IN THE HIGH COURT OF JUDICATURE AT PATNA

COMMERCIAL APPEAL No.7 of 2025

======================================================

1.The Bihar State Food and Civil Supplies Corporation Ltd. Sone Bhawan,

Daroga Prasad Rai Path, R. Block, Road No 2, Patna 800001, through its

Managing Director.

2.The Managing Director, The Bihar State Food and Civil Supplies

Corporation Ltd. Khadya Bhawan, R. Block, Rd. No. 2, Patna 800001.

3.The District Manager, The Bihar State Food and Civil Supplies Corporation

Ltd., Madhubani.

... ... Appellant/s

Versus

Piyus Kumar Son of Sanjeev Kumar Singh, Resident of Sinhma, P.S

Matihani, District Begusarai.

... ... Respondent/s

======================================================

with

COMMERCIAL APPEAL No. 14 of 2025

======================================================

1.The Bihar State Food and Civil Supplies Corporation Ltd. Khadya Bhawan,

5th Floor, Birchand Patel Path, Patna, at present Khadya Bhawan, R. Block,

Patna.

2.The Managing Director, The Bihar State Food and Civil Supplies

Corporation Ltd., Khadya Bhawan, Daroga Prasad Path, R. Block, Rd. No.-

2, Patna- 800001.

3.The District Manager, The Bihar State Food and Civil Supplies Corporation,

Madhubani, District- Madhubani.

... ... Appellant/s

Versus

Piyush Kumar Son of Sanjeev Kumar Singh Resident of Sihma, P.S.-

Matihani, District- Begusarai.

... ... Respondent/s

======================================================

Appearance :

(In COMMERCIAL APPEAL No. 7 of 2025)

For the Appellant/s: Mr.Shailendra Kumar Singh, Adv.

For the Respondent/s: Mr. Prashant Kumar, Adv.

Mr. Manish Prakash, Adv.

Mr. Kumar Anjaneya Shanu, Adv.

Mr. Rohit Raj, Adv.

(In COMMERCIAL APPEAL No. 14 of 2025)

For the Appellant/s: Mr.Shailendra Kumar Singh, Adv.

For the Respondent/s: Mr. Prashant Kumar, Adv.

Mr. Manish Prakash, Adv.

Mr. Kumar Anjaneya Shanu, Adv.

Mr. Rohit Raj, Adv.

Mr. Ranvir Pratap Singh, Adv.

======================================================

Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026

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CORAM: HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH

and

HONOURABLE MR. JUSTICE ARUN KUMAR JHA

CAV JUDGMENT

(Per: HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH)

Date : 23-05-2026

COMMERCIAL APPEAL No. 7 of 2025

1.The present appeal has been filed under Section 13 (1A)

of the Commercial Courts Act, 2015 (herein after referred to as

the “Act, 2015”) read with Section 37 of the Arbitration and

Conciliation Act, 1996 (herein after referred to as the “Act,

1996”) against the Judgment dated 25.07.2025, passed by the

Ld. Court of Principal District Judge, Patna (herein after

referred to as the “learned PDJ, Patna”) in Miscellaneous

(Arbitration) Case No. 158 of 2020.

Facts of the Case:

2.The genesis of the present appeal lies in an agreement

executed in between the appellants and the claimant-Respondent

herein dated 24.10.2016, pursuant to issuance of notice inviting

tender from eligible candidates, for being appointed as

transporting-cum-handling agent for a period of three years for

the revenue District-Madhubani and acceptance of the tender

submitted by the Respondent herein. The claimant-Respondent

was entrusted with the work of transportation of food-grains and

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other commodities including edible oil to the destinated

godown, as directed by or on behalf of the appellants and

according to the route chart fixed for the said purpose. The

period of contract was for three years pertaining to the District-

Madhubani. The claimant-Respondent is stated to have executed

the work of transporting-cum-handling agent under the

agreement and had submitted several bills in between the years

2017 to 2019.

3.It appears that disputes had erupted in between the

parties, leading to claims and counter claims being asserted as

also leading to issuance of several show cause notices to the

claimant-Respondent by the appellants, which were duly replied

to by the claimant-Respondent. Ultimately, the District

Manager, Bihar State Food and Civil Supplies Corporation Ltd.

(hereinafter referred to as “the BSFC”), Madhubani issued a

show cause notice dated 13.5.2019 to the claimant-Respondent,

as to why appropriate proceedings for cancellation of agreement

and blacklisting for five years be not taken in terms of Clause

4(f) of the agreement, which was replied to by the Respondent.

Thereafter, the District Transport Committee, Madhubani, vide

minutes of meeting dated 21.5.2019 decided to blacklist the

Respondent for a period of five years, forfeit the security

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deposit, terminate the agreement and invoke the Bank

guarantee. This led to issuance of a reasoned order dated

23.05.2019, by which the claimant-Respondent was blacklisted

for five years, the security deposit was forfeited, the agreement

was terminated and the Bank guarantee was invoked. The said

order dated 23.5.2019 was challenged by the claimant-

Respondent by filing a writ petition bearing CWJC No. 12554

of 2019. A Ld. Single Judge of this Court by a judgment dated

21.08.2019 passed in CWJC No. 12554 of 2019 had quashed the

order of blacklisting of the claimant-Respondent, however

liberty was granted to the claimant-Respondent to seek his

remedy against the order of termination, forfeiture of security

deposit and invocation of Bank guarantee in a duly constituted

arbitration proceedings or as may be advised in accordance with

law.

4.The claimant-Respondent had then sent a notice to the

appellants on 29.05.2019 for appointing an arbitrator suggesting

three names, however the appellants did not respond to the said

notice as also failed to appoint any arbitrator within a reasonable

time, leading to filing of a request case bearing Request Case

No. 66 of 2019 under Section 11(6) of the Act, 1996 by the

claimant-Respondent, inter alia praying therein for appointment

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of an independent and impartial arbitrator, in view of Clause 21

of the agreement dated 24.10.2016. The Hon’ble Chief Justice

of this Court by an order dated 06.09.2019, passed in Request

Case No. 66 of 2019 and other analogous cases, in exercise of

the powers U/s. 11(6) of the Act, 1996 had appointed Hon’ble

Mr. Justice Sadananad Mukherjee, a retired Judge of the Patna

High Court as the sole Arbitrator to enter upon the disputes and

render his award in terms of the provisions of the Act, 1996.

5.The claimant-Respondent had then approached the Ld.

Sole Arbitrator on 13.09.2019 with a copy of the aforesaid order

dated 06.09.2019, passed in Request Case No. 66 of 2019 and

other analogous cases, leading to registration of Arbitration

Case No. 08 of 2019, whereafter the claimant-Respondent had

filed a detailed statement of claim on 11.10.2019, raising a

claim of a sum of Rs. 4,32,23,044.57.

6.The appellants had then filed statement of defence on

13.1.2020, inter alia stating therein that the claimant-

Respondent has submitted calculation chart at Annexure C-63,

page No. 137 of the claim petition without any supporting

documents and the admitted outstanding bills have already been

paid long back apart from the fact that as per Clause 22 of the

agreement, the claimant-Respondent is not entitled to claim any

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compensation for detention of trucks at the godown gates or by

law enforcing agencies during transit or at any other place. It

was also averred that the claimant-Respondent has engaged in

breach of the terms and conditions of the contract and he has

already received all the admissible outstanding amount against

the bills submitted by him, hence the claims raised by him is not

admissible in the eyes of law.

7.The Respondent-claimant had then filed a rejoinder to the

statement of defence on 11.2.2020, stating therein that in

support of the statement of claim annexed at Annexure C-63,

photo copies of several bills have been annexed as Annexure C-

2 to C-35 to the statement of claim wherein each and every fact

as well as supporting documents have been furnished in detail.

The claimant-Respondent had also filed a supplementary

statement of claim on 14.6.2020 wherein a sum of Rs.

21,00,000/- was claimed as compensation on account of

premature termination of contract, resulting in the claimant-

Respondent being prevented from transporting food-grains for

about seven months during the validity period of agreement,

apart from claiming a sum of Rs. 1,50,000/- as travelling

expenses for attending arbitral proceedings at Patna and a sum

of Rs. 1,60,000/- on the head of fees of the Ld. Advocate. It is a

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matter of record that no rebuttal was filed by the appellants to

the supplementary statement of claim.

8.The learned Sole Arbitrator had thereafter, framed the

following issues for consideration:-

“(i)Whether there is any cause of action for the present

proceeding.

(ii) Whether the claim is barred by limitation.

(iii)Whether the claimant has committed breach of

contract in violation of conditions of agreement/contract.

(iv)Whether the deductions from several bills of the

petitioner/claimant by the respondents are valid and

justified even without giving any opportunity to show

cause in this regard.

(v)Whether the petitioner/claimant is entitled to the

claims as per statement of claims, including the claim of

18 % interest per year on pending bills.

(vi) What relief or relief the petitioner is entitled?”

9.The Ld. Sole Arbitrator had finally passed the arbitral

award on 17.10.2020, holding that the claimant-Respondent

shall be entitled to the following award:-

“1. The claimant petitioner shall be paid an amount of

Rs. 2,67,37,638.62 paise (Two crore sixty-seven lakhs

thirty-seven thousand six hundred and thirty eighty) only

towards the claimed amount inclusive of security

amount.

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2. The claimant petitioner shall be entitled to

compensation amount of Rs. 45,00,000/- (Forty-five

lakhs) only under Section 54 of the Indian Contract Act.

3. The claimant petitioner shall be entitled to simple

interest @10% p.a. from 13.09.2019 till the date of

award and further 18% interest over awarded sum from

the date of award till realization over the awarded

amount.

4. The claimant petitioner shall be entitled to cost

towards fees and expenses of the Arbitrator and Courts

and other legal expenses.

5. Since the Arbitrator's fees has not been paid by the

respondent, the same shall be treated as 'unpaid cost' of

the Award, under Section 39 of the Arbitration and

Conciliation Act, 1996, and accordingly Arbitrator shall

have lien over the award, the respondent shall be liable

for making payment of the fees of the Arbitrator before

pursuing the matter before the Court.”

10.The Ld. Sole arbitrator by the aforesaid award dated

17.10.2020 has though denied the claim of detention

charges/bills being contrary to Clause 22 of the agreement but

has not only awarded the aforesaid claim of Rs. 2,67,37,638.62/-

but also compensation amount to the tune of Rs. 45,00,000/- and

interest in favor of the claimant-Respondent.

11.The Ld. Sole Arbitrator had then by an order dated

13.11.2020 indicated that at page no. 17, paragraph no. 1 of the

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award dated 17.10.2020, there has been typographical error,

inasmuch as the compensation amount has been typed as Rs.

45,00,000/- instead of Rs. 25,00,000/- and since Section 33(3)

of the Act, 1996 postulates that the arbitral tribunal may correct

any error of the type referred to in Clause (a) of Sub-Section (1)

on its own initiation, within 30 days from the date of arbitral

award, the award portion at para-1 at page no. 17 and at para-1

at page no. 18, wherever compensation amount of Rs.

45,00,000/- has been mentioned, shall stand corrected and be

read as a sum of Rs. 25,00,000/-

12.The aforesaid award dated 17.10.2020, passed by the

learned Sole Arbitrator was challenged by the appellants before

the learned Court of Principal District Judge, Patna by filing a

petition on 24.12.2020 under Section 34 (2) & (2A) of the Act,

1996, which was numbered as Miscellaneous (Arbitration) Case

No. 158 of 2020 (arising out of award dated 17.10.2020 passed

in Arbitration Case No. 8 of 2019). The grounds which can be

culled out from the petition of the said Miscellaneous Case No.

158 of 2020 are enumerated herein below:-

(i) The Sole Arbitrator has passed the award only on the

basis of calculation chart produced by the claimant-

respondent without any supporting documents.

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(ii) The appellants had filed statement of defence before

the learned Sole Arbitrator and prayed for directing the

claimant-respondent to produce supporting documents

against his claims as also examine witnesses but the

learned Sole Arbitrator neither followed the provisions

contained in the Act, 1996 nor examined the records/

witnesses.

(iii) The learned Sole Arbitrator failed to consider that

several claims raised by the claimants are de hors the

agreement.

(iv) The learned Sole Arbitrator has awarded two

penalties against the appellants i.e. compensation amount

and interest on belated payment of the outstanding

amount although the admitted claims of the claimant-

respondent have already been paid by the appellants well

within time.

(v) The learned Sole Arbitrator failed to consider that the

claimant-respondent had failed to adhere to the terms of

the agreement regarding installing truck with GPS Load-

Cells at the time of lifting food grains, hence appropriate

deductions were made from the bills. The learned Sole

Arbitrator failed to consider that the appellants had

passed the admitted amount of bills of the claimant-

Respondent, which he had received without any

objection.

(vi) The impugned award is against the provisions of the

Act, 1996.

(vii) The learned Sole Arbitrator was though appointed to

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consider the disputes arising out of the agreement in

question, however he has considered several claims based

on different contracts and agreements.

13.The claimant-respondent had filed a reply on 23.12.2021

to the aforesaid Misc. Case No.158 of 2020, inter alia stating

therein that the said petition filed by the appellants is not

maintainable in view of the observations of the learned Sole

Arbitrator to the effect that since the arbitration fees has not

been paid by the appellants, same shall be treated as unpaid cost

of the award under Section 39 of the Act, 1996 and accordingly,

Arbitrator shall have lien over the award and the appellants shall

be liable to make payment of the fees of the Arbitrator before

pursuing the matter before the Court. The claimant-respondent

had also raised an objection regarding the aforesaid petition

filed by the appellants being in violation of the mandatory

provisions contained under Section 34 (5) of the Act, 1996, as

no prior notice was issued to the claimant-Respondent before

filing of the said petition. The claimant-respondent had also

raised the issue of jurisdiction inasmuch as the award under

challenge being in respect of commercial dispute as defined

under Section 2(1)(c)(xviii) of the Commercial Courts,

Commercial Division and Commercial Appellate Division of the

High Courts Act, 2015, the appellants were required to invoke

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the provisions of the Act, 2015, which has not been invoked,

thus the learned Court is not vested with the jurisdiction to

decide the case in hand. The claimant-respondent had refuted

the contentions made by the appellants in the aforesaid Misc.

(Arbitration) Case No. 158 of 2020 and had stated that in

pursuance to the agreement dated 24.10.2016 executed in

between the claimant-respondent and the appellants, the

claimant-respondent had diligently completed the assignment as

a Transporting-cum-Handling Agent within the framework of

the agreement dated 24.10.2016 and in fact the calculation chart

produced by the claimant-respondent with his claim petition is

supported by month-wise bills of transport and handling charges

as well as other relevant documents which were brought on

record before the learned Sole Arbitrator along with the

statement of claim filed by the claimant-respondent.

14.It has also been stated by the claimant-respondent in his

reply that proper opportunity was provided to the appellants by

the learned Sole Arbitrator to file relevant documents, however

no documents were filed by the appellants. It has also been

stated that as per Clause 12 A of the agreement, the appellants

were under contractual obligation to make payments of the bills

of the claimant-respondent herein within a period of 15 days of

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submission of bills, however none of the bills were paid within

time by the appellants. It has also been stated that the appellants

never received the bills with any objection. Nonetheless, huge

deductions were made by the appellants from the bills without

assigning any reason. It has also been stated that the appellants

did not file any affidavit of admission/denial of documents of

the claimant-respondent before the learned Sole Arbitrator,

hence all the documents filed by the claimant-respondent would

be deemed to have been accepted. It has further been stated that

the claims have only been raised with regard to the district

Madhubani for which the claimant-respondent was appointed as

a Transporting-cum-Handing Agent vide agreement dated

24.10.2016. Thus, it has been stated that the allegations

regarding award of such amount which were not pertaining to

the contract in question and were in connection with other

districts is baseless. Lastly, it has been stated in the reply filed

by the claimant-respondent that it is a well settled law, as held

by the Hon’ble Supreme Court in a catena of cases that any

error on the face of the award or in case there is any patent

illegality then the same can be examined by the learned Court

under Section 34 of the Act, 1996, however the facts/evidence

cannot be re-appreciated by the learned Court at the appellate

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stage.

15.It may be pertinent to mention here that in paragraph

No.17 of the reply filed by the claimant-respondent in Misc.

(Arbitration) Case No. 158 of 2020, it has been specifically

stated that claims have been raised only in connection with one

revenue district for which the claimant was appointed as

Transporting-cum-Handling Agent vide agreement dt.

24.10.2016, hence any allegation by the appellants to the effect

that claims over and above the agreement in question pertaining

to other districts have been raised by the claimant-respondent is

denied. At this juncture, it would be apt to reproduce paragraph

No. 5 (v) of the supplementary reply filed by the claimant-

Respondent herein below:-

“(v) For that the Hon’ble Sole Arbitrator has decided the

dispute within the scope of the agreement as disputes with

respect to only one agreement was adjudicated by the

Hon’ble Sole Arbitrator for which the Sole Arbitrator

was appointed but the plaintiff is trying to mislead this

Learned Court merely on the basis of the statement

without substantiating any documents in support of their

contention.”

16.The claimant-respondent, in his supplementary reply

dated 14.02.2022, filed in the said Misc. (Arbitration) Case No.

158 of 2020, inter alia stating therein that the statement of claim

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filed by the claimant-respondent before the learned Sole

Arbitrator is duly supported by relevant documents which had

already been submitted before the concerned officials of the

appellants from time to time in accordance with the terms and

conditions of the agreement. It has also been stated that interest

was claimed on the ground of delay and for the same notice

under Section 3 of the Interest Act was sent to the appellants

with regard to each and every outstanding amount of bills and

the same were also produced before the learned Sole Arbitrator.

It has further been stated that the calculation chart produced by

the claimant-respondent is duly supported by month-wise bill of

transport and handling charges as well as other documents

which were brought on record of the arbitral proceedings along

with the statement of claim filed by the claimant-respondent and

the monthly bills are contained in Annexures C-2 to C-35 of the

statement of claim, thus the contention of the appellants that no

proof/documents were produce is denied.

17.The learned court of PDJ, Patna by a judgment dated

25.07.2025, passed in Miscellaneous (Arbitration) Case No.158

of 2020, has been pleased to dismiss the said case holding that

no valid ground has been made out under Section (2) or (2A) of

Section 34 of the Arbitration and Conciliation Act, 1996 so as to

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warrant interference with the impugned arbitral award or the

findings of the learned Sole Arbitrator. At this juncture, it would

be relevant to enumerate in brief, the findings recorded by the

learned PDJ, Patna in the aforesaid judgement dated 25.07.2025,

herein below:-

(i) The learned PDJ, Patna has held that since the Ld. Sole

Arbitrator in his award dated 17.10.2020 has recorded

that no breach of contractual obligation was committed

by the claimant-respondent, rendering the deductions

from the bills not justified, the learned Sole Arbitrator has

rightly adjudicated that the deduction of

Rs.2,67,37,638.62/- was improper and unlawful, thus has

justifiably awarded the said amount in favor of the

claimant-respondent.

(ii) As regards compensation amount of Rs. 45 lakhs (sic

Rs. 25 lakhs) awarded by the learned Sole Arbitrator,

considering the provisions contained under Section 54 of

the Indian Contract Act, the learned PDJ, Patna has come

to a finding that since the claimant-respondent ought not

to have been subjected to loss arising from the default

committed by the appellants and on account of delayed

payments causing wrongful loss, as is reflected from the

arbitral award, the appellants failed to perform their part

of the agreement, hence they cannot claim the

performance of reciprocal promise from the claimant-

respondent, thus in view of the undue hardship and

financial loss suffered due to delayed payment and

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defaults on the part of the appellants, the learned Sole

Arbitrator has rightly and justifiably awarded

compensation of Rs.45 lakhs (sic Rs. 25 lakhs) in favour

of the claimant-respondent.

(iii) The learned PDJ, Patna has further held that it is well

settled established legal principal that a Court, while

adjudicating a petition under Section 34 of the Act, 1996

is empowered to set aside an arbitral award where it is

found to be devoid of reasoning, or where its outcome is

so unjust and irrational as to shock the judicial conscience

and similarly an award may be invalidated if it is based

on evidence and resulting conclusions which no prudent

or reasonable person could reasonably reach. The learned

PDJ, Patna has also held that the Arbitrator remains the

ultimate master of the quality and quantity of evidence

and unless the Arbitrator’s approach is demonstrably

arbitrary or capricious, the Court shall refrain from

revisiting or re-evaluating factual determinations already

placed on record.

(iv) The learned PDJ has come to a finding that none of

the grounds enumerated under sub-Sections (2) or (2A) of

Section 34 of the Act, 1996 have been substantiated in the

challenge to the arbitral award. It has also been held that

it is a settled law that the proceedings instituted under

Section 34 of the Act, 1996 do not partake the nature of

an appeal or revision and the jurisdiction conferred upon

the Court is inherently limited as also the Court is neither

empowered to re-evaluate the findings and conclusions

recorded in the award nor substitute its own views or

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effect any modification thereof and furthermore, the

Court is also not required to delve into or adjudicate the

merits of the award in a petition filed U/s. 34 of the Act,

1996.

(v) The learned PDJ, Patna has thus held that the learned

Sole Arbitrator has justifiably rendered the arbitral award

dated 17.10.2020, having duly considered and evaluated

the evidentiary material placed on record and delivered a

well-reasoned and a legally sound award.

