Delhi High Court
M/S National Highways Authority Of … vs M/S Bel-Acc(Jv) on 24 March, 2026
Author: Subramonium Prasad
Bench: Subramonium Prasad
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 24th MARCH, 2026
IN THE MATTER OF:
+ O.M.P. (COMM) 341/2020
M/S NATIONAL HIGHWAYS AUTHORITY OF INDIA
.....Petitioner
Through: Mr. A. P. Singh and Mr. Varnit
Vashistha, Advocates
versus
M/S BEL-ACC(JV) .....Respondent
Through: Dr. Swaroop George, Mr. Sunny
Thomas, Mr. Abhinandan Jain, Mr.
Shivam Prajapati, Mr. Abhigyan
Dwivedi, Mr. Kartikey, Advocates
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD
JUDGMENT
1. The present Petition under Section 34 of the Arbitration &
Conciliation Act, 1996, has been filed by the Petitioner herein against the
Arbitral Award dated 27.05.2010 passed by a three-Member Arbitral
Tribunal.
2. Brief facts of the case as discernible from the material on record are
stated as under:-
i. The Petitioner invited bids from pre-qualified contractors for the
project of strengthening and four-laning of existing two lane
sections between Km. 307.500-Km. 231.00 of Etawah Bypass on
NH-2 in Uttar Pradesh (hereinafter referred to as the ‘Project’).
ii. On the basis of the evaluation of the bids, the Respondent was
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awarded the contract dated 01.02.2001 bearing No.
11025/2/99/TECH/GM(WB)/ETAWAH (01.02.2001) for contract
price of Rs.69,44,17,782/- (hereinafter referred to as the
„Contract‟).
iii. The Contract was an item rate contract wherein the Respondent
quoted its rates for various items of activities as per the details
given in the bill of quantities conforming to the relevant technical
specifications and other provisions of the contract.
iv. The Contract involved two separate phases. In Phase-I, the works
to be undertaken by the Respondent was to provide two additional
lanes by widening in the left hand side of the existing 7.3 Km.
long two lanes, which was later changed to placing one lane on
either side of the existing two lanes within the same land. The
Phase-II involved entirely new construction of four lanes of 6.7
Km., scope of which remain unchanged. The percentage of the
works involved in these two phases of the Project is stated to be in
the proportion of 28% for Phase-I and 72% in Phase-II.
v. It is stated that the Respondent accepted the variation in Phase-I,
thereby committing itself to execute the varied works within the
provisions of the Contract without any reservations. However, the
Respondent inter alia raised disputes with respect to the rates
approved by the Petitioner for the varied items of work which
were involved mainly in Phase-I of the Project.
vi. These disputes and differences between the parties were referred
to the Engineer in the first instance as per Clause 67.1 of the
General Conditions of Contract (hereinafter referred to as the
„GCC‟).
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vii. The Engineer rejected the claims of the Respondent and
communicated his decision in writing to both the parties.
Aggrieved by the decision of the Engineer, the Respondent gave
notice to the Petitioner of its intention to commence arbitration for
resolution of disputes by way of a letter dated 24.06.2004.
viii. A three-Member Arbitral Tribunal was constituted and the
Respondent came to file its Statement of Claim on 25.10.2004
raising the following Claims:-
“Claim No.1: Payment at revised rate for items of work under
Clause 51 & 52 GCC in respect of the work executed upto
3.10.2003, the original date of completion -Rs. 1,63,85,553.60
Claim No.2: Compensation by way of revision of rate for the
work executed during the extended period i.e. for the period
between 3.10.2003 to 31.8.2004 with escalation-Rs. 2,85,68,783
Claim No.3:Extension of time sought upto 31.10.2006 for the
alleged breach by the Employer.
Claim No.4: Compensation for loss of overheads profit and
reduce productivity from the machinery and equipment
deployed and loss of bonus upto 3.10.2003-Rs. 17,49,10,739.70
Claim No.5: Cost of deployment of additional resources for
executing additional work from 1.1.2003 till date-Rs.
1,80,000,00
Claim No.6: Refund of royalty for ordinary earth deducted upto
31.8.2004-Rs. 25,62,622/-
Claim No.7: Interest: To past, pendente lite and future interest
for delayed payment of amount certified by the Engineer upto
28.6.2004, the date of commencement of arbitration
proceedings.”
ix. In response the above claims of the Respondent, the Petitioner
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came to file its Statement of Defence on 13.12.2004.
x. On the basis of the pleadings and the evidence produced by the
parties, the learned Arbitral Tribunal passed the impugned Arbitral
Award and by way of a majority, awarded an amount of
Rs.1,93,19,530/- towards Claims No.1, 4 and 5 in favour of the
Respondent, along with pendente lite and future interest @ 10%
from 24.06.2004 till the date of the impugned Award and from the
date of the Award till the date of payment respectively. The
Claims No.2, 3 and 6 were rejected by the learned Arbitral
Tribunal.
xi. It is this Arbitral Award rendered by the majority of the Arbitral
Tribunal, that is under challenge in the present Petition.
