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

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

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