Indian Oil Carporation vs M/Smetro Builders(Orissa)Pvt. Ltd on 2 April, 2026

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    Delhi High Court

    Indian Oil Carporation vs M/Smetro Builders(Orissa)Pvt. Ltd on 2 April, 2026

                      $~16
                      *         IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                                 Date of Decision: 02.04.2026
                      +         O.M.P. (COMM) 246/2016
                                INDIAN OIL CARPORATION                   .....Petitioner
                                              Through: Mr. V. N. Koura, Mr. Aditya
                                                       Sharma and Mr. Shaurya
                                                       Dahiya, Advocates
                                              versus
    
                                M/SMETRO BUILDERS(ORISSA)PVT. LTD
                                                                               .....Respondent
                                                  Through:     Mr. Akhil Sachar, Ms. Sunanda
                                                               Tulsyan, Ms. Shweta Pattanaik,
                                                               Ms. Babita Rawat, Ms. Kashish
                                                               Maheshwari and Ms. Gulnar
                                                               Arora, Advocates
                                CORAM:
                                HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
                                SHANKAR
    
                      %                           JUDGEMENT (ORAL)
    
                      HARISH VAIDYANATHAN SHANKAR, J.
    

    1. The present Petition, filed under Section 34 read with Sections
    28 and 31 of the Arbitration and Conciliation Act, 19961, assails the
    Arbitral Award dated 20.11.20142, in respect of Claim No. 2,
    rendered by the learned Sole Arbitrator in the arbitral proceedings
    titled “Metro Builders (Orissa) Pvt. Ltd. v. Indian Oil Corporation
    Limited
    .”

    2. By the Impugned award, the learned Arbitrator has allowed the
    claims preferred by the Respondent in respect of Claim No. 2, along
    1
    Act
    2
    Impugned Award
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    with interest at the rate of 9% per annum, payable after the expiry of
    two months from the date of the award until the date of payment.

    SPONSORED

    3. Learned counsel for the Petitioner, at the outset, confines the
    challenge to a singular, yet foundational ground that the Impugned
    Award is ex facie contrary to the express terms of the Contract. In
    support thereof, reliance is placed upon Clauses 4.3.5.0, 4.3.5.1,
    4.3.5.2 and 4.3.6.0 of the General Clauses of the Contract3, forming
    part of the Agreement dated 26.07.20064, which are reproduced
    herein below:

    “4.3.5.0 Within 7 (seven) days of the occurrence of any act,
    event or omission which, in the opinion of the Contractor, is likely
    to lead to delay in the commencement or completion of any
    particular work(s) or operation(s) or the entire work at any job
    site(s), and as such would entitle the Contractor to an extension of
    time specified in this behalf in the Progress Schedule(s), the
    Contractor shall inform the Site Engineer and the Engineer-in-
    Charge in writing of the occurrence of such act, event or omission
    and the date of commencement of such occurrence. Thereafter, if
    even upon the cessation of such act or event or the fulfillment of
    the omission, the Contractor is of the opinion that an extension of
    time specified in the Progress Schedule relative to any particular
    operation(s) or item(s) of work or the entire work at any job site is
    necessary, the Contractor shall, within 7 (seven) days after such
    cessation or fulfillment, make a written request to the Engineer-in-
    Charge for extension of the relative time specified in the Progress
    Schedule. The Engineer-in-Charge may, at any time prior to
    completion of the work, extend the relative time of completion in
    the Progress Schedule for such period(s) as he considers necessary,
    if he is of the opinion that such act/event/omission constitutes a
    ground for extension of time in terms of the Contract and that such
    act/event/omission has, in fact, resulted in insurmountable delay to
    the Contractor.

    4.3.5.1 The application for extension of time made by the
    Contractor to the Engineer-in-Charge shall contain full details of:

    (a) the notice under Clause 4.3.5.0, along with copies of the notices
    sent to the Engineer-in-Charge and the Site Engineer;

    (b) the activity in the Progress Schedule affected;

    3

    GCC
    4
    Agreement
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    (c) the bottlenecks or obstructions perceived/experienced, and the
    reasons therefor;

    (d) the extension required on account of (c) above;

    (e) the extension required on account of reasons attributable to the
    Owner;

    (f) the extension required on account of force majeure; and

    (g) the total extension of time required for completion, taking the
    above into account and after eliminating all overlaps.

    4.3.5.2 The opinion/decision of the Engineer-in-Charge in this
    behalf and as to the extension of time necessary shall, subject to the
    provisions of Clause 4.3.6.0 hereof, be final and binding upon the
    Contractor.

    4.3.6.0 Notwithstanding the provisions of Clause 4.3.5.0 hereof,
    the Owner may, at any time, at the request of the Contractor made
    by way of appeal either against the decision of the Engineer-in-
    Charge taken under Clause 4.3.5.0 or against the Engineer-in-
    Charge’s refusal to take a decision under the said clause, grant
    extension of time for the work or any item or operation thereof for
    such period(s) as the Owner may consider necessary. The decision
    of the Owner as to the existence or otherwise of any grounds
    justifying the extension and as to the period(s) of extension
    necessary shall be final and binding upon the Contractor.”

    4. Learned counsel for the Petitioner further submits that the
    contractual scheme clearly envisages a structured mechanism for
    seeking extension of time. In a situation where the Engineer-in-charge
    fails to render a decision, Clause 4.3.6.0 stands triggered, thereby
    empowering the Owner/Petitioner herein to adjudicate upon the
    request.

    5. Learned counsel for the Petitioner submits that the aforesaid
    contractual procedure was duly adhered to in the present case. Once a
    decision had been rendered in accordance with the agreed contractual
    framework by the Petitioner herein, the learned Arbitrator could not
    have sat in appeal over the same, particularly when such decision was
    expressly agreed by the parties to be final and binding between them.

