Sanjay Gandhi Post Graduate Institute of Medical Sciences , Lko. Thru. Director Vs M/S S.C. Agarwal Purana Qila , Lko. Thru. Proprietor Mr. S.C. Agarwal

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Neutral Citation No. - 2025:AHC-LKO:41514-DB

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Reserved

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Chief Justice's Court

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Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 10 of 2024

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Appellant :- Sanjay Gandhi Post Graduate Institute of Medical Sciences, Lucknow through Director Respondent :- M/s S.C. Agarwal Purana Qila, Lucknow through Proprietor Mr. S.C. Agarwal

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Counsel for Appellant :- Pritish Kumar

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Counsel for Respondent :- Apurva Saxena, Agendra Sinha, Apoorva Tewari, Pradeep Agrawal, Ritesh Goel, Sachin Shukla

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Hon'ble Arun Bhansali,Chief Justice Hon'ble Jaspreet Singh,J.

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(Per: Arun Bhansali, CJ)

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This appeal under Section 37 of Arbitration and Conciliation Act, 1996 (‘the Act’) has been filed by the appellant against the judgment dated 09.01.2024 passed by Commercial Court No.1, Lucknow, whereby the application filed by the appellant under Section 34 of the Act against the award dated 08.08.2017 has been dismissed.

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The respondent-contractor entered into an agreement dated 27.04.2010 for providing ‘Patient Therapeutic Dietary Provision Services’ for a period of one year effective from 01.01.2010 to be renewed yearly on satisfactory performance for a maximum period of three years including the first year. Respondent continued to provide the services upto 30.06.2014 as required by the appellant.

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In the year 2011, the respondent made request to the appellant for reimbursement of service tax which led to passing of the order dated 16.06.2011 by the Medical Superintendent with the approval of the Director allowing the respondent to get reimbursed the service tax paid/to be paid on ‘Patient Therapeutic Dietary Provision Services’

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with effect from the date of commencement of contract, i.e., 01.01.2010.

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Despite the order, when the service tax was not reimbursed, the respondent filed Writ Petition No. 5879 (M/B) of 2015, which came to be decided on 09.09.2015, requiring the parties to get the dispute decided through arbitration in terms of the arbitration clause. Pursuant to the order of the High Court, the Sole Arbitrator was appointed on 01.01.2015.

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Before the Arbitrator, besides relying on the Office Order dated 16.06.2011, a plea was raised that the respondent, who was holding similar contract prior to the present contract for the period 28.02.2006 to 31.12.2009, had deposited service tax and claimed reimbursement from the appellant, which was initially denied but ultimately a sum of Rs. 35 lakh was reimbursed.

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The stand of the appellant before Arbitrator was that stipulation in the agreement dated 27.04.2010 was very specific that the rates of Dietary Services were inclusive of all statutory and other Government levies, if any and, as such, the same included service tax as well and, therefore, the respondent was not entitled for reimbursement of the service tax.

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Further plea was raised that the Office Order dated 16.06.2011 was without jurisdiction as the jurisdiction in the matter was with the Finance Officer and the Medical Superintendent had no power in this regard and, therefore, no reliance could be placed on the said order.

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The Arbitrator framed several issue and, based on the judgment of this Court in Bhagwati Security Services (Regd.) Vs. Union of India : (2013) 31 STR 537 (All.) , came to the conclusion that service tax was statutory liability, which tax is required to be collected by the service provider from the person to whom the service is provided and the plea raised that the reimbursement of the service tax was not

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contemplated in the service agreement was negated. The Arbitrator also referred to the past conduct wherein for the period from 28.02.2006 to 31.12.2009, despite similar stipulation in the agreement, service tax was paid, and held that the same was clearly a precedent on procedure between the parties. Qua the Office Order dated 16.06.2011 issued by the Medical Superintendent with the approval of the Director, it was concluded that the order was issued with full authority of the Director and the same cannot be accepted as being without jurisdiction. It was further observed that delivery of communication dated 16.06.2011 to the respondent amounts to a valid modification of the contract and the same cannot be breached or rescinded and, consequently passed the award impugned.

