Delhi High Court
Emr Chowdary vs Engineering Projects India Limited on 27 April, 2026
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 16.04.2026
Judgment pronounced on: 27.04.2026
+ O.M.P. (COMM) 400/2017
EMR CHOWDARY .....Petitioner
Through: Mr. Arjun Natarajan, Mr.
Ayush Kumar & Mr. Nakul
Gupta, Advocates.
versus
ENGINEERING PROJECTS INDIA LIMITED
.....Respondent
Through: Mr. Manish Paliwal, Ms.
Megha Yadav, Ms. Srashti
Sahu & Mrs. Trupti Das,
Advocates.
+ O.M.P. (COMM) 408/2017
ENGINEERING PROJECT (INDIA) LIMITED .....Petitioner
Through: Mr. Manish Paliwal, Ms.
Megha Yadav, Ms. Srashti
Sahu & Mrs. Trupti Das,
Advocates.
versus
ASSOCIATED CONSTRUCTION COMPANY
.....Respondent
Through: Mr. Arjun Natarajan, Mr.
Ayush Kumar & Mr. Nakul
Gupta, Advocates.
CORAM:
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
Signature Not Verified
Digitally Signed
By:NEERU
O.M.P. (COMM) 400/2017 & connected matter
Signing Date:29.04.2026 Page 1 of 37
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1. The present Petitions, being OMP (COMM) 400/2017 and OMP
(COMM) 408/2017, have been filed under Section 34 of the
Arbitration and Conciliation Act, 19961, challenging various
findings and aspects of the common Arbitral Award dated 05.04.2017,
as subsequently modified by the additional/modified award dated
19.08.2017. Since both petitions arise out of the same arbitral
proceedings and involve interconnected as well as overlapping issues,
they are being decided together by way of this common judgment.
2. At the outset, it is noted that both the present Petitions are in the
nature of cross-objections under Section 34 of the A&C Act. It is also
an undisputed position that Associated Construction Company is the
sole proprietorship concern of EMR Chowdary. Accordingly, for the
sake of clarity and consistency throughout this judgment, the
expressions “Associated Construction Company” and “EMR
Chowdary” are used interchangeably, wherever the context so
requires.
BRIEF FACTS:
3. The dispute arises out of a contract pertaining to the execution
of work for blast hole drilling, blasting, excavation, loading,
transportation and dumping of overburden at the Gauthamkhani Open
Cast Project of the Singareni Collieries Company Limited2 in the
State of Andhra Pradesh.
4. Engineering Projects (India) Limited3, a public sector
undertaking, intended to participate in the tender floated by the SCCL.
1
A&C Act
2
SCCL
3
EPI
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5. Associated Construction Company4, through its proprietor
EMR Chowdary, approached EPI, expressing its willingness to
associate in the execution of the project and sought a copy of the
Notice Inviting Tender5.
6. Pursuant thereto, a pre-tender meeting was held between EPI
and ACC on 03.10.2003, wherein the parties agreed upon various
terms and conditions governing their relationship. It was, inter alia,
agreed that ACC would undertake the complete execution of the work
as per the tender conditions on a back-to-back basis, and that all terms
applicable between SCCL and EPI would apply mutatis mutandis
between EPI and ACC. These understandings between the parties
were reduced to writing in the Minutes of Meeting dated
03.10.20036.
7. ACC submitted its offer to EPI on 06.10.2003, based on which
EPI submitted its bid to SCCL. The bid of EPI was accepted by SCCL
on 14.01.2004, and EPI, in turn, informed ACC of the acceptance and
directed it to commence the work in terms of the understanding
between the parties.
8. The SCCL issued a formal work order dated 19.01.2004 in
favour of EPI for the execution of approximately 285 Lakh Bench
Cum Work7, followed by a target schedule dated 26.03.2004
prescribing the timelines for execution.
9. Thereafter, a Work Order dated 14.05.20048 was issued by
EPI in favour of ACC for execution of the entire scope of work on an
item-rate basis, with an estimated value of approximately Rs. 99.21
4
ACC
5
NIT
6
MoM
7
LBCM
8
Work Order
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Crores. The completion period for the said work was stipulated as 36
months in terms of the arrangement between EPI and SCCL, with the
execution to be carried out in accordance with the schedule issued by
SCCL.
10. The said work order made reference to, inter alia, the MoM,
ACC’s offer dated 06.10.2003, and the work order dated 19.01.2004
and letter dated 26.03.2004 issued by SCCL, and provided that the
terms and conditions applicable between SCCL and EPI would apply
mutatis mutandis between EPI and ACC on a back-to-back basis,
except to the extent otherwise agreed between the parties.
11. Subsequently, in a meeting held on 30.06.2004, in view of the
shortfall in achieving the stipulated monthly targets, it was mutually
decided between EPI and ACC that the scope of work would be
divided, and ACC would execute only 50% of the project.
12. Pursuant thereto, EPI issued a Letter of Intent dated 01.07.2004
in favour of a third party, namely, M/s. CGR Associates, for the
remaining 50% of the work.
13. EPI thereafter issued Amendment No. 1 dated 06.07.20049 to
the work order, reducing ACC’s scope of work by 50% and providing
for secured advance for the procurement of dumpers. Amendment
No. 2 dated 30.08.200410 further modified the terms relating to
repayment of the secured advance.
14. The work, however, did not proceed as contemplated, and the
SCCL terminated the work order issued to EPI on 01.10.2004.
Consequently, EPI terminated the work order issued to ACC on
08.10.2004.
9
Amendment No.1
10
Amendment No.2
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15. Following the termination, ACC returned the equipment,
including dumpers procured for the execution of the project.
Thereafter, the SCCL raised a demand upon EPI towards penalty and
differential cost incurred due to termination, and EPI, in turn, raised
similar claims against ACC.
16. Disputes having arisen between the parties, EPI invoked the
arbitration clause contained in the Agreement.
17. In terms thereof, the Chairman and Managing Director of EPI
appointed a Sole Arbitrator vide letter dated 24.02.2006 to adjudicate
the disputes, claims and counterclaims between the parties.