(vi) In conclusion, the learned PDJ, Patna has held that

considering the materials on record, it is manifest that the

appellants have failed to establish any of the ground

enumerated under sub-Sections (2) or (2A) of Section 34

of the Act, 1996, hence the circumscribed jurisdiction

conferred under Section 34 of the Act, 1996 has not been

satisfied in the present case so as to warrant setting aside

of the impugned arbitral award. The learned PDJ, Patna

has also held that the Ld. Sole Arbitrator has adjudicated

the disputes strictly within the confines of the agreement

executed between the parties and the documents placed

on record in that regard as also the findings are clear and

the rationale adopted by the learned Sole Arbitrator in

arriving at the conclusion is sound, coherent and well-

reasoned, hence the award cannot be regarded as patently

illegal, perverse or contrary to the public policy of India.

18.The aforesaid judgment dated 25.07.2025 passed by the

learned PDJ, Patna has been challenged in the present appeal.

Submissions of the Ld. Counsel for the Appellants:

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19.The learned counsel for the appellants has submitted that

the Ld. Sole Arbitrator has passed the award dated 17.10.2020

only on the basis of the calculation chart produced by the

claimant-Respondent without any supporting documents and the

Ld. Principal District Judge, Patna has similarly erred by not

considering the said aspect of the matter. It has been stated that

the claimant-Respondent has failed to produce any supporting

documents against his claims like truck challan, store issue

order etc., apart from the fact that the claimant-Respondent did

not examine any witnesses in support of his claim. Thus, it has

been submitted that the impugned judgment dated 25.7.2025,

passed by the Ld. PDJ, Patna as also the arbitral award dated

17.10.2020, passed by the Ld. Sole Arbitrator, as far as award of

claim of a sum of Rs. 2,67,37,638.62/- to the claimant-

Respondent is concerned, is perverse, patently illegal and

beyond the parameters of the agreement entered into between

the parties. It is also submitted that the learned Ld. PDJ, Patna

had neither called for the arbitral records nor had examined the

records and in an arbitrary manner, has upheld the arbitral award

dated 17.10.2020 by the impugned judgment dated 25.7.2025.

In fact, the Ld. PDJ, Patna failed to consider that all the

admitted outstanding amount of bills/claims have been paid to

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the claimant-Respondent and part admitted outstanding dues to

the tune of Rs. 1,31,08,638/- (including the security deposit of

Rs. 10,00,000/-) has been paid on 10.5.2023, however the same

has not been accounted for in the impugned Judgment dt.

25.7.2025.

20.The learned counsel for the appellants has further

submitted that the Ld. Sole Arbitrator as also the Ld. PDJ Judge,

Patna in the impugned arbitral award and judgment dated

17.10.2020 and 25.7.2025 respectively, have failed to consider

that several claims raised by the claimant-Respondent are de

hors the agreement, apart from the fact that though there is no

provision for payment of interest and grant of compensation in

the agreement entered into between the parties, however both

the Ld. Sole Arbitrator as also the Ld. PDJ, Patna have, in utter

disregard to the provisions of the agreement allowed the claim

of the claimant-Respondent pertaining to grant of interest and

compensation. It is further submitted that the Ld. Sole Arbitrator

has though been appointed to consider the disputes arising out

of the agreement dated 24.10.2016 for the district-Madhubani,

however he has considered and allowed several claims based on

different contract and agreement. Thus, in nutshell,

it is the contention of the learned counsel for the appellants that

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the impugned judgment dated 25.7.2025, passed by the Ld.

Court of PDJ, Patna is in teeth of the mandate of the provisions

contained under Section 34(2)(a), (b) and (2)(A) of the Act,

1996.

21.The learned counsel for the appellants has referred to a

judgment rendered by the Hon’ble Apex Court in the case of

Gayatri Balasamy vs. ISG Novasoft Technologies Limited,

reported in (2025) 7 SCC 1 to submit that Section 34 Court can

apply the doctrine of severability and modify a portion of the

award while retaining the rest, however the same is subject to

parts of the award being separable, legally and practically. In

fact, the Courts are empowered to modify the arbitral award

under Section 34 and 37 of the Act, 1996, nonetheless the same

is limited and can be exercised when the award is severable, by

severing the “invalid” portion from the “valid” portion of the

award by correcting any clerical, computational or

typographical errors, which appear erroneous on the face of the

record and post-award interest can also be modified in some

circumstances as mentioned in the said judgment. Reference has

also been made to a judgment rendered by the Hon’ble Apex

Court in the case of North Delhi Municipal Corporation vs.

S.A. Builders Limited, reported in (2025) 7 SCC 132 to submit

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that the arbitral tribunal does not have the power to award

interest upon interest or compound interest either for the pre-

award period or the post-award period.

22.The learned counsel for the appellants has also referred to

a judgment rendered by the Hon’ble Apex Court in the case of

Union of India vs. Ambica Construction, reported in (2016) 6

SCC 36 to submit that reference has been made in the said

judgment to a Constitution Bench judgment of the Hon’ble

Apex Court, rendered in the case of Secretary, Irrigation

Department, Government of Orissa & Ors. vs. GC Roy,

reported in (1992) 1 SCC 508, wherein it has been held that if

the arbitration agreement or the contract itself provides for

interest, the arbitrator would have the jurisdiction to award

interest, however where the agreement expressly provides that

no interest pendente lite shall be payable on the amount due, the

arbitrator has no power to award pendente lite interest. It would

be apt to reproduce paragraph nos. 12, 14 and 34 of the said

judgment, rendered in the case of Ambica Construction (supra),

herein below:-

“12. A Constitution Bench of this Court in G.C. Roy

[Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1

SCC 508] has considered the question of power of the

arbitrator to award pendente lite interest and it has been

laid down that if the arbitration agreement or the

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contract itself provides for interest, the arbitrator would

have the jurisdiction to award the interest. Similarly,

where the agreement expressly provides that no interest

pendente lite shall be payable on the amount due, the

arbitrator has no power to award pendente lite interest.

In G.C. Roy [Irrigation Deptt., State of Orissa v. G.C.

Roy, (1992) 1 SCC 508] this Court has held thus : (SCC

p. 514, para 7)

“7. … If the arbitration agreement or the contract itself

provides for award of interest on the amount found due

from one party to the other, no question regarding the

absence of arbitrator's jurisdiction to award the

interest could arise as in that case the arbitrator has

power to award interest pendente lite as well. Similarly,

where the agreement expressly provides that no interest

pendente lite shall be payable on the amount due, the

arbitrator has no power to award pendente lite interest.

But where the agreement does not provide either for

grant or denial of interest on the amount found due, the

question arises whether in such an event the arbitrator

has power and authority to grant pendente lite interest.

14. Ultimately, in G.C. Roy [Irrigation Deptt., State of

Orissa v. G.C. Roy, (1992) 1 SCC 508] , this Court has

answered the question whether the arbitrator has the

power to award interest pendente lite. Their Lordships

have reiterated that they have dealt with the situation

where the agreement does not provide for grant of such

interest nor does it prohibit such grant when the

agreement is silent as to award of interest. This Court

has laid down various principles in paras 43-44 of the

Report thus : (SCC pp. 532-34)

“43. The question still remains whether arbitrator has

the power to award interest pendente lite, and if so, on

what principle. We must reiterate that we are dealing

with the situation where the agreement does not

provide for grant of such interest nor does it prohibit

such grant. In other words, we are dealing with a case

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where the agreement is silent as to award of interest.

On a conspectus of the aforementioned decisions, the

following principles emerge:

(i) A person deprived of the use of money to which he

is legitimately entitled has a right to be compensated

for the deprivation, call it by any name. It may be

called interest, compensation or damages. This basic

consideration is as valid for the period the dispute is

pending before the arbitrator as it is for the period

prior to the arbitrator entering upon the reference.

This is the principle of Section 34 of the Civil

Procedure Code and there is no reason or principle to

hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form (sic forum) for

resolution of disputes arising between the parties. If

so, he must have the power to decide all the disputes

or differences arising between the parties. If the

arbitrator has no power to award interest pendente

lite, the party claiming it would have to approach the

court for that purpose, even though he may have

obtained satisfaction in respect of other claims from

the arbitrator. This would lead to multiplicity of

proceedings.

(iii) An arbitrator is the creature of an agreement. It is

open to the parties to confer upon him such powers

and prescribe such procedure for him to follow, as

they think fit, so long as they are not opposed to law.

(The proviso to Section 41 and Section 3 of the

Arbitration Act illustrate this point). All the same, the

agreement must be in conformity with law. The

arbitrator must also act and make his award in

accordance with the general law of the land and the

agreement.

(iv) Over the years, the English and Indian courts

have acted on the assumption that where the

agreement does not prohibit and a party to the

reference makes a claim for interest, the arbitrator

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must have the power to award interest pendente lite.

Thawardas Pherumal v. Union of India [Thawardas

Pherumal v. Union of India, AIR 1955 SC 468] has not

been followed in the later decisions of this Court. It

has been explained and distinguished on the basis that

in that case there was no claim for interest but only a

claim for unliquidated damages. It has been said

repeatedly that observations in the said judgment were

not intended to lay down any such absolute or

universal rule as they appear to, on first impression.

Until Deptt. of Irrigation v. Abhaduta Jena [Deptt. of

Irrigation v. Abhaduta Jena, (1988) 1 SCC 418]

almost all the courts in the country had upheld the

power of the arbitrator to award interest pendente lite.

Continuity and certainty is a highly desirable feature

of law.

(v) Interest pendente lite is not a matter of substantive

law, like interest for the period anterior to reference

(pre-reference period). For doing complete justice

between the parties, such power has always been

inferred.

44. Having regard to the above consideration, we

think that the following is the correct principle which

should be followed in this behalf:

Where the agreement between the parties does not

prohibit grant of interest and where a party claims

interest and that dispute (along with the claim for

principal amount or independently) is referred to the

arbitrator, he shall have the power to award interest

pendente lite. This is for the reason that in such a case

it must be presumed that interest was an implied term

of the agreement between the parties and therefore

when the parties refer all their disputes—or refer the

dispute as to interest as such—to the arbitrator, he

shall have the power to award interest. This does not

mean that in every case the arbitrator should

necessarily award interest pendente lite. It is a matter

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within his discretion to be exercised in the light of all

the facts and circumstances of the case, keeping the

ends of justice in view.”

(emphasis in original)

The Constitution Bench of this Court has laid down that

where the agreement between the parties does not

prohibit grant of interest and where the party claims

interest and that dispute is referred to the arbitrator, he

shall have the power to award interest pendente lite. The

law declared has been held applicable prospectively.

34. Thus, our answer to the reference is that if the

contract expressly bars the award of interest pendente

lite, the same cannot be awarded by the arbitrator. We

also make it clear that the bar to award interest on

delayed payment by itself will not be readily inferred as

express bar to award interest pendente lite by the

Arbitral Tribunal, as ouster of power of the arbitrator

has to be considered on various relevant aspects referred

to in the decisions of this Court, it would be for the

Division Bench to consider the case on merits.”

23.The learned counsel for the appellants has next referred to

a judgment rendered by the Hon’ble Apex Court in the case of

Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.,

reported in (2003) 5 SCC 705, paragraphs no. 13, 15 to 22 and

31 whereof are reproduced herein below:-

“13. The question, therefore, which requires

consideration is — whether the award could be set aside,

if the Arbitral Tribunal has not followed the mandatory

procedure prescribed under Sections 24, 28 or 31(3),

which affects the rights of the parties. Under sub-section

(1)(a) of Section 28 there is a mandate to the Arbitral

Tribunal to decide the dispute in accordance with the

substantive law for the time being in force in India.

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Admittedly, substantive law would include the Indian

Contract Act, the Transfer of Property Act and other such

laws in force. Suppose, if the award is passed in violation

of the provisions of the Transfer of Property Act or in

violation of the Indian Contract Act, the question would

be — whether such award could be set aside. Similarly,

under sub-section (3), the Arbitral Tribunal is directed to

decide the dispute in accordance with the terms of the

contract and also after taking into account the usage of

the trade applicable to the transaction. If the Arbitral

Tribunal ignores the terms of the contract or usage of the

trade applicable to the transaction, whether the said

award could be interfered. Similarly, if the award is a

non-speaking one and is in violation of Section 31(3), can

such award be set aside? In our view, reading Section 34

conjointly with other provisions of the Act, it appears that

the legislative intent could not be that if the award is in

contravention of the provisions of the Act, still however, it

couldn't be set aside by the court. If it is held that such

award could not be interfered, it would be contrary to the

basic concept of justice. If the Arbitral Tribunal has not

followed the mandatory procedure prescribed under the

Act, it would mean that it has acted beyond its jurisdiction

and thereby the award would be patently illegal which

could be set aside under Section 34.

15. The result is — if the award is contrary to the

substantive provisions of law or the provisions of the Act

or against the terms of the contract, it would be patently

illegal, which could be interfered under Section 34.

However, such failure of procedure should be patent

affecting the rights of the parties.

16. The next clause which requires interpretation is clause

(ii) of sub-section (2)(b) of Section 34 which inter alia

provides that the court may set aside the arbitral award if

it is in conflict with the “public policy of India”. The

phrase “public policy of India” is not defined under the

Act. Hence, the said term is required to be given meaning

in context and also considering the purpose of the section

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and scheme of the Act. It has been repeatedly stated by

various authorities that the expression “public policy”

does not admit of precise definition and may vary from

generation to generation and from time to time. Hence,

the concept “public policy” is considered to be vague,

susceptible to narrow or wider meaning depending upon

the context in which it is used. Lacking precedent, the

court has to give its meaning in the light and principles

underlying the Arbitration Act, Contract Act and

constitutional provisions.

17. For this purpose, we would refer to a few decisions

referred to by the learned counsel for the parties. While

dealing with the concept of public policy, this Court in

Central Inland Water Transport Corpn. Ltd. v. Brojo Nath

Ganguly [(1986) 3 SCC 156] has observed thus: (SCC

pp. 217-19, paras 92-93)

“92. The Indian Contract Act does not define the

expression ‘public policy’ or ‘opposed to public policy’.

From the very nature of things, the expressions ‘public

policy’, ‘opposed to public policy’, or ‘contrary to

public policy’ are incapable of precise definition.

Public policy, however, is not the policy of a particular

Government. It connotes some matter which concerns

the public good and the public interest. The concept of

what is for the public good or in the public interest or

what would be injurious or harmful to the public good

or the public interest has varied from time to time. As

new concepts take the place of old, transactions which

were once considered against public policy are now

being upheld by the courts and similarly where there

has been a well-recognized head of public policy, the

courts have not shirked from extending it to new

transactions and changed circumstances and have at

times not even flinched from inventing a new head of

public policy. There are two schools of thought — ‘the

narrow view’ school and ‘the broad view’ school.

According to the former, courts cannot create new

heads of public policy whereas the latter countenances

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judicial law-making in this area. The adherents of ‘the

narrow view’ school would not invalidate a contract on

the ground of public policy unless that particular

ground had been well established by authorities.

Hardly ever has the voice of the timorous spoken more

clearly and loudly than in these words of Lord Davey in

Janson v. Driefontein Consolidated Gold Mines Ltd.

[1902 AC 484, 500: (1900-03) All ER Rep 426 : 87 LT

372 (HL)]: ‘Public policy is always an unsafe and

treacherous ground for legal decision.’ That was in the

year 1902. Seventy-eight years earlier, Burrough, J., in

Richardson v. Mellish [(1824) 2 Bing 229, 252 : 130

ER 294] described public policy as ‘a very unruly

horse, and when once you get astride it you never know

where it will carry you’. The Master of the Rolls, Lord

Denning, however, was not a man to shy away from

unmanageable horses and in words which conjure up

before our eyes the picture of the young Alexander the

Great taming Bucephalus, he said in Enderby Town

Football Club Ltd. v. Football Assn. Ltd. [1971 Ch 591,

606] : ‘With a good man in the saddle, the unruly horse

can be kept in control. It can jump over obstacles’. Had

the timorous always held the field, not only the doctrine

of public policy but even the common law or the

principles of equity would never have evolved. Sir

William Holdsworth in his ‘History of English Law’,

Vol. III, p. 55, has said:

‘In fact, a body of law like the common law, which has

grown up gradually with the growth of the nation,

necessarily acquires some fixed principles, and if it is

to maintain these principles it must be able, on the

ground of public policy or some other like ground, to

suppress practices which, under ever new disguises,

seek to weaken or negative them.’

It is thus clear that the principles governing public

policy must be and are capable, on proper occasion, of

expansion or modification. Practices which were

considered perfectly normal at one time have today

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become obnoxious and oppressive to public conscience.

If there is no head of public policy which covers a case,

then the court must in consonance with public

conscience and in keeping with public good and public

interest declare such practice to be opposed to public

policy. Above all, in deciding any case which may not

be covered by authority our courts have before them

the beacon light of the preamble to the Constitution.

Lacking precedent, the court can always be guided by

that light and the principles underlying the

fundamental rights and the directive principles

enshrined in our Constitution.

93. The normal rule of common law has been that a

party who seeks to enforce an agreement which is

opposed to public policy will be non-suited. The case of

A. Schroeder Music Publishing Co. Ltd. v. Macaulay

[(1974) 1 WLR 1308 : (1974) 3 All ER 616 (HL)],

however, establishes that where a contract is vitiated as

being contrary to public policy, the party adversely

affected by it can sue to have it declared void. The case

may be different where the purpose of the contract is

illegal or immoral. In Kedar Nath Motani v. Prahlad

Rai [AIR 1960 SC 213 : (1960) 1 SCR 861], reversing

the High Court and restoring the decree passed by the

trial court declaring the appellants' title to the lands in

suit and directing the respondents who were the

appellants' benamidars to restore possession, this

Court, after discussing the English and Indian law on

the subject, said (at p. 873):

‘The correct position in law, in our opinion, is that

what one has to see is whether the illegality goes so

much to the root of the matter that the plaintiff cannot

bring his action without relying upon the illegal

transaction into which he had entered. If the illegality

be trivial or venial, as stated by Williston and the

plaintiff is not required to rest his case upon that

illegality, then public policy demands that the

defendant should not be allowed to take advantage of

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the position. A strict view, of course, must be taken of

the plaintiff's conduct, and he should not be allowed to

circumvent the illegality by resorting to some

subterfuge or by misstating the facts. If, however, the

matter is clear and the illegality is not required to be

pleaded or proved as part of the cause of action and

the plaintiff recanted before the illegal purpose was

achieved, then, unless it be of such a gross nature as to

outrage the conscience of the court, the plea of the

defendant should not prevail.’

The types of contracts to which the principle

formulated by us above applies are not contracts which

are tainted with illegality but are contracts which

contain terms which are so unfair and unreasonable

that they shock the conscience of the court. They are

opposed to public policy and require to be adjudged

void.”

(emphasis supplied)

18. Further, in Renusagar Power Co. Ltd. v. General

Electric Co. [1994 Supp (1) SCC 644] this Court

considered Section 7(1) of the Arbitration (Protocol and

Convention) Act, 1937 which inter alia provided that a

foreign award may not be enforced under the said Act, if

the court dealing with the case is satisfied that the

enforcement of the award will be contrary to the public

policy. After elaborate discussion, the Court arrived at the

conclusion that public policy comprehended in Section

7(1)(b)(ii) of the Foreign Awards (Recognition and

Enforcement) Act, 1961 is the “public policy of India”

and does not cover the public policy of any other country.

For giving meaning to the term “public policy”, the

Court observed thus: (SCC p. 682, para 66)

“66. Article V(2)(b) of the New York Convention of

1958 and Section 7(1)(b)(ii) of the Foreign Awards Act

do not postulate refusal of recognition and enforcement

of a foreign award on the ground that it is contrary to

the law of the country of enforcement and the ground of

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challenge is confined to the recognition and

enforcement being contrary to the public policy of the

country in which the award is set to be enforced. There

is nothing to indicate that the expression ‘public policy’

in Article V(2)(b) of the New York Convention and

Section 7(1)(b)(ii) of the Foreign Awards Act is not

used in the same sense in which it was used in Article

I(c) of the Geneva Convention of 1927 and Section 7(1)

of the Protocol and Convention Act of 1937. This would

mean that ‘public policy’ in Section 7(1)(b)(ii) has been

used in a narrower sense and in order to attract the bar

of public policy the enforcement of the award must

invoke something more than the violation of the law of

India. Since the Foreign Awards Act is concerned with

recognition and enforcement of foreign awards which

are governed by the principles of private international

law, the expression ‘public policy’ in Section 7(1)(b)(ii)

of the Foreign Awards Act must necessarily be

construed in the sense the doctrine of public policy is

applied in the field of private international law.

Applying the said criteria it must be held that the

enforcement of a foreign award would be refused on the

ground that it is contrary to public policy if such

enforcement would be contrary to (i) fundamental

policy of Indian law; or (ii) the interests of India; or

(iii) justice or morality.”

(emphasis supplied)

The Court finally held that: (SCC p. 685, para 76)

“76. Keeping in view the aforesaid objects underlying

FERA and the principles governing enforcement of

exchange control laws followed in other countries, we

are of the view that the provisions contained in FERA

have been enacted to safeguard the economic interests

of India and any violation of the said provisions would

be contrary to the public policy of India as envisaged

in Section 7(1)(b)(ii) of the Act.”

