Orissa High Court
Commissioner-Cum-Secretary vs Syed Mubarak on 30 January, 2026
Author: Sanjeeb K Panigrahi
Bench: Sanjeeb K Panigrahi
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Location: ORISSA HIGH COURT, CUTTACK
Date: 09-Feb-2026 19:48:34
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.12 & 13 of 2014
(In the matters of Appeals under Section 37 of the Arbitration and
Conciliation Act, 1996)
(In ARBA No.12 of 2014)
Commissioner-cum-Secretary, .... Appellant (s)
Department of Water Resources,
Government of Odisha & Ors.
-versus-
Syed Mubarak .... Respondent (s)
Advocates appeared in the case through Hybrid Mode:
For Appellant (s) : Mr. Debasish Nayak, AGA
For Respondent (s) : Ms. Pami Rath, Sr. Adv.
Along with associate.
(In ARBA No.13 of 2014)
State of Odisha & Ors. .... Appellant (s)
-versus-
Syed Mubarak .... Respondent (s)
Advocates appeared in the case through Hybrid Mode:
For Appellant (s) : Mr. Debasish Nayak, AGA
For Respondent (s) : Ms. Pami Rath, Sr. Adv.
Along with associate.
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CORAM:
DR. JUSTICE SANJEEB K PANIGRAHI
DATE OF HEARING:-22.12.2025
DATE OF JUDGMENT:-30.01.2026
Dr. Sanjeeb K Panigrahi, J.
1. The present Appeals have been preferred seeking setting aside of
judgment dated 23.9.2013, passed by the Ld. District Judge, Ganjam
in ARBP No. 1 of 2005 and judgment dated 16.9.2013 passed by the
Ld. District Judge, Ganjam in ARBP No.3 of 2005 whereby, the Ld.
District Judge has dismissed both the appeals.
2. Since both appeals arise out of arbitral awards relating to contracts
executed by the same parties under the Baghua Irrigation Project and
involve common questions concerning the scope of interference
under Sections 34 and 37 of the Arbitration and Conciliation Act,
1996, they are taken up together and are being disposed of by this
common judgment..
I. FACTUAL MATRIX OF THE CASE:
3. In ARBA 12 of 2014
a. In this appeal, the dispute arises out of Agreement No.1
NCB/2001-2002 executed on 27.7.2001 between the Department of
Water Resources, Government of Odisha and the respondent, a
Super Class Contractor, for excavation and construction of
structures of minors and sub-minors off-taking from Baghua
Right Branch Canal from RD 13.15 km to 23.425 km and Baghua
Right Distributary from RD 23.425 km to about 30.375 km,
described as Package No.9. The contract price was Rs.2,17,96,172/-
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. The date of commencement was 27.7.2001 and the stipulated
date of completion was 26.7.2002.
b. According to the respondent, during execution of the work, large
portions of the site were not made available. It is stated that
initially only about 3.806 km of the site was available, out of
which portions were private land, scattered patches, and reserve
forest land. It is further stated that additional stretches were later
made available but remained fragmented and obstructed by legal
and physical constraints, and that objections were raised by
private landowners in certain portions. The respondent claims
that manpower and machinery had been mobilised but remained
idle due to non-availability of continuous workable site.
c. The departmental authorities, on the other hand, treated the delay
as attributable to the contractor and proceeded to foreclose the
contract. Communications regarding foreclosure and imposition
of penalty were issued around 30.10.2003 and 1.11.2003. A
proposal for closure of the contract with penalty was approved by
the Government and communicated to the Chief Engineer on
4.12.2003. The bank guarantee furnished by the contractor was
encashed and final bills were not released according to the
respondent.
d. Disputes having arisen, correspondence was exchanged regarding
appointment of arbitrator. By letter dated 6.2.2004, the Chief
Engineer and Basin Manager appointed Sri Naba Krushna
Mohapatra as sole arbitrator. The arbitral proceedings were
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conducted, during which the claimant filed statement of claims
and the respondents filed counter statement, followed by
rejoinder.
e. The claimant raised multiple claims including claim towards final
bill and deductions, claim towards idle man and machinery, claim
towards payment on account of revised minimum wages, claim
for refund of encashed bank guarantee, claim towards utilisation
of mobilisation advance, and claim for interest on blocked
amounts and future interest.
f. The sole arbitrator passed the award on 6.12.2004, allowing the
claims towards final bill, idle establishment, revised minimum
wages, refund of bank guarantee, mobilisation advance, and
interest on blocked amount, and also awarded future interest at
the rate of 12% per annum from the date of award.
g. Aggrieved by the award, the State filed an application under
Section 34 of the Arbitration and Conciliation Act, 1996 before the
Ld. District Judge, Ganjam, Berhampur on 2.3.2005, registered as
Arbitration Petition No.01 of 2005, seeking setting aside of the
arbitral award.
h. After hearing the parties, the Ld. District Judge, Ganjam,
Berhampur, by judgment dated 23.9.2013, dismissed the
application under Section 34 and upheld the arbitral award.
i. Challenging the said judgment dated 23.9.2013, the appellants
filed the present appeal under Section 37 of the Arbitration and
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Conciliation Act, 1996 before this Court in the year 2014, which
was registered as ARBA No.12 of 2014.
4. In ARBA 13 of 2014
i. In this appeal, the respondent was awarded the work under
Agreement No. NCB-1 of 2002-2003, Package No. 8A, of Baghua
Irrigation Division No. 1, Matajhari, Ganjam, for excavation of
minors and allied works, for a contract price of Rs. 1,00,88,605/-.