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Feeling aggrieved, the appellant filed application under Section 34 of the Act before the Commercial Court No.1, Lucknow. The Commercial Court, after hearing the parties, by the judgment impugned, came to the conclusion that there was no illegality in the award, the same was not against public policy and the same also cannot be said to be perverse or patently illegal and, consequently, dismissed the application. Feeling aggrieved, the present appeal has been filed.

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Learned counsel for the appellant made vehement submissions with reference to Clauses 3(i) and 3(ii) of the agreement emphasizing that the contract between the parties was clear and specific that the rates indicated therein for dietary services were ‘inclusive of statutory and other Government levies, if any’ and, therefore, the service tax, which was already applicable to the service provided by the respondent, as is evident from the claim made, the rates agreed between the parties were inclusive of service tax and, therefore, award impugned is ex facie illegal. Submissions were made that provisions of Section 28 of the Act, which deals with the rules applicable to substance of dispute, clearly provides that while deciding and making

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an award, the Arbitral Tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction, which provision has been ex facie violated as the award is contrary to the terms of the contract.

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Further submissions have been made that reliance placed on the Office Order dated 16.06.2011 by the Arbitrator was also ex facie incorrect inasmuch the Medical Superintendent had no power to pass the order based on the recommendation made by the Kitchen Monitoring Committee. With reference to the provisions of Sanjay Gandhi Post-Graduate Institute of Medical Sciences Act, 1983 (‘SGPGIMS Act, 1983’), it was submitted that Section 15(5) of the said Act mandates that all the contract must be executed and signed by the Finance Officer on behalf of the Institute and as the Finance Officer had not issued the order modifying the contract, the Office Order dated 16.06.2011 cannot, in any manner, modify the terms of the contract. Submissions have been made that the determination made by the Arbitrator based on the Office Order dated 16.06.2011, being ex facie contrary to the contract-agreement, the award is in violation of public policy and law and is patently illegal and, therefore, deserves to be quashed and set aside. Reliance was placed on South East Asia Marine Engineering and Constructions Ltd. Vs. Oil India Limited : (2020) 4 SCR 254 and State of Chhattisgarh Vs. Sal Udyog Private Limited : (2022) 2 SCC 275 .

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Learned counsel for the respondents made submissions that plea raised by the appellant apparently has no substance. It was submitted that Arbitrator has taken into consideration each and every aspect involved in the matter and has come to a categorical finding in favour of the respondent while passing the award impugned, which has rightly not been interfered by the Commercial Court under Section 34 of the Act and the appeal also deserves dismissal. Submissions were made that the scope of Sections 34 an 37 of the Act has repeatedly

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been laid down by Hon’ble Supreme Court wherein non interference is the rule and interference is an exception. It was submitted that the action of the appellant in not reimbursing the amount of service tax was wholly illegal and unjustified. Submissions have been made that the statute pertaining to service tax is clear and specific providing for the liability of the receiver of service to make payment of the service tax and, as admittedly the appellant has been the receiver of service, it was liable to pay the amount of service tax.

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Further submissions have been made that after thorough deliberation, the Office Order dated 16.06.2011 signed by the Medical Superintendent after approval of the Director of the Institute was issued clearly allowing the reimbursement of the service tax. At no stage, the order dated 16.06.2011 was withdrawn and no order was passed rejecting the demand made by the respondent as far payment of service tax is concerned. Once the order dated 16.06.2011 continue to remain in existence, the appellant was bound to make payment of the amount of service tax. It was emphasized that after passing of the order dated 16.06.2011, the respondent served under the contract till 30.06.2014 and, as such, the denial of reimbursement of service tax is wholly unjustified and illegal. It was emphasized that the Arbitrator is entitled to look into the surrounding circumstances besides the terms of the contract, as is evident from provisions of Section 28(3) of the Act, wherein even trade usages applicable to the transaction are open to be taken into consideration and once the previous conduct of the appellant, based on identical terms of the contract for making reimbursement of service tax, was available, taking into consideration of the said circumstance was fully justified and, therefore, the appeal deserves to be dismissed. Reliance was placed on McDermott International INC Vs. Burn Standard Co. Ltd. and others : (2006) 11 SCC 181, Pure Helium India (P) Ltd. Vs. Oil & Natural Gas Commission : (2003) 8 SCC 593, Hindustan Construction

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Company Limited Vs. National Highways Authority of India : (2024) 2 SCC 613, Parsa Kente Collieries Limited Vs. Rajasthan Rajya Vidyut Utpadan Nigam Limited : (2019) 7 SCC 236 .