19. This Court in Murlidhar Aggarwal v. State of U.P.

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[(1974) 2 SCC 472] while dealing with the concept of

“public policy” observed thus: (SCC pp. 482-83, paras

31-32)

“31. Public policy does not remain static in any given

community. It may vary from generation to generation

and even in the same generation. Public policy would

be almost useless if it were to remain in fixed moulds

for all time.

32. … The difficulty of discovering what public policy

is at any given moment certainly does not absolve the

Judges from the duty of doing so. In conducting an

enquiry, as already stated, Judges are not hidebound by

precedent. The Judges must look beyond the narrow

field of past precedents, though this still leaves open

the question, in which direction they must cast their

gaze. The Judges are to base their decisions on the

opinions of men of the world, as distinguished from

opinions based on legal learning. In other words, the

Judges will have to look beyond the jurisprudence and

that in so doing, they must consult not their own

personal standards or predilections but those of the

dominant opinion at a given moment, or what has been

termed customary morality. The Judges must consider

the social consequences of the rule propounded,

especially in the light of the factual evidence available

as to its probable results. … The point is rather that

this power must be lodged somewhere and under our

Constitution and laws, it has been lodged in the Judges

and if they have to fulfil their function as Judges, it

could hardly be lodged elsewhere.”

(emphasis supplied)

20. Mr Desai submitted that the narrow meaning given to

the term “public policy” in Renusagar case [1994 Supp

(1) SCC 644] is in context of the fact that the question

involved in the said matter was with regard to the

execution of the award which had attained finality. It was

not a case where validity of the award is challenged

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before a forum prescribed under the Act. He submitted

that the scheme of Section 34 which deals with setting

aside the domestic arbitral award and Section 48 which

deals with enforcement of foreign award are not identical.

A foreign award by definition is subject to double

exequatur. This is recognized inter alia by Section 48(1)

and there is no parallel provision to this clause in Section

34. For this, he referred to Lord Mustill & Stewart C.

Boyd, Q.C.'s Commercial Arbitration 2001 wherein (at p.

90) it is stated as under:

“Mutual recognition of awards is the glue which holds

the international arbitrating community together, and

this will only be strong if the enforcing court is willing

to trust, as the convention assumes that they will trust

the supervising authorities of the chosen venue. It

follows that if, and to the extent that the award has

been struck down in the local court it should as a

matter of theory and practice be treated when

enforcement is sought as if to the extent it did not

exist.”

21. He further submitted that in foreign arbitration, the

award would be subject to being set aside or suspended

by the competent authority under the relevant law of that

country whereas in the domestic arbitration the only

recourse is to Section 34.

22. The aforesaid submission of the learned Senior

Counsel requires to be accepted. From the judgments

discussed above, it can be held that the term “public

policy of India” is required to be interpreted in the

context of the jurisdiction of the court where the validity

of award is challenged before it becomes final and

executable. The concept of enforcement of the award after

it becomes final is different and the jurisdiction of the

court at that stage could be limited. Similar is the position

with regard to the execution of a decree. It is settled law

as well as it is provided under the Code of Civil

Procedure that once the decree has attained finality, in an

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execution proceeding, it may be challenged only on

limited grounds such as the decree being without

jurisdiction or a nullity. But in a case where the judgment

and decree is challenged before the appellate court or the

court exercising revisional jurisdiction, the jurisdiction of

such court would be wider. Therefore, in a case where the

validity of award is challenged, there is no necessity of

giving a narrower meaning to the term “public policy of

India”. On the contrary, wider meaning is required to be

given so that the “patently illegal award” passed by the

Arbitral Tribunal could be set aside. If narrow meaning

as contended by the learned Senior Counsel Mr Dave is

given, some of the provisions of the Arbitration Act would

become nugatory. Take for illustration a case wherein

there is a specific provision in the contract that for

delayed payment of the amount due and payable, no

interest would be payable, still however, if the arbitrator

has passed an award granting interest, it would be

against the terms of the contract and thereby against the

provision of Section 28(3) of the Act which specifically

provides that “Arbitral Tribunal shall decide in

accordance with the terms of the contract”. Further,

where there is a specific usage of the trade that if the

payment is made beyond a period of one month, then the

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

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recorded, it would be against the statutory provisions. In

all such cases, the award is required to be set aside on the

ground of “patent illegality”.

31. Therefore, in our view, the phrase “public policy of

India” used in Section 34 in context is required to be

given a wider meaning. It can be stated that the concept

of public policy connotes some matter which concerns

public good and the public interest. What is for public

good or in public interest or what would be injurious or

harmful to the public good or public interest has varied

from time to time. However, the award which is, on the

face of it, patently in violation of statutory provisions

cannot be said to be in public interest. Such

award/judgment/decision is likely to adversely affect the

administration of justice. Hence, in our view in addition

to narrower meaning given to the term “public policy” in

Renusagar case [1994 Supp (1) SCC 644] it is required to

be held that the award could be set aside if it is patently

illegal. The result would be — award could be set aside if

it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the

illegality is of trivial nature it cannot be held that award

is against the public policy. Award could also be set aside

if it is so unfair and unreasonable that it shocks the

conscience of the court. Such award is opposed to public

policy and is required to be adjudged void.”

24.Thus, it is submitted by the learned counsel for the

appellants by relying on the aforesaid judgment rendered by the

Hon’ble Apex Court in the case of Saw Pipes Ltd. (supra) that

the arbitral award dated 17.10.2020, passed by the Ld. Sole

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Arbitrator is patently illegal, hence is fit to be set aside and this

Court is fully empowered to do so by virtue of the provisions

contained under Section 37 of the Act, 1996.

25.The Ld. counsel for the appellants has lastly submitted,

by referring to Clause 22 of the agreement dated 24.10.2016 that

the claimant-Respondent is not entitled to any compensation for

detention of their trucks and in fact the Ld. Sole Arbitrator, in

the arbitral award dated 17.10.2020, at internal page no. 15 has

also held, while referring to the said Clause 22 of the agreement

dated 24.10.2016 that the detention charges shall not be payable

to the claimant and the detention bills shall stand deducted from

various bills, nonetheless the amount awarded in favor of the

claimant-Respondent to the tune of Rs. 2,67,37,638.62 also

contain detention charges, which is an error apparent on the face

of the records.

Submissions of the Ld. Counsel for the claimant-

Respondent:

26.Per contra, the Ld. counsel for the claimant-Respondent

has submitted that it is wrong to say that no supporting

documents were annexed by the claimant-Respondent in his

claim petition filed before the Ld. Sole Arbitrator in support of

his claims, inasmuch as the bills for various months have been

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annexed as Annexure C-2 to C-35, wherein each and every fact

as well as supporting documents have been furnished in detail,

duly supported by month wise bills of transport and handling

charges as well as other relevant documents, however the

appellants did not file any affidavit/annexures/denial of

documents of the claimant-Respondent before the Ld. Sole

Arbitrator, hence all the documents filed by the claimant-

Respondent would be deemed to have been accepted. Thus, it is

submitted that the claim of a sum of Rs. 2,67,37,638.62 awarded

by the Ld. Sole Arbitrator, vide award dt. 17.10.2020 is not only

supported by bills / documents but also justified, which have not

been denied by the appellants, hence no interference is required.

27.The learned counsel for the claimant-Respondent has

further submitted that all the claims have been awarded within

the ambit of the agreement in question i.e. the one dated

24.10.2016, pertaining to the district-Madhubani. It is also

submitted that there is no bar under the agreement to award

interest and compensation, hence the arbitral award dated

17.10.2020 as upheld by the judgment dated 25.7.2025, passed

by the Ld. Court of PDJ, Patna under Section 34 of the Act,

1996 does not suffer from any infirmity.

28.The learned counsel for the claimant-Respondent has next

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submitted that Section 34 of the Act, 1996 provides for certain

grounds on which the competent Court can interfere with the

arbitral award, however no interference is permissible if the

grounds urged for setting aside of arbitral award is not within

the contours of Section 34 of the Act, 1996. Reference has also

been made to Section 5 of the Act, 1996 to submit that an

arbitration award, which is governed by Part-I of the Act, 1996

can only be set aside on the grounds mentioned under Section

34 (2) and (3) and not otherwise. The Ld. Counsel has referred

to a judgment rendered by the Hon’ble Apex Court in the case

of Associate Builders vs. Delhi Development Authority,

reported in (2015) 3 SCC 49, paragraphs no. 33, 34, 52 and 56

whereof are reproduced herein below:-

“33. It must clearly be understood that when a court is

applying the “public policy” test to an arbitration

award, it does not act as a court of appeal and

consequently errors of fact cannot be corrected. A

possible view by the arbitrator on facts has necessarily

to pass muster as the arbitrator is the ultimate master of

the quantity and quality of evidence to be relied upon

when he delivers his arbitral award. Thus an award

based on little evidence or on evidence which does not

measure up in quality to a trained legal mind would not

be held to be invalid on this score [Very often an

arbitrator is a lay person not necessarily trained in law.

Lord Mansfield, a famous English Judge, once advised a

high military officer in Jamaica who needed to act as a

Judge as follows:

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“General, you have a sound head, and a good heart;

take courage and you will do very well, in your

occupation, in a court of equity. My advice is, to make

your decrees as your head and your heart dictate, to

hear both sides patiently, to decide with firmness in the

best manner you can; but be careful not to assign your

reasons, since your determination may be substantially

right, although your reasons may be very bad, or

essentially wrong”.

It is very important to bear this in mind when awards of

lay arbitrators are challenged.]. Once it is found that the

arbitrators approach is not arbitrary or capricious, then

he is the last word on facts. In P.R. Shah, Shares & Stock

Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1

SCC 594], this Court held : (SCC pp. 601-02, para 21)

“21. A court does not sit in appeal over the award of an

Arbitral Tribunal by reassessing or reappreciating the

evidence. An award can be challenged only under the

grounds mentioned in Section 34(2) of the Act. The

Arbitral Tribunal has examined the facts and held that

both the second respondent and the appellant are

liable. The case as put forward by the first respondent

has been accepted. Even the minority view was that the

second respondent was liable as claimed by the first

respondent, but the appellant was not liable only on the

ground that the arbitrators appointed by the Stock

Exchange under Bye-law 248, in a claim against a non-

member, had no jurisdiction to decide a claim against

another member. The finding of the majority is that the

appellant did the transaction in the name of the second

respondent and is therefore, liable along with the

second respondent. Therefore, in the absence of any

ground under Section 34(2) of the Act, it is not possible

to re-examine the facts to find out whether a different

decision can be arrived at.”

34. It is with this very important caveat that the two

fundamental principles which form part of the

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fundamental policy of Indian law (that the arbitrator

must have a judicial approach and that he must not act

perversely) are to be understood.

52. It is most unfortunate that the Division Bench did not

advert to this crucial document at all. This document

shows not only that the Division Bench was wholly

incorrect in its conclusion that the contractor has tried

to pull the wool over the eyes over the DDA but it should

also have realised that the DDA itself has stated that the

work has been carried out generally to its satisfaction

barring some extremely minor defects which are capable

of rectification. It is clear, therefore, that the Division

Bench obviously exceeded its jurisdiction in interfering

with a pure finding of fact forgetting that the arbitrator

is the sole Judge of the quantity and quality of evidence

before him and unnecessarily bringing in facts which

were neither pleaded nor proved and ignoring the vital

completion certificate granted by the DDA itself. The

Division Bench also went wrong in stating that as the

work completed was only to the extent of Rs 62,84,845,

Hudson's formula should have been applied taking this

figure into account and not the entire contract value of

Rs 87,66,678 into account.

56. Here again, the Division Bench has interfered

wrongly with the arbitral award on several counts. It had

no business to enter into a pure question of fact to set

aside the arbitrator for having applied a formula of 20

months instead of 25 months. Though this would inure in

favour of the appellant, it is clear that the appellant did

not file any cross-objection on this score. Also, it is

extremely curious that the Division Bench found that an

adjustment would have to be made with claims awarded

under Claims 2, 3 and 4 which are entirely separate and

independent claims and have nothing to do with Claims

12 and 13. The formula then applied by the Division

Bench was that it would itself do “rough and ready

justice”. We are at a complete loss to understand how

this can be done by any court under the jurisdiction

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exercised under Section 34 of the Arbitration Act. As has

been held above, the expression “justice” when it comes

to setting aside an award under the public policy ground

can only mean that an award shocks the conscience of

the court. It cannot possibly include what the court

thinks is unjust on the facts of a case for which it then

seeks to substitute its view for the arbitrator's view and

does what it considers to be “justice”. With great respect

to the Division Bench, the whole approach to setting

aside arbitral awards is incorrect. The Division Bench

has lost sight of the fact that it is not a first appellate

court and cannot interfere with errors of fact.”

29.The learned counsel for the claimant-Respondent has

further submitted that it is a settled position of law that the

grounds for interference with the arbitral award under Section

37 of the Act, 1996 is narrower than those under Section 34 of

the Act, 1996, hence if an arbitral award has been upheld in

challenge under Section 34 of the Act, 1996, then the same

should not be disturbed by the Appellate Court. In this regard,

reliance has been placed on a judgment, rendered by the

Hon’ble Apex Court in the case of UHL Power Company Ltd.

vs. State of Himachal Pradesh, reported in (2022) 4 SCC 116

as also upon the one rendered by the Hon’ble Apex Court in the

case of Reliance Infrastructure Ltd. vs. State of Goa, reported

in (2024) 1 SCC 479, paragraphs no. 25 to 33 whereof are

reproduced herein below:-

“25. Having regard to the contentions urged and the

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issues raised, it shall also be apposite to take note of the

principles enunciated by this Court in some of the

relevant decisions cited by the parties on the scope of

challenge to an arbitral award under Section 34 and the

scope of appeal under Section 37 of the 1996 Act.

26. In MMTC [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC

163], this Court took note of various decisions including

that in Associate Builders [Associate Builders v. DDA,

(2015) 3 SCC 49] and exposited on the limited scope of

interference under Section 34 and further narrower scope

of appeal under Section 37 of the 1996 Act, particularly

when dealing with the concurrent findings (of the

arbitrator and then of the Court). This Court, inter alia,

held as under: [MMTC Ltd. v. Vedanta Ltd., (2019) 4

SCC 163], SCC pp. 166-67, paras 11-14)

“11. As far as Section 34 is concerned, the position is

well-settled by now that the Court does not sit in

appeal over the arbitral award and may interfere on

merits on the limited ground provided under Section

34(2)(b)(ii) i.e. if the award is against the public policy

of India. As per the legal position clarified through

decisions of this Court prior to the amendments to the

1996 Act in 2015, a violation of Indian public policy, in

turn, includes a violation of the fundamental policy of

Indian law, a violation of the interest of India, conflict

with justice or morality, and the existence of patent

illegality in the arbitral award. Additionally, the

concept of the “fundamental policy of Indian law”

would cover compliance with statutes and judicial

precedents, adopting a judicial approach, compliance

with the principles of natural justice, and Wednesbury

[Associated Provincial Picture Houses v. Wednesbury

Corpn., (1948) 1 KB 223 (CA)] reasonableness.

Furthermore, “patent illegality” itself has been held to

mean contravention of the substantive law of India,

contravention of the 1996 Act, and contravention of the

terms of the contract.

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12. It is only if one of these conditions is met that the

Court may interfere with an arbitral award in terms of

Section 34(2)(b)(ii), but such interference does not

entail a review of the merits of the dispute, and is

limited to situations where the findings of the arbitrator

are arbitrary, capricious or perverse, or when the

conscience of the Court is shocked, or when the

illegality is not trivial but goes to the root of the matter.

An arbitral award may not be interfered with if the

view taken by the arbitrator is a possible view based on

facts. (See Associate Builders v. DDA [Associate

Builders v. DDA, (2015) 3 SCC 49] Also see ONGC

Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd.,

(2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends

Coal Carbonisation [(2006) 4 SCC 445]; and

McDermott International Inc. v. Burn Standard Co.

Ltd. [(2006) 11 SCC 181])

13. It is relevant to note that after the 2015 Amendment

to Section 34, the above position stands somewhat

modified. Pursuant to the insertion of Explanation 1 to

Section 34(2), the scope of contravention of Indian

public policy has been modified to the extent that it

now means fraud or corruption in the making of the

award, violation of Section 75 or Section 81 of the Act,

contravention of the fundamental policy of Indian law,

and conflict with the most basic notions of justice or

morality. Additionally, sub-section (2-A) has been

inserted in Section 34, which provides that in case of

domestic arbitrations, violation of Indian public policy

also includes patent illegality appearing on the face of

the award. The proviso to the same states that an award

shall not be set aside merely on the ground of an

erroneous application of the law or by reappreciation

of evidence.

14. As far as interference with an order made under

Section 34, as per Section 37, is concerned, it cannot

be disputed that such interference under Section 37

cannot travel beyond the restrictions laid down under

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Section 34. In other words, the Court cannot undertake

an independent assessment of the merits of the award,

and must only ascertain that the exercise of power by

the Court under Section 34 has not exceeded the scope

of the provision. Thus, it is evident that in case an

arbitral award has been confirmed by the Court under

Section 34 and by the Court in an appeal under Section

37, this Court must be extremely cautious and slow to

disturb such concurrent findings.”

27. In Ssangyong Engg. [Ssangyong Engg. &

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

Court has set out the scope of challenge under Section 34

of the 1996 Act in further details in the following words :

(SCC pp. 170-71, paras 37-41)

“37. Insofar as domestic awards made in India are

concerned, an additional ground is now available

under sub-section (2-A), added by the Amendment Act,

2015, to Section 34. Here, there must be patent

illegality appearing on the face of the award, which

refers to such illegality as goes to the root of the matter

but which does not amount to mere erroneous

application of the law. In short, what is not subsumed

within “the fundamental policy of Indian law”, namely,

the contravention of a statute not linked to public

policy or public interest, cannot be brought in by the

backdoor when it comes to setting aside an award on

the ground of patent illegality.

38. Secondly, it is also made clear that reappreciation

of evidence, which is what an appellate court is

permitted to do, cannot be permitted under the ground

of patent illegality appearing on the face of the award.

39. To elucidate, para 42.1 of Associate Builders

[Associate Builders v. DDA, (2015) 3 SCC 49], namely,

a mere contravention of the substantive law of India, by

itself, is no longer a ground available to set aside an

arbitral award. Para 42.2 of Associate Builders

[Associate Builders v. DDA, (2015) 3 SCC 49],

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however, would remain, for if an arbitrator gives no

reasons for an award and contravenes Section 31(3) of

the 1996 Act, that would certainly amount to a patent

illegality on the face of the award.

40. The change made in Section 28(3) by the

Amendment Act really follows what is stated in paras

42.3 to 45 in Associate Builders [Associate Builders v.

DDA, (2015) 3 SCC 49], namely, that the construction

of the terms of a contract is primarily for an arbitrator

to decide, unless the arbitrator construes the contract

in a manner that no fair-minded or reasonable person

would; in short, that the arbitrator's view is not even a

possible view to take. Also, if the arbitrator wanders

outside the contract and deals with matters not allotted

to him, he commits an error of jurisdiction. This ground

of challenge will now fall within the new ground added

under Section 34(2-A).

41. What is important to note is that a decision which is

perverse, as understood in paras 31 and 32 of

Associate Builders [(2015) 3 SCC 49], while no longer

being a ground for challenge under “public policy of

India”, would certainly amount to a patent illegality

appearing on the face of the award. Thus, a finding

based on no evidence at all or an award which ignores

vital evidence in arriving at its decision would be

perverse and liable to be set aside on the ground of

patent illegality. Additionally, a finding based on

documents taken behind the back of the parties by the

arbitrator would also qualify as a decision based on no

evidence inasmuch as such decision is not based on

evidence led by the parties, and therefore, would also

have to be characterised as perverse.”

28. The limited scope of challenge under Section 34 of

the Act was once again highlighted by this Court in PSA

Sical Terminals [PSA Sical Terminals (P) Ltd. v. V.O.

Chidambranar Port Trust, (2023) 15 SCC 781] and this

Court particularly explained the relevant tests as under :

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(SCC paras 40 to 42)

“40. It will thus appear to be a more than settled legal

position, that in an application under Section 34, the

Court is not expected to act as an appellate court and

reappreciate the evidence. The scope of interference

would be limited to grounds provided under Section 34

of the Arbitration Act. The interference would be so

warranted when the award is in violation of “public

policy of India”, which has been held to mean “the

fundamental policy of Indian law”. A judicial

intervention on account of interfering on the merits of

the award would not be permissible. However, the

principles of natural justice as contained in Sections 18

and 34(2)(a)(iii) of the Arbitration Act would continue

to be the grounds of challenge of an award. The ground

for interference on the basis that the award is in

conflict with justice or morality is now to be

understood as a conflict with the “most basic notions of

morality or justice”. It is only such arbitral awards that

shock the conscience of the Court, that can be set aside

on the said ground. An award would be set aside on the

ground of patent illegality appearing on the face of the

award and as such, which goes to the roots of the

matter. However, an illegality with regard to a mere

erroneous application of law would not be a ground for

interference. Equally, reappreciation of evidence would

not be permissible on the ground of patent illegality

appearing on the face of the award.

