Union of India, Thru. Prin. Chief Materials Manager Modern Coach Factory Raebareli vs M/S Kineco Ltd. 41, Pilerne Industrial Estate, Bardez Goa

This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (‘Act’) is directed against judgement dated 03.07.2025 passed by the Commercial Court, Lucknow whereby the application filed by the appellant under Section 34 of the Act against arbitral award dated 09.06.2023 passed by the three member Arbitral Tribunal has been dismissed.

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The appellant had floated tender dated 13.10.2021 inviting bids from the eligible contractors for supply, installation and commissioning of Garib Rath AC-3 Tier (LWACCNE) coaches on Turnkey basis.

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The respondent participated in the said tender process and submitted its bid. Letter of acceptance dated 01.01.2022 was awarded to the respondent for producing 105 coaches, respondent was required to supply material for 80% of

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total coaches on or before 31.03.2022 and for remaining 20% coaches on or before 31.05.2022.

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Another letter of acceptance dated 04.01.2022 ordering additional 86 coaches was issued. The completion date for supply of additional 86 coaches was same as fixed for earlier LOA i.e. 80% on or before 31.03.2022 and 20% on or before 31.05.2022. Performance Bank Guarantees dated 14.01.2022 and 18.01.2022 of Rs.50 Lakh each was submitted. Purchase order dated 25.01.2022 was issued for furnishing 191 coaches at a value of Rs.81,79,76,817/-, delivery was to start on 26.01.2022 and 150 coaches were to be supplied by 31.03.2022 and balance were to be supplied up to 30.06.2022.

¶20

As per the tender, the respondent was to follow the tender conditions, IRS conditions of Contract, Instructions to Tender Rev 20 dated 15.06.2022, Specifications dated 05.05.2021 with addendum A of MCF/RBL dated 08.10.2021 and 11.11.2021. Several approvals were to be taken from the appellant before execution of the project, Quality Assurance Plan (QAP) was to be got approved by respondent before starting the work.

¶21

It appears that the respondent submitted QAP on 17.01.2022 for approval, wherein changes were advised to the respondent by the appellant on 27.01.2022. Revised QAP was submitted on 31.01.2022 wherein on 08.02.2022 the respondent was advised certain corrections, QAP was resubmitted on 15.02.2022, wherein again on 28.02.2022 certain corrections were advised, respondent resubmitted QAP on 15.03.2022 and 27.04.2022. Again on 06.05.2022, certain corrections in QAP were suggested and the revised QAP was submitted on the same day. Ultimately, the QAP was provisionally approved on 12.05.2022. Whereafter, on 25.05.2022, one cabin for inspection was offered on which the respondent was required to offer entire coach.

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The appellant by order dated 06.07.2022 extended the delivery period till 25.08.2022 with imposition of liquidated damages. The delivery period was again extended till 15.10.2022 with imposition of liquidated damages, though extension of delivery period was sought up to 31.05.2023 by the respondent with liquidated damages.

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The appellant on 28.10.2022, on account of failure to supply the goods with recovery of general damages, cancelled the purchase order with immediate

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effect. The bank guarantee was ordered to be forfeited and general damages to the tune of Rs.8,17,97,681.70 i.e. 10% of the purchase order value was imposed and recovery was ordered of the balance amount.

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Feeling aggrieved of the action of the appellant, respondent invoked the arbitration clause in terms of clause 18.1.1.(a)(i) of the MCF Instructions. Three Member Arbitral Tribunal was appointed.

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The Arbitral Tribunal by its unanimous award dated 09.06.2023 framed six issues for determination and after discussions on the said issues, against a total claim of Rs.9,50,23,341/-, awarded a sum of Rs.2,44,57,726/- and required payment within forty five days from the date of publication of the award, failing which simple interest @ 9.5% was to be paid till the date of actual payment from the forty sixth day. Further directions were given to withdraw general damages amounting to Rs.8,17,97,681/- imposed vide letter dated 28.10.2022. Feeling aggrieved, application under Section 34 of the Act was filed before the Commercial Court, Lucknow.