The stipulated date of commencement was 5.6.2002 and the
stipulated date of completion was 4.2.2003. Extension of time was
granted up to 4.8.2003. The work was completed within the
extended period and detailed final measurements were recorded
by about 3.8.2003.
ii. The respondent submitted running account bills during
execution of work. The 4th R/A bill and the 5th R/A bill along
with the final bill aggregated to Rs. 69,52,145/-. After statutory
deductions, the net payable amount was assessed at Rs.
63,51,867/-. The Executive Engineer prepared the 4th R/A bill
around 1.7.2003, but payment was not released on the ground
that higher authorities had issued instructions not to make
payment. The appellants stated that amounts were proposed to
be adjusted towards alleged excess payments and dues relating
to other packages executed by the respondent in different
divisions.
iii. On 15.3.2003, the respondent addressed a letter to the Chief
Engineer requesting that no recovery be made from bills of other
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works. On 30.8.2003, the respondent filed an application under
Section 9 of the Arbitration and Conciliation Act, 1996 before the
Ld. District Judge, Ganjam-Gajapati, Berhampur, seeking
protection against recovery, by which time an amount of about
Rs. 22,26,546/- had already been recovered. Vide order dated
30.8.2003, the Ld. District Judge directed that no further recovery
be made from other bills of the respondent till the dispute was
decided in arbitration. Despite this, the remaining amount from
the 4th R/A bill and the final bill was not released.
iv. The respondent accordingly issued a request on 10.1.2004 for
appointment of a sole arbitrator. On 6.2.2004, the Chief Engineer
appointed a sole arbitrator, namely a retired Chief Engineer Sri
N.C. Rout, in terms of the dispute resolution clause. Both parties
participated in the arbitral proceedings, filed statements of claim
and counter statements, produced documents, and addressed
arguments. The hearing concluded with the consent of both
sides.
v. Before the arbitrator, the respondent raised multiple claims.
Claim No. 1 related to non-payment of the 4th R/A bill, 5th R/A
bill and final bill, with net payable assessed at Rs. 63,51,867/-.
Claim No. 2 related to reimbursement of additional expenditure
incurred due to enhancement of minimum wages from Rs. 40/- to
Rs. 50/- with effect from 01.01.2002, based on Government of
Odisha notifications and departmental formula for labour
component. Claim No. 3 related to release of performance
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security amounting to Rs. 5,04,430/- after expiry of defect liability
period. Claim No. 4 related to refund of retention money of Rs.
1,62,177/- deducted from earlier R/A bills. Claim No. 5 related to
interest on delayed payment of bills in terms of Clause 43 of the
General Conditions of Contract.
vi. By award dated 5.3.2005, the learned arbitrator allowed Claim
No. 1 for Rs. 63,51,867/-, Claim No. 2 for Rs. 7,01,169.56, directed
release of performance security of Rs. 5,04,430/- under Claim No.
3 with interest, allowed refund of retention money of Rs.
1,62,177/- under Claim No. 4 with interest of Rs. 18,109/-, and
allowed interest on delayed payment of principal amount under
Claim No. 5 quantified at Rs. 11,43,336/-. The total monetary
award aggregated to Rs. 88,81,089.56, along with direction for
release of the bank guarantee towards performance security.
vii. The appellants filed an application under Section 34 of the Act on
20.6.2005 before the Ld. District Judge, challenging the award on
the grounds including alleged improper constitution of the
tribunal, deletion of price escalation clause, adjustment of dues
from other contracts, and alleged non-compliance with
contractual dispute procedure. By judgment dated 16.9.2013, the
Ld. District Judge dismissed the Section 34 application and
upheld the arbitral award. The present appeal under Section 37
arises from the said judgment dated 16.09.2013 of the Ld. District
Judge.
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5. This Court shall now endeavour to summarise the contentions of the
Parties and the broad grounds that have been raised.
II. APPELLANTS’ SUBMISSIONS:
6. In ARBA No. 12 of 2014, the appellants mainly contend that the
learned arbitrator travelled beyond the terms of the contract and
granted claims which were expressly barred thereunder. It is urged
that the escalation clause having been consciously deleted from the
agreement, no amount could have been awarded towards increase in
labour cost or wages, nor could any compensation be granted on
account of alleged idle labour and machinery. It is further contended
that the delay in execution of the work was attributable solely to the
contractor’s own defaults and not to any failure on the part of the
department in providing the site. According to the appellants,
sufficient site was made available and the departmental authorities
were ready to proceed, but the contractor failed to mobilise resources
and execute the work within the stipulated period, which eminently
justified the foreclosure of the contract and encashment of the bank
guarantee strictly in terms of the agreement.
7. The appellants further assail the evidentiary basis of the claims
allowed by the arbitrator, particularly in respect of idle
establishment, mobilisation advance and alleged blocked amounts,
contending that no strict proof of actual loss or expenditure was
produced and that the findings are based on assumptions rather than
cogent material. The direction for refund of the bank guarantee and
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grant of interest are also stated to be unsupported by the contract
and excessive in nature. It is additionally urged that the disputes
were not referred to arbitration within the time prescribed after the
Engineer’s decision and that the arbitral reference itself was not
maintainable. Objection is also taken to the manner of appointment
of the sole arbitrator, alleging non-compliance with the contractual
procedure, thereby vitiating the entire arbitral proceedings.
