Punjab-Haryana High Court
M/S Apex International Constructions vs Model Economic Township Ltd on 6 July, 2026
FAO-CARB-53-2024 (O&M) -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
FAO-CARB-53-2024 (O&M)
M/s Apex International Constructions
...Appellant
Vs.
Model Economic Township Ltd.
...Respondent
Reserved on : 07.04.2026
Pronounced on : 06.07.2026
Uploaded on : 20.07.2026
Whether only the operative part of the judgment is
pronounced or the full judgment is pronounced : Full Judgment
Whether there is delay in uploading the judgment : NA
CORAM: HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE ROHIT KAPOOR
Present: Mr. Gurminder Singh, Sr. Advocate with
Mr. Nitish Bansal, Advocate
for the appellant.
Mr. Puneet Bali, Sr. Advocate with
Mr. Avi Kaushik, Advocate
Ms. Ayushi Garg, Advocate
for the respondent.
****
ROHIT KAPOOR , J.
Jurisdiction of this Court under section 37 of the Arbitration and
Conciliation Act, 1996 (for short ‘the Act’) has been invoked by the appellant
impugning the order dated 06.08.2024 passed by the exclusive Commercial
Court, Gurugram, whereby the appellant’s petition under section 34 read with
section 14 of the Act was dismissed. In the said petition, the appellant had
assailed (i) the procedural order no.44 dated 29.03.2022, whereby the arbitral
tribunal declined to adjudicate the appellant’s claim on account of non-payment
of arbitral fee; (ii) the final award dated 22.08.2022, whereby the respondent’s
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counter claim No.3 was partly allowed and damages @ Rs.1000/- per month were
granted for a period of 36 months, i.e. a total sum of Rs.36,000/- was granted to
the respondent; and (iii) against the awarding of costs of Rs.50 lacs in favour of
the respondent.
Factual Matrix
2. The appellant-claimant, which is a sole proprietorship concern, is
engaged in construction of buildings, pre-cast boundary walls, etc. The
respondent is a company incorporated under the provisions of the Companies Act,
1956. The appellant entered into an agreement with the respondent for
construction and installation of pre-cast boundary wall and other related works at
a notified Special Economic Zone (for short ‘SEZ’) in Haryana, pursuant to a
letter of intent dated 31.12.2007, for construction and installation of a pre-cast
boundary wall, measuring approximately 15000 running meters around the
periphery of about 1086 acres of the SEZ, at a fixed contract price of Rs.15
crores. The work order, the special conditions of contract (SCC), general
conditions of contract (GCC), and technical specifications, constituted the
contract. The arbitration clause contained in the contract provided for arbitration
of all disputes arising out of or relating to the contract, including those arising
after its termination. The appellant was required to complete the work within 05
months from the date of the issuance of the LOI, and satisfactory execution
within the stipulated time, was the essence of the contract. Certain corresponding
obligations were cast upon the respondent, including handing over the
construction site and to provide suitable land for establishing the pre-cast yard,
from where the construction activities were to be carried out by the appellant.
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3. It transpires that various disputes cropped up between the parties,
and the appellant inter alia alleged illegal and wrongful termination and non-
payment of running account (RA) bills, while the respondent alleged delay in the
timely execution of the contractual obligations and the continued unauthorized
occupation of about 45 acres of its land by the appellant, even after the
contractual relationship ended.
4. Upon filing of an application under section 11 of the Act, a three-
member Arbitral Tribunal was constituted. The appellant filed its statement of
claim raising 07 claims aggregating to Rs.64,74,27,663.40. The claim of the
appellant was contested by the respondent, who filed its statement of defence
along with 04 counter-claims aggregating an amount of Rs.47,34,11,289/-. The
appellant filed a reply to the counter-claims, wherein the claims raised by the
respondent-counter claimant were disputed.
5. Thereafter, vide procedural order dated 02.09.2019, issues were
framed and with the consent of the parties, arbitral fee for the claim and counter-
claims was fixed separately, and an amount of Rs.50 lacs each, for each of the
Arbitrators, besides the payment of secretarial charges to the presiding arbitrator,
was agreed to be borne equally by the parties. Thus, each party was liable to pay
its share aggregating to Rs.1.55 crores, which was to be paid in three installments
at various stages of the arbitration proceedings. It is not in dispute that the
respondent deposited its share towards both claim and counter-claims and further
upon default of the appellant, deposited the appellant’s share also towards the
counter-claims, aggregating an amount of Rs.2,32,50,000/- (excluding GST). The
appellant against its total liability, as mentioned hereinabove, deposited a sum of
Rs. 61,99,582/- only.
