M/S. Prumatech Services Pvt. Ltd. Vs M/S.National Aluminium Co.Ltd.

IN THE HIGH COURT OF ORISSA AT CUTTACK

ARBA No.25 of 2022

In the matter of an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 assailing the judgment dated 11^th October, 2021 passed by the learned District Judge, Koraput at Jeypore in Arbitration Petition No.1 of 2006.

¶4

---- M/s.Prumatech Services Private …. Appellant Limited, Chennai

¶5

-versus-

¶6

M/s.National Aluminium …. Respondent
Company Limited,
Bhubaneswar
Appeared in this case by Hybrid Arrangement
(Virtual/Physical Mode):
For Appellant - Mr.Basudev Mishra, B.Mishra and
D. Pattnaik (Advocates)
For Respondent - Mrs.Pami Rath, Sr. Advocate
J.Mohanty, S. Gumansingh,
P.Mohanty & D.P. Mishra
(Advocates)
CORAM:
MR. JUSTICE D.DASH
Date of Hearing : 09.11.2023 : Date of Judgment: 22.01.2024
D.Dash,J. The Appellant, by filing this Appeal under Section 37 of the
Arbitration and Conciliation Act, 1996 (for short called as, ‘the A
& C Act’), has assailed the judgment dated 11 th October, 2021
passed by the learned District Judge, Koraput at Jeypore in

¶7

Page 1 of 25

¶8

ARBA No.25 of 2022

¶9

¶10

Arbitration Petition No.1 of 2006 in the matter of an application under section 34 of the A & C Act.

¶11

The Respondent, as the Petitioner, had filed an application under section 34 of the A & C Act in the Court of the learned District Judge, Koraput at Jeypore with the prayer to set aside to award passed in an arbitral proceeding taken up in connection with a dispute between the Appellant and the Respondent. The said application has been allowed in part whereunder the finding of the Arbitrator at Page-40 of its award in respect of claim no.2 allowing the claim of the Appellant towards the work done from 01.08.2002 to 05.10.2022 (bills for August & September, 2022) submitted on 07.01.2003 to the tune of Rs.15,16,145/- has been turned down and the award to that extent has been scaled down. Therefore, the Appellant, who has suffered by reduction of the above amount, as has been ordered by the learned District Judge, which had been awarded by the Arbitrator is on Appeal.

¶12

2. We are concerned with Section 37-1(c), which states that an Appeal lies from an order passed under section 37 setting aside or refusing to set aside an arbitral award under section 34 of the A & C Act. As per the law laid down by the Hon’ble Supreme Court, the supervisory role of the Courts while testing the validity of an Arbitration Award stands restricted.

¶13

Page 2 of 25

¶14

ARBA No.25 of 2022

¶15

¶16

In the case of Mcdermott International Inc. v. Burn Standard Co. Ltd; (2006) 11 SCC 181 , the Supreme Court has held as under:—

¶17

“The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the Ld. Arbitral Tribunals, violation of natural justice, etc. The court cannot correct errors of the Ld. Arbitral Tribunals. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.”

¶18

3. It is now a settled position that while exercising a power under Section 34 of the A&C Act, the arbitral award can only be confirmed or set aside, but not modified. To buttress the said position of law, reliance is placed on the decision of the Supreme Court’s recent judgment and order in NHAI v. M. Hakee; (2021) SCC Online SC 473 wherein the Supreme Court held that:

¶19

“16. What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note of Section 34 indicates, “recourse” to a court against an arbitral award

¶20

Page 3 of 25

¶21

ARBA No.25 of 2022

¶22

¶23

may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3). “Recourse” is defined by P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn.) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of challenge under sub-sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see sub-section (4) under which, on receipt of an application under sub-section (1) of Section 34, the court may adjourn the Section 34 proceedings and give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is important to note that it is the opinion of the Arbitral Tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.

¶24

xxx

¶25

31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. The sheet anchor of the argument of the respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568 : (2015) 1 Mad LJ 5] . This matter arose out of a claim for damages by an employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court,

¶26

Page 4 of 25

¶27

ARBA No.25 of 2022

¶28

¶29

presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally.

¶30

xxx

¶31

42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.

