Orissa High Court
M/S Abhoy Charan Bakshi vs State Of Odisha & Ors on 13 March, 2026
Author: Sanjeeb K Panigrahi
Bench: Sanjeeb K Panigrahi
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Signed by: BHABAGRAHI JHANKAR
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 24-Mar-2026 16:52:38
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.35 of 2019
Along with
ARBA No.37 of 2019
(In the matters of Appeals under Section 37 of the Arbitration and
Conciliation Act, 1996)
(In ARBA No.35 of 2019)
M/S Abhoy Charan Bakshi .... Appellant(s)
-versus-
State of Odisha & Ors. .... Respondent (s)
Advocates appeared in the case through Hybrid Mode:
For Appellant (s) : Mr. Nilakanthar Jujharsingh, Adv.
For Respondent (s) : Mr. Sonak Mishra, ASC.
(In ARBA No.37 of 2019)
State of Odisha& Ors. .... Appellant (s)
-versus-
M/S Abhoy Charan Bakshi .... Respondent (s)
Advocates appeared in the case through Hybrid Mode:
For Appellant (s) : Mr. Sonak Mishra, ASC.
For Respondent(s) : Mr. Nilakanthar Jujharsingh, Adv.
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Location: ORISSA HIGH COURT, CUTTACK
Date: 24-Mar-2026 16:52:38
CORAM:
DR. JUSTICE SANJEEB K PANIGRAHI
DATE OF HEARING:-07.03.2026
DATE OF JUDGMENT:-13.03.2026
Dr. Sanjeeb K Panigrahi, J.
1. Since both the appeals arise out of arbitral award relating to the
contract executed by the same party and involve common questions
concerning the scope of interference under Sections 34 and 37 of the
Arbitration and Conciliation Act, 1996 (for short “the Act”), they are
taken up together and are being disposed of by this common
judgment.
2. The present appeals arises out of judgment dated 12.9.2019 passed in
ARBP No.161 of 2017, wherein the learned District Judge, Dhenkanal
partly allowed the said application and set aside the award in respect
of refund of royalty amounting to Rs.61,17,354/-, while affirming the
remaining claims allowed by the Arbitrator. Aggrieved by the
interference with the award on that limited aspect, the contractor as
well as the State have preferred the present appeals under Section 37
of the Act. However, for the sake of convenience and effective
adjudication, ARBA No.35 of 2019 is treated as the lead case.
I. FACTUAL MATRIX OF THE CASE:
3. The dispute traces its origin to a contract awarded by the
Government of Odisha for execution of irrigation infrastructure
works. The Chief Engineer and Basin Manager, Brahmani Left Basin,
Samal, Angul, on behalf of the Government, invited item-rate bids
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for the work described as “Balance work for construction of
structured system in the command area of Bhairpur Branch Canal
with provision of minors and sub-minors including all structures of
Baruan Distribution System of O.E.C.F. Package No.12(E)”.
4. The appellant contractor participated in the tender process and
submitted its bid for execution of the said work. Upon evaluation of
the bids received, the bid of the appellant was accepted by the
authorities through Letter No.3000 dated 22.5.2008. Consequent
upon acceptance of the bid, a formal agreement was executed on
16.6.2008 between the Governor of Odisha acting through the
Executive Engineer, OECF Division No.III, Jiridamali, and the
appellant contractor.
5. Under the said agreement, the work was registered as Agreement
No. LCB-I of 2008-2009 and the total contract value was fixed at
Rs.10,32,97,050/-. The contract stipulated that the work would
commence on 16.6.2008 and would be completed within a period of
twenty-four months, the scheduled date of completion being
15.6.2010.
6. The nature of the work primarily involved excavation of earth,
transportation of the excavated material, and formation of canal
embankments as part of the irrigation infrastructure. Among the
various items of work incorporated in the Bill of Quantities, Item
No.5 related to “Earth work in canal embankment”. For this item the
appellant quoted a rate of Rs.60/- per cubic metre, which was
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accepted by the departmental authorities at the time of finalization of
the contract.
7. According to the appellant, prior to submission of bids a pre-bid
meeting was convened by the departmental authorities to clarify the
scope and conditions of the work. It is the case of the contractor that
during the said meeting the Executive Engineer informed the
participating contractors that no royalty would be levied on earth
excavated from the canal for the purpose of forming the canal
embankment. It was further indicated that in the event additional
earth was required beyond the excavated quantity, the same would
be obtained from nearby Government land identified as approved
borrow areas. Relying on this understanding, the appellant claims to
have quoted the rate for BOQ Item No.5 without including any
component towards royalty. The contractor asserts that the
departmental authorities also accepted the rate on that basis.
8. After commencement of the work, the appellant undertook
excavation and embankment formation in accordance with the
specifications of the agreement. During the course of execution, the
appellant addressed a letter dated 4.2.2009 to the Executive Engineer
requesting that no deduction towards royalty be made from the bills
submitted for earthwork, as such deduction was allegedly contrary
to the terms understood between the parties. The Executive
Engineer, however, disputed the claim of the contractor by letter
dated 18.3.2009. The appellant again reiterated its request through
another communication dated 23.3.2009. Despite these
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representations, the departmental authorities proceeded to deduct
amounts towards royalty from the running account bills submitted
by the contractor during execution of the work.
9. It is the case of the appellant that deductions towards royalty were
made progressively from the running account bills and continued up
to the eighteenth running account bill. According to the contractor, a
total sum of Rs.61,17,354/- was recovered by the department from the
bills submitted for the execution of earthwork under BOQ Item No.5.