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6. The evidence on the claims and counter-claims stood closed in terms
of the order dated 23.08.2021 and the matter was fixed for oral submissions.
Thereafter, the appellant defaulted in the payment of the second and third
installment of the arbitral fee, despite grant of multiple opportunities for the same.
An undertaking was given by its counsel to deposit the amount by 23.02.2022. On
a plea that the appellant’s representative was stuck in a remote area in Bihar, the
Tribunal as a last indulgence, granted time till 25.03.2022 vide its order dated
25.02.2022. Since the default persisted and the respondent agreed to pay the
appellant’s share of the fee only with respect to the counter-claims, the
appellant’s claims were ‘rejected’ in terms of the order dated 29.03.2022. On
12.07.2022, after a gap of approximately 04 months, the appellant sought recall of
the said order and gave an undertaking to remit the entire outstanding share on or
before 18.07.2022. The tribunal vide order dated 13.07.2022 agreed to consider
the application on 18.07.2022 subject to deposit, however, since the appellant
again failed to make any payment, the recall application was dismissed on
18.07.2022. Thereafter, vide final award dated 22.08.2022, the tribunal partly
allowed the respondent’s counter-claim no.3, to the extent as noticed hereinabove,
dismissed the remaining counter-claims and awarded costs of Rs.50 lacs in favour
of the respondent.
7. The appellant’s petition under section 34 read with section 14 of the
Act, was dismissed by the Additional District Judge-cum-Presiding Judge,
Exclusive Commercial Court, Gurugram vide order dated 06.08.2024, inter alia
on the ground that the arbitral tribunal was competent to decline adjudication of
the claims for non-payment of arbitral fee and that none of the grounds under
section 34 of the Act were made out for interfering in the final award partly
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allowing the counter-claim no.3 of the respondent and awarding costs against the
appellant.
Submissions on behalf of the appellant
8. Mr. Gurminder Singh, learned senior counsel for the appellant,
structured his challenge around a central proposition of law that section 38 of the
Act is an exhaustive code of consequences for non-payment of deposits and
empowers the arbitral tribunal to do only two things; either to suspend the
proceedings, or to terminate them in respect of the unfunded claim or counter-
claims. It is submitted that there is no power vested upon the arbitral tribunal to
‘reject’ the claim on the ground of non-payment, as has been done vide the
impugned order dated 29.03.2022. It is argued that in the instant case, the only
recourse for the Tribunal was to retain lien on the award for unpaid costs under
section 39 of the Act.
9. Learned senior counsel has drawn our attention to various provisions
of the Act and has contended that there is a distinction between rejection,
termination of mandate, and termination of proceedings, for which different
remedies are available. Submission is that in view of the clear statutory scheme,
an order for termination of proceedings can never in law be declared to be
interchangeable with an award rejecting the claims, as both are inherently
different jurisdictions and have distinct remedies in law. The termination of
proceedings under section 25(a) and section 38 of the Act can be challenged
before the court and remedied during the subsistence of the mandate of the
tribunal or even thereafter, by substitution of the tribunal, once the mandate has
expired or it is otherwise impossible to reconstitute the same tribunal. The intent
of the Act is to finally get the claims under the arbitral tribunal adjudicated, as the
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parties had consented to the said procedure under the contract. The rejection of
the claims and decision of the counter-claims results in termination of the
mandate, and as in the instant case, since one of the panel arbitrators has expired,
the appellant prayed for referring the disputes to an appropriate tribunal for
adjudication. It is contended that denial of such opportunity would go against the
objects and reasons of the UNICITRAL model law.
10. It is further contended that despite the fact that the material available
on record clearly established that the appellant could not deposit his share of fees
for bona fide reasons, yet the tribunal instead of suspending or terminating the
proceedings, rejected the claims by way of an interim award dated 29.03.2022. It
is submitted that such an order was passed without following the procedure as
envisaged under section 38(3) of the Act. The only remedy left with the appellant
in the circumstances, was to file a section 34 application on the ground that such
rejection was patently illegal and was against the fundamental policy of Indian
law. It is urged that the learned Commercial Court in the order impugned has
although held that the arbitral tribunal was competent to terminate the arbitral
proceedings for non-payment, however, it has returned an illegal finding that the
rejection of the claims amounts to termination of arbitral proceedings. It is further
submitted that the Commercial Court has not recorded any reasoning with regard
to the statutory powers of the Arbitral Tribunal, and therefore, the same requires
to be set aside by this Court in exercise of its powers under section 37 of the Act.