3. Learned Counsel for the Petitioner has submitted as under:-
i. It is the case of the Petitioner that the Respondent was handed
over the Project Site as per the work programme which was
submitted by the Respondent itself in consonance with Clause
42.1 of the GCC as the Contract nowhere provided that the entire
land is to be handed over on the date of commencement of the
work.
ii. It is submitted that the handing over of the Project Site was
admittedly done in phases, however, enough land was handed over
to the Respondent to carry out the works without any delay or
hindrances.
iii. It is stated that all the construction drawings were timely issued to
the Respondent on 26.05.2001, that is much before the acceptance
of the work programme by the Petitioner.
iv. It is submitted that the Respondent was itself responsible for the
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slow progress of work due to its poor resources and work
management.
v. It is stated that the changes which were made by the Petitioner in
the provisions of the Contract were mainly for Phase-I of the
Project which only constituted for 28% of the total contract price,
as opposed to Phase-II of the project which was for 72% of the
total contract price.
vi. Since the Respondent itself agreed to execute the variations
brought in by the Petitioner in the Contract, it cannot be said that
any novation of the Contract took place. Moreover, since it is an
admitted case that the Respondent itself wanted the new rates to
be fixed as per Clauses 51 & 52 of the GCC, there can be no
question of there being a new agreement or novation of contract.
vii. Even after agreeing to the variations, the Respondent itself
disputed the rates and on 08.04.2003, sent a proposal of rates for
varied items to the Petitioner, for which approval was
communicated by the Petitioner‟s engineer without the work of
service road, however, the Respondent did not agree to the same.
viii. It was subsequently observed that the Respondent itself could not
adhere to its own work programme and as such the Petitioner was
constrained to issue show cause notices on 02.01.2004,
12.02.2004 and 06.03.2004. Despite these notices, there was no
improvement in the progress of work by the Respondent.
ix. In respect of Claim No.1 which has been awarded by the learned
Arbitral Tribunal by majority in favour of the Respondent, it is
submitted that no details regarding how the rates have been
worked out and what components have been taken into
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consideration while arriving at the rates of variation have been
discussed in the impugned Award. Rather, a reading of the
impugned Award clearly shows that the rates awarded are based
simply on the experience of the learned Members of the learned
Arbitral Tribunal.
x. It is submitted that despite rejecting variation on many of the
items claimed by the Respondent, the learned Arbitral Tribunal
still awarded nearly 80% of the amount demanded by the
Respondent. For instance, for some items like BOQ Item 7.3
“Earthwork in excavation for PCC” the rate worked out by the
learned Arbitral Tribunal (i.e., Rs.55/- per cubic metre) was more
than what was claimed by the Respondent (i.e. Rs.49.79/- per
cubic metre).
xi. As regards Claim No.4 which was awarded in favour of the
Respondent, it is submitted that though the Respondent had
quoted 28% below the estimated cost put in response to the tender,
it still claimed loss of profit and compensation on account of
overheads and machinery.
xii. It is submitted that findings in the impugned Award are
completely contradictory. On a reading of the impugned Award it
can be noted that while the learned Arbitral Tribunal gives a
finding that the Respondent was also responsible for delay in
completion of works, overhead charges are still allowed in favour
of the Respondent. This is in clear ignorance of the fact that
accrual of overhead charges emanates from the quality of work
executed and is not payable when the delay is attributable to the
contractor itself.
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xiii. In awarding compensation for overhead charges, the learned
Arbitral Tribunal ignores the principle that merely spending time
without any actual execution of works involved in the project will
not entitle a contractor to the overhead charges.
xiv. It is submitted that the amounts claimed towards compensation
under Claim No.4 are hypothetical, imaginary and without any
basis as the Respondent failed to achieve the target set by
themselves in the various work programme, which led to the
termination of the contract.
xv. Insofar as awarding of amounts under Claim No.5 is concerned, it
is submitted that the findings of the learned Arbitral Tribunal are
based on no evidence whatsoever, since no log books were
supplied by the Respondent for machinery and equipment, and as
such it appears that the learned Arbitral Tribunal has awarded the
amount allegedly on the basis of equity.
4. Per contra, learned Counsel for the Respondent submits that the
entire case brought by the Petitioner before this Court requires a re-
appreciation of the merits of the dispute before the Arbitral Tribunal as well
as the evidence produced by the parties. He further states that the Petitioner
has failed to carve out exactly which parameter under Section 34 of the
Arbitration & Conciliation Act is attracted to the facts of the present case,
which would warrant interference by this Court. He submits that since the
impugned Arbitral Award is comprehensive and well-reasoned, the instant
Petition warrants dismissal by this Court.
5. The scope of adjudication before this Court has been delineated only
to the award of amounts by the learned Arbitral Tribunal under Claims No.1,
4 and 5 in favour of the Respondent. Therefore, this Court shall restrict its
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analysis only within these parameters.
