The Bihar State Food and Civil Supplies Corporation Ltd. v. Piyus Kumar

Judgment

1. The present appeal has been filed under Section 13 (1A) of the Commercial Courts Act, 2015 (herein after referred to as the “Act, 2015”) read with Section 37 of the Arbitration and Conciliation Act, 1996 (herein after referred to as the “Act, 1996”) against the Judgment dated 25.07.2025, passed by the Ld. Court of Principal District Judge, Patna (herein after referred to as the “learned PDJ, Patna”) in Miscellaneous (Arbitration) Case No. 158 of 2020. Facts of the Case:

2. The genesis of the present appeal lies in an agreement executed in between the appellants and the claimant-Respondent herein dated 24.10.2016, pursuant to issuance of notice inviting tender from eligible candidates, for being appointed as transporting-cum-handling agent for a period of three years for the revenue District-Madhubani and acceptance of the tender submitted by the Respondent herein. The claimant-Respondent was entrusted with the work of transportation of food-grains and Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 other commodities including edible oil to the destinated godown, as directed by or on behalf of the appellants and according to the route chart fixed for the said purpose. The period of contract was for three years pertaining to the District- Madhubani. The claimant-Respondent is stated to have executed the work of transporting-cum-handling agent under the agreement and had submitted several bills in between the years 2017 to 2019.

3. It appears that disputes had erupted in between the parties, leading to claims and counter claims being asserted as also leading to issuance of several show cause notices to the claimant-Respondent by the appellants, which were duly replied to by the claimant-Respondent. Ultimately, the District Manager, Bihar State Food and Civil Supplies Corporation Ltd. (hereinafter referred to as “the BSFC”), Madhubani issued a show cause notice dated 13.5.2019 to the claimant-Respondent, as to why appropriate proceedings for cancellation of agreement and blacklisting for five years be not taken in terms of Clause 4(f) of the agreement, which was replied to by the Respondent. Thereafter, the District Transport Committee, Madhubani, vide minutes of meeting dated 21.5.2019 decided to blacklist the Respondent for a period of five years, forfeit the security Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 deposit, terminate the agreement and invoke the Bank guarantee. This led to issuance of a reasoned order dated

23.05.2019, by which the claimant-Respondent was blacklisted for five years, the security deposit was forfeited, the agreement was terminated and the Bank guarantee was invoked. The said order dated 23.5.2019 was challenged by the claimant- Respondent by filing a writ petition bearing CWJC No. 12554 of 2019. A Ld. Single Judge of this Court by a judgment dated

21.08.2019 passed in CWJC No. 12554 of 2019 had quashed the order of blacklisting of the claimant-Respondent, however liberty was granted to the claimant-Respondent to seek his remedy against the order of termination, forfeiture of security deposit and invocation of Bank guarantee in a duly constituted arbitration proceedings or as may be advised in accordance with law.

4. The claimant-Respondent had then sent a notice to the appellants on 29.05.2019 for appointing an arbitrator suggesting three names, however the appellants did not respond to the said notice as also failed to appoint any arbitrator within a reasonable time, leading to filing of a request case bearing Request Case No. 66 of 2019 under Section 11(6) of the Act, 1996 by the claimant-Respondent, inter alia praying therein for appointment Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 of an independent and impartial arbitrator, in view of Clause 21 of the agreement dated 24.10.2016. The Hon’ble Chief Justice of this Court by an order dated 06.09.2019, passed in Request Case No. 66 of 2019 and other analogous cases, in exercise of the powers U/s. 11(6) of the Act, 1996 had appointed Hon’ble Mr. Justice Sadananad Mukherjee, a retired Judge of the Patna High Court as the sole Arbitrator to enter upon the disputes and render his award in terms of the provisions of the Act, 1996.

5. The claimant-Respondent had then approached the Ld. Sole Arbitrator on 13.09.2019 with a copy of the aforesaid order dated 06.09.2019, passed in Request Case No. 66 of 2019 and other analogous cases, leading to registration of Arbitration Case No. 08 of 2019, whereafter the claimant-Respondent had filed a detailed statement of claim on 11.10.2019, raising a claim of a sum of Rs. 4,32,23,044.57.

6. The appellants had then filed statement of defence on

13.1.2020, inter alia stating therein that the claimant- Respondent has submitted calculation chart at Annexure C-63, page No. 137 of the claim petition without any supporting documents and the admitted outstanding bills have already been paid long back apart from the fact that as per Clause 22 of the agreement, the claimant-Respondent is not entitled to claim any Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 compensation for detention of trucks at the godown gates or by law enforcing agencies during transit or at any other place. It was also averred that the claimant-Respondent has engaged in breach of the terms and conditions of the contract and he has already received all the admissible outstanding amount against the bills submitted by him, hence the claims raised by him is not admissible in the eyes of law.

7. The Respondent-claimant had then filed a rejoinder to the statement of defence on 11.2.2020, stating therein that in support of the statement of claim annexed at Annexure C-63, photo copies of several bills have been annexed as Annexure C- 2 to C-35 to the statement of claim wherein each and every fact as well as supporting documents have been furnished in detail. The claimant-Respondent had also filed a supplementary statement of claim on 14.6.2020 wherein a sum of Rs. 21,00,000/- was claimed as compensation on account of premature termination of contract, resulting in the claimant- Respondent being prevented from transporting food-grains for about seven months during the validity period of agreement, apart from claiming a sum of Rs. 1,50,000/- as travelling expenses for attending arbitral proceedings at Patna and a sum of Rs. 1,60,000/- on the head of fees of the Ld. Advocate. It is a

Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 matter of record that no rebuttal was filed by the appellants to the supplementary statement of claim.