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Further reliance was placed pertaining to scope of Section 37 of the Act on the judgment in Haryana Tourism Limited Vs. Kandhari Beverages Limited : (2022) 3 SCC 237 , Reliance Infrastructure Limited Vs. State of Goa : (2024) 1 SCC 479 and Bombay Slum Redevelopment Corporation Private Limited Vs. Samir Narain Bhojwani : (2024) 7 SCC 218 .

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We have considered the submissions made by counsel for the parties and have perused the material available on record.

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The undisputed facts are that the agreement dated 27.04.2010 entered into between the parties, in Clause-3(i), inter alia , provided that, “The rates for Dietary services are as follows:- (inclusive of all statutory & others Govt. levies, if any)” , which aspect was reiterated in Clause 3(ii) at the end of the rate-chart indicating, “The above rates of Dietary Services are inclusive of all statutory and other Govt. levies, if any” . It is also not in dispute that for the previous period, i.e., from 28.02.2006 to 31.12.2009, despite there being an identical stipulation in the agreement between the parties, the amount of service tax to the tune of Rs. 35 lakh was paid to the respondent by the appellant.

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It is also not in dispute that on the representation/claim made by the respondent for payment of service tax, an Office Order dated 16.06.2011 was issued, which reads as under:

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"Ref. No. PGI/MS/2735/11

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Dtd. 16 June 2011

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OFFICE ORDER

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M/s S.C. Agrawal, 42 Purana Qila, Sadar, Lucknow, was awarded the Patient Therapeutic Dietary Provision Services contract w.e.f. 01.01.2010, with a provision for three years on year to year basis extension. The contactor has been paying service tax since beginning but could not get the reimbursement for the same

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due to non clarity in contract agreement which has been spelled in para 3(II) or agreement as “the above rates of dietary services are inclusive of all statutory and other government levies, if any.” The contractor has been requesting for reimbursement of service tax already paid and for the future, with a contention that the service tax is the liability of the institute, however as per government order, it is to be deposited by the contractor and later on get reimbursed the past service tax. The contractor had also informed that no taxes has been included while finalizing the rates of present contract by a committee constituted by the institute. The contractor had further informed that similar type of terms & conditions were also laid down in the last Patient Therapeutic Dietary Provision Services contract (28-02-2006 to 31-12-2009) but he has been getting the service tax reimbursement from the institute. The Kitchen Monitoring Committee examined the matter in detail and found that the grounds quoted by the contractor for the reimbursement of service tax are valid and well supported by the documents. Therefore based on above, the committee recommended the reimbursement of service tax to the contractor.

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In view of recommendations of the Kitchen Monitoring Committee, M/s S.C. Agarwal, is allowed to get reimbursed the service tax paid/to be paid on Patient Therapeutic Provision Services from SGPGIMS w.e.f. date of commencement of Patient Therapeutic Dietary Provision Services contract i.e. 01.01.2010.

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This issues with the approval of the director.

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Sd/(Dr A.K. Bhatt) Medical Superintendent” 18. It is also not in dispute that there has been no withdrawal/recession of the order dated 16.06.2011 and despite the respondent seeking reimbursement of service tax, the same was neither paid nor denied. The writ petition filed by the respondent in this regard came to be decided requiring reference of dispute to arbitration, which resulted in the award impugned.

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The entire defence and the submissions made by the appellant revolve around the provision of Section 28(3) of the Act and the claim that the order dated 16.06.2011 was without jurisdiction.

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So far as the plea raised pertaining to Section 28(3) of the Act is concerned, the said provision reads as under:

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“ 28. Rules applicable to substance of dispute. - (1) Where the place of arbitration is situated in India,-

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(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.”

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A perusal of the above provision would reveal that it mandates that while deciding and making an award, the Arbitral Tribunal shall take into account the terms of the contract and trade usages applicable to the transaction. The emphasis laid is that the terms of the contract were very specific providing for the rates in question being inclusive of all statutory and other Government levies and, therefore, Arbitral Tribunal could not have travelled beyond the said stipulation in the agreement and the claim was liable to be rejected. However, the submissions made in this regard apparently cannot be accepted and in the circumstances of the present case, it cannot be said that the Arbitral Tribunal was bound only to follow the said terms oblivious of the other circumstances including the previous conduct of the appellant qua identical terms and the order dated 16.06.2011.

