IN THE HIGH COURT OF JUDICATURE AT PATNA

COMMERCIAL APPEAL No.9 of 2025

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

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

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

Managing Director.

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

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

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

Ltd., Munger.

... ... Appellant/s

Versus

Ram Uday Singh Son of Late Ram Pratap Singh, Resident of Paspura, P.O.

Paspura, P.S. Muffasil, District- Begusarai.

... ... Respondent/s

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

with

COMMERCIAL APPEAL No. 15 of 2025

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

1.The Bihar State Food and Civil Supplies Corporation Ltd. Sone Bhawan, 5th

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

Patna.

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

Corporation Ltd., Sone Bhawan, 5th Floor, Birchand Patel Path, Patna, at

present Khadya Bhawan, R. Block, Patna.

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

Munger, District- Munger.

... ... Appellant/s

Versus

Ram Uday Singh Son of Late Ram Pratap Singh Resident of Paspura, P.O.-

Paspura, P.S.- Muffasil, District- Begusarai.

... ... Respondent/s

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

Appearance :

(In COMMERCIAL APPEAL No. 9 of 2025)

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

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

Mr. Manish Prakash, Adv.

Mr. Kumar Anjaneya Shanu, Adv.

Mr. Rohit Raj, Adv.

Mr. Ranvir Pratap Singh, Adv.

(In COMMERCIAL APPEAL No. 15 of 2025)

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

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

Mr. Manish Prakash, Adv.

Mr. Kumar Anjaneya Shanu, Adv.

Mr. Rohit Raj, Adv.

Mr. Ranvir Pratap Singh, Adv.

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

Patna High Court COMMERCIAL APP No.9 of 2025 dt.23-05-2026

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CORAM: HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH

and

HONOURABLE MR. JUSTICE ARUN KUMAR JHA

CAV JUDGMENT

(Per: HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH)

Date : 23-05-2026

COMMERCIAL APPEAL No. 9 of 2025

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

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

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

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

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

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

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

(Arbitration) Case No. 25 of 2021.

Facts of the Case:

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

executed in between the appellants and the claimant-Respondent

herein dated 6.8.2014, pursuant to issuance of notice inviting

tender from eligible candidates, for being appointed as

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

the revenue District-Munger and acceptance of the tender

submitted by the claimant-Respondent. The claimant-

Respondent was entrusted with the work of transportation of

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food-grains and other commodities including edible oil to the

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

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

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

Munger. The claimant-Respondent is stated to have executed the

work of transporting-cum-handling agent under the agreement

and had submitted several bills in between the years 2014 to

2017. A bare perusal of the statement of claim filed by the

claimant before the learned Sole Arbitrator would show that the

claimant-respondent was again allotted work of Transport-cum-

handling Agent for the District Munger for a further period of

two years from the date of execution of the agreement i.e.

06.08.2017, however some dispute arose with regard to the

computer of the headquarters being not been able to record the

movements of trucks from Godown, Tarapur to TDPS Godown,

Tarapur through GPS, leading to issuance of a show cause dated

08.08.2017 by the Appellants, which was replied to by the

claimant-respondent vide letter dated 09.08.2017, whereafter

another show cause dated 16.08.2017 was issued by the Deputy

Chief, Transportation Corporation Headquarters, Patna, as to

why the agreement be not cancelled and the claimant be not put

in the blacklist as also the security deposit and the bank

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guarantee be not forfeited, which was also replied to by the

claimant-respondent vide letter dated 24.08.2017, nonetheless

the Managing Director, BSFC, Patna had passed a reasoned

order dated 11.09.2017 cancelling the agreement entered into

with the claimant as also blacklisting the claimant-respondent

for three years. The said order dated 11.09.2017 was though

challenged by the petitioner by filing a writ petition bearing

CWJC No. 3088 of 2019, however a learned Single Judge of

this Court had though, by an order dated 06.05.2019 quashed

the said order dated 11.09.2017, to the extent the same relates to

blacklisting of the claimant-respondent, but as far as the order of

cancellation of contract and recovery of the bills from the

petitioner are concerned, the counsel for the petitioner had

sought to seek remedy in terms of arbitration clause.

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

appellants on 01.04.2019 for appointing an arbitrator suggesting

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

notice as also failed to appoint any arbitrator within a reasonable

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

No. 62 of 2019 under Section 11(6) of the Act, 1996 by the

claimant-Respondent, inter alia praying therein for appointment

of an independent and impartial arbitrator, in view of Clause 17

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of the agreement dated 06.08.2014 and 06.08.2017. The Hon’ble

Chief Justice of this Court by an order dated 06.09.2019, passed

in Request Case No. 62 of 2019 and other analogous cases, in

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

Hon’ble Mr. Justice Sadananad Mukherjee, a retired Judge of

the Patna High Court as the sole Arbitrator to enter upon the

disputes and render his award in terms of the provisions of the

Act, 1996.

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

Sole Arbitrator on 13.09.2019 with a copy of the aforesaid order

dated 06.09.2019, passed in Request Case No. 62 of 2019 and

other analogous cases, leading to registration of Arbitration

Case No. 04 of 2019, whereafter the claimant-Respondent had

filed a detailed statement of claim on 11.10.2019, raising a

claim of a sum of Rs. 2,61,23,216.67. A bare perusal of the

statement of claim filed by the claimant-Respondent before the

Ld. Sole Arbitrator on 11.10.2019 would show that as far as the

claim for the District-Munger is concerned, the same totals up to

a sum of Rs. 51,14,605/- while that for the district-Madhubani

totals up to a sum of Rs. 56,17,210/- and that for Bhagalpur

totals up to a sum of Rs. 14,69,283/-.

5.The appellants had then filed statement of defence on

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13.1.2020, inter alia stating therein that the claimant-

Respondent has submitted calculation chart with the claim

petition without any supporting documents and the admitted

amount has already been paid long back. It has also been stated

that as per Clause 18 of the agreement, the claimant-Respondent

is not entitled to claim any compensation for detention of trucks

at the godown gates or by law enforcing agencies during transit

or at any other place. The appellants have also stated that the

claim raised by the claimant-Respondent is time barred under

Section 43 of the Act, 1996 and moreover, no agreement has

been annexed for the Districts-Madhubani and Bhagalpur and

only calculation chart has been annexed to the claim petition

without any supporting document, hence the same is not

maintainable. It was also averred that the claimant-Respondent

has engaged in breach of the terms and conditions of the

contract and he has already received all the admissible

outstanding amount against the bills submitted by him, hence

the claims raised by him is not admissible in the eyes of law.

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

statement of defence on 11.2.2020, stating therein that in

support of the statement of claim, photo copies of several bills

have been annexed at running Pg. Nos. 192 to 231 of the brief

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wherein each and every fact as well as supporting documents

have been furnished in detail. The claimant-Respondent had also

filed a supplementary statement of claim on 14.6.2020, wherein

it has been stated that a claim to the tune of Rs. 54,65,252/- has

already been raised on account of illegal and unjustified

premature termination of the contract, apart from having raised

a claim of estimated loss for the period of 24 months to the tune

of Rs. 54,65,252/- on the basis that the Charted Accountant has

issued a certificate that the taxable income of the claimant-

Respondent for the financial year 2016-2017 was Rs.

27,32,626/-, apart from claiming a sum of Rs. 1,50,000/- as

travelling expenses for attending arbitral proceedings at Patna

and a sum of Rs. 1,60,000/- on the head of fees of the Ld.

Advocate. However, neither in the claim petition nor in the

rejoinder affidavit, the claimant-Respondent has stated anything

about execution of agreement for carrying out transportation

work for the districts of Madhubani and Bhagalpur.

7.It may be relevant to mention here that a bare perusal of

the statement of claim filed by the claimant-Respondent on

11.10.2019 before the Ld. Sole Arbitrator would show that the

claimant-Respondent has stated therein that the District

Manager, Bihar State Food and Civil Supplies Corporation Ltd.

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(hereinafter referred to as “the BSFC”) Munger, vide letter dated

20.2.2016 had written to the Managing Director, Corporation

Headquarter, Patna that approval has been granted to the

claimant-Respondent for carrying out the transport work of

food-grains in the district of Bhagalpur and vide letter dated

24.2.2016, the District Manager, BSFC, Bhagalpur had directed

the claimant-Respondent to immediately make available a list of

vehicles installed with GPS in his office so that office order can

be issued for transportation of food-grains, apart from the

claimant-Respondent being given responsibility of transport-

cum-handling agent for the district of Madhubani vide memo

dated 12.8.2016, issued by the Transport-cum-handling agent,

Bhagalpur. Nonetheless, no reference has been made to any

agreement entered into between the Appellants and the

claimant-Respondent regarding the transportation work of

Bhagalpur and Madhubani, much less any such agreement

having been produced on the records of the arbitral proceedings,

except the agreement dated 06.08.2014, which admittedly

pertains to the district-Munger.

8.The learned Sole Arbitrator had then framed the following

issues for consideration:-

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

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proceeding.

(ii) Whether arbitration proceeding in respect of the

disputed claimed is barred by limitation.

(iii) Whether the deductions from several bills of the

petitioner/claimant by the respondents are valid and

justified even without giving any opportunity to show

cause in this regard.

(iv) Whether the termination of contract is according to

the terms of contract.

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

claims as per statement of claims.

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

9.The Ld. Sole Arbitrator had thereafter, passed an arbitral

award dated 17.10.2020, holding that the claimant shall be

entitled to the following award:-

“1. The claimant petitioner shall be entitled to

1,22,01,098/- (One crore twenty two lakhs one thousand

and ninety eight rupees) only towards claim amount.

Note:- The breakup of the said amount is as follows:-

Sl. No.District Amount

1. Munger Rs. 51,14,605.00

2. MadhubaniRs. 56, 17,210.00

3. BhagalpurRs. 14,69,283.00

Total Amount Rs. 1,22,01,098.00

One crore twenty-two lakhs one thousand ninety-

eight rupees only.

2. The claimant petitioner shall be entitled to

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compensation amount of Rs. 25,00,000/- (Twenty five

lakhs) only under section 54 of Indian Contract Act.

3. The claimant petitioner shall be entitled to simple

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

award and further 18% interest over awarded sum from

the date of award till realization over the awarded

amount.

4. The claimant petitioner shall be entitled to cost

towards fees and expenses of the Arbitrator and Courts

and other legal expenses.

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

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

the Award, under Section 39 of the Arbitration and

Conciliation Act, 1996, and accordingly Arbitrator shall

have lien over the award, the respondent shall be liable

for making payment of the fees of the Arbitrator before

pursuing the matter before the Court.”

10.The aforesaid award dated 17.10.2020, passed by the

learned Sole Arbitrator was challenged by the appellants before

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

petition on 18.01.2021 under Section 34 (2) & (2A) of the Act,

1996, which was numbered as Miscellaneous (Arbitration) Case

No. 25 of 2021 (arising out of award dated 17.10.2020 passed in

Arbitration Case No. 4 of 2019). The grounds which can be

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

25 of 2021 are enumerated herein below:-

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

basis of calculation chart produced by the claimant-

respondent without any supporting documents.

(ii) The appellants had filed statement of defence before

the learned Sole Arbitrator and prayed for directing the

claimant-respondent to produce supporting documents

against his claims as also examine witnesses but the

learned Sole Arbitrator neither followed the provisions

contained in the Act, 1996 nor examined the records/

witnesses.

(iii) The learned Sole Arbitrator failed to consider that

several claims raised by the claimants are de hors the

agreement.

(iv) The learned Sole Arbitrator has awarded two

penalties against the appellants i.e. compensation amount

and interest on belated payment of the outstanding

amount although the admitted claims of the claimant-

respondent have already been paid by the appellants well

within time.

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

claimant-respondent had failed to adhere to the terms of

the agreement regarding installing truck with GPS Load-

Cells at the time of lifting food grains, hence appropriate

deductions were made from the bills. The learned Sole

Arbitrator failed to consider that the appellants had

passed the admitted amount of bills of the claimant-

Respondent, which he had received without any

objection.

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

Act, 1996.

(vii) The learned Sole Arbitrator was though appointed to

consider the disputes arising out of the agreement in

question, however he has considered several claims based

on different contracts and agreements.

11.The claimant-respondent herein had filed reply on

14.02.2022 to the aforesaid Misc. (Arbitration) Case No.25 of

2021 inter alia stating therein that the said petition filed by the

appellants is not maintainable in view of the observations of the

learned Sole Arbitrator to the effect that since the arbitration

fees has not been paid by the appellants, same shall be treated as

unpaid cost of the award under Section 39 of the Act, 1996 and

accordingly, Arbitrator shall have lien over the award and the

appellants shall be liable to make payment of the fees of the

Arbitrator before pursuing the matter before the Court. The

claimant-respondent had also raised an objection regarding the

aforesaid petition filed by the appellants being in violation of

the mandatory provisions contained under Section 34 (5) of the

Act, 1996, as no prior notice was issued to the claimant-

Respondent before filing of the said petition. The claimant-

respondent had also raised the issue of jurisdiction inasmuch as

the award under challenge being in respect of commercial

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dispute as defined under Section 2(1)(c)(xviii) of the

Commercial Courts, Commercial Division and Commercial

Appellate Division of the High Courts Act, 2015, the appellants

were required to invoke the provisions of the Act, 2015, which

has not been invoked, thus the learned Court is not vested with

the jurisdiction to decide the case in hand. The claimant-

respondent had refuted the contentions made by the appellants

in the aforesaid Misc. (Arbitration) Case No. 25 of 2021 and

had stated that in pursuance to the agreements dated 06.08.2014

and 06.08.2017 executed in between the claimant-respondent

and the appellants, the claimant-respondent had diligently

completed the assignment as a Transporting-cum-Handling

Agent within the framework of the said agreements and in fact

the calculation chart produced by the claimant-respondent with

his claim petition is supported by month-wise bills of transport

and handling charges as well as other relevant documents which

were brought on record before the learned Sole Arbitrator along

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

12.It has also been stated in the reply filed by the claimant-

respondent that as per Clause 12 A of the agreement, the

appellants were under contractual obligations to make payments

of the bills of the claimant-respondent within a period of 15

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days of submission of bills (Note:-There is no such stipulation

in the agreement), however none of the bills were paid within

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

never received the bills with any objection. Nonetheless, huge

deductions were made by the appellants from the bills without

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

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

the claimant-respondent herein before the learned Sole

Arbitrator, hence all the documents filed by the claimant-

respondent herein would be deemed to have been accepted. It

has also been stated that the claims have only been raised with

regard to the district Munger for which the claimant-respondent

was appointed as Transporter-cum-Handing Agent vide

agreement dated 06.08.2014. Thus, the allegations regarding

award of such amount which were not pertaining to the contract

in question and were in connection with other districts is

baseless. Lastly, it was stated in the reply filed by the claimant-

respondent that it is a well settled law as per pointed by the

Hon’ble Supreme Court in a catena of cases that any error on

the face of the award or in case there is any patent illegality then

the same should be examined by the learned Court under

Section 34 of the Act, 1996, however the facts cannot be re-

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appreciated by the learned Court at the appellate stage.

13.In paragraph No.17 of the reply filed in Misc.

(Arbitration) Case No. 25 of 2021 the claimant-respondent

herein has specifically stated that the claims have been raised

only in connection with one revenue district for which the

defendant was appointed as Transporter-cum-Handling Agent

vide agreement dated 06.08.2014, hence any allegation by the

appellants to the effect that claims over and above the

agreement in question pertaining to other districts have been

raised by the claimant-respondent herein is denied.

14.The claimant-respondent herein has also stated that the

statement of claim filed by the claimant-respondent herein

before the learned Sole Arbitrator was duly supported by

relevant documents which had already been submitted to the

concerned officials of the appellants from time to time in

accordance with the terms and conditions of the agreement. It

has also been stated that interest was claimed on the ground of

delay and for the same notice under Section 3 of the Interest Act

was sent to the appellants with regard to each and every

outstanding amount of bills and the same were also produced

before the learned Sole Arbitrator.

15.The learned court of Principal District Judge, Patna

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(hereinafter referred to as the ‘PDJ, Patna’) by a judgment dated

25.07.2025 passed in Miscellaneous (Arbitration) Case No.25 of

2021 of 2020 has been pleased to dismiss the said case holding

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

(2A) of Section 34 of the Arbitration and Conciliation Act, 1996

so as to warrant interference with the impugned arbitral award

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

would be relevant to enumerate in brief, the findings recorded

by the learned PDJ, Patna in the aforesaid judgement dated

25.07.2025, herein below:-

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

Arbitrator in his award dated 17.10.2020 has correctly

recorded that no breach of contractual obligation was

committed by the claimant-respondent, rendering the

deductions from the bills not justified. The learned PDJ,

Patna has come to a finding that since the appellants had

themselves conducted inquiry wherein it was

categorically concluded that there were neither any

shortage of food grains nor any actual financial loss

sustained by the appellants and moreover, upon careful

perusal of the letters issued by the Department of

Finance, BSFC as well as its Managing Director, it is

evident that the learned Sole Arbitrator has rightly held

that no breach of contractual terms was committed by the

claimant-respondent, consequentially the termination of

the agreement by the appellants was devoid of justifiable

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grounds, hence the learned Sole Arbitrator has

appropriately adjudicated that the deduction of a sum of

Rs.51,14,605/- pertaining to the district of Munger was

wrongful and unlawful and has rightly awarded the said

amount in favour of the claimant-respondent.

(ii) Though the learned PDJ, Patna, in paragraph No.43 of

the judgment dated 25.07.2025 has considered the main

issue urged by the appellants herein that the learned Sole

Arbitrator has committed an error in rendering the arbitral

award dated 17.10.2020 inasmuch as he has acted beyond

the scope of his jurisdiction, since the claims raised by the

claimant-respondent before the learned Sole Arbitrator

pertains to the district of Munger, nonetheless the learned

Sole Arbitrator has adjudicated and allowed claims

related to the districts-Madhubani and Bhagalpur,

rendering the award liable to be set aside, however in

paragraph No.47 of the aforesaid judgment dated

25.07.2025, the learned PDJ, Patna has held that owing to

the exigent circumstances, the appellants entrusted the

claimant-respondent with additional responsibilities

pertaining to the transportation and handling of food

grains for the revenue districts of Madhubani and

Bhagalpur. The learned PDJ has held, in this regard, that

all claims were made by the claimant-respondent solely

under a single agreement whereby the claimant-

respondent herein was appointed as the Transporter-cum-

Handling Agent for the relevant revenue district and

though the agreement was executed only in respect of

revenue district of Munger, owing to exigent

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circumstances, the claimant-respondent herein was

entrusted with additional responsibilities as Transporter-

cum-Handling Agent for the revenue districts of

Bhagalpur and Madhubani, nonetheless these facts have

not been denied by the appellants in the statement of

defence/reply filed before the learned Sole Arbitrator,

hence they have failed to raise such objections at the

appropriate stage of the arbitral proceedings, thus they are

now precluded from doing so, hence the learned Sole

Arbitrator has rightly adjudicated and awarded amounts

of Rs.56,17,210/- and Rs.14,69,283/- for the districts of

Madhubani and Bhagalpur respectively which has been

deducted by the appellants herein.

