Case Citation: (2023) ibclaw.

in 1048 HC

* IN THE HIGH COURT OF DELHI AT NEW DELHI

Pronounced on: 12th December, 2023
% O.M.P. (COMM) 311/2021
MBL INFRASTRUCTURES LIMITED ..... Petitioner
Through: Ms. Anusuya Salwan, Ms.Nikita
Salwan, Ms. Sonika Singh and Mr.
Rachit Wadhwa, Advocates

versus

DELHI METRO RAIL CORPORATION ..... Respondent

Through: Mr. Ankur Chhibber, Mr.Parv Garg,
Mr. Pawas Kulshreshtha and Mr. K.S.
Rekhi, Advocates

CORAM:
HON'BLE MR. JUSTICE CHANDRA DHARI SINGH

JUDGMENT

1. The instant petition under Section 34 of the Arbitration and

Conciliation Act, 1996 (hereinafter the Act ) has been filed on behalf of the
petitioner seeking the following reliefs:
“i. Set aside the award passed by the Hon'ble Arbitral
Tribunal dated 06.03.2020 with respect to Claim No. 3, 4, 6,
7 & 8.
ii. Any other order or relief as this Hon'ble Court deems fit
and proper may be passed in the facts and circumstances of
the present case.”

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FACTUAL MATRIX
2. The facts of the case in a nutshell are extracted hereinbelow-
(a) The Petitioner is M/s MBL Infrastructure Ltd. is Public Limited
Company engaged in the business of Civil Engineering projects and
has a Pan India presence. The respondent is Delhi Metro Railway
Corporation, a joint venture of Government of NCT of Delhi and
Government of India and is a registered company under the
Companies Act.
(b) The respondent invited tenders for 'Construction of Sarai Station
including architectural finishing, water supply, sanitary installation,
external development works etc. and structure works of PD area on
Badarpur - Faridabad Corridor of Delhi, MRTS Phase III ' on 9th
March, 2012.
(c) On 9th March 2012, the petitioner submitted its tender which was
accepted by the respondent on 9th May 2012.
(d) The stipulated dates for commencement and completion of the project
were 21st May, 2012 and 20th November, 2013 respectively, spanning
over a period of 18 months. The value of the contract was Rs. 41.57
crores.
(e) The petitioner furnished 2 performance bank guarantees amounting to
Rs.4,15,71,525/- @ 10 % contract values. The petitioner had also
furnished two Bank Guarantees for a total amount of Rs.2,28,64,240/-
dated 23rd July 2012 valid upto 20th November 2013 issued by Bank
of Baroda in terms of Clause 11.2.1 of the General Conditions of

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Contract (hereinafter GCC) towards mobilization advance. In lieu of

the same, on 6th September 2012, the respondent released the first
instalment of mobilization advance amounting to Rs.1,03,92,881/-
vide bankers cheque dated 6th September 2012.
(f) Thereafter, the petitioner was handed over the construction site
partially after a delay of more than six months on 20 th December,
2012. On 28th January 2013, the petitioner requested for handing over
the possession of the remaining plot for Sarai Metro Station which
was subsequently denied by the respondent.
(g) On 2nd August, 2013, the respondent issued a Notice under clause 13.1
of GCC for alleged failure of the petitioner to adhere to work
programs and non-compliance of other obligations.
(h) The respondent vide letter dated 30th September 2023, denied the facts
on record and informed the petitioner that it was liable for action
under Clause 13.1 of GCC. The petitioner replied to the said letter on
11th October 2013 stating that there was no delay on the part of the
petitioner.
(i) On 1st November, 2013, the respondent terminated the contract and
encashed the bank guarantees furnished by the petitioner.
(j) The matter was referred to arbitration vide letter dated 1st April, 2015,
and accordingly an Arbitral Tribunal was convened on 15th April,
2015.
(k) The Arbitral Tribunal after hearing the parties rendered its award on
6th March, 2020. The learned Tribunal held that the default in terms of

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delay of the project was on part of the respondent and accordingly, it

allowed Claim No. 1 and partly allowed Claim No.5, however,
dismissed Claim Nos. 2,3,4,6,7 & 8. It also dismissed all the Counter
claims of the respondent.
(l) The learned Tribunal after examining the evidence on record
concluded that as the respondent was in breach of contract, thus, the
termination of the contract was illegal. The learned Tribunal also held
the encashment of Performance Bank Guarantee to be totally
unjustified in view of reach of the agreement on behalf of the
respondent and thus disallowed the claims for damages, loss of
profits, interest and costs under Claims 3, 4, 6, 7 and 8.
(m) Aggrieved by the rejection of claim nos. 3, 4, 6, 7 and 8 in the
impugned Award, the petitioner has filed the present petition on the
grounds of patent illegality.
SUBMISSIONS
3. The parties argued the instant matter at length on several dates of
listing before this Court on the issue of limitation as well as on merits. A
combined consideration of the contentions raised in the pleadings, written
submissions as well as the contentions raised during the course of hearing
lay out the following broad arguments on behalf of the parties.
(on behalf of the petitioner)
4. Learned Counsel, Ms. Salwan appearing for the petitioner submitted
that the instant petition under Section 34 of the Act, 1996 is to raise
important issues relating to a limb of “public policy” on the grounds that the

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impugned Award is in contravention with the “fundamental policy” of