It has further been argued that once the majority of the fee had already been paid
and the arbitration proceedings were at the final stage, the tribunal should have
taken a more fair and reasonable approach. It is urged that once the majority of
the counter-claims had been rejected and only a token amount was granted under
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counter-claim No.3, awarding a huge amount of Rs.50 lacs as costs by the
Tribunal, was totally unwarranted. Lastly, it is argued that the learned Special
Commercial Court has wrongly treated the ‘rejection’ of claims as ‘termination’,
which tantamounts to modification/reinterpretation of the award, which is
impermissible.
11. Reliance has been placed upon the judgments in Harshbir Singh
Pannu vs. Jaswinder Singh1, Wianxx Impex Pvt. Ltd. and others vs. Evershine
Buildwell Pvt. Ltd.2, Gayatri Balaswami vs. ISG Novasoft Technologies Ltd.3,
McDermott International Inc. vs. Burn Standard Company and others4,
National Highways Authority of India vs. M. Hakim and another5, in support of
the arguments raised.
Submissions on behalf of the respondent
12. Per contra, Shri Puneet Bali, learned senior counsel for the
respondent has vehemently opposed the arguments raised by the appellant.
Learned senior counsel has argued that the order dated 29.03.2022 is, in
substance, a termination of the proceedings qua the appellant’s claims, under the
second proviso to section 38(2) of the Act. It is contended that the mere use of the
word ‘rejected’ does not alter its legal character, which must be gathered from the
context and the prior directions, including the order dated 25.02.2022, which
would clearly show that the proceedings qua the appellant’s claims were
terminated for non-payment of arbitral fee. It is further submitted that even if it is
1 2025 SCC OnLine SC 2742
2
2019 SCC OnLine DEL 6655
3 2025 INSC 605
4 (2006) 11 SCC 181
5
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assumed that the use of the expression ‘rejected’ was not the most precise
terminology, the legal effect of the order remains termination of proceedings.
Recognition of the true legal character of the order does not amount to
modification of the order, but merely reflects its correct legal consequence.
Submission is that modification of award would, in essence, mean alteration of
the result of the award. In the instant matter, the result of the award does not get
altered and it still remains an award of termination under section 38 of the Act for
non-payment of its share for the claims. It is argued that such a plea has been
raised for the first time, and before the commercial court, the appellant itself used
the expressions ‘rejection’ and ‘termination’ interchangeably, and invoked section
34 read with section 14 of the Act, which is the remedy referable to a termination.
Secondly, by referring to the decision in Harshbir Singh (supra), it is argued that
the termination occasioned by the claimant’s own default is an order within
section 32(2) and after having attained finality, it cannot be reopened. Arbitration
proceeds on the principle of procedural self-responsibility and permitting a
defaulting party to revive the reference would encourage indiscipline, delay and
‘tribunal hopping’. It is further submitted that the directions in paragraphs 425 to
432 of the decision in Harshbir Singh (supra), which are being relied upon by the
appellant, were issued under Article 142 of the Constitution on the peculiar facts
of that case where the arbitration had remained a non-starter.
13. It is further contended that the appellant’s explanations for default
had shifted at every stage, from its representative being stranded in Bihar (before
the Tribunal) to counsel’s default and want of funds (before the Commercial
Court) to alleged miscommunication by its advocates (in the instant appeal),
betraying want of bonafides and rather clearly reflects a malafide intent to
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engineer substitution of the tribunal. Learned senior counsel for the respondent
has further pointed out that the assertion of the appellant that majority of the fee
i.e. 83%, already stood paid, is factually incorrect. It is pointed out that the
Arbitral fee determined by the Arbitral Tribunal was Rs.75 lacs towards the
claims and Rs.75 lacs towards the counter-claims, along with Rs.7.5 lacs towards
secretarial charges. Thus, each party was required to pay an amount aggregating
Rs.1.55 crores towards the claims and counter-claims. Against the same,
admittedly the appellant paid only Rs.61,99,582/-, while the respondent deposited
a total sum of Rs.2,32,50,000/- (excluding GST) towards its share for fee with
respect to claims and counter-claims as well as the appellant’s share in respect of
the counter-claims. It is pointed out that the appellant never expressed that any
claim to be passed in his favour would be kept as a lien before the Arbitral
Tribunal, nor raised a plea that he is financially incapable to pay the fee. It is
urged that section 38(3) of the Act contemplates an accounting of only the
unexpended deposits and its alleged breach cannot invalidate the termination, and
therefore the contention of the appellant in this regard is stated to be
misconceived and contrary to the scheme of the Act.