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The Commercial Court by its impugned judgement dated 03.07.2025, after deciding the pleas as raised before it, came to the conclusion that the Arbitral Tribunal has passed the award after detailed discussions, in terms of the contract and within its jurisdiction, the appellant failed to indicate any illegality or that the award was passed against the public policy of India, the grounds raised were not sufficient for setting aside the award and consequently, dismissed the application. Feeling aggrieved, the present appeal has been filed.

¶30

Learned counsel for the appellant made vehement submissions that impugned award and the judgement of the Commercial Court are absolutely erroneous, arbitrary and patently illegal as the same are contrary to the public policy.

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Submissions were made that despite extension of delivery period twice on request of the respondent, the respondent could not even get the prototype ready till the date of delivery so extended i.e. 15.10.2022 nor could the respondent even commence production and as such, the appellant had no option but to cancel the purchase order.

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Learned counsel took the Court through various provisions of the IRS conditions of contract and the instructions to the tenderer to justify the imposition of general damages.

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Learned counsel also took us through the correspondence entered into between the parties to emphasize that once the extension was sought with liquidated damages and despite that the delivery was not made, the appellant was justified in canceling the contract and imposing general damages and the findings contrary to the same, deserve to be set aside.

¶36

A new plea based on a document dated 12.05.2022 was raised that the delay in approval of QAP also occurred as the respondent was required to submit renewal copy of the factory licence, which was not supplied, which also led to delay on part of the respondent itself and once renewed factory license was not available, how possibly the supply could have been made by the respondent and as the said crucial aspect has been ignored by the Arbitral Tribunal and the Commercial Court, the award impugned deserves to be quashed and set aside.

¶37

Counsel for the respondent supported the award impugned. Submissions were made that the Arbitral Tribunal comprised of three Experts appointed by the appellant itself, has meticulously and thoroughly examined each and every issue and has returned a categorical finding on each relevant aspect of the matter and the Commercial Court, after re-examining the entire available material, has found no reason to interfere with the said award and as the jurisdiction under Section 37 of the Act is very limited, the appeal deserves to be dismissed.

¶38

Learned counsel made submissions that the entire plea sought to be raised accusing the respondent of the delay, is essentially baseless, the intention of the appellant from the very beginning has been to somehow delay commencement of the work, wherein even the approval of the QAP, which was first submitted on 17.01.2022 for approval, was provisionally approved on 12.05.2022 i.e. almost nearing the end of the supply period.

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It was submitted that as the appellant had already floated another tender for furnishing same type of coaches with superior specification on 19.01.2022, the intention apparently was not to get the work executed from the respondent and therefore, despite the respondent making all efforts to comply with the

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reasonable/unreasonable requirements of the appellant, the contract came to be cancelled.

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Further submissions were made that the plea raised pertaining to the lack of renewed license is grasping at straws inasmuch as the same was neither the condition nor could have been made a ground for delaying the approval of QAP. 21. It was prayed that none of the pleas sought to be raised falls within the parameters of Section 34/37 of the Act and therefore, the appeal deserves to be dismissed.

¶44

Reliance was placed on State of U.P. v. Virat Construction : 2024 SCC Online All 6341 , Agra Development Authority v. Baba Construction Pvt. Ltd. : 2023 SCC Online All 2950 , Union of India v. Satendra Nath Sanjeev Kumar Architect : 2024 SCC Online All 1548 , MMTC Limited v. Vedanta Limited : (2019) 4 SCC 163 and Punjab State Civil Supplies Corporation Limited and another v. M/s Sanman Rich Mills and others : 2024 INSC 742 , besides other judgements, which have been referred to in the above cited judgements.

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

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The aspects pertaining to the cancellation of the purchase order on account of the delay in supply of the goods and the imposition of general damages by the respondent on account of failure to supply the goods, are the main issues, which arise in the present matter.

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The Arbitral Tribunal dealt with the said aspects by framing specific points for determination as to who was responsible for various delays in the case and whether the termination of contract by the appellant along with imposition of general damages was correct or not.