Indian law and that the impugned Award is vitiated by “patent illegality”
appearing on the face of the Award on extraneous considerations de hors
and contrary to the terms of the contract executed between the parties and in
complete disregard of the evidence on record, in deciding the controversy
between the parties.
5. It is submitted that the learned Tribunal had accepted the expenditure
incurred by the petitioner for tools, plant, overheads and the injury that has
been caused to the petitioner on account of the actions of the respondent.
However, the learned Tribunal still refused to allow petitioner’s claim for
damages, cost and interest.
6. It is further submitted that as per Para 6.3.3.2 of the impugned Award
the learned Tribunal held that the petitioner was not in breach of contract but
in fact it was the respondent. However, the denial of damages was
inconsistent with the aforesaid conclusion arrived at by the learned Tribunal.
7. It is contended that once the learned Tribunal has concluded that it is
the respondent who has committed a fundamental breach and is responsible
for delay in completion of work, then the learned Tribunal cannot reject
payment of damages as the parties cannot contract out of provisions of
Indian Contract Act 1872 and the rights created by Section 73 and 55 of the
said Act cannot be contractually waived.
8. It is further contended that findings of the learned Tribunal to the
effect that the petitioner is not entitled to overheads towards

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mobilization/demobilization are contrary to its own findings at Para 6.3.5.2

of the Impugned Award.
9. It is submitted that the learned Tribunal failed to appreciate the
position of law under Section 73 of Indian Contract Act as per which, the
petitioner is entitled to compensate for the losses incurred on overheads and
reduction in the productivity from machinery and other tools deployed as
well as damages on account of breach of contract/illegal termination of
conditions by the respondent. Thus, the award rendered by learned Tribunal
in respect of Claim 3 and 4 is unsustainable.
10. It is contended that the rejection of Claim 6 is erroneous insofar as
there is no clause in the contract providing for damages on account of loss of
commercial reputation. However, the learned Tribunal failed to appreciate
the illegality on part of respondent has directly impacted financial position
of the petitioner. Due to said actions of the respondent, there was initiation
of Corporate Insolvency Resolution Process under Insolvency and
Bankruptcy Code, 2016 against the petitioner.
11. It is submitted that the learned Tribunal has wrongly placed reliance
upon Clause 17.10 of GCC to reject the Claim No. 7 for costs and the same
is patently illegal as a bare perusal of Section 31-A of Arbitration and
Conciliation Act, 1996 clearly states that absolute discretion is vested with
learned Tribunal to determine the said costs.
12. It is further submitted that the rejection of Claim No. 8 is also rebutted
by stating that the petitioner was entitled to award of interest and wrongful
deprivation of the same is bad in law.

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13. Learned counsel appearing on behalf of the petitioner contended that

Impugned Award passed by the Arbitral Tribunal is arbitrary and
inconsistent, therefore, liable to be partially set-aside in accordance with the
provision of Section 34 (2A) of the Act.
14. Hence, in view of the above, it is prayed that the instant petition may
be allowed and the Impugned Award may be set aside.
(on behalf of the respondent)

15. Per Contra, Mr. Ankur Chhibber learned counsel appearing on behalf
of respondent submitted that the instant petition is nothing but an abuse of
the process of law. It is submitted that it is a settled law that a Court shall not
sit in appeal over the award of an Arbitral Tribunal by re-assessing or re-
appreciating evidence of the arbitral proceeding since an arbitrator is the
master of the quality and quantity of the evidence.
16. It is further submitted that an award can be challenged only under the
grounds mentioned in Section 34 of the Act, 1996. Therefore, in the absence
of any such ground, it is not possible to re-examine the facts or evidence on
the record.
17. Learned counsel for the respondent submitted that the learned Arbitral
Tribunal had adopted a judicial approach by considering all the evidence
placed on record by both the parties. It is further submitted that the Arbitral
Tribunal has given a detailed award which runs into seventy two pages and
the award provides analysis of the detailed facts and the arguments of both
the parties.

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18. It is contended that the learned Arbitral Tribunal after examining the
contentions of both parties and the documents furnished thereof and having
heard the parties on several dates passed the award in favour of the
respondent in regards to the claims which has been challenged by the
petitioner before this Court.
19. It is submitted that the Tribunal has rightly looked into the conduct of
the parties and the correspondence exchange between the parties to decide
the issues at hand and award the claim. The interpretation of the contract is
within the domain of the learned Arbitral Tribunal, and such interpretation
ought not to be interfered with in a challenge under Section 34 of the Act,
especially in view of the fact that no cogent grounds have been set out by the
petitioner that warrants interference.
20. It is submitted that reliance by petitioner on Section 73 of the Indian
Contract Act is misplaced since Claim No. 3 is sought on account of delay
by respondent and not on any breach of contract. Further in respect of Claim
No. 4, it is averred that the petitioner has not been able to point out a single
patent illegality in the Impugned Award. It is a well settled principle that any
claim before the Arbitrator must be proved and in case of no evidence, the
Arbitrator cannot allow the claim merely on the basis of statement of claim.
21. It is further submitted that the learned Tribunal has rightly in
accordance with the Clause 2.2 of GCC and Clause 8.3 of GCC has held that
there is no provision of only monetary claim in cases there is a delay on the
part of the respondent and the petitioner is entitled to only reasonable
extension of time.