41. A decision which is perverse, though would not be

a ground for challenge under “public policy of India”,

would certainly amount to a patent illegality appearing

on the face of the award. However, a finding based on

no evidence at all or an award which ignores vital

evidence in arriving at its decision would be perverse

and liable to be set aside on the ground of patent

illegality.

42. To understand the test of perversity, it will also be

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appropriate to refer to paras 31 and 32 from the

judgment of this Court in Associate Builders [Associate

Builders v. DDA, (2015) 3 SCC 49], which read thus:

(SCC pp. 75-76)

‘31. The third juristic principle is that a decision

which is perverse or so irrational that no reasonable

person would have arrived at the same is important

and requires some degree of explanation. It is settled

law that where:

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

(ii) an Arbitral Tribunal takes into account something

irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision,

such decision would necessarily be perverse.

32. A good working test of perversity is contained in

two judgments. In CCE & Sales v. Gopi Nath & Sons

[1992 Supp (2) SCC 312], it was held:

“7. … It is, no doubt, true that if a finding of fact is

arrived at by ignoring or excluding relevant

material or by taking into consideration irrelevant

material or if the finding so outrageously defies

logic as to suffer from the vice of irrationality

incurring the blame of being perverse, then, the

finding is rendered infirm in law.”

29. In Delhi Airport Metro Express [Delhi Airport Metro

Express (P) Ltd. v. DMRC, (2022) 1 SCC 131], this Court

again surveyed the case law and explained the contours

of the Courts' power to review the arbitral awards.

Therein, this Court not only reaffirmed the principles

aforesaid but also highlighted an area of serious concern

while pointing out “a disturbing tendency” of the Courts

in setting aside arbitral awards after dissecting and

reassessing factual aspects. This Court also underscored

the pertinent features and scope of the expression “patent

illegality” while reiterating that the Courts do not sit in

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appeal over the arbitral award. The relevant and

significant passages of this judgment could be usefully

extracted as under: [Delhi Airport Metro Express (P)

Ltd. v. DMRC, (2022) 1 SCC 131], SCC pp. 147-48, 150-

51 & 155-56, paras 26, 28-30 & 42)

“26. A cumulative reading of the UNCITRAL Model Law

and Rules, the legislative intent with which the 1996

Act is made, Section 5 and Section 34 of the 1996 Act

would make it clear that judicial interference with the

arbitral awards is limited to the grounds in Section 34.

While deciding applications filed under Section 34 of

the Act, Courts are mandated to strictly act in

accordance with and within the confines of Section 34,

refraining from appreciation or reappreciation of

matters of fact as well as law. (See Uttarakhand Purv

Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.

[(2020) 2 SCC 455], Bhaven Construction v. Sardar

Sarovar Narmada Nigam Ltd. [(2022) 1 SCC 75] &

Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram

Saran [(2012) 5 SCC 306].)

***

28. This Court has in several other judgments

interpreted Section 34 of the 1996 Act to stress on the

restraint to be shown by Courts while examining the

validity of the arbitral awards. The limited grounds

available to Courts for annulment of arbitral awards

are well known to legally trained minds. However, the

difficulty arises in applying the well-established

principles for interference to the facts of each case that

come up before the Courts. There is a disturbing

tendency of Courts setting aside arbitral awards, after

dissecting and reassessing factual aspects of the cases

to come to a conclusion that the award needs

intervention and thereafter, dubbing the award to be

vitiated by either perversity or patent illegality, apart

from the other grounds available for annulment of the

award. This approach would lead to corrosion of the

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object of the 1996 Act and the endeavours made to

preserve this object, which is minimal judicial

interference with arbitral awards. That apart, several

judicial pronouncements of this Court would become a

dead letter if arbitral awards are set aside by

categorising them as perverse or patently illegal

without appreciating the contours of the said

expressions.

29. Patent illegality should be illegality which goes to

the root of the matter. In other words, every error of

law committed by the Arbitral Tribunal would not fall

within the expression “patent illegality”. Likewise,

erroneous application of law cannot be categorised as

patent illegality. In addition, contravention of law not

linked to public policy or public interest is beyond the

scope of the expression “patent illegality”. What is

prohibited is for Courts to reappreciate evidence to

conclude that the award suffers from patent illegality

appearing on the face of the award, as Courts do not sit

in appeal against the arbitral award. The permissible

grounds for interference with a domestic award under

Section 34(2-A) on the ground of patent illegality is

when the arbitrator takes a view which is not even a

possible one, or interprets a clause in the contract in

such a manner which no fair-minded or reasonable

person would, or if the arbitrator commits an error of

jurisdiction by wandering outside the contract and

dealing with matters not allotted to them. An arbitral

award stating no reasons for its findings would make

itself susceptible to challenge on this account. The

conclusions of the arbitrator which are based on no

evidence or have been arrived at by ignoring vital

evidence are perverse and can be set aside on the

ground of patent illegality. Also, consideration of

documents which are not supplied to the other party is

a facet of perversity falling within the expression

“patent illegality”.

30. Section 34(2)(b) refers to the other grounds on

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which a court can set aside an arbitral award. If a

dispute which is not capable of settlement by

arbitration is the subject-matter of the award or if the

award is in conflict with public policy of India, the

award is liable to be set aside. Explanation (1),

amended by the 2015 Amendment Act, clarified the

expression “public policy of India” and its

connotations for the purposes of reviewing arbitral

awards. It has been made clear that an award would be

in conflict with public policy of India only when it is

induced or affected by fraud or corruption or is in

violation of Section 75 or Section 81 of the 1996 Act, if

it is in contravention with the fundamental policy of

Indian law or if it is in conflict with the most basic

notions of morality or justice.

***

42. The Division Bench referred to various factors

leading to the termination notice, to conclude that the

award shocks the conscience of the Court. The

discussion in SCC OnLine Del para 103 of the

impugned judgment [DMRC v. Delhi Airport Metro

Express (P) Ltd., 2019 SCC OnLine Del 6562] amounts

to appreciation or reappreciation of the facts which is

not permissible under Section 34 of the 1996 Act. The

Division Bench further held that the fact of AMEL

being operated without any adverse event for a period

of more than four years since the date of issuance of

the CMRS certificate, was not given due importance by

the Arbitral Tribunal. As the arbitrator is the sole

Judge of the quality as well as the quantity of the

evidence, the task of being a Judge on the evidence

before the Tribunal does not fall upon the Court in

exercise of its jurisdiction U/s. 34. [State of Rajasthan

v. Puri Constr. Co. Ltd., (1994) 6 SCC 485] On the

basis of the issues submitted by the parties, the Arbitral

Tribunal framed issues for consideration and answered

the said issues. Subsequent events need not be taken

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into account.”

(emphasis supplied)

30. In Haryana Tourism [Haryana Tourism Ltd. v.

Kandhari Beverages Ltd., (2022) 3 SCC 237 : (2022) 2

SCC (Civ) 87] , this Court yet again pointed out the

limited scope of interference under Sections 34 and 37 of

the Act; and disapproved interference by the High Court

under Section 37 of the Act while entering into merits of

the claim in the following words : (SCC p. 240, paras 8-

9)

“8. So far as the impugned judgment and order

[Kandhari Beverages Ltd. v. Haryana Tourism Ltd.,

2018 SCC OnLine P&H 3233] passed by the High

Court quashing and setting aside the award and the

order passed by the Additional District Judge under

Section 34 of the Arbitration Act are concerned, it is

required to be noted that in an appeal under Section 37

of the Arbitration Act, the High Court has entered into

the merits of the claim, which is not permissible in

exercise of powers U/s. 37 of the Arbitration Act.

9. As per settled position of law laid down by this Court

in a catena of decisions, an award can be set aside only

if the award is against the public policy of India. The

award can be set aside under Sections 34/37 of the

Arbitration Act, if the award is found to be contrary to:

(a) fundamental policy of Indian Law; or (b) the

interest of India; or (c) justice or morality; or (d) if it is

patently illegal. None of the aforesaid exceptions shall

be applicable to the facts of the case on hand. The High

Court has entered into the merits of the claim and has

decided the appeal under Section 37 of the Arbitration

Act as if the High Court was deciding the appeal

against the judgment and decree passed by the learned

trial court. Thus, the High Court has exercised the

jurisdiction not vested in it under Section 37 of the

Arbitration Act. The impugned judgment and order

[Kandhari Beverages Ltd. v. Haryana Tourism Ltd.,

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2018 SCC OnLine P&H 3233] passed by the High

Court is hence not sustainable.”

31. As regards the limited scope of interference under

Sections 34/37 of the Act, we may also usefully refer to

the following observations of a three-Judge Bench of this

Court in UHL Power Co. Ltd. v. State of H.P. [(2022) 4

SCC 116]: (SCC p. 124, paras 15-16)

“15. This Court also accepts as correct, the view

expressed by the appellate court that the learned Single

Judge committed a gross error in reappreciating the

findings returned by the Arbitral Tribunal and taking

an entirely different view in respect of the interpretation

of the relevant clauses of the implementation agreement

governing the parties inasmuch as it was not open to

the said court to do so in proceedings U/s. 34 of the

Arbitration Act, by virtually acting as a court of

appeal.

16. As it is, the jurisdiction conferred on courts under

Section 34 of the Arbitration Act is fairly narrow, when

it comes to the scope of an appeal under Section 37 of

the Arbitration Act, the jurisdiction of an appellate

court in examining an order, setting aside or refusing to

set aside an award, is all the more circumscribed.”

32. The learned Attorney General has referred to another

three-Judge Bench decision of this Court in SAL Udyog

[State of Chhattisgarh v. SAL Udyog (P) Ltd., (2022) 2

SCC 275], wherein this Court indeed interfered with the

award in question when the same was found suffering

from non-consideration of a relevant contractual clause.

In the said decision too, the principles aforesaid in Delhi

Airport Metro Express [(2022) 1 SCC 131], Ssangyong

Engg. [(2019) 15 SCC 131] and other cases were

referred to and thereafter, this Court applied the

principles to the facts of that case. We shall refer to the

said decision later at an appropriate juncture.

33. Keeping in view the aforementioned principles

enunciated by this Court with regard to the limited scope

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of interference in an arbitral award by a Court in the

exercise of its jurisdiction U/s. 34 of the Act, which is all

the more circumscribed in an appeal under Section 37,

we may examine the rival submissions of the parties in

relation to the matters dealt with by the High Court.”

30.Thus, it is submitted by the learned counsel for the

claimant-Respondent that the law is now well-settled, inasmuch

as an arbitral award can be set aside only on the ground of

patent illegality, i.e. where illegalities go to the root of the

matter but re-appreciation of facts and evidence cannot be

permitted under the ground of patent illegality and the

jurisdiction conferred on Courts under Section 34/37 of the Act

is fairly narrow. It is equally a well-settled law that power of

Court under Section 37 of the Act, 1996 is not same as the

power of the Appellate Court under Code of Civil Procedure,

inasmuch as the learned Appellate Court can re-appreciate both

factual and legal position whereas the jurisdiction of the Court

under Section 37 is confined only to see that the power under

Section 34 has been rightly exercised. In fact, neither the Court

exercising jurisdiction under Section 34 nor under Section 37 of

the Act, 1996 can go into finding of facts recorded by the

arbitral Tribunal. Reference has been made to a judgment

rendered by the Hon’ble Apex Court in the case Bombay Slum

Redevelopment Corporation Ltd. vs. Samir Narain Bhojwani,

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reported in (2024) 7 SCC 218 as also to the one rendered in the

case of Somdat Builders-NCC-NEC(JV) vs. National

Highways Authority of India & Others, reported in (2025) 6

SCC 757 and the one rendered in the case of Jan De Nul

Dredging India Private Ltd. vs. Tuticorin Port Trust, reported

in (2026) SCC Online SC 33.

Determination:

31.We have heard the learned counsel for the parties at

length and perused the voluminous records, including the

records of the arbitral proceedings, copies of Misc. (Arbitration)

Case No.158 of 2020 and the reply/supplementary reply filed

therein as also the arbitral award dated 17.10.2020 and the

impugned judgement passed by the learned PDJ, Patna dated

25.07.2025.

32.Shorn of unnecessary details, the facts of the present case

are that an agreement dated 24.10.2016 was entered into

between the parties for three years, whereby the claimant-

respondent was required to execute the work of Transporting-

cum-Handling Agent for the District Madhubani and he was

entrusted with the work of transportation of food-grains and

other commodities including edible oil to the destinated

godown, as directed by or on behalf of the appellants and

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according to the route chart fixed for the said purpose. The

period of agreement was from 24.10.2016 to 23.10.2019,

however it appears that on account of one of the trucks of the

claimant-respondent, which was loaded with 550 bags of rice,

having been looted, an FIR bearing Khutaina P.S. Case No. 133

of 2018 dated 23.12.2018 was registered under Sections 379,

411, 409 and 120 B of the Indian Penal Code read with Section

7 of the Essential Commodities Act, 1955 and Section 37 (6) of

the Bihar Prohibition and Excise Act, 2016 against six persons

including the driver of the said truck. The said occurrence

resulted in the District Manager, BSFC, Madhubani issuing a

show cause dated 13.05.2019 to the claimant-respondent, as to

why in terms of Clause 4(f) of the Agreement, appropriate

proceedings for cancellation of agreement and blacklisting the

claimant-respondent for five years be not initiated, to which the

claimant-respondent had filed his reply dated 18.05.2019,

however the District Transport Committee, Madhubani vide

minutes of meeting dated 21.05.2019 decided to blacklist the

claimant-respondent for a period of five years, forfeit the

security deposit, terminate the agreement and invoke the bank

guarantee. This was followed by a reasoned order dated

23.05.2019 by which the claimant-respondent was blacklisted

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for five years, the security deposit was forfeited, the agreement

was terminated and the bank guarantee was invoked. The said

order dated 23.05.2019 was though assailed by the claimant-

respondent before the learned Single Judge of this Court in

CWJC No. 12554 of 2019, however the learned Single Judge of

this Court vide order dated 21.08.2019 had though quashed the

order of blacklisting, however liberty was granted to the

claimant-respondent to seek his remedy against the order of

termination, forfeiture of security deposit and invocation of

bank guarantee in a duly constituted arbitration proceedings or

as may be advised in accordance with law.

33.The claimant-respondent had then sent a notice to the

appellants on 29.05.2019 for appointing an arbitrator suggesting

three names, however the appellants did not respond to the said

notice as also failed to appoint any arbitrator within a reasonable

time leading to the respondent filing a request case before this

Court bearing Request Case No. 66 of 2019, under Section 11(6)

of the Act, 1996 for appointment of an independent and

impartial arbitrator in lieu of the provisions in the agreement in

question, whereupon the Learned Chief Justice of this Court by

an order dated 06.09.2019 passed in Request Case No. 66 of

2019 and other analogous cases, had appointed Hon’ble Mr.

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Justice Sadanand Mukherjee, a retired judge of the Patna High

Court as the Sole Arbitrator to enter upon the disputes and

render his award in terms of the provision of the Act, 1996.

34.The claimant-respondent had then filed a detailed

statement of claim before the learned Arbitrator on 11.10.2019,

being aggrieved with the order dated 23.05.2019, terminating

the agreement in question, forfeiting the security deposit and

invoking the bank guarantee and further raising claims on the

head of non-payment/short payment of the bills pertaining to

transportation and handling charges. The claimant-respondent

had prayed for the following reliefs in the statement of claim

filed before the learned Arbitrator:-

“(i) It be held and declared that the Termination of

agreement, Forfeiture of Security and Invocation of Bank

Guarantee in the Minutes of Meeting dated 21.05.2019

(contained in Annexure- C-48 to the Statement of

Claims) of the District Transport Committee, Madhubani

and reasoned order contained in Memo No. 681 dated

23.05.2019 issued under the signature of Managing

Director of the Corporation (contained in Annexure- C-

49 to the Statement of Claims) is inoperative, illegal,

unjustified and contrary to the terms of the agreement

and not binding on the claimant/petitioner.

(ii) By an interim order the operation of the reasoned

order contained in (contained in Annexure-C-49 to the

Statement of Claims) be stayed till the disposal and final

award in the present arbitral proceeding.

(iii) Respondents jointly and severely be directed to make

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payment of the claims of the claimant amounting to Rs.

4,32,23,044.57 (four crore thirty two lakh twenty three

thousand forty four rupees and fifty seven paisa) towards

dues (Illegal deduction and withholding of bills of the

claimant/petitioner) with interest thereon @ 18% till

31.10.2019 as noted in Annexure C-63 to the statement

of claims, with further interest thereon at the rate of 18%

per annum from 01.11.2019 up to date of actual receipt

of the awarded amount with interest thereon by the

claimant.

(iv) The respondents jointly and severely be directed to

pay the cost of arbitration to the claimant.

(v) The Hon'ble Tribunal may grant any other relief or

reliefs which is deemed fit and proper in the ends of

justice to the claimant.”

35.The appellants had then filed statement of defence on

13.01.2020, whereafter the claimant-respondent had filed a

rejoinder dated 11.02.2020 as also a supplementary statement of

claim on 14.06.2020. The learned Sole Arbitrator had then

framed issues for consideration.

36.The learned Sole Arbitrator vide arbitral award dated

17.10.2020 has allowed the claim of the claimant-respondent on

the head of outstanding bills amount to the tune of Rs.

2,67,37,638.62, compensation to the tune of Rs. 25 lakhs,

simple interest @ 10% for the pendente lite period and further

18% interest over the awarded sum from the date of award till

realization of the awarded amount, cost towards fees and

expenses of the arbitrator and courts and other legal expenses

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apart from treating the arbitrator’s fees not paid by the

appellants as unpaid cost of the award under Section 39 of the

Act, 1996. We have already reproduced the entitlements of the

claimant-respondent, as awarded by the learned Sole Arbitrator

by the arbitral award dt. 17.10.2020, hereinabove in paragraph

No. 9. The said award dated 17.10.2020 was challenged by the

appellants before the learned Court of PDJ, Patna by filing

Misc. (Arbitration) Case No.158 of 2020 under Section 34 (2) &

(2A) of the Act, 1996, to which the claimant had filed a reply as

also a supplementary reply dt. 23.12.2021 & 14.2.2022,

respectively.

37.The learned PDJ, Patna by the impugned judgment dated

25.07.2025 has been pleased to dismiss the said Misc.

(Arbitration) Case No. 158 of 2020 holding that no valid ground

has been made out under Section (2) or (2A) of Section 34 of

the Act, 1996 so as to warrant interference with the impugned

arbitral award or findings of the learned Sole Arbitrator. The

findings recorded by the learned PDJ, Patna in the aforesaid

judgement dated 25.07.2025 has already been detailed

hereinabove in paragraph No. 17.

38.At the outset, it would be apt to reproduce the relevant

Clauses of the Agreement dt. 24.10.2016 entered into between

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the parties for the District of Madhubani, herein below:-

“12. The First Pary shall be liable to pay the second

Party remuneration for the undertaking in this

agreement at the rates specified below against each item.

No other charges shall be admissible to the second party

for the due performance to this agreement. These rates

are also subject to revision at any time at the discretion

of the First Party. If the Second Party agree to such

revisions either by express consent or by implied action

such rates would automatically be binding to the second

Party.

(Application of rate of Particular slab will be only upto

the maximum distance fixed for the beginning form Zero)

13. No separate handling and stacking charges is

payable in respect of handling work taking place at

F.C.I. depot or rail head/Godown. Schedule of approved

rates for transport and handling is indicated above in

this agreement.

14. The District Manager, Bihar state Food & Civil

Supplies Corporation Ltd. shall on completion of each

month, calculate the amount of remuneration for which

the Second Party is entitled to as aforesaid and pay the

same by Account Payee cheque within a reasonable

period after such accounting. However, after the

submission of bills by the Second Party and subject to

the completion of such other formalities as required by

the First party, the payment against bill submitted by the

Second-Party will be made by the first party in the

manner specified in the Head office Circular No. Audit-

IX 13/96-799 dated 07.02.2001. The First Party reserves

the right to amend the procedure of payment as and

when such is required. No interest shall be payable to the

Second Party for unavoidable delay in the payment. In

special circumstances, the payment may be made even

within the quarter at discretion of the District Manager

with prior approval of the Managing Director while

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making the payment the damage like shortage officially,

accident, theft etc. payable by the Second Party will be

deducted and if damage is claimed but not finally

determined, payment to that extent will be withheld till

final determination which is to be done at the shortest

possible time.

18. The agreement shall remain in operation for the

period of three years from the date of publication of

Tender notice by the contractor has been appointed and

it can be terminated any time by issuing 15 days prior

notice. This may be terminated earlier than the period

mentioned above on behalf of the First Party in case of

non-lifting of grains, sugar, edible oil etc. During the

specified period if there is any breach of any of the terms

of the agreement by the second party, the agreement may

be terminated and blacklisted as well as debarred for

next five years from future transportation work, security

deposits will be forfeited and Bank guarantee of 20 lacs

(twenty lac only) will be utilized and encashed at once by

the First Party. The responsibility of the second party

shall not cease with the termination of the agreement

unless he has redelivered the grains, sugar, edible oils

and etc., entrusted to him and rendered complete

accounts thereof to the satisfaction of the First Party.