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On the aspect of responsibility for the delay, after discussions, the Tribunal came to the following conclusion :

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“5.2.9 In view of above, AT concludes that Respondents was fully responsible for all the delays, first by not giving the missing drawings even on the Claimant’s repeated requests, not approving the alternative drawings prepared by the Claimant, delaying approval of laminates, abnormally delaying approval of QAP by 4 months and even after that again asking the Claimant to remove the clause pertaining to acceptance norm “verification as per the GC and TC” in the QAP after another 4 months, then forcing the Claimant to furnish one cabin without approval of drawings, then asking to

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furnish full coach instead of one cabin as per specification, thereafter changing the type of Shell and delaying the inspection of prototype at various stages.”

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And on the aspect of imposition of general damages, after discussions, following findings were recorded :

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“5.4.2 Moreover, there is no demonstrable tangible or intangible loss to the Respondent. The Respondent had floated another tender on 19.01.2022, opened on 11.04.2022 and finalized on 13.07.2022 (page 1 RD-6). This tender was for furnishing of same type of coaches but with superior specifications as informed by the Respondent during oral arguments. It was also confirmed by the Respondent during oral hearing that there was no more requirement of coaches as per the order placed on the Claimant. The Respondent cancelled the PO vide letter dated 28.10.2022 (Page 333 CD-3) levying 10% General damages and forfeiting security deposit. When there is no further requirement, levying General Damages and forfeiting security deposit is totally unfair, inappropriate and illegal. However, as discussed in para 5.4.1 above, it was Respondent who failed to fulfill their obligations in the contract and cancelled the contract illegally. In fact, it is the Claimant who should be compensated for mobilizing all resources and manufacturing a number of items and not the Respondent.”

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It would be seen that the Arbitral Tribunal, after thorough discussion based on the entire material evidence available on record, categorically found that the appellant was fully responsible for all the delays and that there was no demonstrable, tangible or intangible loss to the respondent for imposing the general damages.

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In the challenge laid by the appellant before the Commercial Court, the Commercial Court re-examined the entire issue and came to the conclusion that the plea sought to be raised has no substance within the parameters of Section 34 of the Act.

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The jurisdiction of this Court while dealing with an appeal under Section 37 of the Act, has been repeatedly laid down by Hon’ble Supreme Court. In the case of MMTC Limited (Supra) , it has been held as under :

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“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.

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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 : (2015) 2 SCC (Civ) 204] . 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 [ Hindustan Zinc Ltd. v. Friends Coal Carbonisation , (2006) 4 SCC 445] ; and McDermott International Inc. v. Burn Standard Co. Ltd. [ McDermott International Inc. v. Burn Standard Co. Ltd. , (2006) 11 SCC 181] )

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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.

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As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under 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.

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Having noted the above grounds for interference with an arbitral award, it must now be noted that the instant question pertains to determining whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. However, this question has been addressed by the courts in terms of the construction of the contract between the parties, and as such it can be safely said that a review of such a construction cannot be made in terms of reassessment of the material on record, but only in terms of the principles governing interference with an award as discussed above.

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It is equally important to observe at this juncture that while interpreting the terms of a contract, the conduct of parties and correspondences exchanged would also be relevant factors and it is within the arbitrator's jurisdiction to consider the same. [See McDermott International Inc. v. Burn Standard Co. Ltd. [ McDermott International Inc. v. Burn Standard Co. Ltd. , (2006) 11 SCC 181] ; Pure Helium India (P) Ltd. v. ONGC [ Pure Helium India (P) Ltd. v. ONGC , (2003) 8 SCC 593] and D.D. Sharma v. Union of India [ D.D. Sharma v. Union of India , (2004) 5 SCC 325] .]”