(iii) As regards compensation amount of Rs. 25 lakhs

awarded by the learned Sole Arbitrator taking into

account the provisions contained in Section 54 of the

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

finding that since the claimant-respondent herein ought

not to have been subjected to loss arising from the default

committed by the appellants and on account of delayed

payments causing wrongful loss, as is reflected from the

arbitral award, the appellants failed to perform their part

of the agreement, hence they cannot claim the

performance of reciprocal promise from the claimant-

respondent, thus in view of the undue hardship and

financial loss suffered due to delayed payment and

defaults on the part of the appellants, the learned Sole

Arbitrator has rightly and justifiably awarded

compensation of Rs. 25 lakhs in favour of the claimant-

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respondent herein.

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

settled established legal principal that a Court, while

adjudicating a petition under Section 34 of the Act, 1996

is empowered to set aside an arbitral award where it is

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

so unjust and irrational as to shock the judicial conscience

and similarly an award may be invalidated if it is based

on evidence and resulting conclusions which no prudent

or reasonable person could reasonably reach. The learned

PDJ, Patna has also held that the Arbitrator remains the

ultimate master of the quality and quantity of evidence

and unless the Arbitrator’s approach is demonstrably

arbitrary or capricious, the Court shall refrain from

revisiting or re-evaluating factual determinations already

placed on record.

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

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

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

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

it is a settled law that the proceedings instituted under

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

an appeal or revision and the jurisdiction conferred upon

the Court is inherently limited as also the Court is neither

empowered to re-evaluate the findings and conclusions

recorded in the award nor substitute its own views or

effect any modification thereof and furthermore, the

Court is also not required to delve into or adjudicate the

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

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1996.

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

Sole Arbitrator has justifiably rendered the arbitral award

dated 17.10.2020, having duly considered and evaluated

the evidentiary material placed on record and delivered a

well-reasoned and a legally sound award.

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

considering the materials on record, it is manifest that the

appellants have failed to establish any of the ground

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

of the Act, 1996, hence the circumscribed jurisdiction

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

satisfied in the present case so as to warrant setting aside

of the impugned arbitral award. The learned PDJ, Patna

has also held that the Ld. Sole Arbitrator has adjudicated

the disputes strictly within the confines of the agreement

executed between the parties and the documents placed

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

the rationale adopted by the learned Sole Arbitrator in

arriving at the conclusion is sound, coherent and well-

reasoned, hence the award cannot be regarded as patently

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

16.The aforesaid judgment dated 25.07.2025 passed by the

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

Submissions of the Ld. Counsel for the Appellants:

17.The learned counsel for the appellants has submitted that

the Ld. Sole Arbitrator has passed the award dated 17.10.2020

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only on the basis of the calculation chart produced by the

claimant-Respondent without any supporting documents and the

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

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

the claimant-Respondent has failed to produce any supporting

documents against his claims like truck challan, store issue

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

not examine any witnesses in support of his claim. It is also

submitted that the learned Ld. PDJ, Patna had neither called for

the arbitral records nor had examined the records and in an

arbitrary manner, has upheld the arbitral award dated

17.10.2020 by the impugned judgment dt. 25.7.2025. In fact, the

Ld. PDJ, Patna failed to consider that all the admitted

outstanding amount of bills/claims have been paid to the

claimant-Respondent. It is next submitted that it has been

wrongly stated on behalf of the claimant-respondent that as per

Clause 12 A of the agreement, the appellants were under

contractual obligations to make payments of the bills of the

claimant-respondent within a period of 15 days of submission of

bills, inasmuch as Clause 12 A of the agreement reads as

follows:-

“The second party will immediately submits his

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transporting bills within a maximum period of three

months from the date of completion of particular work to

the concerned district manager with entire connected

documents and the district manager will process the said

bill and after checking and verifying the same, will send

the bills to head office for further steps for passing and

payment of the same without any delay. In case, the

second party fails to submit his bills with required

documents within the aforesaid maximum period, his

working will be treated unsatisfactory and he will be

deemed to be disqualified for any extension or

participating in any tender thereafter.”

18.The learned counsel for the appellants has submitted that

the reference made to the Ld. Sole Arbitrator by an order dated

6.9.2019, passed in Request Case No. 62 of 2019 and other

analogous cases was in reference to an agreement dated

6.8.2014, pertaining to the district-Munger, however the Ld.

Sole Arbitrator has committed a patent illegality while rendering

the arbitral award dated 17.10.2020, inasmuch as he has acted

beyond the scope of his jurisdiction and travelled beyond the

parameters of the agreement dated 6.8.2014 entered into

between the parties for the district-Munger by awarding the

claims raised by the claimant-Respondent pertaining to the

transporting and handling bills for the district-Madhubani and

Bhagalpur to the tune of Rs. 56,17,210/- and Rs. 14,69,283/-

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respectively. Thus, it has been submitted that the Ld. Principal

District Judge, Patna has committed a grave error while

delivering the impugned judgment dated 25.7.2025 by holding

in paragraph no. 47 thereof that owing to the exigent

circumstances, the appellants entrusted the claimant-Respondent

herein with additional responsibilities, pertaining to the

transportation and handling of food-grains for the revenue

districts of Madhubani and Bhagalpur and since this fact has not

been denied by the appellants in the statement of defence / reply

filed before the Ld. Sole Arbitrator, consequently they have

failed to raise such objections at the appropriate stage of the

arbitral proceedings, thus they are now precluded from doing so,

hence the Ld. Principal District Judge, Patna has come to the

conclusion that the Ld. Sole Arbitrator has rightly allowed the

claim to the tune of Rs. 56,17,210/- and Rs. 14,69,283/- for the

districts Madhubani and Bhagalpur respectively, by failing to

consider the fact that the Ld. Sole Arbitrator had to make the

award within the parameters of the agreement dated 6.8.2014

entered into between the parties for the district Munger.

19.The learned counsel for the appellants has further

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

Patna in the impugned arbitral award and judgment dated

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17.10.2020 and 25.7.2025 respectively, have failed to consider

that several claims raised by the claimant-Respondent are de

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

provision for payment of interest and grant of compensation in

the agreement entered into between the parties, however both

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

disregard to the provisions of the agreement allowed the claim

of the claimant-Respondent pertaining to grant of interest and

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

has though been appointed to consider the disputes arising out

of the agreement dated 06.08.2014 for the district-Munger,

however he has considered and allowed several claims based on

different contract and agreement. Thus, in nutshell, it is the

contention of the learned counsel for the appellants that the

impugned judgment dated 25.7.2025, passed by the Ld. Court of

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

under Section 34(2)(a), (b) and (2)(A) of the Act, 1996.

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

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

Gayatri Balasamy vs. ISG Novasoft Technologies Limited,

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

apply the doctrine of severability and modify a portion of the

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

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

fact, the Courts are empowered to modify the arbitral award

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

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

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

award by correcting any clerical, computational or

typographical errors, which appear erroneous on the face of the

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

circumstances as mentioned in the said judgment. Reference has

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

Court in the case of North Delhi Municipal Corporation vs.

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

that the arbitral tribunal does not have the power to award

interest upon interest or compound interest either for the pre-

award period or the post-award period.

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

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

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

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

judgment to a Constitution Bench judgment of the Hon’ble

Apex Court, rendered in the case of Secretary, Irrigation

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

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

the arbitration agreement or the contract itself provides for

interest, the arbitrator would have the jurisdiction to award

interest, however where the agreement expressly provides that

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

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

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

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

herein below:-

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

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

SCC 508] has considered the question of power of the

arbitrator to award pendente lite interest and it has been

laid down that if the arbitration agreement or the

contract itself provides for interest, the arbitrator would

have the jurisdiction to award the interest. Similarly,

where the agreement expressly provides that no interest

pendente lite shall be payable on the amount due, the

arbitrator has no power to award pendente lite interest.

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

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

p. 514, para 7)

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

provides for award of interest on the amount found due

from one party to the other, no question regarding the

absence of arbitrator's jurisdiction to award the

interest could arise as in that case the arbitrator has

power to award interest pendente lite as well. Similarly,

where the agreement expressly provides that no interest

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pendente lite shall be payable on the amount due, the

arbitrator has no power to award pendente lite interest.

But where the agreement does not provide either for

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

question arises whether in such an event the arbitrator

has power and authority to grant pendente lite interest.

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

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

answered the question whether the arbitrator has the

power to award interest pendente lite. Their Lordships

have reiterated that they have dealt with the situation

where the agreement does not provide for grant of such

interest nor does it prohibit such grant when the

agreement is silent as to award of interest. This Court

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

Report thus : (SCC pp. 532-34)

“43. The question still remains whether arbitrator has

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

what principle. We must reiterate that we are dealing

with the situation where the agreement does not

provide for grant of such interest nor does it prohibit

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

where the agreement is silent as to award of interest.

On a conspectus of the aforementioned decisions, the

following principles emerge:

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

is legitimately entitled has a right to be compensated

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

called interest, compensation or damages. This basic

consideration is as valid for the period the dispute is

pending before the arbitrator as it is for the period

prior to the arbitrator entering upon the reference.

This is the principle of Section 34 of the Civil

Procedure Code and there is no reason or principle to

hold otherwise in the case of arbitrator.

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

resolution of disputes arising between the parties. If

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

or differences arising between the parties. If the

arbitrator has no power to award interest pendente

lite, the party claiming it would have to approach the

court for that purpose, even though he may have

obtained satisfaction in respect of other claims from

the arbitrator. This would lead to multiplicity of

proceedings.

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

open to the parties to confer upon him such powers

and prescribe such procedure for him to follow, as

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

(The proviso to Section 41 and Section 3 of the

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

agreement must be in conformity with law. The

arbitrator must also act and make his award in

accordance with the general law of the land and the

agreement.

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

have acted on the assumption that where the

agreement does not prohibit and a party to the

reference makes a claim for interest, the arbitrator

must have the power to award interest pendente lite.

Thawardas Pherumal v. Union of India [Thawardas

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

been followed in the later decisions of this Court. It

has been explained and distinguished on the basis that

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

claim for unliquidated damages. It has been said

repeatedly that observations in the said judgment were

not intended to lay down any such absolute or

universal rule as they appear to, on first impression.

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

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

almost all the courts in the country had upheld the

power of the arbitrator to award interest pendente lite.

Continuity and certainty is a highly desirable feature

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of law.

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

law, like interest for the period anterior to reference

(pre-reference period). For doing complete justice

between the parties, such power has always been

inferred.

44. Having regard to the above consideration, we

think that the following is the correct principle which

should be followed in this behalf:

Where the agreement between the parties does not

prohibit grant of interest and where a party claims

interest and that dispute (along with the claim for

principal amount or independently) is referred to the

arbitrator, he shall have the power to award interest

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

it must be presumed that interest was an implied term

of the agreement between the parties and therefore

when the parties refer all their disputes—or refer the

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

shall have the power to award interest. This does not

mean that in every case the arbitrator should

necessarily award interest pendente lite. It is a matter

within his discretion to be exercised in the light of all

the facts and circumstances of the case, keeping the

ends of justice in view.”

(emphasis in original)

The Constitution Bench of this Court has laid down that

where the agreement between the parties does not

prohibit grant of interest and where the party claims

interest and that dispute is referred to the arbitrator, he

shall have the power to award interest pendente lite. The

law declared has been held applicable prospectively.

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

contract expressly bars the award of interest pendente

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

also make it clear that the bar to award interest on

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delayed payment by itself will not be readily inferred as

express bar to award interest pendente lite by the

Arbitral Tribunal, as ouster of power of the arbitrator

has to be considered on various relevant aspects referred

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

Division Bench to consider the case on merits.”

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

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

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

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

31 whereof are reproduced herein below:-

“13. The question, therefore, which requires

consideration is — whether the award could be set aside,

if the Arbitral Tribunal has not followed the mandatory

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

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

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

Tribunal to decide the dispute in accordance with the

substantive law for the time being in force in India.

Admittedly, substantive law would include the Indian

Contract Act, the Transfer of Property Act and other such

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

of the provisions of the Transfer of Property Act or in

violation of the Indian Contract Act, the question would

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

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

decide the dispute in accordance with the terms of the

contract and also after taking into account the usage of

the trade applicable to the transaction. If the Arbitral

Tribunal ignores the terms of the contract or usage of the

trade applicable to the transaction, whether the said

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

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

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

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conjointly with other provisions of the Act, it appears that

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

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

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

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

basic concept of justice. If the Arbitral Tribunal has not

followed the mandatory procedure prescribed under the

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

and thereby the award would be patently illegal which

could be set aside under Section 34.

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

substantive provisions of law or the provisions of the Act

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

illegal, which could be interfered under Section 34.

However, such failure of procedure should be patent

affecting the rights of the parties.

16. The next clause which requires interpretation is clause

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

provides that the court may set aside the arbitral award if

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

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

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

in context and also considering the purpose of the section

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

various authorities that the expression “public policy”

does not admit of precise definition and may vary from

generation to generation and from time to time. Hence,

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

susceptible to narrow or wider meaning depending upon

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

court has to give its meaning in the light and principles

underlying the Arbitration Act, Contract Act and

constitutional provisions.

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

referred to by the learned counsel for the parties. While

dealing with the concept of public policy, this Court in

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

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

pp. 217-19, paras 92-93)

“92. The Indian Contract Act does not define the

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

From the very nature of things, the expressions ‘public

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

public policy’ are incapable of precise definition.

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

Government. It connotes some matter which concerns

the public good and the public interest. The concept of

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

what would be injurious or harmful to the public good

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

new concepts take the place of old, transactions which

were once considered against public policy are now

being upheld by the courts and similarly where there

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

courts have not shirked from extending it to new

transactions and changed circumstances and have at

times not even flinched from inventing a new head of

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

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

According to the former, courts cannot create new

heads of public policy whereas the latter countenances

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

narrow view’ school would not invalidate a contract on

the ground of public policy unless that particular

ground had been well established by authorities.

Hardly ever has the voice of the timorous spoken more

clearly and loudly than in these words of Lord Davey in

Janson v. Driefontein Consolidated Gold Mines Ltd.

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

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

treacherous ground for legal decision.’ That was in the

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

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

ER 294] described public policy as ‘a very unruly

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

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

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

unmanageable horses and in words which conjure up

before our eyes the picture of the young Alexander the

Great taming Bucephalus, he said in Enderby Town

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

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

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

the timorous always held the field, not only the doctrine

of public policy but even the common law or the

principles of equity would never have evolved. Sir

William Holdsworth in his ‘History of English Law’,

Vol. III, p. 55, has said:

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

grown up gradually with the growth of the nation,

necessarily acquires some fixed principles, and if it is

to maintain these principles it must be able, on the

ground of public policy or some other like ground, to

suppress practices which, under ever new disguises,

seek to weaken or negative them.’

It is thus clear that the principles governing public

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

expansion or modification. Practices which were

considered perfectly normal at one time have today

become obnoxious and oppressive to public conscience.

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

then the court must in consonance with public

conscience and in keeping with public good and public

interest declare such practice to be opposed to public

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

be covered by authority our courts have before them

the beacon light of the preamble to the Constitution.

Lacking precedent, the court can always be guided by

that light and the principles underlying the

fundamental rights and the directive principles

enshrined in our Constitution.

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

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party who seeks to enforce an agreement which is

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

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

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

however, establishes that where a contract is vitiated as

being contrary to public policy, the party adversely

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

may be different where the purpose of the contract is

illegal or immoral. In Kedar Nath Motani v. Prahlad

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

the High Court and restoring the decree passed by the

trial court declaring the appellants' title to the lands in

suit and directing the respondents who were the

appellants' benamidars to restore possession, this

Court, after discussing the English and Indian law on

the subject, said (at p. 873):

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

what one has to see is whether the illegality goes so

much to the root of the matter that the plaintiff cannot

bring his action without relying upon the illegal

transaction into which he had entered. If the illegality

be trivial or venial, as stated by Williston and the

plaintiff is not required to rest his case upon that

illegality, then public policy demands that the

defendant should not be allowed to take advantage of

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

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

circumvent the illegality by resorting to some

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

matter is clear and the illegality is not required to be

pleaded or proved as part of the cause of action and

the plaintiff recanted before the illegal purpose was

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

outrage the conscience of the court, the plea of the

defendant should not prevail.’

The types of contracts to which the principle

formulated by us above applies are not contracts which

are tainted with illegality but are contracts which

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contain terms which are so unfair and unreasonable

that they shock the conscience of the court. They are

opposed to public policy and require to be adjudged

void.”

(emphasis supplied)

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

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

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

Convention) Act, 1937 which inter alia provided that a

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

the court dealing with the case is satisfied that the

enforcement of the award will be contrary to the public

policy. After elaborate discussion, the Court arrived at the

conclusion that public policy comprehended in Section

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

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

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

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

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

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

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

do not postulate refusal of recognition and enforcement

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

the law of the country of enforcement and the ground of

challenge is confined to the recognition and

enforcement being contrary to the public policy of the

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

is nothing to indicate that the expression ‘public policy’

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

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

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

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

of the Protocol and Convention Act of 1937. This would

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

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

of public policy the enforcement of the award must

invoke something more than the violation of the law of

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India. Since the Foreign Awards Act is concerned with

recognition and enforcement of foreign awards which

are governed by the principles of private international

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

of the Foreign Awards Act must necessarily be

construed in the sense the doctrine of public policy is

applied in the field of private international law.

Applying the said criteria it must be held that the

enforcement of a foreign award would be refused on the

ground that it is contrary to public policy if such

enforcement would be contrary to (i) fundamental

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

(iii) justice or morality.”

(emphasis supplied)

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

“76. Keeping in view the aforesaid objects underlying

FERA and the principles governing enforcement of

exchange control laws followed in other countries, we

are of the view that the provisions contained in FERA

have been enacted to safeguard the economic interests

of India and any violation of the said provisions would

be contrary to the public policy of India as envisaged

in Section 7(1)(b)(ii) of the Act.”

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

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

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

31-32)

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

community. It may vary from generation to generation

and even in the same generation. Public policy would

be almost useless if it were to remain in fixed moulds

for all time.

32. … The difficulty of discovering what public policy

is at any given moment certainly does not absolve the

Judges from the duty of doing so. In conducting an

enquiry, as already stated, Judges are not hidebound by

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precedent. The Judges must look beyond the narrow

field of past precedents, though this still leaves open

the question, in which direction they must cast their

gaze. The Judges are to base their decisions on the

opinions of men of the world, as distinguished from

opinions based on legal learning. In other words, the

Judges will have to look beyond the jurisprudence and

that in so doing, they must consult not their own

personal standards or predilections but those of the

dominant opinion at a given moment, or what has been

termed customary morality. The Judges must consider

the social consequences of the rule propounded,

especially in the light of the factual evidence available

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

this power must be lodged somewhere and under our

Constitution and laws, it has been lodged in the Judges

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

could hardly be lodged elsewhere.”

(emphasis supplied)

20. Mr Desai submitted that the narrow meaning given to

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

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

involved in the said matter was with regard to the

execution of the award which had attained finality. It was

not a case where validity of the award is challenged

before a forum prescribed under the Act. He submitted

that the scheme of Section 34 which deals with setting

aside the domestic arbitral award and Section 48 which

deals with enforcement of foreign award are not identical.