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22. It is submitted in respect of Claim No. 6 that the petitioner has not
adduced any evidence to show that it entered into a liquidity crunch due to
breach of contract by the respondent herein and in the absence of any direct
nexus, the said claim is barred for being remote and indirect.
23. It is submitted in respect of Claim No. 7 that merely because the
petitioner is the successful party, it would not entitle it to costs of arbitration.
Further, in respect of Claim No. 8, it is submitted that Clause 17.0 of GCC
specifically bars payment of any interest for any period, till the date on
which award is made. Therefore, in terms of contractual provision, no
interest is accrued to the petitioner.
24. Accordingly, there are no grounds available to the petitioner herein
for challenging the instant award on the grounds under Section 34 of the
Act.
25. In view of the facts and circumstances, the instant petition is de hors
of any merit and deserves to be rejected outrightly.
ANALYSIS AND FINDINGS
26. I have heard learned counsel for the parties at length, who have taken
me through the award passed by the learned Arbitral Tribunal, provisions of
the contract executed between the parties and the correspondence exchanged
between them as well as other relevant documents.
27. I may, at this stage, deal with the contention urged on behalf of the
respondent that as per the jurisdiction of the Court to set aside an arbitral
award is limited to grounds set out in Section 34 of the Act, this Court ought
not to interfere with the same. It was contended that none of the grounds on

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which a Court is authorized to interfere with an arbitral award are present in

the case at hand. Alternatively, it was contended that even if a contrary view
is possible on the facts proved before the Arbitral Tribunal, the Court
cannot, in the absence of any compelling reason, interfere with the view
taken by the arbitrators as if it was setting in appeal over the award made by
the Tribunal. Therefore, it is imperative to revisit section 34 of the Act.

30. Section 34 of the Act, 1996 reads as under:-

"34. Application for setting aside arbitral award.—

(1) Recourse to a Court against an arbitral award may be
made only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application [establishes on the basis
of the record of the arbitral tribunal that]—
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any indication
thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the

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parties, unless such agreement was in conflict with a

provision of this Part from which the parties cannot derogate,
or, failing such agreement, was not in accordance with this
Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the public policy of
India. [Explanation 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 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.]
[(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.]
(3) An application for setting aside may not be made after
three months have elapsed from the date on which the party
making that application had received the arbitral award or, if
a request had been made under Section 33, from the date on
which that request had been disposed of by the arbitral
tribunal:

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Provided that if the Court is satisfied that the applicant was

prevented by sufficient cause from making the application
within the said period of three months it may entertain the
application within a further period of thirty days, but not
thereafter.
(4) On receipt of an application under sub-section (1), the
Court may, where it is appropriate and it is so requested bya
party, adjourn the proceedings for a period of time
determined by it in order to give the arbitral tribunal an
opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the arbitral award.
[(5) An application under this section shall be filed by a
party only after issuing a prior notice to the other party and
such application shall be accompanied by an affidavit by the
applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year
from the date on which the notice referred to in sub-section
(5) is served upon the other party.]"
28. Under Section 34 of the Act it is well-settled position that the Court
does not sit in appeal over the arbitral award and may interfere on merits on
the limited ground as provided under Section 34(2)(b)(ii) of the Act, 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 in the 1996
Act in 2015, a violation of India 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 existence of patent illegality in the

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arbitral award. The concept of the fundamental policy of Indian Law would
cover the compliance with the statutes under judicial precedents adopting a
judicial approach, compliance with the principles of nature justice, and
reasonableness.
29. It is only if one of the conditions is met that the Court may interfere
with an arbitral award in terms of Section 34(2)(b)(ii) of the Act, but the said
interference does not entail a review of the merits of the dispute as it is
limited to the situations where the findings of the arbitration 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 learned arbitrator
is a possible view based on the facts.
30. Hence, there is a limitation on the powers of this Court while
examining its jurisdiction under Section 34 of the Act, 1996, however, at the
same time, if the interpretation put forward by the Arbitral Tribunal, on the
face of it is incorrect and rendering a Clause in the
Agreement to be redundant, such interpretation cannot be sustained.
31. This Court relied on the case of Reliance Infrastructire Ltd. v. State
of Goa 2023 SCC OnLine SC 604 wherein the Hon'ble Supreme Court held
as under
“47. Having regard to the contentions urged and the issues
raised, it shall also be apposite to take note of the principles
enunciated by this Court in some of the relevant decisions cited
by the parties on the scope of challenge to an arbitral award

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under Section 34 and the scope of appeal under Section 37 of the

Act of 1996.

48. In MMTC Limited (supra), this Court took note of various

decisions including that in the case of Associate Builders (supra)
and exposited on the limited scope of interference under Section
34 and further narrower scope of appeal under Section 37 of the
Act of 1996, particularly when dealing with the concurrent
findings (of the Arbitrator and then of the Court). This Court,
inter alia, held as under:—
“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 K.B. 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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12. It is only if one of these conditions is met that the

Court may interfere with an arbitral award in terms of
Section 34(2)(b)(ii), but such interference does not entail
a review of the merits of the dispute, and is limited to
situations where the findings of the arbitrator are
arbitrary, capricious or perverse, or when the conscience
of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral
award may not be interfered with if the view taken by the
arbitrator is a possible view based on facts. (See
Associate Builders v. DDA [Associate Builders v. DDA,
(2015) 3 SCC 49 : (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])

13. It is relevant to note that after the 2015 Amendment

to Section 34, the above position stands somewhat
modified. Pursuant to the insertion of Explanation 1 to
Section 34(2), the scope of contravention of Indian public
policy has been modified to the extent that it now means
fraud or corruption in the making of the award, violation
of Section 75 or Section 81 of the Act, contravention of
the fundamental policy of Indian law, and conflict with
the most basic notions of justice or morality.
Additionally, sub-section (2-A) has been inserted in
Section 34, which provides that in case of domestic
arbitrations, violation of Indian public policy also
includes patent illegality appearing on the face of the
award. The proviso to the same states that an award

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shall not be set aside merely on the ground of an

erroneous application of the law or by reappreciation of
evidence.

14. As far as interference with an order made under

Section 34, as per Section 37, is concerned, it cannot be
disputed that such interference under Section 37 cannot
travel beyond the restrictions laid down under 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.”
49. In the case of Ssangyong Engineering (supra), this Court has
set out the scope of challenge under Section 34 of the Act of 1996
in further details in the following words:—
“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.