8. In ARBA No. 13, the appellants primarily contend that the arbitral
tribunal itself was not constituted in accordance with the contract. It
is their case that under the General Conditions of Contract, the
dispute was first required to be adjudicated by the named
Adjudicator and only thereafter could the matter proceed to
arbitration, and that in the event of failure to appoint an arbitrator by
mutual agreement, the appointing authority was an external body
and not the Chief Engineer. According to the appellants, the named
Adjudicator had not refused to act, and the respondent had declined
to accept him on the ground of alleged bias, which did not justify
bypassing the contractual procedure. Consequently, the appointment
of the sole arbitrator by the Chief Engineer on 6.2.2004 is asserted to
be contrary to the contract, rendering the arbitral proceedings void
ab initio.
9. On merits, the appellants further contend that the arbitrator erred in
allowing Claim No. 1 relating to payment of the 4th R/A bill and
final bill, despite substantial amounts being allegedly recoverable
from the respondent under other contracts executed in different
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divisions. It is argued that excess payments, unpaid mobilisation
advances and penalties in other packages entitled the department to
withhold payment under the present contract by way of adjustment
in order to safeguard public revenue, and that the arbitrator failed to
take these liabilities into account. With regard to Claim No. 2 relating
to minimum wages, it is contended that the contract did not contain
any escalation clause and that such clause had in fact been
consciously deleted; therefore, the respondent, having accepted the
contract rates without protest during execution, could not
subsequently seek reimbursement on account of wage revision. As
regards Claims No. 3, 4 and 5, it is urged that retention of
performance security and retention money was justified in view of
outstanding dues in other contracts and that award of interest and
direction to release the bank guarantee were beyond the arbitrator’s
jurisdiction and contrary to the contractual terms. The appellants
also contend that the award is against public policy, as it results in
payment to a contractor who was otherwise allegedly liable to make
good losses to the State.
10.On the aforesaid premises, the appellants submit that the learned
District Judge failed to exercise jurisdiction vested under Section 34
of the Arbitration and Conciliation Act, 1996 by not examining
whether the arbitral tribunal was constituted in accordance with the
agreement, whether the arbitrator had exceeded the terms of the
contract, and whether the award dealt with claims expressly barred
by contractual stipulations. It is contended that patent illegality is
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apparent on the face of the award, both in assumption of jurisdiction
and in grant of claims contrary to the contract and without
evidentiary foundation, which warranted interference. The
appellants therefore assert that the refusal to set aside the award
suffers from material irregularity and non-consideration of vital
grounds available under Section 34(2) and Section 34(2A), thereby
justifying appellate interference with the impugned judgment.
III. RESPONDENT’S SUBMISSIONS:
11.Per contra, the counsel for the respondent contends in ARBA No. 12,
the respondent supports the arbitral award and the judgment of the
learned District Judge, Ganjam, Berhampur, contending that the
entire delay in execution and eventual foreclosure of the contract
occurred solely due to failure of the department to provide
continuous and lawful working site. It is stated that only small and
scattered portions of the site were initially made available and that
substantial stretches comprised private land and forest land where
execution could not legally proceed, despite mobilisation of
manpower and machinery by the contractor. Repeated requests for
handing over proper site and for supply of drawings are stated to
have been made, but no effective steps were taken by the
department. According to the respondent, the contractor remained
ready and willing to execute the work but was prevented by
circumstances wholly beyond his control, and therefore termination
of the contract and encashment of the bank guarantee were
unjustified and arbitrary.
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12.With regard to the claims allowed by the arbitrator, the respondent
submits that documentary and oral evidence was adduced showing
mobilisation of labour and machinery and the expenses incurred
during the subsistence of the contract, which were duly assessed by
the arbitrator while granting compensation. It is further contended
that payment of revised minimum wages is a statutory obligation
and cannot be avoided by deletion of a general escalation clause, and
therefore the amount awarded under that head was legally payable.
The respondent further submits that the objections now sought to be
raised were either not urged before the arbitrator or were already
considered and rejected by the learned District Judge while
exercising jurisdiction under Section 34, and that the present appeal
is in substance an attempt to seek reappreciation of evidence, which
is impermissible in proceedings under Section 37. It is also contended
that the arbitrator was appointed and participated in by both parties
without objection and that the award does not suffer from any
jurisdictional infirmity or patent illegality.
13.In ARBA No. 13, the respondent contends that the arbitral tribunal
was constituted strictly in accordance with the contractual
stipulations and with the consent of both parties. It is submitted that
since the value of the contract was below the prescribed monetary
threshold, the dispute was referable to a sole arbitrator, and upon the
respondent’s request dated 10.1.2004, the Chief Engineer appointed
the sole arbitrator on 6.2.2004 in terms of the applicable procedure.
The respondent emphasises that the appellants participated in the
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arbitral proceedings without demur, filed counter statements,
produced documents and argued the matter on merits, and therefore
any objection to jurisdiction or procedure stands waived and cannot
be permitted to be raised after suffering an adverse award.
14.On the issue of non-payment of the 4th R/A bill and final bill, the
respondent submits that there is no clause in the contract authorising
the department to withhold amounts payable under one contract for
the purpose of recovering alleged dues under other, independent
contracts executed in different divisions. It is argued that each
contract constitutes a separate legal relationship and cross-
adjustment is impermissible in the absence of express contractual
authority. The respondent further relies upon the order dated
30.8.2003 passed by the learned District Judge in proceedings under
Section 9 restraining further recovery from other bills, yet the
appellants continued to withhold payment, demonstrating that the
action was arbitrary and unsupported by law.