A foreign award by definition is subject to double

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

and there is no parallel provision to this clause in Section

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

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

90) it is stated as under:

“Mutual recognition of awards is the glue which holds

the international arbitrating community together, and

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this will only be strong if the enforcing court is willing

to trust, as the convention assumes that they will trust

the supervising authorities of the chosen venue. It

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

been struck down in the local court it should as a

matter of theory and practice be treated when

enforcement is sought as if to the extent it did not

exist.”

21. He further submitted that in foreign arbitration, the

award would be subject to being set aside or suspended

by the competent authority under the relevant law of that

country whereas in the domestic arbitration the only

recourse is to Section 34.

22. The aforesaid submission of the learned Senior

Counsel requires to be accepted. From the judgments

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

policy of India” is required to be interpreted in the

context of the jurisdiction of the court where the validity

of award is challenged before it becomes final and

executable. The concept of enforcement of the award after

it becomes final is different and the jurisdiction of the

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

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

as well as it is provided under the Code of Civil

Procedure that once the decree has attained finality, in an

execution proceeding, it may be challenged only on

limited grounds such as the decree being without

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

and decree is challenged before the appellate court or the

court exercising revisional jurisdiction, the jurisdiction of

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

validity of award is challenged, there is no necessity of

giving a narrower meaning to the term “public policy of

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

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

Arbitral Tribunal could be set aside. If narrow meaning

as contended by the learned Senior Counsel Mr Dave is

given, some of the provisions of the Arbitration Act would

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become nugatory. Take for illustration a case wherein

there is a specific provision in the contract that for

delayed payment of the amount due and payable, no

interest would be payable, still however, if the arbitrator

has passed an award granting interest, it would be

against the terms of the contract and thereby against the

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

provides that “Arbitral Tribunal shall decide in

accordance with the terms of the contract”. Further,

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

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

party would be required to pay the said amount with

interest at the rate of 15 per cent. Despite the evidence

being produced on record for such usage, if the arbitrator

refuses to grant such interest on the ground of equity, such

award would also be in violation of sub-sections (2) and

(3) of Section 28. Section 28(2) specifically provides that

the arbitrator shall decide ex aequo et bono (according to

what is just and good) only if the parties have expressly

authorised him to do so. Similarly, if the award is patently

against the statutory provisions of substantive law which

is in force in India or is passed without giving an

opportunity of hearing to the parties as provided under

Section 24 or without giving any reason in a case where

parties have not agreed that no reasons are to be

recorded, it would be against the statutory provisions. In

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

ground of “patent illegality”.

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

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

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

of public policy connotes some matter which concerns

public good and the public interest. What is for public

good or in public interest or what would be injurious or

harmful to the public good or public interest has varied

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

face of it, patently in violation of statutory provisions

cannot be said to be in public interest. Such

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award/judgment/decision is likely to adversely affect the

administration of justice. Hence, in our view in addition

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

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

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

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

it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

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

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

illegality is of trivial nature it cannot be held that award

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

if it is so unfair and unreasonable that it shocks the

conscience of the court. Such award is opposed to public

policy and is required to be adjudged void.”

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

appellants by relying on the aforesaid judgment rendered by the

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

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

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

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

contained under Section 37 of the Act, 1996.

Submissions of the Ld. Counsel for the claimant-

Respondent:

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

has submitted that it is wrong to say that no supporting

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documents were annexed by the claimant-Respondent in his

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

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

annexed, wherein each and every fact as well as supporting

documents have been furnished in detail, duly supported by

month wise bills of transport and handling charges as well as

other relevant documents, however the appellants did not file

any affidavit/annexures/denial of documents of the claimant-

Respondent before the Ld. Sole Arbitrator, hence all the

documents filed by the claimant-Respondent would be deemed

to have been accepted.

25.The learned counsel for the claimant-Respondent has

further submitted that all the claims have been awarded within

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

06.08.2014, pertaining to the district-Munger. It is also

submitted that there is no bar under the agreement to award

interest and compensation, hence the arbitral award dated

17.10.2020 as upheld by the judgment dated 25.7.2025, passed

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

1996 does not suffer from any infirmity.

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

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

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grounds on which the competent Court can interfere with the

arbitral award, however no interference is permissible if the

grounds urged for setting aside of arbitral award is not within

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

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

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

can only be set aside on the grounds mentioned under Section

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

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

of Associate Builders vs. Delhi Development Authority,

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

whereof are reproduced herein below:-

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

applying the “public policy” test to an arbitration

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

consequently errors of fact cannot be corrected. A

possible view by the arbitrator on facts has necessarily

to pass muster as the arbitrator is the ultimate master of

the quantity and quality of evidence to be relied upon

when he delivers his arbitral award. Thus an award

based on little evidence or on evidence which does not

measure up in quality to a trained legal mind would not

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

arbitrator is a lay person not necessarily trained in law.

Lord Mansfield, a famous English Judge, once advised a

high military officer in Jamaica who needed to act as a

Judge as follows:

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

take courage and you will do very well, in your

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

your decrees as your head and your heart dictate, to

hear both sides patiently, to decide with firmness in the

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

reasons, since your determination may be substantially

right, although your reasons may be very bad, or

essentially wrong”.

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

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

arbitrators approach is not arbitrary or capricious, then

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

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

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

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

Arbitral Tribunal by reassessing or reappreciating the

evidence. An award can be challenged only under the

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

Arbitral Tribunal has examined the facts and held that

both the second respondent and the appellant are

liable. The case as put forward by the first respondent

has been accepted. Even the minority view was that the

second respondent was liable as claimed by the first

respondent, but the appellant was not liable only on the

ground that the arbitrators appointed by the Stock

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

member, had no jurisdiction to decide a claim against

another member. The finding of the majority is that the

appellant did the transaction in the name of the second

respondent and is therefore, liable along with the

second respondent. Therefore, in the absence of any

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

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

decision can be arrived at.”

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

fundamental principles which form part of the

fundamental policy of Indian law (that the arbitrator

must have a judicial approach and that he must not act

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perversely) are to be understood.

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

advert to this crucial document at all. This document

shows not only that the Division Bench was wholly

incorrect in its conclusion that the contractor has tried

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

also have realised that the DDA itself has stated that the

work has been carried out generally to its satisfaction

barring some extremely minor defects which are capable

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

Bench obviously exceeded its jurisdiction in interfering

with a pure finding of fact forgetting that the arbitrator

is the sole Judge of the quantity and quality of evidence

before him and unnecessarily bringing in facts which

were neither pleaded nor proved and ignoring the vital

completion certificate granted by the DDA itself. The

Division Bench also went wrong in stating that as the

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

Hudson's formula should have been applied taking this

figure into account and not the entire contract value of

Rs 87,66,678 into account.

56. Here again, the Division Bench has interfered

wrongly with the arbitral award on several counts. It had

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

aside the arbitrator for having applied a formula of 20

months instead of 25 months. Though this would inure in

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

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

extremely curious that the Division Bench found that an

adjustment would have to be made with claims awarded

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

independent claims and have nothing to do with Claims

12 and 13. The formula then applied by the Division

Bench was that it would itself do “rough and ready

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

this can be done by any court under the jurisdiction

exercised under Section 34 of the Arbitration Act. As has

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

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to setting aside an award under the public policy ground

can only mean that an award shocks the conscience of

the court. It cannot possibly include what the court

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

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

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

to the Division Bench, the whole approach to setting

aside arbitral awards is incorrect. The Division Bench

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

court and cannot interfere with errors of fact.”

27.The learned counsel for the claimant-Respondent has

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

grounds for interference with the arbitral award under Section

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

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

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

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

reliance has been placed on a judgment, rendered by the

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

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

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

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

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

reproduced herein below:-

“25. Having regard to the contentions urged and the

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

principles enunciated by this Court in some of the

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relevant decisions cited by the parties on the scope of

challenge to an arbitral award under Section 34 and the

scope of appeal under Section 37 of the 1996 Act.

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

163], this Court took note of various decisions including

that in Associate Builders [Associate Builders v. DDA,

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

interference under Section 34 and further narrower scope

of appeal under Section 37 of the 1996 Act, particularly

when dealing with the concurrent findings (of the

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

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

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

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

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

appeal over the arbitral award and may interfere on

merits on the limited ground provided under Section

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

of India. As per the legal position clarified through

decisions of this Court prior to the amendments to the

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

turn, includes a violation of the fundamental policy of

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

with justice or morality, and the existence of patent

illegality in the arbitral award. Additionally, the

concept of the “fundamental policy of Indian law”

would cover compliance with statutes and judicial

precedents, adopting a judicial approach, compliance

with the principles of natural justice, and Wednesbury

[Associated Provincial Picture Houses v. Wednesbury

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

Furthermore, “patent illegality” itself has been held to

mean contravention of the substantive law of India,

contravention of the 1996 Act, and contravention of the

terms of the contract.

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

Court may interfere with an arbitral award in terms of

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

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

limited to situations where the findings of the arbitrator

are arbitrary, capricious or perverse, or when the

conscience of the Court is shocked, or when the

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

An arbitral award may not be interfered with if the

view taken by the arbitrator is a possible view based on

facts. (See Associate Builders v. DDA [Associate

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

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

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

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

McDermott International Inc. v. Burn Standard Co.

Ltd. [(2006) 11 SCC 181])

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

to Section 34, the above position stands somewhat

modified. Pursuant to the insertion of Explanation 1 to

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

public policy has been modified to the extent that it

now means fraud or corruption in the making of the

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

contravention of the fundamental policy of Indian law,

and conflict with the most basic notions of justice or

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

inserted in Section 34, which provides that in case of

domestic arbitrations, violation of Indian public policy

also includes patent illegality appearing on the face of

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

shall not be set aside merely on the ground of an

erroneous application of the law or by reappreciation

of evidence.

14. As far as interference with an order made under

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

be disputed that such interference under Section 37

cannot travel beyond the restrictions laid down under

Section 34. In other words, the Court cannot undertake

an independent assessment of the merits of the award,

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and must only ascertain that the exercise of power by

the Court under Section 34 has not exceeded the scope

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

arbitral award has been confirmed by the Court under

Section 34 and by the Court in an appeal under Section

37, this Court must be extremely cautious and slow to

disturb such concurrent findings.”

27. In Ssangyong Engg. [Ssangyong Engg. &

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

Court has set out the scope of challenge under Section 34

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

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

“37. Insofar as domestic awards made in India are

concerned, an additional ground is now available

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

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

illegality appearing on the face of the award, which

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

but which does not amount to mere erroneous

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

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

the contravention of a statute not linked to public

policy or public interest, cannot be brought in by the

backdoor when it comes to setting aside an award on

the ground of patent illegality.

38. Secondly, it is also made clear that reappreciation

of evidence, which is what an appellate court is

permitted to do, cannot be permitted under the ground

of patent illegality appearing on the face of the award.

39. To elucidate, para 42.1 of Associate Builders

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

a mere contravention of the substantive law of India, by

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

arbitral award. Para 42.2 of Associate Builders

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

however, would remain, for if an arbitrator gives no

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

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the 1996 Act, that would certainly amount to a patent

illegality on the face of the award.

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

Amendment Act really follows what is stated in paras

42.3 to 45 in Associate Builders [Associate Builders v.

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

of the terms of a contract is primarily for an arbitrator

to decide, unless the arbitrator construes the contract

in a manner that no fair-minded or reasonable person

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

possible view to take. Also, if the arbitrator wanders

outside the contract and deals with matters not allotted

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

of challenge will now fall within the new ground added

under Section 34(2-A).

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

perverse, as understood in paras 31 and 32 of

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

being a ground for challenge under “public policy of

India”, would certainly amount to a patent illegality

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

based on no evidence at all or an award which ignores

vital evidence in arriving at its decision would be

perverse and liable to be set aside on the ground of

patent illegality. Additionally, a finding based on

documents taken behind the back of the parties by the

arbitrator would also qualify as a decision based on no

evidence inasmuch as such decision is not based on

evidence led by the parties, and therefore, would also

have to be characterised as perverse.”

28. The limited scope of challenge under Section 34 of

the Act was once again highlighted by this Court in PSA

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

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

Court particularly explained the relevant tests as under :

(SCC paras 40 to 42)

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

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position, that in an application under Section 34, the

Court is not expected to act as an appellate court and

reappreciate the evidence. The scope of interference

would be limited to grounds provided under Section 34

of the Arbitration Act. The interference would be so

warranted when the award is in violation of “public

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

fundamental policy of Indian law”. A judicial

intervention on account of interfering on the merits of

the award would not be permissible. However, the

principles of natural justice as contained in Sections 18

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

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

for interference on the basis that the award is in

conflict with justice or morality is now to be

understood as a conflict with the “most basic notions of

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

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

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

ground of patent illegality appearing on the face of the

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

matter. However, an illegality with regard to a mere

erroneous application of law would not be a ground for

interference. Equally, reappreciation of evidence would

not be permissible on the ground of patent illegality

appearing on the face of the award.

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

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

would certainly amount to a patent illegality appearing

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

no evidence at all or an award which ignores vital

evidence in arriving at its decision would be perverse

and liable to be set aside on the ground of patent

illegality.

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

appropriate to refer to paras 31 and 32 from the

judgment of this Court in Associate Builders [Associate

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

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(SCC pp. 75-76)

‘31. The third juristic principle is that a decision

which is perverse or so irrational that no reasonable

person would have arrived at the same is important

and requires some degree of explanation. It is settled

law that where:

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

(ii) an Arbitral Tribunal takes into account something

irrelevant to the decision which it arrives at; or

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

such decision would necessarily be perverse.

32. A good working test of perversity is contained in

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

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

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

arrived at by ignoring or excluding relevant

material or by taking into consideration irrelevant

material or if the finding so outrageously defies

logic as to suffer from the vice of irrationality

incurring the blame of being perverse, then, the

finding is rendered infirm in law.”

29. In Delhi Airport Metro Express [Delhi Airport Metro

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

again surveyed the case law and explained the contours

of the Courts' power to review the arbitral awards.

Therein, this Court not only reaffirmed the principles

aforesaid but also highlighted an area of serious concern

while pointing out “a disturbing tendency” of the Courts

in setting aside arbitral awards after dissecting and

reassessing factual aspects. This Court also underscored

the pertinent features and scope of the expression “patent

illegality” while reiterating that the Courts do not sit in

appeal over the arbitral award. The relevant and

significant passages of this judgment could be usefully

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

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

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

“26. A cumulative reading of the UNCITRAL Model Law

and Rules, the legislative intent with which the 1996

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

would make it clear that judicial interference with the

arbitral awards is limited to the grounds in Section 34.

While deciding applications filed under Section 34 of

the Act, Courts are mandated to strictly act in

accordance with and within the confines of Section 34,

refraining from appreciation or reappreciation of

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

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

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

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

Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram

Saran [(2012) 5 SCC 306].)

***

28. This Court has in several other judgments

interpreted Section 34 of the 1996 Act to stress on the

restraint to be shown by Courts while examining the

validity of the arbitral awards. The limited grounds

available to Courts for annulment of arbitral awards

are well known to legally trained minds. However, the

difficulty arises in applying the well-established

principles for interference to the facts of each case that

come up before the Courts. There is a disturbing

tendency of Courts setting aside arbitral awards, after

dissecting and reassessing factual aspects of the cases

to come to a conclusion that the award needs

intervention and thereafter, dubbing the award to be

vitiated by either perversity or patent illegality, apart

from the other grounds available for annulment of the

award. This approach would lead to corrosion of the

object of the 1996 Act and the endeavours made to

preserve this object, which is minimal judicial

interference with arbitral awards. That apart, several

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judicial pronouncements of this Court would become a

dead letter if arbitral awards are set aside by

categorising them as perverse or patently illegal

without appreciating the contours of the said

expressions.

29. Patent illegality should be illegality which goes to

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

law committed by the Arbitral Tribunal would not fall

within the expression “patent illegality”. Likewise,

erroneous application of law cannot be categorised as

patent illegality. In addition, contravention of law not

linked to public policy or public interest is beyond the

scope of the expression “patent illegality”. What is

prohibited is for Courts to reappreciate evidence to

conclude that the award suffers from patent illegality

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

in appeal against the arbitral award. The permissible

grounds for interference with a domestic award under

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

when the arbitrator takes a view which is not even a

possible one, or interprets a clause in the contract in

such a manner which no fair-minded or reasonable

person would, or if the arbitrator commits an error of

jurisdiction by wandering outside the contract and

dealing with matters not allotted to them. An arbitral

award stating no reasons for its findings would make

itself susceptible to challenge on this account. The

conclusions of the arbitrator which are based on no

evidence or have been arrived at by ignoring vital

evidence are perverse and can be set aside on the

ground of patent illegality. Also, consideration of

documents which are not supplied to the other party is

a facet of perversity falling within the expression

“patent illegality”.

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

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

dispute which is not capable of settlement by

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

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award is in conflict with public policy of India, the

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

amended by the 2015 Amendment Act, clarified the

expression “public policy of India” and its

connotations for the purposes of reviewing arbitral

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

in conflict with public policy of India only when it is

induced or affected by fraud or corruption or is in

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

it is in contravention with the fundamental policy of

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

notions of morality or justice.

***

42. The Division Bench referred to various factors

leading to the termination notice, to conclude that the

award shocks the conscience of the Court. The

discussion in SCC OnLine Del para 103 of the

impugned judgment [DMRC v. Delhi Airport Metro

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

to appreciation or reappreciation of the facts which is

not permissible under Section 34 of the 1996 Act. The

Division Bench further held that the fact of AMEL

being operated without any adverse event for a period

of more than four years since the date of issuance of

the CMRS certificate, was not given due importance by

the Arbitral Tribunal. As the arbitrator is the sole

Judge of the quality as well as the quantity of the

evidence, the task of being a Judge on the evidence

before the Tribunal does not fall upon the Court in

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

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

basis of the issues submitted by the parties, the Arbitral

Tribunal framed issues for consideration and answered

the said issues. Subsequent events need not be taken

into account.”

(emphasis supplied)

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

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

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

limited scope of interference under Sections 34 and 37 of

the Act; and disapproved interference by the High Court

under Section 37 of the Act while entering into merits of

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

9)

“8. So far as the impugned judgment and order

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

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

Court quashing and setting aside the award and the

order passed by the Additional District Judge under

Section 34 of the Arbitration Act are concerned, it is

required to be noted that in an appeal under Section 37

of the Arbitration Act, the High Court has entered into

the merits of the claim, which is not permissible in

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

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

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

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

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

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

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

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

patently illegal. None of the aforesaid exceptions shall

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

Court has entered into the merits of the claim and has

decided the appeal under Section 37 of the Arbitration

Act as if the High Court was deciding the appeal

against the judgment and decree passed by the learned

trial court. Thus, the High Court has exercised the

jurisdiction not vested in it under Section 37 of the

Arbitration Act. The impugned judgment and order

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

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

Court is hence not sustainable.”

31. As regards the limited scope of interference under

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

the following observations of a three-Judge Bench of this

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

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

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

expressed by the appellate court that the learned Single

Judge committed a gross error in reappreciating the

findings returned by the Arbitral Tribunal and taking

an entirely different view in respect of the interpretation

of the relevant clauses of the implementation agreement

governing the parties inasmuch as it was not open to

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

Arbitration Act, by virtually acting as a court of

appeal.

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

Section 34 of the Arbitration Act is fairly narrow, when

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

the Arbitration Act, the jurisdiction of an appellate

court in examining an order, setting aside or refusing to

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

32. The learned Attorney General has referred to another

three-Judge Bench decision of this Court in SAL Udyog

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

SCC 275], wherein this Court indeed interfered with the

award in question when the same was found suffering

from non-consideration of a relevant contractual clause.