8. The learned Sole Arbitrator had thereafter, framed the following issues for consideration:- “(i) Whether there is any cause of action for the present proceeding. (ii) Whether the claim is barred by limitation. (iii) Whether the claimant has committed breach of contract in violation of conditions of agreement/contract. (iv) Whether the deductions from several bills of the petitioner/claimant by the respondents are valid and justified even without giving any opportunity to show cause in this regard. (v) Whether the petitioner/claimant is entitled to the claims as per statement of claims, including the claim of 18 % interest per year on pending bills. (vi) What relief or relief the petitioner is entitled?”

9. The Ld. Sole Arbitrator had finally passed the arbitral award on 17.10.2020, holding that the claimant-Respondent shall be entitled to the following award:- “1. The claimant petitioner shall be paid an amount of Rs. 2,67,37,638.62 paise (Two crore sixty-seven lakhs thirty-seven thousand six hundred and thirty eighty) only towards the claimed amount inclusive of security amount. Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026

2. The claimant petitioner shall be entitled to compensation amount of Rs. 45,00,000/- (Forty-five lakhs) only under Section 54 of the Indian Contract Act.

3. The claimant petitioner shall be entitled to simple interest @10% p.a. from 13.09.2019 till the date of award and further 18% interest over awarded sum from the date of award till realization over the awarded amount.

4. The claimant petitioner shall be entitled to cost towards fees and expenses of the Arbitrator and Courts and other legal expenses.

5. Since the Arbitrator's fees has not been paid by the respondent, the same shall be treated as 'unpaid cost' of the Award, under Section 39 of the Arbitration and Conciliation Act, 1996, and accordingly Arbitrator shall have lien over the award, the respondent shall be liable for making payment of the fees of the Arbitrator before pursuing the matter before the Court.”

10. The Ld. Sole arbitrator by the aforesaid award dated

17.10.2020 has though denied the claim of detention charges/bills being contrary to Clause 22 of the agreement but has not only awarded the aforesaid claim of Rs. 2,67,37,638.62/- but also compensation amount to the tune of Rs. 45,00,000/- and interest in favor of the claimant-Respondent.

11. The Ld. Sole Arbitrator had then by an order dated

13.11.2020 indicated that at page no. 17, paragraph no. 1 of the Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 award dated 17.10.2020, there has been typographical error, inasmuch as the compensation amount has been typed as Rs. 45,00,000/- instead of Rs. 25,00,000/- and since Section 33(3) of the Act, 1996 postulates that the arbitral tribunal may correct any error of the type referred to in Clause (a) of Sub-Section (1) on its own initiation, within 30 days from the date of arbitral award, the award portion at para-1 at page no. 17 and at para-1 at page no. 18, wherever compensation amount of Rs. 45,00,000/- has been mentioned, shall stand corrected and be read as a sum of Rs. 25,00,000/-

12. The aforesaid award dated 17.10.2020, passed by the learned Sole Arbitrator was challenged by the appellants before the learned Court of Principal District Judge, Patna by filing a petition on 24.12.2020 under Section 34 (2) & (2A) of the Act, 1996, which was numbered as Miscellaneous (Arbitration) Case No. 158 of 2020 (arising out of award dated 17.10.2020 passed in Arbitration Case No. 8 of 2019). The grounds which can be culled out from the petition of the said Miscellaneous Case No. 158 of 2020 are enumerated herein below:- (i) The Sole Arbitrator has passed the award only on the basis of calculation chart produced by the claimant- respondent without any supporting documents. Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 (ii) The appellants had filed statement of defence before the learned Sole Arbitrator and prayed for directing the claimant-respondent to produce supporting documents against his claims as also examine witnesses but the learned Sole Arbitrator neither followed the provisions contained in the Act, 1996 nor examined the records/ witnesses. (iii) The learned Sole Arbitrator failed to consider that several claims raised by the claimants are de hors the agreement. (iv) The learned Sole Arbitrator has awarded two penalties against the appellants i.e. compensation amount and interest on belated payment of the outstanding amount although the admitted claims of the claimant- respondent have already been paid by the appellants well within time. (v) The learned Sole Arbitrator failed to consider that the claimant-respondent had failed to adhere to the terms of the agreement regarding installing truck with GPS Load- Cells at the time of lifting food grains, hence appropriate deductions were made from the bills. The learned Sole Arbitrator failed to consider that the appellants had passed the admitted amount of bills of the claimant- Respondent, which he had received without any objection. (vi) The impugned award is against the provisions of the Act, 1996. (vii) The learned Sole Arbitrator was though appointed to Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 consider the disputes arising out of the agreement in question, however he has considered several claims based on different contracts and agreements.