15.With respect to the claim towards minimum wages, the respondent
submits that payment of revised minimum wages was a statutory
mandate under the Minimum Wages Act, 1948 and also flowed from
contractual clauses requiring compliance with labour laws. It is
contended that deletion of a general price-escalation clause cannot
override statutory obligations, and once the respondent was legally
bound to pay enhanced wages, the corresponding financial burden
could not be thrust upon him alone. It is further submitted that the
arbitrator applied the departmental formula and relied upon
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measurement book entries and other contemporaneous records, and
therefore the computation is purely factual and beyond the scope of
interference in appeal.
16.As regards performance security, retention money and interest, the
respondent submits that the defect liability period had long expired,
the work had been accepted, and there was no contractual
justification for continued retention of security amounts. It is argued
that retention was being used merely as leverage for extraneous
disputes arising out of other contracts, which is impermissible. The
respondent further submits that interest was awarded in accordance
with contractual provisions governing delayed payments and that
once wrongful withholding of admitted dues was established, grant
of interest was a natural and lawful consequence.
17.On the above premises, the respondent submits that the scope of
interference under Section 37 is extremely limited and does not
permit reappreciation of evidence or substitution of the court’s view
for that of the arbitrator. It is contended that the learned District
Judge has already examined the objections within the parameters of
Section 34 and found no patent illegality, jurisdictional error or
violation of public policy. The respondent therefore asserts that the
present appeals seek a second round of factual adjudication, which is
impermissible in appellate proceedings arising out of arbitral
awards, and that no ground is made out for interference with either
the award or the impugned judgment.
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IV. ISSUE FOR CONSIDERATION:
18.Having heard the parties and perused the materials available on
record, this court here has identified the following issue to be
determined:
A. Whether the order of the Ld. District Judge warrants interference
keeping in mind the limitations of this court’s powers under
Section 37 of the A&C Act?
V. ISSUE A: WHETHER THE ORDER OF THE LD. DISTRICT
JUDGE WARRANTS INTERFERENCE KEEPING IN MIND THE
LIMITATIONS OF THIS COURT’S POWERS UNDER SECTION
37 OF THE A&C ACT?
19.Before going into the merits of the contentions, it is necessary to
outline the ambit and scope of Section 37(2)(b) of the 1996 Act. The
said section is extracted below:
“37. Appealable orders.–(1)[Notwithstanding anything
contained in any other law for the time being in force, an
appeal] shall lie from the following orders (and from no
others) to the court authorised by law to hear appeals
from original decrees of the court passing the order,
namely:
∗∗∗
(2) Appeal shall also lie to a court from an order of the
Arbitral Tribunal–
(a) accepting the plea referred to in sub-section (2) or
sub-section (3) of Section 16; or
(b) granting or refusing to grant an interim measure
under Section 17.”
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20.The Supreme Court and this Court in catena of judgments have held
that the powers of appellate court while exercising jurisdiction under
Section 37(2)(b) of the 1996 Act against orders passed by the Arbitral
Tribunal is very restricted and narrow and the same should be
exercised when the orders seems to be perverse, arbitrary and
contrary to law. The judgment of Wander Ltd. v. Antox India (P)
Ltd.1 passed by the Apex Court, elaborates the ambit and scope of
the appeals. Although the aforesaid judgment is not dealing with the
arbitration proceedings but the same deals with the power of
appellate court in the Civil Procedure Code, 1908 (CPC). Operative
paragraphs of the aforesaid judgment are extracted below:
“13. On a consideration of the matter, we are afraid, the
Appellate Bench fell into error on two important
propositions. The first is a misdirection in regard to the
very scope and nature of the appeals before it and the
limitations on the powers of the appellate court to
substitute its own discretion in an appeal preferred
against a discretionary order. The second pertains to the
infirmities in the ratiocination as to the quality of antox’s
alleged user of the trade mark on which the passing-off
action is founded. We shall deal with these two
separately.
14. The appeals before the Division Bench were against
the exercise of discretion by the Single Judge. In such
appeals, the appellate court will not interfere with the
exercise of discretion of the court of first instance and
substitute its own discretion except where the discretion
has been shown to have been exercised arbitrarily, or
capriciously or perversely or where the court had ignored1990 Supp SCC 727
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Date: 09-Feb-2026 19:48:34the settled principles of law regulating grant or refusal of
interlocutory injunctions. An appeal against exercise of
discretion is said to be an appeal on principle. Appellate
court will not reassess the material and seek to reach a
conclusion different from the one reached by the court
below if the one reached by that court was reasonably
possible on the material. The appellate court would
normally not be justified in interfering with the exercise
of discretion under appeal solely on the ground that if it
had considered the matter at the trial stage it would have
come to a contrary conclusion. If the discretion has been
exercised by the trial court reasonably and in a judicial
manner the fact that the appellate court would have taken
a different view may not justify interference with the
trial court’s exercise of discretion. After referring to these
principles Gajendragadkar, J. in Printers (Mysore) (P)
Ltd. v. Pothan Joseph (SCC OnLine SC para 9)
‘9. …These principles are well established, but as
has been observed by Viscount Simon in Charles
Osenton & Co. v. Johnston “the law as to the
reversal by a court of appeal of an order made by a
Judge below in the exercise of his discretion is well
established and any difficulty that arises is due only
to the application of well-settled principles in an
individual case.”‘
The appellate judgment does not seem to defer to this
principle.”