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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.
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.
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 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).
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

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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.”

50. The limited scope of challenge under Section 34 of the Act was
once again highlighted by this Court in the case of PSA SICAL
Terminals (supra) and this Court particularly explained the
relevant tests as under:—

“43. It will thus appear to be a more than settled legal

position, that in an application under Section 34, the
court is not expected to act as an appellate court and
reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34
of the Arbitration Act. The interference would be so
warranted when the award is in violation of “public
policy of India”, which has been held to mean “the
fundamental policy of Indian law”. A judicial
intervention on account of interfering on the merits of
the award would not be permissible. However, the
principles of natural justice as contained in Section 18
and 34(2)(a)(iii) of the Arbitration Act would continue
to be the grounds of challenge of an award. The ground
for interference on the basis that the award is in

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conflict with justice or morality is now to be understood

as a conflict with the “most basic notions of morality or
justice”. It is only such arbitral awards that shock the
conscience of the court, that can be set aside on the
said ground. An award would be set aside on the
ground of patent illegality appearing on the face of the
award and as such, which goes to the roots of the
matter. However, an illegality with regard to a mere
erroneous application of law would not be a ground for
interference. Equally, reappreciation of evidence would
not be permissible on the ground of patent illegality
appearing on the face of the award.
44. A decision which is perverse, though would not be a
ground for challenge under “public policy of India”,
would certainly amount to a patent illegality appearing
on the face of the award. However, 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.
45. To understand the test of perversity, it will also be
appropriate to refer to paragraph 31 and 32 from the
judgment of this Court in Associate Builders (supra),
which read thus:
“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:

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

Arbitral Tribunal takes into account something

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irrelevant to the decision which it arrives at;

or(iii) ignores vital evidence in arriving at its
decision, such decision would necessarily be
perverse.
32. A good working test of perversity is contained
in two judgments. In Excise and Taxation Officer-
cum-Assessing Authority v. Gopi Nath & Sons
[1992 Supp (2) SCC 312], it was held : (SCC p.
317, para 7)
“7. … It is, no doubt, true that if a finding of fact
is arrived at by ignoring or excluding relevant
material or by taking into consideration irrelevant
material or if the finding so outrageously defies
logic as to suffer from the vice of irrationality
incurring the blame of being perverse, then, the
finding is rendered infirm in law.””
51. In Delhi Airport Metro Express (supra), this Court again
surveyed the case-law and explained the contours of the Courts'
power to review the arbitral awards. Therein, this Court not only
re-affirmed the principles aforesaid but also highlighted an area
of serious concern while pointing out “a disturbing tendency” of
the Courts in setting aside arbitral awards after dissecting and
re-assessing factual aspects. This Court also underscored the
pertinent features and scope of the expression “patent illegality”
while reiterating that the Courts do not sit in appeal over the
arbitral award. The relevant and significant passages of this
judgment could be usefully extracted as under:—
“26. A cumulative reading of the UNCITRAL Model
Law and Rules, the legislative intent with which the
1996 Act is made, Section 5 and Section 34 of the
1996 Act would make it clear that judicial
interference with the arbitral awards is limited to
the grounds in Section 34. While deciding

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applications filed under Section 34 of the Act,

Courts are mandated to strictly act in accordance
with and within the confines of Section 34,
refraining from appreciation or reappreciation of
matters of fact as well as law. (See Uttarakhand
Purv Sainik Kalyan Nigam Ltd. v. Northern Coal
Field Ltd. [Uttarakhand Purv Sainik Kalyan Nigam
Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455 :
(2020) 1 SCC (Civ) 570], Bhaven Construction v.
Sardar Sarovar Narmada Nigam Ltd. [Bhaven
Construction v. Sardar Sarovar Narmada Nigam
Ltd., (2022) 1 SCC 75] and Rashtriya Ispat Nigam
Ltd. v. Dewan Chand Ram Saran [Rashtriya Ispat
Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5
SCC 306].)
*********
28. This Court has in several other judgments
interpreted Section 34 of the 1996 Act to stress on
the restraint to be shown by Courts while examining
the validity of the arbitral awards. The limited
grounds available to Courts for annulment of
arbitral awards are well known to legally trained
minds. However, the difficulty arises in applying the
well-established principles for interference to the
facts of each case that come up before the Courts.
There is a disturbing tendency of Courts setting
aside arbitral awards, after dissecting and
reassessing factual aspects of the cases to come to a
conclusion that the award needs intervention and
thereafter, dubbing the award to be vitiated by
either perversity or patent illegality, apart from the
other grounds available for annulment of the award.
This approach would lead to corrosion of the object
of the 1996 Act and the endeavours made to

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preserve this object, which is minimal judicial

interference with arbitral awards. That apart,
several judicial pronouncements of this Court would
become a dead letter if arbitral awards are set aside
by categorising them as perverse or patently illegal
without appreciating the contours of the said
expressions.
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
categorised 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 reappreciate 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 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