    6. Such interference, it is urged by the learned counsel for the
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    Petitioner, runs contrary to settled law laid down by the Hon’ble
    Supreme Court in Mitra Guha Builders (India) Company vs. Oil and
    Natural Gas Corporation Limited5
    , specifically Paragraph Nos. 23
    and 26, which are extracted herein below:

    “23. The question to be decided in this case is whether the
    liability of the respondent to pay liquidated damages and the
    entitlement of the appellants to collect the same from the
    respondent is an excepted matter for the purpose of Clause 20.1 of
    the General Conditions of Contract. The High Court has pointed
    out correctly that the authority of the purchaser (BSNL) to quantify
    the liquidated damages payable by the supplier Motorola arises
    once it is found that the supplier is liable to pay the damages
    claimed. The decision contemplated under Clause 16.2 of the
    agreement is the decision regarding the quantification of the
    liquidated damages and not any decision regarding the fixing of the
    liability of the supplier. It is necessary as a condition precedent to
    find that there has been a delay on the part of the supplier in
    discharging his obligation for delivery under the agreement.

    *****

    26. Quantification of liquidated damages may be an excepted
    matter as argued by the appellants, under Clause 16.2, but for the
    levy of liquidated damages, there has to be a delay in the first
    place. In the present case, there is a clear dispute as to the fact that
    whether there was any delay on the part of the respondent. For this
    reason, it cannot be accepted that the appointment of the arbitrator
    by the High Court was unwarranted in this case. Even if the
    quantification was excepted as argued by the appellants under
    Clause 16.2, this will only have effect when the dispute as to the
    delay is ascertained. Clause 16.2 cannot be treated as an excepted
    matter because of the fact that it does not provide for any
    adjudicatory process for decision on a question, dispute or
    difference, which is the condition precedent to lead to the stage of
    quantification of damages.”

    7. Learned counsel for the Petitioner further places reliance upon
    the judgment of the Hon’ble Supreme Court in Indian Oil
    Corporation vs. NCC Limited6
    to emphasise the primacy of party
    autonomy in arbitral jurisprudence. It is submitted that the parties,

    5
    (2020) 3 SCC 222
    6
    (2023) 2 SCC 539
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    having consciously agreed to a contractual regime conferring finality
    upon the decision of the Owner in specified circumstances, are bound
    by the same. The Impugned Award, in disregarding such agreed
    mechanism, is therefore contrary to both the contract and the
    governing legal principles.

    8. Per contra, learned counsel for the Respondent supports the
    Impugned Award, contending that the same is legally sound and does
    not warrant interference under Section 34 of the Act.

    9. Learned counsel for the Respondent submits that the Petitioner
    failed to adhere to the contractual procedure prescribed for seeking
    extension of time, thereby disentitling itself from any relief under the
    said clauses.

    10. Learned counsel for the Respondent further relies upon
    Paragraph Nos. 12 to 18 of the Impugned Award to contend that the
    findings recorded therein are well-reasoned and fall within the domain
    of a plausible view. The said paragraphs are reproduced herein under:

    “12. The relevant provisions of the GCC provide as follows:

     4.3.5.0-The Contractors shall make a written request to the
    Engineer in Charge for extension of relative time specified
    in the progress schedule and the engineer in charge may
    extend the time of completion for such periods as he
    considers necessary, if he is of the opinion that an act, event
    or omission constitutes the ground for extension of time in
    terms of the contract.

     4.3.5.1 the application for extension of time is required to
    furnish certain information relating to the extension
    required/necessitated on account of the bottle necks or
    obstructions perceived/experienced.

     4.3.5.2-The opinion/decision of the Engineer in Charge in
    this behalf and as to the extension of time necessary shall
    be subject of the clause 4.3.6.0 be final and binding upon
    the Contractor.

     4.3.6.0-Notwithstanding the provisions of clause 4.3.5.0
    hereof, the owner may, at any time, at the request of the
    contractor, made by way of appeal, either against the

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    decision of the Engineer in charge, taken under clause
    4.3.5.0 or against the Engineer in charge’s, refusal to take a
    decision under the said clause, examine the correctness or
    propriety of the decision made by the Engineer in charge,
    and the decision of the owner shall be final and binding
    upon the contractor.

    The procedure defined for application and condoning the delay in
    completion of the project is as follows. Whenever there is a
    hindrance, the contractor has to put in the details of the hindrance
    and apply for extension of time to the Engineer in charge. A
    decision is taken by the engineer in charge on accepting or denying
    the application for condoning the delay. In case the contractor is
    not satisfied with the order of the engineer in charge, he can apply
    to the General Manager for a review of the order given by the
    engineer in charge. The decision of the General Manager is final
    and is exempted from any reference to arbitration.

    13.⁠ ⁠The procedure actually followed was follows. The contractor
    applied from time to time for extension of the contract time. The
    engineer in charge did not give any decision but kept on giving
    provisional extensions. When the project was over, a delay
    statement prepared by the contractor and commented upon by the
    engineer in charge.

    14. To distinguish between claiming damages suffered due to delay
    and application of the price adjustment, the learned advocate of the
    Respondent has given two examples. First is the case of purchase
    of basmati rice. The contract provides that if more than 1% of the
    grains are the prescribed length, a price discount shall be applied.
    In the second case, for purchase of computers by the US Army, if
    the weight exceeded the prescribed limit of, say. 25kgs. then for
    every extra kg of weight of the computer, a price discount shall be
    applied. short of the

    15. I have examined the argument from both the Respondent and
    the Claimant carefully. The objections raised by the Claimant to the
    levy of prescribed discount have merit. A construction contract is
    totally different from the contracts of purchase of rice and
    computers There are many stake holders in a construction contract
    including the architect, the engineer, the owner, the supplier of
    materials, and the contractor. Also, a construction contract is very
    complicated as compared to the simple illustrations given by the
    leamed Counsel. Nobody can foretell the weather, labour unrests,
    unavoidable delay in procuring materials not locally available and
    the various glitches in the process of construction. It is necessary,
    therefore. that every delay is evaluated in the light of the situation
    causing hindrance and a decision taken, clearly stating the basis of
    the decision, rather than arbitrarily rejecting a hindrance.