21.The said judgment is consistently followed in adjudicating petitions
pertaining to the A&C Act by Courts across the Country in Green
Infra Wind Energy Ltd. v. Regen Powertech (P) Ltd.2; Sona Corpn.
India (P) Ltd. v. Ingram Micro India (P) Ltd.3; Manish Aggarwal
2018 SCC OnLine Del 8273
2
2020 SCC OnLine Del 300
3
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v. RCI Industries & Technologies Ltd.4; Tahal Consulting Engineers
India (P) Ltd. v. Promax Power Ltd.5 and Handicraft & Handlooms
Exports Co. of India v. SMC Comtrade Ltd.6.
22.In Reliance Infrastructure Ltd. v. State of Goa7, the Apex Court
noticing its previous decision in MMTC Ltd. v. Vedanta Ltd.8 has
noted the limited scope of interference under Section 34 and further
narrower scope of appeal under Section 37 of the Act particularly
when dealing with the concurrent findings of the arbitrator and that
of the Court. Relevant paragraph ’14’ of MMTC Ltd.(supra) as noted
in paragraph ’26’ in Reliance Infrastructure Ltd.(supra) is to be
extracted hereinunder:–
“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, and must only ascertain that the
exercise of power by the court under Section34 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.”
(2022) 3 HCC (Del) 289
4
2023 SCC OnLine Del 2069
5
2023 SCC OnLine Del 3981
6
(2024) 1 SCC 479
7
(2019) 4 SCC 163
8
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23.The same view has been expressed in UHL Power Company
Ltd. v. State of Himachal Pradesh9 in paragraph ’16’ while noticing
paragraph ’11’ in MMTC Ltd.(supra):–
“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 ArbitrationAct have been
explained in the following words : (SCC pp. 166-67, para
11)
“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
(2022) 4 SCC 116
9
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of natural justice, and Wednesbury [Associated
Provincial Picture Houses Ltd. v. Wednesbury
Corpn., [1948] 1 K.B. 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.”
24.In Haryana Tourism Ltd. v. Kandhari Beverages Ltd.10 as noted in
paragraph ’30’ in Reliance Infrastructure Ltd.(supra), it was held on
the scope of interference under Sections 34 and 37 of the Act’ 1996 as
under:–
“30. In Haryana Tourism [Haryana Tourism
Ltd. v. Kandhari Beverages Ltd., (2022) 3 SCC
237 : (2022) 2 SCC (Civ) 87], this Court yet again
pointed out the limited scope of interference
under Sections 34 and37 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 not2022) 3 SCC 237
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under Section 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 andorder [Kandhari Beverages
Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine
P&H 3233] passed by the High Court is hence not
sustainable.”
25.It was, thus, observed in paragraph ’33’ of Reliance Infrastructure
Ltd.(supra) as under:–
“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
under Section34 of the Act, which is all the more
circumscribed in an appeal under Section 37, we
may examine the rival submissions of the parties
in relation to the matters dealt with by the High
Court.”
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26.It is observed in Punjab State Civil Supplies Corpn. Ltd. v. Sanman
Rice Mills11 that:
“9. The object of the Act is to provide for a speedy and
inexpensive alternative mode of settlement of dispute
with the minimum of intervention of the courts. Section
5 of the Act is implicit in this regard and prohibits
interference by the judicial authority with the arbitration
proceedings except where so provided in Part-I of the
Act. The judicial interference, if any, is provided inter-
alia only by means of Sections 34 and 37 of the Act
respectively.
10. Section 34 of the Act provides for getting an arbitral
award set aside by moving an application in accordance
with sub-Section (2) andsub-Section (3) of Section 34 of
the Act which inter-alia provide for the grounds on which
an arbitral award is liable to be set aside. One of the main
grounds for interference or setting aside an award is
where the arbitral award is in conflict with the public
policy of India i.e. if the award is induced or affected by
fraud or corruption or is in contravention with the
fundamental policy of Indian law or it is in conflict with
most basic notions of morality and justice. A plain
reading of Section 34 reveals that the scope of
interference by the court with the arbitral award under
Section 34 is very limited and the court is not supposed
to travel beyond the aforesaid scope to find out if the
award is good or bad.
11. Section 37 of the Act provides for a forum of appeal
inter-alia against the order setting aside or refusing to set
aside an arbitral award under Section 34 of the Act. The
scope of appeal is naturally akin to andlimited to the
grounds enumerated under Section 34 of the Act.
11
2024 SCC OnLine SC 2632
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12. It is pertinent to note that an arbitral award is not
liable to be interfered with only on the ground that the
award is illegal or is erroneous in law that too upon
reappraisal of the evidence adduced before the arbitral
trial. Even an award which may not be reasonable or is
non-speaking to some extent cannot ordinarily be
interfered with by the courts. It is also well settled that
even if two views are possible there is no scope for the
court to reappraise the evidence and to take the different
view other than that has been taken by the arbitrator. The
view taken by the arbitrator is normally acceptable and
ought to be allowed to prevail.
xxxxxx
14. It is equally settled law that the appellate power
under Section 37of the Act is not akin to the normal
appellate jurisdiction vested in the civil courts for the
reason that the scope of interference of the courts with
arbitral proceedings or award is very limited, confined to
the ambit of Section 34 of the Act only and even that
power cannot be exercised in a casual and a cavalier
manner.
xxxxxx
16. It is seen that the scope of interference in an appeal
under Section37 of the Act is restricted and subject to the
same grounds on which an award can be challenged
under Section 34 of the Act. In other words, the powers
under Section 37 vested in the court of appeal are not
beyond the scope of interference provided
under Section 34 of the Act.”
