrator

can imply a term or use principles of restitution to award a reasonable sum,

without violating the terms of contract. The thin line is whether an express

prohibition or restrictions in the contract is breached by the award? If the

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answer is in affirmative, the award is liable to struck down. However, where

the contract is simply silent on a legitimate claim which is inherently linked to

the natural corollary of contractual obligation of the parties the arbitrator will

be well within his powers to interpret the contract in the light of principles of

the contractual jurisprudence and apply the equity to that situation. A contrary

interpretation would lead to opening a floodgate whereby a party who may have

dominant position would intentionally not ink down the natural obligation

flowing from the contract and subsequently; after obtaining the benefit the party

would agitate absence of express terms to sway away from even discharging

his alternative obligation of compensating the party at loss. Hence the question

which arises in such situations is, can the party who bears the brunt and suffers

the loss due to silence under the contract regarding the natural contractual

obligation which arises in usual course of business be left in limbo? In our view,

that is the very purpose why section 70 of the Contract Act, 1872, has been an

intrinsic part of our Contract Act. The said provision creates a statutory right

independent of contract, often termed quantum meruit or unjust enrichment

remedy. For ready reference the said provision has been extracted hereinbelow:

“70. Obligation of person enjoying benefit of non-gratuitous act.

Where a person lawfully does anything for another person, or

delivers anything to him, not intending to do so gratuitously, and

such other person enjoys the benefit thereof, the latter is bound to

make compensation to the former in respect of, or to restore, the

thing so done or delivered.”

37. The close scrutiny of the aforesaid provision reveals that it comes into play

when one party confers a benefit on another in circumstances not governed by

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a contract, without intent to act gratuitously. Hence in such situation, the party

taking the benefit is bound to pay compensation to the party who had

gratuitously taken the benefits and the courts including arbitral tribunals, can

award compensation under Section 70 if the conditions are met.

38. Coming to submissions of the parties, we refrain ourselves from meticulously

examining each submission made by the parties since most of the submissions

raised are purely factual in nature and as observed hereinabove, the arbitrator

is considered as the master on question of facts and even an erroneous

interpretation of facts would not lead us to invoke our extra-ordinary

jurisdiction, the only caveat being the said interpretation of facts is patently

illegal that is it is based on no evidence or beyond the scope of contract.

39. Keeping the said position in mind, we have first meticulously examined the

arbitral award dated 15.07.2012 passed by the Learned arbitrator with sole

intent to analyze whether there is any part of the award which is based on no

evidence or is alien to the terms of contract. However, the perusal of the award

as a whole, in our view, does not reveal any findings arrived by the tribunal

which seems unreasonable or capricious, rather, the arbitrator has scrutinized

the material on record: oral evidence of Shri R.K. Jain, the claimant and Shri

A. Hussain, the then Assistant General Manager & Engineer-in-charge, who

was overseeing the performance of the contract in question, adduced during

cross-examination by the Respondent; and documentary evidence in the form

of affidavits and correspondence letters to arrive at individual findings of each

claim. The sheer application of mind at the behest of the arbitrator is apparent

from the very fact that the claims asserted by the appellant were not accepted

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by the arbitrator as a gospel truth but were put on pedestal of evidentiary proof.

The respondent has argued that the arbitrator has based its findings based on

the calculation sheets and guesswork. We would have agreed with the

respondent had there been no evidence available before the arbitrator to arrive

at such findings but the same is not true since the arbitrator after considering

the evidence on record has given its finding. For instance, the claim under Para

19.2 to the tune of Rs. 1,96,11,000 towards extra transportation cost incurred

by the appellant on the premise of restricting the capacity of the truck was

proved by the fact that after the District Transport Officer order was stayed by

the High Court, the respondent did not allow the appellant to deliver at the

weight of 11 MT which was not controverted by the respondent. Also, the

arbitrator was conscious to draw adverse conclusions against the appellant,

where he failed to sufficiently satisfy the basis of the claim and the arbitrator

in such cases has either reduced the said claim substantially while applying the

principle of quantum meruit (as evident from claim under Para 19.1 for

executing the extra work) while balancing the interest of both the parties to the

arbitral proceedings or has completely denied it (as evident from claim under

Para 19.3 for removal of extra burden). Hence, in our view, the overall analysis

of the arbitral award does not reveal any arbitrary exercise of power or findings

which is based on lack of evidence as such to fall within the sweep of “patent

illegality” as held by the impugned judgement. In our assessment, the High

Court allowed itself to be deviated by things that are in truth within a range of

normalcy in arbitral adjudication.