¶32

xxx

¶33

48. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the

¶34

Page 5 of 25

¶35

ARBA No.25 of 2022

¶36

¶37

Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.” Further, the Supreme Court also re-iterated the above position in National Highway Authority of India vs. Sri P.Nagaraju @ Cheluvaiah & Anr as under:

¶38

“26. Under the scheme of the Act 1996 it would not be permissible to modify the award passed by the learned Arbitrator to enhance or reduce the compensation based on the material available on record in proceeding emanating from Section 34 of the Act, 1996…”

¶39

4. It is thus amply clear that the extent of judicial scrutiny under Section 34 of the A&C Act is limited and the scope of interference is narrow. Under Section 37, the extent of judicial scrutiny and scope of interference is further narrower still. An appeal under Section 37 is akin to a second appeal, the first appeal being by way of objections under Section 34. Where there are concurrent findings of facts and law, first by the Learned Arbitral Tribunal which are then confirmed by the court while dealing with objections under Section 34, in an appeal under Section 37, the Appellate Court should be very cautious and loathe to interfere in the findings returned in the award by the Arbitral Tribunal and

¶40

Page 6 of 25

¶41

ARBA No.25 of 2022

¶42

¶43

confirmed by the court under Section 34. As laid down by the Apex Court, the supervisory role of the court in arbitration proceedings has been kept at a minimal level and this is so because, the parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as the parties prefer the expediency and finality offered by it.

¶44

5. Further, the Supreme Court in the case of UHL Power Co. Ltd. v. State of H.P .; 2022 SCC Online SC 19, recently held as follows:

¶45

“16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act have been explained in the following words : (SCC pp. 166-67, para 11)

¶46

“11. As far as Section 34 is concerned, the position is wellsettled 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

¶47

Page 7 of 25

¶48

ARBA No.25 of 2022

¶49

¶50

of patent illegality in the arbitral award. Additionally, the concept of the “fundamental policy of Indian law” would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses Ltd. v. 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.”

¶51

A similar view, as stated above, has been taken by the Supreme Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd; (2020) 12 SCC 539 , wherein it has been observed as follows:

¶52

“2. The contours of the power of the Court under Section 34 of the Act are too well established to require any reiteration. Even a bare reading of Section 34 of the Act indicates the highly constricted power of the civil court to interfere with an arbitral award. The reason for this is obvious. When parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum. Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different forms including exercise of legal perversity by the arbitrator.”

¶53

6. In the same vein, the Supreme Court in the case of Haryana Tourism Ltd. v. Kandhari Beverages Ltd.; (2022) 3 SCC 237 has held as follows:

¶54

Page 8 of 25

¶55

ARBA No.25 of 2022

¶56

¶57

“9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High Court is hence not sustainable.”

¶58

More recently, the Supreme Court affirmed the above legal position in the case of Punjab State Civil Supplies Corporation Ltd. v. Ramesh Kumar and Company; 2021 SCC Online SC 1056 .

¶59

7. In the light of the parameters, as laid down by the Apex Court, vis-a-vis the scope of judicial intervention that the present appeal impugning the judgment dated 11^th October, 2021 passed by the learned District Judge, Koraput at Jeypore in Arbitration Petition No.1 of 2006 learned Arbitral Tribunal has to be dealt with.

¶60

8. In the case of Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited; (2014) 9 SCC 70 , the Apex

¶61

Page 9 of 25

¶62

ARBA No.25 of 2022

¶63

¶64

Court has observed that the award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:

¶65

a. fundamental policy of Indian law; or

¶66

b. the interest of India; or

¶67

c. justice or morality; or

¶68

d. if it is patently illegal.

¶69

After being subsequently discussed in Associate Builders v. Delhi Development Authority, the position of law was clarified and laid down succinctly by the Supreme Court in the case of Sangyong Engg. & Construction Co. Ltd. v. NHAI; (2019) SCC Online SC 677 , wherein the Apex Court has held that:

¶70

“34. What is clear, therefore, is that the expression “public policy of India”, whether contained in Section 34 or in Section 48, would now mean the “fundamental policy of Indian law” as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to “Renusagar” understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural

¶71

Page 10 of 25

¶72

ARBA No.25 of 2022

¶73

¶74

justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .

¶75

35. It is important to notice that the ground for interference insofar as it concerns “interest of India” has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.

¶76

36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.