The appellant contends that such deduction was made without
modifying the accepted rate of the item of work by adding royalty at
the prescribed rate and was therefore contrary to the agreed
contractual terms. The contractor asserts that the royalty component
had never formed part of the quoted rate and that the deduction
consequently resulted in financial loss to the contractor during
execution of the work.
10.The appellant further alleged that during the execution of the project,
the departmental authorities rejected the earth obtained from
excavation of the canal for the purpose of embankment formation
and instead instructed the contractor to procure earth from borrow
areas. According to the contractor, although the agreement
contemplated supply of earth from approved Government borrow
areas, no such areas were handed over by the authorities. The
contractor therefore arranged borrow areas from private landowners
and incurred expenditure for securing their consent and
compensating them for extraction of earth. The earth so obtained was
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transported to the work site and utilized for formation of canal
embankments with the approval of the departmental engineers
supervising the work.
11.The contractor further asserted that procurement of earth from
private borrow areas resulted in additional financial burden. It was
stated that the earth had to be transported to the work site from
locations situated approximately five kilometres away, thereby
involving additional transportation costs. In addition, the contractor
claims to have incurred expenditure in stripping the borrow areas to
obtain suitable earth and subsequently restoring the land by refilling
it with the stripped soil. According to the appellant, these additional
operations were undertaken in compliance with the instructions of
the departmental authorities, but the department did not reimburse
the expenses incurred towards stripping of borrow areas,
transportation of earth, or restoration of the lands from which the
material had been obtained.
12.Another grievance originally raised by the contractor relates to
escalation in labour costs during the course of execution of the work.
It is stated that during the relevant period the Government of Odisha
revised the minimum wages payable to unskilled labourers from
Rs.70/- to Rs.90/- per day by notification dated 13.7.2009 issued by
the Labour and Employment Department. According to the
appellant, the increase in minimum wages and the rise in cost of
petrol, oil and lubricants resulted in additional expenditure in
executing the extra and additional items of work. The contractor
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claims that the department failed to compensate these increased costs
despite repeated requests made during execution of the project.
13.The appellant also alleged that an amount of Rs.19,00,000/- was
withheld by the department from the eighth running account bill
dated 23.9.2009 and kept in miscellaneous deposit without assigning
any justification. According to the contractor, the deductions and
withholding of payments caused financial hardship and were
repeatedly brought to the notice of the departmental authorities.
14.Ultimately, the contractor received the eighteenth running account
bill along with the final bill on 31.3.2011, wherein the earlier
deductions towards royalty were reflected. The appellant contends
that despite several representations seeking release of the withheld
amount and refund of the royalty deducted, the departmental
authorities did not take steps to resolve the dispute.
15.In view of the unresolved claims, the appellant addressed further
communications to the Chief Engineer and the Executive Engineer
requesting settlement of the outstanding dues. The contractor
ultimately raised a formal claim by letter dated 6.6.2011 demanding
payment of various amounts including refund of royalty deducted,
compensation for stripping and transportation of earth from borrow
areas, labour escalation and refund of the amount withheld. The
department disputed these claims through its reply dated 8.7.2011.
Thereafter, the appellant requested the authorities to refer the
dispute to arbitration in terms of the relevant clause of the contract.
As the request was not accepted within the stipulated time, the
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contractor approached the High Court seeking appointment of an
arbitrator.
16.Pursuant to proceedings initiated under Section 11 of the Arbitration
and Conciliation Act, 1996, learned former Judge of the High Court
was appointed as the Sole Arbitrator to adjudicate the disputes
between the parties. In the arbitration proceedings the appellant
raised six claims including refund of royalty deducted, cost of
stripping of borrow areas, transportation of earth, balance payment
for compacting, labour price escalation and refund of the withheld
amount. By award dated 6.5.2017, the learned Sole Arbitrator
allowed the claims partly and awarded a total sum of Rs.6,10,54,178/-
in favour of the claimant along with interest. The State authorities
thereafter challenged the award before the District Judge under
Section 34 of the Act, leading to the judgment presently under
appeal.
17.Upon consideration of the rival contentions advanced by the parties,
the learned District Judge, Dhenkanal, by judgment dated 12.9.2019
in ARBP No.161 of 2017, partly allowed the application filed under
Section 34 of the Arbitration and Conciliation Act, 1996. The learned
court below examined the award passed by the learned Sole
Arbitrator in respect of the several claims adjudicated therein. While
doing so, the learned District Judge declined to interfere with the
findings of the arbitrator in respect of Claim Nos.2 to 6 and affirmed
the award to that extent. However, insofar as Claim No.1 relating to
refund of royalty deducted from the running account bills
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amounting to Rs.61,17,354/- was concerned, the learned District
Judge came to the conclusion that the award on that issue could not
be sustained and accordingly set aside that portion of the arbitral
award. As a result, the interference by the learned District Judge
remained confined only to the question of refund of royalty. It is this
limited part of the judgment setting aside Claim No.1 which is the
subject matter of challenge in the present appeal filed under Section
37 of the Arbitration and Conciliation Act, 1996.
18.This Court shall now endeavour to summarise the contentions of the
Parties and the broad grounds that have been raised.
II. APPELLANT’S SUBMISSIONS:
19. Learned counsel appearing for the appellant contends that the
learned District Judge committed an error in setting aside the award
in respect of the claim relating to refund of royalty while otherwise
affirming the arbitral award. It is submitted that the learned Sole
Arbitrator had examined the contractual terms, the materials placed
on record and the conduct of the parties during execution of the
work, and upon such consideration had rightly concluded that the
deduction of royalty from the running account bills was not justified.