Here, the Supreme Court has once again reiterated that even an
award which may not be reasonable or is nonspeaking to some
extent cannot ordinarily be interfered with by the courts. It is also
well settled that even if two views are possible there is no scope for
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the court to reappraise the evidence and to take the different view
other than that has been taken by the arbitrator. The view taken by
the arbitrator is normally acceptable and ought to be allowed to
prevail.
27.In Konkan Railway Corpn. Ltd. v. Chenab Bridge Project12 referring
to MMTC Limited (supra) it has been held that:
“19….The scope of jurisdiction
under Section 34 and Section 37 of the Act is not akin to
normal appellate jurisdiction. It is well-settled that
courts ought not to interfere with the arbitral award in a
casual and cavalier manner. The mere possibility of an
alternative view on facts or interpretation of the contract
does not entitle courts to reverse the findings of the
arbitral tribunal…”
28.In Dyna Technology Private Limited v. Crompton Greaves Limited13,
the Apex Court observed as under:
“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(2023) 9 SCC 85
1213
(2019) 20 SCC 1
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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.
25. Moreover, umpteen number of judgments of this
Court have categorically held that the courts 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.”
29.Judicial scrutiny of arbitral awards is stringently limited under
Indian law. Section 34 of the Arbitration and Conciliation Act, 1996,
provides the exclusive grounds upon which an arbitral award can be
challenged. Courts, therefore, are not empowered to interfere merely
because another interpretation or outcome may seem more
reasonable. The jurisdiction under Section 34 is confined to
procedural and legal infirmities such as lack of jurisdiction, violation
of natural justice, or patent illegality. Consequently, appellate
jurisdiction under Section 37 is even narrower in its scope. Its
purpose is to evaluate whether the court adjudicating under Section
34 has remained within the permissible statutory boundaries. The
appeal court cannot re-evaluate evidence or reconsider the factual
matrix afresh. The statutory framework thus reflects an overarching
legislative intent to insulate arbitral decisions from excessive judicial
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intervention. The entire architecture of Sections 34 and 37 reinforces
the finality and autonomy of arbitral proceedings. Arbitration is
designed to offer an efficient, expert-led, and expedited alternative to
litigation. Courts must therefore resist the temptation to intervene
unless the decision by the court under Section 34 itself amounts to a
significant transgression of legal boundaries.
30.Judicial restraint under Section 37 also reflects respect for
institutional competence of arbitral tribunals in resolving technical
and commercial disputes. Courts are cautious not to intrude into
operational or industry-specific assessments unless such assessments
are manifestly disconnected from evidence or contractual terms.
Arbitration is valued precisely because it permits specialized
adjudication, and appellate courts must avoid substituting judicial
perceptions for commercial judgment, unless the latter is
demonstrably arbitrary or legally unsound.
31.The balance, therefore, lies between two competing imperatives:
preserving arbitral autonomy and ensuring legal accountability.
Excessive deference risks validating legally flawed awards, while
excessive interference undermines arbitration as an effective dispute
resolution mechanism. Section 37 embodies this balance by allowing
interference only when legal thresholds are crossed. Courts must
carefully calibrate intervention to correct illegality without re-
opening factual controversy, thereby preserving both rule of law and
arbitral efficiency.
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32.Now this Court shall endeavour to answer the main question framed
herein bearing in mind that this Court is not sitting as a court of first
appeal over the arbitral award, nor can it re-appreciate evidence or
substitute its own view merely because another view is possible.
33.The principal issue for consideration before this Court is whether the
arbitral award suffers from such illegality, perversity or
jurisdictional defect as would justify interference in an appeal under
Section 37 of the Arbitration and Conciliation Act, 1996, particularly
when the award has already been upheld by the Ld. District Judge,
Ganjam, Berhampur under Section 34.
34.In ARBA 12 of 2014, the first objection raised by the appellants
relates to non-availability of site and delay in execution of work. The
arbitrator has recorded detailed findings that only fragmented
portions of the site were initially handed over and that even
subsequent availability remained discontinuous and legally
obstructed due to private ownership and forest restrictions. The
arbitrator has referred to departmental correspondence, progress
reports and site conditions while arriving at the conclusion that
workable site was not made available in reasonable measure. These
findings are not based on conjecture but on documents placed on
record. The Ld. District Judge has also examined this aspect and has
found that the arbitrator’s conclusion is supported by evidence. This
Court does not find that such findings are so unreasonable or
unsupported as to warrant interference.
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35.The appellants have argued that the contractor was himself
responsible for delay and that departmental action in foreclosing the
contract and encashing the bank guarantee was justified. However,
the arbitrator has found that stoppage of work and termination were
not preceded by adequate handover of site and that the contractor
could not be blamed for non-execution in such circumstances.
Whether termination was justified or not was a matter squarely
within the arbitral domain, and once the arbitrator has examined
facts and contractual clauses to reach a conclusion, this Court cannot
re-adjudicate that question in appeal.
36.The next issue relates to claims towards idle labour, machinery and
mobilisation advance. These claims are founded on the assertion that
manpower and equipment were mobilised in anticipation of work
but remained idle due to site constraints. The arbitrator has
examined statements of deployment, duration of idling, and
supporting materials and thereafter quantified compensation. This is
essentially an assessment of factual loss arising out of breach. This
Court finds no material to suggest that the arbitrator ignored vital
evidence or relied on no evidence. The appellants’ grievance is
primarily about the sufficiency and correctness of proof, which
cannot be revisited under Section 37.