14. On the merits of the award, it is submitted that the findings of the
tribunal on counter-claim No.3 are correct, well-reasoned and rest on evidence. It
is further argued that the awarding of costs of Rs.50 lacs is fully sustainable under
section 31A of the Act. The respondent has borne a huge financial burden
including arbitral fee of Rs.2,32,50,000/- and overall expenses of Rs.6.31 crores
as recorded in the award itself. Submission is that the costs awarded are in no
manner disproportionate or unjustified. Learned senior counsel seeks dismissal of
the appeal by arguing that the grounds raised are entirely factual in nature and is
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an attempt to seek reappreciation of evidence, which is beyond the scope of
section 37 of the Act.
15. Reliance has been placed upon the judgments in Goan Real Estate
and Construction Ltd. And another vs. Union of India6, P. S. Sathappan (Dead)
by LRs vs. Andhra Bank Ltd. And others7, Rehmat Ali Baig vs. Minocher M.
Deboo8, and Gammon India Ltd. Vs. Trenchless Engineering Services (P) Ltd.9.
Points for determination
16. We have heard learned counsel for the parties and have gone through
the material available on record with their able assistance.
17. Upon consideration of the rival submissions, the following points
arise for consideration:
i. Whether the order dated 29.03.2022 is a ‘rejection’ of the claims in
the nature of an interim award, or a ‘termination’ of the proceedings
qua the claims under the second proviso to section 38(2) of the Act?
ii. Whether the cessation of proceedings qua the appellant’s claims for
non-payment of arbitral fee is vitiated in law, and whether the
appellant is entitled to a fresh adjudication of its claims before a
reconstituted tribunal?
iii. Whether the award dated 22.08.2022, insofar as it partly allows
counter-claim no.3 and awards costs of Rs.50 lacs, is open to
interference under sections 34 and 37 of the Act?
6 (2010) 5 SCC 388 7 (2004) 11 SCC 672 8 2012 SCC OnlineBom 914 9 MOHIT GOYAL 2013 SCC OnLineBom 1720 2026.07.20 21:34 I attest to the accuracy and integrity of this document FAO-CARB-53-2024 (O&M) -11- Statutory provisions
18. Since much emphasis has been laid on the distinction between
rejection, termination of mandate, and termination of proceedings under the
statutory scheme of the Act, it is apposite to examine the applicable provisions
thereof. Section 2(c) defines ‘arbitral award’, which includes an interim award.
Section 14 of the Act deals with the termination of the mandate of an Arbitrator
in certain situations, and reads as under:-
“14. Failure or impossibility to act.
(1) The mandate of an arbitrator shall terminate and he shall be substituted by another
arbitrator, if–
(a) he becomes de jure or de facto unable to perform his functions or for other reasons
fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of
sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court
to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from
his office or a party agrees to the termination of the mandate of an arbitrator, it shall
not imply acceptance of the validity of any ground referred to in this section or sub-
section (3) of section 12.”
18.1 Section 15 of the Act enumerates the additional circumstances under
which the mandate of an arbitrator shall terminate, and reads as below:-
“15. Termination of mandate and substitution of arbitrator.–
(1) In addition to the circumstances referred to in section 13 or section 14,the mandate
of an arbitrator shall terminate–
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be
appointed according to the rules that were applicable to the appointment of the
arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-
section (2), any hearings previously held maybe repeated at the discretion of the
arbitral tribunal.
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(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal
made prior to the replacement of an arbitrator under this section shall not be invalid
solely because there has been a change in the composition of the arbitral tribunal.”
18.2 Section 25(a) of the Act, is also of relevance:-
“25. Default of a party.–Unless otherwise agreed by the parties, where, without
showing sufficient cause,–
(a) the claimant fails to communicate his statement of claim in accordance with sub-
section (1) of section 23, the arbitral tribunal shall terminate the proceedings;”
18.3 Section 31 of the Act pertains to the form and contents of an arbitral
award and sub-section (6) thereof provides that the arbitral tribunal may, at any
time during the arbitral proceedings, make an interim arbitral award on any matter
with respect to which it may make a final arbitral award. Sub-section (8) of
Section 31 reads as under:-
“31. Form and contents of arbitral award.–
(1) to (7) xxx
(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with
section 31A.]Explanation.–For the purpose of clause (a), “costs” means reasonable costs relating
to–
(i) the fees and expenses of the arbitrators and witnesses,
(ii) legal fees and expenses,
(iii) any administration fees of the institution supervising the arbitration, and
(iv) any other expenses incurred in connection with the arbitral proceedings and the
arbitral award.”