6. This Court reminds itself that the Impugned Award herein was passed
in the year 2010, and in the same year, the present Petition was filed.
Keeping the same in mind, it is apposite to recall the law under Section 34
of the Arbitration & Conciliation Act as it existed prior to the 2015
Amendment. This Court refers to the Judgment passed by the Apex Court in
Associate Builders v. DDA, (2015) 3 SCC 49 wherein the Apex Court has
observed as under:
“14. Section 34 of the Arbitration and Conciliation
Act reads as follows:
“34.Application for setting aside arbitral award.–
(1) Recourse to a court against an arbitral award may
be made only by an application for setting aside such
award in accordance with sub-section (2) and sub-
section (3).
(2) An arbitral award may be set aside by the court
only if–
(a) the party making the application furnishes proof
that–
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the
law to which the parties have subjected it or, failing
any indication thereon, under the law for the time
being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration:
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Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so
submitted, only that part of the arbitral award which
contains decisions on matters not submitted to
arbitration may be set aside; or
(v) the composition of the Arbitral Tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in
conflict with a provision of this Part from which the
parties cannot derogate, or, failing such agreement,
was not in accordance with this Part; or
(b) the court finds that–
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force, or
(ii) the arbitral award is in conflict with the public
policy of India.
Explanation.–Without prejudice to the generality
of sub-clause (ii), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict
with the public policy of India if the making of the
award was induced or affected by fraud or corruption
or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be
made after three months have elapsed from the date on
which the party making that application had received
the arbitral award or, if a request had been made
under Section 33, from the date on which that request
had been disposed of by the Arbitral Tribunal:
Provided that if the court is satisfied that the
applicant was prevented by sufficient cause from
making the application within the said period of three
months it may entertain the application within a
further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section
(1), the court may, where it is appropriate and it is so
requested by a party, adjourn the proceedings for a
period of time determined by it in order to give the
Arbitral Tribunal an opportunity to resume the arbitral
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proceedings or to take such other action as in the
opinion of Arbitral Tribunal will eliminate the grounds
for setting aside the arbitral award.”
xxx
19. When it came to construing the expression “the
public policy of India” contained in Section
34(2)(b)(ii) of the Arbitration Act, 1996, this Court
in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 :
AIR 2003 SC 2629] held : (SCC pp. 727-28 & 744-45,
paras 31 & 74)“31. Therefore, in our view, the phrase „public
policy of India‟ used in Section 34 in context is
required to be given a wider meaning. It can be stated
that the concept of public policy connotes some matter
which concerns public good and the public interest.
What is for public good or in public interest or what
would be injurious or harmful to the public good or
public interest has varied from time to time. However,
the award which is, on the face of it, patently in
violation of statutory provisions cannot be said to be in
public interest. Such award/judgment/decision is likely
to adversely affect the administration of justice. Hence,
in our view in addition to narrower meaning given to
the term „public policy‟ in Renusagar case [Renusagar
Power Co. Ltd. v. General Electric Co., 1994 Supp (1)
SCC 644] it is required to be held that the award could
be set aside if it is patently illegal. The result would
be–award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
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 the public policy. Award could also
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be set aside if it is so unfair and unreasonable that it
shocks the conscience of the court. Such award is
opposed to public policy and is required to be
adjudged void.
***
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award
under Section 34(2) of the Act if the party making the
application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the
law to which the parties have subjected it or, failing
any indication thereon, under the law for the time
being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal
was not in accordance with the agreement of the
parties,
(b) failing such agreement, the composition of the
Arbitral Tribunal was not in accordance with Part I of
the Act,
(ii) if the arbitral procedure was not in accordance
with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was
not in accordance with Part I of the Act.
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However, exception for setting aside the award on the
ground of composition of Arbitral Tribunal or illegality
of arbitral procedure is that the agreement should not
be in conflict with the provisions of Part I of the Act
from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in
contravention of the provisions of the Act or any other
substantive law governing the parties or is against the
terms of the contract.
(3) The award could be set aside if it is against the
public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside
mainly on the grounds:
(i) there is specific stipulation in the agreement that
the time and date of delivery of the goods was of the
essence of the contract;
(ii) in case of failure to deliver the goods within the
period fixed for such delivery in the schedule, ONGC
was entitled to recover from the contractor liquidated
damages as agreed;
(iii) it was also explicitly understood that the
agreed liquidated damages were genuine pre-estimate
of damages;
(iv) on the request of the respondent to extend the
time-limit for supply of goods, ONGC informed
specifically that time was extended but stipulated
liquidated damages as agreed would be recovered;
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bills for payment of cost of material supplied by the
contractor;
(vi) there is nothing on record to suggest that
stipulation for recovering liquidated damages was by
way of penalty or that the said sum was in any way
unreasonable;
(vii) in certain contracts, it is impossible to assess
the damages or prove the same. Such situation is taken
care of by Sections 73 and 74 of the Contract Act and
in the present case by specific terms of the contract.”
xxx
21. In Hindustan Zinc Ltd. v. Friends Coal
Carbonisation [(2006) 4 SCC 445] , this Court held :
(SCC p. 451, para 14)
“14. The High Court did not have the benefit of the
principles laid down in Saw Pipes [(2003) 5 SCC 705 :
AIR 2003 SC 2629] , and had proceeded on the
assumption that award cannot be interfered with even
if it was contrary to the terms of the contract. It went to
the extent of holding that contract terms cannot even
be looked into for examining the correctness of the
award. This Court in Saw Pipes [(2003) 5 SCC 705 :
AIR 2003 SC 2629] has made it clear that it is open to
the court to consider whether the award is against the
specific terms of contract and if so, interfere with it on
the ground that it is patently illegal and opposed to the
public policy of India.”