21. All disputes arising under or in pursuance of this

agreement between the parties, except matters decision

of which herein expressly is otherwise provided, shall be

referred to sole arbitration of the C.M.D/Managing

Director of the Bihar State Food & Civil Supplies

Corporation Ltd. Patna or a person nominated by the

C.M.D/ Managing Director decision of such arbitrator

shall be final and binding on both the parties. The

provisions of the arbitration and conciliation Act, 1996

and rules framed there under and statuary modifications

thereof shall apply to the proceedings of arbitration and

all such disputes shall be subject to the jurisdiction of

courts at Patna.

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22. The second party would not be entitled to claim any

compensation for detention of their trucks at the godown

gates or detention by law enforcing agencies during

transit any other authorized places of the corporation

from where the delivery of any consignment is to be

obtained or where any delivery is to be given.”

39.At this juncture, we would like to delve upon the scope of

Sections 34 and 37 of the Act, 1996, as has been considered and

settled in a catena of cases by the Hon’ble Apex Court. In this

regard, we would first refer to the judgment rendered by the

Hon’ble Apex Court in the case of SEPCO Electric Power

Construction Corporation vs. GMR Kamalanga Energy

Limited reported in (2026) 2 SCC 542, paragraph Nos. 68, 114

to 116 whereof are reproduced herein below:-

“68. Furthermore, in the process of discussing the

jurisdiction and powers of courts under Sections 34 and

37 of the 1996 Act, a 3-Judge Bench of this Court, in

UHL Power Co. [UHL Power Co. Ltd. v. State of H.P.,

(2022) 4 SCC 116] while holding that the learned Single

Judge of the High Court concerned had exceeded his

jurisdiction through interference with the arbitral award,

explicated the reasons of such narrow scope of powers of

a court under Section 34 of the 1996 Act. Referencing

extensively on other decisions of this Court, namely,

MMTC [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163],

K. Sugumar v. Hindustan Petroleum Corpn. Ltd. [(2020)

12 SCC 539] , Dyna Technologies [(2019) 20 SCC 1] ,

and Parsa Kente Collieries [(2019) 7 SCC 236], it laid

down that the courts do not sit in appeal over arbitral

awards, therefore, the jurisdiction of the courts

concerned is confined to specific grounds as laid down

under Section 34 of the 1996 Act, for instance, violation

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of public policy, patent illegality, or misconduct.

Furthermore, it is based on the principle of party

autonomy and the need to uphold the finality of an

arbitral award. Concluding, it iterated that when the

parties have, through conscious decision-making, opted

for arbitration as an alternative means of dispute

mechanism, the courts ought to refrain from

reappreciation of evidence or substitution of

interpretation(s), unless the award is perverse,

unreasonable, or contrary to the mandate of the statute

or decisions of court.

114. Summarising the principles as aforesaid, it is

undoubtful that the interference under jurisprudence laid

down under Sections 34 and 37 of the 1996 Act is

narrow, while aforementioned decisions do acknowledge

that, SEPCO has vehemently pushed so in an attempt to

persuade us to hold the Division Bench in error.

However, the jurisprudence, as also identified in the

aforesaid issues, clarifies that the principles of natural

justice, and the public policy of India are paramount and

cannot be ignored or sidelined in an attempt not to

frustrate the patent or latent commercial wisdom of the

parties to seek an alternative means of dispute

resolution. Such issues attack the root of the Indian legal

system and the courts cannot be made a mere spectator

to such gross violations.

115. The scope under Section 37, as rightly argued by

SEPCO, is slimmer than that under Section 34, but, in

the instant case, the Section 34 judgment had failed to

appreciate the gross violations of the basic principles of

adjudication of a dispute. While one may argue some of

those may be latent and not a prima facie violation,

thereby not mandating any interference, direct omission

of the mandate of Section 18 and Section 28 sub-section

(3) of the 1996 Act are clearly patent through a

skimming of arbitral award. No contentions appear on

behalf of SEPCO vis-à-vis waiver through the

circumstances arising in March 2012, and despite such a

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want, the Arbitral Tribunal exceeded the mandate to

deem a waiver on the part of GMRKE Limited for

contractual notices, without any explicit intent.

Thereafter, it patently discriminates against GMRKE

Limited to deny their claims for want of contractual

notice(s).

116. An attack on the fundamental policy of Indian law

allows for reappreciation and thereby, the impugned

judgment cannot be faulted with on the ground of having

exceeded its jurisdiction under Section 37 of the 1996

Act. The Division Bench was correct in this regard, as to

open up the necessary floodgates of reappreciation of the

arbitral award.”

40.Yet another judgment on the aforesaid issue is the one

rendered by the Hon’ble Apex Court in the case of UHL Power

Company Limited vs. State of Himachal Pradesh, reported in

(2022) 4 SCC 116, paragraph Nos. 16 to 19 and 21 whereof are

reproduced herein below:-

“16. As it is, the jurisdiction conferred on courts under

Section 34 of the Arbitration Act is fairly narrow, when it

comes to the scope of an appeal under Section 37 of the

Arbitration Act, the jurisdiction of an appellate court in

examining an order, setting aside or refusing to set aside

an award, is all the more circumscribed. In MMTC Ltd.

v. Vedanta Ltd. [(2019) 4 SCC 163], the reasons for

vesting such a limited jurisdiction on the High Court in

exercise of powers under Section 34 of the Arbitration

Act have been explained in the following words:

“11. As far as Section 34 is concerned, the position is

well-settled by now that the Court does not sit in

appeal over the arbitral award and may interfere on

merits on the limited ground provided under Section

34(2)(b)(ii) i.e. if the award is against the public policy

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of India. As per the legal position clarified through

decisions of this Court prior to the amendments to the

1996 Act in 2015, a violation of Indian public policy, in

turn, includes a violation of the fundamental policy of

Indian law, a violation of the interest of India, conflict

with justice or morality, and the existence of patent

illegality in the arbitral award. Additionally, the

concept of the “fundamental policy of Indian law”

would cover compliance with statutes and judicial

precedents, adopting a judicial approach, compliance

with the principles of natural justice, and Wednesbury

[Associated Provincial Picture Houses Ltd. v.

Wednesbury Corpn., (1948) 1 KB 223 (CA)]

reasonableness. Furthermore, “patent illegality” itself

has been held to mean contravention of the substantive

law of India, contravention of the 1996 Act, and

contravention of the terms of the contract.”

17. A similar view, as stated above, has been taken by

this Court in K. Sugumar v. Hindustan Petroleum Corpn.

Ltd. [(2020) 12 SCC 539], wherein it has been observed

as follows : (SCC p. 540, para 2)

“2. The contours of the power of the Court under

Section 34 of the Act are too well established to require

any reiteration. Even a bare reading of Section 34 of

the Act indicates the highly constricted power of the

civil court to interfere with an arbitral award. The

reason for this is obvious. When parties have chosen to

avail an alternate mechanism for dispute resolution,

they must be left to reconcile themselves to the wisdom

of the decision of the arbitrator and the role of the

court should be restricted to the bare minimum.

Interference will be justified only in cases of

commission of misconduct by the arbitrator which can

find manifestation in different forms including exercise

of legal perversity by the arbitrator.”

18. It has also been held time and again by this Court

that if there are two plausible interpretations of the terms

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and conditions of the contract, then no fault can be

found, if the learned arbitrator proceeds to accept one

interpretation as against the other. In Dyna Technologies

(P) Ltd. v. Crompton Greaves Ltd. [(2019) 20 SCC 1],

the limitations on the Court while exercising powers

under Section 34 of the Arbitration Act has been

highlighted thus : (SCC p. 12, para 24)

“24. There is no dispute that Section 34 of the

Arbitration Act limits a challenge to an award only on

the grounds provided therein or as interpreted by

various Courts. We need to be cognizant of the fact that

arbitral awards should not be interfered with in a

casual and cavalier manner, unless the Court comes to

a conclusion that the perversity of the award goes to

the root of the matter without there being a possibility

of alternative interpretation which may sustain the

arbitral award. Section 34 is different in its approach

and cannot be equated with a normal appellate

jurisdiction. The mandate under Section 34 is to

respect the finality of the arbitral award and the party

autonomy to get their dispute adjudicated by an

alternative forum as provided under the law. If the

Courts were to interfere with the arbitral award in the

usual course on factual aspects, then the commercial

wisdom behind opting for alternate dispute resolution

would stand frustrated.”

19. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya

Vidyut Utpadan Nigam Ltd. [(2019) 7 SCC 236],

adverting to the previous decisions of this Court in

McDermott International Inc. v. Burn Standard Co. Ltd.

[(2006) 11 SCC 181] and Rashtriya Ispat Nigam Ltd. v.

Dewan Chand Ram Saran [(2012) 5 SCC 306], wherein

it has been observed that an Arbitral Tribunal must

decide in accordance with the terms of the contract, but

if a term of the contract has been construed in a

reasonable manner, then the award ought not to be set

aside on this ground, it has been held thus:

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“9.1. …It is further observed and held that

construction of the terms of a contract is primarily for

an arbitrator to decide unless the arbitrator construes

the contract in such a way that it could be said to be

something that no fair-minded or reasonable person

could do. It is further observed by this Court in the

aforesaid decision in para 33 that when a court is

applying the “public policy” test to an arbitration

award, it does not act as a court of appeal and

consequently errors of fact cannot be corrected. A

possible view by the arbitrator on facts has necessarily

to pass muster as the arbitrator is the ultimate master

of the quantity and quality of evidence to be relied upon

when he delivers his arbitral award. It is further

observed that thus an award based on little evidence or

on evidence which does not measure up in quality to a

trained legal mind would not be held to be invalid on

this score.

9.2. Similar is the view taken by this Court in NHAI v.

ITD Cementation India Ltd. [(2015) 14 SCC 21], SCC

para 25 and SAIL v. Gupta Brother Steel Tubes Ltd.

[(2009) 10 SCC 63], SCC para 29.”

21. An identical line of reasoning has been adopted in

South East Asia Marine Engg. & Constructions Ltd.

(Seamec Ltd.) v. Oil India Ltd. [(2020) 5 SCC 164] and

it has been held as follows:

“12. It is a settled position that a court can set aside

the award only on the grounds as provided in the

Arbitration Act as interpreted by the courts. Recently,

this Court in Dyna Technologies (P) Ltd. v. Crompton

Greaves Ltd. [(2019) 20 SCC 1] laid down the scope of

such interference. This Court observed as follows:

‘24. There is no dispute that Section 34 of the

Arbitration Act limits a challenge to an award only on

the grounds provided therein or as interpreted by

various Courts. We need to be cognizant of the fact

that arbitral awards should not be interfered with in a

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casual and cavalier manner, unless the Court comes

to a conclusion that the perversity of the award goes

to the root of the matter without there being a

possibility of alternative interpretation which may

sustain the arbitral award. Section 34 is different in

its approach and cannot be equated with a normal

appellate jurisdiction. The mandate under Section 34

is to respect the finality of the arbitral award and the

party autonomy to get their dispute adjudicated by an

alternative forum as provided under the law. If the

Courts were to interfere with the arbitral award in the

usual course on factual aspects, then the commercial

wisdom behind opting for alternate dispute resolution

would stand frustrated.’

13. It is also settled law that where two views are

possible, the Court cannot interfere in the plausible

view taken by the arbitrator supported by reasoning.

This Court in Dyna Technologies [(2019) 20 SCC 1]

observed as under :

‘25. Moreover, umpteen number of judgments of this

Court have categorically held that the Court should

not interfere with an award merely because an

alternative view on facts and interpretation of

contract exists. The Courts need to be cautious and

should defer to the view taken by the Arbitral

Tribunal even if the reasoning provided in the award

is implied unless such award portrays perversity

unpardonable under Section 34 of the Arbitration

Act.”

41.We may also refer to the judgement rendered in the case

of Jan De Nul Dredging India Private Limited vs. Tuticorin

Port Trust reported in 2026 SCC OnLine SC 33, paragraph

Nos. 36, 37 whereof are reproduced herein below:-

“36. In other words, the scope of interference of the

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court with the arbitral matters is virtually prohibited, if

not absolutely barred. The powers of the appellate court

are even more restricted than the powers conferred by

Section 34 of the Act. The appellate power under Section

37 of the Act is exercisable only to find out if the court

exercising power under Section 34 of the Act, has acted

within its limits as prescribed thereunder or has

exceeded or failed to exercise the power so conferred.

The appellate court exercising powers under Section 37

of the Act has no authority of law to consider the matter

in dispute before the Arbitral Tribunal on merits so as to

hold as to whether the award of the Arbitral Tribunal is

right or wrong. The appellate court in exercise of such

power cannot sit as an ordinary court of appeal and

reappraise the evidence to record a contrary finding. The

award of the Arbitral Tribunal cannot be touched by the

court unless it is contrary to the substantive provision of

law or any provision of the Act or the terms of the

agreement.

37. Undoubtedly, in the case at hand, the award of the

Arbitral Tribunal is not contrary to any substantive

provision of law or any provision of the Act. Yet, it has

been disturbed by the appellate court, apparently by

giving a different interpretation of the clauses of the

licence agreement which jurisdiction was not vested in it.

Ordinarily, the interpretation given by the Arbitral

Tribunal, as affirmed by the court in exercise of powers

under Section 34 of the Act ought to have been

accepted.”

42.We have already referred to the judgments rendered in the

cases of Saw Pipes Limited (supra), Associate Builders

(supra), Reliance Infrastructure Limited (supra), Bombay

Slum Re-development Corporation Limited (supra), Somdat

Builders-NCC-NEC (JV) (supra) and host of other judgments

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referred to in the said judgements on the scope of interference

under Sections 34 and 37 of the Act, 1996. We find from the law

propounded in the aforesaid judgments, referred to hereinabove

that broadly as far as Sections 34 and 37 of the Act, 1996 are

concerned, the Court is not required to sit in appeal over the

arbitral award and reappreciate the evidence, however

interference would be permissible in the following situations:-

(i) When the award is in violation of Public Policy of

India i.e. the Fundamental Policy of Indian Law.

(ii) In case of violation of the Principles of Natural

Justice as envisaged under Sections 18 and 34 (2)(a)(iii)

of the Act, 1996.

(iii) If the award is in conflict with justice or morality i.e.

in conflict with the most basic notions of morality and

justice.

(iv) If the arbitral award shocks the conscience of the

Court.

(v) An arbitral award can also be set aside on the ground

of patent illegality appearing on the face of the award

which goes to the root of the matter.

43.Thus, in nutshell we find that an award can be challenged

on the grounds provided for under Section 34 (2) and (2A) of

the Act, 1996. It is a well settled law that where a finding is

based on no evidence or an arbitral tribunal takes into account

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something irrelevant to the decision which it arrives at or

ignores vital evidence in arriving at its decision, such decision

would necessarily be perverse and liable to be set aside on the

ground of patent illegality. A conspectus of the aforesaid

judgement rendered by the Hon’ble Apex Court would

demonstrate that award can be set aside under Sections 34 and

37 of the Act, 1996, if the award is found to be contrary to:-

(a) Fundamental policy of Indian Law; or

(b) The Interest of India; or

(c) Justice or morality and

(d) It is patently illegal.

44.Yet another issue which arises for consideration is

whether the powers of the Court under Sections 34 and 37 of the

Act, 1996 will include the power to modify an arbitral award

and if the power to modify the award is available, whether such

power can be exercised only where the award is severable and a

part thereof can be modified. The said issues have been

answered in a constitution bench judgment rendered by the

Hon’ble Apex Court in the case of Gayatri Balasamy vs. ISG

Novasoft Technologies Limited, reported in (2025) 7 SCC 1, to

the effect that the Court has a limited power under Sections 34

and 37 of the Act, 1996 to modify the arbitral award which may

be exercised under the following circumstances:-

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(i) When the award is severable, by severing the

“invalid” portion from the “valid” portion of the award;

(ii) By correcting any clerical, computational or

typographical errors which appear erroneous on the face

of the record.

(iii) By modifying post-award interest in some

circumstances;

45.It would be apropos to reproduce paragraph Nos. 32 to

34, 38, 39, 41 to 45, 49, 63, 65 and 87 of the judgment rendered

by the Hon’ble Apex in the case of Gayatri Balasamy (supra),

herein below:-

“II. Severability of awards

32. In the present controversy, the proviso to Section

34(2)(a)(iv) is particularly relevant. It states that if the

decisions on matters submitted to arbitration can be

separated from those not submitted, only that part of the

arbitral award which contains decisions on matters non-

submitted may be set aside. The proviso, therefore,

permits courts to sever the non-arbitrable portions of an

award from arbitrable ones. This serves a twofold

purpose. First, it aligns with Section 16 of the 1996 Act,

which affirms the principle of kompetenz-kompetenz, that

is, the arbitrators' competence to determine their own

jurisdiction. Secondly, it enables the Court to sever and

preserve the “valid” part(s) of the award while setting

aside the “invalid” ones. [ The “validity” and

“invalidity”, as used here, does not refer to legal validity

or merits examination, but validity in terms of the

proviso to Section 34(2)(a)(iv) of the 1996 Act.] Indeed,

before us, none of the parties have argued that the Court

is not empowered to undertake such a segregation.

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33. We hold that the power conferred under the proviso

to Section 34(2)(a)(iv) is clarificatory in nature. The

authority to sever the “invalid” portion of an arbitral

award from the “valid” portion, while remaining within

the narrow confines of Section 34, is inherent in the

Court's jurisdiction when setting aside an award.

34. To this extent, the doctrine of omne majus continet in

se minus—the greater power includes the lesser—applies

squarely. The authority to set aside an arbitral award

necessarily encompasses the power to set it aside in part,

rather than in its entirety. This interpretation is practical

and pragmatic. It would be incongruous to hold that

power to set aside would only mean power to set aside

the award in its entirety and not in part. A contrary

interpretation would not only be inconsistent with the

statutory framework but may also result in valid

determinations being unnecessarily nullified.

III. Difference between setting aside and modification

38. This distinction lies at the heart of many arguments

canvassed before us. The parties opposing the

recognition of a power of modification of the courts have

strenuously contended that modification and setting

aside are distinct and sui generis powers. While

modification involves altering specific parts of an award,

setting aside does not alter the award but results in its

annulment. Their primary concern is that recognising a

power of modification may invite judicial interference

with the merits of the dispute—something arguably

inconsistent with the framework of the 1996 Act.

39. We agree with this argument, but only to a limited

extent. It is true that modification and setting aside have

different consequences: the former alters the award,

while the latter annuls it. [ The words used in the statute

must be interpreted contextually, taking into account the

purpose, scope, and background of the provision. Many

words and expressions have both narrow and broad

meanings and thereby open to multiple interpretations.

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Legal interpretation should align with the object and

purpose of the legislation. Therefore, we may not strictly

apply a semantic differentiation while interpreting the

words “modification” or “setting aside”. Instead, a

holistic and purposive interpretation of these words will

be consistent with the intent behind the provision and the

1996 Act. Linguistically and even jurisprudentially, a

distinction can be drawn between the expressions —

“modification”, “partial setting aside”, and “setting

aside” of an arbitral award in its entirety. However, we

must note that the practical effect of partially setting

aside an award is the modification of the award.]

However, we do not concur with the view that

recognising any modification power will inevitably lead

to an examination of the merits of the dispute. It will

completely depend on the extent of the modification

powers recognised by us. In the following part of our

Analysis, we outline the contours of this limited power

and explain why, in our view, recognising it will

ultimately yield more just outcomes.

41. To deny courts the authority to modify an award—

particularly when such a denial would impose significant

hardships, escalate costs, and lead to unnecessary delays

—would defeat the raison d'être of arbitration. This

concern is particularly pronounced in India, where

applications under Section 34 and appeals under Section

37 often take years to resolve.

42. Given this background, if we were to decide that

courts can only set aside and not modify awards, then

the parties would be compelled to undergo an extra

round of arbitration, adding to the previous four stages:

the initial arbitration, Section 34 (setting aside

proceedings), Section 37 (appeal proceedings), and

Article 136 (SLP proceedings). In effect, this

interpretation would force the parties into a new

arbitration process merely to affirm a decision that could

easily be arrived at by the Court. This would render the

arbitration process more cumbersome than even

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traditional litigation.

43. Equally, Section 34 limits recourse to courts to an

application for setting aside the award. However, Section

34 does not restrict the range of reliefs that the Court

can grant, while remaining within the contours of the

statute. A different relief can be fashioned as long as it

does not violate the guardrails of the power provided

under Section 34. In other words, the power cannot

contradict the essence or language of Section 34. The

Court would not exercise appellate power, as envisaged

by Order 41 of the Code of Civil Procedure, 1908

(hereinafter referred to as “the Code”).

44. We are of the opinion that modification represents a

more limited, nuanced power in comparison to the

annulment of an award, as the latter entails a more

severe consequence of the award being voided in toto.

Read in this manner, the limited and restricted power of

severing an award implies a power of the Court to vary

or modify the award. It will be wrong to argue that

silence in the 1996 Act, as projected, should be read as a

complete prohibition.

45. We are thus of the opinion that the Section 34 Court

can apply the doctrine of severability and modify a

portion of the award while retaining the rest. This is

subject to parts of the award being separable, legally

and practically, as stipulated in Part II of our Analysis.

49. Notwithstanding Section 33, we affirm that a Court

reviewing an award under Section 34 possesses the

authority to rectify computational, clerical, or

typographical errors, as well as other manifest errors,

provided that such modification does not necessitate a

merits-based evaluation. There are certain powers

inherent to the Court, even when not explicitly granted

by the legislature. The scope of these inherent powers

depends on the nature of the provision, whether it

pertains to appellate, reference, or limited jurisdiction as

in the case of Section 34. The powers are intrinsically

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connected as they are part and parcel of the jurisdiction

exercised by the Court.