¶77

Page 11 of 25

¶78

ARBA No.25 of 2022

¶79

¶80

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.

¶81

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.

¶82

39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.

¶83

40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable

¶84

Page 12 of 25

¶85

ARBA No.25 of 2022

¶86

¶87

person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).

¶88

41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.”

¶89

9. Furthermore, the law is no longer res integra and is settled that where the Ld. Arbitral Tribunal has assessed the material and evidence placed before them in detail, the court while considering the objections under Section 34 of the A&C Act does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties. The jurisdiction under Section 34 is not appellate in nature and an award passed by an Arbitral Tribunal cannot be set aside on the ground that it was erroneous. It is not open to the court to

¶90

Page 13 of 25

¶91

ARBA No.25 of 2022

¶92

¶93

interfere with the award merely because in the opinion of the court, another view is possible. The duty of the court in these circumstances is to see whether the view taken by the Learned Arbitral Tribunal is a plausible view on the facts, pleadings and evidence before the Learned Arbitral Tribunal. Even if on the assessment of material, the court in seisin of an application under Section 34 is of the view that there are two views possible and the Learned Arbitral Tribunal has taken one of the possible views, based on the material before it, the court would be reluctant to interfere. The court is not to substitute its view with that of the Learned Arbitral Tribunal, if the view taken by it is reasonable. The same has been previously reiterated by this Court in the case of State of Orissa v. Bhagyadhar Dash; AIR 2011 SC 3409 .

¶94

10. Keeping all the aforesaid in mind, let us now come to the relevant paragraph, i.e., paragraph-40 of the award which reads as under:-

¶95

“40. Amount due towards work executed in the month of August, September and 5 days of October, 20023: Rs.15,16,145/-. The Claimant submitted bills for August and September, 2002 along with its letter dated 07.01.2003 (Exhibit R-8). The respondent has neither paid the bills nor pointed out during the course of proceedings whether the same were found in order after checking. Thus, this amount is admitted as such.”

¶96

Page 14 of 25

¶97

ARBA No.25 of 2022

¶98

¶99

The relevant claim is under serial no.2 at paragraph finds mention at paragraph-70 of the award. That part of the claim awarded by the Arbitration has been set aside upon an application under section-34 of the A & C Act.

¶100

11 . Heard Mr.Basudev Mishra, learned counsel for the Appellant and Mrs.Pami Rath, learned Senior Counsel for the Respondent at length. I have perused the award and have gone through the judgment passed by the learned District Judge, Koraput at Jeypore, which is under challenge in this Appeal along with the notes filed.

¶101

12 . It has been stated in the impugned judgment that the Respondent disputed the awarded claim of Rs.16,15,145/- to the Appellant towards work executed in the month of August, September and five days of October, 2002 on the ground that the relevant bills for the said purpose had not been submitted by the Appellant and the letter dated 07.01.2003 (Ext.R-8) relied upon by the Arbitrator is nothing but a notice to the contractor and is not a bill in the format with specification of particulars of work. The Court below has thus come to a conclusion that the Arbitrator, while determining the payment of Rs.15,16,145/- to the Respondent, has mentioned that the Applicant (ClaimantContractor) had submitted the bills for August and September, 2002 along with letter dated 07.01.2003. But serial No.31 of

¶102

ARBA No.25 of 2022

¶103

Page 15 of 25

¶104

¶105

Annexure-B of the above award shows a that it is a letter forwarding the bills for the aforesaid period but the bills do not form part of the same. Therefore, the bills for the amount of Rs.15,16,145/-, having not been proved, as the Arbitrator has then not made it clear as to how he determined that amount as payable by the Respondent to the Appellant towards the work done by the Respondent for the month of August, September and five days of October, 2002 at Rs.15,16,145/- without going through the actual bills and verifying their correctness, that part of the award, according to the learned Court below, falls short of the standards of reasonableness and hence contrary to fundamental Policy of Indian Law.

¶106

13. It has been held in case of Delhi Airport Metro Express Private Limited -V- Delhi Metro Rail Corporation Limited; (2022) 1 SCC 131 that

¶107

“29.Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression ‘patent illegality’. Likewise, erroneous application of law cannot be categorized as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression ‘patent illegality’. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible

¶108

Page 16 of 25

¶109

ARBA No.25 of 2022

¶110

¶111

grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression ‘patent illegality’.