18.4 Section 32 of the Act pertains to termination of proceedings:-
“32. Termination of proceedings.–(1) The arbitral proceedings shall be terminated by
the final arbitral award or by an order of the arbitral tribunal under sub-section (2).(2) The arbitral tribunal shall issue an order for the termination of the arbitral
proceedings where–
(a) the claimant withdraws his claim, unless the respondent objects to the order and the
arbitral tribunal recognises a legitimate interest on his part in obtaining a final
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(b) the parties agree on the termination of the proceedings, or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other
reason become unnecessary or impossible.
(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral
tribunal shall terminate with the termination of the arbitral proceedings.”
18.5 The procedure for correction of any kind of computation, clerical or
typographical errors in the award, is laid down under section 33 of the Act. The
same reads as under:-
“33. Correction and interpretation of award; additional award.–
(1) Within thirty days from the receipt of the arbitral award, unless another period of
time has been agreed upon by the parties–
(a) a party, with notice to the other party, may request the arbitral tribunal to correct
any computation errors, any clerical or typographical errors or any other errors of a
similar nature occurring in the award;
(b) if so agreed by the parties, a party, with notice to the other party, may request the
arbitral tribunal to give an interpretation of a specific point or part of the award.
(2) If the arbitral tribunal considers the request made under sub-section (1) to be
justified, it shall make the correction or give the interpretation within thirty days from
the receipt of the request and the interpretation shall form part of the arbitral award.
(3) The arbitral tribunal may correct any error of the type referred to in clause (a) of
sub-section (1), on its own initiative, within thirty days from the date of the arbitral
award.
(4) Unless otherwise agreed by the parties, a party with notice to the other party, may
request, within thirty days from the receipt of the arbitral award, the arbitral tribunal to
make an additional arbitral award as to claims presented in the arbitral proceedings
but omitted from the arbitral award.
(5) If the arbitral tribunal considers the request made under sub-section (4) to be
justified, it shall make the additional arbitral award within sixty days from the receipt
of such request.
(6) The arbitral tribunal may extend, if necessary, the period of time within which it
shall make a correction, give an interpretation or make an additional arbitral award
under sub-section (2) or sub-section (5).
(7) Section 31 shall apply to a correction or interpretation of the arbitral award or to
an additional arbitral award made under this section.”
18.6 Chapter VII of the Act provides for recourse against an arbitral
award on the exhaustive grounds set out under Section 34, which reads as under:-
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“34. Application for setting aside arbitral award.–
(1) Recourse to a Court against an arbitral award may be made only by an application
for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if–
(a) the party making the application establishes on the basis of the record of the
arbitral tribunal that]–
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law for the time being in force;
or
(iii) the party making the application was not given proper notice of the appointment of
an arbitrator or of the arbitral proceedings or was otherwise unable to present his
case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration: Provided that, if the decisions on matters
submitted to arbitration can be separated from those not so submitted, only that part of
the arbitral award which contains decisions on matters not submitted to arbitration may
be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in conflict
with a provision of this Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
(b) the Court finds that–
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the
law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1.–For the avoidance of any doubt, it is clarified that an award is in
conflict with the public policy of India, only if,–
(i) the making of the award was induced or affected by fraud or corruption or was
in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.–For the avoidance of doubt, the test as to whether there is a
contravention with the fundamental policy of Indian law shall not entail a review on the
merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial
arbitrations, may also be set aside by the Court, if the Court finds that the award is
vitiated by patent illegality appearing on the face of the award:
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Provided that an award shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.]
(3) to (6) xxx.”
18.7 An appeal is provided under section 37 to the competent Court, inter
alia against an order passed under section 34 setting aside or refusing to set aside
an arbitral award. Two provisions which are central to the core dispute involved
in the present matter, are sections 38 and 39 of the Act, which are reproduced
hereunder:-
“38. Deposits.–
(1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as
the case may be, as an advance for the costs referred to in sub-section (8) of section 31,
which it expects will be incurred in respect of the claim submitted to it:
Provided that where, apart from the claim, a counter-claim has been submitted to the
arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.(2) The deposit referred to in sub-section (1) shall be payable in equal shares by the
parties:
Provided that where one party fails to pay his share of the deposit, the other party may
pay that share:
Provided further that where the other party also does not pay the aforesaid share in
respect of the claim or the counter-claim, the arbitral tribunal may suspend or
terminate the arbitral proceedings in respect of such claim or counter-claim, as the
case may be.
(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an
accounting to the parties of the deposits received and shall return any unexpended
balance to the party or parties, as the case may be.