18. The learned Arbitrator entered upon reference upon accepting
the appointment on 02.03.2006.
19. Upon completion of arbitral proceedings, the learned Arbitrator
passed the Arbitral Award dated 05.04.201711. The claims and
counter-claims as adjudicated in the Impugned Award are reproduced
hereunder:
“12. Summary of the award
12.1 The award with regard to various claims filed by EPI is
summarized below:
S. No. Description Amount Amount
claimed in Rs. Awarded in Rs.
Claim Penalty on 2,35,16,330.00.1,35,41,073.52*
no. 1 unexecuted *Subject to
quantity undertaking by
EPI
Claim Differential Cost 20,52,46,934.63 9,08,96, 719.00*
no. 2 *Payable by
ACC
only if EPI pays
this amount to
SCCL
Claim Amount 9,61,896.11 (-) 27,92,282.00*
11
Impugned Award
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no. 3 recoverable *Payable by EPI
against to ACC.
payment + Interest
released in 34,20,545.00
excess of
contractual
payments
Claim Loss of profit 4,57,56,039.00 NIL
no. 4
Claim Interest payable 38,45,637.11 NIL
no. 5 against
unadjusted
amount
Claim Addl. 10,91,406.00 NIL
no. 6 Expenditure
incurred during
execution of the
project
Claim Forfeiture 53,37,828.37 50,00,000.00
no. 7 amount of EMD Mode of
and security recovery
as per the verdict
of the Hon'ble
Court
Balance
3,20,059.67*
*Included in
amount under
claim no.3
above.
Claim Interest on Will be worked 1,53,46,550.00*
no. 8 amount claimed out and *Subject to
submitted undertaking by
during EPI
pleadings
Claim Amount As per actuals NIL
no. 9 recoverable on
account of cost
and expenses of
arbitration
Plus interest @
10% per annum
from the 4th
month from the
date of award till
the date of actual
payment by ACC
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12.2 The award with regard to various counter claims filed by
ACC is summarized below:
S. No. Description Amount Amount
claimed in Awarded in Rs.
Rs.
Claim Work done but 36,33,382.85 27,92,282.00 +
no. 1 not paid interest
34,20545.00
Claim Loss on 1,99,53,000.00 NIL
no. 2 machinery
Claim Loss on 96,43,500.00 NIL
no. 3 workmen etc.
Claim Loss on vehicles 86,70,952.00 Hon'ble Court to
no. 4 Decide
Claim Loss on 45,70,000.00 NIL
no. 5 establishment
Claim Loss on profit 8,88,92,646.00 NIL
no. 6 and goodwill
Plus interest @
10% per annum
from the 4th
month from the
date of award till
the date of actual
payment by EPI
....."
20. Subsequently, upon applications filed by both parties under
Section 33 of the A&C Act before the learned Arbitrator, certain
modifications were carried vide Modified Award dated 19.08.201712.
The modifications by the learned Arbitrator with effect to claims and
counterclaims by the Modified Award are extracted herein below:
“12.1 The award with regard to various claims filed by EPI is
summarized below:
S. No. Description Amount Amount
claimed in Rs. Awarded in
Rs.
Claim Penalty on 2,35,16,330.00. 1,35,41,073.52*
no. 1 unexecuted *Subject to
quantity undertaking by12
Modified Award
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EPI
Claim Differential Cost 20,52,46,934.63 9,08,96,
no. 2 719.00*
*Payable by
ACC
only if EPI pays
this amount to
SCCL
Claim Amount 9,61,896.11 NIL
no. 3 recoverable
against
payment
released in
excess of
contractual
payments
Claim Loss of profit 4,57,56,039.00 NIL
no. 4
Claim Interest payable 38,45,637.11 NIL
no. 5 against
unadjusted
amount
Claim Addl. 10,91,406.00 NIL
no. 6 Expenditure
incurred during
execution of the
project
Claim Forfeiture 53,37,828.37 50,00,000.00
no. 7 amount of EMD Mode of
and security recovery
as per the
verdict
of the Hon’ble
Court
Balance
3,20,059.67*
*Included in
amount under
claim no.3
above.
Claim Interest on Will be worked 1,53,46,550.00*
no. 8 amount claimed out and *Subject to
submitted undertaking by
during EPI
pleadings
Claim Amount As per actuals 3,73,650.00
no. 9 recoverable on +
account of cost @ 10% from
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and expenses of the date
arbitration of payment till
its
realization.
12.2 The award with regard to various counter claims filed by
ACC is summarized below:
S. No. Description Amount Amount
claimed in Rs. Awarded in
Rs.
Claim Work done but 36,33,382.85 27,92,282.00 +
no. 1 not paid interest
34,20545.00
Claim Loss on 1,99,53,000.00 NIL
no. 2 machinery
Claim Loss on 96,43,500.00 NIL
no. 3 workmen etc.
Claim Loss on vehicles 86,70,952.00 10,08,949.00
no. 4 +
Interest
12,61,186.00
Claim Loss on 45,70,000.00 NIL
no. 5 establishment
Claim Loss on profit 8,88,92,646.00 NIL
no. 6 and goodwill
Plus interest @
10% per
annum from
the 4th month
from the date
of award till
the date of
actual payment
by EPI
......"
21. Aggrieved by the Impugned Award, as modified by the Order
dated 19.08.2017, both parties have preferred the present cross
Petitions under Section 34 of the A&C Act before this Court.
Signature Not Verified
Digitally Signed
By:NEERU
O.M.P. (COMM) 400/2017 & connected matter
Signing Date:29.04.2026 Page 9 of 37
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SUBMISSIONS ON BEHALF OF PARTIES IN OMP(COMM.)
400/2017:
ACC’s Submissions
22. Learned counsel for ACC, in the Petition filed by ACC, would
submit that the Impugned Award, as well as the Modified Award, is
liable to be set aside as the learned Arbitrator has proceeded on
fundamentally erroneous premises in fact and law. He would contend
that the MoM was only a preliminary understanding and did not
constitute a binding contract, particularly in the absence of any formal
agreement approved by SCCL.