¶112

14 . In case of Associate Builders -V- Delhi Development Authority; (2015) 3 SCC 49; at Paragraph-31, it has been held that:-

¶113

“31.The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

¶114

(i) a finding is based on no evidence, or

¶115

(ii) an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or

¶116

(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.”

¶117

Page 17 of 25

¶118

ARBA No.25 of 2022

¶119

¶120

15 . The above positions have been affirmed in case of Sangyong Engineering and Construction Company Limited -V- National Highways Authority of India Limited (NHAI); (2019) 15 SCC 131 and at Paragraph-41 it has been held that:-

¶121

“41. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.”

¶122

16 . The challenge to the judgment impugned in this Appeal in essence is on the ground that the Court had no power to modify the award. The Appellant, in the Memorandum of Appeal, stating the grounds of challenge, has attacked the impugned judgment as under:-

¶123

“(b) for that Learned District Judge has failed to appreciate that the Respondent in the Arbitral Proceeding has accepted the claim of the Claimant amounting Rs.15,16145/-, due towards work executed in the month of August, September and 5 days of October-2002 and has illegally set aside the award

¶124

Page 18 of 25

¶125

ARBA No.25 of 2022

¶126

¶127

dated 14.11.2005 with regards to the finding in Para40.

¶128

(f) for that Learned District Judge has also lost sight of the settled position of law that under section 34 of the Arbitration Act, 1996 Court cannot modify, revise or vary the award and has illegally modified the award which is illegal and as such the impugned judgment is liable to be set aside.

¶129

(g) for that Learned District Judge has failed to appreciate that the Court hearing a petition U/s.34 of the Arbitration Act does not sit in appeal and cannot correct the errors of the arbitrator and it can only quash the award leaving the parties free to begin the arbitration again and has illegally set aside the award partly. As such the impugned judgment is illegal and liable to be set aside.

¶130

17 . In the Full Bench judgment of the Bombay High in the case of R.S. Jiwani (M/S.), Mumbai -V- Ircon International Limited, Mumbai; 2010 (1) Mh. L.J 547, at Paragraphs-7, 20, 24, 30 & 38, it has been held that:-

¶131

“7.A bare reading of the impugned judgment and particularly above referred portion shows that though the learned Single Judge upheld the award of the learned Arbitrator in favour of the Appellant and expressed agreement with the arguments raised on behalf of the Appellant that the principle of severability would be applicable to such award but being bound by discipline and precedent reluctantly set aside the whole award. The sole question of law that thus arise for consideration before this Larger Bench is ; (1) Whether doctrine of severability can be applied to an award while dealing with a Petition under Section 34 of the Arbitration and Conciliation Act, 1996; and (2) What is the scope of

¶132

Page 19 of 25

¶133

ARBA No.25 of 2022

¶134

¶135

proviso to Section 34(2)(iv) and whether its application is restricted to clause (iv) alone or it applies to the whole of Section 34(2) of the Act.

¶136

The cases would be different where it is not possible or permissible to sever the award. In other words, where the bad part of the award was intermingled and interdependent upon the good part of the award there it is practically not possible to sever the award as the illegality may affect the award as a whole. In such cases, it may not be possible to set aside the award partially. However, there appears to be no bar in law in applying the doctrine of severability to the awards which are severable. In the case of Messrs. Basant Lal Banarsi Lal v. Bansi Lal Dagdulal, AIR 1961 SC 823, though the Supreme Court was dealing with an application for setting aside an award passed by the Bombay City Civil Court, contending that forward contract in groundnuts were illegal as making of such contracts was prohibited by Oil seeds (Forward Contract Prohibition) Order, 1943 and hence arbitration clause contained in the forward contracts in groundnuts between the parties was null and void, where it was found as a matter of fact that it was not possible to segregate the dispute under the various contracts as there was direct link between them. The Supreme Court held as under:-

¶137

“It would follow that the arbitration clause contained in that contract was of no effect. It has therefore to be held that the award made under that arbitration clause is a nullity and has been rightly set aside. The award, it will have been noticed, was however in respect of disputes under several contracts one of which we have found to be void. But as the award was one and is not severable in respect of the different disputes covered by it, some of which may have been legally and validly referred, the whole award was rightly set aside. "