63. We are unable to accept the view taken in Kinnari

Mullick [Kinnari Mullick v. Ghanshyam Das Damani,

(2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , which

insists that an application or request under Section 34(4)

must be made by a party in writing. The request may be

oral. Nevertheless, there should be a request which is

recorded by the Court. We are also unable to agree that

the request must be exercised before the application

under Section 34(1) is decided. Section 37 (Annexure A)

permits an appeal against any order setting aside or

refusing to set aside an arbitral award under Section 34.

To this extent, the appellate jurisdiction under Section 37

is coterminous with, and as broad as, the jurisdiction of

the Court deciding objections under Section 34. Hence,

the contention that the Tribunal becomes functus officio

after the award is set aside is misplaced. The Section 37

Court still possesses the power of remand stipulated in

Section 34(4). Of course, the appellate court, while

exercising power under Section 37, should be mindful

when the award has been upheld by the Section 34

Court. But the Section 37 Court still possesses the

jurisdiction to remand the matter to the Arbitral

Tribunal.

65. In Dyna Technologies (P) Ltd. v. Crompton Greaves

Ltd. [Dyna Technologies (P) Ltd. v. Crompton Greaves

Ltd., (2019) 20 SCC 1] , this Court emphasised that the

issuance of a reasoned award is not a mere formality

under the 1996 Act. For an award to be termed

“reasoned”, it must meet three essential yardsticks: it

must be proper, intelligible, and adequate. The purpose

behind Section 34(4) is clear: it allows for an award to

become enforceable after granting the Tribunal an

opportunity to cure any defects. This power is

exercisable when the Arbitral Tribunal has failed to give

any reasoning or the award exhibits gaps in reasoning

and these defects can be cured, thereby preventing

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unnecessary challenges. The underlying intent is to

provide an effective, expeditious forum for addressing

curable defects, which Section 34(4) facilitates.

Conclusions

87. Accordingly, the questions of law referred to by

Gayatri Balasamy [Gayatri Balasamy v. ISG Novasoft

Technologies Ltd., 2024 SCC OnLine SC 1681] are

answered by stating that the Court has a limited power

under Sections 34 and 37 of the 1996 Act to modify the

arbitral award. This limited power may be exercised

under the following circumstances:

87.1. When the award is severable, by severing the

“invalid” portion from the “valid” portion of the award,

as held in Part II of our Analysis;

87.2. By correcting any clerical, computational or

typographical errors which appear erroneous on the face

of the record, as held in Parts IV and V of our Analysis;

87.3. Post-award interest may be modified in some

circumstances as held in Part IX of our Analysis; and/or

87.4. Article 142 of the Constitution applies, albeit, the

power must be exercised with great care and caution and

within the limits of the constitutional power as outlined

in Part XII of our Analysis.”

46.Now coming back to the facts of the present case, we find

that the Ld. sole Arbitrator has by his award dated 17.10.2020

held that the claimant-respondent shall be paid a sum of

Rs.2,67,37,638.62/-, including the security amount to the tune of

Rs.10 lakhs. In this regard, it would be relevant to point out here

that the learned Arbitrator has come to a finding at internal page

No.13 of the award dated 17.10.2020 that the claimant-

respondent has not committed any breach of contract so as to be

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rendered liable under Section 4(f) of the agreement, hence he

cannot be saddled with any liability for any deduction of the

amount on account of theft and institution of FIR, however the

claimant-respondent has raised a claim of Rs.4,32,23,044.57

towards dues comprising of alleged illegal deduction and

withholding of bills of claimant-respondent and damages for

retention of trucks as noted in the tabular content of the

statement of claim filed by the claimant-respondent. The learned

Arbitrator, at internal page No.15 of the award dated 17.10.2020

has further come to a finding that from a perusal of the bills

submitted by the claimant-respondent it appears that a

substantial number of retention (sic detention) bills have been

added along with the amount fallen due, however under Clause

22 of the Contract, there is clear indication that no charges on

deduction arising out of detention of the trucks shall be payable,

thus all such amount are not fit to be reimbursed, hence the

detention bill shall stand deducted from various bills and such

amount shall not be payable. Thereafter, the learned Arbitrator at

internal page No. 16 of the award dated 17.10.2020 has come to

a finding that on computation of payable bills, a sum of Rs.

2,57,37,738.62 along with a sum of Rs. 10 lakhs on the head of

security money is payable to the claimant.

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The only issue which arises for consideration is as to

whether the learned Arbitrator has committed computational

error while deducting the detention bills. The records would

bear it out that the amount claimed by the claimant-respondent

on the head of “balance payment due” (Column 8 of the Chart

annexed at running page Nos.223 and 224) is a sum of Rs.

3,10,21,638.62 but claim to extent of a sum of Rs.

2,57,37,738.62 has been allowed, meaning thereby that a sum of

Rs.52,83,900/- has been deducted on the head of detention bills,

however if the amount of detention bills annexed as Annexures-

C-6, C-8, C-10, C-12, C-13, C-14, C-15, C-16, C-17, C-21, C-

23 and C-24 at running page Nos. 125, 127, 129, 131, 132, 133,

134, 135, 136, 140, 142 and 143 of the brief are totaled-up, the

amount of detention bills would add up to a sum of Rs.

58,55,100/-, hence the Ld. Sole Arbitrator ought to have

awarded a sum of Rs. 2,51,66,538.62 instead of sum of Rs.

2,57,37,738.62 apart from a sum of Rs. 10 lakhs on the head of

security deposit totaling to a sum of Rs.2,61,66,538.62/-, which

in any view of the matter is a computational error, erroneous on

the face of the record, hence we direct that the amount awarded

in favor of the claimant-Respondent by the Ld. Sole Arbitrator

vide award dated 17.10.2020, pertaining to item No.1 at internal

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page No.17 of the said award would stand corrected as follows:-

“(i) The claimant-respondent shall be paid an amount of

Rs. 2,61,66,578.62 towards the claimed amount inclusive

of security amount.”

47.It is a well-settled law that an Appellate Court cannot re-

appreciate the evidence. In the present case the bills submitted

by the claimant before the Ld. Sole Arbitrator along with the

statement of claim have been marked as Annexure-C-2 to C-35,

however the same have not been refuted by the appellants,

inasmuch as they did not file any affidavit of admission / denial

of documents of the claimant-Respondent before the Ld. Sole

Arbitrator, hence all the bills filed by the claimant before the Ld.

Sole Arbitrator would be deemed to have been accepted by the

appellants to be correct except to the extent of deduction of

detention bill from various bills, as aforesaid.

48.At this stage, we may hasten to add that an Arbitrator has

to act within the ambit of the contract, as has been held in the

case of Jayesh H. Pandya vs. Subhtex (India) Ltd. & Others,

reported in (2020) 17 SCC 383. In yet another judgement

rendered by the Hon’ble Apex Court in the case of SEPCO

Electric Power Construction Corporation (supra), it has been

held that the Arbitrator lacks the power to deviate from or to re-

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interpret the terms of the contract while making an award, the

award must be within the parameters of the agreement entered

into between the parties and the arbitrator is restricted to the

terms of the contract and cannot go outside its scope.

49. In one another judgment rendered by the Hon’ble Apex

Court in the case of State of Rajasthan vs. Nav Bharat

Construction Co., reported in (2006) 1 SCC 86, it has been held

that an Arbitrator cannot go beyond the terms of the contract

and when an agreement has been filed in the Court and order of

reference has been made then the claim has to be limited to that

relief and the Arbitrator cannot enlarge the scope of reference.

50.The other issue which arises for consideration in the

present case is regarding award of compensation to the tune of

Rs. 25 lakhs under Section 54 of the Indian Contract Act. The

findings of the learned Arbitrator in this regard can be found at

internal page No.17 of the award dated 17.10.2020, which is

reproduced herein below:-

“Since the contract between the parties consists of

reciprocal promises, in the circumstances of the case, in

view of the delayed payments causing wrongful loss to

the claimant-petitioner, the claimant-petitioner shall be

paid compensation amount of Rs. 45 lakhs (modified to

Rs. 25 lakhs vide order dated 13.11.2020) only as per

Section 54 of the Indian Contract Act.”

51.A bare perusal of the entire award rendered by the learned

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Sole Arbitrator dated 17.10.2020 would show that the prayer of

the claimant-respondent to declare the termination of agreement,

forfeiture of security deposit and invocation of bank guarantee

vide order dated 23.05.2019, issued by the Managing Director,

BSFC, Patna to be inoperative, illegal, unjustified and contrary

to the terms of the agreement, has not been allowed by the

learned Arbitrator and the only finding arrived at by the learned

Arbitrator is that the claimant cannot be saddled with any

liability for any deduction of the amount on account of theft and

institution of FIR and after deduction of the detention bills, the

outstanding claim of the claimant-respondent on the head of

outstanding bills has been allowed.

52.Now, it would be apt to refer to the pleadings made by the

claimant-respondent in the statement of claims filed before the

learned Arbitrator on the aforesaid aspect of the matter, which is

contained in paragraph Nos. 18 and 19 thereof and the same is

being reproduced herein below:-

“18. That the termination of agreement vide order

contained in Memo No. 681 dated 23.05.2019 issued

under the signature of Managing Director of the

Corporation (contained in Annexure C-49) is illegal,

unjustified and contrary to the terms of the agreement.

19. That due to premature termination of the contract by

the respondent contained in Annexure-C-49 the claimant/

petitioner has suffered a loss of Rs. 21,00,000/- (Rupees

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twenty one lakh) as the claimant/petitioner was

prevented from transporting the food grains for about

seven (07) months during the validity period of

agreement. The claimant/petitioner has to incur losses

due to unjustifiable reasons of the detention of trucks at

the time of unloading for which bills have been

submitted. Idling charges has been calculated at the rate

of Rs. 1,000/ per day for 6 wheels truck, Rs. 1,500/- per

day for 10 wheels truck, Rs. 2,000/- per day as idling

charges per truck for 12 wheels truck besides GPS Load

Cell rent.”

53.In the supplementary statement of claim, while the

aforesaid claim of loss of Rs. 21 lakhs has been reiterated, it has

been further stated that the trucks hired by the claimant-

respondent had remained idle, leading to him having paid

charges to the respective truck owners for ideal period of total

seven months i.e. May, 2019 to November, 2019, apart from the

claimant having incurred a sum of Rs.1,50,000/- on the head of

travelling expenses for travelling to Patna to attend the arbitral

proceedings and a sum of Rs.1,60,000/- on the head of the fees

of his learned Advocate. The law with regard to claim of loss of

profit and award of compensation is no longer res integra. In

this regard, we would first refer to a judgement rendered by the

Hon’ble Apex Court in the case of Unibros vs. All India Radio,

reported in 2023 SCC Online SC 1366, paragraph Nos. 15 to

21 whereof are reproduced herein below:-

“15. Considering the aforesaid reasons, even though

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little else remains to be decided, we would like to briefly

address the appellant's claim of loss of profit. In Bharat

Cooking Coal (supra), this Court reaffirmed the

principle that a claim for such loss of profit will only be

considered when supported by adequate evidence. It was

observed:

“24. … It is not unusual for the contractors to claim

loss of profit arising out of diminution in turnover on

account of delay in the matter of completion of the

work. What he should establish in such a situation is

that had he received the amount due under the

contract, he could have utilised the same for some

other business in which he could have earned profit.

Unless such a plea is raised and established, claim for

loss of profits could not have been granted. In this case,

no such material is available on record. In the absence

of any evidence, the arbitrator could not have awarded

the same.”

(emphasis ours)

16. To support a claim for loss of profit arising from a

delayed contract or missed opportunities from other

available contracts that the appellant could have earned

elsewhere by taking up any, it becomes imperative for the

claimant to substantiate the presence of a viable

opportunity through compelling evidence. This evidence

should convincingly demonstrate that had the contract

been executed promptly, the contractor could have

secured supplementary profits utilizing its existing

resources elsewhere.

17. One might ask, what would be the nature and quality

of such evidence? In our opinion, it will be contingent

upon the facts and circumstances of each case. However,

it may generally include independent contemporaneous

evidence such as other potential projects that the

contractor had in the pipeline that could have been

undertaken if not for the delays, the total number of

tendering opportunities that the contractor received and

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declined owing to the prolongation of the contract,

financial statements, or any clauses in the contract

related to delays, extensions of time, and compensation

for loss of profit. While this list is not exhaustive and

may include any other piece of evidence that the court

may find relevant, what is cut and dried is that in

adjudging a claim towards loss of profits, the court may

not make a guess in the dark; the credibility of the

evidence, therefore, is the evidence of the credibility of

such claim.

18. Hudson's formula, while attained acceptability and is

well understood in trade, does not, however, apply in a

vacuum. Hudson's formula, as well as other methods

used to calculate claims for loss of off-site overheads

and profit, do not directly measure the contractor's exact

costs. Instead, they provide an estimate of the losses the

contractor may have suffered. While these formulae are

helpful when needed, they alone cannot prove the

contractor's loss of profit. They are useful in assessing

losses, but only if the contractor has shown with

evidence the loss of profits and opportunities it suffered

owing to the prolongation.

19. The law, as it should stand thus, is that for claims

related to loss of profit, profitability or opportunities to

succeed, one would be required to establish the following

conditions : first, there was a delay in the completion of

the contract; second, such delay is not attributable to the

claimant; third, the claimant's status as an established

contractor, handling substantial projects; and fourth,

credible evidence to substantiate the claim of loss of

profitability. On perusal of the records, we are satisfied

that the fourth condition, namely, the evidence to

substantiate the claim of loss of profitability remains

unfulfilled in the present case.

20. The First Award was interfered with by the High

Court for the reasons noted above. The Arbitrator, in

view of such previous determination made by the High

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Court, could have granted damages to the appellant

based on the evidence on record. There was, so to say,

none which on proof could have translated into an award

for damages towards loss of profit. A claim for damages,

whether general or special, cannot as a matter of course

result in an award without proof of the claimant having

suffered injury. The arbitral award in question, in our

opinion, is patently illegal in that it is based on no

evidence and is, thus, outrightly perverse; therefore,

again, it is in conflict with the “public policy of India”

as contemplated by section 34(2)(b) of the Act.

21. For the reasons aforesaid, we find no merit in this

appeal. The same stands dismissed. However, cost

awarded by the learned Single Judge is made easy.”

54.Yet another judgment on the aforesaid issue is the one

rendered by the Hon’ble High Court of Bombay in the case of

Hindustan Petroleum Corporation Ltd., Mumbai vs. Batliboi

Environmental Engineers Ltd, Mumbai and Another, reported

in (2007) SCC OnLine BOM 1016, paragraph Nos. 14, 21, 22,

26, 27, 28 and 29 whereof are reproduced herein below:-

“14. Arbitrator is creation of the contract between the

parties and he gets jurisdiction under the terms of

contract. He is expected to interpret and apply

provisions of the contract and pass an award

accordingly. While passing the award he has to bear in

mind the provisions of section 28 of the Act, which

clearly provides that in case of domestic arbitration in

India, the Arbitral Tribunal shall decide the dispute in

accordance with substantive law for the time in force in

India. If the Arbitrator ignores the substantive law in

force in India and passes an award, it is bound to cause

injustice and is liable to be set aside. For example law

requires that the claim should be within limitation. If the

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award is passed on a claim, which is clearly barred by

the limitation, that will be against the provisions of law

and the award cannot be sustained. In the present case,

it is the contention of the petitioner that the learned

Arbitrator ignored the terms of the contract, relevant

documents as well as the provisions of section 55 of the

Contract Act and, therefore, the award is liable to be set

aside. It will be necessary to examine the record to find

out in the light of this contention.

21. Section 55 of the Contract Act reads as follows:

“55. Effect of failure to perform at fixed time, in

contract in which time is essential.—

When a party to a contract promises to do a certain

thing at or before a specified time, or certain things at

or before specified times, and fails to do any such thing

at or before the specified time, the contract, or so much

of it as has not been performed, becomes voidable at

the option of the promisee, if the intention of the

parties was that time should be of the essence of the

contract.”

Effect of such failure when time is not essential.

If it was not the intention of the parties that time

should be of the essence of the contract, the contract

does not become voidable by the failure to do such

thing at or before the specified time; but the promisee

is entitled to compensation from the promisor for any

loss occasioned to him by such failure.

Effect of acceptance of performance at time other than

that agreed upon. If, in case of a contract voidable on

account of the promisor's failure to perform his

promise at the time agreed, the promisee accepts

performance of such promise at any time other than

that agreed, the promisee cannot claim compensation

for any loss occasioned by the non-performance of the

promise at the time agreed, unless at the time of such

acceptance he gives notice to the promisor of his

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intention to do so.”

22. From this it is clear that if the promisor had accepted

the performance of the contract beyond the expiry of the

time fixed for the same, he cannot claim compensation

for any loss occasioned by the non-performance of the

terms at the time agreed unless at the time of such

acceptance, he gives notice to the promisor of his

intention to claim compensation for the delay.

26. It is material to note that total cost of the work was

Rs. 474 lakhs and 80% of the work was admittedly

completed for which the payment was also made. Thus,

when the work was stopped or abandoned by the

contractor, only 20% of the work was remaining and the

cost of the 20% work was only Rs. 114.80 lakhs. If the

contractor would have completed the work, he would be

entitled to receive Rs. 114.80 lakhs and according to his

own contention and as per the assessment made by the

arbitrator, he would be getting 10% on account of

overheads and 10% on account of profits. Thus, the gain

of the contractor would be 20% of the said amount,

which would be only Rs. 22.96 lakhs. Against this the

Arbitrator awarded Rs. 1,57,37,666/- which is much

more than 20% of even the total contract money and,

therefore, it can be said that compensation awarded by

the arbitrator was infact arbitrary against the terms of

the contract and perverse and, therefore, it may be held

that he acted beyond his jurisdiction. It cannot be termed

as a mere error within jurisdiction.

27. The arbitrator also awarded amount of Rs. 12 lakhs

towards compensation for idle machinery and equipment

for a period of 24 months at the rate of Rs. 50,000/- per

month. According to the Arbitrator it is based on the

inspection visit to the site. The petitioner has rightly

pointed out that no such site inspection report is

available on record nor it is made available to the

parties. There is no valid reason for grant of this award.

28. The learned Arbitrator also awarded compensation

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of Rs. 1,95,000/- for extra work. In fact, there is no

record to show that the contractor had issued any notice

to the petitioner about any such extra work, nor there is

any oral or documentary evidence to support this claim.

29. Taking into consideration the terms of the contract,

legal provisions and the award passed by the learned

Arbitrator, it is clear that the award is clearly against the

terms of the contract, provisions of law and infact, it is

perverse and cannot stand judicial scrutiny. In our

considered opinion, the award is liable to be set aside. At

the same time, we may also note that the petitioner is

also not entitled to any counter-claim on account of any

delays on the part of the contractor as the petitioner had

extended time on request of the contractor and that too

without indicating that the petitioner would claim any

compensation as required under section 55 of the

Contract Act. Though there was provision in terms of the

contract for liquidated damages, in fact as pointed out

above, the petitioner also could not establish that delay

was only on account of the contractor. In view of the

above, the appeal deserves to be allowed & the

impugned judgment and the award are liable to be set

aside.

55.The aforesaid judgement rendered in the case of Batliboi

Environmental Engineers Ltd. (supra) by the Hon’ble High

Court of Bombay has been upheld by a judgment rendered by

the Hon’ble Apex Court in the case of Batliboi Environmental

Engineers Limited vs. Hindustan Petroleum Corporation

Limited and Another, reported in (2024) 2 SCC 375, paragraph

Nos. 23, 44, 45 and 47 whereof are reproduced herein below:-

“23. Ordinarily, when the completion of a contract is

delayed and the contractor claims that s/he has suffered

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a loss arising from depletion of her/his income from the

job and hence turnover of her/his business, and also for

the overheads in the form of workforce expenses which

could have been deployed in other contracts, the claims

to bear any persuasion before the arbitrator or a court of

law, the builder/contractor has to prove that there was

other work available that he would have secured if not

for the delay, by producing invitations to tender which

was declined due to insufficient capacity to undertake

other work. The same may also be proven from the books

of accounts to demonstrate a drop in turnover and

establish that this result is from the particular delay

rather than from extraneous causes. If loss of turnover

resulting from delay is not established, it is merely a

delay in receipt of money, and as such, the builder/

contractor is only entitled to interest on the capital

employed and not the profit, which should be paid.

44. The decision of this Court in Associate Builders

[(2015) 3 SCC 49] elaborately examined the question of

public policy in the context of Section 34 of the A&C Act,

specifically under the head “fundamental policy of

Indian law”. It was firstly held that the principle of

judicial approach demands a decision to be fair,

reasonable and objective. On the obverse side, anything

arbitrary and whimsical would not satisfy the said

requirement.