In the said decision too, the principles aforesaid in Delhi

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

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

referred to and thereafter, this Court applied the

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

said decision later at an appropriate juncture.

33. Keeping in view the aforementioned principles

enunciated by this Court with regard to the limited scope

of interference in an arbitral award by a Court in the

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

the more circumscribed in an appeal under Section 37,

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we may examine the rival submissions of the parties in

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

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

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

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

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

matter but re-appreciation of facts and evidence cannot be

permitted under the ground of patent illegality and the

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

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

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

power of the Appellate Court under Code of Civil Procedure,

inasmuch as the learned Appellate Court can re-appreciate both

factual and legal position whereas the jurisdiction of the Court

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

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

exercising jurisdiction under Section 34 nor under Section 37 of

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

arbitral Tribunal. Reference has been made to a judgment

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

Redevelopment Corporation Ltd. vs. Samir Narain Bhojwani,

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

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

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

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

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

in (2026) SCC Online SC 33.

Determination:

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

length and perused the voluminous records, including the

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

Case No. 25 of 2021 and the reply filed therein as also the

arbitral award dated 17.10.2020 and the impugned judgement

passed by the learned PDJ, Patna dated 25.07.2025.

30.Shorn of unnecessary details, it would suffice to state that

an agreement dated 06.08.2014 was entered into between the

parties for three years, whereby the claimant-respondent was

required to execute the work of Transporting-cum-Handling

Agent for the District Munger and he was entrusted with the

work of transportation of food-grains and other commodities

including edible oil to the destinated godown, as directed by or

on behalf of the appellants and according to the route chart fixed

for the said purpose. The period of agreement was from

06.08.2014 to 05.08.2017. A bare perusal of the statement of

claim filed by the claimant before the learned Sole Arbitrator

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would show that the claimant-respondent was again allotted

work of Transport-cum-handling Agent for the District Munger

for a further period of two years from the date of execution of

the agreement i.e. 06.08.2017, however some dispute arose with

regard to the computer of the headquarters being not been able

to record the movements of trucks from Godown, Tarapur to

TDPS Godown, Tarapur through GPS leading to issuance of a

show cause dated 08.08.2017 which was replied to by the

claimant-respondent vide letter dated 09.08.2017, whereafter yet

another show cause was issued by the Deputy Chief,

Transportation Corporation Headquarters, Patna, Dated

16.08.2017, as to why the agreement be not cancelled and the

claimant be not put in the blacklist as also the security deposit

and the bank guarantee be not forfeited, which was also replied

to by the claimant-respondent vide letter dated 24.08.2017,

however the Managing Director, BSFC, Patna had passed a

reasoned order dated 11.09.2017 cancelling the agreement

entered into with the claimant as also blacklisting the claimant-

respondent for three years. The said order dated 11.09.2017 was

though challenged by the petitioner by filing a writ petition

bearing CWJC No. 3088 of 2019, however a learned Single

Judge of this Court had though, by an order dated 06.05.2019

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quashed the said order dated 11.09.2017, to the extent the same

relates to blacklisting of the claimant-respondent, but as far as

the order of cancellation of contract and recovery of the bills

from the petitioner are concerned, the counsel for the petitioner

had sought to seek remedy in terms of arbitration clause.

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

appellants on 01.04.2019 for appointing an arbitrator suggesting

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

notice as also failed to appoint any arbitrator within a reasonable

time leading the claimant-respondent herein filing a request case

before this Court bearing Request Case No. 62 of 2019 under

Section 11(6) of the Act, 1996 for appointment of an

independent and impartial arbitrator in lieu of the provisions in

the agreement in question whereupon the Learned Chief Justice

of this Court by an order dated 06.09.2019 passed in Request

Case No. 62 of 2019 and other analogous cases, had appointed

the Hon’ble Mr. Justice Sadanand Mukherjee, a retired judge of

the Patna High Court as the Sole Arbitrator to enter upon the

disputes and render his award in terms of the provision of the

Act, 1996.

32.The claimant-respondent being aggrieved with the order

dated 11.09.2017, terminating the agreement in question as also

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regarding non-payment/short payment of the bills for

transportation and handling charges had filed a detailed

statement of claim before the learned Arbitrator on 11.10.2019,

inter alia praying for the following reliefs:-

“(i) Respondents jointly and severally be directed to

make payment of the claims of the claimant amounting to

Rs. 2,61,23,216.67/- (Two crore sixty one lakh twenty

three thousand two hundred sixteen rupees and sixty

seven paisa) with interest thereon @ 18% till 31.10.2019

as noted in Annexure - 28 to the statement of claims, with

further interest thereon at the rate of 18% per annum

from 01.11.2019 up to date of actual receipt of the

awarded amount with interest thereon by the claimant.

(ii) It be held and declared that the termination of

agreement vide order contained in Memo No. 9356 dated

11.09.2017 issued under the signature of Managing

Director of the Corporation (contained in Annexure- 14

to the Statement of Claims) is illegal, unjustified and

contrary to the term is of the agreement.

(iii) Respondents jointly and severally be further directed

to make payment of Rs. 5465252/- on account of loss of

profit for 24 months due to illegal and unjustified

premature termination of the contract on 11.09.2017 as

noted in Annexure - 28 to the statement of claims, with

interest thereon at the rate of 18% per annum from the

date of illegal termination of the contract i.e. 11.09.2017

till it's actual receipt of the payment by the

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claimant/petitioner.t

(iv) The respondents jointly and severally be directed to

pay the cost of arbitration to the claimant.

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

relieves which is deemed fit and proper in the ends of

justice to the claimant.”

33.The appellants had then filed statement of defence on

13.01.2020, whereafter the claimant-respondent had filed a

rejoinder dated 11.02.2020 as also a supplementary statement of

claim on 14.06.2020. The learned Sole Arbitrator had then

framed issues for consideration.

34.The learned Sole Arbitrator vide award dated 17.10.2020

has passed the arbitral award allowing the claim on the head of

outstanding bill amounts, compensation to the tune of Rs.25

lakhs, simple interest @ 10% for the pendente lite period and

further 18% interest over the awarded sum from the date of

award till realization of the awarded amount, cost towards fees

and expenses of the arbitrator and courts and other legal

expenses apart from considering the unpaid arbitrator’s fees not

paid by the appellants as unpaid cost of the award under Section

39 of the Act. We have already reproduced the amounts awarded

by the learned Sole Arbitrator by the arbitral award dated

17.10.2020 hereinabove in paragraph No. 9. The said award was

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challenged by the appellants before the learned Court of PDJ,

Patna by filing Misc. (Arbitration) Case No.25 of 2021 under

Section 34 (2) and (2A) of the Act, 1996 to which the claimant-

respondent herein had filed a reply dated 14.02.2022.

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

25.07.2025 has been pleased to dismiss the said Misc.

(Arbitration) Case No. 25 of 2021, filed on 18.01.2021, holding

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

(2A) of Section 34 of the Act, 1996 so as to warrant interference

with the impugned arbitral award or findings of the learned Sole

Arbitrator. The findings recorded by the learned PDJ, Patna in

the aforesaid judgement dated 25.07.2025 has already been

detailed hereinabove in paragraph No. 15.

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

Clauses of the Agreement dated 06.08.2014, entered into

between the parties for the District of Munger, herein below:-

“10. The First Party shall be liable to pay the second-

Party remuneration for the undertaking in this agreement

at the rates specified below against each item. No other

charges shall be admissible to the second Party for the

due performance to this agreement. These rates are also

subject to revision at any time at the discretion of the first

Party. If the Second Party agreed to such revisions either

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by express consent or by implied action such rates would

automatically by binding to the second Party.

(Application of rate of Particular slab will be only up to

the maximum distance fixed for the beginning form Zero).

11. No separate handling and stacking charges is payable

in respect of handling work taking place at F.C.I. depot

or rail head/Godown. Schedule of approved rates for

transport and handling is indicated above in this

agreement.

12. The District Manager, Bihar State Food &Civil

Supplies Corporation Ltd shall on completion of each

month, calculate the amount of remuneration for which

the Second Party is entitled to as aforesaid and pay the

same by Account Payee cheque within a reasonable

period after such accounting. However, after the

submission of bills by the Second Party and subject to the

completion of such other formalities as required by the

First party, the payment against bill submitted by the

Second party will be made by the first party in the

manner specified in the Head office Circular No. Audit-

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

the right to amend the procedure of payment, as and

when so required. No interest shall be payable to the

Second Party for unavoidable delay in the payment. In

special circumstances, the payment may be made even

within the quarter at discretion to the District Manager

with prior approval of the Managing Director while

making the payment the damage like shortage officially,

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

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deducted and if damage is chained bur not finally

determined payment that extent will be withheld till final

determination which is to be done at the shortest possible

time.

12A. The second party will immediately submits his

transporting bills within a maximum period of three

months from the date of completion of particular work to

the concerned district manager with entire connected

documents and the district manager will process the said

bill and after checking and verifying the same, will send

the bills to head office for further steps for passing and

payment of the same without any delay. In case, the

second party fails to submit his bills with required

documents within the aforesaid maximum period, his

working will be treated unsatisfactory and he will be

deemed to be disqualified for any extension or

participating in any tender thereafter.

14. The agreement shall remain in operation for the

period of three years from the date of execution of the

agreement or allotment of work. This may be extended by

mutual consent for a further period of two years or may

be terminated earlier than the period mentioned above on

behalf of the First Party in case if non-lifting of grains,

sugar, edible oil etc. During the specified period if there

is any breach of any of the terms of the agreement by the

second carry, the agreement may be terminated and

blacklisted as well as debarred for future transportation

work, security deposits will be forfeited and Bank

guarantee of 10 lacs (ten lac only) will be utilized and

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encashed at once by the First Party. The responsibility of

the second party shall not cease with the termination of

the agreement unless he has redelivered the grains, sugar,

edible oils and etc. entrusted to him & rendered complete

accounts thereof to the satisfaction of the First Party.

The terms of agreements and contract for transporting

and handling work can be extended for another period of

two years on the recommendations of District Transport

Committee, if the work of the Second Party is found

satisfactory and the recommendation of the District

Transport Committee, reaches Corporation Headquarter,

two months before expiry of agreement and as per

guidelines issued by the corporation from time to time in

this regard.

17. All disputes arising under or in pursuance of this

agreement between the parties, except matters decision of

which herein expressly is otherwise provided, shall be

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

Director of the Bihar State Food & Civil Supplies

Corporation Ltd. Patna or a person nominated by the

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

shall be final and binding on both the parties. The

provisions of the arbitration and conciliation Act 1996

and rules framed there under and statuary modifications

there of shall apply to the proceedings of arbitration and

all such disputes shall be subject to the jurisdiction of

courts at Patna.

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

compensation for detention of their trucks at the godown

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gates or detention by law enforcing agencies during

transit any other authorized places of the corporation

from where the delivery of any consignment is to be

obtained or where any delivery is to be given.”

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

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

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

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

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

Construction Corporation vs. GMR Kamalanga Enery Limited

reported in (2026) 2 SCC 542, paragraph Nos. 68, 114 to 116

whereof are reproduced herein below:-

“68. Furthermore, in the process of discussing the

jurisdiction and powers of courts under Sections 34 and

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

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

(2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401] while

holding that the learned Single Judge of the High Court

concerned had exceeded his jurisdiction through

interference with the arbitral award, explicated the

reasons of such narrow scope of powers of a court under

Section 34 of the 1996 Act. Referencing extensively on

other decisions of this Court, namely, MMTC [MMTC

Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC

(Civ) 293] , K. Sugumar v. Hindustan Petroleum Corpn.

Ltd. [K. Sugumar v. Hindustan Petroleum Corpn. Ltd.,

(2020) 12 SCC 539] , Dyna Technologies [Dyna

Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019)

20 SCC 1] , and Parsa Kente Collieries [Parsa Kente

Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam

Ltd., (2019) 7 SCC 236 : (2019) 3 SCC (Civ) 552] , it

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laid down that the courts do not sit in appeal over

arbitral awards, therefore, the jurisdiction of the courts

concerned is confined to specific grounds as laid down

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

of public policy, patent illegality, or misconduct.

Furthermore, it is based on the principle of party

autonomy and the need to uphold the finality of an

arbitral award. Concluding, it iterated that when the

parties have, through conscious decision-making, opted

for arbitration as an alternative means of dispute

mechanism, the courts ought to refrain from

reappreciation of evidence or substitution of

interpretation(s), unless the award is perverse,

unreasonable, or contrary to the mandate of the statute

or decisions of court.

114. Summarising the principles as aforesaid, it is

undoubtful that the interference under jurisprudence laid

down under Sections 34 and 37 of the 1996 Act is narrow,

while aforementioned decisions do acknowledge that,

SEPCO has vehemently pushed so in an attempt to

persuade us to hold the Division Bench in error.

However, the jurisprudence, as also identified in the

aforesaid issues, clarifies that the principles of natural

justice, and the public policy of India are paramount and

cannot be ignored or sidelined in an attempt not to

frustrate the patent or latent commercial wisdom of the

parties to seek an alternative means of dispute resolution.

Such issues attack the root of the Indian legal system and

the courts cannot be made a mere spectator to such gross

violations.

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

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

instant case, the Section 34 judgment had failed to

appreciate the gross violations of the basic principles of

adjudication of a dispute. While one may argue some of

those may be latent and not a prima facie violation,

thereby not mandating any interference, direct omission

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

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

of arbitral award. No contentions appear on behalf of

SEPCO vis-à-vis waiver through the circumstances

arising in March 2012, and despite such a want, the

Arbitral Tribunal exceeded the mandate to deem a waiver

on the part of GMRKE Limited for contractual notices,

without any explicit intent. Thereafter, it patently

discriminates against GMRKE Limited to deny their

claims for want of contractual notice(s).

116. An attack on the fundamental policy of Indian law

allows for reappreciation and thereby, the impugned

judgment cannot be faulted with on the ground of having

exceeded its jurisdiction under Section 37 of the 1996

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

open up the necessary floodgates of reappreciation of the

arbitral award.”

38.Yet another judgment on the aforesaid judgment is the

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

Power Company Limited vs. State of Himachal Pradesh

reported in (2022) 4 SCC 116, paragraph Nos. 16 to 19 and 21

whereof reproduced herein below:-

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

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

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

Arbitration Act, the jurisdiction of an appellate court in

examining an order, setting aside or refusing to set aside

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

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

163 : (2019) 2 SCC (Civ) 293] , the reasons for vesting

such a limited jurisdiction on the High Court in exercise

of powers under Section 34 of the Arbitration Act have

been explained in the following words : (SCC pp. 166-67,

para 11)

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

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

appeal over the arbitral award and may interfere on

merits on the limited ground provided under Section

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

of India. As per the legal position clarified through

decisions of this Court prior to the amendments to the

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

turn, includes a violation of the fundamental policy of

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

with justice or morality, and the existence of patent

illegality in the arbitral award. Additionally, the

concept of the “fundamental policy of Indian law”

would cover compliance with statutes and judicial

precedents, adopting a judicial approach, compliance

with the principles of natural justice, and Wednesbury

[Associated Provincial Picture Houses Ltd. v.

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

reasonableness. Furthermore, “patent illegality” itself

has been held to mean contravention of the substantive

law of India, contravention of the 1996 Act, and

contravention of the terms of the contract.”

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

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

Ltd. [K. Sugumar v. Hindustan Petroleum Corpn. Ltd.,

(2020) 12 SCC 539] , wherein it has been observed as

follows : (SCC p. 540, para 2)

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

Section 34 of the Act are too well established to require

any reiteration. Even a bare reading of Section 34 of

the Act indicates the highly constricted power of the

civil court to interfere with an arbitral award. The

reason for this is obvious. When parties have chosen to

avail an alternate mechanism for dispute resolution,

they must be left to reconcile themselves to the wisdom

of the decision of the arbitrator and the role of the

court should be restricted to the bare minimum.

Interference will be justified only in cases of

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commission of misconduct by the arbitrator which can

find manifestation in different forms including exercise

of legal perversity by the arbitrator.”

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

that if there are two plausible interpretations of the terms

and conditions of the contract, then no fault can be

found, if the learned arbitrator proceeds to accept one

interpretation as against the other. In Dyna Technologies

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

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

the limitations on the Court while exercising powers

under Section 34 of the Arbitration Act has been

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

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

Arbitration Act limits a challenge to an award only on

the grounds provided therein or as interpreted by

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

arbitral awards should not be interfered with in a

casual and cavalier manner, unless the Court comes to

a conclusion that the perversity of the award goes to

the root of the matter without there being a possibility

of alternative interpretation which may sustain the

arbitral award. Section 34 is different in its approach

and cannot be equated with a normal appellate

jurisdiction. The mandate under Section 34 is to

respect the finality of the arbitral award and the party

autonomy to get their dispute adjudicated by an

alternative forum as provided under the law. If the

Courts were to interfere with the arbitral award in the

usual course on factual aspects, then the commercial

wisdom behind opting for alternate dispute resolution

would stand frustrated.”

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

Vidyut Utpadan Nigam Ltd. [Parsa Kente Collieries Ltd.

v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd., (2019) 7

SCC 236 : (2019) 3 SCC (Civ) 552] , adverting to the

previous decisions of this Court in McDermott

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

International Inc. v. Burn Standard Co. Ltd., (2006) 11

SCC 181] and Rashtriya Ispat Nigam Ltd. v. Dewan

Chand Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan

Chand Ram Saran, (2012) 5 SCC 306] , wherein it has

been observed that an Arbitral Tribunal must decide in

accordance with the terms of the contract, but if a term of

the contract has been construed in a reasonable manner,

then the award ought not to be set aside on this ground, it

has been held thus : (Parsa Kente Collieries case [Parsa

Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan

Nigam Ltd., (2019) 7 SCC 236 : (2019) 3 SCC (Civ) 552]

, SCC pp. 244-45, para 9)

“9.1. … It is further observed and held that

construction of the terms of a contract is primarily for

an arbitrator to decide unless the arbitrator construes

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

something that no fair-minded or reasonable person

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

aforesaid decision in para 33 that when a court is

applying the “public policy” test to an arbitration

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

consequently errors of fact cannot be corrected. A

possible view by the arbitrator on facts has necessarily

to pass muster as the arbitrator is the ultimate master

of the quantity and quality of evidence to be relied upon

when he delivers his arbitral award. It is further

observed that thus an award based on little evidence or

on evidence which does not measure up in quality to a

trained legal mind would not be held to be invalid on

this score.

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

ITD Cementation India Ltd. [NHAI v. ITD Cementation

India Ltd., (2015) 14 SCC 21 : (2016) 2 SCC (Civ)

716] , SCC para 25 and SAIL v. Gupta Brother Steel

Tubes Ltd. [SAIL v. Gupta Brother Steel Tubes Ltd.,

(2009) 10 SCC 63 : (2009) 4 SCC (Civ) 16] , SCC para

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29.”

21. An identical line of reasoning has been adopted in

South East Asia Marine Engg. & Constructions Ltd.