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Similarly, in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Limited : (2024) 2 SCC 375 , after taking overall view of all the judgements on the aspect, it has been laid down as under :

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“32. Post award interference and the extent of the second look by the courts under Section 34 of the A&C Act has been a subject-matter of perennial parley. The foundation of arbitration is party autonomy. Parties have the freedom to enter into an agreement to settle their disputes/claims by an Arbitral Tribunal, whose decision is binding on the parties. [ See Vidya Drolia v. Durga Trading Corpn. , (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549, which examines arbitrability and nonarbitrability of subject-matters and claims, which aspect will not be examined in this case.] It is argued that the purpose of arbitration is fast and quick one-stop adjudication as an alternative to court adjudication, and therefore, post award interference by the courts is un-warranted, and an anathema that undermines the fundamental edifice of arbitration, which is consensual and voluntary departure from the right of a party to have its claim or dispute adjudicated by the judiciary. The process is informal, and need not be legalistic [ The expression “judicially”, does not equate arbitration with formal/court proceedings, and would include a just and fair decision.] . Per contra , it is argued that party autonomy should not be treated as an absolute defence, as a party despite agreeing to refer the disputes/claims to a private tribunal consensually, does not barter away the constitutional and basic human right to have a fair and just resolution of the disputes. The court must exercise its powers when the award is unfair, arbitrary, perverse, or otherwise infirm in law. While arbitration is a private form of dispute resolution, the conduct of arbitral proceedings must meet the juristic requirements of due process and procedural fairness and reasonableness, to achieve a “judicially” sound and objective outcome. If these requirements, which are equally fundamental to all forms of adjudication including arbitration, are not sufficiently accommodated in the arbitral proceedings and the outcome is marred, then the award should invite intervention by the court.

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To disentangle and balance the competing principles, the degree and scope of intervention of courts when an award is challenged by one or both parties needs to be stated. Reconciliation as a statement of law and in particular application in a particular case has not been an easy exercise. We begin by first referring to the views expressed by this Court in interpreting the width and scope of the post award interference by the courts under Section 34 of the A&C Act.

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Explanation to sub-clause ( ii ) to clause ( b ) to Section 34(2) of the A&C Act, as quoted above and before its substitution by Act 3 of 2016, had postulated and declared for avoidance of doubt that an award is “in conflict with the public policy of India”, if the making of the award is induced or affected by fraud or corruption, or was in violation of Sections 75 or 81 of the A&C Act. Both Sections 75 and 81 of the A&C Act fall under Part III of the A&C Act, which deal with conciliation proceedings. Section 75 of the A&C Act relates to confidentiality of the settlement proceedings and Section 81 deals with admissibility of evidence in conciliation proceedings. Suffice it is to note at this stage that while “fraud” and “corruption” are two specific grounds under “public policy”, these are not the sole and only grounds on which an award can be set aside on the ground of “public policy”.

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Act 3 of 2016 with retrospective effect from 23-10-2015 has substituted the Explanation referred to above, by two new Explanations that are differently worded. [Explanations 1 and 2 to sub-clause ( ii ) to clause ( b ) of Section 34(2) of the A&C Act substituted vide Act 3 of 2016 read as under:“Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if—( i ) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or( ii ) it is in contravention with the fundamental policy of Indian law; or( iii ) it is in conflict with the most basic notions of morality or justice. Explanation 2 .—For

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the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.”Sub-section (2-A) of Section 34 of the A&C Act inserted vide Act 3 of 2016 reads as under:“34. (2-A ) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award:Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.”] Subsection (2-A) to Section 34 of the A&C Act, which was instituted by Act 3 of 2016 with retrospective effect from 23-10-2015, states that the arbitral award arising out of arbitrations other than international commercial arbitrations can be set aside by the court, if it is vitiated by patent illegality appearing on the face of the award. The proviso to sub-section (2-A) to Section 34 of the A&C Act also states that the award shall not be set aside merely on the ground of erroneous application of law or by reappreciation of evidence. The aforesaid sub-section need not be examined in the facts of the present case, as we are not required to interpret and apply the substituted Explanations to sub-clause ( ii ) to clause ( b ) to Section 34(2) of the A&C Act in the present case.