23. He would further submit that the learned Arbitrator has
erroneously assumed the existence of binding targets from March
2004, despite the work order having come into existence only on
14.05.2004 and no agreed schedule being in place thereafter. He
would argue that the learned Arbitrator has, in effect, created
contractual obligations by imposing targets which were never agreed
upon, and has proceeded on an imaginary schedule despite recording
that no revised schedule existed.
24. Learned counsel would contend that such an approach amounts
to rewriting the contract, which is impermissible in law. Reliance
would be placed by the learned counsel for ACC on PSA Sical
Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port
Trust13 to submit that an arbitral tribunal cannot travel beyond the
contract or impose obligations dehors it. He would also submit that
ACC was deprived of an opportunity to deal with such assumed
targets, thereby violating principles of natural justice.
13
(2023) 15 SCC 781
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25. He would further contend that the imposition of a penalty and
differential cost is without a contractual basis, particularly when the
learned Arbitrator himself records the absence of any agreement to
share profit and loss. He would submit that no default can be
attributed to ACC in the absence of a mutually agreed schedule and
that ACC had duly performed during the limited period where any
schedule could arguably be said to exist.
26. He would also submit that the work order does not constitute a
binding contract governing inter se rights, and that EPI failed to
perform its reciprocal obligations, which has not been duly
considered. He would further contend that the rejection of counter-
claims is arbitrary and unsupported by a proper appreciation of
evidence.
27. He would, during the course of oral submissions, submit that
the ACC’s challenge is confined to Claim Nos. 1, 2, 7 and 9 and
Counter Claim Nos. 2, 3, 5 and 6, and that the Impugned Award as
well as the Modified Award, to that extent, is vitiated by patent
illegality.
28. He would contend that in the absence of any concluded
contract, the learned Arbitrator could not have imposed liabilities, and
even otherwise, the Impugned award travels beyond the contractual
framework in violation of Section 28(3) of the A&C Act and is bereft
of reasons in violation of Section 31(3) thereof.
29. He would, therefore, pray that the Impugned Award, as
modified, be set aside to the aforesaid extent.
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EPI’s Submissions
30. Per contra, learned counsel for EPI would submit that the
present Petition is not maintainable within the limited scope of
Section 34 of the A&C Act, as ACC seeks to re-agitate issues on
merits which have already been adjudicated by the learned Arbitrator
upon appreciation of evidence and construction of contractual
documents.
31. He would submit that it is well settled that the Court does not sit
in appeal over an arbitral award and cannot reappreciate evidence or
substitute its own view, unless the findings are perverse or patently
illegal. He would rely upon Associate Builders v. DDA14 and upon
McDermott International Inc. v. Burn Standard Co. Ltd.15, to
contend that findings of fact and interpretation of contract by the
arbitrator are definite unless perverse.
32. He would further submit, relying on NHAI v. ITD Cementation
India Ltd.16, that the construction of contractual terms falls within the
domain of the arbitrator and cannot be interfered with unless the view
taken is wholly unreasonable.
33. He would contend that the learned Arbitrator has rightly held
that the MoM, read with the subsequent work orders dated 16.01.2004
and 14.05.2004, constitutes a binding contractual framework. He
would submit that the work order dated 14.05.2004 was accepted by
ACC without demur and expressly incorporated the SCCL terms on a
back-to-back basis, thereby establishing binding obligations between
the parties.
14
(2015) 3 SCC 49
15
(2006) 11 SCC 181
16
(2015) 14 SCC 21
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34. He would further contend that the plea of ACC regarding the
absence of any target schedule is misconceived, as the SCCL work
order prescribed the schedule, which stood incorporated by virtue of
the mutatis mutandis clause. He would submit that the learned
Arbitrator has, on appreciation of evidence, recorded a finding of
persistent shortfall in performance by ACC, which, being a finding of
fact, does not warrant interference under Section 34 of the A&C Act.
35. He would further submit that the learned Arbitrator has not
created any new contractual obligations but has merely interpreted the
existing contractual framework, and such interpretation cannot be
interfered with unless wholly unreasonable. He would further submit
that the Impugned award contains detailed reasons and does not suffer
from any infirmity under Sections 28(3) or 31(3) of the A&C Act.
36. He would also contend that the allegation of violation of natural
justice is vague and without substantiation, and that ACC was
afforded full opportunity to present its case. He would submit that the
award of penalty is in accordance with the contractual framework, and
the learned Arbitrator has awarded only proportionate liability
relatable to ACC.
37. It would further be submitted that the counter-claims of ACC
have been rightly rejected on the finding that ACC was in breach,
which does not warrant interference. He would, however, contend that
insofar as Counter Claim No. 4 is concerned, the learned Arbitrator, in
the Modified award, has erroneously awarded Rs. 10,08,949/- along
with interest, which EPI has independently challenged in OMP
(COMM) 408/2017.
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38. He would, therefore, submit that the Impugned Award is well
reasoned and does not suffer from any perversity or patent illegality,
to the extent of the challenge raised by ACC, warranting interference
under Section 34 of the A&C Act, and the present Petition is liable to
be dismissed.
SUBMISSIONS ON BEHALF OF PARTIES IN OMP(COMM.)
408/2017:
EPI’s Submissions
39. Learned counsel for EPI would submit that, notwithstanding the
various grounds urged in the petition, the challenge is confined to two
aspects of the Impugned Award dated 05.04.2017 and the Modified
Award dated 19.08.2017.
40. Firstly, he would contend that the learned Arbitrator has
exceeded his jurisdiction under Section 33 of the A&C Act by
awarding Counter Claim No. 4 in the Modified Award despite having
consciously not awarded the same in the Impugned Award on the
ground that the issue was sub judice. He would submit that such re-
adjudication on merits amounts to a review of the award, which is
impermissible under Section 33 of the A&C Act.