(Seamec Ltd.) v. Oil India Ltd. [South East Asia Marine

Engg. & Constructions Ltd. (Seamec Ltd.) v. Oil India

Ltd., (2020) 5 SCC 164 : (2020) 3 SCC (Civ) 1] and it

has been held as follows : (SCC p. 172, paras 12-13)

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

the award only on the grounds as provided in the

Arbitration Act as interpreted by the courts. Recently,

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

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

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

such interference. This Court observed as follows :

(SCC p. 12, para 24)

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

Arbitration Act limits a challenge to an award only on

the grounds provided therein or as interpreted by

various Courts. We need to be cognizant of the fact

that arbitral awards should not be interfered with in a

casual and cavalier manner, unless the Court comes

to a conclusion that the perversity of the award goes

to the root of the matter without there being a

possibility of alternative interpretation which may

sustain the arbitral award. Section 34 is different in

its approach and cannot be equated with a normal

appellate jurisdiction. The mandate under Section 34

is to respect the finality of the arbitral award and the

party autonomy to get their dispute adjudicated by an

alternative forum as provided under the law. If the

Courts were to interfere with the arbitral award in the

usual course on factual aspects, then the commercial

wisdom behind opting for alternate dispute resolution

would stand frustrated.’

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

possible, the Court cannot interfere in the plausible view

taken by the arbitrator supported by reasoning. This

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Court in Dyna Technologies [Dyna Technologies (P) Ltd.

v. Crompton Greaves Ltd., (2019) 20 SCC 1] observed as

under : (SCC p. 12, para 25)

‘25. Moreover, umpteen number of judgments of this

Court have categorically held that the Court should not

interfere with an award merely because an alternative

view on facts and interpretation of contract exists. The

Courts need to be cautious and should defer to the view

taken by the Arbitral Tribunal even if the reasoning

provided in the award is implied unless such award

portrays perversity unpardonable under Section 34 of

the Arbitration Act.”

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

of Jan De Nul Dredging India Private Limited vs. Tuticorin

Port Trust reported in 2026 SCC OnLine SC 33, paragraph

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

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

with the arbitral matters is virtually prohibited, if not

absolutely barred. The powers of the appellate court are

even more restricted than the powers conferred by

Section 34 of the Act. The appellate power under Section

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

exercising power under Section 34 of the Act, has acted

within its limits as prescribed thereunder or has exceeded

or failed to exercise the power so conferred. The

appellate court exercising powers under Section 37 of the

Act has no authority of law to consider the matter in

dispute before the Arbitral Tribunal on merits so as to

hold as to whether the award of the Arbitral Tribunal is

right or wrong. The appellate court in exercise of such

power cannot sit as an ordinary court of appeal and

reappraise the evidence to record a contrary finding. The

award of the Arbitral Tribunal cannot be touched by the

court unless it is contrary to the substantive provision of

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

agreement.

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

Arbitral Tribunal is not contrary to any substantive

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

been disturbed by the appellate court, apparently by

giving a different interpretation of the clauses of the

licence agreement which jurisdiction was not vested in it.

Ordinarily, the interpretation given by the Arbitral

Tribunal, as affirmed by the court in exercise of powers

under Section 34 of the Act ought to have been

accepted.”

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

case of Saw Pipes Limited (supra), Associate Business (supra),

Reliance Infrastructure Limited (supra), Bombay Slum Re-

development Corporation Limited (supra), Somdat Builders-

NCC-NEC (JB) (supra) and most of other judgments referred to

in the said judgement on the scope of interference under

Sections 34 and 37 of the Act of 1996. We find from the catena

of judgments referred to hereinabove that broadly as far as

Section 34 and 37 of the Act of 1996 is concerned, the Court is

not required to sit in appeal over the arbitral award and

reappreciate the evidence, however the scope of interference

would be permissible in the following situations:-

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

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

(ii) Violation of Principles of Natural Justice as envisaged

under Sections 18 and 34 (2)(a)(iii) of the Act of 1996.

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

in conflict with the most basic notions of morality and

justice.

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

Court.

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

of patent illegality appearing on the face of the award

which goes to the root of the matter.

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

on the ground provided for under Section 34 (2) of the Act,

1996. Thus, it is a well settled law that where a finding is based

on no evidence or an arbitral tribunal takes into account

something irrelevant to the decision which it arrives at or

ignores vital evidence or arrived at its decision, such decision

would necessarily be perverse. A conspectus of the aforesaid

judgement rendered by the Hon’ble Apex Court would

demonstrate that award can be set aside under Sections 34 and

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

(a) Fundamental policy of Indian Law; or

(b) The Interest of India.

(c) Justice or morality.

(d) It is patently illegal.

42.Yet another issue which arises for consideration is

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

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

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

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

part thereof can be modified. The said issues have been

answered in a constitution bench judgment rendered by the

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

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

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

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

be exercised under the following circumstances:-

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

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

(ii) By correcting any clerical, computational or

typographical errors which appear erroneous on the basis

of records.

(iii) By modifying post-award interest in some

circumstances; and

43.It would be apropos to reproduce paragraph Nos.32 to 34,

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

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

which reads hereinbelow:-

“II. Severability of awards

32. In the present controversy, the proviso to Section

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

decisions on matters submitted to arbitration can be

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separated from those not submitted, only that part of the

arbitral award which contains decisions on matters non-

submitted may be set aside. The proviso, therefore,

permits courts to sever the non-arbitrable portions of an

award from arbitrable ones. This serves a twofold

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

which affirms the principle of kompetenz-kompetenz, that

is, the arbitrators' competence to determine their own

jurisdiction. Secondly, it enables the Court to sever and

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

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

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

or merits examination, but validity in terms of the proviso

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

us, none of the parties have argued that the Court is not

empowered to undertake such a segregation.

33. We hold that the power conferred under the proviso to

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

authority to sever the “invalid” portion of an arbitral

award from the “valid” portion, while remaining within

the narrow confines of Section 34, is inherent in the

Court's jurisdiction when setting aside an award.

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

se minus—the greater power includes the lesser—applies

squarely. The authority to set aside an arbitral award

necessarily encompasses the power to set it aside in part,

rather than in its entirety. This interpretation is practical

and pragmatic. It would be incongruous to hold that

power to set aside would only mean power to set aside

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

interpretation would not only be inconsistent with the

statutory framework but may also result in valid

determinations being unnecessarily nullified.

III. Difference between setting aside and modification

38. This distinction lies at the heart of many arguments

canvassed before us. The parties opposing the

recognition of a power of modification of the courts have

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strenuously contended that modification and setting aside

are distinct and sui generis powers. While modification

involves altering specific parts of an award, setting aside

does not alter the award but results in its annulment.

Their primary concern is that recognising a power of

modification may invite judicial interference with the

merits of the dispute—something arguably inconsistent

with the framework of the 1996 Act.

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

extent. It is true that modification and setting aside have

different consequences: the former alters the award,

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

must be interpreted contextually, taking into account the

purpose, scope, and background of the provision. Many

words and expressions have both narrow and broad

meanings and thereby open to multiple interpretations.

Legal interpretation should align with the object and

purpose of the legislation. Therefore, we may not strictly

apply a semantic differentiation while interpreting the

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

holistic and purposive interpretation of these words will

be consistent with the intent behind the provision and the

1996 Act. Linguistically and even jurisprudentially, a

distinction can be drawn between the expressions —

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

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

must note that the practical effect of partially setting

aside an award is the modification of the award.]

However, we do not concur with the view that

recognising any modification power will inevitably lead

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

completely depend on the extent of the modification

powers recognised by us. In the following part of our

Analysis, we outline the contours of this limited power

and explain why, in our view, recognising it will

ultimately yield more just outcomes.

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

particularly when such a denial would impose significant

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hardships, escalate costs, and lead to unnecessary delays

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

concern is particularly pronounced in India, where

applications under Section 34 and appeals under Section

37 often take years to resolve.

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

courts can only set aside and not modify awards, then the

parties would be compelled to undergo an extra round of

arbitration, adding to the previous four stages: the initial

arbitration, Section 34 (setting aside proceedings),

Section 37 (appeal proceedings), and Article 136 (SLP

proceedings). In effect, this interpretation would force the

parties into a new arbitration process merely to affirm a

decision that could easily be arrived at by the Court. This

would render the arbitration process more cumbersome

than even traditional litigation.

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

application for setting aside the award. However, Section

34 does not restrict the range of reliefs that the Court can

grant, while remaining within the contours of the statute.

A different relief can be fashioned as long as it does not

violate the guardrails of the power provided under

Section 34. In other words, the power cannot contradict

the essence or language of Section 34. The Court would

not exercise appellate power, as envisaged by Order 41 of

the Code of Civil Procedure, 1908 (hereinafter referred to

as “the Code”).

44. We are of the opinion that modification represents a

more limited, nuanced power in comparison to the

annulment of an award, as the latter entails a more

severe consequence of the award being voided in toto.

Read in this manner, the limited and restricted power of

severing an award implies a power of the Court to vary

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

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

complete prohibition.

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

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can apply the doctrine of severability and modify a

portion of the award while retaining the rest. This is

subject to parts of the award being separable, legally and

practically, as stipulated in Part II of our Analysis.

49. Notwithstanding Section 33, we affirm that a Court

reviewing an award under Section 34 possesses the

authority to rectify computational, clerical, or

typographical errors, as well as other manifest errors,

provided that such modification does not necessitate a

merits-based evaluation. There are certain powers

inherent to the Court, even when not explicitly granted by

the legislature. The scope of these inherent powers

depends on the nature of the provision, whether it

pertains to appellate, reference, or limited jurisdiction as

in the case of Section 34. The powers are intrinsically

connected as they are part and parcel of the jurisdiction

exercised by the Court.

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

Mullick [Kinnari Mullick v. Ghanshyam Das Damani,

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

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

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

oral. Nevertheless, there should be a request which is

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

the request must be exercised before the application

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

permits an appeal against any order setting aside or

refusing to set aside an arbitral award under Section 34.

To this extent, the appellate jurisdiction under Section 37

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

the Court deciding objections under Section 34. Hence,

the contention that the Tribunal becomes functus officio

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

Court still possesses the power of remand stipulated in

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

exercising power under Section 37, should be mindful

when the award has been upheld by the Section 34 Court.

But the Section 37 Court still possesses the jurisdiction to

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remand the matter to the Arbitral Tribunal.

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

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

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

issuance of a reasoned award is not a mere formality

under the 1996 Act. For an award to be termed

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

must be proper, intelligible, and adequate. The purpose

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

become enforceable after granting the Tribunal an

opportunity to cure any defects. This power is exercisable

when the Arbitral Tribunal has failed to give any

reasoning or the award exhibits gaps in reasoning and

these defects can be cured, thereby preventing

unnecessary challenges. The underlying intent is to

provide an effective, expeditious forum for addressing

curable defects, which Section 34(4) facilitates.

Conclusions

87. Accordingly, the questions of law referred to by

Gayatri Balasamy [Gayatri Balasamy v. ISG Novasoft

Technologies Ltd., 2024 SCC OnLine SC 1681] are

answered by stating that the Court has a limited power

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

arbitral award. This limited power may be exercised

under the following circumstances:

87.1. When the award is severable, by severing the

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

as held in Part II of our Analysis;

87.2. By correcting any clerical, computational or

typographical errors which appear erroneous on the face

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

87.3. Post-award interest may be modified in some

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

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

power must be exercised with great care and caution and

within the limits of the constitutional power as outlined in

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Part XII of our Analysis.”

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

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

under serial no. 1, awarded a sum of Rs. 1,22,01,098/- towards

the claim raised by the claimant-Respondent with regard to

transport and handling charges. In this regard, we find from the

records of the arbitral proceedings that an agreement dated

06.08.2014 as also the one dated 06.08.2017 was entered into

between the parties for the district of Munger and accordingly,

the claimant-Respondent had submitted a claim of Rs.

51,14,605.84 under the head of balance payment due, as is

apparent from the chart containing the summary of claim of the

claimant-Respondent for the district-Munger, more particularly

column no. 8 thereof, however beyond the scope of the

agreement, the claimant-Respondent had submitted claim to the

tune of Rs. 56,17,210.11 for the District-Madhubani as also

claim for a sum of Rs. 14,69,283.10, pertaining to the district

Bhagalpur on the head of balance payment due. Surprisingly, the

Ld. Sole Arbitrator has travelled beyond the terms of the

agreement entered into between the parties and awarded the

balance due amount claimed by the claimant-Respondent for the

district of Madhubani and Bhagalpur as well, which are

admittedly not within the parameters of the agreement entered

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into between the parties, thus out of the awarded amount of Rs.

1,22,01,098/- only a sum of Rs. 51,14,605/-, pertaining to the

district Munger could have been allowed, hence the award of a

sum of Rs. 56,17,210/- for the district of Madhubani as also a

sum of Rs. 14,69,283/- for the district of Bhagalpur are beyond

the terms of the contract and the arbitrator could not have

enlarged the scope of reference much less acted outside the

ambit of the contract, thus the amount awarded in favour of the

claimant for the district Madhubani and Bhagalpur is liable to be

set aside.

45.We find from the records that admittedly the agreements

filed in Request Case No. 66 of 2019 before this Court by the

claimant-Respondent were the ones dated 06.08.2014 and

06.08.2017 for the District Munger and the Ld. Chief Justice of

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

Case No. 62 of 2019 had appointed Mr. Justice Sadanand

Mukherjee, a retired Judge of the Patna High Court as the sole

Arbitrator to enter upon the disputes and render his awards in

terms of the provisions of the Act, 1996, thus when the

agreements filed in the aforesaid Request Case No. 62 of 2019,

dated 06.08.2014 and 06.08.2017 pertain to the district of

Munger, then the claims have also to be limited to the contours

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of the said agreements and the Arbitrator cannot enlarge the

scope of reference. In this regard, it would be relevant to refer to

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

State of Rajasthan vs. Nav Bharat Construction Company,

reported in (2006) 1 SCC 86, paragraphs no. 13, 27 to 31

whereof are reproduced herein below:-

“13. So far as the second ground is concerned, we have

seen the two applications made by the respondent. It

prima facie appears that the two applications were for

referring, in all, 28 claims to arbitration. The respondent

then made 39 claims before the arbitrators. The umpire

has awarded in respect of all the 39 claims. If claims not

referred to arbitration have been dealt with and

awarded, the umpire would have exceeded his

jurisdiction. However, Mr Moolchand Luhadia, partner

of the respondent who appeared in person, contended

that all the claims were referred to the arbitrators by the

order dated 1-3-1985. He submitted that this is clear

from the directions to the arbitrators to decide all

disputes arising between the parties. We are unable to

accept this submission. The order dated 1-3-1985 allows

“application dated 9-4-1983 as part of application dated

5-10-1981”. It is in the context of claims raised in these

two applications that the arbitrators are instructed to

decide all disputes between the parties. Mr Luhadia then

submitted that all claims were included in the two

applications made by them. It was submitted that in the

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applications some of the claims were clubbed together

but whilst filing the statement of claims they were

segregated and separated. As we are proposing to refer

the matter back to an umpire, we do not propose to go

into the question as to whether or not the 39 claims were

part of the two applications filed by the respondent. In

our view, this is a question which can be decided by the

umpire. All that we need to clarify is that if any claim did

not form part of the two applications, the same cannot be

arbitrated upon and the umpire will confine the reference

to the claims made in the two applications. It must be

mentioned that in the case of Orissa Mining Corpn. Ltd.

v. Prannath Vishwanath Rawlley [(1977) 3 SCC 535]

this Court has held that when an agreement is filed in

court and an order of reference is made, then the claim

as a result of the order of reference is limited to that

relief and the arbitrator cannot enlarge the scope of

reference and entertain fresh claims without a further

order of reference. It must also be mentioned that Mr

Luhadia had relied upon the case of H.L. Batra & Co. v.

State of Haryana [(1999) 9 SCC 188] . In this case the

award of the arbitrator was set aside and a new

arbitrator was appointed. The order stated that the new

arbitrator was appointed “for settling disputes between

the parties”. Before the new arbitrator seven additional

claims, over and above the 30 claims originally made,

were made. It was held that the award was not vitiated

as the terms of reference did not confine the second

reference to only 30 claims. This authority is of no

assistance to the respondent as it does not lay down that

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the arbitrator can entertain claims not referred to him.

27. There can be no dispute to the well-established

principle set out in these cases. However, these cases do

not detract from the law laid down in Bharat Coking

Coal Ltd. case [(2001) 4 SCC 86] or Continental

Construction Co. Ltd. case [(1988) 3 SCC 82] . An

arbitrator cannot go beyond the terms of the contract

between the parties. In the guise of doing justice he

cannot award contrary to the terms of the contract. If he

does so, he will have misconducted himself. Of course if

an interpretation of a term of the contract is involved

then the interpretation of the arbitrator must be accepted

unless it is one which could not be reasonably possible.

However, where the term of the contract is clear and

unambiguous the arbitrator cannot ignore it.

28. Mr Luhadia submitted that the respondents had made

claims totalling Rs 45,56,155.56p. He submitted that

claims for damages were to the tune of Rs 27.50 lakhs.

He submitted that the claim for final bill was for Rs 2

lakhs. He submitted that the claims for extra items were

for Rs 15,98,495. He submitted that the umpire had only

awarded Rs 29,96,060. He submitted that as the award is

a non-speaking award, even presuming without

admitting that some claims were covered by the terms of

the contract, it still could not be said that the umpire has

awarded towards claims covered by the contract. He

submitted that thus the award could not be set aside. In

support of this submission he relied upon the case of

Paradip Port Trust v. Unique Builders [(2001) 2 SCC

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680 : AIR 2001 SC 846] . In this case the claim had been

for Rs 12,93,260. The arbitrator awarded as follows:

(SCC p. 684, para 7)

“M/s Unique Builders Ltd., the claimant is entitled to

receive from Paradip Port Trust (Respondent 3) a sum of

Rs 8,51,315.00 (Rupees eight lakhs, fifty-one thousand,

three hundred fifteen only) with interest….”

29. It was contended in that case that Claims 2 and 7

(therein) could not have been awarded. This Court held

that as the award was a lump sum award and as only Rs

8,51,315 had been awarded against a claim of Rs

12,93,260 it was not possible to say whether any

amounts had been awarded against Claims 2 and/or 7.

Relying on this Mr Luhadia submitted that even in this

case it cannot be said whether any amounts have been

awarded against claims alleged to be covered by the

contract. We are unable to accept this submission. In this

case the award itself states that the award of Rs

29,96,060 is against Claims 1 to 39, except Claim 30.

Therefore this award is in respect of claims covered by

the contract and to that extent the umpire has

misconducted himself. Even otherwise the claim for

damages is not in a sum of Rs 27.50 lakhs as claimed.

Claims 27 and 28 which deal with damages are for Rs

3,07,038 and Rs 1,58,904.85. The other claims, included

in the figure of Rs 27.50 lakhs given to this Court appear

to be claims at enhanced rates for the contracted work

done during the extended period. Mr Luhadia denied

that the respondents had agreed to do work during the

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extended period at the contracted rate. Thus at this

stage, unlike in Paradip Port Trust case [(2001) 2 SCC

680 : AIR 2001 SC 846] it does appear on the face of the

record that higher rates for items covered by the contract

have been awarded.