¶138

Now a further question that falls for consideration of this court is as to whether there is anything contained in 1996 Act which prohibits in law the court from adopting

¶139

Page 20 of 25

¶140

ARBA No.25 of 2022

¶141

¶142

the approach applicable under the 1940 Act or prohibits applicability of principle of severability to the awards under 1996 Act. We are unable to see any prohibition much less an absolute bar in the provisions of section 34 of 1996 Act to that effect. There could be instances falling under section 34(2)(a), sub-sections (iii) and (v) where the principle of severability can safely be applied. These provisions do not specifically or impliedly convey legislative intent which prohibits the courts from applying this principle to the awards under the 1996 Act. Again for example, an Arbitral Tribunal might have adopted a procedure at a particular stage of proceeding which may be held to be violative of principles of natural justice or impermissible in law or the procedure was not in accordance with the agreement between the parties but the parties waived such an objection and participate in the arbitration proceedings without protest, in that event it will be difficult for the court to hold that the good part of the award cannot be segregated from the bad part.

¶143

If the principles of severability can be applied to a contract on one hand and even to a statute on the other hand, we fail to see any reason why it cannot be applied to a judgment or an award containing resolution of the disputes of the parties providing them such relief as they may be entitled to in the facts of the case. It will be more so, when there is no statutory prohibition to apply principle of severability. We are unable to contribute to the view that the power vested in the Court under Section 34(1) and (2) should be construed rigidly and restrictedly so that the Court would have no power to set aside an award partially. The word "set aside" cannot be construed as to `only to set aside an award wholly', as it will neither be permissible nor proper for the Court to add these words to the language of Section which had vested discretion in the Court. Absence of a specific language further supported by the fact that the very purpose and object of the Act is expeditious disposal of the arbitration cases by not delaying the proceedings before the Court would support our view otherwise the object of Arbitration Act would stand defeated and frustrated; and

¶144

Page 21 of 25

¶145

ARBA No.25 of 2022

¶146

¶147

For the reasons afore-recorded, we are of the considered view that the dictum of law stated by the Division Bench in the case of Ms. Pushpa Mulchandani (supra) is not the correct exposition of law. We would predicate the contrary view expressed by different Benches of this court for the reasons stated in those judgments in addition to what we have held hereinabove. It is difficult to prescribe legal panacea which, with regard to the applicability of the principle of severability can be applied uniformally to all cases. We find that the principle of law enunciated by us hereinabove is more in comity to object of the Act, legislative intent, UNCITRAL Model Law and will serve the ends of justice better. Thus, we proceed to record our answers to the questions framed as follows:

¶148

The judicial discretion vested in the court in terms of the provisions of section 34 of the Arbitration and Conciliation Act, 1996 takes within its ambit power to set aside an award partly or wholly depending on the facts and circumstances of the given case. In our view, the provisions of section 34 read as a whole and in particular section 34(2) do not admit of interpretation which will divest the court of competent jurisdiction to apply the principle of severability to the award of the Arbitral Tribunal, legality of which is questioned before the court. The Legislature has vested wide discretion in the court to set aside an award wholly or partly, of course, within the strict limitations stated in the said provisions. The scheme of the Act, the language of the provisions and the legislative intent does not support the view that judicial discretion of the court is intended to be whittled down by these provisions. 2. The proviso to section 34(2)(a)(iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the court to invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal.

¶149

Page 22 of 25

¶150

ARBA No.25 of 2022

¶151

¶152

18 . In the case of J.G. Engineers Private Limited -V- Union of India & Another; (2011) 5 SCC 758; it has been held that:-

¶153

“It is now well- settled that if an award deals with and decides several claims separately and distinctly, even if the court finds that the award in regard to some items is bad, the court will segregate the award on items which did not suffer from any infirmity and uphold the award to that extent. As the awards on items 2, 4, 6, 7, 8 and 9 were upheld by the civil court and as the High Court in appeal did not find any infirmity in regard to the award on those claims, the judgment of the High Court setting aside the award in regard to claims 2,4,6,7,8 and 9 of the appellant, cannot be sustained. The judgment to that extent is liable to be set aside and the award has to be upheld in regard to claims 2, 4, 6, 7, 8 and 9.”