According to the appellant, the arbitrator had arrived at the said
conclusion on appreciation of evidence and interpretation of the
contract, and therefore the court exercising jurisdiction under Section
34 of the Arbitration and Conciliation Act ought not to have
interfered with that finding in the absence of any patent illegality or
perversity in the award.
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20.It is further contended on behalf of the appellant that the work in
question involved excavation and utilization of earth for formation
of canal embankments under BOQ Item No.5. According to the
appellant, during the pre-bid meeting held prior to submission of
bids, the departmental authorities had indicated that royalty would
not be levied on earth excavated from the canal for the purpose of
embankment formation. Relying on such clarification, the appellant
quoted the rate of Rs.60/- per cubic metre for the said item of work
without including any component towards royalty, and the said rate
was accepted by the respondents at the time of finalization of the
contract. It is therefore submitted that the subsequent deduction of
royalty from the contractor’s bills was contrary to the understanding
on which the bid had been submitted and accepted.
21.Learned counsel for the appellant also submits that the arbitrator had
taken note of the fact that the departmental authorities did not
provide the approved borrow areas as contemplated under the
contract. The contractor was instead required to procure earth from
private lands by compensating the landowners and arranging for
transportation of the material to the work site. According to the
appellant, the earth so procured was utilized for embankment work
with the approval of the departmental engineers supervising the
project. In such circumstances, it is argued that the deduction of
royalty from the contractor’s bills lacked contractual justification,
particularly when the contractor had itself incurred expenditure for
obtaining the earth from private borrow areas.
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22.The appellant further submits that the contractor had consistently
objected to the deduction of royalty during the execution of the work
by addressing letters to the departmental authorities requesting that
such deductions be discontinued. It is argued that despite these
representations the respondents continued to deduct royalty from
the running account bills up to the eighteenth bill, resulting in
recovery of a total sum of Rs.61,17,354/-. According to the appellant,
the arbitrator, upon considering the correspondence exchanged
between the parties and the contractual provisions, had rightly held
that the said deduction was not sustainable and had therefore
directed refund of the amount.
23.It is lastly contended that the learned District Judge, while exercising
jurisdiction under Section 34 of the Arbitration and Conciliation Act,
exceeded the permissible scope of interference by reassessing the
merits of the claim relating to royalty. The appellant submits that the
arbitral award had dealt with the claims in detail and had granted
relief after evaluating the evidence and contractual provisions. In
such circumstances, it is argued that the finding of the arbitrator on
the issue of royalty constituted a possible and reasonable view
arising from the material on record and ought not to have been
disturbed by the court below. The appellant therefore submits that
the judgment of the learned District Judge insofar as it sets aside
Claim No.1 relating to refund of royalty deserves to be reversed.
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III. RESPONDENTS’ SUBMISSIONS:
24.Per contra, learned counsel appearing for the respondents-State
supports the judgment of the learned District Judge and submits that
the court below was justified in setting aside the award in respect of
the claim relating to refund of royalty. It is contended that the
contract documents themselves clearly indicated that the bid price
quoted by the contractor was required to include all costs associated
with execution of the work. In particular, reference is made to the
provisions relating to BOQ Item No.5 dealing with earthwork in
canal embankment, which according to the respondents
contemplated procurement of earth from approved borrow areas
along with all ancillary operations including excavation, loading,
transportation and other incidental activities. It is therefore
submitted that the contractor was fully aware of the nature of the
work and the costs involved while quoting the rate for the said item.
25.Learned counsel for the State further contends that the contractual
conditions specifically provided that the bid price shall include all
duties, taxes and levies payable by the contractor. Royalty being a
statutory levy payable on excavation of minor minerals, it is argued
that the contractor was under an obligation to factor such levy into
the rate quoted in the bid. The respondents also rely upon
government communications issued in this regard, which, according
to them, required deduction of royalty on earth extracted for
construction works executed through the tender process. It is
therefore submitted that the deduction of royalty from the
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contractor’s bills was in accordance with the applicable statutory
provisions as well as the contractual terms governing the work.
26.It is also submitted on behalf of the respondents that the appellant
cannot rely upon any alleged assurance said to have been given
during the pre-bid meeting. According to the State, records relating
to the pre-bid meeting show that no contractor, including the
appellant, had attended the meeting to seek clarification regarding
the conditions of the tender. In such circumstances, it is argued that
the contention that royalty was not to be deducted is without factual
basis. The respondents therefore submit that the learned District
Judge rightly held that the arbitral award directing refund of royalty
was unsustainable and that no interference with the impugned
judgment is warranted in the present appeal.
IV. ISSUE FOR CONSIDERATION:
27.Having heard the parties and perused the materials available on
record, this court here has identified the following issue to be
determined:
A. Whether the order of the Ld. District Judge warrants interference
keeping in mind the limitations of this court’s powers under
Section 37 of the A&C Act?
V. ISSUE A: WHETHER THE ORDER OF THE LD. DISTRICT
JUDGE WARRANTS INTERFERENCE KEEPING IN MIND THE
LIMITATIONS OF THIS COURT’S POWERS UNDER SECTION
37 OF THE A&C ACT?
28.Before going into the merits of the contentions, it is necessary to
outline the ambit and scope of Section 37of the 1996 Act.
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29.The Supreme Court and this Court in catena of judgments have held
that the powers of appellate court while exercising jurisdiction under
Section 37 of the 1996 Act against orders passed by the Arbitral
Tribunal is very restricted and narrow and the same should be
exercised when the orders seems to be perverse, arbitrary and
contrary to law.