13. The claimant-respondent had filed a reply on 23.12.2021 to the aforesaid Misc. Case No.158 of 2020, inter alia stating therein that the said petition filed by the appellants is not maintainable in view of the observations of the learned Sole Arbitrator to the effect that since the arbitration fees has not been paid by the appellants, same shall be treated as unpaid cost of the award under Section 39 of the Act, 1996 and accordingly, Arbitrator shall have lien over the award and the appellants shall be liable to make payment of the fees of the Arbitrator before pursuing the matter before the Court. The claimant-respondent had also raised an objection regarding the aforesaid petition filed by the appellants being in violation of the mandatory provisions contained under Section 34 (5) of the Act, 1996, as no prior notice was issued to the claimant-Respondent before filing of the said petition. The claimant-respondent had also raised the issue of jurisdiction inasmuch as the award under challenge being in respect of commercial dispute as defined under Section 2(1)(c)(xviii) of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015, the appellants were required to invoke Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 the provisions of the Act, 2015, which has not been invoked, thus the learned Court is not vested with the jurisdiction to decide the case in hand. The claimant-respondent had refuted the contentions made by the appellants in the aforesaid Misc. (Arbitration) Case No. 158 of 2020 and had stated that in pursuance to the agreement dated 24.10.2016 executed in between the claimant-respondent and the appellants, the claimant-respondent had diligently completed the assignment as a Transporting-cum-Handling Agent within the framework of the agreement dated 24.10.2016 and in fact the calculation chart produced by the claimant-respondent with his claim petition is supported by month-wise bills of transport and handling charges as well as other relevant documents which were brought on record before the learned Sole Arbitrator along with the statement of claim filed by the claimant-respondent.

14. It has also been stated by the claimant-respondent in his reply that proper opportunity was provided to the appellants by the learned Sole Arbitrator to file relevant documents, however no documents were filed by the appellants. It has also been stated that as per Clause 12 A of the agreement, the appellants were under contractual obligation to make payments of the bills of the claimant-respondent herein within a period of 15 days of Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 submission of bills, however none of the bills were paid within time by the appellants. It has also been stated that the appellants never received the bills with any objection. Nonetheless, huge deductions were made by the appellants from the bills without assigning any reason. It has also been stated that the appellants did not file any affidavit of admission/denial of documents of the claimant-respondent before the learned Sole Arbitrator, hence all the documents filed by the claimant-respondent would be deemed to have been accepted. It has further been stated that the claims have only been raised with regard to the district Madhubani for which the claimant-respondent was appointed as a Transporting-cum-Handing Agent vide agreement dated

24.10.2016. Thus, it has been stated that the allegations regarding award of such amount which were not pertaining to the contract in question and were in connection with other districts is baseless. Lastly, it has been stated in the reply filed by the claimant-respondent that it is a well settled law, as held by the Hon’ble Supreme Court in a catena of cases that any error on the face of the award or in case there is any patent illegality then the same can be examined by the learned Court under Section 34 of the Act, 1996, however the facts/evidence cannot be re-appreciated by the learned Court at the appellate Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 stage.

15. It may be pertinent to mention here that in paragraph No.17 of the reply filed by the claimant-respondent in Misc. (Arbitration) Case No. 158 of 2020, it has been specifically stated that claims have been raised only in connection with one revenue district for which the claimant was appointed as Transporting-cum-Handling Agent agreement dt.

24.10.2016, hence any allegation by the appellants to the effect that claims over and above the agreement in question pertaining to other districts have been raised by the claimant-respondent is denied. At this juncture, it would be apt to reproduce paragraph No. 5 (v) of the supplementary reply filed by the claimant- Respondent herein below:- “(v) For that the Hon’ble Sole Arbitrator has decided the dispute within the scope of the agreement as disputes with respect to only one agreement was adjudicated by the Hon’ble Sole Arbitrator for which the Sole Arbitrator was appointed but the plaintiff is trying to mislead this Learned Court merely on the basis of the statement without substantiating any documents in support of their contention.”

16. The claimant-respondent, in his supplementary reply dated 14.02.2022, filed in the said Misc. (Arbitration) Case No. 158 of 2020, inter alia stating therein that the statement of claim Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 filed by the claimant-respondent before the learned Sole Arbitrator is duly supported by relevant documents which had already been submitted before the concerned officials of the appellants from time to time in accordance with the terms and conditions of the agreement. It has also been stated that interest was claimed on the ground of delay and for the same notice under Section 3 of the Interest Act was sent to the appellants with regard to each and every outstanding amount of bills and the same were also produced before the learned Sole Arbitrator. It has further been stated that the calculation chart produced by the claimant-respondent is duly supported by month-wise bill of transport and handling charges as well as other documents which were brought on record of the arbitral proceedings along with the statement of claim filed by the claimant-respondent and the monthly bills are contained in Annexures C-2 to C-35 of the statement of claim, thus the contention of the appellants that no proof/documents were produce is denied.