22. In McDermott International Inc. v. Burn
Standard Co. Ltd. [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] ,
this Court held : (SCC pp. 209-10, paras 58-60)
“58. In Renusagar Power Co. Ltd. v. General
Electric Co. [Renusagar Power Co. Ltd. v. General
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Electric Co., 1994 Supp (1) SCC 644] this Court laid
down that the arbitral award can be set aside if it is
contrary to (a) fundamental policy of Indian law; (b)
the interests of India; or (c) justice or morality. A
narrower meaning to the expression „public policy‟
was given therein by confining judicial review of the
arbitral award only on the aforementioned three
grounds. An apparent shift can, however, be noticed
from the decision of this Court in ONGC Ltd. v. Saw
Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629]
(for short „ONGC‟). This Court therein referred to an
earlier decision of this Court in Central Inland Water
Transport Corpn. Ltd. v. Brojo Nath Ganguly [(1986)
3 SCC 156 : 1986 SCC (L&S) 429 : (1986) 1 ATC 103]
wherein the applicability of the expression „public
policy‟ on the touchstone of Section 23 of the Contract
Act, 1872 and Article 14 of the Constitution of India
came to be considered. This Court therein was dealing
with unequal bargaining power of the workmen and
the employer and came to the conclusion that any term
of the agreement which is patently arbitrary and/or
otherwise arrived at because of the unequal bargaining
power would not only be ultra vires Article 14 of the
Constitution of India but also hit by Section 23 of the
Contract Act, 1872. In ONGC [(2003) 5 SCC 705 :
AIR 2003 SC 2629] this Court, apart from the three
grounds stated in Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] ,
added another ground thereto for exercise of the
court’s jurisdiction in setting aside the award if it is
patently arbitrary.
59. Such patent illegality, however, must go to the
root of the matter. The public policy violation,
indisputably, should be so unfair and unreasonable as
to shock the conscience of the court. Where the
arbitrator, however, has gone contrary to or beyond
the expressed law of the contract or granted relief in
the matter not in dispute would come within the
purview of Section 34 of the Act. However, we would
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consider the applicability of the aforementioned
principles while noticing the merits of the matter.
60. What would constitute public policy is a matter
dependent upon the nature of transaction and nature of
statute. For the said purpose, the pleadings of the
parties and the materials brought on record would be
relevant to enable the court to judge what is in public
good or public interest, and what would otherwise be
injurious to the public good at the relevant point, as
contradistinguished from the policy of a particular
Government. (See State of Rajasthan v. Basant
Nahata [(2005) 12 SCC 77] .)”
23. In Centrotrade Minerals & Metals
Inc. v. Hindustan Copper Ltd. [(2006) 11 SCC 245] ,
Sinha, J., held : (SCC p. 284, paras 103-04)“103. Such patent illegality, however, must go to
the root of the matter. The public policy, indisputably,
should be unfair and unreasonable so as to shock the
conscience of the court. Where the arbitrator, however,
has gone contrary to or beyond the expressed law of
the contract or granted relief in the matter not in
dispute would come within the purview of Section 34 of
the Act.
104. What would be a public policy would be a
matter which would again depend upon the nature of
transaction and the nature of statute. For the said
purpose, the pleadings of the parties and the materials
brought on record would be relevant so as to enable
the court to judge the concept of what was a public
good or public interest or what would otherwise be
injurious to the public good at the relevant point as
contradistinguished by the policy of a particular
Government. (See State of Rajasthan v. Basant
Nahata [(2005) 12 SCC 77] .)”
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24. In DDA v. R.S. Sharma and Co. [(2008) 13 SCC
80] , the Court summarised the law thus : (SCC pp. 91-
92, para 21)
“21. From the above decisions, the following
principles emerge:
(a) An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and
Conciliation Act, 1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section 34(2)
of the Act.
(b) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so
unfair and unreasonable that it shocks the conscience
of the court.
(d) It is open to the court to consider whether the
award is against the specific terms of contract and if
so, interfere with it on the ground that it is patently
illegal and opposed to the public policy of India.
With these principles and statutory provisions,
particularly, Section 34(2) of the Act, let us consider
whether the arbitrator as well as the Division Bench of
the High Court were justified in granting the award in
respect of Claims 1 to 3 and Additional Claims 1 to 3
of the claimant or the appellant DDA has made out a
case for setting aside the award in respect of those
claims with reference to the terms of the agreement
duly executed by both parties.”