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The expression “public policy” under Section 34 of the A&C Act is capable of both wide and narrow interpretation. Taking a broader interpretation, this Court in ONGC Ltd. v. Saw Pipes Ltd. [ ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705] (for short Saw Pipes ), held that the legislative intent was not to uphold an award if it is in contravention of provisions of an enactment, since it would be contrary to the basic concept of justice. The concept of “public policy” connotes a matter which concerns public good and public interest. An award which is patently in violation of statutory provisions cannot be held to be in public interest. Thus, expanding on the scope and expanse of the jurisdiction of the court under Section 34 of the A&C Act, it was held that an award can be set aside if it is contrary to:

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( a ) fundamental policy of Indian law; or

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( b ) the interest of India; or

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( c ) justice or morality, or

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( d ) in addition, if it is patently illegal.

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Nevertheless, the decision in Saw Pipes case [ ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705] holds that mere error of fact or law in reaching the conclusion on the disputed question will not give jurisdiction to the court to interfere. However, this will depend on three aspects:

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( a ) whether the reference was made in general terms for deciding the contractual dispute, in which case the award can be set aside if the award is based upon erroneous legal position;

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( b ) this proposition will also hold good in case of a reasoned award, which on the face of it is erroneous on the legal proposition of law and/or its application; and

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( c ) where a specific question of law is submitted to an arbitrator, erroneous decision on the point of law does not make the award bad, unless the court is satisfied that arbitrator had proceeded illegally.

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In Saw Pipes case [ ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705] , the Court set aside the award on the ground that the award had not taken into consideration the terms of the contract before arriving at the conclusion as to whether the party claiming the damages is entitled to the same. Reference was made to the provisions of Sections 73 and 74 of the Contract Act, which relate to liquidated damages, general damages and penalty stipulations. This view had held the field for a long time and was applied in subsequent judgments of this Court in Hindustan Zinc Ltd. v. Friends Coal Carbonisation [ Hindustan Zinc Ltd. v. Friends Coal Carbonisation , (2006) 4 SCC 445] , Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. [ Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. , (2006) 11 SCC 245] , DDA v. R.S. Sharma & Co. [ DDA v. R.S. Sharma & Co. , (2008) 13 SCC 80] , J.G. Engineers (P) Ltd. v. Union of

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India [ J.G. Engineers (P) Ltd. v. Union of India , (2011) 5 SCC 758 : (2011) 3 SCC (Civ) 128] , and Union of India v. L.S.N. Murthy [ Union of India v. L.S.N. Murthy , (2012) 1 SCC 718 : (2012) 1 SCC (Civ) 368] .

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In 2006, this Court in McDermott International Inc. [ McDermott International Inc. v. Burn Standard Co. Ltd. , (2006) 11 SCC 181] despite following the ratio of Saw Pipes [ ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705] , made succinct observations regarding the restrictive role of courts in the post-award interference. In addition to the three grounds introduced in Renusagar Power Co. Ltd. v. General Electric Co. [ Renusagar Power Co. Ltd. v. General Electric Co. , 1994 Supp (1) SCC 644] , as noticed above, an additional ground of “patent illegality” was introduced in Saw Pipes Limited , for exercise of the court's jurisdiction in setting aside an arbitral award. This Court, in McDermott International Inc. [ McDermott International Inc. v. Burn Standard Co. Ltd. , (2006) 11 SCC 181] , held that patent illegality, must be such which goes to the root of the matter. The public policy violation should be so unfair and unreasonable as to shock the conscience of the court. Arbitrator where s/he acts contrary to or beyond the express law of contract or grants relief, such awards fall within the purview of Section 34 of the A&C Act. Further, what would constitute public policy is a matter dependent upon the nature of transaction and the statute. Pleadings of the party and material brought before the Court would be relevant to enable the Court to judge what is in public good or public interest, or what would otherwise be injurious to public good and interest at a relevant point. So, this must be distinguished from public policy of a particular government.

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A similar view was expressed in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [ Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran , (2012) 5 SCC 306] with the clarification that where a term of the contract is capable of two interpretations and the view taken by the arbitrator is a plausible one, it cannot be said that the arbitrator travelled outside the jurisdiction or the view taken the arbitrator is against the terms of the contract. The Court cannot interfere with the award and substitute its view with the award and interpretation accepted by the arbitrator, the reason being the Court does not sit in appeal over the findings and decision of the arbitrator, while deciding an application under Section 34 of the A&C Act. The arbitrator is legitimately entitled to take a view after considering the material before him/her and interpret the agreement. The judgment should be accepted as final and binding.