17. The learned court of PDJ, Patna by a judgment dated

25.07.2025, passed in Miscellaneous (Arbitration) Case No.158 of 2020, has been pleased to dismiss the said case holding that no valid ground has been made out under Section (2) or (2A) of Section 34 of the Arbitration and Conciliation Act, 1996 so as to Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 warrant interference with the impugned arbitral award or the findings of the learned Sole Arbitrator. At this juncture, it would be relevant to enumerate in brief, the findings recorded by the learned PDJ, Patna in the aforesaid judgement dated 25.07.2025, herein below:- (i) The learned PDJ, Patna has held that since the Ld. Sole Arbitrator in his award dated 17.10.2020 has recorded that no breach of contractual obligation was committed by the claimant-respondent, rendering the deductions from the bills not justified, the learned Sole Arbitrator has rightly adjudicated the deduction of Rs.2,67,37,638.62/- was improper and unlawful, thus has justifiably awarded the said amount in favor of the claimant-respondent. (ii) As regards compensation amount of Rs. 45 lakhs (sic Rs. 25 lakhs) awarded by the learned Sole Arbitrator, considering the provisions contained under Section 54 of the Indian Contract Act, the learned PDJ, Patna has come to a finding that since the claimant-respondent ought not to have been subjected to loss arising from the default committed by the appellants and on account of delayed payments causing wrongful loss, as is reflected from the arbitral award, the appellants failed to perform their part of the agreement, hence they cannot claim the performance of reciprocal promise from the claimant- respondent, thus in view of the undue hardship and financial loss suffered due to delayed payment and Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 defaults on the part of the appellants, the learned Sole Arbitrator has rightly and justifiably awarded compensation of Rs.45 lakhs (sic Rs. 25 lakhs) in favour of the claimant-respondent. (iii) The learned PDJ, Patna has further held that it is well settled established legal principal that a Court, while adjudicating a petition under Section 34 of the Act, 1996 is empowered to set aside an arbitral award where it is found to be devoid of reasoning, or where its outcome is so unjust and irrational as to shock the judicial conscience and similarly an award may be invalidated if it is based on evidence and resulting conclusions which no prudent or reasonable person could reasonably reach. The learned PDJ, Patna has also held that the Arbitrator remains the ultimate master of the quality and quantity of evidence and unless the Arbitrator’s approach is demonstrably arbitrary or capricious, the Court shall refrain from revisiting or re-evaluating factual determinations already placed on record. (iv) The learned PDJ has come to a finding that none of the grounds enumerated under sub-Sections (2) or (2A) of Section 34 of the Act, 1996 have been substantiated in the challenge to the arbitral award. It has also been held that it is a settled law that the proceedings instituted under Section 34 of the Act, 1996 do not partake the nature of an appeal or revision and the jurisdiction conferred upon the Court is inherently limited as also the Court is neither empowered to re-evaluate the findings and conclusions recorded in the award nor substitute its own views or Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 effect any modification thereof and furthermore, the Court is also not required to delve into or adjudicate the merits of the award in a petition filed U/s. 34 of the Act,

1996. (v) The learned PDJ, Patna has thus held that the learned Sole Arbitrator has justifiably rendered the arbitral award dated 17.10.2020, having duly considered and evaluated the evidentiary material placed on record and delivered a well-reasoned and a legally sound award. (vi) In conclusion, the learned PDJ, Patna has held that considering the materials on record, it is manifest that the appellants have failed to establish any of the ground enumerated under sub-Sections (2) or (2A) of Section 34 of the Act, 1996, hence the circumscribed jurisdiction conferred under Section 34 of the Act, 1996 has not been satisfied in the present case so as to warrant setting aside of the impugned arbitral award. The learned PDJ, Patna has also held that the Ld. Sole Arbitrator has adjudicated the disputes strictly within the confines of the agreement executed between the parties and the documents placed on record in that regard as also the findings are clear and the rationale adopted by the learned Sole Arbitrator in arriving at the conclusion is sound, coherent and well- reasoned, hence the award cannot be regarded as patently illegal, perverse or contrary to the public policy of India.

18. The aforesaid judgment dated 25.07.2025 passed by the learned PDJ, Patna has been challenged in the present appeal. Submissions of the Ld. Counsel for the Appellants: Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026

19. The learned counsel for the appellants has submitted that the Ld. Sole Arbitrator has passed the award dated 17.10.2020 only on the basis of the calculation chart produced by the claimant-Respondent without any supporting documents and the Ld. Principal District Judge, Patna has similarly erred by not considering the said aspect of the matter. It has been stated that the claimant-Respondent has failed to produce any supporting documents against his claims like truck challan, store issue order etc., apart from the fact that the claimant-Respondent did not examine any witnesses in support of his claim. Thus, it has been submitted that the impugned judgment dated 25.7.2025, passed by the Ld. PDJ, Patna as also the arbitral award dated

17.10.2020, passed by the Ld. Sole Arbitrator, as far as award of claim of a sum of Rs. 2,67,37,638.62/- to the claimant- Respondent is concerned, is perverse, patently illegal and beyond the parameters of the agreement entered into between the parties. It is also submitted that the learned Ld. PDJ, Patna had neither called for the arbitral records nor had examined the records and in an arbitrary manner, has upheld the arbitral award dated 17.10.2020 by the impugned judgment dated 25.7.2025. In fact, the Ld. PDJ, Patna failed to consider that all the admitted outstanding amount of bills/claims have been paid to Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 the claimant-Respondent and part admitted outstanding dues to the tune of Rs. 1,31,08,638/- (including the security deposit of Rs. 10,00,000/-) has been paid on 10.5.2023, however the same has not been accounted for in the impugned Judgment dt.

25.7.2025.