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25.J.G. Engineers (P) Ltd. v. Union of India [(2011)
5 SCC 758 : (2011) 3 SCC (Civ) 128] held : (SCC p.
775, para 27)
“27. Interpreting the said provisions, this Court
in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 :
AIR 2003 SC 2629] held that a court can set aside an
award under Section 34(2)(b)(ii) of the Act, as being in
conflict with the public policy of India, if it is (a)
contrary to the fundamental policy of Indian law; or
(b) contrary to the interests of India; or (c) contrary to
justice or morality; or (d) patently illegal. This Court
explained that to hold an award to be opposed to
public policy, the patent illegality should go to the very
root of the matter and not a trivial illegality. It is also
observed that an award could be set aside if it is so
unfair and unreasonable that it shocks the conscience
of the court, as then it would be opposed to public
policy.”
26.Union of India v. Col. L.S.N. Murthy [(2012) 1
SCC 718 : (2012) 1 SCC (Civ) 368] held : (SCC p.
724, para 22)
“22. In ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5
SCC 705 : AIR 2003 SC 2629] this Court after
examining the grounds on which an award of the
arbitrator can be set aside under Section 34 of the Act
has said : (SCC p. 727, para 31)
„31. … However, the award which is, on the face of
it, patently in violation of statutory provisions cannot
be said to be in public interest. Such
award/judgment/decision is likely to adversely affect
the administration of justice. Hence, in our view in
addition to narrower meaning given to the term
“public policy” in Renusagar case [Renusagar Power
Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC
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644] it is required to be held that the award could be
set aside if it is patently illegal‟.”
27. Coming to each of the heads contained in Saw
Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629]
judgment, we will first deal with the head
“fundamental policy of Indian law”. It has already
been seen from Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644]
judgment that violation of the Foreign Exchange Act
and disregarding orders of superior courts in India
would be regarded as being contrary to the
fundamental policy of Indian law. To this it could be
added that the binding effect of the judgment of a
superior court being disregarded would be equally
violative of the fundamental policy of Indian law.
xxx
40. We now come to the fourth head of public
policy, namely, patent illegality. It must be
remembered that under the Explanation to Section
34(2)(b), an award is said to be in conflict with the
public policy of India if the making of the award was
induced or affected by fraud or corruption. This
ground is perhaps the earliest ground on which courts
in England set aside awards under English law. Added
to this ground (in 1802) is the ground that an arbitral
award would be set aside if there were an error of law
by the arbitrator. This is explained by Denning, L.J.
in R. v. Northumberland Compensation Appeal
Tribunal, ex p Shaw [(1952) 1 All ER 122 : (1952) 1
KB 338 (CA)] : (All ER p. 130 D-E : KB p. 351)
“Leaving now the statutory tribunals, I turn to the
awards of the arbitrators. The Court of King’s Bench
never interfered by certiorari with the award of an
arbitrator, because it was a private tribunal and not
subject to the prerogative writs. If the award was not
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made a rule of court, the only course available to an
aggrieved party was to resist an action on the award
or to file a bill in equity. If the award was made a rule
of court, a motion could be made to the court to set it
aside for misconduct of the arbitrator on the ground
that it was procured by corruption or other undue
means (see Statutes 9 and 10 Will. III, C. 15). At one
time an award could not be upset on the ground of
error of law by the arbitrator because that could not be
said to be misconduct or undue means, but ultimately it
was held in Kent v. Elstob [(1802) 3 East 18 : 102 ER
502] , that an award could be set aside for error of law
on the face of it. This was regretted by Williams, J.,
in Hodgkinson v. Fernie [(1857) 3 CB (NS) 189 : 140
ER 712] , but is now well established.”
41. This, in turn, led to the famous principle laid
down in Champsey Bhara Co. v. Jivraj Balloo Spg. and
Wvg. Co. Ltd. [AIR 1923 PC 66 : (1922-23) 50 IA 324
: 1923 AC 480 : 1923 All ER Rep 235 (PC)] , where
the Privy Council referred to Hodgkinson [(1857) 3 CB
(NS) 189 : 140 ER 712] and then laid down : (IA pp.
330-32)
“The law on the subject has never been more
clearly stated than by Williams, J.
in Hodgkinson v. Fernie [(1857) 3 CB (NS) 189 : 140
ER 712] : [CB(NS) p. 202 : ER p. 717]
„The law has for many years been settled, and
remains so at this day, that, where a cause or matters
in difference are referred to an arbitrator, whether a
lawyer or a layman, he is constituted the sole and final
Judge of all questions both of law and of fact. … The
only exceptions to that rule are cases where the award
is the result of corruption or fraud, and one other,
which, though it is to be regretted, is now, I think
firmly established viz. where the question of law
necessarily arises on the face of the award or upon
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some paper accompanying and forming part of the
award. Though the propriety of this latter may very
well be doubted, I think it may be considered as
established.‟
***
Now the regret expressed by Williams, J.