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Subsequently, in ONGC Ltd. v. Western Geco International Ltd. [ ONGC Ltd. v. Western Geco International Ltd. , (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] (for short Western Geco ), a three-Judge Bench of this Court observed that the Court, in Saw Pipes [ ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705] , did not examine what would constitute “fundamental policy of Indian law”. The expression “fundamental policy of Indian law” in the opinion of this Court includes all fundamental principles providing as basis for administration of justice and enforcement of law in this country. There were three distinct and fundamental juristic principles which form a part and parcel of “fundamental policy of Indian law”. The first and the foremost principle is that in every determination by a court or an authority that affects rights of a citizen or leads to civil consequences, the court or authority must adopt a judicial approach. Fidelity to judicial approach entails that the court or authority should not act in an arbitrary, capricious or whimsical manner. The court or authority should act in a bona fide manner and deal with the subject in a fair, reasonable and objective manner. Decision should not be actuated by extraneous considerations. Secondly, the principles of natural justice should be followed. This would include the requirement that the Arbitral Tribunal must apply its mind to the attending facts and circumstances while taking the view one way or the other. Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best done by recording reasons in support of the decision. As noticed above, Section 31(3)( a ) of the A&C Act [ “31.

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Form and contents of arbitral award .—(1)-(2) * * *(3) The arbitral award shall state the reasons upon which it is based, unless—( a ) the parties have agreed that no reasons are to be given, or( b ) the award is an arbitral award on agreed terms under Section 30”] states that the arbitral award shall state the reasons on which it is based, unless the parties have agreed that no reasons are to be given. Subclauses ( i ) and ( iii ) to Section 34(2) also refer to different facets of natural justice. In a given case sub-clause to Section 34(2) and sub-clause ( ii ) to clause ( b ) to Section 34(2) may equally apply. Lastly, is the need to ensure that the decision is not perverse or irrational that no reasonable person would have arrived at the same or be sustained in a court of law. Perversity or irrationality of a decision is tested on the touchstone of Wednesbury principle of reasonableness [ As expounded in Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn. , (1948) 1 KB 223 (CA).] . At the same time, it was cautioned that this Court was not attempting an exhaustive enumeration of what would constitute “fundamental policy of Indian law”, as a straightjacket definition is not possible. If on facts proved before them, the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which on the face of it, is untenable resulting in injustice, the adjudication made by an Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards, may be challenged and set aside.

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The decision of this Court in Associate Builders [ Associate Builders v. DDA , (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] elaborately examined the question of public policy in the context of Section 34 of the A&C Act, specifically under the head “fundamental policy of Indian law”. It was firstly held that the principle of judicial approach demands a decision to be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would not satisfy the said requirement.

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Referring to the third principle in Western Geco [ ONGC Ltd. v. Western Geco International Ltd. , (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , it was explained that the decision would be irrational and perverse if ( a ) it is based on no evidence; ( b ) if the Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or ( c ) ignores vital evidence in arriving at its decision. The standards prescribed in State of Haryana v. Gopi Nath & Sons [ State of Haryana v. Gopi Nath & Sons , 1992 Supp (2) SCC 312] (for short Gopi Nath & Sons ) and Kuldeep Singh v. Delhi Police [ Kuldeep Singh v. Delhi Police , (1999) 2 SCC 10 : 1999 SCC (L&S) 429] should be applied and relied upon, as good working tests of perversity. In Gopi Nath & Sons [ State of Haryana v. Gopi Nath & Sons , 1992 Supp (2) SCC 312] it has been held that apart from the cases where a finding of fact is arrived at by ignoring or excluding relevant materials or taking into consideration irrelevant material, the finding is perverse and infirm in law when it outrageously defies logic as to suffer from vice of irrationality. Kuldeep Singh [ Kuldeep Singh v. Delhi Police , (1999) 2 SCC 10 : 1999 SCC (L&S) 429] clarifies that a finding is perverse when it is based on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it. If there is some evidence which can be acted and can be relied upon, however compendious it may be, the conclusion should not be treated as perverse. This Court in Associate Builders [ Associate Builders v. DDA , (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] emphasised that the public policy test to an arbitral award does not give jurisdiction to the court to act as a court of appeal and consequently errors of fact cannot be corrected. Arbitral Tribunal is the ultimate master of quality and quantity of evidence. An award based on little evidence or no evidence, which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Every arbitrator need not necessarily be a person trained in law as a Judge. At times, decisions are taken acting on equity and such decisions can be just and fair should not be overturned under Section 34 of the A&C Act on the ground that the arbitrator's approach was arbitrary or capricious. Referring to the third ground of public policy, justice or morality, it is