20. The learned counsel for the appellants has further submitted that the Ld. Sole Arbitrator as also the Ld. PDJ Judge, Patna in the impugned arbitral award and judgment dated

17.10.2020 and 25.7.2025 respectively, have failed to consider that several claims raised by the claimant-Respondent are de hors the agreement, apart from the fact that though there is no provision for payment of interest and grant of compensation in the agreement entered into between the parties, however both the Ld. Sole Arbitrator as also the Ld. PDJ, Patna have, in utter disregard to the provisions of the agreement allowed the claim of the claimant-Respondent pertaining to grant of interest and compensation. It is further submitted that the Ld. Sole Arbitrator has though been appointed to consider the disputes arising out of the agreement dated 24.10.2016 for the district-Madhubani, however he has considered and allowed several claims based on different contract and agreement. Thus, in nutshell, it is the contention of the learned counsel for the appellants that Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 the impugned judgment dated 25.7.2025, passed by the Ld. Court of PDJ, Patna is in teeth of the mandate of the provisions contained under Section 34(2)(a), (b) and (2)(A) of the Act,

21. The learned counsel for the appellants has referred to a judgment rendered by the Hon’ble Apex Court in the case of Gayatri Balasamy vs. ISG Novasoft Technologies Limited, reported in (2025) 7 SCC 1 to submit that Section 34 Court can apply the doctrine of severability and modify a portion of the award while retaining the rest, however the same is subject to parts of the award being separable, legally and practically. In fact, the Courts are empowered to modify the arbitral award under Section 34 and 37 of the Act, 1996, nonetheless the same is limited and can be exercised when the award is severable, by severing the “invalid” portion from the “valid” portion of the award by correcting any clerical, computational or typographical errors, which appear erroneous on the face of the record and post-award interest can also be modified in some circumstances as mentioned in the said judgment. Reference has also been made to a judgment rendered by the Hon’ble Apex Court in the case of North Delhi Municipal Corporation vs. S.A. Builders Limited, reported in (2025) 7 SCC 132 to submit Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 that the arbitral tribunal does not have the power to award interest upon interest or compound interest either for the pre- award period or the post-award period.

22. The learned counsel for the appellants has also referred to a judgment rendered by the Hon’ble Apex Court in the case of Union of India vs. Ambica Construction, reported in (2016) 6 SCC 36 to submit that reference has been made in the said judgment to a Constitution Bench judgment of the Hon’ble Apex Court, rendered in the case of Secretary, Irrigation Department, Government of Orissa & Ors. vs. GC Roy, reported in (1992) 1 SCC 508, wherein it has been held that if the arbitration agreement or the contract itself provides for interest, the arbitrator would have the jurisdiction to award interest, however where the agreement expressly provides that no interest pendente lite shall be payable on the amount due, the arbitrator has no power to award pendente lite interest. It would be apt to reproduce paragraph nos. 12, 14 and 34 of the said judgment, rendered in the case of Ambica Construction (supra), herein below:- “12. A Constitution Bench of this Court in G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] has considered the question of power of the arbitrator to award pendente lite interest and it has been laid down that if the arbitration agreement or the Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 contract itself provides for interest, the arbitrator would have the jurisdiction to award the interest. Similarly, where the agreement expressly provides that no interest pendente lite shall be payable on the amount due, the arbitrator has no power to award pendente lite interest. In G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] this Court has held thus : (SCC p. 514, para 7) “7. … If the arbitration agreement or the contract itself provides for award of interest on the amount found due from one party to the other, no question regarding the absence of arbitrator's jurisdiction to award the interest could arise as in that case the arbitrator has power to award interest pendente lite as well. Similarly, where the agreement expressly provides that no interest pendente lite shall be payable on the amount due, the arbitrator has no power to award pendente lite interest. But where the agreement does not provide either for grant or denial of interest on the amount found due, the question arises whether in such an event the arbitrator has power and authority to grant pendente lite interest.

14. Ultimately, in G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] , this Court has answered the question whether the arbitrator has the power to award interest pendente lite. Their Lordships have reiterated that they have dealt with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant when the agreement is silent as to award of interest. This Court has laid down various principles in paras 43-44 of the Report thus : (SCC pp. 532-34) “43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so, on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 where the agreement is silent as to award of interest. On a conspectus of the aforementioned decisions, the following principles emerge: (i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34 of the Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator. (ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings. (iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of the Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 must have the power to award interest pendente lite. Thawardas Pherumal v. Union of India [Thawardas Pherumal v. Union of India, AIR 1955 SC 468] has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Deptt. of Irrigation v. Abhaduta Jena [Deptt. of Irrigation v. Abhaduta Jena, (1988) 1 SCC 418] almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.

44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf: Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes—or refer the dispute as to interest as such—to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.” (emphasis in original) The Constitution Bench of this Court has laid down that where the agreement between the parties does not prohibit grant of interest and where the party claims interest and that dispute is referred to the arbitrator, he shall have the power to award interest pendente lite. The law declared has been held applicable prospectively.

34. Thus, our answer to the reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.”

23. The learned counsel for the appellants has next referred to a judgment rendered by the Hon’ble Apex Court in the case of Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd., reported in (2003) 5 SCC 705, paragraphs no. 13, 15 to 22 and 31 whereof are reproduced herein below:- therefore, The question, “13. which requires consideration is — whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under Sections 24, 28 or 31(3), which affects the rights of the parties. Under sub-section (1)(a) of Section 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, the question would be — whether such award could be set aside. Similarly, under sub-section (3), the Arbitral Tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If the Arbitral Tribunal ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be interfered. Similarly, if the award is a non-speaking one and is in violation of Section 31(3), can such award be set aside? In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn't be set aside by the court. If it is held that such award could not be interfered, it would be contrary to the basic concept of justice. If the Arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34.

15. The result is — if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34. However, such failure of procedure should be patent affecting the rights of the parties.