39. Lien on arbitral award and deposits as to costs.–
(1) Subject to the provisions of sub-section (2) and to any provision to the contrary in
the arbitration agreement, the arbitral tribunal shall have a lien on the arbitral award
for any unpaid costs of the arbitration.
(2) If in any case an arbitral tribunal refuses to deliver its award except on payment of
the costs demanded by it, the Court may, on an application in this behalf, order that the
arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court
by the applicant of the costs demanded, and shall, after such inquiry, if any, as it thinks
fit, further order that out of the money so paid into Court there shall be paid to the
arbitral tribunal by way of costs such sum as the Court may consider reasonable and
that the balance of the money, if any, shall be refunded to the applicant.
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(3) An application under sub-section (2) may be made by any party unless the fees
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and the arbitral tribunal shall be entitled to appear and be heard on any such
application.
(4) The Court may make such orders as it thinks fit respecting the costs of the
arbitration where any question arises respecting such costs and the arbitral award
contains no sufficient provision concerning them.”
Analysis, Discussion and Conclusion
Point No.(i)
19. The fulcrum of the appellant’s arguments on this issue rests on the
word ‘rejected’ as used in the order dated 29.03.2022. The legal proposition so
raised is that section 38(2) permits only suspension or termination in the case of
non-payment of deposits, while the Tribunal instead ‘rejected’ the claims.
Rejection is an adjudication and hence is an interim award. The unreasoned
adjudication of claims, rendered solely for non-payment of fee, is ultra vires and
patently illegal, and reading the rejection as a termination, is an impermissible
modification. Although the arguments raised in this regard appear to be attractive
in the first blush, however, what will have to be taken into consideration is the
settled proposition that it is the substance of an order, and not its label that
determines its legal character. The Hon’ble Supreme Court in P.S. Sathappan
(supra) and Goan Real Estate (supra) held that an order of the Court must be
construed having regard to the context in which the same was passed, and for the
said purpose, the judgment is required to be read in its entirety. A judgment
cannot be read as a statute. Its construction should be made in the light of the
factual matrix involved and the context wherein the observations were made,
which should receive consideration in the light of the questions raised. It is
therefore well settled that a judgment or an order must be construed in the light of
the factual matrix and context in which it came to be passed.
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20. In the instant case, undisputedly the order dated 29.03.2022 was not
passed upon any consideration of merits of the case. No issue was decided. No
evidence was appraised. No finding on any claim was returned. It was passed in
terms of the order dated 25.02.2022, wherein a last indulgence was granted for
deposit of the outstanding share of arbitral fee by the appellant. What the Tribunal
did by virtue of the order dated 29.03.2022 was in essence the precise procedural
consequence of which the appellant stood forewarned, i.e. a cessation of the
proceedings in respect of its unfunded claims. This, in our considered opinion,
would in law and in substance have to be construed as a ‘termination’ of the
arbitral proceedings qua the claims under the second proviso to section 38(2) of
the Act. The use of the word ‘rejected’, employed in a procedural order, does not
change the procedural cessation into an adjudication on the merits. We find
ourselves to be in agreement with the approach of the Commercial Court in this
regard, keeping in view the peculiar facts and circumstances of the instant case, as
it is in consonance with the actual action taken by the Tribunal, rather than the
phraseology used by it.
21. The argument of the learned counsel for the appellant that such a
reading involves modification or reinterpretation of an award, cannot be
countenanced. The prohibition on modification protects the adjudicatory content
of awards from judicial rewriting, as held in Gayatri Balaswami (supra) and M.
Hakim (supra). However, it does not put any fetters upon the power of a Court to
examine the actual context in which a word/phrase has been used in the arbitral
award. The appellant’s own conduct places the matter beyond argument. Before
the Commercial Court, the appellant used ‘rejection’ and ‘termination’
interchangeably throughout its petition. More significantly, it invoked section 34
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FAO-CARB-53-2024 (O&M) -18-
read with section 14 of the Act, which by a plain reading of the provision and by
appellant’s own admission, is the remedy referable to a termination, and not to an
award. Having consciously, treated the order dated 29.03.2022 as a termination,
and having pursued the remedy for the same, first by way of recall before the
Tribunal and then under section 14 before the Commercial Court, the appellant
cannot for the first time in the present appeal, be permitted to raise the ingenuous
plea that the said order was an ‘interim award of rejection’. Further, the recourse
taken by the appellant, reveals an inherent dichotomy. If the order dated
29.03.2022 is a termination, as we hold it in substance to be, then it was not open
to challenge under section 34 at all, the remedies being recall application and
thereafter an application under section 14(2) of the Act. The appellant availed of
both channels. Its recall application failed for yet another default, and its section
14 challenge was considered and rejected by the Commercial Court. If on the
other hand the order were an interim award amenable to section 34, the challenge
would still fail on merits, for the reasons set out under point (ii) below. The
cessation of the unfunded claims after numerous opportunities, was neither
perverse, nor contrary to the fundamental policy of Indian law, nor patently
illegal, but was the very consequence which the Statute and the Tribunal’s
unchallenged procedure prescribe, of which the appellant had explicit prior
knowledge. Point No.(i) is answered accordingly.