    16. The Claimant has alleged that notwithstanding the provisions
    of the GCC, the then Engineer in charge Mr L Kalaivanan RW-1

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    has stated that the General Manager has approved a
    recommendation on time extension made by him on the basis of the
    report of the site engineer and in consultation with the GM. The
    decision regarding non-extension of time etc. has not been taken by
    the Engineer in charge, who is the designated, competent authority
    as per the GCC. The Claimant has alleged that he has been
    deprived of right of appeal to the competent appellate authority
    since the Engineer in charge has not taken the decision regarding
    extension of time and condoning delay. He has further alleged that
    there has been no application of mind by the authority rejecting the
    claim. Reasons in support of the decision have not been recorded.
    The necessity of giving recorded reasons in support of the
    decisions has been recorded in a large number of Supreme Court
    judgements, copies of which have been appended in 152 pages.
    Extracts from some of the Apex Court decisions are as below.
    Case (2010)7 SCC, p21 of the Annexures:

    “The meaning and true import of arbitrariness is more easily
    visualised than precisely stated or defined. The question whether
    an impugned act is arbitrary or not, is ultimately to be answered
    on the facts and in the circumstances of a given case. An obvious
    test to apply is to see whether there is any discernible principle
    emerging from the impugned act and if so, does it satisfy the test of
    reasonableness.”

    Again, in the same case, the Apex Court has stated.

    “Arbitrariness in the making of an order by an authority can
    manifest itself in different forms. Non-application of mind by the
    authority making the order is only one of them. Every order passed
    by a public authority must disclose due and proper application of
    mind by the person making the order. This may be evident from the
    order itself or the record contemporaneously maintained.
    Application of mind is best demonstrated by disclosure of mind by
    the authority making the order. And disclosure is best done by
    recording the reasons that led the authority to pass the order in
    question. Absence of reasons either in the order passed by the
    authority or in the record contemporaneously maintained is clearly
    suggestive of the order being arbitrary and hence legally
    unsustainable.”

    In another case, of Kranti Associates Pvt Ltd and Anr. v. Shri
    Massood Ahmad Khan
    and ors. on 8th Sept 2010.
    In Messrs Kranti
    Associates
    (supra) this court after considering various judgements
    formulated certain principles in para 51 of the judgement which are
    set out below.

    a) In India, the judicial trend has always been to record reasons,
    even in administrative decisions, if such decisions affect anyone
    prejudicially.

    b) A quasi-judicial authority must record reasons in support of its
    conclusions.

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    c) Insistence on recording of reasons is meant to serve the wider
    principle of justice that justice must not only be done, it must also
    appear to be done as well.

    d) Recording the reasons also operates a valid restraint on any
    possible arbitrary exercise of judicial and quasi-judicial or even
    administrative power.

    e) Reasons reassure that discretion has been exercised by the
    decision maker on relevant grounds and by disregarding
    extraneous considerations.

    f) Reasons have virtually become as indispensable a component of
    a decision making process as observing principles of natural
    justice by judicial, quasi-judicial and even by administrative
    bodies.

    g) Reasons facilitate the process of judicial review by superior
    courts.”

    17. To assess if these requirements are met in this case a reference
    is needed to the “delay analysis after scrutiny by IOCL” The
    statement has columns filled by the contractor stating hindrance/
    start and end/ delay in days claimed. This is followed by columns
    filled by IOCL stating remarks/ delay considered/ delay
    considering overlapping period. The Claimant has brought out
    inconsistencies and lack of application of mind in not accepting the
    delay claimed by him. For example, Item 7 (delay caused by local
    labourers: 10 days) the remark is that it is not feasible as per
    contract. There are a number of delays for non-availability of
    materials, claim has been rejected without going into the reasons
    for delay. Item 33 (delay in availability of submersible pumps
    which are imported: 309 days) the remark is “not tenable under the
    contract”. The contractor has given the dates of placing order for
    the pumps, which were ordered well in time and could not be
    received due supplies to be made by the German manufacturer. The
    comment, again, is “not tenable under contract”. Other Iterns
    brought out by the Claimant pertain to non-availability of materials
    in the local market and which had to be ordered from outside
    Odisha. The orders were placed well in time and the supplies were
    not received within the expected period of delivery. Typical cases
    are Item 34 (delay of 83 days), Item 35 (delay of 221 days), Item
    51 (delay of 18 days) and Item 41 (delay of 93 days). The remarks
    for not accepting the contractor’s version have again been
    summarily disposed by the IOCL with phrases like “not tenable
    under contract”, “no hold- up”, “not admissible”. The principles
    laid down by the apex court have not been followed.

    18. To summarise the pleadings of the Claimant, the provision in
    the contract that every hindrance will be reported within ten days, a
    decision given by the Engr in charge, and an appeal allowed by the
    GM have not been followed. As can be seen, the argument by the
    Respondents that the price discount is simple as in case of Basmati

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    rice and computer provision is not valid, as construction contracts
    are much more complicated and claims like delays have to be
    evaluated on the basis of data provided. The conclusion that the
    norms laid down by the apex Court have not been followed cannot
    be avoided.”

    11. Learned counsel for the Respondent further submits that the
    contents of the said paragraphs, as reproduced herein above, are
    immune from judicial intervention, given the narrow and
    circumscribed scope of interference as under Section 34 of the Act.

    12. Learned counsel for the Respondent further submits that the
    “reasoning”, as given by the learned Arbitrator, does not suffer from
    perversity or patent illegality, and consequently, no case for
    interference is made out.

    ANALYSIS & DECISION:

    13. This Court has heard the learned senior counsel appearing on
    behalf of the parties at length and, with their able assistance, has
    carefully perused the paper book as well as the case laws relied upon
    by the respective parties.

    14. Here, it is apposite to note that this Court is conscious of the
    limited scope of its jurisdiction while examining an objection petition
    under Section 34 of the Act. The contours of judicial intervention in
    such proceedings have been authoritatively delineated and settled by a
    consistent and evolving line of precedents of the Hon’ble Supreme
    Court.