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to the other party is a facet of perversity falling

within the expression “patent illegality”.
30. Section 34(2)(b) refers to the other grounds on
which a court can set aside an arbitral award. If a
dispute which is not capable of settlement by
arbitration is the subject-matter of the award or if
the award is in conflict with public policy of India,
the award is liable to be set aside. Explanation (1),
amended by the 2015 Amendment Act, clarified the
expression “public policy of India” and its
connotations for the purposes of reviewing arbitral
awards. It has been made clear that an award would
be in conflict with public policy of India only when it
is induced or affected by fraud or corruption or is in
violation of Section 75 or Section 81 of the 1996 Act,
if it is in contravention with the fundamental policy
of Indian law or if it is in conflict with the most
basic notions of morality or justice.
*********
42. The Division Bench referred to various factors
leading to the termination notice, to conclude that the
award shocks the conscience of the court. The discussion
in SCC OnLine Del para 103 of the impugned judgment
[DMRC v. Delhi Airport Metro Express (P) Ltd., 2019
SCC OnLine Del 6562] amounts to appreciation or
reappreciation of the facts which is not permissible under
Section 34 of the 1996 Act. The Division Bench further
held [DMRC v. Delhi Airport Metro Express (P) Ltd.,
2019 SCC OnLine Del 6562] that the fact of AMEL being
operated without any adverse event for a period of more
than four years since the date of issuance of the CMRS
certificate, was not given due importance by the Arbitral
Tribunal. As the arbitrator is the sole Judge of the quality

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as well as the quantity of the evidence, the task of being a

Judge on the evidence before the Tribunal does not fall
upon the Court in exercise of its jurisdiction under
Section 34. [State of Rajasthan v. Puri Construction Co.
Ltd., (1994) 6 SCC 485] On the basis of the issues
submitted by the parties, the Arbitral Tribunal framed
issues for consideration and answered the said issues.
Subsequent events need not be taken into account.”
(emphasis supplied)
52. In the case of Haryana Tourism Ltd. (supra), this
Court yet again pointed out the limited scope of
interference under Sections 34 and 37 of the Act; and
disapproved interference by the High Court under Section
37 of the Act while entering into merits of the claim in the
following words:
“8. So far as the impugned judgment and order passed by
the High Court quashing and setting aside the award and
the order passed by the Additional District Judge under
Section 34 of the Arbitration Act are concerned, it is
required to be noted that in an appeal under Section 37 of
the Arbitration Act, the High Court has entered into the
merits of the claim, which is not permissible in exercise of
powers under Section 37 of the Arbitration Act.
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

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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 passed by the High Court is hence not sustainable.”

53. As regards the limited scope of interference under Sections 34/37

of the Act, we may also usefully refer to the following observations of
a 3-Judge Bench of this Court in the case of UHL Power Company
Limited v. State of Himachal Pradesh, (2022) 4 SCC 116:—
“15. This Court also accepts as correct, the view expressed by
the appellate court that the learned Single Judge committed a
gross error in reappreciating the findings returned by the
Arbitral Tribunal and taking an entirely different view in respect
of the interpretation of the relevant clauses of the implementation
agreement governing the parties inasmuch as it was not open to
the said court to do so in proceedings under Section 34 of the
Arbitration Act, by virtually acting as a court of appeal.
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.”

54. The learned Attorney General has referred to another 3-Judge

Bench decision of this Court in the case of Sal Udyog Private Limited
(supra), wherein this Court indeed interfered with the award in
question when the same was found suffering from non-consideration
of a relevant contractual clause. In the said decision too, the

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principles aforesaid in Delhi Airport Metro Express, Ssangyong

Engineering and other cases were referred to and thereafter, this
Court applied the principles to the facts of that case. We shall refer to
the said decision later at an appropriate juncture.
55. Keeping in view the aforementioned principles enunciated by this
Court with regard to the limited scope of interference in an arbitral
award by a Court in the exercise of its jurisdiction under Section 34 of
the Act, which is all the more circumscribed in an appeal under
Section 37, we may examine the rival submissions of the parties in
relation to the matters dealt with by the High Court.
32. It is settled law that the ground under Section 34 of the Act gives way
to setting aside an Arbitral Award with a very minimal scope of intervention.
A party cannot simply raise an objection on the ground of Section 34 if the
Award is simply against them. Section 34 of the Act, 1996 requires a distinct
transgression of law, the clear lack of which thereof makes the petition
simply a pointless effort of objection towards an Award made by a
competent Arbitral Tribunal.
33. Keeping these principles in mind, I will now examine the present
case.
34. In the instant petition, the petitioner has challenged claim no. 3, 4, 6, 7
and 8. This Court will peruse each and every claim and adjudicate upon
whether they merit interference by way of the instant petition.
Claim no. 3- Damages on Account of Idling of Machines and loss of
overheads

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35. Claim 3 pertains to damages on account of idling of machines and loss

of overheads due to inaction and delays by the respondent amounting to Rs.
1,57,84,798/-, the Arbitral Tribunal’s analysis is reproduced hereinunder-
“iv) As discussed above. Contractual provisions governing delay is
covered under Clause 8.3 of GCC and that for Extension of Time
under Clause 8.4 of GCC. Clause 8.3 (along with Clause 2.2) clearly
indicates that failure or delay by the Employer or the Engineer to
hand over site etc. shall not entitle the contractor to damages or
compensation, it provides simply for extension of time as, in the
opinion of the Engineer are reasonable. Clause 8.4.1 of GOG
dealing with Extension of Time not on Contractor's fault also
includes:
'a) The Contractor's work held up for not being given possession
of or access to site in accordance with the Contract (sub para 'b'
of Clause 8.4.1 of GCC);
b) Any act of prevention or Breach of Contract by the Employer
and not mentioned in this Clause (sub para 'e' of Clause 8.4.1. of
GCC).' Such a provision encompasses all delays over which the
contractor has no control. This will also include any delays for
which both the Respondent and the Claimant are responsible.
However, as is seen. Clause 8.3 of GCC of the Contract
Agreement does not provide for any financial compensation to
the Claimant even if the Claimant is not responsible for the
delay.
v) The Claimant have cited a number of judgments of High Courts and
the Supreme Court, as mentioned In Paragraphs 8.1.3 supra, in
support of their case and applicability of Section 73 of the Indian
Contract Act, 1872, providing for compensation to be paid in case of
breach of a contract, to the party who suffers loss due to such breach.
The Tribunal have studied the relevant paragraphs of these
judgments, as referred to by the Claimant. It is seen that these
judgments pertain to cases having different dimensions and different