Point No.(ii)
22. While examining the legality of the cessation and the prayer for fresh
adjudication, the same will have to be tested on the anvil of the statutory
provisions contained in the Act, in the first instance. Although there is no quarrel
with the legal proposition that the nature of remedy available against a rejection
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of a claim, which is a decision on its merits, would lie under section 34, while for
termination of proceedings, which is a procedural suspension/termination, the
remedy would be under section 14. However, careful perusal of section 38 would
show that a party which invokes arbitration must diligently prosecute it and
defray the deposits referable to its own claims. Sub-section (1) empowers the
Tribunal to fix deposits in equal shares. The proviso to sub-section (2) permits
one party to pay the share of the other and the second proviso provides that where
such payment is not made, the Tribunal may suspend or terminate the arbitral
proceedings in respect of such claim or counter-claim, as the case may be. Section
39, in addition, provides for a lien on the award for unpaid costs. However, the
statutory scheme does not envisage that the powers of the arbitrator are to be
restricted only to a claim of lien under section 39. The argument in this regard is
bereft of any merit. It is not an unequal treatment as prohibited under section 18,
rather the provisions of section 38(2) were acted upon according to its tenor, as
held by the Bombay High Court in Rehmat Ali Baig (supra).
23. Although, it was held in Wianxx Impex Pvt. Ltd. (supra) that a
compassionate view should be taken where the majority of the fee stands paid and
the proceedings are at the final stage, however, the observations made therein
were fact-specific, wherein the directors of the petitioners therein were
incapacitated to make the payment being in judicial custody. The facts involved
in the instant matter are quite distinct. The appellant had paid only an amount of
Rs.62 lacs against a liability of Rs.1.55 crores. It may be noticed that the Tribunal
did not act in haste and extended numerous opportunities to the appellant to make
the requisite payment. It even entertained a recall application which was upon the
condition of deposit as volunteered by the appellant itself, which it once again
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failed to meet. We find force in the contention of the respondent that the
appellant’s explanations shifted from forum to forum. In such circumstances, it
cannot be said that the action of the Tribunal was harsh or disproportionate.
24. Coming to the prayer for a fresh adjudication of the claims before a
reconstituted Tribunal, we are of the view that the same cannot be entertained on
account of the fact that once the termination has been occasioned due to the
appellant’s default, it brings the arbitral reference to an end. Permitting the
defaulting party thereafter to revive or reinitiate the arbitration would defeat the
scheme of the Act, and encourage indiscipline, delay and tribunal hopping as held
by the Hon’ble Supreme Court in Harshbir Singh Pannu (supra). The
observations made by the Supreme Court in paragraphs 255 to 261 are relevant
and are extracted hereunder:-
“255. Likewise, once the proceedings before the arbitral tribunal, come to an
end, either by way of a final award or an order for termination of the proceedings in the
situations envisaged under the Act, 1996, the reference also comes to an end, and
attains finality.
256. We say so, because if the claimant is allowed a fresh arbitration, it would
reduce the entire mechanism into a farce. It would lead to a situation where the
claimant would have no incentive to pursue the proceedings with diligence.
257. Arbitration is built on procedural self-responsibility. Its edifice is the idea
that each party must advance its case diligently, without dependence on judicial
paternalism. Section(s) 25 and 38 of the Act, 1996 respectively, insofar as they
empower the termination of proceedings on account of default by a party, crystalize this
principle.
258. The consequence of termination is not a trivial procedural formality. It has
been enshrined to penalise inertia and recalcitrance of the parties.
259. To permit a party who by its own contumacious conduct allowed the
proceedings to be terminated in the first instance, to again set the entire mechanism
under the Act, 1996 in motion before another set of arbitrators, would defeat the
procedural self-responsibility that the parties carry with themselves into arbitration. It
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FAO-CARB-53-2024 (O&M) -21-would give a license to the parties to proceed carelessly, miss deadlines, cause
disruption, and if the proceedings are terminated then simply restart them once again.
260. Arbitration is not infinite. Arbitrator availability is scarce; administrative
capacity at institutions is finite; the arbitral process itself is resource-sensitive. A
claimant who can repeatedly initiate proceedings after default squanders the finite
capital of the arbitral system.