    15. In this regard, a three-Judge Bench of the Hon’ble Supreme
    Court, after an exhaustive consideration of a catena of earlier
    decisions, in OPG Power Generation (P) Ltd. v. Enexio Power

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    Cooling Solutions (India) (P) Ltd.7, while dealing with the grounds
    including conflict with the public policy of India and perversity, made
    certain pertinent observations, which are reproduced hereunder:

    “Relevant legal principles governing a challenge to an arbitral
    award

    30. Before we delve into the issue/sub-issues culled out above, it
    would be useful to have a look at the relevant legal principles
    governing a challenge to an arbitral award. Recourse to a court
    against an arbitral award may be made through an application for
    setting aside such award in accordance with sub-sections (2), (2-A)
    and (3) of Section 34 of the 1996 Act. Sub-section (2) of Section 34
    has two clauses, (a) and (b). Clause (a) has five sub-clauses which
    are not relevant to the issues raised before us. Insofar as clause (b)
    is concerned, it has two sub-clauses, namely, (i) and (ii). Sub-
    clause (i) of clause (b) is not relevant to the controversy in hand.
    Sub-clause (ii) of clause (b) provides that if the Court finds that the
    arbitral award is in conflict with the public policy of India, it may
    set aside the award.

    Public policy

    31. “Public policy” is a concept not statutorily defined, though it
    has been used in statutes, rules, notification, etc. since long, and is
    also a part of common law. Section 23 of the Contract Act, 1872
    uses the expression by stating that the consideration or object of an
    agreement is lawful, unless, inter alia, opposed to public policy.
    That is, a contract which is opposed to public policy is void.

    *****

    35. In Renusagar Power Co. Ltd. v. General Electric Co., 1994
    Supp (1) SCC 644, a three-Judge Bench of this Court observed
    that the doctrine of public policy is somewhat open–textured and
    flexible. By citing earlier decisions, it was observed that there are
    two conflicting positions which are referred to as the “narrow
    view” and the “broad view”. According to the narrow view, courts
    cannot create new heads of public policy whereas the broad view
    countenances judicial law making in these areas. In the field of
    private international law, it was pointed out, courts refuse to apply
    a rule of foreign law or recognise a foreign judgment or a foreign
    arbitral award if it is found that the same is contrary to the public
    policy of the country in which it is sought to be invoked or
    enforced. However, it was clarified, a distinction is to be drawn
    while applying the rule of public policy between a matter governed
    by domestic law and a matter involving conflict of laws. It was
    observed that the application of the doctrine of public policy in the
    field of conflict of laws is more limited than that in the domestic

    7
    (2025) 2 SCC 417
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    law and the courts are slower to invoke public policy in cases
    involving a foreign element than when a purely municipal legal
    issue is involved. It was held that contravention of law alone will
    not attract the bar of public policy, and something more than
    contravention of law is required.

    *****

    37. What is clear from above is that for an award to be against
    public policy of India a mere infraction of the municipal laws of
    India is not enough. There must be, inter alia, infraction of
    fundamental policy of Indian law including a law meant to serve
    public interest or public good.

    *****

    40. In ONGC Ltd. v. Western Geco International Ltd., (2014) 9
    SCC 263, paras 35, 38 & 39, which also related to the period prior
    to the 2015 Amendment of Section 34(2)(b)(ii), a three-Judge
    Bench of this Court, after considering the decision inONGC
    Ltd. v. Saw Pipes Ltd.
    , (2003) 5 SCC 705, without exhaustively
    enumerating the purport of the expression “fundamental policy of
    Indian law”, observed that it would include all such fundamental
    principles as providing a basis for administration of justice and
    enforcement of law in this country. The Court thereafter
    illustratively referred to three fundamental juristic principles,
    namely:

    (a) that in every determination that affects the rights of a citizen or
    leads to any civil consequences, the court or authority or quasi-

    judicial body must adopt a judicial approach, that is, it must act
    bona fide and deal with the subject in a fair, reasonable and
    objective manner and not actuated by any extraneous
    consideration;

    (b) that while determining the rights and obligations of parties the
    court or Tribunal or authority must act in accordance with the
    principles of natural justice and must apply its mind to the
    attendant facts and circumstances while taking a view one way
    or the other; and

    (c) that its decision must not be perverse or so irrational that no
    reasonable person would have arrived at the same.

    41. InAssociate Builders v. DDA, (2015) 3 SCC 49, a two-Judge
    Bench of this Court, held that audi alteram partem principle is
    undoubtedly a fundamental juristic principle in Indian law and is
    enshrined in Sections 18 and 34(2)(a)(iii) of the 1996 Act. In
    addition to the earlier recognised principles forming fundamental
    policy of Indian law, it was held that disregarding:

    (a) orders of superior courts in India; and

    (b) the binding effect of the judgment of a superior court would
    also be regarded as being contrary to the fundamental policy of
    Indian law.

    Further, elaborating upon the third juristic principle (i.e. qua

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    perversity), as laid down in ONGC Ltd. v. Western Geco
    International Ltd.
    , (2014) 9 SCC 263, it was observed that where:

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

    (ii) an Arbitral Tribunal takes into account something irrelevant to
    the decision which it arrives at; or

    (iii) ignores vital evidence in arriving at its decision, such decision
    would necessarily be perverse[Associate Builders case, (2015)
    3 SCC 49, para 31].

    To this a caveat was added by observing that when a court applies
    the “public policy test” to an arbitration award, it does not act as a
    court of appeal and, consequently, errors of fact cannot be
    corrected; and a possible view by the arbitrator on facts has
    necessarily to pass muster as the arbitrator is the ultimate master of
    the quantity and quality of evidence to be relied upon when he
    delivers his arbitral award. It was also observed that an award
    based on little evidence or on evidence which does not measure up
    in quality to a trained legal mind would not be held to be invalid on
    that score. Thus, once it is found that the arbitrator’s approach is not
    arbitrary or capricious, it is to be taken as the last word on facts.
    The 2015 Amendment in Sections 34 and 48
    *****
    In contravention with the fundamental policy of Indian law

    51. As discussed above, till the 2015 Amendment the expression
    “in contravention with the fundamental policy of Indian law” was
    not found in the 1996 Act. Yet, in Renusagar Power Co.
    Ltd. v. General Electric Co.
    , 1994 Supp (1) SCC 644, in the
    context of enforcement of a foreign award, while construing the
    phrase “contrary to the public policy”, this Court held that for a
    foreign award to be contrary to public policy mere contravention of
    law would not be enough rather it should be contrary to:

    (a) the fundamental policy of Indian law; and/or

    (b) the interest of India; and/or

    (c) justice or morality.