30. As regards Claim 2 Mr Luhadia fairly admitted that

clause 5.11(iii) of the contract requires chiselling of

stones on all sides. He however submitted that the rates

given in Schedule ‘G’ were only for chiselling of stones

on one side. He submitted that this was clear from Note 1

under Schedule ‘G’ which stated that Schedule ‘G’ was

based on BSR 1975. He submitted that BSR 1975 showed

that such rates were only for chiselling stones on one

side. He submitted that when the stone has to be

chiselled on all sides the rates given in BSR 1975 were to

be applied. He submitted that Claim 2 was based on

those rates. We are unable to accept this submission of

Mr Luhadia. The contract is very specific. The work

specified in the contract has to be done at the rates

specified in Schedule ‘G’. Even though Schedule ‘G’ may

be based on BSR 1975 it is not exactly as BSR 1975.

Where in respect of a work specified in the contract the

rate has been given in Schedule ‘G’ that work could only

be done at that rate. Work specified in the contract does

not become extra work. It is only in respect of extra work

that rates specified in BSR 1975 can be applied. To us it

is clear that Claim 2 is contrary to the terms of the

contract. It is barred by clauses 57, 60 and 61 of the

contract. As regards Claim 26, Mr Luhadia relied upon

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the case of Tarapore & Co. v. State of M.P. [(1994) 3

SCC 521] In this case, the question was whether the

contractor was entitled to claim extra amounts because

he had to pay increased wages to his workers. This

Court has held that the contractor would have tendered

on the basis of the then prevailing wages and as the

contract required the contractor to pay the minimum

wages and if the minimum wages increased it was an

implied term of the contract that he would not be entitled

to claim the additional amount. However, it must be

noted that, in this case, there was no term in the contract

which prohibited any extra claims being made because

of the increase in wages. Clause 31 of the special

conditions of the contract, which has been reproduced

hereinabove, specifically bars the contractor from

claiming any compensation or an increase in rate under

such circumstances. Not only that but the respondents

had with their initial tender put in a term which provided

that if there was any increase in the minimum wages by

the Government the rates quoted by him would be

increased by the same percentage. At the time of

negotiation this clause was dropped. Thus, the

respondents had themselves specifically agreed not to

claim any compensation or increase by reason of

increase in wages. This claim could therefore not have

been granted.

31. It prima facie appears that the majority of the claims

are against the terms of the contract. However, there are

also other claims which are not against the terms of the

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contract. To merely set aside the award on the ground of

misconduct would work hardship on the respondents as

they would then be deprived of claims which may be

maintainable. In our view the correct course would be to

set aside the award and refer the matter back to an

independent umpire appointed by this Court. The umpire

will fix his own terms and conditions. We however clarify

that only those claims covered by the two applications

will be considered. Of course the umpire will decide how

many of the 39 claims formed part of the claims made in

the two applications. Needless to state that the terms of

the contract will be kept in mind and claims contrary to

the terms of the contract will undoubtedly not be

allowed. The umpire will also decide whether the

respondent had agreed to do the contracted work done

during the extended period at the same rates and/or

whether the respondent is entitled to increased rates and

if so, at what rate. The umpire shall decide only on the

basis of the materials already placed before the earlier

arbitrators and the earlier umpire.”

46.We would also gainfully refer to yet another judgment

rendered by the Hon’ble Apex Court in the case of Jayesh H.

Pandya & Another vs. Subhtex India Limited & Others,

reported in (2020) 17 SCC 383, paragraphs no. 18, 21 to 23

whereof are reproduced herein below:-

18. It is true that the object of the scheme of the 1996 Act

is to secure expeditious resolution of disputes and it is

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based on the fulcrum of promptitude but at the same time

the arbitrator is required to adjudicate the disputes in

view of the agreed terms of contract and the procedure.

Therefore, the arbitration proceedings are supposed to be

governed and run by the terms as agreed by the parties.

The arbitrator, therefore, cannot go beyond the clause of

the arbitration agreement. We all need to respect the

legislative intent underlying the Act. The speedy and

alternative resolution to the dispute thus cannot be

overlooked but at the same time, proceedings have to be

governed and run by the terms agreed between the

parties in concluding the arbitral proceedings failing

which it will frustrate the mandate of the object of the Act

with which it has been legislated by Parliament to act

upon on agreed terms and conditions of the agreement in

concluding the arbitral proceedings. The exposition of

law has been considered by this Court in NBCC Ltd. case

[NBCC Ltd. v. J.G. Engg. (P) Ltd., (2010) 2 SCC 385 :

(2010) 1 SCC (Civ) 416] in paras 12 and 22 as under:

(SCC pp. 391 & 393)

21. The clause so referred indicates that the parties have

admittedly agreed and the time period so prescribed is

final and binding. It means the arbitration proceedings

should commence and end within the prescribed period

of time which in the instant case was of four months and

expired on 4-9-2007 and, there was no occasion for

either party to raise an objection as long as the time was

available at the command of the arbitrator to conclude

the arbitral proceedings and pass an award within the

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time schedule fixed under the terms of contract as agreed

by the parties.

22. That apart, there is no provision under the arbitration

agreement to condone the delay when agreement between

the parties binds them to see that the arbitration

proceedings should be concluded within the time

prescribed. This time restriction is well within the scope

and purport of the 1996 Act at national and international

arbitrations.

23. The time fixed for the arbitration and/or schedule of

time-limit in such arbitration proceedings, as it is

recognised by law, there is no reason not to accept the

same, basically in the present facts and circumstances

where the parties themselves agreed to bind themselves

by the time-limit. Section 14 read with Section 15 of the

1996 Act also recognise this mechanism and after the

expiry of four months' period from the date of first

preliminary meeting held on 4-5-2007, the arbitrator

indeed became de jure unable to perform his functions

and the mandate to act as an arbitrator in the arbitral

proceedings between the parties as prayed for stood

terminated.”

47.It would be apposite to refer to yet another judgment

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

Electric Power Construction Corporation (supra), reported in

(2026) 2 SCC 542, paragraphs no. 93, 94, 96, 97, 123, 125 and

126 whereof are reproduced herein below:-

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“93. Numerous precedents laid down by this Court have

often emphasised that an arbitrator lacks the power to

deviate from or to reinterpret the terms of the contract

while making an award. The awards must be within the

parameters of the agreement entered between the

parties.

94. This Court in Saw Pipes [ONGC v. Saw Pipes Ltd.,

(2003) 5 SCC 705] has reiterated that any deviation

from the mandate of Section 28 sub-section (3) of the

1996 Act is a valid ground for lambasting an arbitral

award. Commenting on the duty of the arbitrators, this

Court observed as follows: (SCC p. 744, para 73)

“73. It is to be reiterated that it is the primary duty of the

arbitrators to enforce a promise which the parties have

made and to uphold the sanctity of the contract which

forms the basis of the civilized society and also the

jurisdiction of the arbitrators. Hence, this part of the

award passed by the Arbitral Tribunal granting interest

on the amount deducted by the appellant from the bills

payable to the respondent is against the terms of the

contract and is, therefore, violative of Section 28(3) of

the Act.”

96. Further clarification of this proposition is brought

about through observations of this Court in a further

decision by 3-Judge Bench in Union of India v. Bharat

Enterprise [Union of India v. Bharat Enterprise, (2025)

11 SCC 771 : 2023 SCC OnLine SC 369] wherein it was

underlined that the existence and powers of an arbitrator

are a creature of the agreement between the parties, and

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it is the terms of the contract which serves as a

fundamental basis for the procedure to be adopted by the

Arbitral Tribunal. Therefore, the arbitrator concerned is

restricted to the terms of the contract thereof and cannot

go outside its scope or what is, per se, specified. In

words of the Bench, “A disregard of the specific

provisions of the contract would incur wrath of the

award being imperilled. This position cannot be in the

region of dispute.”

97. In order to achieve an enhanced understanding

apropos the scope of the powers and jurisdiction of an

arbitrator, a reference may also be made to a decision of

this Court in Associated Engg. [Associated Engg. Co. v.

State of A.P., (1991) 4 SCC 93] , which was determined

vis-à-vis Section 30 of the Arbitration Act, 1940 wherein,

it was observed that: (SCC pp. 103-105, paras 24-27)

“24. The arbitrator cannot act arbitrarily, irrationally,

capriciously or independently of the contract. His sole

function is to arbitrate in terms of the contract. He has

no power apart from what the parties have given him

under the contract. If he has travelled outside the bounds

of the contract, he has acted without jurisdiction. But if

he has remained inside the parameters of the contract

and has construed the provisions of the contract, his

award cannot be interfered with unless he has given

reasons for the award disclosing an error apparent on

the face of it.

25. An arbitrator who acts in manifest disregard of the

contract acts without jurisdiction. His authority is

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derived from the contract and is governed by the

Arbitration Act which embodies principles derived from

a specialised branch of the law of agency (see Mustill

and Boyd's Commercial Arbitration, 2nd Edn., p. 641).

He commits misconduct if by his award he decides

matters excluded by the agreement (see Halsbury's Laws

of England, Vol. II, 4th Edn., Para 622). A deliberate

departure from contract amounts to not only manifest

disregard of his authority or a misconduct on his part,

but it may tantamount to a mala fide action. A conscious

disregard of the law or the provisions of the contract

from which he has derived his authority vitiates the

award.

26. A dispute as to the jurisdiction of the arbitrator is not

a dispute within the award, but one which has to be

decided outside the award. An umpire or arbitrator

cannot widen his jurisdiction by deciding a question not

referred to him by the parties or by deciding a question

otherwise than in accordance with the contract. He

cannot say that he does not care what the contract says.

He is bound by it. It must bear his decision. He cannot

travel outside its bounds. If he exceeded his jurisdiction

by so doing, his award would be liable to be set aside. As

stated by Lord Parmoor: [Attorney-General for

Manitoba v. Kelly, (1922) 1 AC 268] (AC p. 276)

‘… It would be impossible to allow an umpire to

arrogate to himself jurisdiction over a question which,

on the true construction of the submission, was not

referred to him. An umpire cannot widen the area of his

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jurisdiction by holding, contrary to the fact, that the

matter which he affects to decide is within the

submission of the parties.’

Evidence of matters not appearing on the face of the

award would be admissible to decide whether the

arbitrator travelled outside the bounds of the contract

and thus exceeded his jurisdiction. In order to see what

the jurisdiction of the arbitrator is, it is open to the court

to see what dispute was submitted to him. If that is not

clear from the award, it is open to the court to have

recourse to outside sources. The court can look at the

affidavits and pleadings of parties; the court can look at

the agreement itself. Bunge & Co. v. Dewar & Webb

[Bunge & Co. v. Dewar & Webb, (1921) 8 Ll L Rep 436].’

27. If the arbitrator commits an error in the construction

of the contract, that is an error within his jurisdiction.

But if he wanders outside the contract and deals with

matters not allotted to him, he commits a jurisdictional

error. Such error going to his jurisdiction can be

established by looking into material outside the award.

Extrinsic evidence is admissible in such cases because

the dispute is not something which arises under or in

relation to the contract or dependent on the construction

of the contract or to be determined within the award. The

dispute as to jurisdiction is a matter which is outside the

award or outside whatever may be said about it in the

award. The ambiguity of the award can, in such cases, be

resolved by admitting extrinsic evidence. The rationale

of this rule is that the nature of the dispute is something

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which has to be determined outside and independent of

what appears in the award. Such jurisdictional error

needs to be proved by evidence extrinsic to the award.

[See Alopi Parshad & Sons Ltd. v. Union of India [Alopi

Parshad & Sons Ltd. v. Union of India, 1960 SCC

OnLine SC 13 : (1960) 2 SCR 793 : AIR 1960 SC 588] ;

Bunge & Co. v. Dewar & Webb [Bunge & Co. v. Dewar

& Webb, (1921) 8 Ll L Rep 436] ; Christopher Brown

Ltd. v. Genossenschaft Oesterreichischer [(1954) 1 QB 8

: (1953) 3 WLR 689] ; R. v. Fulham [R. v. Fulham,

(1951) 2 KB 1] ; Falkingham v. Victorian Railways

Commission [Falkingham v. Victorian Railways

Commission, 1900 AC 452 : 69 LJ PC 89] ; R. v. All

Saints, Southampton [R. v. All Saints, Southampton,

(1828) 7 B&C 785 : 1 Man & Rey KB 663] ; Laing

(James) Son & Co. (M/C) Ltd. v. Eastcheap Dried Fruit

Co. [Laing (James) Son & Co. (M/C) Ltd. v. Eastcheap

Dried Fruit Co., (1961) 1 Ll L Rep 142] , Ll L Rep at p.

145; Dalmia Dairy Industries Ltd. v. National Bank of

Pakistan [Dalmia Dairy Industries Ltd. v. National Bank

of Pakistan, (1978) 2 Ll L Rep 223] ; Heyman v.

Darwins Ltd. [Heyman v. Darwins Ltd., 1942 AC 356

(HL)] ; Union of India v. Kishorilal Gupta & Bros.

[Union of India v. Kishorilal Gupta & Bros., 1959 SCC

OnLine SC 6 : AIR 1959 SC 1362 : (1960) 1 SCR 493] ;

Renusagar Power Co. Ltd. v. General Electric Co.

[Renusagar Power Co. Ltd. v. General Electric Co.,

(1984) 4 SCC 679 : (1985) 1 SCR 432] ; Jivarajbhai

Ujamshi Sheth v. Chintamanrao Balaji [Jivarajbhai

Ujamshi Sheth v. Chintamanrao Balaji, 1963 SCC

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OnLine SC 285 : (1964) 5 SCR 480 : AIR 1965 SC 214];

Gobardhan Das v. Lachhmi Ram [(1954) 1 SCC 566 :

AIR 1954 SC 689], AIR at p. 692; Thawardas Pherumal

v. Union of India [(1955) 1 SCC 372:(1955) 2 SCR

48:AIR 1955 SC 468]; Omanhene Kobina Foli v. Obeng

Akessee [1934 SCC OnLine PC 11 : AIR 1934 PC 185 :

(1934) 40 LW 138], AIR PC at p. 188; F.R. Absalom Ltd.

v. Great Western (London) Garden Village Society Ltd.

[F.R. Absalom Ltd. v. Great Western (London) Garden

Village Society Ltd., 1933 AC 592 (HL)] and M.

Golodetz v. Schrier [M. Golodetz v. Schrier, (1947) 80 Ll

L Rep 647]”

123. It could, thus, be seen that the Division Bench has

come to a considerable conclusion that the arbitral

award passed by the Arbitral Tribunal was in conflict

with the public policy of India inasmuch as the arbitral

award was passed in violation of the principles of

natural justice. A discriminatory treatment was meted

out by the Arbitral Tribunal to GMRKE Limited as

against SEPCO and that the arbitral award amounted to

modification of the contractual terms. We find that the

findings of the Division Bench are recorded after

considering the entire material on record and are in

consonance with the law laid down by the decisions of

this Court in Associate Builders [Associate Builders v.

DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and

Ssangyong Engg. [Ssangyong Engg. & Construction Co.

Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ)

213] Therefore, we see no reason to interfere with the

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well-reasoned findings as recorded by the Division

Bench.

125. We summarize the aforesaid findings as, despite the

limited scope of interference, the Division Bench was

obligated to have interfered with the arbitral award

owing to fulfilment of conditions mandating a

reappreciation of the merits of the award under Section

34 of the 1996 Act. Non-interference and non-setting

aside of the award would have hampered upon the

fundamental policy of Indian law as well as the public

policy of India. The Arbitral Tribunal, itself being a

creature of the EPC agreements, could not have travelled

beyond its mandate to rewrite the constitution of its own

existence through observing the condition of notice

having been waived. It further discriminated between the

parties, showcasing violation of the provisions of the

1996 Act. As this arbitral award could not have been

severed owing to the aforesaid reasons, thereby it is apt

to set aside the whole arbitral award.

126. Resultantly, the impugned judgment [GMR

Kamalanga Energy Ltd. v. SEPCO Electric Power

Construction Corpn., 2023 SCC OnLine Ori 5882] is

upheld and the arbitral award along with Section 34

judgment are observed to have been rightly set aside by

the Division Bench [GMR Kamalanga Energy Ltd. v.

SEPCO Electric Power Construction Corpn., 2023 SCC

OnLine Ori 5882] of the High Court.”

48.Thus, considering the aforesaid well-settled law

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propounded by the Hon’ble Apex Court, we find that an

Arbitrator lacks the power to deviate from or to reinterpret the

terms of the contract while making an award and the award

must be within the parameters of the agreement entered into

between the parties. It is equally a well-settled law that the

arbitrator cannot go beyond the clause of the agreement and the

proceedings have to be governed and run by the terms and

conditions of the agreement, agreed between the parties. Thus,

neither the arbitrator can go beyond the terms of the contract

between the parties nor he can make an award contrary to the

terms of the contract and if he does so he will have

misconducted himself.

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

that the agreements dated 06.08.2014 and 06.08.2017 entered

into between the parties, which is the subject matter of reference

made before the Ld. Sole Arbitrator in Request Case No. 62 of

2019 pertains to the district-Munger, hence the Ld. Sole

Arbitrator could not have deviated from the agreement much

less could have travelled beyond the terms of the contract and

awarded a sum of Rs. 56,17,210/- for the district of Madhubani

as also a sum of Rs. 14,69,283/- for the district of Bhagalpur,

over and above the sum of Rs. 51,14,605/-, pertaining to the

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district Munger. Thus, this part of the award dated 17.10.2020,

pertaining to award of a sum of Rs. 56,17,210/- and Rs.

14,69,283/- pertaining to the district of Madhubani and

Bhagalpur, respectively is fit to be set aside, being beyond the

parameters of the agreement entered into between the parties.

50.The other issue which arises for consideration in the

present case is regarding award of compensation vide arbitral

award dated 17.10.2020, passed by the Ld. Sole Arbitrator, at

serial no. 2 thereof, to the tune of Rs. 25 lakhs under Section 54

of the Indian Contract Act. We find that the Ld. Sole Arbitrator

has awarded the said amount of compensation on an ad hoc

basis without any proof. The findings of the learned Arbitrator

in this regard can be found at internal page No.23 of the award

dated 17.10.2020, which is reproduced herein below:-

“Since the contract between the parties consists of

reciprocal promises, in the circumstances of the case, in

view of the delayed payments causing wrongful loss to

the claimant-petitioner, the claimant-petitioner shall be

paid compensation amount of Rs. 25 lakhs only as per

Section 54 of the Indian Contract Act.”

51.We have already referred to the sequence of events as

narrated in the statement of claim filed by the claimant-

Respondent before the Ld. Sole Arbitrator in the preceding

paragraphs, hence the same are not being repeated for the sake

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of brevity. Nonetheless, we may mention here that the claimant-

Respondent has stated in paragraph no. 72 of the statement of

claim that on account of premature termination of the contract

by the appellants vide order dated 11.9.2017, the claimant-

Respondent was prevented from transporting food-grains for 24

months during the validity period of the agreement, hence he

has suffered a loss of Rs. 54,65,252/- and the said amount has

been claimed by way of estimated loss of profit for 24 months.

It is also a matter of record that the claimant-Respondent had

prayed in paragraph no. 76 of the statement of claim filed

before the Ld. Sole Arbitrator to declare the order of

termination of agreement dated 11.9.2017 to be illegal,

unjustified and contrary to the terms of the agreement and make

an award to the tune of Rs. 54,65,252/- on the head of loss of

profit for 24 months due to illegal and unjustified premature

termination of the contract on 11.9.2017. Nonetheless, we find

from a bare perusal of the award dated 17.10.2020, passed by

the Ld. Sole Arbitrator that though he has at internal page no.