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Hon’ble Supreme Court in the case of McDermott International INC (supra) , inter alia , observed as under:

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“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.” (emphasis supplied)

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In Pure Helium India (P) Ltd. (supra) , it was observed as under:

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“ 25. The learned arbitrators, as noticed hereinbefore, in making the award took into consideration the documentary as well as circumstantial evidence including rival pleadings of the parties. It is

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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.

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26. In Khardah Co. Ltd. AIR 1962 SC 1810 : (1963) 3 SCR 183 this Court held: (AIR p. 1820, para 30)

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“We agree that when a contract has been reduced to writing we must look only to that writing for ascertaining the terms of the agreement between the parties but it does not follow from this that it is only what is set out expressly and in so many words in the document that can constitute a term of the contract between the parties. If on a reading of the document as a whole, it can fairly be deduced from the words actually used therein that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term. The terms of a contract can be expressed or implied from what has been expressed. It is in the ultimate analysis a question of construction of the contract. And again it is well established that in construing a contract it would be legitimate to take into account surrounding circumstances.” (emphasis supplied)

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From the above judgments, it is apparent that conduct of the parties can be taken into consideration by the Arbitrator in the matter of construction of a contract, correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract and it would be legitimate to take into account surrounding circumstances.

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So far as judgment in the case of South East Asia Marine Engineering and Constructions Ltd. (supra) is concerned, in the said case, in para 31, Hon’ble Supreme Court, inter alia , refused to accept interpretation of the Arbitral Tribunal to expand the meaning ‘as the appellant therein did not introduce any evidence which proves the same’, which is not the case here.

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The judgment in the case of State of Chhattisgarh (supra) also, apparently, would have no application to the case in hand wherein, except for the terms of contract, the parties were not relying on any other material seeking an interpretation different from the literal interpretation of the agreement.

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From the above, it is apparent that reliance placed by the appellant on the provision of Section 28(3) of the Act, on its own strength, cannot be accepted. The submissions made essentially would seek this Court to ignore all the aspects, which have repeatedly been laid down by the Hon’ble Supreme Court that the same can be looked into.

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Coming to the aspect of the order dated 16.06.2011, the Tribunal, after thoroughly considering the issues and referring to the provisions of SGPGIMS Act as well as the files pertaining to the recommendations made for passing the order of June 2011, came to the following conclusion:

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“(D) The above findings lead to the obvious conclusion that the said office order issued by the medical superintendent is with the full authority of the Director and the Finance Officer, and cannot be accepted as being without jurisdiction. Therefore, the said office order, which acknowledges the receipt of the claimant’s requests and as noted at [C]c above, has been communicated with that decision of the competent authority, which communication has been delivered to him, therefore amounts to a valid modification of the contract. Further, the order constitutes a promise made by the Director of a body which is the State, within the meaning of Article 12 of the Constitution of India, and therefore cannot be breached or rescinded. Accordingly the case of the respondent fails and this issue is decided in favour of the Claimant.”

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It is not disputed, as would be evident from the order dated 16.06.2011 quoted hereinbefore, that approval was granted by the Director, which aspect at no stage has been denied by the appellant either before the Arbitrator or before this Court. The provisions of Section 13 of SGPGIMS Act, dealing with the powers and duties of the Director, inter alia , provides that he shall be the Vice-chairman of the Governing Body and Chief Executive and Academic Officer of the Institute, the Director, inter alia , shall exercise general supervision and control over the affairs of the Institute. Further, the provision, in case of any matter of urgent nature, provides that the Director may take such action as he may deem fit and if any authority is of the

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opinion that such action ought not to have been taken by the Director, it may refer the matter to the Visitor.