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provisions of the contracts, which may not be applicable to the

situations of the present case. The Tribunal is guided by the Sub-
section (3) of Section 28 of the Arbitration and Conciliation Act, 1996
as amended by Arbitration and Conciliation (Amendment) Act, 2015,
which provides as under: "(3) While deciding and making an award,
the arbitral tribunal shall, in all cases, take into account the terms of
the contact and trade usages applicable to the transactions".
The Tribunal has considered the case in the spirit of the above
provision of the Act. It has also come out that the Respondent were
eager to get the Project completed at the earliest. The Respondent
have admitted that there were certain delays, like handing over of the
land, on their part and certain other delays including planning and
execution issues (amply discussed in Claim-1) on the part of the
Claimant.
8.3.4 After careful consideration of the facts and circumstances of the
case, written and oral submissions by the Parties and as discussed
above, the Tribunal have come to the conclusion that the Respondent
is not bound, as per terms and conditions of the Contract, to
compensate the Claimant for delayed performance of the Contract.‟
36. The learned Tribunal held that the petitioner suffered certain damages
on account of idling of machinery and loss of overheads because there was a
default on the part of the respondent in fulfilling the obligations under the
Contract.
37. Moreover, the Tribunal has referred to the relevant clauses of the
Contract i.e., Clause 2.1 of GCC, Clause 2.2 of GCC as well as Clause 8.3 of
GCC. The Tribunal has further held that in accordance with these clauses it
is explicitly mentioned that the petitioner shall be entitled only to reasonable
extension of time and there can be monetary claims payable in this regard.

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38. According to Clause 8.3 of GCC, it enunciates that any delay on

account of the respondent shall entitle the contractor to a remedy of
extension of time which the Engineer deems reasonable. The delay includes
in its ambit the handing over of site necessary for execution of work, giving
of necessary notice for the purpose of commencement of work, provide
necessary drawing or instructions or clarification or clarification or to supply
any material, plant or machinery, which as per the terms and conditions of
the Contract is the obligation of the employer. Hence, the Tribunal finally
held that as per the Clause 8.3 of GCC the Contract does not provide any
compensation to the petitioner by way of damages.
39. The learned Tribunal further held that it is acting in accordance with
Section 28 of the Act as per which the Tribunal shall take into its
consideration the terms of the contract and trade usages which are applicable
to the transactions. Accordingly, the Tribunal held that respondent is not
bound as per the Contract for any compensation to the Claimant for delayed
performance of the Contract.
40. This Court before commenting on the merits of the case deems it fit
that the reference shall be made to Award passed by the learned tribunal for
Claim no. 1 wherein the Tribunal attributed the delay pertaining to the
completion project on the respondent. The relevant paras of the Impugned
Award are reproduced herein below:
“6.3.3.2 Conclusion: Examination of above allegations made
by the Respondent indicates that the reasons brought out by the
Respondent as above are not the basic reasons why the work
did not achieve the desired progress with time. The expected

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date for land availability as also not known to the Claimant to

be in readiness for the same. The activities alleged to be
delayed by the Claimant would have been critical if the land for
the work area as well as construction were made available
from the beginning. Even the first set of drawings for pile
foundations was issued after more than two months after the
result of pile load test was available. Ideally, the pile rig should
have been remobilized soon after 21.12.2012, when part land
for construction was made available, but then there were no
structural drawings for carrying out of execution till
21.02.2012. The pile load test was required for the final
drawings, but the land for installation of initial piles for load
test could be temporarily made available on 16.10.2012. As
time for availability of land was uncertain, there was no tempo
for carrying out preparatory works. The Batching plant was not
installed till 28.08.2012 (though no further activity was held up
on this account) as land for work area became available on
27.06.2012. Thus, one is to consider cause and effect. Thus,
under facts and circumstances of the case Tribunal finds that
the Claimant is not responsible for delay in mobilization and
start of the work as alleged by the Respondent;”
XXX
“6.3.5.3 Conclusion:
(i) In view of above, delays in making available land does not
get condoned by the GCC 2.2 as there is a difference between
'no land' and 'making available land progressively'. There is no
provision in the Contract for payment for idling rig. Piling rig
was demobilized twice-once after execution of test piles in
October 2013; second after completing piles in grid 2 and 3 on
29.05 2013 due to obstructions in grid 1. Though advance
drawings were available on 18.01.2013, GFC drawings for the
pile foundations was issued on 21.02.2013. When the notice
under Clause 13.1 alleging failure in meeting obligation under

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13.2.1 (g) & (i) was issued on 2.08.2013, there was no agreed
programme of work due to various delays. The revised
programme was approved on 19.09.2013, yet in the second
notice dated 30.09.2013 the Respondent states that according
to the revised programme the piling work was to be completed
by 30.08.2013 and there is a delay of 45 days. Surely, the
slippage of 45 days could not have occurred in just 11 days
from 19.09.2019. Thus, provision of GCC Clause 4.13 does not
seem to have been followed by the Respondent. The reality of
obstructions due to close proximity of existing electric poles or
flooding of the site due to poor drainage facility in the area,
which became acute due to excavations for the pile caps,
cannot be wished away by provisions of Construction
Specifications Section 1.2.12, 3.6 Earthwork. Such hindrances
do affect the progress and are to be considered while
evaluating progress on any date.
(ii) Notice dated 2.08.2013 is under GCC Clause 13.2 for
failure to meet Contractor's obligation as specified in Clause
13.2.1 (g) and (i). Clause 13.2 has the heading 'Termination of
Contract due to Contractor's Default'. 13.2.1 (g) is about
failure to adhere to agreed programme or is unlikely to
complete the works. Clause 13.2.1(i) is about failure to employ
competent or additional staff or labour. Analysis of sequence of
events indicates that till 2.08.2013 (date of first notice) or
subsequently also, the delays were beyond the control of the
Claimant and as such it cannot be construed that it is due to
Contractor's Default. Additional workers were deployed in the
key categories of carpenters and fitters according to data
provided by the Respondent. Thus, finding of the Tribunal is
that delays are not due to Claimants default. Considering
above findings, the Tribunal has come to the conclusion that
under fact and circumstances of the case, termination of the
Contract and forfeiture of the performance security by the
Respondent is not tenable under the Contract Agreement.”