18 of the award passingly observed that the termination of

contract was not on justifiable ground, however no relief has

been granted by the Ld. Sole Arbitrator in favour of the

claimant-Respondent, in the arbitral award dated 17.10.2020, to

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the extent of holding the order of cancellation of agreement

dated 11.9.2017 to be illegal, unjustified and contrary to the

terms of the agreement. Thus, in absence of setting aside of the

order of cancellation of agreement dated 11.9.2017 by the Ld.

Sole Arbitrator, in the arbitral award dated 17.10.2020, no

compensation can be awarded to the claimant-Respondent on

account of estimated loss of profit for 24 months on account of

premature termination of the agreement dated 6.8.2017. Thus,

the compensation of a sum of Rs. 25,00,000/- awarded by the

Ld. Sole Arbitrator vide arbitral award dated 17.10.2020 is

liable to be set aside.

52.It is yet another aspect of the matter that the claimant-

respondent has also failed to bring on record credible evidence

with regard to the aforesaid issue. There is no proof much less

any evidence whatsoever, on the records of the arbitral

proceedings regarding the claimant-respondent having suffered

any loss or injury, hence the award of compensation to the tune

of Rs.25 lakhs is based on no evidence, thus is outrightly

perverse on this score as well. This aspect of the matter stands

fully covered by the judgement rendered by the Hon’ble Apex

Court in the case of Unibros vs. All India Radio, reported in

2023 SCC Online SC 1366 as also in the case of Batliboi

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Environmental Engineers Limited vs. Hindustan Petroleum

Corporation Limited and Another, reported in (2024) 2 SCC

375, wherein the judgement rendered by the Hon’ble High

Court of Bombay in the case of Hindustan Petroleum

Corporation Ltd., Mumbai vs. Batliboi Environmental

Engineers Ltd, Mumbai and Another, reported in (2007) SCC

OnLine BOM 1016, has been upheld.

53.The other issue, which arises for consideration is the

award of interest by the Ld. Sole Arbitrator vide arbitral award

dated 17.10.2020 in the following manner:-

“The claimant-petitioner shall be entitled to simple

interest at the rate of 10 % p.a. from 13.9.2019 till the

date of award and further 18 % interest over awarded

sum from the date of award till realization over the

awarded amount.”

54.The findings of the Ld. Sole Arbitrator with regard to the

aforesaid aspect of the matter is as follows:-

“The Arbitrator shall simply go by section 31(7) of

Arbitration and Conciliation Act 1996 as amended in

granting the interest upon the Awarded amount.

The Arbitrator also finds that the claimant shall be

entitled to award interest at the rate of 10% per annum

aver the award during the pendency of the proceeding

from 13.09.2019 till the date of the award and shall be

granted 18% interest over the final Award from the date

of the award till realisation.”

55.Thus, we find that the Ld. Sole Arbitrator vide arbitral

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award dated 17.10.2020 has awarded interest pendente lite as

also interest from the date of award till realization of the

awarded amount. The law in this regard is no longer res integra,

inasmuch as the Hon’ble Apex Court has repeatedly held that if

the arbitration agreement or the contract itself provides for

interest, the Arbitrator would have the jurisdiction to award

interest, however when the agreement expressly provides that

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

Arbitrator has no power to award pendente lite interest.

Reference in this connection be had to the judgments rendered

by the Hon’ble Apex Court in the case of Ambica Construction

(supra) and the one rendered in the case of GC Roy (supra). In

this regard, we would also refer to a judgment rendered by the

Hon’ble Apex Court in the case of Union of India & Ors. vs.

Larsen & Tubro Limited (L&T), reported in 2026 SCC Online

SC 327, para nos. 29, 31, 34, 36, 38, 40, 43, 45, 46, 47, 48, 52,

53, 55, 56, 59, 61 and 62 whereof are reproduced herein below:-

“29. We have heard learned counsel for the parties and

perused the material placed on record. The following

issues are raised for our consideration:—

A. Whether the AT is justified in awarding pre-

award/pendente lite interest, by way of compensation,

while passing the award in favour of the respondent-

claimant, and more particularly in view of Clause

16(3) and Clause 64(5) of GCC.

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B. Whether the AT is justified in awarding post award

interest in favour of the respondent-claimant.

C. Whether the Courts below committed any error

while dealing with Issue (A) and Issue (B) referred

hereinabove while exercising the powers under Section

34 and Section 37 of the Act.

31. Clause 16(3) of the GCC reads as under:

“no interest will be payable upon the Earnest Money

and Security Deposit or amounts payable to the

Contractor under the Contract, but Government

Securities deposited in terms of Sub-Clause (1) of this

clause will be payable with interest accrued thereon”.

34. Section 31(7)(a) and 31(7)(b) further clarifies that

the power of the arbitral tribunal to award interest,

which reads as under:—

“31. Form and contents of arbitral award.—

………….

(7) (a) Unless otherwise agreed by the parties, where

and in so far as an arbitral award is for the payment of

money, the arbitral tribunal may include in the sum for

which the award is made interest, at such rate as it

deems reasonable, on the whole or any part of the

money, for the whole or any part of the period between

the date on which the cause of action arose and the

date on which the award is made.”

(b) A sum directed to be paid by an arbitral award

shall, unless the award otherwise directs, carry interest

at the rate of two per cent. higher than the current rate

of interest prevalent on the date of award, from the date

of award to the date of payment.

Explanation.—The expression “current rate of

interest” shall have the same meaning as assigned to it

under clause (b) of section 2 of the Interest Act, 1978

(14 of 1978).”

36. In the present case, Clause 16(3) of the GCC, as

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referred hereinabove, expressly stipulates that no interest

will be payable upon earnest money and security

deposits or amounts payable to the contractor under the

contract.

38. This Court in the decision rendered in the case of

Manraj Enterprises (supra) has considered a similar

submission canvassed on behalf of the party concerned

and thereafter observed and held in para 12.1 as under:

“12.1. It is required to be noted that Clause 16(1) is

with respect to earnest money/security deposit.

However, Clause 16(2) is specifically with respect to

interest payable upon the earnest money or the security

deposit or amounts payable to the contractor under the

contract. The words used in Clause 16(2) is “or”.

Therefore, the expression “amounts payable to the

contractor under the contract” cannot be read in

conjunction with “earnest money deposit” or “security

deposit” by applying the principle of ejusdem generis.

The expression “amounts payable to the contractor

under the contract” has to be read independently and

disjunctively to earnest money deposit and security

deposit as the word used is “or” and not “and”

between “earnest money deposit”, “security deposit”

and “amounts payable to the contractor under the

contract”. Therefore, the principle of ejusdem generis

is not applicable in the present case.”

40. At this stage, we would also like to refer to the

decision rendered by a three-judge bench of this Court in

Bright Power Projects (India) (P) Ltd. (supra), wherein

in para 10, 11 and 13, it was held as under:

“10. Thus, it had been specifically understood between

the parties that no interest was to be paid on the

earnest money, security deposit and the amount

payable to the contractor under the contract. So far as

payment of interest on government securities, which

had been deposited by the respondent contractor with

the appellant is concerned, it was specifically stated

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that the said amount was to be returned to the

contractor along with interest accrued thereon, but so

far as payment of interest on the amount payable to the

contractor under the contract was concerned, there

was a specific term that no interest was to be paid

thereon.

11. When parties to the contract had agreed to the fact

that interest would not be awarded on the amount

payable to the contractor under the contract, in our

opinion, they were bound by their understanding.

Having once agreed that the contractor would not

claim any interest on the amount to be paid under the

contract, he could not have claimed interest either

before a civil court or before an Arbitral Tribunal.

………….

13. Section 31(7) of the Act, by using the words “unless

otherwise agreed by the parties”, categorically

specifies that the arbitrator is bound by the terms of the

contract so far as award of interest from the date of

cause of action to date of the award is concerned.

Therefore, where the parties had agreed that no interest

shall be payable, the Arbitral Tribunal cannot award

interest.”

43. Now, at this stage, it is pertinent to observe that this

Court, thereafter, in the case of Manraj Enterprises

(supra) had an occasion to consider similar issues

involved in the present matter and had considered all the

aforementioned decisions, including the decisions

rendered in the cases of Bright Power Projects (India)

(P) Ltd. (supra), Raveechee and Company (supra) and

Ambica Construction v. Union of India, (2017) 14 SCC

323 (a three-judge bench judgment of this Court). After

considering the aforesaid decisions as well as several

other decisions referred on the issue, this Court has

observed in para 8 and 11 as under:

“8. After considering various decisions on award of

interest pendente lite and the future interest by the

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arbitrator and after discussing the decisions of this

Court in Ambica Construction v. Union of India

[Ambica Construction v. Union of India, (2017) 14

SCC 323 : (2018) 1 SCC (Civ) 257] and Raveechee &

Co. [Raveechee & Co. v. Union of India, (2018) 7 SCC

664 : (2018) 3 SCC (Civ) 711] and other decisions on

the point, this Court has observed in paras 9 to 18 as

under: (Garg Builders [Garg Builders v. BHEL, (2022)

11 SCC 697], SCC paras 9-19)

“9. On the other hand, Mr. Pallav Kumar, learned

counsel for the respondent, submitted that Section

31(7)(a) of the 1996 Act gives paramount importance

to the contract entered into between the parties and

categorically restricts the power of an arbitrator to

award pre-reference and pendente lite interest when the

parties themselves have agreed to the contrary. He

argued that if the contract itself contains a specific

clause which expressly bars the payment of interest,

then it is not open for the arbitrator to grant pendente

lite interest. It was further argued that Ambica

Construction [Ambica Construction v. Union of India,

(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] is not

applicable to the instant case because it was decided

under the Arbitration Act, 1940 whereas the instant

case falls under the 1996 Act. It was further argued

that Section 3 of the Interest Act confers power on the

court to allow interest in the proceedings for recovery

of any debt or damages or in proceedings in which a

claim for interest in respect of any debt or damages

already paid. However, Section 3(3) of the Interest Act

carves out an exception and recognises the right of the

parties to contract out of the payment of interest

arising out of any debt or damages and sanctifies

contracts which bars the payment of interest arising out

of debt or damages. Therefore, Clause 17 of the

contract is not violative of any the provisions of the

Contract Act, 1872. In light of the arguments advanced,

the learned counsel prays for dismissal of the appeal.

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10. We have carefully considered the submissions of the

learned counsel for both the parties made at the Bar.

The law relating to award of pendente lite interest by

arbitrator under the 1996 Act is no longer res integra.

The provisions of the 1996 Act give paramount

importance to the contract entered into between the

parties and categorically restricts the power of an

arbitrator to award pre-reference and pendente lite

interest when the parties themselves have agreed to the

contrary.

11. Section 31(7)(a) of the 1996 Act which deals with

the payment of interest is as under:

‘31.(7)(a) Unless otherwise agreed by the parties,

where and insofar as an arbitral award is for the

payment of money, the Arbitral Tribunal may include in

the sum for which the award is made interest, at such

rate as it deems reasonable, on the whole or any part of

the money, for the whole or any part of the period

between the date on which the cause of action arose

and the date on which the award is made.’

12. It is clear from the above provision that if the

contract prohibits pre-reference and pendente lite

interest, the arbitrator cannot award interest for the

said period. In the present case, clause barring interest

is very clear and categorical. It uses the expression

“any moneys due to the contractor” by the employer

which includes the amount awarded by the arbitrator.

13. In Sayeed Ahmed & Co. v. State of U.P. [Sayeed

Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 :

(2009) 4 SCC (Civ) 629], this Court has held that a

provision has been made under Section 31(7)(a) of the

1996 Act in relation to the power of the arbitrator to

award interest. As per this section, if the contract bars

payment of interest, the arbitrator cannot award

interest from the date of cause of action till the date of

award.

14. In Sree Kamatchi Amman Constructions v.

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Railways [Sree Kamatchi Amman Constructions v.

Railways, (2010) 8 SCC 767 : (2010) 3 SCC (Civ)

575], it was held by this Court that where the parties

had agreed that the interest shall not be payable, the

Arbitral Tribunal cannot award interest between the

date on which the cause of action arose to the date of

the award.

15. BHEL v. Globe Hi-Fabs Ltd. [(2015) 5 SCC 718],

is an identical case where this Court has held as

under : (SCC p. 723, para 16)

‘16. In the present case we noticed that the clause

barring interest is very widely worded. It uses the

words “any amount due to the contractor by the

employer”. In our opinion, these words cannot be read

as ejusdem generis along with the earlier words

“earnest money” or “security deposit”.’

16. In Chittaranjan Maity v. Union of India [ (2017) 9

SCC 611], it was categorically held that if a contract

prohibits award of interest for pre-award period, the

arbitrator cannot award interest for the said period.

17. Therefore, if the contract contains a specific clause

which expressly bars payment of interest, then it is not

open for the arbitrator to grant pendente lite interest.

The judgment on which reliance was placed by the

learned counsel for the appellant in Ambica

Construction [Ambica Construction v. Union of India,

(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] has no

application to the instant case because Ambica

Construction [Ambica Construction v. Union of India,

(2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] was

decided under the Arbitration Act, 1940 whereas the

instant case falls under the 1996 Act. This has been

clarified in Chittaranjan Maity [Chittaranjan Maity v.

Union of India, (2017) 9 SCC 611 : (2017) 4 SCC (Civ)

693] as under: (SCC p. 616, para 16)

‘16. Relying on a decision of this Court in Ambica

Construction v. Union of India [Ambica Construction v.

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Union of India, (2017) 14 SCC 323 : (2018) 1 SCC

(Civ) 257], the learned Senior Counsel for the

appellant submits that mere bar to award interest on

the amounts payable under the contract would not be

sufficient to deny payment on pendente lite interest.

Therefore, the arbitrator was justified in awarding the

pendente lite interest. However, it is not clear from

Ambica Construction [(2017) 14 SCC 323] as to

whether it was decided under the Arbitration Act, 1940

(for short “the 1940 Act”) or under the 1996 Act. It has

relied on a judgment of Constitution Bench in

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

SCC 508]. This judgment was with reference to the

1940 Act. In the 1940 Act, there was no provision

which prohibited the arbitrator from awarding interest

for the pre-reference, pendente lite or post-award

period, whereas the 1996 Act contains a specific

provision which says that if the agreement prohibits

award of interest for the pre-award period, the

arbitrator cannot award interest for the said period.

Therefore, the decision in Ambica Construction cannot

be made applicable to the instant case.’

18. The decision in Raveechee & Co. [Raveechee &

Co. v. Union of India, (2018) 7 SCC 664] relied on by

the learned counsel for the appellant is again under the

Arbitration Act, 1940 which has no application to the

facts of the present case.

19. Having regard to the above, we are of the view that

the High Court [Garg Builders v. BHEL, 2017 SCC

OnLine Del 12871] was justified in rejecting the claim

of the appellant seeking pendente lite interest on the

award amount.”

……………

11. In the said decision in Bright Power Projects

[Union of India v. Bright Power Projects (India) (P)

Ltd., (2015) 9 SCC 695 : (2015) 4 SCC (Civ) 702], this

Court also considered Section 31(7)(a) of the 1996 Act.

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It is specifically observed and held that Section 31(7) of

the 1996 Act, by using the words “unless otherwise

agreed by the parties” categorically specifies that the

arbitrator is bound by the terms of the contract insofar

as award of interest from the date of cause of action to

date of the award is concerned. It is further observed

and held that where the parties had agreed that no

interest shall be payable, the Arbitral Tribunal cannot

award interest. Thus, the aforesaid decision of a three-

Judge Bench of this Court is the answer to the

submission made on behalf of the respondent that

despite the bar under Clause 16(2) which is applicable

to the parties, the Arbitral Tribunal is not bound by the

same. Therefore, the contention raised on behalf of the

respondent that dehors the bar under Clause 16(2), the

Arbitral Tribunal independently and on equitable

ground and/or to do justice can award interest

pendente lite or future interest has no substance and

cannot be accepted. Once the contractor agrees that he

shall not be entitled to interest on the amounts payable

under the contract, including the interest upon the

earnest money and the security deposit as mentioned in

Clause 16(2) of the agreement/contract between the

parties herein, the arbitrator in the arbitration

proceedings being the creature of the contract has no

power to award interest, contrary to the terms of the

agreement/contract between the parties and contrary to

Clause 16(2) of the agreement/contract in question in

this case.”

45. The provisions of the Act of 1996, including

provisions contained in Section 31(7)(a) give paramount

importance to the contract entered into between the

parties and categorically restrict the power of an

arbitrator to award pre-award/pendente lite interest

when the parties have themselves agreed to the contrary.

Thus, the AT cannot award pre-award/pendente lite

interest, even in the form of compensation, in view of

specific Cl. 16(3) of GCC read with Cl. 64(5) of GCC.

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46. At this stage, it is also relevant to observe that the AT

itself acknowledged this prohibition by rejecting Claim

No. 7 seeking pendente lite interest. The relevant

paragraph of the Arbitral Award reads as under:—

“The Interest so claimed is therefore not admissible as

per Section 31(7)(a) of the Act read with Clause 64(5)

of the GCC & Clause 7.35 of SCC of the contract

agreement signed between the two parties. Tribunal did

not therefore consider to award any interest on the

award sum as claimed by the Claimant. Therefore,

Arbitral Tribunal declare Nil Award against this

claim.”

47. With regard to the post-award interest, Section 31(7)

(b) of the Act provides that unless the award otherwise

directs, the sum awarded shall carry interest from the

date of the award till payment. The legislative intent

underlying this provision is twofold: first, to compensate

the successful party for delayed realization of the award,

and second, to ensure prompt compliance with the award

by the judgment-debtor.

48. Recently, this Court in the case of R.P. Garg (supra),

has observed and held in para 9, 11 and 12 as under:

“9. We are of the opinion that the judgment of High

Court is clearly erroneous. Firstly, the interest granted

by the First Appellate Court only related to post award

period, and therefore, for this period, the agreement

between the parties has no bearing. Section 31(7)(b)

deals with grant of interest for post award period i.e.,

from the date of the award till its realization. The

statutory scheme relating to grant of interest provided

in Section 31(7) creates a distinction between interest

payable before and after the award. So far as the

interest before the passing of the award is concerned, it

is regulated by Section 31(7)(a) of the Act which

provides that the grant of interest shall be subject to the

agreement between the parties. This is evident from the

specific expression at the commencement of the sub-

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section which says “unless otherwise agreed by the

parties”.

…………..

11. So far as the entitlement of the post-award interest

is concerned, sub-Section (b) of Section 31(7) provides

that the sum directed to be paid by the Arbitral

Tribunal shall carry interest. The rate of interest can be

provided by the Arbitrator and in default the statutory

prescription will apply. Clause (b) of Section 31(7) is

therefore in contrast with clause (a) and is not subject

to party autonomy. In other words, clause (b) does not

give the parties the right to “contract out” interest for

the post-award period. The expression ‘unless the

award otherwise directs’ in Section 31(7)(b) relates to

rate of interest and not entitlement of interest. The only

distinction made by Section 31(7)(b) is that the rate of

interest granted under the Award is to be given

precedence over the statutorily prescribed rate. The

assumption of the High Court that payment of the

interest for the post award period is subject to the

contract is a clear error.