30.In Reliance Infrastructure Ltd. v. State of Goa1, the Apex Court
noticing its previous decision in MMTC Ltd. v. Vedanta Ltd.2 has
noted the limited scope of interference under Section 34 and further
narrower scope of appeal under Section 37 of the Act particularly
when dealing with the concurrent findings of the arbitrator and that
of the Court. Relevant paragraph ’14’ of MMTC Ltd.(supra) as noted
in paragraph ’26’ in Reliance Infrastructure Ltd.(supra) is to be
extracted hereinunder:–
“14. As far as interference with an order made
under Section 34, as per Section 37, is concerned, it cannot
be disputed that such interference under Section 37 cannot
travel beyond the restrictions laid down under Section 34.
In other words, the court cannot undertake an independent
assessment of the merits of the award, and must only
ascertain that the exercise of power by the court
under Section34 has not exceeded the scope of the provision.
Thus, it is evident that in case an arbitral award has been
confirmed by the court under Section 34 and by the court in
an appeal under Section 37, this Court must be extremely
cautious and slow to disturb such concurrent findings.”
1
(2024) 1 SCC 479
2
(2019) 4 SCC 163
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31.The same view has been expressed in UHL Power Company
Ltd. v. State of Himachal Pradesh3 in paragraph ’16’ while noticing
paragraph ’11’ in MMTC Ltd.(supra):–
“16. As it is, the jurisdiction conferred on courts
under Section 34 of the Arbitration Act is fairly narrow,
when it comes to the scope of an appeal under Section 37 of
the Arbitration Act, the jurisdiction of an appellate court in
examining an order, setting aside or refusing to set aside an
award, is all the more circumscribed. In MMTC
Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4
SCC 163 : (2019) 2 SCC (Civ) 293], the reasons for vesting
such a limited jurisdiction on the High Court in exercise of
powers under Section 34 of the ArbitrationAct have been
explained in the following words : (SCC pp. 166-67, para
11)
“11. As far as Section 34 is concerned, the position is well-
settled by now that the Court does not sit in appeal over the
arbitral award and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii) i.e. if the award
is against the public policy of India. As per the legal position
clarified through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a violation of Indian
public policy, in turn, includes a violation of the
fundamental policy of Indian law, a violation of the interest
of India, conflict with justice or morality, and the existence
of patent illegality in the arbitral award. Additionally, the
concept of the “fundamental policy of Indian law” would
cover compliance with statutes and judicial precedents,
adopting a judicial approach, compliance with the principles
of natural justice, and Wednesbury [Associated Provincial
Picture Houses Ltd. v. WednesburyCorpn., [1948] 1 K.B.
223(CA)] reasonableness. Furthermore, “patent illegality”
itself has been held to mean contravention of the substantive
3
(2022) 4 SCC 116Page 15
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the 1996 Act, and contravention of the terms of the
contract.”
32.In Haryana Tourism Ltd. v. Kandhari Beverages Ltd.4 as noted in
paragraph ’30’ in Reliance Infrastructure Ltd.(supra), it was held on
the scope of interference under Sections 34 and 37 of the Act’ 1996 as
under:–
“30. In Haryana Tourism [Haryana Tourism
Ltd. v. Kandhari Beverages Ltd., (2022) 3 SCC 237 : (2022)
2 SCC (Civ) 87], this Court yet again pointed out the
limited scope of interference under Sections 34 and37 of
the Act; and disapproved interference by the High Court
under Section 37 of the Act while entering into merits of the
claim in the following words : (SCC p. 240, paras 8-9)
“8. So far as the impugned
judgment and order [Kandhari Beverages
Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine
P&H 3233] passed by the High Court
quashing and setting aside the
award and the order passed by the Additional District
Judge under Section 34 of the Arbitration Act are
concerned, it is required to be noted that in an appeal
under Section 37 of the Arbitration Act, the High
Court has entered into the merits of the claim, which is
not permissible in exercise of powers
under Section 37 of the Arbitration Act.
9. As per settled position of law laid down by this
Court in a catena of decisions, an award can be set
aside only if the award is against the public policy of
India. The award can be set aside under Sections 34/37
of the Arbitration Act, if the award is found to be
contrary to : (a) fundamental policy of Indian Law; or
4
2022) 3 SCC 237Page 16
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(b) the interest of India; or (c) justice or morality; or
(d) if it is patently illegal. None of the aforesaid
exceptions shall be applicable to the facts of the case on
hand. The High Court has entered into the merits of
the claim and has decided the appeal
under Section 37 of the Arbitration Act as if the High
Court was deciding the appeal against the
judgment and decree passed by the learned trial court.
Thus, the High Court has exercised the jurisdiction not
vested in it under Section 37 of the Arbitration Act.
The impugned judgment andorder [Kandhari
Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC
OnLine P&H 3233] passed by the High Court is hence
not sustainable.”
33.It was, thus, observed in paragraph ’33’ of Reliance Infrastructure
Ltd.(supra) as under:–
“33. Keeping in view the aforementioned principles
enunciated by this Court with regard to the limited scope of
interference in an arbitral award by a Court in the exercise
of its jurisdiction under Section34 of the Act, which is all
the more circumscribed in an appeal under Section 37, we
may examine the rival submissions of the parties in relation
to the matters dealt with by the High Court.”