in Hodgkinson v. Fernie [(1857) 3 CB (NS) 189 : 140
ER 712] has been repeated by more than one learned
Judge, and it is certainly not to be desired that the
exception should be in any way extended. An error in
law on the face of the award means, in Their
Lordships’ view, that you can find in the award or a
document actually incorporated thereto, as for
instance, a note appended by the arbitrator stating the
reasons for his judgment, some legal proposition which
is the basis of the award and which you can then say is
erroneous. It does not mean that if in a narrative a
reference is made to a contention of one party that
opens the door to seeing first what that contention is,
and then going to the contract on which the parties’
rights depend to see if that contention is sound. Here it
is impossible to say, from what is shown on the face of
the award, what mistake the arbitrators made. The
only way that the learned Judges have arrived at
finding what the mistake was is by saying:„Inasmuch
as the arbitrators awarded so and so, and inasmuch as
the letter shows that the buyer rejected the cotton, the
arbitrators can only have arrived at that result by
totally misinterpreting Rule 52.‟ But they were entitled
to give their own interpretation to Rule 52 or any other
article, and the award will stand unless, on the face of
it they have tied themselves down to some special legal
proposition which then, when examined, appears to be
unsound. Upon this point, therefore, Their Lordships
think that the judgment of Pratt, J. was right and the
conclusion of the learned Judges of the Court of
Appeal [Jivraj Baloo Spg. and Wvg. Co.
Ltd. v. Champsey Bhara and Co., ILR (1920) 44 Bom
780. The judgment of Pratt, J. may be referred to at
ILR p. 787.] erroneous.”
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This judgment has been consistently followed in
India to test awards under Section 30 of the Arbitration
Act, 1940.
42. In the 1996 Act, this principle is substituted by
the “patent illegality” principle which, in turn,
contains three subheads:
42.1. (a) A contravention of the substantive law of
India would result in the death knell of an arbitral
award. This must be understood in the sense that such
illegality must go to the root of the matter and cannot
be of a trivial nature. This again is really a
contravention of Section 28(1)(a) of the Act, which
reads as under:
“28.Rules applicable to substance of dispute.–(1)
Where the place of arbitration is situated in India–
(a) in an arbitration other than an international
commercial arbitration, the Arbitral Tribunal shall
decide the dispute submitted to arbitration in
accordance with the substantive law for the time being
in force in India;”
42.2. (b) A contravention of the Arbitration Act
itself would be regarded as a patent illegality — for
example if an arbitrator gives no reasons for an award
in contravention of Section 31(3) of the Act, such
award will be liable to be set aside.
42.3. (c) Equally, the third subhead of patent
illegality is really a contravention of Section 28(3) of
the Arbitration Act, which reads as under:
“28.Rules applicable to substance of dispute.–(1)-
(2)***
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take into account the usages of the trade applicable to
the transaction.”
This last contravention must be understood with a
caveat. An Arbitral Tribunal must decide in
accordance with the terms of the contract, but if an
arbitrator construes a term of the contract in a
reasonable manner, it will not mean that the award
can be set aside on this ground. Construction of the
terms of a contract is primarily for an arbitrator to
decide unless the arbitrator construes the contract in
such a way that it could be said to be something that
no fair-minded or reasonable person could do.
43. In McDermott International Inc. v. Burn
Standard Co. Ltd. [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] ,
this Court held as under : (SCC pp. 225-26, paras 112-
13)
“112. It is trite that the terms of the contract can be
express or implied. The conduct of the parties would
also be a relevant factor in the matter of construction
of a contract. The construction of the contract
agreement is within the jurisdiction of the arbitrators
having regard to the wide nature, scope and ambit of
the arbitration agreement and they cannot be said to
have misdirected themselves in passing the award by
taking into consideration the conduct of the parties. It
is also trite that correspondences exchanged by the
parties are required to be taken into consideration for
the purpose of construction of a contract.
Interpretation of a contract is a matter for the
arbitrator to determine, even if it gives rise to
determination of a question of law. [See Pure Helium
India (P) Ltd. v. Oil and Natural Gas
Commission [(2003) 8 SCC 593 : 2003 Supp (4) SCR
561] and D.D. Sharma v. Union of India [(2004) 5
SCC 325] .]
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113. Once, thus, it is held that the arbitrator had the
jurisdiction, no further question shall be raised and the
court will not exercise its jurisdiction unless it is found
that there exists any bar on the face of the award.”
44. In MSK Projects (I) (JV) Ltd. v. State of
Rajasthan [(2011) 10 SCC 573 : (2012) 3 SCC (Civ)
818] , the Court held : (SCC pp. 581-82, para 17)
“17. If the arbitrator commits an error in the
construction of the contract, that is an error within his
jurisdiction. But if he wanders outside the contract and
deals with matters not allotted to him, he commits a
jurisdictional error. Extrinsic evidence is admissible in
such cases because the dispute is not something which
arises under or in relation to the contract or dependent
on the construction of the contract or to be determined
within the award. The ambiguity of the award can, in
such cases, be resolved by admitting extrinsic
evidence. The rationale of this rule is that the nature of
the dispute is something which has to be determined
outside and independent of what appears in the award.