45. Referring to the third principle in Western Geco

[ONGC Ltd. v. Western Geco International Ltd., (2014) 9

SCC 263], it was explained that the decision would be

irrational and perverse if (a) it is based on no evidence;

(b) if the Arbitral Tribunal takes into account something

irrelevant to the decision which it arrives at; or (c)

ignores vital evidence in arriving at its decision. The

standards prescribed in State of Haryana v. Gopi Nath &

Sons [1992 Supp (2) SCC 312] (for short Gopi Nath &

Sons) and Kuldeep Singh v. Delhi Police [(1999) 2 SCC

10] should be applied and relied upon, as good working

tests of perversity. In Gopi Nath & Sons [1992 Supp (2)

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SCC 312] it has been held that apart from the cases

where a finding of fact is arrived at by ignoring or

excluding relevant materials or taking into consideration

irrelevant material, the finding is perverse and infirm in

law when it outrageously defies logic as to suffer from

vice of irrationality. Kuldeep Singh [Kuldeep Singh v.

Delhi Police, (1999) 2 SCC 10] clarifies that a finding is

perverse when it is based on no evidence or evidence

which is thoroughly unreliable and no reasonable person

would act upon it. If there is some evidence which can be

acted and can be relied upon, however compendious it

may be, the conclusion should not be treated as perverse.

This Court in Associate Builders [(2015) 3 SCC 49]

emphasised that the public policy test to an arbitral

award does not give jurisdiction to the court to act as a

court of appeal and consequently errors of fact cannot

be corrected. Arbitral Tribunal is the ultimate master of

quality and quantity of evidence. An award based on

little evidence or no evidence, which does not measure

up in quality to a trained legal mind would not be held to

be invalid on this score. Every arbitrator need not

necessarily be a person trained in law as a Judge. At

times, decisions are taken acting on equity and such

decisions can be just and fair should not be overturned

under Section 34 of the A&C Act on the ground that the

arbitrator's approach was arbitrary or capricious.

Referring to the third ground of public policy, justice or

morality, it is observed that these are two different

concepts. An award is against justice when it shocks the

conscience of the court, as in an example where the

claimant has restricted his claim but the Arbitral

Tribunal has awarded a higher amount without any

reasonable ground of justification. Morality would

necessarily cover agreements that are illegal and also

those which cannot be enforced given the prevailing

mores of the day. Here again interference would be only

if something shocks the court's conscience. Further,

“patent illegality” refers to three sub-heads: (a)

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contravention of substantive law of India, which must be

restricted and limited such that the illegality must go to

the root of the matter and should not be of a trivial

nature. Reference in this regard was made to clause (a)

to Section 28(1) of the A&C Act, which states that the

dispute submitted to arbitration under Part I shall be in

accordance with the substantive law for the time being in

force. The second sub-head would be when the arbitrator

gives no reasons in the award in contravention with

Section 31(3) of the A&C Act. The third sub-head deals

with contravention of Section 28(3) of the A&C Act

which states that the Arbitral Tribunal shall decide all

cases in accordance with the terms of the contract and

shall take into account the usage of the trade applicable

to the transaction. This last sub-head should be

understood with a caveat that the arbitrator has the right

to construe and interpret the terms of the contract in a

reasonable manner. Such interpretation should not be a

ground to set aside the award, as the construction of the

terms of the contract is finally for the arbitrator to

decide. The award can be only set aside under this sub-

head if the arbitrator construes the award in a way that

no fair-minded or reasonable person would do.

47. We have extensively analysed the award, its patent

flaws and illegalities which emanate from it, like the

manifest lack of reasoning in arriving at the conclusions

and the calculation of amounts awarded, which, in fact,

amount to double or part-double payments, besides

being contradictory, etc. In view of our aforesaid

reasoning, the award has been rightly held [Hindustan

Petroleum Corpn. Ltd. v. Batliboi Environmental

Engineers Ltd., 2007 SCC OnLine Bom 1016] to be

unsustainable and set aside by the Division Bench of the

High Court exercising power and jurisdiction under

Section 37 read with Section 34 of the A&C Act.”

56.We may, at this juncture also quote Section 54 of the

Indian Contracts Act, 1872 herein below:-

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“54. Effect of default as to that promise which should

be first performed, in contract consisting of reciprocal

promises—When a contract consists of reciprocal

promises, such that one of them cannot be performed, or

that its performance cannot be claimed till the other has

been performed, and the promisor of the promise last

mentioned fails to perform it, such promisor cannot

claim the performance of the reciprocal promise, and

must make compensation to the other party to the

contract for any loss which such other party may sustain

by the non-performance of the contract.”

57. Now coming back to the facts of the present case, we find

that the claimant-respondent has claimed a sum of Rs.21 lakhs

by way of compensation on the ground that he has suffered a

loss to the said extent since he was prevented from transporting

the food grains for about seven months during the validity

period of agreement on account of premature termination of the

contract/agreement by the appellants as well as on account of

detention of trucks. In this context, we find that first of all the

learned Arbitrator has not granted any relief to the petitioner as

far as the order dated 23.05.2019, issued by the Managing

Director, BSFC, Patna terminating the agreement in question is

concerned, hence unless and until the premature termination of

the contract/agreement by the appellants is set aside, the

claimant-respondent is not entitled to claim any compensation

on account of the loss suffered due to premature termination of

the contract.

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58.It is yet another aspect of the matter that the claimant-

respondent has failed to bring on record credible evidence to

substantiate the claim of loss of profitability and has in an ad

hoc manner averred in the statement of claim that a loss of Rs.

21 lakhs has been incurred on account of idling/detention of

trucks which in any view of the matter is barred under Clause 22

of the Agreement dated 24.10.2016, as has already been held by

the learned Arbitrator, which has been referred to hereinabove in

the preceding paragraphs. Thus, there is no proof much less any

evidence whatsoever, on the records of the arbitral proceedings

regarding the claimant-respondent having suffered any loss or

injury, hence the award of compensation to the tune of Rs.25

lakhs is based on no evidence, thus is outrightly perverse, hence

is set aside. This aspect of the matter stands fully covered by the

judgement rendered by the Hon’ble Apex Court in the case of

Unibors (supra).

59.The other issue, which arises for consideration is the

award of interest by the Ld. Sole Arbitrator vide arbitral award

dated 17.10.2020 in the following manner:-

“The claimant-petitioner shall be entitled to simple

interest at the rate of 10 per cent per annum from

13.9.2019 till the date of award and further 18 per cent

interest over awarded sum from the date of award till

realization over the awarded amount.”

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60.The findings of the Ld. Sole Arbitrator with regard to the

aforesaid aspect of the matter is as follows:-

“The claimant petitioner has claimed interest @ 18%

per annum upto the date of actual receipt of awarded

amount. Section 3 of the Interest Act does not provide

grant of interest @18% per annum.

The Arbitrator shall follow the provision of Section

31(7) (a) of the Arbitration and Conciliation Act 1996 as

amended in granting interest. It may be stated that

interest upon the interest is not payable. The Arbitrator

does not consider it proper to grant 18% interest on the

interim bills as made out in the tabular statement

(Annex-C-63). The Arbitrator shall grant interest on the

awarded amount during the pendency of the proceeding

and upon making the award.”

61.Thus, we find that the Ld. Sole Arbitrator vide arbitral

award dated 17.10.2020 has awarded interest pendente lite as

also interest from the date of award till realization of the

awarded amount. The law in this regard is no longer res integra,

inasmuch as the Hon’ble Apex Court has repeatedly held that if

the arbitration agreement or the contract itself provides for

interest, the Arbitrator would have the jurisdiction to award

interest, however when the agreement expressly provides that

no interest pendente lite shall be payable on the amount due, the

Arbitrator has no power to award pendente lite interest.

Reference in this connection be had to the judgments rendered

by the Hon’ble Apex Court in the case of Ambica Construction

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(supra) and the one rendered in the case of GC Roy (supra). In

this regard, we would also refer to a judgment rendered by the

Hon’ble Apex Court in the case of Union of India & Ors. vs.

Larsen & Tubro Limited (L&T), reported in 2026 SCC Online

SC 327, para nos. 29, 31, 34, 36, 38, 40, 43, 45, 46, 47, 48, 52,

53, 55, 56, 59, 61 and 62 whereof are reproduced herein below:-

“29. We have heard learned counsel for the parties and

perused the material placed on record. The following

issues are raised for our consideration:—

A. Whether the AT is justified in awarding pre-

award/pendente lite interest, by way of compensation,

while passing the award in favour of the respondent-

claimant, and more particularly in view of Clause

16(3) and Clause 64(5) of GCC.

B. Whether the AT is justified in awarding post award

interest in favour of the respondent-claimant.

C. Whether the Courts below committed any error

while dealing with Issue (A) and Issue (B) referred

hereinabove while exercising the powers under Section

34 and Section 37 of the Act.

31. Clause 16(3) of the GCC reads as under:

“no interest will be payable upon the Earnest Money

and Security Deposit or amounts payable to the

Contractor under the Contract, but Government

Securities deposited in terms of Sub-Clause (1) of this

clause will be payable with interest accrued thereon”.

34. Section 31(7)(a) and 31(7)(b) further clarifies that

the power of the arbitral tribunal to award interest,

which reads as under:—

“31. Form and contents of arbitral award.—

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………….

(7) (a) Unless otherwise agreed by the parties, where

and in so far as an arbitral award is for the payment of

money, the arbitral tribunal may include in the sum for

which the award is made interest, at such rate as it

deems reasonable, on the whole or any part of the

money, for the whole or any part of the period between

the date on which the cause of action arose and the

date on which the award is made.”

(b) A sum directed to be paid by an arbitral award

shall, unless the award otherwise directs, carry interest

at the rate of two per cent. higher than the current rate

of interest prevalent on the date of award, from the date

of award to the date of payment.

Explanation.—The expression “current rate of

interest” shall have the same meaning as assigned to it

under clause (b) of section 2 of the Interest Act, 1978

(14 of 1978).”

36. In the present case, Clause 16(3) of the GCC, as

referred hereinabove, expressly stipulates that no interest

will be payable upon earnest money and security

deposits or amounts payable to the contractor under the

contract.

38. This Court in the decision rendered in the case of

Manraj Enterprises (supra) has considered a similar

submission canvassed on behalf of the party concerned

and thereafter observed and held in para 12.1 as under:

“12.1. It is required to be noted that Clause 16(1) is

with respect to earnest money/security deposit.

However, Clause 16(2) is specifically with respect to

interest payable upon the earnest money or the security

deposit or amounts payable to the contractor under the

contract. The words used in Clause 16(2) is “or”.

Therefore, the expression “amounts payable to the

contractor under the contract” cannot be read in

conjunction with “earnest money deposit” or “security

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deposit” by applying the principle of ejusdem generis.

The expression “amounts payable to the contractor

under the contract” has to be read independently and

disjunctively to earnest money deposit and security

deposit as the word used is “or” and not “and”

between “earnest money deposit”, “security deposit”

and “amounts payable to the contractor under the

contract”. Therefore, the principle of ejusdem generis

is not applicable in the present case.”

40. At this stage, we would also like to refer to the

decision rendered by a three-judge bench of this Court in

Bright Power Projects (India) (P) Ltd. (supra), wherein

in para 10, 11 and 13, it was held as under:

“10. Thus, it had been specifically understood between

the parties that no interest was to be paid on the

earnest money, security deposit and the amount

payable to the contractor under the contract. So far as

payment of interest on government securities, which

had been deposited by the respondent contractor with

the appellant is concerned, it was specifically stated

that the said amount was to be returned to the

contractor along with interest accrued thereon, but so

far as payment of interest on the amount payable to the

contractor under the contract was concerned, there

was a specific term that no interest was to be paid

thereon.

11. When parties to the contract had agreed to the fact

that interest would not be awarded on the amount

payable to the contractor under the contract, in our

opinion, they were bound by their understanding.

Having once agreed that the contractor would not

claim any interest on the amount to be paid under the

contract, he could not have claimed interest either

before a civil court or before an Arbitral Tribunal.

………….

13. Section 31(7) of the Act, by using the words “unless

otherwise agreed by the parties”, categorically

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specifies that the arbitrator is bound by the terms of the

contract so far as award of interest from the date of

cause of action to date of the award is concerned.

Therefore, where the parties had agreed that no interest

shall be payable, the Arbitral Tribunal cannot award

interest.”

43. Now, at this stage, it is pertinent to observe that this

Court, thereafter, in the case of Manraj Enterprises

(supra) had an occasion to consider similar issues

involved in the present matter and had considered all the

aforementioned decisions, including the decisions

rendered in the cases of Bright Power Projects (India)

(P) Ltd. (supra), Raveechee and Company (supra) and

Ambica Construction v. Union of India, (2017) 14 SCC

323 (a three-judge bench judgment of this Court). After

considering the aforesaid decisions as well as several

other decisions referred on the issue, this Court has

observed in para 8 and 11 as under:

“8. After considering various decisions on award of

interest pendente lite and the future interest by the

arbitrator and after discussing the decisions of this

Court in Ambica Construction v. Union of India

[Ambica Construction v. Union of India, (2017) 14

SCC 323 : (2018) 1 SCC (Civ) 257] and Raveechee &

Co. [Raveechee & Co. v. Union of India, (2018) 7 SCC

664 : (2018) 3 SCC (Civ) 711] and other decisions on

the point, this Court has observed in paras 9 to 18 as

under: (Garg Builders [Garg Builders v. BHEL, (2022)

11 SCC 697], SCC paras 9-19)

“9. On the other hand, Mr. Pallav Kumar, learned

counsel for the respondent, submitted that Section

31(7)(a) of the 1996 Act gives paramount importance

to the contract entered into between the parties and

categorically restricts the power of an arbitrator to

award pre-reference and pendente lite interest when the

parties themselves have agreed to the contrary. He

argued that if the contract itself contains a specific

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clause which expressly bars the payment of interest,

then it is not open for the arbitrator to grant pendente

lite interest. It was further argued that Ambica

Construction [Ambica Construction v. Union of India,

(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] is not

applicable to the instant case because it was decided

under the Arbitration Act, 1940 whereas the instant

case falls under the 1996 Act. It was further argued

that Section 3 of the Interest Act confers power on the

court to allow interest in the proceedings for recovery

of any debt or damages or in proceedings in which a

claim for interest in respect of any debt or damages

already paid. However, Section 3(3) of the Interest Act

carves out an exception and recognises the right of the

parties to contract out of the payment of interest

arising out of any debt or damages and sanctifies

contracts which bars the payment of interest arising out

of debt or damages. Therefore, Clause 17 of the

contract is not violative of any the provisions of the

Contract Act, 1872. In light of the arguments advanced,

the learned counsel prays for dismissal of the appeal.

10. We have carefully considered the submissions of the

learned counsel for both the parties made at the Bar.

The law relating to award of pendente lite interest by

arbitrator under the 1996 Act is no longer res integra.

The provisions of the 1996 Act give paramount

importance to the contract entered into between the

parties and categorically restricts the power of an

arbitrator to award pre-reference and pendente lite

interest when the parties themselves have agreed to the

contrary.

11. Section 31(7)(a) of the 1996 Act which deals with

the payment of interest is as under:

‘31.(7)(a) Unless otherwise agreed by the parties,

where and insofar as an arbitral award is for the

payment of money, the Arbitral Tribunal may include in

the sum for which the award is made interest, at such

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rate as it deems reasonable, on the whole or any part of

the money, for the whole or any part of the period

between the date on which the cause of action arose

and the date on which the award is made.’

12. It is clear from the above provision that if the

contract prohibits pre-reference and pendente lite

interest, the arbitrator cannot award interest for the

said period. In the present case, clause barring interest

is very clear and categorical. It uses the expression

“any moneys due to the contractor” by the employer

which includes the amount awarded by the arbitrator.

13. In Sayeed Ahmed & Co. v. State of U.P. [Sayeed

Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 :

(2009) 4 SCC (Civ) 629], this Court has held that a

provision has been made under Section 31(7)(a) of the

1996 Act in relation to the power of the arbitrator to

award interest. As per this section, if the contract bars

payment of interest, the arbitrator cannot award

interest from the date of cause of action till the date of

award.

14. In Sree Kamatchi Amman Constructions v.

Railways [Sree Kamatchi Amman Constructions v.

Railways, (2010) 8 SCC 767 : (2010) 3 SCC (Civ)

575], it was held by this Court that where the parties

had agreed that the interest shall not be payable, the

Arbitral Tribunal cannot award interest between the

date on which the cause of action arose to the date of

the award.

15. BHEL v. Globe Hi-Fabs Ltd. [(2015) 5 SCC 718],

is an identical case where this Court has held as

under : (SCC p. 723, para 16)

‘16. In the present case we noticed that the clause

barring interest is very widely worded. It uses the

words “any amount due to the contractor by the

employer”. In our opinion, these words cannot be read

as ejusdem generis along with the earlier words

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“earnest money” or “security deposit”.’

16. In Chittaranjan Maity v. Union of India [ (2017) 9

SCC 611], it was categorically held that if a contract

prohibits award of interest for pre-award period, the

arbitrator cannot award interest for the said period.

17. Therefore, if the contract contains a specific clause

which expressly bars payment of interest, then it is not

open for the arbitrator to grant pendente lite interest.

The judgment on which reliance was placed by the

learned counsel for the appellant in Ambica

Construction [Ambica Construction v. Union of India,

(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] has no

application to the instant case because Ambica

Construction [Ambica Construction v. Union of India,

(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] was

decided under the Arbitration Act, 1940 whereas the

instant case falls under the 1996 Act. This has been

clarified in Chittaranjan Maity [Chittaranjan Maity v.

Union of India, (2017) 9 SCC 611 : (2017) 4 SCC (Civ)

693] as under: (SCC p. 616, para 16)

‘16. Relying on a decision of this Court in Ambica

Construction v. Union of India [Ambica Construction v.

Union of India, (2017) 14 SCC 323 : (2018) 1 SCC

(Civ) 257], the learned Senior Counsel for the

appellant submits that mere bar to award interest on

the amounts payable under the contract would not be

sufficient to deny payment on pendente lite interest.

Therefore, the arbitrator was justified in awarding the

pendente lite interest. However, it is not clear from

Ambica Construction [(2017) 14 SCC 323] as to

whether it was decided under the Arbitration Act, 1940

(for short “the 1940 Act”) or under the 1996 Act. It has

relied on a judgment of Constitution Bench in

Irrigation Deptt., State of Orissa v. G. C. Roy [(1992) 1

SCC 508]. This judgment was with reference to the

1940 Act. In the 1940 Act, there was no provision

which prohibited the arbitrator from awarding interest

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for the pre-reference, pendente lite or post-award

period, whereas the 1996 Act contains a specific

provision which says that if the agreement prohibits

award of interest for the pre-award period, the

arbitrator cannot award interest for the said period.

Therefore, the decision in Ambica Construction cannot

be made applicable to the instant case.’

18. The decision in Raveechee & Co. [Raveechee &

Co. v. Union of India, (2018) 7 SCC 664] relied on by

the learned counsel for the appellant is again under the

Arbitration Act, 1940 which has no application to the

facts of the present case.

19. Having regard to the above, we are of the view that

the High Court [Garg Builders v. BHEL, 2017 SCC

OnLine Del 12871] was justified in rejecting the claim

of the appellant seeking pendente lite interest on the

award amount.”

……………

11. In the said decision in Bright Power Projects

[Union of India v. Bright Power Projects (India) (P)

Ltd., (2015) 9 SCC 695 : (2015) 4 SCC (Civ) 702], this

Court also considered Section 31(7)(a) of the 1996 Act.

It is specifically observed and held that Section 31(7) of

the 1996 Act, by using the words “unless otherwise

agreed by the parties” categorically specifies that the

arbitrator is bound by the terms of the contract insofar

as award of interest from the date of cause of action to

date of the award is concerned. It is further observed

and held that where the parties had agreed that no

interest shall be payable, the Arbitral Tribunal cannot

award interest. Thus, the aforesaid decision of a three-

Judge Bench of this Court is the answer to the

submission made on behalf of the respondent that

despite the bar under Clause 16(2) which is applicable

to the parties, the Arbitral Tribunal is not bound by the

same. Therefore, the contention raised on behalf of the

respondent that dehors the bar under Clause 16(2), the

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Arbitral Tribunal independently and on equitable

ground and/or to do justice can award interest

pendente lite or future interest has no substance and

cannot be accepted. Once the contractor agrees that he

shall not be entitled to interest on the amounts payable

under the contract, including the interest upon the

earnest money and the security deposit as mentioned in

Clause 16(2) of the agreement/contract between the

parties herein, the arbitrator in the arbitration

proceedings being the creature of the contract has no

power to award interest, contrary to the terms of the

agreement/contract between the parties and contrary to

Clause 16(2) of the agreement/contract in question in

this case.”

45. The provisions of the Act of 1996, including

provisions contained in Section 31(7)(a) give paramount

importance to the contract entered into between the

parties and categorically restrict the power of an

arbitrator to award pre-award/pendente lite interest

when the parties have themselves agreed to the contrary.

Thus, the AT cannot award pre-award/pendente lite

interest, even in the form of compensation, in view of

specific Cl. 16(3) of GCC read with Cl. 64(5) of GCC.

46. At this stage, it is also relevant to observe that the AT

itself acknowledged this prohibition by rejecting Claim

No. 7 seeking pendente lite interest. The relevant

paragraph of the Arbitral Award reads as under:—

“The Interest so claimed is therefore not admissible as

per Section 31(7)(a) of the Act read with Clause 64(5)

of the GCC & Clause 7.35 of SCC of the contract

agreement signed between the two parties. Tribunal did

not therefore consider to award any interest on the

award sum as claimed by the Claimant. Therefore,

Arbitral Tribunal declare Nil Award against this

claim.”