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41. Upon perusal of the abovesaid paras pertaining to the award of Claim
no. 1, it is crystal clear that the learned Tribunal has held that the delay in
completion of the project is attributable to the respondent. It has further
categorically held that as per notice dated 2nd August 2013, under clause
13.2 of the GCC regarding failure to meet contractor’s obligations as per the
contract has been given wrongly. Since as per the material on record the
tribunal held that the delays were beyond the control of the petitioner and the
same cannot be construed as its fault.
42. Furthermore, the Tribunal highlighted the fact that there were surplus
workers deployed in the key categories of Carpenter and fitters as per the
data provided by the respondent. Therefore, the Tribunal held that the
termination of the contract and forfeiture of performance security by the
respondent is not in accordance with the contract.
43. This Court is of the opinion that the clauses which restricts the right
of the party in claiming damages is a restrictive clause. Such a clause will
defeat the purpose of the Indian Contract Act, 1872. Under section 55 and 73
of the said Act, the aggrieved party is entitled to claim damages, and there
cannot be any restriction or prohibition exercised by the other party. It is the
right of the aggrieved party to claim such damages.
44. Under section 23 of the Indian Contract Act, 1872, states that such
clause is opposed to public policy since it aims at restraining the aggrieved
party from claiming its rightful dues.
45. Such kind of clauses are also not in public interest since they hinder
the smooth operation of the commercial transaction. Furthermore, they

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create an environment which is not conducive for the purpose of business

transactions. Moreover, the said clauses cannot restrain the Tribunal from
awarding damages, which are otherwise payable by the employer on account
of its breach of contract
46. This Court will now discuss the various judgments passed by the
Courts regarding whether the Tribunal can award damages for delay on the
part of the employer in completion of the project when the Contract
executed between the parties does not provide for any monetary damages to
the contractor and entitles the Contractor merely for extension of time.
47. The Hon’ble Supreme Court held in the judgment of Asian Techs Ltd.
v. Union of India, (2009) 10 SCC 354 as follows:

“12. The High Court by the impugned order allowed the appeal
and revision making the following observations:
“We, therefore, hold that the award passed by the arbitrator in
respect of Claims 1 to 3, 5, 9, 17, 19, 21, 23, 24, 26, 30, 33, 35,
37, 38, 40, 41, 44 and 46 is against the conditions agreed to by
the contracting parties and in conscious disregard of the terms
of the contract and also the arbitration clause from which the
arbitrator derives his authority. We are, however, not
interfering with the award in respect of Claim 12 alone, which
in our view is binding on the appellants. We hold that
Arbitration Clause 70 was a conditional one giving finality to
the decisions of CWE as per the various provisions, Clauses
62(G) and 11(C) of the contract. The award of the arbitrator
and the orders of the court below in arbitration, OPs Nos. 4
and 18 of 1994 to the extent to which they are covered by
Clauses 62(G) and 11(C) except Claim 12 are set aside and the
arbitration, OP No. 18 of 1994 filed by the Union of India is
allowed as above. The appeal and the revision are allowed as

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above. In the facts and circumstances of this case, we are not

awarding costs.”
It can be seen that the High Court has set aside the arbitrator's
award holding that under the finality clause under Clauses
11(C) and 62(G), the decision of the Commander Works
Engineer (CWE) is final and binding and has been exempted
from the purview of the arbitration clause, which is Clause 70
of the contract. Thus the High Court held that the arbitrator
travelled beyond the terms of reference.
13. In this connection we may refer to Clause 70 of the contract
which is the arbitration clause. The said clause reads as
follows:
“70. Arbitration.—All disputes, between the parties to the
contract (other than those for which the decision of CWE or
any other person is by the contract expressed to be final and
binding) shall, after written notice by either party to the
contract to the other of them, be referred to the sole arbitration
of an Engineer Officer to be appointed by the authority
mentioned in the tender documents.”
14. Clause 11 of the contract reads as follows:
“11. Time, delay and extension.—(A) Time is of the essence of
the contract and is specified in contract documents or in each
individual works order.
As soon as possible after the contract is let or any substantial
works order is placed and before work under it has begun, the
GE and the contractor shall agree upon a time progress chart.
The chart shall be prepared in direct relation to the time stated
in the contract documents or the works order for completion of
the individual items thereof, and/or the contract or works order
as a whole.
(B) If the works be delayed:
(a) by reason of non-availability of government stores
mentioned in Schedule 13; or
(b) by reason of non-availability or breakdown of government
tools and plant mentioned in Schedule C then, in any such