41. Secondly, learned counsel for EPI would submit that the
learned Arbitrator has erred in making the awards under Claim Nos. 1
and 8 conditional upon the outcome of recovery proceedings with
SCCL, including directing EPI to furnish an undertaking to ACC. He
would contend that such conditional directions are unwarranted and
contrary to the contractual framework.
42. He would, therefore, submit that the Impugned Award as well
as the Modified Award suffer from patent illegality and are contrary to
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the contractual terms, and are liable to be set aside or modified to the
extent challenged.
ACC’s Submissions
43. Per contra, learned counsel appearing for ACC, in response to
the first prong of challenge raised by EPI, during the oral hearing,
fairly conceded that the learned Arbitrator, in the Modified Award,
rendered findings on Counter Claim No. 4 despite no such relief
having been granted in the Impugned Award. He further submitted
that such an exercise may not be strictly in consonance with the
limited scope of Section 33 of the A&C Act, and to that extent, the
modification may not be sustainable in law.
44. However, learned counsel for ACC would contend that the
challenge to the conditional nature of the award under Claim Nos. 1
and 8 is misconceived.
45. Learned counsel for ACC would submit that, in view of the
back-to-back contractual arrangement and the application of the
principle of mutatis mutandis, any recovery or adjustment by SCCL
from EPI would necessarily have to be passed on proportionately to
ACC. He would submit that the learned Arbitrator has rightly directed
EPI to furnish an undertaking to ACC in this regard, and no
interference is warranted on this aspect.
ANALYSIS:
46. This Court has carefully considered the submissions advanced
on behalf of both sides and, with their able assistance, has perused the
Impugned and the Modified Award and the material placed before this
Court for the adjudication of both Petitions.
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47. At the outset, it is apposite to note that this Court remains
conscious of the limited scope of its jurisdiction while examining an
objection petition under Section 34 of the A&C Act. There is a
consistent and evolving line of precedents whereby the Hon’ble
Supreme Court has authoritatively delineated and settled the contours
of judicial intervention in such proceedings.
48. In this regard, a 3-Judge Bench of the Hon’ble Supreme Court,
after an exhaustive consideration of a catena of earlier judgments, in
OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions
(India) Pvt. Ltd17, while dealing with the grounds of conflict with the
public policy of India, perversity and patent illegality, grounds which
have also been urged in the present case, made the following
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.
*****
17
(2025) 2 SCC 417
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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.
*****
The 2015 Amendment in Sections 34 and 48
42. The aforementioned judicial pronouncements were all prior to
the 2015 Amendment. Notably, prior to the 2015 Amendment the
expression “in contravention with the fundamental policy of Indian
law” was not used by the legislature in either Section 34(2)(b)(ii) or
Section 48(2)(b). The pre-amended Section 34(2)(b)(ii) and its
Explanation read:
*****
44. By the 2015 Amendment, in place of the old Explanation to
Section 34(2)(b)(ii), Explanations 1 and 2 were added to remove
any doubt as to when an arbitral award is in conflict with the public
policy of India.
45. At this stage, it would be pertinent to note that we are dealing
with a case where the application under Section 34 of the 1996 Act
was filed after the 2015 Amendment, therefore the newly
substituted/added Explanations would apply [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131].
46. The 2015 Amendment adds two Explanations to each of the
two sections, namely, Section 34(2)(b)(ii) and Section 48(2)(b), in
place of the earlier Explanation. The significance of the newly
inserted Explanation 1 in both the sections is two-fold. First, it does
away with the use of words : (a) “without prejudice to the
generality of sub-clause (ii)” in the opening part of the pre-
amended Explanation to Section 34(2)(b)(ii); and (b) “without
prejudice to the generality of clause (b) of this section” in the
opening part of the pre-amended Explanation to Section 48(2)(b);
secondly, it limits the expanse of public policy of India to the three
specified categories by using the words “only if”.
Whereas, Explanation 2 lays down the standard for adjudging
whether there is a contravention with the fundamental policy of
Indian law by providing that a review on merits of the dispute shall
not be done. This limits the scope of the enquiry on an application
under either Section 34(2)(b)(ii) or Section 48(2)(b) of the 1996
Act.
47. The 2015 Amendment by inserting sub-section (2-A) in Section
34, carves out an additional ground for annulment of an arbitral
award arising out of arbitrations other than international
commercial arbitrations. Sub-section (2-A) provides that the Court
may also set aside an award if that is vitiated by patent illegality
appearing on the face of the award. This power of the Court is,
however, circumscribed by the proviso, which states that an award
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shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
48. Explanation 1 to Section 34(2)(b)(ii), specifies that an arbitral
award is in conflict with the public policy of India, only if:
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law;
or
(iii) it is in conflict with the most basic notions of morality or
justice.
49. In the instant case, there is no allegation that the making of the
award was induced or affected by fraud or corruption, or was in
violation of Section 75 or Section 81. Therefore, we shall confine
our exercise in assessing as to whether the arbitral award is in
contravention with the fundamental policy of Indian law, and/or
whether it conflicts with the most basic notions of morality or
justice. Additionally, in the light of the provisions of sub-section
(2-A) of Section 34, we shall examine whether there is any patent
illegality on the face of the award.
50. Before undertaking the aforesaid exercise, it would be apposite
to consider as to how the expressions:
(a) “in contravention with the fundamental policy of Indian law”;
(b) “in conflict with the most basic notions of morality or justice”;
and
(c) “patent illegality” have been construed.
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.
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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
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. In ONGC 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. In Associate 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.
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68. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019)
15 SCC 131 this Court specifically dealt with the 2015
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 Ssangyong Engg. &
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 Ssangyong
Engg. & 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 in ONGC 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. In Associate 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 Ssangyong Engg. & 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 Ssangyong Engg. & Construction
Co. Ltd. v. NHAI, (2019) 15 SCC 131].
72. The tests laid down in Associate Builders v. DDA, (2015) 3
SCC 49 to determine perversity were followed in Ssangyong
Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 and
later approved by a three-Judge Bench of this Court in Patel Engg.