16. The next clause which requires interpretation is clause (ii) of sub-section (2)(b) of Section 34 which inter alia provides that the court may set aside the arbitral award if it is in conflict with the “public policy of India”. The phrase “public policy of India” is not defined under the Act. Hence, the said term is required to be given meaning in context and also considering the purpose of the section Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 and scheme of the Act. It has been repeatedly stated by various authorities that the expression “public policy” does not admit of precise definition and may vary from generation to generation and from time to time. Hence, the concept “public policy” is considered to be vague, susceptible to narrow or wider meaning depending upon the context in which it is used. Lacking precedent, the court has to give its meaning in the light and principles underlying the Arbitration Act, Contract Act and constitutional provisions.

17. For this purpose, we would refer to a few decisions referred to by the learned counsel for the parties. While dealing with the concept of public policy, this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC 156] has observed thus: (SCC pp. 217-19, paras 92-93) “92. The Indian Contract Act does not define the expression ‘public policy’ or ‘opposed to public policy’. From the very nature of things, the expressions ‘public policy’, ‘opposed to public policy’, or ‘contrary to public policy’ are incapable of precise definition. Public policy, however, is not the policy of a particular Government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of thought — ‘the narrow view’ school and ‘the broad view’ school. According to the former, courts cannot create new heads of public policy whereas the latter countenances Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 judicial law-making in this area. The adherents of ‘the narrow view’ school would not invalidate a contract on the ground of public policy unless that particular ground had been well established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Gold Mines Ltd. [1902 AC 484, 500: (1900-03) All ER Rep 426 : 87 LT 372 (HL)]: ‘Public policy is always an unsafe and treacherous ground for legal decision.’ That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson v. Mellish [(1824) 2 Bing 229, 252 : 130 ER 294] described public policy as ‘a very unruly horse, and when once you get astride it you never know where it will carry you’. The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. v. Football Assn. Ltd. [1971 Ch 591, 606] : ‘With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles’. Had the timorous always held the field, not only the doctrine of public policy but even the common law or the principles of equity would never have evolved. Sir William Holdsworth in his ‘History of English Law’, Vol. III, p. 55, has said: ‘In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.’ It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our courts have before them the beacon light of the preamble to the Constitution. Lacking precedent, the court can always be guided by that light and the principles underlying the fundamental rights and the directive principles enshrined in our Constitution.

93. The normal rule of common law has been that a party who seeks to enforce an agreement which is opposed to public policy will be non-suited. The case of A. Schroeder Music Publishing Co. Ltd. v. Macaulay [(1974) 1 WLR 1308 : (1974) 3 All ER 616 (HL)], however, establishes that where a contract is vitiated as being contrary to public policy, the party adversely affected by it can sue to have it declared void. The case may be different where the purpose of the contract is illegal or immoral. In Kedar Nath Motani v. Prahlad Rai [AIR 1960 SC 213 : (1960) 1 SCR 861], reversing the High Court and restoring the decree passed by the trial court declaring the appellants' title to the lands in suit and directing the respondents who were the appellants' benamidars to restore possession, this Court, after discussing the English and Indian law on the subject, said (at p. 873): ‘The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the court, the plea of the defendant should not prevail.’ The types of contracts to which the principle formulated by us above applies are not contracts which are tainted with illegality but are contracts which contain terms which are so unfair and unreasonable that they shock the conscience of the court. They are opposed to public policy and require to be adjudged void.” (emphasis supplied)

18. Further, in Renusagar Power Co. Ltd. v. General Electric Co. [1994 Supp (1) SCC 644] this Court considered Section 7(1) of the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that a foreign award may not be enforced under the said Act, if the court dealing with the case is satisfied that the enforcement of the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the conclusion that public policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 is the “public policy of India” and does not cover the public policy of any other country. For giving meaning to the term “public policy”, the Court observed thus: (SCC p. 682, para 66) “66. Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression ‘public policy’ in Article V(2)(b) of the New York Convention and Section 7(1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article I(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that ‘public policy’ in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression ‘public policy’ in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.” (emphasis supplied) The Court finally held that: (SCC p. 685, para 76) “76. Keeping in view the aforesaid objects underlying FERA and the principles governing enforcement of exchange control laws followed in other countries, we are of the view that the provisions contained in FERA have been enacted to safeguard the economic interests of India and any violation of the said provisions would be contrary to the public policy of India as envisaged in Section 7(1)(b)(ii) of the Act.”

19. This Court in Murlidhar Aggarwal v. State of U.P. Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 [(1974) 2 SCC 472] while dealing with the concept of “public policy” observed thus: (SCC pp. 482-83, paras 31-32) “31. Public policy does not remain static in any given community. It may vary from generation to generation and even in the same generation. Public policy would be almost useless if it were to remain in fixed moulds for all time.

32. … The difficulty of discovering what public policy is at any given moment certainly does not absolve the Judges from the duty of doing so. In conducting an enquiry, as already stated, Judges are not hidebound by precedent. The Judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction they must cast their gaze. The Judges are to base their decisions on the opinions of men of the world, as distinguished from opinions based on legal learning. In other words, the Judges will have to look beyond the jurisprudence and that in so doing, they must consult not their own personal standards or predilections but those of the dominant opinion at a given moment, or what has been termed customary morality. The Judges must consider the social consequences of the rule propounded, especially in the light of the factual evidence available as to its probable results. … The point is rather that this power must be lodged somewhere and under our Constitution and laws, it has been lodged in the Judges and if they have to fulfil their function as Judges, it could hardly be lodged elsewhere.” (emphasis supplied)