37.The appellants have also challenged the award of revised minimum
wages, stating that deletion of escalation clause barred such claim.
This Court finds that the arbitrator has treated the issue as one of
statutory compliance rather than contractual escalation. Payment of
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minimum wages flows from law and not merely from contract. A
contractual clause cannot override statutory wage obligations. The
arbitrator has relied on legal principles and relevant precedents
while allowing this claim. This approach does not disclose any legal
infirmity.
38.The challenge to refund of bank guarantee is also linked to the
finding regarding wrongful termination. Once the arbitrator found
that failure to execute work was not attributable to the contractor,
invocation of the bank guarantee lost its contractual basis. The
arbitrator has therefore directed refund of the encashed amount. This
follows logically from the factual findings and does not amount to
grant beyond jurisdiction.
39.With regard to interest on blocked amounts and future interest, the
arbitrator has exercised discretion after considering that money was
withheld without justification. Interest is compensatory in nature
and intended to offset deprivation of use of money. The rate
awarded cannot be said to be shockingly high or prohibited under
law. This Court finds no reason to interfere with such discretionary
relief.
40.Another set of objections raised by the appellants pertains to
limitation and appointment of arbitrator. It is seen that these
objections were not pressed before the arbitrator by invoking Section
16 of the Act. The parties participated in the proceedings without
raising jurisdictional challenge at the appropriate stage. The Act
clearly provides that objections to jurisdiction must be raised before
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the Tribunal at the earliest opportunity, failing which such objections
are deemed to be waived. Raising such grounds for the first time in
appellate proceedings is not permissible.
41.It is also relevant that many of the grounds now urged were not part
of the Section 34 application in substance or were not pursued
seriously before the Ld. District Judge. An appeal under Section 37
cannot be used to enlarge the scope of challenge beyond what was
available under Section 34, nor can it serve as a forum for
introducing fresh objections or reshaping the case.
42.Therefore, the judgment of the Ld. District Judge dated 23.9.2013
shows that the scope of Section 34 was correctly appreciated and that
each head of claim was examined with reference to the arbitral
findings and contractual provisions. This Court does not find that the
Ld. District Judge ignored any material issue or applied incorrect
legal principles.
43.In ARBA 13 of 2014, at the outset, this Court notes that the execution
of work by the respondent is not in dispute. The contract, the period
of execution, the grant of extension up to 4.8.2003, the completion of
work within the extended period, and the recording of final
measurements by early August, 2003, all stand admitted. There is
also no dispute that the 4th R/A bill and the final bill were prepared,
that the gross amount stood at about Rs. 69.86 lakhs, and that after
statutory deductions the net payable was Rs. 63,51,867/-. Thus, the
foundational fact that money became due and payable to the
respondent under the very contract in question is not contested.
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44.The only justification offered by the appellants for non-payment is
that the respondent had alleged dues or excess payments in respect
of other contracts executed under different packages and divisions,
and therefore the amount payable under the present contract was
retained for adjustment. This Court finds that the arbitrator has dealt
with this issue in a detailed and reasoned manner. The General
Conditions of Contract were examined, particularly Clause 43.1,
which mandates payment within 28 days of preparation of the bill
and provides for interest in case of delay. Significantly, no clause was
shown which authorises the employer to withhold payments under
one contract to recover alleged dues under another, independent
contract. Contracts are separate legal engagements. Rights and
liabilities under one cannot be mechanically transplanted into
another in the absence of express contractual authority. Permitting
such adjustment would amount to rewriting the contract by judicial
fiat, which neither the arbitrator nor this Court is empowered to do.
45.This Court also finds force in the arbitrator’s observation that even if
the alleged amount to be recovered from other packages was about
Rs. 34.25 lakhs, the entire sum of about Rs. 70 lakhs was withheld.
Such blanket withholding, despite completion of work and
certification of measurements, cannot be justified on any rational
contractual basis. The arbitrator’s conclusion that this amounted to
financial harassment is not an emotional or rhetorical remark, but a
factual inference drawn from prolonged deprivation of payment for
completed work.
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46.Further, the record shows that the respondent had approached the
Ld. District Judge under Section 9 on 30.8.2003, and an order was
passed restraining further recovery from other bills till arbitration
was decided. The appellants were parties to that proceeding. Yet,
payment of the bills under the present contract was still not released,
on the plea of instructions from higher authorities. This Court is
constrained to observe that once a judicial order is in force,
administrative instructions cannot override it. Continued non-
payment despite such order only reinforces the finding that the
respondent was deprived of money lawfully due, without legal
justification.
47.On Claim No. 2 relating to minimum wages, this Court finds that the
arbitrator approached the issue correctly in law and in fact. Payment
of minimum wages under the Minimum Wages Act, 1948 is not
optional, nor is it dependent on contractual clauses. It is a statutory
mandate. The contract itself required compliance with labour laws.
The wage revision notification enhancing wages from Rs. 40/- to Rs.
50/- came into effect on 1.1.2002, prior to commencement of work on
5.6.2002. The respondent, therefore, had no choice but to pay the
enhanced wages. The deletion of a general price escalation clause
cannot nullify a statutory obligation, nor can it absolve the employer
of financial consequences flowing from compliance with mandatory
labour laws.