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12

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ARPL No. - 34 of 2025

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observed that these are two different concepts. An award is against justice when it shocks the conscience of the court, as in an example where the claimant has restricted his claim but the Arbitral Tribunal has awarded a higher amount without any reasonable ground of justification. Morality would necessarily cover agreements that are illegal and also those which cannot be enforced given the prevailing mores of the day. Here again interference would be only if something shocks the court's conscience. Further, “patent illegality” refers to three sub-heads : ( a ) contravention of substantive law of India, which must be restricted and limited such that the illegality must go to the root of the matter and should not be of a trivial nature. Reference in this regard was made to clause ( a ) to Section 28(1) of the A&C Act, which states that the dispute submitted to arbitration under Part I shall be in accordance with the substantive law for the time being in force. The second sub-head would be when the arbitrator gives no reasons in the award in contravention with Section 31(3) of the A&C Act. The third sub-head deals with contravention of Section 28(3) of the A&C Act which states that the Arbitral Tribunal shall decide all cases in accordance with the terms of the contract and shall take into account the usage of the trade applicable to the transaction. This last sub-head should be understood with a caveat that the arbitrator has the right to construe and interpret the terms of the contract in a reasonable manner. Such interpretation should not be a ground to set aside the award, as the construction of the terms of the contract is finally for the arbitrator to decide. The award can be only set aside under this sub-head if the arbitrator construes the award in a way that no fair-minded or reasonable person would do.”

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Examining the pleas sought to be raised by counsel for the appellant based

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on the documents and the facts pertaining to the alleged delay on part of the respondent in executing the purchase order, it is apparent that an attempt has been made to question the findings recorded by the Arbitral Tribunal as upheld by the Commercial Court by seeking re-appreciation of the evidence available on record.

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Despite attempts made in this regard, counsel for the appellant failed to indicate any perversity in the categorical findings recorded by the Arbitral Tribunal holding the appellant responsible for the entire delay and that there was consequently no justification for imposing the general damages by way of mechanically exercising the power in terms of the contract between the parties. 34. Further, the appellant has failed to point out that the award, in any manner, is against the public policy of India and/or patently illegal.

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Even otherwise, it is well settled that the Court, while adjudicating a challenge against an award, does not sit as a court of appeal. The Court cannot reappreciate the evidence nor can interfere with the findings of the Arbitral Tribunal, if the same are plausible. It is not open for the Court to interfere with the findings of the Arbitrator even if there is another possible view as the Arbitrator is the final authority of findings of fact as they are borne out from the pleadings/documents on record.

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In view of overall discussions, we are of the firm opinion that the award passed by the Tribunal dated 09.06.2023 and the judgement passed by the Commercial Court – I, Lucknow dated 03.07.2025 do not require any interference.

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Consequently, the appeal is dismissed .

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There shall be no order as to costs.

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

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March 19, 2026 nd

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Digitally signed by :- NISITH DEY High Court of Judicature at Allahabad, Lucknow Bench

Union of India, Thru. Prin. Chief Materials Manager Modern Coach Factory Raebareli v. M/S Kineco Ltd. 41, Pilerne Industrial Estate, Bardez Goa

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Union of India, Thru. Prin. Chief Materials Manager Modern Coach Factory Raebareli v. M/S Kineco Ltd. 41, Pilerne Industrial Estate, Bardez Goa

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