34.It is observed in Punjab State Civil Supplies Corpn. Ltd. v. Sanman
Rice Mills5 that:
“9. The object of the Act is to provide for a speedy and
inexpensive alternative mode of settlement of dispute with
the minimum of intervention of the courts. Section 5 of the
Act is implicit in this regard and prohibits interference by
the judicial authority with the arbitration proceedings
except where so provided in Part-I of the Act. The judicial5
2024 SCC OnLine SC 2632Page 17
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Sections 34 and 37 of the Act respectively.
10. Section 34 of the Act provides for getting an arbitral
award set aside by moving an application in accordance
with sub-Section (2) andsub-Section (3) of Section 34 of the
Act which inter-alia provide for the grounds on which an
arbitral award is liable to be set aside. One of the main
grounds for interference or setting aside an award is where
the arbitral award is in conflict with the public policy of
India i.e. if the award is induced or affected by fraud or
corruption or is in contravention with the fundamental
policy of Indian law or it is in conflict with most basic
notions of morality and justice. A plain reading of Section
34 reveals that the scope of interference by the court with
the arbitral award under Section 34 is very limited and the
court is not supposed to travel beyond the aforesaid scope to
find out if the award is good or bad.
11. Section 37 of the Act provides for a forum of appeal
inter-alia against the order setting aside or refusing to set
aside an arbitral award under Section 34 of the Act. The
scope of appeal is naturally akin to andlimited to the
grounds enumerated under Section 34 of the Act.
12. It is pertinent to note that an arbitral award is not liable
to be interfered with only on the ground that the award is
illegal or is erroneous in law that too upon reappraisal of the
evidence adduced before the arbitral trial. Even an award
which may not be reasonable or is non-speaking to some
extent cannot ordinarily be interfered with by the courts. It
is also well settled that even if two views are possible there is
no scope for the court to reappraise the evidence and to take
the different view other than that has been taken by the
arbitrator. The view taken by the arbitrator is normally
acceptable and ought to be allowed to prevail.
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14. It is equally settled law that the appellate power
under Section 37of the Act is not akin to the normal
appellate jurisdiction vested in the civil courts for the reason
that the scope of interference of the courts with arbitral
proceedings or award is very limited, confined to the ambit
of Section 34 of the Act only and even that power cannot be
exercised in a casual and a cavalier manner.
xxxxxx
16. It is seen that the scope of interference in an appeal
under Section37 of the Act is restricted and subject to the
same grounds on which an award can be challenged
under Section 34 of the Act. In other words, the powers
under Section 37 vested in the court of appeal are not
beyond the scope of interference provided under Section 34
of the Act.”
Here, the Supreme Court has once again reiterated that even an
award which may not be reasonable or is nonspeaking to some
extent cannot ordinarily be interfered with by the courts. It is also
well settled that even if two views are possible there is no scope for
the court to reappraise the evidence and to take the different view
other than that has been taken by the arbitrator. The view taken by
the arbitrator is normally acceptable and ought to be allowed to
prevail.
35.In Konkan Railway Corpn. Ltd. v. Chenab Bridge Project6 referring
to MMTC Limited (supra) it has been held that:
“19….The scope of jurisdiction
under Section 34 and Section 37 of the Act is not akin to
normal appellate jurisdiction. It is well-settled that courts6
(2023) 9 SCC 85Page 19
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casual and cavalier manner. The mere possibility of an
alternative view on facts or interpretation of the contract
does not entitle courts to reverse the findings of the arbitral
tribunal…”
36.In Dyna Technology Private Limited v. Crompton Greaves Limited7,
the Apex Court observed as under:
“24. There is no dispute that Section 34 of the Arbitration
Act limits a challenge to an award only on the grounds
provided therein or as interpreted by various courts. We
need to be cognizant of the fact that arbitral awards should
not be interfered with in a casual and cavalier manner,
unless the court comes to a conclusion that the perversity of
the award goes to the root of the matter without there being
a possibility of alternative interpretation which may sustain
the arbitral award. Section 34 is different in its approach
and cannot be equated with a normal appellate jurisdiction.
The mandate under Section 34 is to respect the finality of
the 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.”
7
(2019) 20 SCC 1
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37.Judicial scrutiny of arbitral awards is stringently limited under
Indian law. Section 34 of the Arbitration and Conciliation Act, 1996,
provides the exclusive grounds upon which an arbitral award can be
challenged. Courts, therefore, are not empowered to interfere merely
because another interpretation or outcome may seem more
reasonable. The jurisdiction under Section 34 is confined to
procedural and legal infirmities such as lack of jurisdiction, violation
of natural justice, or patent illegality. Consequently, appellate
jurisdiction under Section 37 is even narrower in its scope. Its
purpose is to evaluate whether the court adjudicating under Section
34 has remained within the permissible statutory boundaries. The
appeal court cannot re-evaluate evidence or reconsider the factual
matrix afresh. The statutory framework thus reflects an overarching
legislative intent to insulate arbitral decisions from excessive judicial
intervention. The entire architecture of Sections 34 and 37 reinforces
the finality and autonomy of arbitral proceedings. Arbitration is
designed to offer an efficient, expert-led, and expedited alternative to
litigation. Courts must therefore resist the temptation to intervene
unless the decision by the court under Section 34 itself amounts to a
significant transgression of legal boundaries.
38.Judicial restraint under Section 37 also reflects respect for
institutional competence of arbitral tribunals in resolving technical
and commercial disputes. Courts are cautious not to intrude into
operational or industry-specific assessments unless such assessments
are manifestly disconnected from evidence or contractual terms.
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Arbitration is valued precisely because it permits specialized
adjudication, and appellate courts must avoid substituting judicial
perceptions for commercial judgment, unless the latter is
demonstrably arbitrary or legally unsound.