    *****

    55. The legal position which emerges from the aforesaid discussion
    is that after “the 2015 Amendments” in Section 34(2)(b)(ii) and
    Section 48(2)(b) of the 1996 Act, the phrase “in conflict with the
    public policy of India” must be accorded a restricted meaning in
    terms of Explanation 1. The expression “in contravention with the
    fundamental policy of Indian law” by use of the word
    “fundamental” before the phrase “policy of Indian law” makes the
    expression narrower in its application than the phrase “in
    contravention with the policy of Indian law”, which means mere
    contravention of law is not enough to make an award vulnerable.
    To bring the contravention within the fold of fundamental policy of
    Indian law, the award must contravene all or any of such
    fundamental principles that provide a basis for administration of

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    justice and enforcement of law in this country.

    56. Without intending to exhaustively enumerate instances of such
    contravention, by way of illustration, it could be said that:

    (a) violation of the principles of natural justice;

    (b) disregarding orders of superior courts in India or the binding
    effect of the judgment of a superior court; and

    (c) violating law of India linked to public good or public interest,
    are considered contravention of the fundamental policy of
    Indian law.

    However, while assessing whether there has been a contravention
    of the fundamental policy of Indian law, the extent of judicial
    scrutiny must not exceed the limit as set out in Explanation 2 to
    Section 34(2)(b)(ii).

    *****
    Patent illegality

    65. Sub-section (2-A) of Section 34 of the 1996 Act, which was
    inserted by the 2015 Amendment, provides that an arbitral award
    not arising out of international commercial arbitrations, may also
    be set aside by the Court, if the Court finds that the award is visited
    by patent illegality appearing on the face of the award. The proviso
    to sub-section (2-A) states that an award shall not be set aside
    merely on the ground of an erroneous application of the law or by
    reappreciation of evidence.

    66. InONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, while
    dealing with the phrase “public policy of India” as used in Section
    34
    , this Court took the view that the concept of public policy
    connotes some matter which concerns public good and public
    interest. If the award, on the face of it, patently violates statutory
    provisions, it cannot be said to be in public interest. Thus, an award
    could also be set aside if it is patently illegal. It was, however,
    clarified that illegality must go to the root of the matter and if the
    illegality is of trivial nature, it cannot be held that award is against
    public policy.

    67. InAssociate Builders v. DDA, (2015) 3 SCC 49, this Court
    held that an award would be patently illegal, if it is contrary to:

    (a) substantive provisions of law of India;

    (b) provisions of the 1996 Act; and

    (c) terms of the contract [See also three-Judge Bench decision of
    this Court in State of Chhattisgarh v. SAL Udyog (P) Ltd.,
    (2022) 2 SCC 275].

    The Court clarified that if an award is contrary to the substantive
    provisions of law of India, in effect, it is in contravention of
    Section 28(1)(a) of the 1996 Act. Similarly, violating terms of the
    contract, in effect, is in contravention of Section 28(3) of the 1996
    Act.

    68. InSsangyongEngg. & Construction Co. Ltd. v. NHAI, (2019)
    15 SCC 131 this Court specifically dealt with the 2015

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    Amendment which inserted sub-section (2-A) in Section 34 of the
    1996 Act. It was held that “patent illegality appearing on the face
    of the award” refers to such illegality as goes to the root of matter,
    but which does not amount to mere erroneous application of law. It
    was also clarified that what is not subsumed within “the
    fundamental policy of Indian law”, namely, the contravention of a
    statute not linked to “public policy” or “public interest”, cannot be
    brought in by the backdoor when it comes to setting aside an award
    on the ground of patent illegality [ See SsangyongEngg. &
    Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131]. Further, it
    was observed, reappreciation of evidence is not permissible under
    this category of challenge to an arbitral award
    [See SsangyongEngg.
    & Construction Co. Ltd. v. NHAI, (2019)
    15 SCC 131].

    Perversity as a ground of challenge

    69. Perversity as a ground for setting aside an arbitral award was
    recognised inONGC Ltd. v. Western Geco International Ltd.,
    (2014) 9 SCC 263. Therein it was observed that an arbitral decision
    must not be perverse or so irrational that no reasonable person
    would have arrived at the same. It was observed that if an award is
    perverse, it would be against the public policy of India.

    70. InAssociate Builders v. DDA, (2015) 3 SCC 49 certain tests
    were laid down to determine whether a decision of an Arbitral
    Tribunal could be considered perverse. In this context, it was
    observed that where:

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

    (ii) an Arbitral Tribunal takes into account something irrelevant to
    the decision which it arrives at; or

    (iii) ignores vital evidence in arriving at its decision, such decision
    would necessarily be perverse.

    However, by way of a note of caution, it was observed that when a
    court applies these tests it does not act as a court of appeal and,
    consequently, errors of fact cannot be corrected. Though, a possible
    view by the arbitrator on facts has necessarily to pass muster as the
    arbitrator is the ultimate master of the quantity and quality of
    evidence to be relied upon. It was also observed that an award
    based on little evidence or on evidence which does not measure up
    in quality to a trained legal mind would not be held to be invalid on
    that score.

    71. In SsangyongEngg. & Construction Co. Ltd. v. NHAI, (2019)
    15 SCC 131, which dealt with the legal position post the 2015
    Amendment in Section 34 of the 1996 Act, it was observed that a
    decision which is perverse, while no longer being a ground for
    challenge under “public policy of India”, would certainly amount to
    a patent illegality appearing on the face of the award. It was
    pointed out that an award based on no evidence, or which ignores
    vital evidence, would be perverse and thus patently illegal. It was

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    also observed that a finding based on documents taken behind the
    back of the parties by the arbitrator would also qualify as a decision
    based on no evidence inasmuch as such decision is not based on
    evidence led by the parties, and therefore, would also have to be
    characterised as perverse [ See SsangyongEngg. & Construction
    Co. Ltd. v. NHAI
    , (2019) 15 SCC 131].

    72. The tests laid down inAssociate Builders v. DDA, (2015) 3
    SCC 49 to determine perversity were followed in SsangyongEngg.

    & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 and later
    approved by a three-Judge Bench of this Court inPatel Engg.
    Ltd. v. North Eastern Electric Power Corpn. Ltd.
    , (2020) 7 SCC

    167.

    73. In a recent three-Judge Bench decision of this Court inDMRC
    Ltd. v. Delhi Airport Metro Express (P) Ltd.
    , (2024) 6 SCC 357,
    the ground of patent illegality/perversity was delineated in the
    following terms: (SCC p. 376, para 39)
    “39. In essence, the ground of patent illegality is available
    for setting aside a domestic award, if the decision of the
    arbitrator is found to be perverse, or so irrational that no
    reasonable person would have arrived at it; or the
    construction of the contract is such that no fair or
    reasonable person would take; or, that the view of the
    arbitrator is not even a possible view. A finding based on
    no evidence at all or an award which ignores vital
    evidence in arriving at its decision would be perverse and
    liable to be set aside under the head of “patent illegality”.
    An award without reasons would suffer from patent
    illegality. The arbitrator commits a patent illegality by
    deciding a matter not within its jurisdiction or violating a
    fundamental principle of natural justice.”
    Scope of interference with an arbitral award

    74. The aforesaid judicial precedents make it clear that while
    exercising power under Section 34 of the 1996 Act the Court does
    not sit in appeal over the arbitral award. Interference with an
    arbitral award is only on limited grounds as set out in Section 34 of
    the 1996 Act. A possible view by the arbitrator on facts is to be
    respected as the arbitrator is the ultimate master of the quantity and
    quality of evidence to be relied upon. It is only when an arbitral
    award could be categorised as perverse, that on an error of fact an
    arbitral award may be set aside. Further, a mere erroneous
    application of the law or wrong appreciation of evidence by itself is
    not a ground to set aside an award as is clear from the provisions of
    sub-section (2-A) of Section 34 of the 1996 Act.

    75. InDyna Technologies (P) Ltd. v. Crompton Greaves Ltd.,
    (2019) 20 SCC 1, paras 27-43, a three-Judge Bench of this Court
    held that courts need to be cognizant of the fact that arbitral awards
    are not to be interfered with in a casual and cavalier manner, unless

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    the court concludes that the perversity of the award goes to the root
    of the matter and there is no possibility of an alternative
    interpretation that may sustain the arbitral award. It was observed
    that jurisdiction under Section 34 cannot be equated with the
    normal appellate jurisdiction. Rather, the approach ought to be to
    respect the finality of the arbitral award as well as party’s autonomy
    to get their dispute adjudicated by an alternative forum as provided
    under the law.

    *****
    Scope of interference with the interpretation/construction of a
    contract accorded in an arbitral award

    84. An Arbitral Tribunal must decide in accordance with the terms
    of the contract. In a case where an Arbitral Tribunal passes an
    award against the terms of the contract, the award would be
    patently illegal. However, an Arbitral Tribunal has jurisdiction to
    interpret a contract having regard to terms and conditions of the
    contract, conduct of the parties including correspondences
    exchanged, circumstances of the case and pleadings of the parties.
    If the conclusion of the arbitrator is based on a possible view of the
    matter, the Court should not intefere [See: SAIL v. Gupta Brother
    Steel Tubes Ltd.
    , (2009) 10 SCC 63; Pure Helium India (P)
    Ltd. v. ONGC, (2003) 8 SCC 593; McDermott International
    Inc. v. Burn Standard Co. Ltd.
    , (2006) 11 SCC 181; MMTC
    Ltd. v. Vedanta Ltd.
    , (2019) 4 SCC 163].
    But where, on a full
    reading of the contract, the view of the Arbitral Tribunal on the
    terms of a contract is not a possible view, the award would be
    considered perverse and as such amenable to interference [South
    East Asia Marine Engg. & Constructions Ltd. v. Oil India Ltd.
    ,
    (2020) 5 SCC 164].

    Whether unexpressed term can be read into a contract as an
    implied condition

    85. Ordinarily, terms of the contract are to be understood in the
    way the parties wanted and intended them to be. In agreements of
    arbitration, where party autonomy is the grund norm, how the
    parties worked out the agreement, is one of the indicators to
    decipher the intention, apart from the plain or grammatical meaning
    of the expressions used [BALCO v. Kaiser Aluminium Technical
    Services Inc., (2016) 4 SCC 126].

    86. However, reading an unexpressed term in an agreement would
    be justified on the basis that such a term was always and obviously
    intended by the parties thereto. An unexpressed term can be
    implied if, and only if, the court finds that the parties must have
    intended that term to form part of their contract. It is not enough for
    the court to find that such a term would have been adopted by the
    parties as reasonable men if it had been suggested to them. Rather,
    it must have been a term that went without saying, a term necessary
    to give business efficacy to the contract, a term which, although

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    tacit, forms part of the contract [Adani Power (Mundra)
    Ltd. v. Gujarat ERC, (2019) 19 SCC 9].

    87. But before an implied condition, not expressly found in the
    contract, is read into a contract, by invoking the business efficacy
    doctrine, it must satisfy the following five conditions:

    (a) it must be reasonable and equitable;

    (b) it must be necessary to give business efficacy to the contract,
    that is, a term will not be implied if the contract is effective
    without it;

    (c) it must be obvious that “it goes without saying”;

    (d) it must be capable of clear expression;

    (e) it must not contradict any terms of the contract [Nabha Power
    Ltd. v. Punjab SPCL, (2018) 11 SCC 508, followed in Adani
    Power case, (2019) 19 SCC 9].

    (emphasis supplied)

    16. This Court now proceeds to examine the considerations and
    findings returned by the learned Arbitrator on the anvil of the limited
    and circumscribed jurisdiction available under Section 34 of the Act,
    and in the light of the principles authoritatively laid down by the
    Hon’ble Supreme Court in OPG Power Generation (supra).