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40. With regard to application of principle of quantum meruit the respondent had

argued the Ld. Arbitrator had erroneously applied the said principle when the

rates were already fixed between the parties. Even the High court observed in

the impugned judgement that the said exercise tantamount to rewriting of

contract. The Impugned judgement has proceeded on an erroneous

understanding of the decision of this Court in Mahanagar Telephone Nigam

Limited v. Tata Communications Limited

23

. We say so because the said

decision is applicable to situations where the contract between the parties fully

governs the field and the consideration for the very work in dispute stands

conclusively determined by express contractual terms. However, in the present

case, after the currency of the earlier two contract the appellant continued to

mine and transport the additional work of supplying the additional Bauxite to

the tune 1,95,000 MT at the behest of the respondent, but the price thereof was

left open to be finalized in due course of time by mutual consensus as is evident

from the bare reading of Letter dated 05.01.2002 (Annexure P4) addressed by

the respondent to the claimant, which exercise was never undertaken. In such a

factual matrix, the arbitral tribunal cannot be said to have rewritten or varied

the contract rather the arbitrator addressed a vacuum in the contractual

arrangement by determining reasonable compensation in terms of Section 70

of the Contract Act, 1872, to obviate the possibility of unjust enrichment. The

quantification of additional compensation at Rs. 10/- PMT i.e., from Rs.

634.20/- PMT to Rs. 644.20/- PMT represents an assessment of reasonable

23

(2019) 5 SCC 341

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value for the extra work performed and does not amount to substitution of any

agreed contractual rate as no such sum was mutually inked down by both the

parties. Therefore, we disagree with said view of the High court as the arbitral

award did not rewrite the contract but merely enforced a restitutionary

obligation arising from admitted extra work directed and accepted by the

respondent, where the aspect of consideration was consciously left open and

later misused by the respondent to sway away from discharge of its usual

contractual obligation. Hence, the High Court, in exercise of limited

jurisdiction under Section 37, impermissibly re-appreciated facts and

substituted its own interpretation, contrary to settled law under Associate

Builders, Ssangyong Engineering and MMTC (referred to supra).

41. Further, we have no hesitation to hold that claims in the nature of quantum

meruit or unjust enrichment can be decided by the arbitrator provided they fall

within the scope of disputes referred either explicitly or by necessary

implication. For instance, in a situation like the present, claim for payment for

such work has been entertained as it relates to the performance of the contract.

The measure of compensation under Section 70 is typically the value of the

benefit obtained by the other party or the cost incurred by the claimant in doing

the act (whichever is reasonable to avoid unjust enrichment). The law does not

permit arbitrary awards under Section 70. The award must still be grounded in

evidence of the benefit’s value or the expense incurred. Nonetheless, tribunals

have a degree of discretion to approximate a fair value, especially when exact

evidence is hard to come by, so long as the final figure is reasonable and not

pulled from thin air.

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42. The errors pointed out in the impugned judgement, i.e., lack of evidence,

percentage-based guess allowances, etc. do not, singly or cumulatively, amount

to patent illegality warranting annulment. There were at least some evidence

and logical rationale for each award element. The arbitrator’s approach was

certainly a possible view a reasonable man might take. The High Court,

unfortunately, re-appreciated the evidence and came to a different view, which

is impermissible. The High Court’s scrutinized the award from a stricter

standard of proof than arbitration law demands. Arbitrators are not bound by

the strict rules of evidence as per Section 19 of the A&C Act and may draw on

their knowledge and experience. It is settled that a court should not interfere

simply because the arbitrator’s reasoning is brief or because the arbitrator did

not cite chapter and verse of the contract as long as the path can be discerned

by which the arbitrator arrived at his conclusions. Here, the path is discernible

and not absurd.

CONCLUSION

43. In light of the foregoing analysis, we are of the considered view that impugned

judgement dated 03.05.2023 passed in ARBA No. 05 of 2017 cannot be

sustained and the appeal deserves to be allowed. Accordingly, the appeal stands

allowed and the aforesaid impugned judgement is set aside.

44. Consequently, the judgement and order dated 02.01.2017 passed by

Commercial Court, Raipur in MJC No. 33/16 which affirmed the arbitral award

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passed by the sole arbitrator dated 15.07.2012 is restored. Pending applications,

if any, stands disposed of.

.……………………………., J.

[ARAVIND KUMAR]

.……………………………., J.

[N.V. ANJARIA]

New Delhi;

December 18

th

, 2025.