39.The balance, therefore, lies between two competing imperatives:
preserving arbitral autonomy and ensuring legal accountability.
Excessive deference risks validating legally flawed awards, while
excessive interference undermines arbitration as an effective dispute
resolution mechanism. Section 37 embodies this balance by allowing
interference only when legal thresholds are crossed. Courts must
carefully calibrate intervention to correct illegality without re-
opening factual controversy, thereby preserving both rule of law and
arbitral efficiency.
40.Now this Court shall endeavour to answer the main question framed
herein. The controversy in the present appeal lies within a narrow
compass. As noticed earlier, the learned District Judge interfered
with the arbitral award only in respect of Claim No.1 relating to
refund of royalty amounting to Rs.61,17,354/-. The remaining
findings of the learned Sole Arbitrator with regard to the other
claims were allowed to stand. The limited question that therefore
arises for consideration in this appeal is whether the learned District
Judge was justified, within the parameters of jurisdiction under
Section 34 of the Arbitration and Conciliation Act, 1996, in setting
aside the arbitral award on the issue of royalty. The determination of
this question necessarily requires examination of the contractual
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provisions governing the work, the nature of the claim raised before
the arbitrator, and the reasoning adopted in the arbitral award.
41.The contract between the parties related to execution of canal works
involving excavation of earth and formation of embankments. For
the purpose of execution of the work, the agreement incorporated a
Bill of Quantities specifying the various items of work and the rates
applicable to each item. The dispute in the present case revolves
around the interpretation of the provisions relating to earthwork
contained in the Bill of Quantities, particularly Item Nos.4 and 5.
These provisions governed excavation of earth from the canal and
the utilization of earth for formation of canal embankments. The
contractor had quoted the rates for these items during the tender
process and the same had been accepted by the departmental
authorities while entering into the agreement.
42.BOQ Item No.4 essentially related to excavation of earth from the
canal section. The specification of this item described the work of
excavation in soil for the canal, including dressing of the excavated
surfaces and disposal of the excavated material as required for the
execution of the project. The item thus contemplated excavation of
earth as part of the process of constructing the canal system. The
excavated earth formed a material component in the execution of the
work and could also be utilized for the formation of canal
embankments depending upon the requirements of the project and
the instructions issued by the departmental engineers supervising
the work.
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43.BOQ Item No.5, on the other hand, dealt with earthwork in canal
embankment. The specification of this item contemplated formation
of embankments using earth obtained either from the canal
excavation or from approved borrow areas. The item included the
processes necessary for formation of the embankment such as
excavation of earth, loading into transport vehicles, transportation to
the work site, deposition in layers and compaction. The provision
further indicated that the quoted rate would cover the various
operations required for embankment formation including
construction and maintenance of haul roads and borrow areas as
may be required for execution of the work.
44.The contractor had quoted a rate of Rs.60/- per cubic metre for BOQ
Item No.5 relating to earthwork in canal embankment. It is the case
of the appellant that this rate had been quoted on the understanding
that earth required for the embankment would be obtained from the
canal excavation at the first instance and that royalty would not be
levied on such earth. According to the appellant, the departmental
authorities had conveyed during the pre-bid stage that if additional
earth was required beyond what could be obtained from the canal
excavation, the same would be made available from Government
borrow areas. On that basis, the contractor asserts that the rate
quoted did not include any component towards royalty.
45.During execution of the work, however, the departmental authorities
deducted royalty from the contractor’s running account bills in
respect of the earth utilized for embankment formation. The
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materials on record indicate that deductions were made
progressively from the bills submitted by the contractor for the
earthwork carried out under BOQ Item No.5. According to the
contractor, such deductions continued up to the eighteenth running
account bill, resulting in recovery of an amount of Rs.61,17,354/-. The
contractor had addressed letters during the course of execution
objecting to such deductions and requesting that the royalty
component be excluded from the bills.
46.The respondents, on the other hand, relied upon the contractual
provision which stipulated that the bid price quoted by the
contractor would include all duties, taxes and levies payable in
connection with execution of the work. Royalty being a statutory
levy payable on extraction of minor minerals, the State contended
that the contractor was obliged to factor such levy into the rate
quoted in the tender. The respondents also relied upon government
communications governing deduction of royalty in works executed
through the tender process, contending that the departmental
authorities were bound to deduct royalty in accordance with the
statutory framework regulating extraction of earth.
47.The arbitral tribunal examined the rival contentions in the light of the
materials produced before it. The arbitrator took note of the
correspondence exchanged between the parties during the execution
of the work, including the letters addressed by the contractor
requesting that royalty should not be deducted from the bills
submitted for earthwork. The arbitrator also considered the
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circumstances in which earth for embankment formation was
procured and utilized during the execution of the project.
48.The materials placed before the arbitrator indicated that the
contractor had been required to procure earth from borrow areas for
the purpose of embankment formation. The contractor asserted that
approved borrow areas had not been handed over by the department
and that it had therefore arranged earth from private lands by
compensating the landowners. It was further stated that the earth so
procured had to be transported to the work site and utilized for
formation of the canal embankment under the supervision of
departmental engineers. These factual aspects formed part of the
evidence considered by the arbitrator while examining the claim
relating to royalty.
49.Another aspect considered in the arbitral proceedings related to the
nature of the deductions made from the running account bills. The
contractor had raised objections to the deduction of royalty during
execution of the work and had reiterated such objections through
written communications addressed to the departmental authorities.