    17. At the outset, upon a careful and holistic perusal of the
    Impugned Award, this Court finds that the same suffers from a
    fundamental infirmity, namely, the absence of discernible reasoning.
    The paragraphs relied upon by learned counsel for the Respondent
    herein, as constituting the reasoning of the learned Arbitrator, reveal
    that they are, in substance, a mere reproduction or reiteration of the
    submissions and factual assertions advanced on behalf of the
    Claimant/Respondent herein, rather than an independent adjudicatory
    analysis. The Award, thus, reflects a mechanical acceptance of one
    party’s case without any demonstrable application of mind.

    18. Although the issue as to whether the contractual procedure for
    extension of time, as envisaged under the GCC, was duly followed,
    finds a passing reference in Paragraph No. 13 of the Impugned Award,
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    the said observation remains conclusory in nature and is not
    meaningfully integrated into the final determination. There is no
    analytical linkage between the said observation and the ultimate
    conclusions reached by the learned Arbitrator.

    19. In fact, the conclusions of the learned Arbitrator are traceable, if
    at all, only to Paragraph Nos. 18 and 19 of the Impugned Award,
    which merely summarise the pleadings and record the ultimate
    findings. A plain reading of these paragraphs makes it evident that
    they do not disclose the reasoning process which led the learned
    Arbitrator to reject the Petitioner’s defence and allow the
    Respondent’s claim. The observations contained therein are
    conclusory and devoid of any analytical reasoning. For ready
    reference, Paragraph Nos. 18 and 19 of the Impugned Award are
    reproduced hereunder:

    “18. To summarise the pleadings of the Claimant, the provision in
    the contract that every hindrance will be reported within ten days, a
    decision given by the Engr in charge, and an appeal allowed by the
    GM have not been followed. As can be seen, the argument by the
    Respondents that the price discount is simple as in case of Basmati
    rice and computer provision is not valid, as construction contracts
    are much more complicated and claims like delays have to be
    evaluated on the basis of data provided. The conclusion that the
    norms laid down by the apex Court have not been followed cannot
    be avoided.

    19. After considering all the facts and pleadings and arguments of
    both the parties, I have come to the conclusion that the imposition
    of “price discount” for a period of 69 days amounting to
    Rs91,59,654 is not admissible. Accordingly, I accept the Claim of
    the Claimant that a refund of the price discount already made (Rs
    91.59.654) is justified.”

    20. The Impugned Award, therefore, suffers from what may
    appropriately be characterised as an “acute reasoning deficit”. It is a
    well-settled and fundamental principle of law that reasons constitute

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    the soul of any judicial or quasi-judicial determination. The
    requirement of recording reasons is not an empty formality, rather, it
    serves to demonstrate that the decision-maker has applied its mind to
    the material on record, has duly considered the rival submissions, and
    has arrived at its conclusions through a rational and logical process. In
    the absence of such reasoning, the decision becomes inherently
    opaque and arbitrary, depriving the parties of the ability to understand
    the basis of the conclusions reached and rendering the same
    vulnerable to judicial scrutiny and interference. An arbitral award that
    merely sets out the final conclusions, without disclosing the mental
    process or analytical pathway leading thereto, fails to satisfy the
    minimum statutory mandate.

    21. Significantly, although the learned Arbitrator in the present case
    makes a cursory reference to the necessity of rendering a reasoned
    decision in accordance with settled legal principles, the Impugned
    Award itself falls conspicuously short of that very standard. The
    findings recorded therein are unsupported by any cogent reasoning or
    legal analysis and do not reflect a meaningful consideration of the
    pleadings, evidence, or submissions advanced by both parties. Such a
    perfunctory approach strikes at the very root of the adjudicatory
    process and renders the Award unsustainable in law.

    22. The Hon’ble Supreme Court, in a catena of decisions, including
    Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.8, has
    consistently held that Section 31(3) of the Act mandates that an
    arbitral award must contain reasons that are intelligible and adequate,
    though not necessarily elaborate. While arbitrators are not required to

    8
    (2019) 20 SCC 1
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    render judgments akin to courts, the reasoning must nonetheless
    reflect a rational nexus between the material on record and the
    conclusions arrived at. A reasoned award must satisfy three essential
    attributes, namely, that it is proper, intelligible, and adequate. Where
    the reasoning is improper, it discloses a flaw in the decision-making
    process and may render the award vulnerable to challenge under
    Section 34 of the Act on grounds of perversity.

    23. The Apex Court, in Dyna Technologies (supra), has clarified
    that where the reasoning is unintelligible, it is tantamount to no
    reasons at all, and such awards are ordinarily liable to be set aside.
    While the adequacy of reasons may vary depending upon the
    complexity of the issues involved, and minor gaps in reasoning may
    not by themselves warrant interference, an award that is
    fundamentally bereft of intelligible reasoning cannot be sustained.
    Courts must, therefore, carefully distinguish between a case of mere
    inadequacy of reasons and one of complete absence or unintelligibility
    of reasoning. The former may not justify interference, whereas the
    latter strikes at the very root of the award. The relevant paragraphs of
    the said judgment read as follows:

    “1. The question involved herein revolves around the requirement
    of reasoned award and the cautionary tale for the parties and
    arbitrators to have a clear award, rather than to have an award
    which is muddled in form and implied in its content, which
    inevitably leads to wastage of time and resources of the parties to
    get clarity, and in some cases, frustrate the very reason for going
    for an arbitration.

    *****

    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
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    being a possibility of alternative interpretation which may sustain
    the arbitral award. Section 34 is different in its approach and cannot
    be equated with a normal appellate jurisdiction. The mandate under
    Section 34 is to respect the finality of the arbitral award and the
    party autonomy to get their dispute adjudicated by an alternative
    forum as provided under the law. If the courts were to interfere
    with the arbitral award in the usual course on factual aspects, then
    the commercial wisdom behind opting for alternate dispute
    resolution would stand frustrated.

    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.

    *****

    28. Similar to the position under the Model Law, India also adopts
    a default rule to provide for reasons unless the parties agree
    otherwise. As with most countries like England, America and
    Model Law, Indian law recognises enforcement of the reasonless
    award if it has been so agreed between the parties.

    29. There is no gainsaying that arbitration proceedings are not per
    se comparable to judicial proceedings before the Court. A party
    under Indian Arbitration Law can opt for an arbitration before any
    person, even those who do not have prior legal experience as well.
    In this regard, we need to understand that the intention of the
    legislature to provide for a default rule, should be given rational
    meaning in light of commercial wisdom inherent in the choice of
    arbitration.