Ltd. v. North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC
167.
73. In a recent three-Judge Bench decision of this Court in DMRC
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. In Dyna 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
the court concludes that the perversity of the award goes to the root
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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.”
49. In the aforesaid backdrop, the challenge raised by ACC in OMP
(COMM) 400/2017 and the limited challenge laid by EPI in OMP
(COMM) 408/2017 are required to be examined.
I. ACC’S CHALLENGE:
50. In OMP (COMM) 400/2017, ACC has confined its challenge to
the findings rendered in respect of Claim Nos. 1, 2, 7 and 9, as well as
Counter Claim Nos. 2, 3, 5 and 6, as adjudicated in the Impugned
Award and the Modified Award.
Binding Contract
51. The principal contention urged by ACC is that no binding
contract came into existence between EPI and ACC and that the MoM
was merely a preliminary understanding and not a concluded contract.
This contention stands rejected by the learned Arbitrator, and this
Court finds no infirmity in the said finding. The relevant finding in the
Impugned Award is reproduced hereunder:
“10.0 WHETHER THERE WAS A VALID, LEGAL AND
BINDING CONTRACT BETWEEN EPI AND ACC?
10.1 Before taking up the claims and counter claims, it is necessary
to determine if there was a valid, legal and binding contract
between both parties. On a thorough perusal of documents
submitted and the verbal arguments by both the parties it is noted
that the first document submitted by EPI as Exhibit C-1 and by
ACC as Enclosure page 1 is the letter dated 03.10.2003 from
ACC in which ACC have clearly mentioned about EPI’s intention
to participate in the tender for the subject work and ACC were
keen to associate with EPI in execution of work on back to back
basis. ACC agreed to submit EMD and all the securities as per
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NIT and accept the conditions stipulated in the NIT. ACC
requested EPI to issue a set of tender documents.
10.2 Further, when the meeting was held on 03.10.2003, ACC
agreed that all terms and conditions between EPI and SCCL shall
be applicable “mutatis mutandis”. These were in addition to the
terms and conditions of the tender invited by EPI. ACC agreed to
engage sufficient experienced engineers and supervisory staff and
construction plant and equipment for execution of the work from
their existing stock or leasing/ purchasing of these equipment
from market meaning that ACC had some of the machinery
required for execution of such projects in their existing stock.
ACC agreed to arrange all securities as per NIT and arrange all
finance required for execution of project. It is expected that while
submitting the tender, ACC would have known the scope of work,
working conditions at site and all terms and conditions of work.
No bidder shall give an offer for work of this magnitude without
knowing the scope of work, site conditions and terms and
conditions. It is important to note that even before receiving a
letter dated 16.01.2004 from EPI requesting ACC to make
arrangements for commencement of work, ACC vide their letter
dated 17.12.2003 informed EPI that they had entered into a
pretender tie up and to execute the work and started mobilizing
their machinery. ACC stated that apart from the existing
machinery ACC were planning to procure few new machinery. It
is quite evident that ACC agreed to commence work even on the
basis of the MOM.
10.3 In a letter dated 27.02.2004 to EPI, ACC stated that they had
made all arrangement for the finances for procurement of 45
vehicles and other connected machinery except excavators and
proposed to procure 4 excavators at an estimated cost of Rs. 4 cr.
ACC requested EPI to enter into a lease agreement with the
financer directly for a maximum exposer of Rs.3.5 cr. ACC
mentioned that necessary agreement in the required format of EPI
shall be signed by them or a clause to this effect may be included
in the contract agreement.
10.4 The Work Order was placed later by EPI on 14.05.2004 when
the site work was in progress and this was accepted by ACC.
During hearing held on 02.09.2016, ACC stated that they had
started the work at site and subsequently EPI issued amendment
to the order with the consent of ACC. In response to a quarry
from me, ACC confirmed that the reasons given by the Claimant
for issuing amendment were considered by ACC and then ACC
gave their unconditional consent to EPI and ACC continued their
work till termination. ACC mentioned that the problems started
after termination of the contract.
10.5 It may be noted from the above that if MOM or the letter from
EPI asking for commencement of work were not valid, legal or
binding, ACC were within their rights not to commence the work.
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In fact, even before EPI’s letter dated 16.01.2004, ACC had
intimated EPI about commencement of work and mentioned that
they had started mobilizing their machinery. ACC have submitted
a letter dated 20.12.2003 in which they informed EPI about the
existing equipment and their plans to obtain on lease/procure new
equipment for project implementation. This is in contradiction to
the background information furnished by ACC where they stated
that ACC did not have earth moving equipment, tippers and other
infrastructure to take up the work and. EPI promised to help by
financing the procurement of machinery etc.
10.6 I find that even after placement of Work Order on 14.05.2005,
ACC did not write to EPI or insist for any agreement or any other
document. In letter dated 17.06.2004, ACC mentioned about
equipment deployment, progress of work at site, financing of new
equipment, proposal for withdrawal of 50% scope of work,
secured advance etc. ACC informed that they had booked six
TATA tippers available with M/s. Jasper Industries, Vijayawada.
I have not been able to find any letter on record from ACC
questioning the legality and validity of the MOM and the work
order until termination of work of ACC.
10.7 I have examined the records submitted by the parties and their
oral arguments, The contents of the Writ Petition filed by EPI
have also been examined. The relevant findings of the Hon’ble
High Court are reproduced hereunder
Quote
……….At the outset, it is to be noted that the Work Order deals
with the scope and nature of the work, quantities and value of the
work, work completion schedule, payment terms, rates of
payment, penalty for delay in works apart from other conditions
with regard to security deposits, forfeiture of deposits. It also
provides for termination of work in case the progress of work is
not satisfactory or if it is found essential to expedite the works.
Thus, it is clear that all the rights and liabilities of the parties are
regulated by the terms and conditions specified in the Work Order
itself.
………..