12. The clear position of law that granting post-award

interest is not subject to the contract between the parties

was recently affirmed in the decision of this Court in

Morgan Securities & Credits (P) Ltd. v. Videocon

Industries Ltd.,6 wherein the court observed as follows:

“24. The issue before us is whether the phrase “unless

the award otherwise directs” in Section 31(7)(b) of the

Act only provides the arbitrator the discretion to

determine the rate of interest or both the rate of interest

and the “sum” it must be paid against. At this juncture,

it is crucial to note that both clauses (a) and (b) are

qualified. While, clause (a) is qualified by the

arbitration agreement, clause (b) is qualified by the

arbitration award. However, the placement of the

phrases is crucial to their interpretation. The words,

“unless otherwise agreed by the parties” occur at the

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beginning of clause (a) qualifying the entire provision.

However, in clause (b), the words, “unless the award

otherwise directs” occur after the words “a sum

directed to be paid by an arbitral award shall” and

before the words “carry interest at the rate of eighteen

per cent”. Thereby, those words only qualify the rate of

post-award interest.

25. Section 31(7)(a) confers a wide discretion upon the

arbitrator in regard to the grant of pre-award interest.

The arbitrator has the discretion to determine the rate

of reasonable interest, the sum on which the interest is

to be paid, that is whether on the whole or any part of

the principal amount, and the period for which

payment of interest is to be made — whether it should

be for the whole or any part of the period between the

date on which the cause of action arose and the date of

the award. When a discretion has been conferred on the

arbitrator in regard to the grant of pre-award interest,

it would be against the grain of statutory interpretation

to presuppose that the legislative intent was to reduce

the discretionary power of the arbitrator for the grant

of post-award interest under clause (b). Clause (b) only

contemplates a situation where the arbitration award is

silent on post-award interest, in which event the award-

holder is entitled to a post-award interest of eighteen

per cent.”

52. We are of the view that the AT has committed serious

error by awarding pre-award/pendente lite interest qua

Claim Nos. 1, 3 & 6, though AT has observed that the

said amount are awarded by way of compensation,

however, in view of the peculiar clause of GCC as well

as provisions contained in Section 31(7)(a) of the Act of

1996 and the decisions rendered by this Court, the AT

could not have awarded the pre-award/pendente lite

interest.

53. For the above stated reasons, the Commercial Court

and the High Court failed to appreciate that the AT had

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awarded pendente lite interest in violation of an express

contractual bar and such failure attracts interference

even within the limited scope of Sections 34 and 37 of the

Act. 55. There is no provision in the GCC which

expressly bars the grant of post-award interest. In the

absence of such an express exclusion, the statutory

mandate under Section 31(7)(b) of the Act must prevail.

56. In RP Garg (supra), in paragraph 11, this Court

reiterated that post-award interest flows as a matter of

law under Section 31(7)(b), unless the parties have

unequivocally agreed to exclude it.

59. In this context, the decision of this Court in Gayatri

Balasamy v. ISG Novasoft Technologies Limited, (2025)

7 SCC 1, is significant. In paragraphs 74 to 78, this

Court has categorically held that courts retain the power

to modify post-award interest under Section 31(7)(b) of

the Act where the facts justify such modification. It has

been clarified that Section 31(7)(b) is a distinct

legislative creation which prescribes a statutory

standard to guide the determination of post-award

interest and since such interest is inherently future-

oriented, the courts may increase or decrease the rate of

post-award interest where compelling reasons exist. The

Court further observed that when the statute itself

benchmarks a standard, such benchmark must weigh in

the consideration of the rate awarded and that the power

of modification is necessary to avoid unnecessary setting

aside of the entire award merely on the question of

interest.

61. Accordingly, the answer to the issues framed in the

present matter is that:

A. The AT is not justified in awarding pre-

award/pendente lite interest, by way of compensation,

while passing the award in favour of the respondent-

claimant, and more particularly in view of Clause

16(3) and Clause 64(5) of the GCC. The award of such

interest is not in accordance with the agreement, and

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liable to be set aside.

B. The AT is justified in awarding post award interest

in favour of the respondent-claimant, however, the rate

of post-award interest is modified from 12% per annum

to 8% per annum from the date of award till

realization.

C. The Courts below committed a serious error while

dealing with Issue (A) and Issue (B) referred

hereinabove while exercising the powers under Section

34 and Section 37 of the Act.

62. In view of the aforesaid discussion, the impugned

judgment dated 25.05.2023 passed by the High Court of

Judicature at Allahabad, the order dated 15.09.2022

passed by the Commercial Court, Jhansi, and the

Arbitral Award dated 25.12.2018, are set aside, to the

extent of the grant of pre-award/pendente lite interest or

amounts in the nature of interest, qua Claim No. 1, 3 and

6. The Arbitral Award dated 25.12.2018 is further

modified to the extent of the rate of the post-award

interest from 12% per annum to 8% per annum from the

date of award till realization.”

56.It would be apposite to reproduce paragraphs no. 73 and

74 of the Constitution Bench judgment rendered by the Hon’ble

Apex Court in the case of Gayatri Balasamy vs. ISG Novasoft

Technologies Ltd., reported in (2025) 7 SCC 1 herein below:-

“73. The next question that arises is: Do courts possess

the power to declare or modify interest, especially post-

award interest? In respect of pendente lite interest,

Section 31(7)(a)(Annexure A), states that unless

otherwise agreed by the parties, the Arbitral Tribunal

may include in its sum for the award, interest, at such

rate it deems reasonable on whole or part of the money

for whole or part of the period on which the cause of

action arose and the date on which the award is made. In

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respect of post-award interest, Section 31(7)(b)

(Annexure A) states that unless an award provides for

interest on a sum directed to be paid by it, the sum will

carry an interest at a 2% higher rate than the current

rate of interest prevalent on the date of the award, from

the date of the award till the date of payment. The

Explanation defines the expression “current rate of

interest”.

74. There can be instances of violation of Section 31(7)

(a), and the pendente lite interest awarded may be

contrary to the contractual provision. We are of the

opinion that, in such cases, the Court while examining

objections under Section 34 of the 1996 Act will have

two options. First is to set aside the rate of interest or

second, recourse may be had to the powers of remand

under Section 34(4).”

57.It would also be gainful to refer to a judgment rendered

by the Hon’ble Apex Court in the case of PAM Developments

Private Ltd. vs. State of West Bengal & Anr., reported in (2024)

10 SCC 715, paragraphs no. 23, 23.1 to 23.6 whereof are

reproduced herein below:-

“23. The power of the arbitrator to grant pre-reference

interest, pendente lite interest, and post-award interest

under Section 31(7) of the Act is fairly well-settled. The

judicial determinations also highlight the difference in

the position of law under the Arbitration Act, 1940. The

following propositions can be summarised from a survey

of these cases:

23.1. Under the Arbitration Act, 1940, there was no

specific provision that empowered an arbitrator to

grant interest. However, through judicial

pronouncements, this Court has affirmed the power of

the arbitrator to grant pre-reference, pendente lite, and

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post-award interest on the rationale that a person who

has been deprived of the use of money to which he is

legitimately entitled has a right to be compensated for

the same. [State of Orissa v. G.C. Roy, (1992) 1 SCC

508, para 43(i). Also see State of Orissa v. N.C.

Budharaj, (2001) 2 SCC 721; Union of India v.

Krafters Engg. & Leasing (P) Ltd., (2011) 7 SCC 279 :

(2011) 3 SCC (Civ) 533] When the agreement does not

prohibit the grant of interest and a party claims

interest, it is presumed that interest is an implied term

of the agreement, and therefore, the arbitrator has the

power to decide the same. [State of Orissa v. G.C. Roy,

(1992) 1 SCC 508, paras 43 (iv) & 44]

23.2. Under the 1940 Act, this Court has adopted a

strict construction of contractual clauses that prohibit

the grant of interest and has held that the arbitrator

has the power to award interest unless there is an

express, specific provision that excludes the jurisdiction

of the arbitrator [Port of Calcutta v. Engineers-De-

Space-Age, (1996) 1 SCC 516, paras 4 and 5; Madnani

Construction Corpn. (P) Ltd. v. Union of India, (2010)

1 SCC 549 : (2010) 1 SCC (Civ) 168; Tehri Hydro

Development Corpn. Ltd. v. Jai Prakash Associates

Ltd., (2012) 12 SCC 10 : (2013) 2 SCC (Civ) 122,

paras 18-20; Union of India v. Ambica Construction,

(2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36 (First

Ambica Construction Case); Ambica Construction v.

Union of India, (2017) 14 SCC 323 : (2018) 1 SCC

(Civ) 257 (Second Ambica Construction Case);

Raveechee & Co. v. Union of India, (2018) 7 SCC 664 :

(2018) 3 SCC (Civ) 711; Reliance Cellulose Products

Ltd. v. ONGC Ltd., (2018) 9 SCC 266 : (2018) 4 SCC

(Civ) 351] from awarding interest for the dispute in

question [State of U.P. v. Harish Chandra, (1999) 1

SCC 63].

23.3. Under the 1996 Act, the power of the arbitrator to

grant interest is governed by the statutory provision in

Section 31(7). This provision has two parts. Under

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clause (a), the arbitrator can award interest for the

period between the date of cause of action to the date

of the award, unless otherwise agreed by the parties.

Clause (b) provides that unless the award directs

otherwise, the sum directed to be paid by an arbitral

award shall carry interest @ 2% higher than the

current rate of interest, from the date of the award to

the date of payment.

23.4. The wording of Section 31(7)(a) marks a

departure from the Arbitration Act, 1940 in two ways :

first, it does not make an explicit distinction between

pre-reference and pendente lite interest as both of them

are provided for under this sub-section; second, it

sanctifies party autonomy and restricts the power to

grant pre-reference and pendente lite interest the

moment the agreement bars payment of interest, even if

it is not a specific bar against the arbitrator. [Sayeed

Ahmed & Co. v. State of U.P., (2009) 12 SCC 26, paras

14, 23, 24 : (2009) 4 SCC (Civ) 629; Union of India v.

Saraswat Trading Agency, (2009) 16 SCC 504 : (2011)

3 SCC (Civ) 499; Sree Kamatchi Amman Constructions

v. Railways, (2010) 8 SCC 767, para 19 : (2010) 3 SCC

(Civ) 575; Union of India v. Bright Power Projects

(India) (P) Ltd., (2015) 9 SCC 695, para 13 : (2015) 4

SCC (Civ) 702; Reliance Cellulose Products Ltd. v.

ONGC Ltd., (2018) 9 SCC 266, para 24 : (2018) 4 SCC

(Civ) 351; Jaiprakash Associates Ltd. v. Tehri Hydro

Development Corpn. (India) Ltd., (2019) 17 SCC 786,

paras 13-15 : (2020) 3 SCC (Civ) 605; Delhi Airport

Metro Express (P) Ltd. v. DMRC, (2022) 9 SCC 286,

paras 16-20, 24 : (2022) 4 SCC (Civ) 623]

23.5. The power of the arbitrator to award pre-

reference and pendente lite interest is not restricted

when the agreement is silent on whether interest can be

awarded [Jaiprakash Associates Ltd. v. Tehri Hydro

Development Corpn. (India) Ltd., (2019) 17 SCC 786,

para 13.2] or does not contain a specific term that

prohibits the same [Oriental Structural Engineers (P)

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Ltd. v. State of Kerala, (2021) 6 SCC 150, paras 15-18:

23.6. While pendente lite interest is a matter of

procedural law, pre-reference interest is governed by

substantive law. [Central Bank of India v. Ravindra,

(2002) 1 SCC 367, para 39 following State of Orissa v.

G.C. Roy, (1992) 1 SCC 508, para 43(v)] Therefore, the

grant of pre-reference interest cannot be sourced solely

in Section 31(7)(a) (which is a procedural law), but

must be based on an agreement between the parties

(express or implied), statutory provision (such as

Section 3 of the Interest Act, 1978), or proof of

mercantile usage [Central Bank of India v. Ravindra,

(2002) 1 SCC 367, para 39; Central Coop. Bank Ltd. v.

S. Kamalaveni Sundaram, (2011) 1 SCC 790, para 13 :

(2011) 1 SCC (Civ) 331] .

58.Thus, we find from the law laid down by the Hon’ble

Apex Court in the aforesaid judgments that the provisions of the

Act, 1996 including the provisions contained in Section 31(7)(a)

of the Act, 1996 gives paramount importance to the contract

entered into between the parties and categorically restricts the

power of an Arbitrator to pre-award / pendente lite interest when

the parties have themselves agreed to the contrary, hence an

Arbitral Tribunal cannot award pre-award or pendente lite

interest, even under the guise of compensation, where contract

expressly prohibits payment of interest on amounts payable

under the contract, however post-award interest is governed by

Section 31(7)(b) of the Act, 1996 and can be granted unless

expressly barred.

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59.Now coming back to the present case, we find that Clause

12 of the agreements dated 06.08.2014 and 06.08.2017

stipulate- “no interest shall be payable to the second party for

unavoidable delay in the payment”. Therefore, it is amply clear

that the agreements entered into between the parties expressly

prohibits payment of interest on amounts payable under the

contract / agreement, hence applying the principles laid down by

the Hon’ble Apex Court in the aforesaid cases, we hold that the

Ld. Sole Arbitrator was not justified in awarding interest

pendente lite @ 10 % per annum from the date of start of the

arbitral proceedings i.e. 13.09.2019 till the date of award, hence

is liable to be set aside. Moreover, neither any pleading has been

made by the claimant-Respondent nor any evidence has been

brought on record to demonstrate the factum regarding

unavoidable/ avoidable delay in the payments. However, award

of interest @ 18 % over the awarded sum from the date of

award till realization of the awarded amount being covered by

the provision contained in Section 31(7)(b) of the Act, 1996

does not require any interference.

60.Having regard to the facts and circumstances of the case

discussed hereinabove in the preceding paragraphs and for the

foregoing reasons, the arbitral award dated 17.10.2020, passed

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by the Ld. Sole Arbitrator as also the impugned judgment dated

25.7.2025, passed by the Ld. Principal District Judge, Patna is

modified/set aside in terms of this judgment as follows:-

“(i) The award of the Ld. Sole Arbitrator at serial no. 1 at

internal page No.23 of the award dated 17.10.2020,

holding the claimant-Respondent entitled to award of a

sum of Rs. 1,22,01,098/- shall stand modified to a sum of

Rs. 51,14,605/-, pertaining to the district Munger and

that portion of the said award amounting to a sum of Rs.

56,17,210/- for the district of Madhubani as also a sum of

Rs. 14,69,283/- for the district of Bhagalpur is set aside,

being beyond the parameters of the agreement entered

into between the parties dated 06.08.2014 and

06.08.2017. Accordingly, the impugned judgment dated

25.7.2025, passed by the Ld. Principal District Judge,

Patna, to the said effect is also modified/set aside.

(ii). The award of the Ld. Sole Arbitrator at serial no. 2 at

internal page No.23 of the award dated 17.10.2020,

holding the claimant-Respondent entitled to

compensation of Rs. 25,00,000/- is set aside. Accordingly,

the impugned judgment dated 25.7.2025, passed by the

Ld. Principal District Judge, Patna, upholding this portion

of the award is also set aside.

(iii). The award of the Ld. Sole Arbitrator at serial no. 3 at

internal page No.24 of the award dated 17.10.2020

regarding grant of simple interest @ 10 % per annum

from 13.9.2019 till the date of award is set aside, however

award of interest @ 18 % over the awarded amount from

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the date of award till realization of the awarded amount is

upheld. Accordingly, the impugned judgment dated

25.7.2025, passed by the Ld. Principal District Judge,

Patna, upholding this part of the award to the extent of

grant of simple interest @ 10 % per annum from

13.9.2019 till the date of award is also set aside.

61.In view of the aforesaid discussion, the award dated

17.10.2020 read with order dated 13.11.2020, passed by the Ld.

Sole Arbitrator and the impugned judgment dated 25.7.2025,

passed by the Ld. Court of Principal District Judge, Patna are

modified/set aside to the above extent.

62.Accordingly, the present appeal is partly allowed to the

aforesaid extent.

COMMERCIAL APPEAL No. 15 of 2025

63.The present appeal has been filed by the appellants under

Section 13 (1A) of the Act, 2015 read with Section 37 of the

Act, 1996 against the order dated 31.07.2025, passed by the

learned Principal District Judge, Patna (hereinafter referred to as

the “learned PDJ, Patna”) in Execution Case No. 113 of 2021.

64.Shorn of the unnecessary details, it would suffice to state

here that the claimant-respondent had instituted execution

proceedings by filing the aforesaid Execution Case No. 113 of

2021 under Section 36 of the Act, 1996 for execution of Arbitral

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award dated 17.10.2020, passed by the learned Sole Arbitrator,

Patna in Arbitration Case No.4 of 2019. The appellants had filed

rejoinder to the said execution petition raising various

objections and stating therein that the aforesaid award passed by

the learned Sole Arbitrator has been challenged under Section

34 of the Act, 1996 by filing Miscellaneous (Arbitration) Case

No.25 of 2021, hence the Execution Case be listed after disposal

of the said miscellaneous case filed by the appellants.

65.It appears that the learned PDJ, Patna by the impugned

order dated 31.07.2025, passed in Execution Case No. 113 of

2021, had on a petition filed by the claimant-respondent

supported by an affidavit dated 06.05.2025, attached the bank

accounts of the appellants and had directed the Office to issue

warrant of attachment in respect of the bank accounts mentioned

in the said order dated 31.07.2025, in accordance with due

process of law.

66.The Ld. Counsel for the claimant-respondent has further

pointed out that subsequently, the learned PDJ, Patna has passed

an order dated 26.11.2025 in Execution Case No. 113 of 2021

whereby and whereunder the petition filed by the claimant-

respondent herein on 26.11.2025 has been allowed and the

authorities of the ICICI Bank, Frazer Road Branch, Patna have

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been directed to effect transfer of amount of Rs. 3,01,20,867/-

from the bank account standing in the name of the award debtor,

maintained at the said branch to the bank account of the

claimant-respondent maintained at Bank of Baroda, Begusarai

Branch, Bihar, whereafter the matter had been directed to be

listed on 11.12.2025.

67.Thus, it is submitted by the Ld. Counsel for the claimant-

respondent that the present petition has been rendered

infructuous on account of passing of the subsequent order dated

26.11.2025 by the learned PDJ, Patna in Execution Case No.

113 of 2021, which has not yet been challenged by the

appellants.

68.Having regard to the facts and circumstances of the case

and without going into the merits of the present appeal, we find

that since the award dated 17.10.2020 passed by the learned

Arbitrator, in Arbitration Case No.4 of 2019 as also the

judgment dated 25.07.2025 passed by the learned PDJ, Patna in

Misc. (Arbitration) Case No.25 of 2021, under Section 34 of the

Act, 1996, dismissing the appeal filed by the appellants have

now been modified/set aside by the aforesaid judgment being

passed today in the connected Commercial Appeal No.9 of

2025, we are of the view that the present appeal has been

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rendered infructuous, as such the parties would be well advised

to approach the Execution Court, especially in view of the fact

that the execution proceedings are still pending.

69.Accordingly, the present appeal stands disposed of.

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