Despite such objections, the deductions were continued and were
reflected in the bills prepared by the department. The contractor
ultimately received the final bill wherein the royalty deductions were
incorporated, though the contractor recorded an endorsement
accepting the bill with a royalty objection.
50.The arbitrator analysed the contractual provisions and the factual
circumstances surrounding the execution of the work. In doing so,
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the arbitrator took into account the nature of BOQ Item Nos.4 and 5
and the manner in which the work had actually been carried out. The
arbitrator also considered whether the rate quoted for embankment
formation could reasonably be construed as including the royalty
component, particularly in the context of the contractor’s assertion
that earth had been procured from private borrow areas and that the
contractor had already incurred expenditure for obtaining such
earth.
51.Since the learned District Judge interfered with the award only in
respect of Claim No.1 relating to refund of royalty, it becomes
necessary to examine the reasoning which weighed with the learned
Sole Arbitrator while allowing the said claim. The award reveals that
the arbitrator addressed the issue by closely examining the
contractual documents, particularly the estimate prepared by the
department, the description of the relevant items in the Bill of
Quantities, and the oral and documentary evidence placed on record
by the parties. The arbitrator proceeded on the premise that the
determination of the claim essentially depended upon whether the
rate quoted by the contractor for BOQ Item No.5–namely “Earth
work in canal embankment”–was inclusive of royalty or whether
royalty had been separately deducted by the department without
contractual authority.
52.In the course of the award, the arbitrator first adverted to the
estimate prepared by the departmental authorities for the work in
question. On examination of the rate analysis forming part of the
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estimate, the arbitrator recorded a finding that the calculation of the
unit rate corresponding to BOQ Item No.5 did not include any
component towards royalty on earth. The estimate, which formed
part of the contractual documents, indicated the factors taken into
account while determining the rate for the said item of work.
According to the arbitrator, the absence of any reference to royalty in
the rate analysis suggested that the departmental authorities
themselves had not factored royalty charges while preparing the
estimate on the basis of which the tender was invited.
53.The arbitrator then examined the description of the various items
contained in the Bill of Quantities forming part of the agreement
between the parties. It was noticed that several items in the BOQ
expressly referred to royalty as a component of the work. In
particular, BOQ Item Nos.4, 9, 10, 11, 14 and 15 contained references
to royalty in their respective descriptions. However, BOQ Item No.5,
which related to “Earth work in canal embankment”, did not contain
any mention of royalty. The arbitrator considered this difference to
be of significance. According to the arbitrator, where the employer
intended that royalty should form part of the contractor’s liability
under a particular item of work, the same had been expressly stated
in the description of that item. The omission of such reference in
BOQ Item No.5 therefore indicated that royalty was not intended to
be included in the rate quoted for that item.
54.The arbitrator further considered the oral evidence adduced by the
respondents during the arbitral proceedings. In particular, the
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evidence of the respondents’ witness was examined in relation to the
contents of the BOQ. The witness admitted during cross-examination
that BOQ Item No.5 did not contain any stipulation relating to
royalty, whereas other items in the agreement specifically mentioned
royalty charges. The arbitrator treated this admission as
corroborating the contractor’s case that the rate quoted for the
embankment work had not been framed with the inclusion of
royalty. The arbitrator therefore concluded that the contractual
documents themselves did not support the deduction of royalty from
the contractor’s bills under BOQ Item No.5.
55.Another aspect considered by the arbitrator related to the alleged
clarification said to have been given during the pre-bid meeting
convened prior to submission of the bids. The contractor had
asserted that during the pre-bid meeting it had been indicated that
royalty would not be levied on earth excavated from the canal for
use in embankment formation. The respondents relied upon the
minutes of the pre-bid meeting to contend that no such clarification
had been given. The arbitrator examined the document relied upon
by the respondents and observed that the minutes produced did not
clearly establish that the bidders had been informed that royalty
would be chargeable on the earth utilized for the work. The
arbitrator also found that the authenticity of the said minutes had not
been satisfactorily proved through the concerned departmental
officer. On that basis, the arbitrator declined to place reliance upon
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the document produced by the respondents in support of their
contention.
56.The arbitrator also took into account the conduct of the parties
during the execution of the work. The materials on record indicated
that the contractor had objected to the deduction of royalty during
the course of execution and had addressed letters requesting the
departmental authorities not to deduct such amounts from the
running account bills. Despite such objections, deductions continued
to be made from the bills submitted by the contractor. The arbitrator
observed that the consistent objection raised by the contractor during
execution lent support to the contention that royalty had not been
contemplated as part of the rate quoted for the work.
57. Having considered the contractual documents, the estimate
prepared by the department and the evidence led by the parties, the
arbitrator arrived at the conclusion that the rate quoted by the
contractor for BOQ Item No.5 did not include the element of royalty.
The arbitrator held that the deduction of royalty from the
contractor’s running account bills was therefore not supported by the
terms of the agreement. On that basis, the arbitrator allowed Claim
No.1 and directed the respondents to refund the amount of
Rs.61,17,354/- which had been recovered from the contractor’s bills
towards royalty.
58.It is thus evident that the arbitrator did not proceed merely on a
general assumption but undertook a detailed examination of the
contractual provisions, the estimate forming part of the tender
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documents and the evidence placed before the tribunal. The
conclusion reached by the arbitrator was founded upon the
interpretation of the BOQ items and the surrounding contractual
material.
59.When the matter came before the learned District Judge under
Section 34 of the Arbitration and Conciliation Act, the court
interfered with the award on the ground that royalty constituted a
statutory levy and that the contractor was liable to bear the same.