The Writ Petition was dismissed by the Hon’ble High Court
Unquote
Considering the above, I hold that the MOM between ACC & EPI
dated 03.10.2003 and the Work Order No. DLI/CON/466/282
dated 14.05.2004 are valid, legal and binding between the
parties.”
52. A perusal of the above-stated finding reflects a continuous
chain of documents evidencing a concluded contractual relationship. It
is undisputed that ACC itself approached EPI vide letter dated
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03.10.2003 expressing its willingness to execute the work on a back-
to-back basis, and in the meeting held on the same date, agreed to the
essential terms governing the arrangement, including incorporation of
SCCL terms mutatis mutandis.
53. It is also not in dispute that ACC proceeded to act upon the
arrangement even prior to execution of the formal work order, as is
evident from its communication dated 17.12.2003 regarding
mobilisation of machinery. In this regard, the work order dated
14.05.2004 was subsequently accepted by ACC without demur and
expressly incorporated the MoM, ACC’s offer, and the SCCL work
order as part of the contractual framework.
54. The learned Arbitrator has also rightly noticed the inconsistency
in ACC’s stand. While disputing the binding nature of the MoM and
the work order, ACC has simultaneously founded its counterclaims on
the very same documents. Such a position cannot be sustained, as a
party cannot both approbate and reprobate the same transaction. The
finding of the learned Arbitrator that a valid and binding contractual
framework existed between the parties is thus a finding based on the
material on record and does not warrant interference under Section 34
of the A&C Act.
55. ACC’s further contention that no binding monthly targets
existed, particularly in the absence of any revised schedule, does not
merit acceptance. As rightly held by the learned Arbitrator, a binding
contractual framework existed between the ACC and EPI. The work
order dated 14.05.2004 expressly incorporates the SCCL schedule
dated 26.03.2004, and the MoM, which stipulates that SCCL terms
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would apply mutatis mutandis. Thus, the performance schedule
formed an integral part of the contractual arrangement.
56. This position is further reinforced by the conduct of ACC at the
meeting held on 30.06.2004, where it acknowledged the shortfall in
achieving the stipulated targets and proposed corrective measures. The
subsequent Amendment No.1, providing for the recovery of penalties
or liquidated damages imposed by SCCL from ACC, further
underscores that the schedule and corresponding obligations were
known to and accepted by ACC. The document constitutes an
admission to the factual matrix as espoused by the Respondent and
which stands accepted by the learned Arbitrator.
57. In this view, the contention that the learned Arbitrator has
created obligations dehors the contract is misconceived. The learned
Arbitrator has merely construed and applied the contractual
framework in light of the contemporaneous record and the conduct of
the parties. The reliance placed by ACC on PSA Sical Terminals Pvt.
Ltd. (supra) is, therefore, misplaced, as the said findings do not travel
beyond the contractual framework but are firmly rooted within it.
58. Having held so, the consequences of ACC’s failure to adhere to
its performance obligations, as determined by the learned Arbitrator,
now fall to be considered in the context of the claims under challenge.
Claim No. 1
59. The challenge to Claim No. 1 pertaining to penalty on the
unexecuted quantity rests, at its core, on the submission that no
binding monthly targets existed, and that the learned Arbitrator has, in
effect, created contractual obligations by imposing a schedule that was
never agreed upon between EPI and ACC.
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60. The said submission has already been addressed and rejected in
the context of the challenge to the binding nature of the contractual
framework. Having held that the work order dated 14.05.2004, read
with the MoM and the SCCL schedule dated 26.03.2004, constituted a
binding contractual arrangement, and that the performance obligations
thereunder were known, acknowledged and accepted by ACC, most
evidently from its conduct at the meeting of 30.06.2004, the
foundational premise of ACC’s challenge to Claim No. 1 does not
survive.
61. The learned Arbitrator, upon appreciating the material produced
before him, has correctly noted that the reduction of ACC’s scope to
145 LBCM consequent upon the meeting of 30.06.2004 did not
exonerate ACC from its prior defaults.
62. As is apparent, and which aspect is not contested, the said
meeting was called precisely because of ACC’s persistent
underperformance, and ACC’s agreement to the reduction constitutes
an acknowledgement of its inability to carry out the Contract as
originally agreed upon. The same cannot be construed to be in the
nature of a release from any liability, but in fact, points in the contrary
direction. Accordingly, the learned Arbitrator computed the penalty on
the unexecuted quantity under ACC’s revised scope of 145 LBCM,
arriving at Rs. 1,35,41,073.52 after setting off the penalty of Rs.
23,16,379.60 already recovered from ACC’s running bills.
63. ACC’s further submission that the learned Arbitrator proceeded
on an imaginary schedule despite recording the absence of a revised
schedule is also misconceived. Contrary to the said submission, it is
noted that the learned Arbitrator proceeded on the SCCL schedule as
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incorporated by the contractual framework, which was the only
schedule in existence. The absence of a separately negotiated revised
schedule as between EPI and ACC does not create a vacuum; it
simply means that the incorporated SCCL schedule continued to
govern. The amendment no.1 itself expressly stated that the revised
schedule would be mutually agreed upon, which never happened, as
the contractual arrangement was terminated before any such
agreement could be reached.
64. Giving effect to the aforesaid circumstances and in the absence
of a revised schedule, the learned Arbitrator correctly applied the
original targets as adjusted proportionately for the reduced scope,
which is precisely the approach ACC had itself proposed at the
30.06.2004 meeting when it undertook to achieve 6 LBCM per month.
65. The contention that the imposition of a penalty is without a
contractual basis is equally unsustainable. Clause 8 of Annexure-A to
the SCCL work order dated 19.01.2004, incorporated mutatis
mutandis into the EPI-ACC framework, which expressly provides that
where the contractor fails to complete the total work, a penalty @
15% will be levied on the value of work left unexecuted. It is noted
that SCCL had already imposed penalties on EPI under this clause and
adjusted the same from EPI’s bills. Therefore, the recovery of a
proportionate share of those penalties from ACC, as the party whose
underperformance caused the termination, is a straightforward
application of the contractual framework and of the back-to-back
principle that governed the parties throughout.