47. With regard to the post-award interest, Section 31(7)

(b) of the Act provides that unless the award otherwise

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directs, the sum awarded shall carry interest from the

date of the award till payment. The legislative intent

underlying this provision is twofold: first, to compensate

the successful party for delayed realization of the award,

and second, to ensure prompt compliance with the award

by the judgment-debtor.

48. Recently, this Court in the case of R.P. Garg (supra),

has observed and held in para 9, 11 and 12 as under:

“9. We are of the opinion that the judgment of High

Court is clearly erroneous. Firstly, the interest granted

by the First Appellate Court only related to post award

period, and therefore, for this period, the agreement

between the parties has no bearing. Section 31(7)(b)

deals with grant of interest for post award period i.e.,

from the date of the award till its realization. The

statutory scheme relating to grant of interest provided

in Section 31(7) creates a distinction between interest

payable before and after the award. So far as the

interest before the passing of the award is concerned, it

is regulated by Section 31(7)(a) of the Act which

provides that the grant of interest shall be subject to the

agreement between the parties. This is evident from the

specific expression at the commencement of the sub-

section which says “unless otherwise agreed by the

parties”.

…………..

11. So far as the entitlement of the post-award interest

is concerned, sub-Section (b) of Section 31(7) provides

that the sum directed to be paid by the Arbitral

Tribunal shall carry interest. The rate of interest can be

provided by the Arbitrator and in default the statutory

prescription will apply. Clause (b) of Section 31(7) is

therefore in contrast with clause (a) and is not subject

to party autonomy. In other words, clause (b) does not

give the parties the right to “contract out” interest for

the post-award period. The expression ‘unless the

award otherwise directs’ in Section 31(7)(b) relates to

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rate of interest and not entitlement of interest. The only

distinction made by Section 31(7)(b) is that the rate of

interest granted under the Award is to be given

precedence over the statutorily prescribed rate. The

assumption of the High Court that payment of the

interest for the post award period is subject to the

contract is a clear error.

12. The clear position of law that granting post-award

interest is not subject to the contract between the parties

was recently affirmed in the decision of this Court in

Morgan Securities & Credits (P) Ltd. v. Videocon

Industries Ltd.,6 wherein the court observed as follows:

“24. The issue before us is whether the phrase “unless

the award otherwise directs” in Section 31(7)(b) of the

Act only provides the arbitrator the discretion to

determine the rate of interest or both the rate of interest

and the “sum” it must be paid against. At this juncture,

it is crucial to note that both clauses (a) and (b) are

qualified. While, clause (a) is qualified by the

arbitration agreement, clause (b) is qualified by the

arbitration award. However, the placement of the

phrases is crucial to their interpretation. The words,

“unless otherwise agreed by the parties” occur at the

beginning of clause (a) qualifying the entire provision.

However, in clause (b), the words, “unless the award

otherwise directs” occur after the words “a sum

directed to be paid by an arbitral award shall” and

before the words “carry interest at the rate of eighteen

per cent”. Thereby, those words only qualify the rate of

post-award interest.

25. Section 31(7)(a) confers a wide discretion upon the

arbitrator in regard to the grant of pre-award interest.

The arbitrator has the discretion to determine the rate

of reasonable interest, the sum on which the interest is

to be paid, that is whether on the whole or any part of

the principal amount, and the period for which

payment of interest is to be made — whether it should

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be for the whole or any part of the period between the

date on which the cause of action arose and the date of

the award. When a discretion has been conferred on the

arbitrator in regard to the grant of pre-award interest,

it would be against the grain of statutory interpretation

to presuppose that the legislative intent was to reduce

the discretionary power of the arbitrator for the grant

of post-award interest under clause (b). Clause (b) only

contemplates a situation where the arbitration award is

silent on post-award interest, in which event the award-

holder is entitled to a post-award interest of eighteen

per cent.”

52. We are of the view that the AT has committed serious

error by awarding pre-award/pendente lite interest qua

Claim Nos. 1, 3 & 6, though AT has observed that the

said amount are awarded by way of compensation,

however, in view of the peculiar clause of GCC as well

as provisions contained in Section 31(7)(a) of the Act of

1996 and the decisions rendered by this Court, the AT

could not have awarded the pre-award/pendente lite

interest.

53. For the above stated reasons, the Commercial Court

and the High Court failed to appreciate that the AT had

awarded pendente lite interest in violation of an express

contractual bar and such failure attracts interference

even within the limited scope of Sections 34 and 37 of the

Act. 55. There is no provision in the GCC which

expressly bars the grant of post-award interest. In the

absence of such an express exclusion, the statutory

mandate under Section 31(7)(b) of the Act must prevail.

56. In RP Garg (supra), in paragraph 11, this Court

reiterated that post-award interest flows as a matter of

law under Section 31(7)(b), unless the parties have

unequivocally agreed to exclude it.

59. In this context, the decision of this Court in Gayatri

Balasamy v. ISG Novasoft Technologies Limited, (2025)

7 SCC 1, is significant. In paragraphs 74 to 78, this

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Court has categorically held that courts retain the power

to modify post-award interest under Section 31(7)(b) of

the Act where the facts justify such modification. It has

been clarified that Section 31(7)(b) is a distinct

legislative creation which prescribes a statutory

standard to guide the determination of post-award

interest and since such interest is inherently future-

oriented, the courts may increase or decrease the rate of

post-award interest where compelling reasons exist. The

Court further observed that when the statute itself

benchmarks a standard, such benchmark must weigh in

the consideration of the rate awarded and that the power

of modification is necessary to avoid unnecessary setting

aside of the entire award merely on the question of

interest.

61. Accordingly, the answer to the issues framed in the

present matter is that:

A. The AT is not justified in awarding pre-

award/pendente lite interest, by way of compensation,

while passing the award in favour of the respondent-

claimant, and more particularly in view of Clause

16(3) and Clause 64(5) of the GCC. The award of such

interest is not in accordance with the agreement, and

liable to be set aside.

B. The AT is justified in awarding post award interest

in favour of the respondent-claimant, however, the rate

of post-award interest is modified from 12% per annum

to 8% per annum from the date of award till

realization.

C. The Courts below committed a serious error while

dealing with Issue (A) and Issue (B) referred

hereinabove while exercising the powers under Section

34 and Section 37 of the Act.

62. In view of the aforesaid discussion, the impugned

judgment dated 25.05.2023 passed by the High Court of

Judicature at Allahabad, the order dated 15.09.2022

passed by the Commercial Court, Jhansi, and the

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Arbitral Award dated 25.12.2018, are set aside, to the

extent of the grant of pre-award/pendente lite interest or

amounts in the nature of interest, qua Claim No. 1, 3 and

6. The Arbitral Award dated 25.12.2018 is further

modified to the extent of the rate of the post-award

interest from 12% per annum to 8% per annum from the

date of award till realization.”

62.It would be apposite to reproduce paragraphs no. 73 and

74 of the Constitution Bench judgment rendered by the Hon’ble

Apex Court in the case of Gayatri Balasamy vs. ISG Novasoft

Technologies Ltd., reported in (2025) 7 SCC 1 herein below:-

“73. The next question that arises is: Do courts possess

the power to declare or modify interest, especially post-

award interest? In respect of pendente lite interest,

Section 31(7)(a)(Annexure A), states that unless

otherwise agreed by the parties, the Arbitral Tribunal

may include in its sum for the award, interest, at such

rate it deems reasonable on whole or part of the money

for whole or part of the period on which the cause of

action arose and the date on which the award is made. In

respect of post-award interest, Section 31(7)(b)

(Annexure A) states that unless an award provides for

interest on a sum directed to be paid by it, the sum will

carry an interest at a 2% higher rate than the current

rate of interest prevalent on the date of the award, from

the date of the award till the date of payment. The

Explanation defines the expression “current rate of

interest”.

74. There can be instances of violation of Section 31(7)

(a), and the pendente lite interest awarded may be

contrary to the contractual provision. We are of the

opinion that, in such cases, the Court while examining

objections under Section 34 of the 1996 Act will have

two options. First is to set aside the rate of interest or

second, recourse may be had to the powers of remand

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under Section 34(4).”

63.It would also be gainful to refer to a judgment rendered

by the Hon’ble Apex Court in the case of PAM Developments

Private Ltd. vs. State of West Bengal & Anr., reported in (2024)

10 SCC 715, paragraphs no. 23, 23.1 to 23.6 whereof are

reproduced herein below:-

“23. The power of the arbitrator to grant pre-reference

interest, pendente lite interest, and post-award interest

under Section 31(7) of the Act is fairly well-settled. The

judicial determinations also highlight the difference in

the position of law under the Arbitration Act, 1940. The

following propositions can be summarised from a survey

of these cases:

23.1. Under the Arbitration Act, 1940, there was no

specific provision that empowered an arbitrator to

grant interest. However, through judicial

pronouncements, this Court has affirmed the power of

the arbitrator to grant pre-reference, pendente lite, and

post-award interest on the rationale that a person who

has been deprived of the use of money to which he is

legitimately entitled has a right to be compensated for

the same. [State of Orissa v. G.C. Roy, (1992) 1 SCC

508, para 43(i). Also see State of Orissa v. N.C.

Budharaj, (2001) 2 SCC 721; Union of India v.

Krafters Engg. & Leasing (P) Ltd., (2011) 7 SCC 279 :

(2011) 3 SCC (Civ) 533] When the agreement does not

prohibit the grant of interest and a party claims

interest, it is presumed that interest is an implied term

of the agreement, and therefore, the arbitrator has the

power to decide the same. [State of Orissa v. G.C. Roy,

(1992) 1 SCC 508, paras 43 (iv) & 44]

23.2. Under the 1940 Act, this Court has adopted a

strict construction of contractual clauses that prohibit

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the grant of interest and has held that the arbitrator

has the power to award interest unless there is an

express, specific provision that excludes the jurisdiction

of the arbitrator [Port of Calcutta v. Engineers-De-

Space-Age, (1996) 1 SCC 516, paras 4 and 5; Madnani

Construction Corpn. (P) Ltd. v. Union of India, (2010)

1 SCC 549 : (2010) 1 SCC (Civ) 168; Tehri Hydro

Development Corpn. Ltd. v. Jai Prakash Associates

Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122,

paras 18-20; Union of India v. Ambica Construction,

(2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36 (First

Ambica Construction Case); Ambica Construction v.

Union of India, (2017) 14 SCC 323 : (2018) 1 SCC

(Civ) 257 (Second Ambica Construction Case);

Raveechee & Co. v. Union of India, (2018) 7 SCC 664 :

(2018) 3 SCC (Civ) 711; Reliance Cellulose Products

Ltd. v. ONGC Ltd., (2018) 9 SCC 266 : (2018) 4 SCC

(Civ) 351] from awarding interest for the dispute in

question [State of U.P. v. Harish Chandra, (1999) 1

SCC 63].

23.3. Under the 1996 Act, the power of the arbitrator to

grant interest is governed by the statutory provision in

Section 31(7). This provision has two parts. Under

clause (a), the arbitrator can award interest for the

period between the date of cause of action to the date

of the award, unless otherwise agreed by the parties.

Clause (b) provides that unless the award directs

otherwise, the sum directed to be paid by an arbitral

award shall carry interest @ 2% higher than the

current rate of interest, from the date of the award to

the date of payment.

23.4. The wording of Section 31(7)(a) marks a

departure from the Arbitration Act, 1940 in two ways :

first, it does not make an explicit distinction between

pre-reference and pendente lite interest as both of them

are provided for under this sub-section; second, it

sanctifies party autonomy and restricts the power to

grant pre-reference and pendente lite interest the

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moment the agreement bars payment of interest, even if

it is not a specific bar against the arbitrator. [Sayeed

Ahmed & Co. v. State of U.P., (2009) 12 SCC 26, paras

14, 23, 24 : (2009) 4 SCC (Civ) 629; Union of India v.

Saraswat Trading Agency, (2009) 16 SCC 504 : (2011)

3 SCC (Civ) 499; Sree Kamatchi Amman Constructions

v. Railways, (2010) 8 SCC 767, para 19 : (2010) 3 SCC

(Civ) 575; Union of India v. Bright Power Projects

(India) (P) Ltd., (2015) 9 SCC 695, para 13 : (2015) 4

SCC (Civ) 702; Reliance Cellulose Products Ltd. v.

ONGC Ltd., (2018) 9 SCC 266, para 24 : (2018) 4 SCC

(Civ) 351; Jaiprakash Associates Ltd. v. Tehri Hydro

Development Corpn. (India) Ltd., (2019) 17 SCC 786,

paras 13-15 : (2020) 3 SCC (Civ) 605; Delhi Airport

Metro Express (P) Ltd. v. DMRC, (2022) 9 SCC 286,

paras 16-20, 24 : (2022) 4 SCC (Civ) 623]

23.5. The power of the arbitrator to award pre-

reference and pendente lite interest is not restricted

when the agreement is silent on whether interest can be

awarded [Jaiprakash Associates Ltd. v. Tehri Hydro

Development Corpn. (India) Ltd., (2019) 17 SCC 786,

para 13.2] or does not contain a specific term that

prohibits the same [Oriental Structural Engineers (P)

Ltd. v. State of Kerala, (2021) 6 SCC 150, paras 15-18:

23.6. While pendente lite interest is a matter of

procedural law, pre-reference interest is governed by

substantive law. [Central Bank of India v. Ravindra,

(2002) 1 SCC 367, para 39 following State of Orissa v.

G.C. Roy, (1992) 1 SCC 508, para 43(v)] Therefore, the

grant of pre-reference interest cannot be sourced solely

in Section 31(7)(a) (which is a procedural law), but

must be based on an agreement between the parties

(express or implied), statutory provision (such as

Section 3 of the Interest Act, 1978), or proof of

mercantile usage [Central Bank of India v. Ravindra,

(2002) 1 SCC 367, para 39; Central Coop. Bank Ltd. v.

S. Kamalaveni Sundaram, (2011) 1 SCC 790, para 13 :

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(2011) 1 SCC (Civ) 331] .

64.Thus, we find from the law laid down by the Hon’ble

Apex Court in the aforesaid judgments that the provisions of the

Act, 1996 including the provisions contained in Section 31(7)(a)

of the Act, 1996 gives paramount importance to the contract

entered into between the parties and categorically restricts the

power of an Arbitrator to pre-award / pendente lite interest when

the parties have themselves agreed to the contrary, hence an

Arbitral Tribunal cannot award pre-award or pendente lite

interest, even under the guise of compensation, where contract

expressly prohibits payment of interest on amounts payable

under the contract, however post-award interest is governed by

Section 31(7)(b) of the Act, 1996 and can be granted unless

expressly barred.

65.Now coming back to the present case, we find that Clause

14 of the agreement dated 24.10.2016 stipulates- “no interest

shall be payable to the second party for unavoidable delay in the

payment”. Therefore, it is amply clear that the agreement dated

24.10.2016 entered into between the parties expressly prohibits

payment of interest on amounts payable under the contract /

agreement, hence applying the principles laid down by the

Hon’ble Apex Court in the aforesaid cases, we hold that the Ld.

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Sole Arbitrator was not justified in awarding interest pendente

lite @ 10 % per annum from the date of start of the arbitral

proceedings i.e. 13.09.2019 till the date of award, hence is liable

to be set aside. Moreover, neither any pleading has been made

by the claimant-Respondent nor any evidence has been brought

on record to demonstrate the factum regarding unavoidable/

avoidable delay in the payments. However, award of interest @

18 % over the awarded sum from the date of award till

realization of the awarded amount being covered by the

provision contained in Section 31(7)(b) of the Act, 1996 does

not require any interference.

66.Having regard to the facts and circumstances of the case

discussed hereinabove in the preceding paragraphs and for the

foregoing reasons, the arbitral award dated 17.10.2020, passed

by the Ld. Sole Arbitrator as also the impugned judgment dated

25.7.2025, passed by the Ld. Principal District Judge, Patna is

corrected/modified/set aside in terms of this judgment as

follows:-

“(i) The amount of Rs. 2,67,37,638.62, awarded in favor

of the claimant-Respondent by the Ld. Sole Arbitrator,

pertaining to item No.1 at internal page No.17 of the

award dated 17.10.2020 shall stand corrected / modified

to a sum of Rs. 2,61,66,578.62 towards the claimed

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amount inclusive of security amount. Accordingly, the

finding of the Ld. Principal District Judge, Patna in the

impugned judgment dated 25.7.2025 to the said effect

shall also stands corrected / modified.

(ii). The award of the Ld. Sole Arbitrator at serial no. 2 at

internal page No.18 of the award dated 17.10.2020,

holding the claimant-Respondent entitled to

compensation of Rs. 25,00,000/- is set aside. Accordingly,

the impugned judgment dated 25.7.2025, passed by the

Ld. Principal District Judge, Patna, upholding this portion

of the award is also set aside.

(iii). The award of the Ld. Sole Arbitrator at serial no. 3 at

internal page No.18 of the award dated 17.10.2020

regarding grant of simple interest @ 10 % per annum

from 13.9.2019 till the date of award is set aside, however

award of interest @ 18 % over the awarded amount from

the date of award till realization of the awarded amount is

upheld. Accordingly, the impugned judgment dated

25.7.2025, passed by the Ld. Principal District Judge,

Patna, upholding this part of the award to the extent of

grant of simple interest @ 10 % per annum from

13.9.2019 till the date of award is also set aside.

67.In view of the aforesaid discussion, the award dated

17.10.2020, passed by the Ld. Sole Arbitrator and the impugned

judgment dated 25.7.2025, passed by the Ld. Court of Principal

District Judge, Patna are corrected/modified/set aside to the

above extent.

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68.Accordingly, the present appeal is partly allowed to the

aforesaid extent.

COMMERCIAL APPEAL No. 14 of 2025

69.The present appeal has been filed by the appellants under

Section 13 (1A) of the Act, 2015 read with Section 37 of the

Act, 1996 against the order dated 31.07.2025, passed by the

learned Principal District Judge, Patna (hereinafter referred to as

the “learned PDJ, Patna”) in Execution Case No.108 of 2021.

70.Shorn of the unnecessary details, it would suffice to state

here that the claimant-respondent had instituted execution

proceedings by filing the aforesaid Execution Case No.108 of

2021 under Section 36 of the Act, 1996 for execution of Arbitral

award dated 17.10.2020 read with order dated 13.11.2020,

passed by the learned Sole Arbitrator, Patna in Arbitration Case

No.8 of 2019. The appellants had filed rejoinder to the said

execution petition raising various objections and stating therein

that the aforesaid award passed by the learned Sole Arbitrator

has been challenged under Section 34 of the Act, 1996 by filing

Miscellaneous (Arbitration) Case No.158 of 2020, hence the

Execution Case be listed after disposal of the said miscellaneous

case filed by the appellants.

71.It appears that the learned PDJ, Patna by the impugned

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order dated 31.07.2025, passed in Execution Case No.108 of

2021, had on a petition filed by the claimant-respondent supported

by an affidavit dated 06.05.2025, attached the bank accounts of the

appellants and had directed the Office to issue warrant of attachment

in respect of the bank accounts mentioned in the said order dated

31.07.2025, in accordance with due process of law.

72.The Ld. Counsel for the claimant-respondent has further

pointed out that subsequently, the learned PDJ, Patna has passed

an order dated 26.11.2025 in Execution Case No.108 of 2021

whereby and whereunder the petition filed by the claimant-

respondent herein on 26.11.2025 has been allowed and the

authorities of the ICICI Bank, Frazer Road Branch, Patna have

been directed to effect transfer of amount of Rs.4,79,70,693/-

from the bank account standing in the name of the award debtor,

maintained at the said branch to the bank account of the

claimant-respondent maintained at State Bank of India,

Nagarpalika Chowk, Market Branch, Begusarai, whereafter the

matter had been directed to be listed on 11.12.2025.

73.Thus, it is submitted by the Ld. Counsel for the claimant-

respondent that the present petition has been rendered

infructuous on account of passing of the subsequent order dated

26.11.2025 by the learned PDJ, Patna in Execution Case No.108

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of 2021, which has not yet been challenged by the appellants.

74.Having regard to the facts and circumstances of the case

and without going into the merits of the present appeal, we find

that since the award dated 17.10.2020 passed by the learned

Arbitrator (as modified vide order dated 13.11.2020), in

Arbitration Case No.8 of 2019 as also the judgment dated

25.07.2025 passed by the learned PDJ, Patna in Misc.

(Arbitration) Case No.158 of 2020, under Section 34 of the Act,

1996, dismissing the appeal filed by the appellants have now

been corrected/modified/set aside by the aforesaid judgment

being passed today in the connected Commercial Appeal No.7

of 2025, we are of the view that the present appeal has been

rendered infructuous, as such the parties would be well advised

to approach the Execution Court, especially in view of the fact

that the execution proceedings are still pending.

75.Accordingly, the present appeal stands disposed of.

I agree.

Arun Kumar Jha, J:

Ajay/Gaurav

(Mohit Kumar Shah, J)

(Arun Kumar Jha, J)

AFR/NAFR AFR

CAV DATE 15.05.2026

Uploading Date 23.05.2026

Transmission Date NA