However, the reasoning adopted by the arbitrator demonstrates that
the issue before the tribunal was essentially one of contractual
interpretation, namely whether the rate quoted for BOQ Item No.5
was intended to include royalty. The arbitrator interpreted the
contractual documents and reached a conclusion on the basis of the
materials available before him.
60.In the opinion of this Court, the reasoning adopted by the arbitrator
reflects a possible interpretation of the contractual terms governing
the work. The arbitrator examined the estimate prepared by the
department, compared the language of different BOQ items and
considered the evidence of the departmental witness before arriving
at the conclusion that royalty had not been included in the rate
quoted for the embankment work. Such an interpretation cannot be
said to be irrational or unsupported by the record.
61.In arbitral jurisprudence, once the arbitrator has interpreted the
terms of the contract and arrived at a conclusion based on the
materials placed before the tribunal, the court exercising jurisdiction
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under Section 34 cannot substitute its own interpretation merely
because another view is possible. The role of the court is confined to
examining whether the award suffers from patent illegality or
perversity. Where the arbitrator’s view is a plausible one arising
from the evidence and contractual provisions, interference is not
warranted.
62.Viewed in that light, the reasoning adopted by the learned Sole
Arbitrator in allowing Claim No.1 represents a plausible view on the
basis of the contractual documents and the evidence placed on
record. The interpretation of BOQ Item No.5 and the conclusion that
royalty had not been included in the quoted rate constitute a possible
construction of the agreement between the parties. In such
circumstances, the award on that aspect could not have been
interfered with in proceedings under Section 34 of the Arbitration
and Conciliation Act.
63.In the present case, the issue before the arbitrator involved
interpretation of the contractual provisions governing earthwork and
examination of the factual circumstances under which the earth
required for embankment formation had been procured and utilized.
The arbitrator considered the correspondence exchanged between
the parties, the objections raised by the contractor during execution
of the work, and the manner in which deductions had been made
from the running account bills. On the basis of such materials, the
arbitrator arrived at a conclusion that the contractor was entitled to
refund of the royalty deducted.
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64.Having regard to the materials considered by the arbitrator and the
reasoning reflected in the award, it cannot be said that the view
taken by the arbitral tribunal was one that no reasonable person
could have arrived at. The interpretation adopted by the arbitrator
with regard to the contractual provisions and the factual
circumstances surrounding procurement and utilization of earth
constitutes a plausible view arising from the evidence on record. In
such circumstances, the award directing refund of royalty cannot be
said to suffer from patent illegality or perversity warranting
interference. The finding of the arbitrator on this issue therefore
represents a possible view on the materials placed before the
tribunal.
65.It is well settled that the jurisdiction of a court under Section 34 of the
Arbitration and Conciliation Act is supervisory in nature and does
not extend to reappreciation of evidence or substitution of the court’s
own interpretation of the contract in place of that adopted by the
arbitral tribunal. Where the arbitrator has interpreted the contractual
provisions and assessed the evidence placed before it, the court may
interfere only if the award suffers from patent illegality, perversity,
or contravention of the fundamental policy of law. A possible view
taken by the arbitrator on the basis of the materials on record
ordinarily does not warrant interference in proceedings under
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VI. CONCLUSION:
66.In view of the discussion made hereinabove, this Court is of the
considered opinion that the learned Sole Arbitrator had examined
the contractual provisions, the estimate forming part of the tender
documents, the description of the items contained in the Bill of
Quantities and the evidence adduced by the parties before arriving at
the conclusion that the rate quoted for BOQ Item No.5 was not
inclusive of royalty. The reasoning recorded in the award
demonstrates that the arbitrator interpreted the contractual
documents and assessed the materials placed before the tribunal in
order to determine the entitlement of the claimant. The conclusion so
reached represents a possible and reasonable view arising from the
record. In proceedings under Section 34 of the Arbitration and
Conciliation Act, 1996, the court does not sit in appeal over the
arbitral award and cannot substitute its own interpretation of the
contract in place of that adopted by the arbitrator merely because
another view may also be possible.
67.The learned District Judge, while partly allowing the application
under Section 34, interfered with the award only in respect of Claim
No.1 relating to refund of royalty. However, having regard to the
reasoning contained in the arbitral award, this Court finds that the
view taken by the arbitrator on the issue of royalty cannot be said to
suffer from patent illegality or perversity so as to justify interference
within the limited scope of jurisdiction under Section 34 of the Act.
The learned District Judge, in effect, substituted his own
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interpretation of the contractual provisions in place of that adopted
by the arbitrator, which is impermissible in law. The interference
with the award on that limited aspect was therefore not warranted.
68.Consequently, the judgment dated 12.9.2019 passed by the learned
District Judge, Dhenkanal in ARBP No.161 of 2017, insofar as it sets
aside the arbitral award dated 6.5.2017 with respect to Claim No.1
relating to refund of royalty amounting to Rs.61,17,354/-, cannot be
sustained and is hereby set aside. The arbitral award dated 6.5.2017
passed by the learned Sole Arbitrator in Arbitration Proceeding
No.26 of 2015 is restored in its entirety. The appeal filed under
Section 37 of the Arbitration and Conciliation Act, 1996 is
accordingly allowed.
69. Accordingly, both the ARBAs are disposed of.
70.Any interim orders passed during pendency of the appeal shall stand
vacated. Pending interlocutory applications, if any, shall also stand
disposed of.
71.There shall be no order as to costs.
(Dr. Sanjeeb K Panigrahi)
Judge
Orissa High Court, Cuttack,
Dated the 13th March, 2026/
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