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This is also a fact that the Finance Officer, in whom the appellant indicates the power to modify the agreement, himself was Member of the Kitchen Monitoring Committee and has signed the minutes dated 25.05.2011, based on which the order dated 16.06.2011 has been issued. Though a plea is raised that his presence as part of the Kitchen Monitoring Committee and signing the minutes by itself cannot be taken as ordering for amendment in terms of the contract, the fact remains that based on the decision taken by the Kitchen Monitoring Committee, to which the Finance Officer was also a part, on the Director giving approval, the order dated 16.06.0211 has been issued and, as such, apparently, looking to the status of the Director, being the Chief Executive of the Institute and there has been no subsequent conduct on the part of the Institute either to withdraw the order dated 16.06.2011 or order otherwise, determination made by the Arbitrator cannot be said to be perverse.

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In the case of Parsa Kente Collieries Limited (supra) , Hon’ble Supreme Court, on the aspect of jurisdiction of the Court to interfere with the award passed, inter alia , observed as under:

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“ 9. While answering the aforesaid question, certain decisions of this Court and the law declared on the jurisdiction of the appellate court while considering the award passed by the learned Arbitrator are required to be considered.

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9.1. In Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, this Court had an occasion to consider in detail the jurisdiction of the Court to interfere with the award passed by the Arbitrator in exercise of powers under Section 34 of the Arbitration Act. In the aforesaid decision, this Court has considered the limits of power of the Court to interfere with the arbitral award. It is observed and held that only when the award is in conflict with the public policy in India, the Court would be justified in interfering with the arbitral award. In the aforesaid decision, this Court considered different heads of “public policy in India” which, inter alia, includes patent illegality. After referring Section 28(3) of the Arbitration Act and after considering the decisions of this Court in

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McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, paras 112-113 and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306, paras 43-45, it is observed and held that 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. It is further observed and held that 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. It is further observed by this Court in the aforesaid decision in para 33 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. It is further observed that 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.

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9.2. Similar is the view taken by this Court in NHAI v. ITD Cementation (India) Ltd., (2015) 14 SCC 21 : (2016) 2 SCC (Civ) 716, SCC para 25 and SAIL v. Gupta Brother Steel Tubes Ltd., (2009) 10 SCC 63 : (2009) 4 SCC (Civ) 16, SCC para 29.”

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Reference was made to the decision in McDermott International INC (supra) that if an Arbitrator construes the terms of the contract in a reasonable manner, the award cannot be set aside and that the award can only be interfered, if the construction made by the Arbitrator is such that no fair minded or reasonable person could do so.

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The parameters of exercise of jurisdiction by this Court under Section 37 of the Act have been laid down in the case of Bombay Slum Redevelopment Corporation Private Limited (supra) , which reads as under:

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“26. The jurisdiction of the appellate court dealing with an appeal under Section 37 against the judgment in a petition under Section 34 is more constrained than the jurisdiction of the Court dealing with a petition under Section 34. It is the duty of the appellate court to consider whether Section 34 Court has remained confined to the grounds of challenge that are available in a petition under Section 34. The ultimate function of the appellate court under Section 37 is to decide whether the jurisdiction under Section 34 has been

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exercised rightly or wrongly. While doing so, the appellate court can exercise the same power and jurisdiction that Section 34 Court possesses with the same constraints.”

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In the overall fact situation, as noticed hereinbefore, it is apparent that besides the fact that the liability to pay service tax statutorily is that of the recipient of service, unless the charge is under reverse charge mechanism, in view of the circumstances taken into consideration by the Arbitrator, and as discussed hereinbefore, the previous conduct of the appellant in making payment of service tax, despite identical terms in the contract and specific order dated 16.06.2011 passed, which was never rescinded or withdrawn, the interpretation to the terms of the contract cannot be faulted and consequently, the plea raised pertaining to patent illegality has no substance.

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In view of above, there is no substance in the appeal. The same is, therefore, dismissed.

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Order Date :- 21.07.2025 P.Sri.

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(Jaspreet Singh, J) (Arun Bhansali, CJ)

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Digitally signed by :- PUNEET SRIVASTAVA High Court of Judicature at Allahabad, Lucknow Bench

Sanjay Gandhi Post Graduate Institute of Medical Sciences , Lko. Thru. Director v. M/S S.C. Agarwal Purana Qila , Lko. Thru. Proprietor Mr. S.C. Agarwal

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Sanjay Gandhi Post Graduate Institute of Medical Sciences , Lko. Thru. Director v. M/S S.C. Agarwal Purana Qila , Lko. Thru. Proprietor Mr. S.C. Agarwal

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