66. This Court finds no merit in the contention that the learned
Arbitrator has created any obligation dehors the contract. The
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obligation in question is traceable to the contractual framework, and
its existence as well as quantum stand supported by the material
placed before the learned Arbitrator.
67. Therefore, the present challenge, in substance, seeks a
reappreciation of factual findings and does not warrant interference
under Section 34 of the A&C Act.
Claim No. 2
68. As regards the challenge to Claim No. 2, which pertains to the
differential cost arising from SCCL entrusting the unexecuted work to
a third party at a higher rate, the learned Arbitrator, by holistically
applying and considering the contractual scheme, has rightly held that
the ACC is obliged to bear the said cost imposed upon EPI on a
conditional basis. The recovery from ACC has been made contingent
upon EPI having actually incurred, or being held liable to incur, such
differential cost towards SCCL.
69. The afore-said approach espoused by the learned Arbitrator is
consistent with the back-to-back arrangement governing the parties,
whereby ACC’s liability is co-extensive with that of EPI. By
recognising the claim while deferring its enforceability to the
crystallisation of liability, the learned Arbitrator has adopted a course
that is both contractually consistent and equitable. The challenge to
this finding, therefore, does not merit acceptance.
Claim No. 7
70. Moving to the challenge pertaining to Claim No. 7, ACC
contends that in the absence of any concluded contractual
arrangement, the learned Arbitrator has nonetheless granted the said
claim in favour of EPI, thereby warranting interference under Section
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34 of the A&C Act. The said premise having already been rejected,
the challenge to this claim is rendered largely academic.
71. Insofar as the security deposit of 1% of the value of work
executed is concerned, it is relevant to note that the learned Arbitrator,
in the Modified Award, has clarified that the amount of Rs.
3,20,059.67 representing the said security deposit was already
adjusted and dealt with under Claim No. 3, and the separate
endorsement of that amount under Claim No. 7 was redundant and has
accordingly been deleted. However, the said correction was not
contested, and ACC itself agreed that there was confusion regarding
the same and that the correction was warranted. Therefore, the net
position under Claim No. 7 as it stands, in the Modified Award, is
confined to the EMD of Rs. 50,00,000/-.
72. As regards the EMD of Rs. 50 lakhs, the learned Arbitrator has
directed that the mode of recovery shall abide by the verdict of the
competent court before which the matter is pending. This Court finds
no infirmity in that approach. The subject matter underlying the EMD
claim is sub judice before a competent court, and this Court expresses
no opinion thereon. The said direction to abide by the court’s verdict
avoids the risk of conflicting determinations and is a sound and
judicious course. Consequently, the challenge to Claim No. 7 does not
merit acceptance.
Claim No. 9
73. To the extent Claim No. 9 is concerned, which pertains to
arbitration costs, the learned Arbitrator, in the Impugned Award,
directed that each party shall bear its own costs. However, the learned
Arbitrator had, by order sheets forming part of the record, directed
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that EPI, having paid the outstanding Arbitrator’s fee on behalf of
ACC, would be entitled to recover the same.
74. In the Modified Award, the learned Arbitrator quantified the
said amount at Rs. 3,73,650/- along with interest. The contention of
ACC that the learned Arbitrator could not have revisited the claim
under Section 33 of the A&C Act does not merit acceptance. The said
direction regarding recovery of the arbitrator’s fee is distinct from the
general claim for costs. The same emanates from a specific direction
recorded during the arbitral proceedings and forms part of the award.
75. The said modification does not amount to a fresh adjudication
of Claim No. 9 but is in the nature of giving effect to an already
recorded direction by incorporating the quantified amount. Such a
correction falls within the scope of Section 33 of the A&C Act.
76. It is also not in dispute that ACC had failed to discharge its
share of the Arbitrator’s fee despite opportunities and agreed
schedules, necessitating payment by EPI to avoid disruption of the
proceedings. In these circumstances, the direction permitting recovery
of the said amount cannot be faulted.
77. Accordingly, this Court is not inclined to interfere with the
findings on Claim No. 9.
Counter-Claim Nos. 2, 3, 5 and 6
78. Turning to the counter-claims assailed by ACC, namely,
Counter Claim Nos. 2, 3, 5 and 6, pertaining to loss on machinery,
loss on workmen, loss on establishment, and loss on profit and
goodwill, respectively, this Court finds that each has been rejected by
the learned Arbitrator upon a considered appreciation of the evidence
on record, and that none of the rejections discloses any perversity or
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patent illegality warranting interference under Section 34 of the A&C
Act.
79. Insofar as Counter Claim No. 2 for loss on machinery is
concerned, ACC claimed Rs. 1,99,53,000/- representing compensation
allegedly paid to machinery and vehicle owners for three months
following termination. Before the learned Arbitrator, ACC tendered
cash vouchers in support. The learned Arbitrator subjected these
vouchers to scrutiny and found them to be suspicious, as most of the
payments were made in cash to unnamed or unidentified individuals,
the vouchers were largely unsigned, and several did not even disclose
the name of the payee to whom payment was allegedly made.
80. At the same instance, ACC even failed to produce any hire
agreements or contemporaneous letters engaging the machinery
owners for the full project period, which would have been the
foundational document to establish any legal obligation to pay
compensation upon premature termination.
81. In the absence of such evidence, the learned Arbitrator rightly
declined to act upon the cash vouchers alone. Since the said finding is
based on the evidentiary record perused sincerely by the learned
Arbitrator and in view of the ruling in OPG Power (supra), this Court
deems it appropriate not to interfere with the above finding.
82. As regards Counter Claim No. 3, the learned Arbitrator, upon
examining the lists of workers submitted by ACC, noticed a pattern of
irregularity that goes to the root of the authenticity of the claim. Since
identical names appeared in identical sequence across multiple
categories of workers, the same individuals were listed as drivers,
signalmen, tripper helpers, and water tank drivers simultaneously. The
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total number of workmen also varied between the counter-claim
statement and ACC’s supporting additional documents, with no
explanation for the discrepancy. The promissory notes submitted by
ACC purportedly reflecting loans taken to fund compensation
payments were for amounts exceeding four times the quantum of the
counter-claim itself, a disproportion that the learned Arbitrator found
incapable of explanation.