261. Allowing such default also runs the risk of opening the floodgates of
‘Tribunal Hopping’. If a party senses the possibility of an unfavourable outcome, it can
simply let the proceedings get terminated by his wilful conduct, and then re-initiate
arbitration before another tribunal.”
25. Although the appellant has placed reliance upon the directions
contained in paragraphs 425 to 432 of the said decision, however, on a careful
perusal, the same are found to have been issued on the peculiar facts of that case,
where an arbitration had remained a non-starter and there was also challenge to
the validity of the Fourth Schedule of the Act and the determination of fees by the
arbitrator in lieu thereof. The same would have no bearing in the facts and
circumstances of the instant case, where the arbitral proceedings had advanced to
the stage of final hearing and the claims of the appellant were not adjudicated on
account of his persistent default. The further plea of the appellant regarding the
non-rendition of accounts, as envisaged under section 38(3), is equally without
substance. Having carefully perused the provision, we find that the same
contemplates an accounting and refund of unexpended deposits. It neither
mandates a refund of fee for services actually rendered, nor makes the validity of
a termination contingent upon the accounting. It is not the appellant’s case that
there was any ambiguity regarding the accounting or that it was entitled for any
kind of refund. Be that as it may, the matter has to be examined from another
angle. The appellant on one hand has assailed the order dated 29.03.2022 on the
ground that his claims have been ‘rejected’ by way of an interim award, rather
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than taking recourse to the procedure set out under section 38 of the Act, while
simultaneously, it raises a plea of failure of rendition of accounts under section
38(3). Such inherently contradictory pleas cannot be appreciated, as the appellant
cannot be permitted to approbate and reprobate at the same time. Point No.(ii) is
thus answered against the appellant.
Point No.(iii)
26. The contentions raised to assail the award on counter-claim No.3 as
well as awarding of costs, are also found to be bereft of merit. The Tribunal held
the counter-claims within limitation by applying Article 66 of the Limitation Act,
1963, giving fact-specific reasoning and any adjudication in this regard would
require reappreciation of evidence, which is impermissible at this juncture.
Similarly, the assertion that the award of costs of Rs.50 lacs against substantive
relief of Rs.36,000/- is exorbitant, is based upon a wrong premise. Costs under
section 31A are not a percentage of the decretal sum. They are awarded by the
Tribunal after assessing various considerations as enumerated under sub-section
(3), including the conduct of the parties, partial success, reasonableness of the
claims, and the manner of their prosecution, as held by the Hon’ble Supreme
Court in ONGC Limited vs. Afcons Gunanusa JV10. The purpose of awarding
costs is to indemnify the winning party. The ‘loser’ pays principal apportions the
costs between the parties through the costs following the event ‘CFE method’. In
the instant case, the respondent deposited not only its share of the arbitral fee, but
also the appellant’s share on the counter-claims, aggregating to Rs.2,32,50,000/-,
and the award also records the respondent’s expenses in pursuing and defending
the proceedings at Rs.6.31 crores. The serial defaults which are reflective of the
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appellant’s conduct, would also have to be taken into consideration, while
awarding costs. Even otherwise, the restricted scope of interference by this Court
in exercise of its jurisdiction under section 37 of the Act, cannot be underscored.
The law in this regard is well settled. Point No.(iii) is answered accordingly.
27. In view of the foregoing discussion, we are of the considered opinion
that the order dated 29.03.2022 was, in substance, a termination of the arbitral
proceedings qua the appellant’s unfunded claims under the second proviso to
section 38(2) of the Act. The same was a consequence which is statutorily
prescribed, of which the appellant was repeatedly forewarned, and was brought
about entirely by its own persistent default. It was not an adjudication amenable
to the grounds of section 34, and having attained finality upon the failure of the
recall application, it does not merit revival. The award dated 22.08.2022, on
counter-claim No.3 and the costs of Rs.50 lacs is based upon plausible findings of
facts and is a permissible view, which cannot be interfered with, within the
limited scope of interference under section 37 of the Act.
28. Consequently, the present appeal must fail and is dismissed
accordingly. The order dated 06.08.2024 passed by the Commercial Court at
Gurugram is upheld. The parties are, however, left to bear their own costs.
29. Pending applications, if any, shall stand disposed of accordingly.
(ASHWANI KUMAR MISHRA) (ROHIT KAPOOR)
ACTING CHIEF JUSTICE JUDGE
06.07.2026
Mohit goyal
Whether speaking/reasoned : Yes/No
Whether Reportable : Yes/No
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