¶154

19 . In the case of National Highways Authority of India & Another -V- The Additional Commissioner, Nagpur and Arbitrator under the National Highways Act, 1956; Arbitration Appeal No.03 of 2022; the Court was considering the question as to whether in exercise of power under section 34 of the A & C Act, an award of the Arbitrator can be partially set aside. Even if when the court is convinced that the Arbitrator has erred only on specific issues and the Award is otherwise sustainable whether the Court is mandatorily required to set aside the entire Award, leaving the parties for fresh round of arbitration, if so advised.

¶155

Answering the same, it has been finally said that:-

¶156

“(22) Thus, it becomes clear that in a given case, the Court, while exercising power under Section 34 of the

¶157

Page 23 of 25

¶158

ARBA No.25 of 2022

¶159

¶160

Act of 1996, can set aside an Award partly, depending upon the facts and circumstances of the case. In this context, reference can also be made to the judgment of the Supreme Court in the case of J.G. Engineers Pvt. Ltd. Vs. Union of India and another (2011) 5 SCC 758.

¶161

(23) In the said case also, the doctrine of severability was invoked and it was held that when the Award deals with several claims that can be said to be separate and distinct, the Court can segregate the Award on items that do not suffer from any infirmity and uphold the Award to that extent. Thus, it becomes clear that the contention raised on behalf of the appellants in the present case, that the PDJ ought to have set aside the arbitral Award in its entirety, is not justified.

¶162

(24) The aspect of grave inconvenience highlighted in the aforesaid full bench judgement of this Court in the case of R.S. Jiwani (M/S.) Vs. Ircon International Ltd. (supra), if parties are required to go for arbitration afresh in its entirety, even when the arbitral award is only partly set aside, becomes more relevant in situations like in the present case, which concern statutory arbitration, involving an acquiring body on the one hand and private individuals (claimants) on the other. If such a recourse to go for arbitration afresh is to be adopted on every occasion that the arbitral award is found liable to be set aside on some issues, it would lead to multiple rounds of litigation, going against the of alternative redressal very purpose dispute mechanisms like arbitration. The claimants would be forced to pursue numerous rounds of proceedings before the arbitrator and Courts, which cannot be countenanced, thereby indicating that the contention raised in this regard on behalf of the appellants is unsustainable.”

¶163

Page 24 of 25

¶164

ARBA No.25 of 2022

¶165

¶166

20. In view of the aforesaid position of law, this Court comes to the conclusion that the learned District Judge, Koraput at Jeypore has rightly interfered with that part of the award in respect of claim no.2 after having found the Arbitrator to have allowed the same in the absence of any evidence to support and as such perverse, thus patent illegality touching the root of the said item of claim.

¶167

For all the aforesaid, the judgment passed by the learned District Judge, Koraput at Jeypore in Arbitration Petition No.1 of 2006 is hereby affirmed.

¶168

21. In the result, the ARBA stands dismissed.

¶169

(D. Dash),
Judge.

¶170

Basu

¶171

Signature Not Verified

¶172

Digitally Signed Signed by: BASUDEV NAYAK Designation: ASSISTANT REGISTRAR-CUM-SR. SECRETARY Reason: Authentication Location: HIGH COURT OF ORISSA : CUTTACK Date: 24-Jan-2024 15:34:09

¶173

Page 25 of 25

¶174

ARBA No.25 of 2022

M/S. Prumatech Services Pvt. Ltd. v. M/S.National Aluminium Co.Ltd.

Case brief

What is this about?

What did the court decide?

M/S. Prumatech Services Pvt. Ltd. v. M/S.National Aluminium Co.Ltd.

Case brief

What is this about?

What did the court decide?

Why is it important?

What the court decided

Issues for consideration

Cases cited

Statutes considered

Procedural history

Parties & counsel

Coram

Case details

Similar cases

Siba Chhatria @ Sibu Chhatri Vs State of Odisha

M/S.Hindustan Aeronautics Ltd. Vs M/S.Asian Steels

Guddu @ Debasish Sahoo Vs State of Odisha

Abdul Fattah Khan Vs State of Odisha

Taramani Biswal Vs Pravakar Sahu

Bamura@ Bambura Sukamajhi Vs State of Odisha