83. In these circumstances, the rejection of Counter Claim No. 3 is
not merely a plausible view; it is the only reasonable conclusion
available on such material. Therefore, a finding resting on fabricated
or unreliable documents cannot be said to be perverse simply because
it goes against ACC. Consequently, the challenge to this finding fails.
84. In respect of Counter Claim No. 5, the learned Arbitrator has
observed that such costs are ordinarily embedded in the quoted rates
for execution of the work and cannot be claimed separately in the
absence of cogent evidence. The documents relied upon by ACC,
being unverified and unsupported, were found insufficient. The said
finding is in accord with the contractual framework, and also based
upon rigorous scrutiny of the material produced, and therefore does
not warrant interference.
85. Insofar as Counter Claim No. 6 is concerned, the learned
Arbitrator has declined the claim in the absence of any material
establishing that ACC would have earned the projected profits,
particularly in view of its own underperformance.
86. In the present case, no such evidentiary foundation was laid.
ACC had consistently failed to meet the stipulated monthly targets
and did not demonstrate the capacity to execute the work at the
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required scale. In such circumstances, the claim of 15% profit on the
balance work is speculative and unsupported by material on record.
On the same footing, the claim for loss of goodwill is also
unsupported by any material indicating reputational or commercial
harm. In this light, the said approach of the learned Arbitrator is
consistent with settled principles governing the award of damages and
does not disclose any infirmity.
87. In view of the settled principles laid down in OPG Power
(supra), the rejection of the aforesaid claims and counter-claims does
not suffer from perversity or patent illegality, nor does it disclose any
infirmity on the touchstone of Section 28(3) or 31(3) of the A&C Act,
and consequently does not warrant interference under Section 34 of
the A&C Act thereof.
II. EPI’S CHALLENGE:
88. In OMP (COMM) 408/2017, EPI has confined its challenge to
two aspects of the award as modified on 19.08.2017, the first relating
to Counter Claim No. 4 and the second relating to the conditional
nature of the award under Claim Nos. 1 and 8.
Counter-Claim No. 4
89. In respect of counter claim no.4, it was fairly conceded on
behalf of ACC during the course of arguments that in the Impugned
Award, the learned Arbitrator had consciously declined to adjudicate
the said counter claim on the ground that the said issue stood sub
judice before a competent court.
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90. This Court notes that the learned Arbitrator, in the Impugned
Award, restrained himself and consciously refrained from rendering
any finding on the subject matter of Counter Claim No. 4.
91. However, by way of the Modified Award, passed on an
application under Section 33 of the A&C Act, the learned Arbitrator
proceeded to award a sum of Rs. 10,08,949/- in favour of ACC under
the said counter-claim. The scope of Section 33 thereof, however, is
limited to correction of clerical, computational or similar errors, or to
dealing with claims which were omitted from the award and does not
extend to a case where the learned Arbitrator has consciously declined
to adjudicate a claim, as such a decision cannot be treated as an
omission within the meaning of said provision.
92. In the present case, the non-adjudication of Counter Claim No.
4 by the learned Arbitrator in the Impugned Award was deliberate and
supported by reasons and was lawfully valid. The subsequent
Modified Award of the said claim, under the guise of modification,
amounts to a re-adjudication on merits, which falls outside the scope
of Section 33 of the A&C Act.
93. Considering the foregoing findings, as well as the statement
made by learned counsel for ACC during the course of oral
submissions fairly conceding the error in such adjudication by the
learned Arbitrator, this Court is of the considered view that the
modification dated 19.08.2017, to that extent, cannot be sustained in
law. Accordingly, the challenge laid by EPI on this ground is upheld.
Claim Nos. 1 and 8
94. The second limb of challenge pertains to the conditional nature
of the award under Claim Nos. 1 and 8, whereby the learned
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Arbitrator directed that any recovery would be subject to the outcome
of EPI’s proceedings with SCCL, coupled with a direction to furnish
an undertaking to ACC.
95. This challenge does not merit acceptance. The conditionality
flows from the back-to-back arrangement governing the parties, as
reflected in the MoM and the work order. The rights and liabilities of
ACC were structured to be co-extensive with those of EPI vis-Ã -vis
SCCL. In such a framework, any variation in the liability of EPI
towards SCCL would necessarily impact the corresponding liability of
ACC.
96. The direction requiring EPI to furnish an undertaking ensuring
proportionate adjustment is, therefore, consistent with the contractual
arrangement and avoids unjust enrichment. The approach adopted by
the learned Arbitrator is both equitable and in consonance with the
contractual framework; therefore, no ground for interference is made
out.
CONCLUSION:
97. In view of the foregoing discussions and analyses, OMP
(COMM) 400/2017 filed by ACC is dismissed. The findings of the
learned Arbitrator on the existence of a binding contractual
framework, the applicability of performance obligations thereunder,
and the claims and counter-claims assailed by ACC are either findings
of fact, based on appreciation of evidence or plausible constructions of
the contractual terms, and do not warrant interference under Section
34 of the A&C Act.
98. Insofar as OMP(COMM) 408/2017 filed by EPI is concerned,
the same is partly allowed. The modification dated 19.08.2017, to the
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extent it awards a sum of Rs. 10,08,949/- together with interest of Rs.
12,61,186/- in favour of ACC under Counter Claim No. 4, is set aside,
being beyond the scope of Section 33 of the A&C Act. Save to the
aforesaid extent, the said Petition is dismissed.
99. In view of the aforesaid terms, both Petitions, being OMP
(COMM) 400/2017 and OMP (COMM) 408/2017, along with pending
applications, if any, stand disposed of.
100. No order as to costs.
HARISH VAIDYANATHAN SHANKAR, J.
APRIL 27, 2026/jk
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