20. Mr Desai submitted that the narrow meaning given to the term “public policy” in Renusagar case [1994 Supp (1) SCC 644] is in context of the fact that the question involved in the said matter was with regard to the execution of the award which had attained finality. It was not a case where validity of the award is challenged Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 before a forum prescribed under the Act. He submitted that the scheme of Section 34 which deals with setting aside the domestic arbitral award and Section 48 which deals with enforcement of foreign award are not identical. A foreign award by definition is subject to double exequatur. This is recognized inter alia by Section 48(1) and there is no parallel provision to this clause in Section 34. For this, he referred to Lord Mustill & Stewart C. Boyd, Q.C.'s Commercial Arbitration 2001 wherein (at p. 90) it is stated as under: “Mutual recognition of awards is the glue which holds the international arbitrating community together, and this will only be strong if the enforcing court is willing to trust, as the convention assumes that they will trust the supervising authorities of the chosen venue. It follows that if, and to the extent that the award has been struck down in the local court it should as a matter of theory and practice be treated when enforcement is sought as if to the extent it did not exist.”

21. He further submitted that in foreign arbitration, the award would be subject to being set aside or suspended by the competent authority under the relevant law of that country whereas in the domestic arbitration the only recourse is to Section 34.

22. The aforesaid submission of the learned Senior Counsel requires to be accepted. From the judgments discussed above, it can be held that the term “public policy of India” is required to be interpreted in the context of the jurisdiction of the court where the validity of award is challenged before it becomes final and executable. The concept of enforcement of the award after it becomes final is different and the jurisdiction of the court at that stage could be limited. Similar is the position with regard to the execution of a decree. It is settled law as well as it is provided under the Code of Civil Procedure that once the decree has attained finality, in an Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 execution proceeding, it may be challenged only on limited grounds such as the decree being without jurisdiction or a nullity. But in a case where the judgment and decree is challenged before the appellate court or the court exercising revisional jurisdiction, the jurisdiction of such court would be wider. Therefore, in a case where the validity of award is challenged, there is no necessity of giving a narrower meaning to the term “public policy of India”. On the contrary, wider meaning is required to be given so that the “patently illegal award” passed by the Arbitral Tribunal could be set aside. If narrow meaning as contended by the learned Senior Counsel Mr Dave is given, some of the provisions of the Arbitration Act would become nugatory. Take for illustration a case wherein there is a specific provision in the contract that for delayed payment of the amount due and payable, no interest would be payable, still however, if the arbitrator has passed an award granting interest, it would be against the terms of the contract and thereby against the provision of Section 28(3) of the Act which specifically provides that “Arbitral Tribunal shall decide in accordance with the terms of the contract”. Further, where there is a specific usage of the trade that if the payment is made beyond a period of one month, then the party would be required to pay the said amount with interest at the rate of 15 per cent. Despite the evidence being produced on record for such usage, if the arbitrator refuses to grant such interest on the ground of equity, such award would also be in violation of sub-sections (2) and (3) of Section 28. Section 28(2) specifically provides that the arbitrator shall decide ex aequo et bono (according to what is just and good) only if the parties have expressly authorised him to do so. Similarly, if the award is patently against the statutory provisions of substantive law which is in force in India or is passed without giving an opportunity of hearing to the parties as provided under Section 24 or without giving any reason in a case where parties have not agreed that no reasons are to be Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 recorded, it would be against the statutory provisions. In all such cases, the award is required to be set aside on the ground of “patent illegality”.

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 [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 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.”

24. Thus, it is submitted by the learned counsel for the appellants by relying on the aforesaid judgment rendered by the Hon’ble Apex Court in the case of Saw Pipes Ltd. (supra) that the arbitral award dated 17.10.2020, passed by the Ld. Sole Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 Arbitrator is patently illegal, hence is fit to be set aside and this Court is fully empowered to do so by virtue of the provisions contained under Section 37 of the Act, 1996.

25. The Ld. counsel for the appellants has lastly submitted, by referring to Clause 22 of the agreement dated 24.10.2016 that the claimant-Respondent is not entitled to any compensation for detention of their trucks and in fact the Ld. Sole Arbitrator, in the arbitral award dated 17.10.2020, at internal page no. 15 has also held, while referring to the said Clause 22 of the agreement dated 24.10.2016 that the detention charges shall not be payable to the claimant and the detention bills shall stand deducted from various bills, nonetheless the amount awarded in favor of the claimant-Respondent to the tune of Rs. 2,67,37,638.62 also contain detention charges, which is an error apparent on the face of the records. Submissions of the Ld. Counsel for the claimant- Respondent:

26. Per contra, the Ld. counsel for the claimant-Respondent has submitted that it is wrong to say that no supporting documents were annexed by the claimant-Respondent in his claim petition filed before the Ld. Sole Arbitrator in support of his claims, inasmuch as the bills for various months have been Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 annexed as Annexure C-2 to C-35, wherein each and every fact as well as supporting documents have been furnished in detail, duly supported by month wise bills of transport and handling charges as well as other relevant documents, however the appellants did not file any affidavit/annexures/denial of documents of the claimant-Respondent before the Ld. Sole Arbitrator, hence all the documents filed by the claimant- Respondent would be deemed to have been accepted. Thus, it is submitted that the claim of a sum of Rs. 2,67,37,638.62 awarded by the Ld. Sole Arbitrator, vide award dt. 17.10.2020 is not only supported by bills / documents but also justified, which have not been denied by the appellants, hence no interference is required.