Such a jurisdictional error needs to be proved by
evidence extrinsic to the award. (See Gobardhan
Das v. Lachhmi Ram [(1954) 1 SCC 566 : AIR 1954
SC 689] , Thawardas Pherumal v. Union of India [AIR
1955 SC 468] , Union of India v. Kishorilal Gupta &
Bros. [AIR 1959 SC 1362] , Alopi Parshad & Sons
Ltd. v. Union of India [AIR 1960 SC 588] , Jivarajbhai
Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965 SC
214] and Renusagar Power Co. Ltd. v. General
Electric Co. [(1984) 4 SCC 679 : AIR 1985 SC 1156]
)”
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand
Ram Saran [(2012) 5 SCC 306] , the Court held :
(SCC pp. 320-21, paras 43-45)
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“43. In any case, assuming that Clause 9.3 was
capable of two interpretations, the view taken by the
arbitrator was clearly a possible if not a plausible one.
It is not possible to say that the arbitrator had
travelled outside his jurisdiction, or that the view taken
by him was against the terms of contract. That being
the position, the High Court had no reason to interfere
with the award and substitute its view in place of the
interpretation accepted by the arbitrator.
44. The legal position in this behalf has been
summarised in para 18 of the judgment of this Court
in SAIL v. Gupta Brother Steel Tubes Ltd. [(2009) 10
SCC 63 : (2009) 4 SCC (Civ) 16] and which has been
referred to above. Similar view has been taken later
in Sumitomo Heavy Industries Ltd. v. ONGC
Ltd. [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] to
which one of us (Gokhale, J.) was a party. The
observations in para 43 thereof are instructive in this
behalf.
45. This para 43 reads as follows : (Sumitomo
case [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] ,
SCC p. 313)
„43. … The umpire has considered the fact situation
and placed a construction on the clauses of the
agreement which according to him was the correct
one. One may at the highest say that one would have
preferred another construction of Clause 17.3 but that
cannot make the award in any way perverse. Nor can
one substitute one’s own view in such a situation, in
place of the one taken by the umpire, which would
amount to sitting in appeal. As held by this Court
in Kwality Mfg. Corpn. v. Central Warehousing
Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406]
the Court while considering challenge to arbitral
award does not sit in appeal over the findings and
decision of the arbitrator, which is what the High
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Court has practically done in this matter. The umpire
is legitimately entitled to take the view which he holds
to be the correct one after considering the material
before him and after interpreting the provisions of the
agreement. If he does so, the decision of the umpire has
to be accepted as final and binding.‟”
7. Material on record indicates that amounts claimed under Claim No.1
by the Respondent was on account of drastic and belated variations which
were ordered by the Petitioner herein, including a shift from LHS widening
to concentric widening as well the addition of three overpasses in a 7 km.
stretch which substantially altered the scope of work under the Contract.
8. Before the learned Arbitral Tribunal, the Respondent‟s grievance was
that the alterations brought about by the Petitioner led to a construction of
nearly 14 km. of RCC road retaining walls involving over 33,000 cubic
meters of concrete which also resulted in the change of nature and character
of the Contract. It was on this basis that the Respondent had claimed
revision of rates for items where quantities varied beyond 25% and
constituted more than 5% of the contract price which classified the claim
into BOQ items, derived BOQ items and entirely new extra items.
9. Before the learned Arbitral Tribunal the Petitioner opposed Claim
No.1 by stating that the variations in question were neither drastic nor
belated as being completely covered under Clauses 51 & 52 of the GCC, as
such there was no alteration in the fundamental nature of the Contract. It
was further contended that by executing the variations without protest, the
Respondent had impliedly accepted the changes and relaxed the variation
limits.
10. The learned Arbitral Tribunal under Claim No.1 held that the revision
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conditions were satisfied, i.e., the item constituted more than 5% of the
contract price and that the executed quantity varied by more than 25% from
the BOQ. It was further observed that the Respondent remained bound to
execute the original quantities as per the BOQ at the quoted rates and
accordingly the revised rates could only apply to the quantities in excess of
the BOQ.
11. While the learned Arbitral Tribunal rejected the Respondent‟s revised
rate analysis, it carried out rate revision on the basis of experience the
learned Members of the Arbitral Tribunal, thereby awarding a total of
Rs.1,32,14,407/- in favour of the Respondent.