48.The arbitrator did not award any notional or speculative amount. He
applied the Works Department formula for calculation of increased
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labour cost, identified the labour components for different categories
of work based on measurement book entries, and then computed the
additional amount payable. This is a factual and technical exercise,
well within the domain of the arbitral tribunal. This Court does not
find any perversity or patent illegality in this computation. The
award on this head is rooted in statutory obligation, contractual
stipulations regarding labour law compliance, and departmental
methodology for calculation.
49.With respect to Claim No. 3 concerning performance security, the
factual position is that the defect liability period had expired and the
work stood accepted. Performance security is meant to secure
performance during execution and defect liability. It is not meant to
be retained indefinitely as leverage for unrelated claims. The
arbitrator directed release of the bank guarantee amount and
awarded interest for delayed release. This Court finds that such
direction flows directly from the contract and from basic principles
of fairness in commercial dealings. Retention beyond contractual
period without cause is not defensible.
50.On Claim No. 4 regarding retention money, the contract itself
provides that part of the retention is to be released on completion
and the balance after expiry of defect liability period. Both stages had
admittedly passed. The arbitrator relied on measurement book
deductions to ascertain the amount retained and ordered refund
with interest. This again is a straight application of contractual terms
to admitted facts. No perversity or illegality is shown.
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51.On Claim No. 5 relating to interest on delayed payment of the
principal amount, Clause 43 of the GCC expressly provides for
interest on delayed payments. Once the principal amount was found
to be wrongfully withheld, interest necessarily follows. The
arbitrator quantified interest based on contractual rate and period of
delay. Award of interest in such circumstances cannot be
characterised as punitive or contrary to law. It is compensatory in
nature.
52.The appellants have also raised objections regarding the constitution
of the tribunal and alleged violation of dispute resolution procedure.
This Court finds that the arbitrator has recorded a clear factual
finding that Clause 25.3(f) applied, that the respondent requested
appointment of sole arbitrator, and that the Chief Engineer
appointed the arbitrator on 6.2.2004. The appellants participated in
the proceedings fully, filed pleadings, produced documents, and
argued on merits. No objection under Section 16 was raised before
the tribunal. No application under Sections 12 to 15 was pursued. In
such circumstances, Section 4 of the Act squarely applies, and any
objection to procedure or composition stands waived. A party cannot
approbate and reprobate, participate in proceedings, and after
suffering an adverse award, question the very forum it had accepted.
53.The plea that disputes were not raised within 28 days of the
Engineer’s decision is also devoid of merit. Limitation in arbitration
is governed by the Limitation Act by virtue of Section 43. Contractual
clauses cannot curtail statutory limitation periods. Moreover, such
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objections are jurisdictional in nature and ought to have been raised
before the tribunal at the threshold. Raising them for the first time in
Section 34 or Section 37 proceedings is impermissible.
54.This Court also notes that the Section 34 application did not plead
precise grounds falling within Section 34(2) with necessary
particulars. What was placed before the Ld. District Judge was
largely a repetition of defences taken before the arbitrator. The Ld.
District Judge rightly declined to re-appreciate evidence or revisit
contractual interpretation. The judgment dated 16.09.2013 reflects
correct appreciation of the limited scope of interference.
55.In sum, this Court finds that the arbitral award impugned in ARBA
13 of 2014 is based on contractual clauses, statutory mandates,
admitted facts, and reasoned appreciation of evidence. It does not
suffer from perversity. It does not violate public policy. It does not
disclose patent illegality on the face of the award. The conclusions
reached by the arbitrator are plausible, coherent, and legally
sustainable. Even if another view were theoretically possible, that by
itself is no ground for interference under Section 37.
56.Overall, this Court finds that the arbitral awards are reasoned
awards based on contractual interpretation and factual appreciation,
and the supervisory court under Section 34 has already found no
ground for interference. The present appeal essentially seeks a
rehearing on facts and merits, which is not permissible within the
narrow confines of Section 37 jurisdiction.
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57.Accordingly, this Court finds no illegality, perversity or
jurisdictional error in the arbitral awards dated 6.12.2004 or 5.3.2005
respectively and in the judgments dated 23.9.2013 or
16.9.2013 passed by the Ld. District Judge, Ganjam, Berhampur,
warranting interference by this Court.
VI. CONCLUSION:
58.In this backdrop, this Court finds that the appellants’ challenge
essentially seeks reappreciation of evidence and substitution of
factual conclusions, which is impermissible in appellate jurisdiction
under Section 37. The arbitral awards and the judgments of the Ld.
District Judge reflect due consideration of the contractual framework
and evidentiary materials, and no ground is made out to hold that
the award is in conflict with law or public policy. Consequently, the
challenge does not merit acceptance.
59.In view of the foregoing discussion and findings, this Court holds
that the appeals are devoid of merit and, accordingly, ARBA No.12
of 2014 and ARBA No.13 of 2014 are dismissed. The judgments
dated 23.9.2013 and 16.9.2013 passed by the Ld. District Judge,
Ganjam, Berhampur in Arbitration Petition No.01 of 2005 and
Arbitration Petition No.03 of 2005 are hereby affirmed, and the
same stand upheld.
60.Any interim orders, if any, passed during pendency of the aforesaid
appeals shall stand vacated. Pending interlocutory applications, if
any, shall also stand disposed of.
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61.There shall be no order as to costs.
(Dr.Sanjeeb K Panigrahi)
Judge
Orissa High Court, Cuttack,
Dated the 30th Jan., 2026/
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