    30. A five-Judge Constitution Bench of this Court in Raipur
    Development Authority v. Chokhamal Contractors
    , (1989) 2 SCC
    721, considered the scope of Section 30 of the Arbitration Act,
    1940 and held as under: (SCC p. 736, para 19)
    “19. It is now well settled that an award can neither be
    remitted nor set aside merely on the ground that it does not
    contain reasons in support of the conclusion or decisions
    reached in it except where the arbitration agreement or the
    deed of submission requires him to give reasons. The
    arbitrator or umpire is under no obligation to give reasons
    in support of the decision reached by him unless under the
    arbitration agreement or in the deed of submission he is
    required to give such reasons and if the arbitrator or
    umpire chooses to give reasons in support of his decision
    it is open to the court to set aside the award if it finds that
    an error of law has been committed by the arbitrator or

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    umpire on the face of the record on going through such
    reasons. The arbitrator or umpire shall have to give
    reasons also where the court has directed in any order such
    as the one made under Section 20 or Section 21 or Section
    34
    of the Act that reasons should be given or where the
    statute which governs an arbitration requires him to do
    so.”

    31. A three-Judge Bench of this Court in another case of S.
    Harcharan Singh v. Union of India [S. Harcharan Singh v. Union
    of India, (1990) 4 SCC 647] , reiterated its earlier view that the
    arbitrator’s adjudication is generally considered binding between
    the parties for he is a Tribunal selected by the parties and the power
    of the Court to set aside the award is restricted to cases set out in
    Section 30 of the Arbitration Act, 1940.

    32. However, the ratio of Chokhamal case has not found favour of
    the legislature, and accordingly Section 31(3) has been enacted in
    the Arbitration Act.
    This Court in Som Datt Builders Ltd. v. State
    of Kerala
    , (2009) 10 SCC 259, a Division Bench of this Court has
    indicated that passing of a reasoned award is not an empty
    formulation under the Arbitration Act.

    33. It may be relevant to note Russell on Arbitration, 23rd Edn.
    (2007), wherein he notes that:

    “If the Court can deduce from the award and the materials
    before it, which may include extracts from evidence and
    the transcript of hearing, the thrust of the tribunal’s
    reasoning then no irregularity will be found….Equally, the
    court should bear in mind that when considering awards
    produced by non-lawyer arbitrators, the court should look
    at the substance of such findings, rather than their form,
    and that one should approach a reading of the award in a
    fair, and not in an unduly literal way.”

    (emphasis supplied)

    34. The mandate under Section 31(3) of the Arbitration Act is to
    have reasoning which is intelligible and adequate and, which can in
    appropriate cases be even implied by the courts from a fair reading
    of the award and documents referred to thereunder, if the need be.
    The aforesaid provision does not require an elaborate judgment to
    be passed by the arbitrators having regard to the speedy resolution
    of dispute.

    35. When we consider the requirement of a reasoned order, three
    characteristics of a reasoned order can be fathomed. They are:

    proper, intelligible and adequate. If the reasonings in the order are
    improper, they reveal a flaw in the decision-making process. If the
    challenge to an award is based on impropriety or perversity in the
    reasoning, then it can be challenged strictly on the grounds
    provided under Section 34 of the Arbitration Act. If the challenge

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    to an award is based on the ground that the same is unintelligible,
    the same would be equivalent of providing no reasons at all.
    Coming to the last aspect concerning the challenge on adequacy of
    reasons, the Court while exercising jurisdiction under Section 34
    has to adjudicate the validity of such an award based on the degree
    of particularity of reasoning required having regard to the nature of
    issues falling for consideration. The degree of particularity cannot
    be stated in a precise manner as the same would depend on the
    complexity of the issue. Even if the Court comes to a conclusion
    that there were gaps in the reasoning for the conclusions reached by
    the Tribunal, the Court needs to have regard to the documents
    submitted by the parties and the contentions raised before the
    Tribunal so that awards with inadequate reasons are not set aside in
    casual and cavalier manner. On the other hand, ordinarily
    unintelligible awards are to be set aside, subject to party autonomy
    to do away with the reasoned award. Therefore, the courts are
    required to be careful while distinguishing between inadequacy of
    reasons in an award and unintelligible awards.”

    (emphasis supplied)

    24. In the considered opinion of this Court, the Impugned Award,
    when tested on the anvil of settled legal principles, squarely falls
    within the category of awards vitiated by unintelligibility of reasoning.

    This is not a case of mere inadequacy or insufficiency of reasons,
    where, despite certain gaps or brevity, the underlying thought process
    of the Arbitrator may still be gathered from the record.

    25. On the contrary, the present case discloses a far more
    fundamental infirmity. The conclusions recorded therein are bald,
    conclusory, and unsupported by any discernible analytical process.
    Such an Award, which merely announces the result without revealing
    the complete mental process leading to it, cannot be sustained in law.

    26. As noted earlier, the Impugned Award fails to disclose any
    coherent or logical adjudicatory pathway linking the factual assertions
    and the ultimate conclusions arrived at by the learned Arbitrator. The
    absence of such a reasoning framework renders it impossible for this
    Court to meaningfully examine or scrutinize the basis of the findings
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    returned. This deficiency strikes at the very root of the statutory
    mandate embodied in Section 31(3) of the Act.

    27. Furthermore, in the absence of intelligible reasoning, the
    contentions raised by the Petitioner herein cannot be effectively
    examined on the merits. On this ground alone, the Impugned Award is
    rendered unsustainable.

    28. Accordingly, the present Petition is allowed, and the Impugned
    Award dated 20.11.2014 is set aside.

    29. The present Petition, along with pending Application(s), if any,
    stands disposed of in the aforesaid terms.

    30. There shall be no order as to costs.

    HARISH VAIDYANATHAN SHANKAR, J.

    APRIL 02, 2026/tk/ DJ

    Signature Not Verified
    Digitally Signed
    By:VARNIKA
    O.M.P. (COMM) 246/2016
    Signing Date:06.04.2026 Page 24 of 24
    18:20:17



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