12. In the opinion of this Court although detailed calculation or precise
methodology for awarding of the amount under Claim No.1 in favour of the
Respondent is not visible, this Court does not find the ultimate grant of the
sum of Rs.1,32,14,407/- to be arbitrary or perverse. Admittedly, the
difference between the revised rates already paid by the Respondent and
those ultimately awarded by the learned Arbitral Tribunal is only marginal
which means that the learned Arbitral Tribunal did not depart substantially
from the contractual or contemporaneous pricing framework. Rather, with
respect to the items related to the construction of diversions near the
overpass the learned Arbitral Tribunal has in fact reduced the claimed
revised rate from Rs.3,40,003/- to Rs.2,58,995/-. In the opinion of this Court
this demonstrates the exercise of independent judicial discretion of the
Arbitral Tribunal rather than a mechanical acceptance of the Respondent‟s
case. As such, this Court does not see any reason to interfere with the
findings returned by the learned Arbitral Tribunal under Claim No.1.
13. Dealing next with Claim No.4 under which the Respondent claimed
compensation for loss of overheads, profits, reduced productivity from
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deployed machinery and equipment, and loss of bonus to the tune of
Rs.17,49,10,739.70/- . In support of its claim, the Respondent argued before
the learned Arbitral Tribunal that although complete mobilization was
carried out, breach of the contractual terms by the Petitioner prevented the
Respondent from progressing according to the schedule. The Respondent
contended that their tendered rates accounted for 10% profits, 10%
overheads, as well as 10% deployment costs which would enable them to be
placed in the same financial situation had there been no breach on part of the
Petitioner.
14. Opposing Claim No.4 the Petitioner submitted that it was the
Respondent who failed to timely mobilize key personnel and equipment, and
the machinery provided by the Respondent was old and prone to breakdown.
The Petitioner further pointed out that the Respondent‟s overall progress
was only 22% and their bid was 28% below the estimated costs making their
claims for high profits and overheads completely baseless.
15. As per the learned Arbitral Tribunal, the Respondent was in fact
responsible for the overall slow progress of work which was evident for
merely 22% progress achieved by them. At the same time the learned
Arbitral Tribunal also notes that specific delays under Phase-I occurring on
account of hindrances on the site were also attributable to the Petitioner. On
the basis of these findings the learned Arbitral Tribunal considered overhead
charges at 8% of the contract price and calculated the additional overheads
for Phase-I as well as ROB works during the 16.5 months extension period.
After applying a 20% reduction for mitigation of losses, the learned Arbitral
Tribunal by way of majority awarded an amount of Rs.56,95,123/- in favour
of the Respondent.
16. It is pertinent to note that against the findings on Claim No.4 a
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dissenting opinion was also given by the Sh. H. P. Jamdar, learned
Arbitrator, who was of the opinion that since overheads are built into item
rates and accrue only upon actual execution of works, awarding of any
amount to the Respondent was unjustified. He therefore opined that the
entire claim of the Respondent should have been rejected.
17. This Court is of the opinion that the primary reason given by the
majority of the learned Arbitral Tribunal was on the basis of their
observation that hindrances were caused by the Respondent on the Project
Site, especially after the scope of work was changed from LHS widening to
concentric widening. It can be noted from a reading of the impugned Award
that the learned Arbitral Tribunal has observed delay on both sides and
carefully awarded the amount only for the actual works carried out by the
Respondent under Phase-I. For this reason, this Court finds itself in
agreement with the award of amount under Claim No.4 in favour of the
Respondent.
18. The last claim challenged by the Petitioner is Claim No.5 under which
the learned Arbitral Tribunal has awarded Rs.4.10 lakhs in favour of the
Respondent.
19. Material on record indicates that the basis of Claim No.5 was the cost
of deployment of additional resources for execution of additional works
from January, 2003 onwards. In support of its claim, the Respondent had
argued before the learned Arbitral Tribunal that it was at the instance of the
Petitioner that additional resources had to be deployed to ensure completion
of the Project by 30.10.2003. The Respondent‟s case was that the
Petitioner‟s decision to suspend the service road works constituted a breach
of the Contract leaving these additional resources idle at the Project Site.
20. Against Claim No.5, the Petitioner argued that the Respondent‟s case
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was not supported by any evidence, stating that there were no log books or
any other document produced to prove the loss as claimed by the
Respondent. The Petitioner also argued that 90% of the resources which the
Respondent labels to be additional were actually necessary for the
Respondent to catch up on the slow progress of works being carried out by
it.
21. This Court is of the opinion that considering the findings returned by
the learned Arbitral Tribunal on other claims as discussed above, the Award
of Rs.4.10 lakhs under Claim No.5 to meet the ends of justice does not
warrant any interference.
22. From the discussion above, it is evident that the learned Arbitral
Tribunal meticulously evaluated the material presented before it and
thoroughly examined the documents filed by the parties. Each claim was
addressed with due regard to the terms of the Contract between the parties as
well as the applicable legal principles.
23. This Court believes that the findings of the learned Arbitral Tribunal
demonstrate that a careful balance between the contractual provisions, the
conduct of the parties, and the principles of fairness were maintained.
24. In view of the above, this Court does not find any merit in the instant
Petition and the challenge laid by the Petitioner against the Impugned
Award.
25. Resultantly, the Petition is dismissed along with pending
application(s), if any.
SUBRAMONIUM PRASAD, J
MARCH 24, 2026
hsk/ap
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