27. The learned counsel for the claimant-Respondent has further submitted that all the claims have been awarded within the ambit of the agreement in question i.e. the one dated

24.10.2016, pertaining to the district-Madhubani. It is also submitted that there is no bar under the agreement to award interest and compensation, hence the arbitral award dated

17.10.2020 as upheld by the judgment dated 25.7.2025, passed by the Ld. Court of PDJ, Patna under Section 34 of the Act, 1996 does not suffer from any infirmity.

28. The learned counsel for the claimant-Respondent has next Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 submitted that Section 34 of the Act, 1996 provides for certain grounds on which the competent Court can interfere with the arbitral award, however no interference is permissible if the grounds urged for setting aside of arbitral award is not within the contours of Section 34 of the Act, 1996. Reference has also been made to Section 5 of the Act, 1996 to submit that an arbitration award, which is governed by Part-I of the Act, 1996 can only be set aside on the grounds mentioned under Section 34 (2) and (3) and not otherwise. The Ld. Counsel has referred to a judgment rendered by the Hon’ble Apex Court in the case of Associate Builders vs. Delhi Development Authority, reported in (2015) 3 SCC 49, paragraphs no. 33, 34, 52 and 56 whereof are reproduced herein below:- “33. It must clearly be understood that when a court is applying the “public policy” test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score [Very often an arbitrator is a lay person not necessarily trained in law. Lord Mansfield, a famous English Judge, once advised a high military officer in Jamaica who needed to act as a Judge as follows: Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 “General, you have a sound head, and a good heart; take courage and you will do very well, in your occupation, in a court of equity. My advice is, to make your decrees as your head and your heart dictate, to hear both sides patiently, to decide with firmness in the best manner you can; but be careful not to assign your reasons, since your determination may be substantially right, although your reasons may be very bad, or essentially wrong”. It is very important to bear this in mind when awards of lay arbitrators are challenged.]. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594], this Court held : (SCC pp. 601-02, para 21) “21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non- member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”

34. It is with this very important caveat that the two fundamental principles which form part of the Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood.

52. It is most unfortunate that the Division Bench did not advert to this crucial document at all. This document shows not only that the Division Bench was wholly incorrect in its conclusion that the contractor has tried to pull the wool over the eyes over the DDA but it should also have realised that the DDA itself has stated that the work has been carried out generally to its satisfaction barring some extremely minor defects which are capable of rectification. It is clear, therefore, that the Division Bench obviously exceeded its jurisdiction in interfering with a pure finding of fact forgetting that the arbitrator is the sole Judge of the quantity and quality of evidence before him and unnecessarily bringing in facts which were neither pleaded nor proved and ignoring the vital completion certificate granted by the DDA itself. The Division Bench also went wrong in stating that as the work completed was only to the extent of Rs 62,84,845, Hudson's formula should have been applied taking this figure into account and not the entire contract value of Rs 87,66,678 into account.

56. Here again, the Division Bench has interfered wrongly with the arbitral award on several counts. It had no business to enter into a pure question of fact to set aside the arbitrator for having applied a formula of 20 months instead of 25 months. Though this would inure in favour of the appellant, it is clear that the appellant did not file any cross-objection on this score. Also, it is extremely curious that the Division Bench found that an adjustment would have to be made with claims awarded under Claims 2, 3 and 4 which are entirely separate and independent claims and have nothing to do with Claims 12 and 13. The formula then applied by the Division Bench was that it would itself do “rough and ready justice”. We are at a complete loss to understand how this can be done by any court under the jurisdiction Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 exercised under Section 34 of the Arbitration Act. As has been held above, the expression “justice” when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the arbitrator's view and does what it considers to be “justice”. With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact.”

29. The learned counsel for the claimant-Respondent has further submitted that it is a settled position of law that the grounds for interference with the arbitral award under Section 37 of the Act, 1996 is narrower than those under Section 34 of the Act, 1996, hence if an arbitral award has been upheld in challenge under Section 34 of the Act, 1996, then the same should not be disturbed by the Appellate Court. In this regard, reliance has been placed on a judgment, rendered by the Hon’ble Apex Court in the case of UHL Power Company Ltd. vs. State of Himachal Pradesh, reported in (2022) 4 SCC 116 as also upon the one rendered by the Hon’ble Apex Court in the case of Reliance Infrastructure Ltd. vs. State of Goa, reported in (2024) 1 SCC 479, paragraphs no. 25 to 33 whereof are reproduced herein below:- “25. Having regard to the contentions urged and the Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 issues raised, it shall also be apposite to take note of the principles enunciated by this Court in some of the relevant decisions cited by the parties on the scope of challenge to an arbitral award under Section 34 and the scope of appeal under Section 37 of the 1996 Act.

26. In MMTC [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163], this Court took note of various decisions including that in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49] and exposited on the limited scope of interference under Section 34 and further narrower scope of appeal under Section 37 of the 1996 Act, particularly when dealing with the concurrent findings (of the arbitrator and then of the Court). This Court, inter alia, held as under: [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163], SCC pp. 166-67, paras 11-14) “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 v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract. Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026

12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49] Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [(2006) 4 SCC 445]; and McDermott International Inc. v. Burn Standard Co. Ltd. [(2006) 11 SCC 181])

13. It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

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 Patna High Court COMMERCIAL APP No.7 of 2025 dt.23-05-2026 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 Section 34 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.” In Ssangyong Engg. [Ssangyong Engg. & 27. Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131], this Court has set out the scope of challenge under Section 34 of the 1996 Act in further details in the following words : (SCC pp. 170-71, paras 37-41) “37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.