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event, notwithstanding the provisions hereinbefore contained,

the GE may in his discretion, grant such extension of time as
may appear reasonable to him and the contractor shall be
bound to complete the works within such extended time. In the
event of the contractor not agreeing to the extension granted by
the Garrison Engineer, the matter shall be referred to the
accepting officer (or CWE in case of contract accepted by the
Garrison Engineer) whose decision shall be final and binding.
(C) No claim in respect of compensation or otherwise,
howsoever arising, as a result of extensions granted under
Conditions (A) and (B) above shall be admitted.”
15. Clause 62(G) of the contract states as under:
“(G) For all contracts—
If any work, the rate for which cannot be obtained by any of the
methods referred to in Paras (A) to (E) above, has been
ordered on the contractor, the rate shall be decided by the GE
on the basis of the cost to the contractor at site of works plus
10% to cover all overheads and profit. Provided that if the
contractor is not satisfied with the decision of the GE he shall
be entitled to represent the matter to the CWE within seven
days of receipt of the GE's decision and the decision of the
CWE thereon shall be final and binding.
If any alterations or additions (other than those authorised to
be executed by day work or for an agreed sum) have been
covered up by the contractor without his having given notice of
his intention to do so, the Engineerin-charge shall be entitled to
appraise the value thereof and in the event of any dispute the
decision of the GE thereon shall be final and binding.”
xxx
19. It is well settled that in the case of non-speaking awards
under the Arbitration Act, 1940 the court has very little scope
of interference vide State of Rajasthan v. Nav Bharat
Construction Co. [(2006) 1 SCC 86] , Raipur Development
Authority v. Chokhamal Contractors [(1989) 2 SCC 721]
, Arosan Enterprises Ltd. v. Union of India [(1999) 9 SCC 449]

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, Ispat Engg. & Foundry Works v. SAIL [(2001) 6 SCC 347]

and D.D. Sharma v. Union of India [(2004) 5 SCC 325] .
xxx
21. Apart from the above, it has been held by this Court in Port
of Calcutta v. Engineers-De-Space-Age [(1996) 1 SCC 516]
that a clause like Clause 11 only prohibits the Department from
entertaining the claim, but it did not prohibit
the arbitrator from entertaining it. This view has been followed
by another Bench of this Court in Bharat Drilling & Treatment
(P) Ltd. v. State of Jharkhand [(2009) 16 SCC 705] .”

48. This Court has extensively dealt with the position of law in the
judgment of Simplex Concrete Piles (India) Ltd. v. Union of India, 2010
SCC OnLine Del 821 as follows:

“10. In deciding this issue of the disentitlement to damages to

the contractor (because of Ramnath International's case) or the
entitlement to damages (on account of Asian Techs Limited's
case), however, I would prefer to decide this case and base this
judgment wholly, independently on my view that clauses which
bar and disentitle a contractor to claim its just
claims/damages/monetary entitlement, and which a contractor
is entitled to by virtue of provisions of Sections 73 and 55 of the
Contract Act, are void by virtue of Section 23 of the Contract
Act, 1872. I am also taking up this aspect of Section 23 first
because the present discussion will help in deciding whether
correct law is laid down in Ramnath International's case or in
Asian Techs Limited's case. It is therefore necessary, at this
stage, to reproduce Section 23 of the Contract Act. The same
reads as under:

“23. What considerations and objects are lawful, and what

not.— The consideration or object of an agreement is lawful,
unless —

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it is forbidden by law 1; or

is of such a nature that, if permitted, it would defeat the

provisions of any law; or

is fraudulent; or

involves or implies injury to the person or property of another;

or the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an

agreement is said to be unlawful. Every agreement of which the
object or consideration is unlawful, is void.”

A reading of the aforesaid provision of Section 23 shows that

where the consideration or object of an agreement is unlawful,
the said agreement is void. The consideration or object of an
agreement is unlawful if it is forbidden by law or it is of such a
nature that if permitted it defeats the provisions of law or the
same involves injury to the person or property of another or the
Court regards it as immoral or opposed to public policy. Two
parts of this Section are relevant for determining the issue in
the present case. The first part being that a clause in an
agreement is unlawful and void when the same is opposed to
public policy. The second part is that such a contractual clause
is void if allowing operation of such clause will defeat the
provisions of law.

11. The expression “public policy” has been a subject matter of

various decisions of the Supreme Court. It has been held that
the expression “public policy” has to be interpreted in the
context of the statute in which such expression appears. The
expression “public policy” as per the requirement and the
context of the statute in which the expression is found, has been

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accordingly interpreted by the Supreme Court. What is

therefore the meaning which should be attributed to this
expression as found in Section 23 is the question. Instead of
referring to various judgments, I would seek to refer to the
observations and the ratio of the Supreme Court in one of its
recent judgments reported as Indian Financial Association of
Seventh Day Adventists v. M.A. Unneerikutty, (2006) 6 SCC
351 on the meaning of this expression in Section 23. I refer to
this judgment because in a few paragraphs the Supreme Court
has encapsulated the law with regard to the expression „public
policy‟ and in the process has also referred to its earlier
decisions on the point as also the relevant commentaries of
certain authors. Paras 16 to 19 of the said judgment lays down
the ratio with regard to the meaning of the expression “public
policy”, and which I with all humility adopt, for the purpose of
the decision in the present case. These paragraphs 16 to 19
read as under:

16. Section 23 of the Contract Act lays down that the object of
an agreement becomes unlawful if it was of such a nature that,
if permitted, it would defeat the provisions of any law.

17. The term “public policy” has an entirely different and more
extensive meaning from the policy of the law. Winfield defined
it as a principle of judicial legislation or interpretation founded
on the current needs of the community. It does not remain static
in any given community and varies from generation to
generation. Judges, as trusted interpreters of the law, have to
interpret it. While doing so, precedents will also guide them to
a substantial extent.

18. The following passage from Maxwell, Interpretation of

Statutes, may also be quoted to advantage here:

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“Everyone has a right to waive and to agree to waive the

advantage of a law or rule made solely for the benefit and
protection of the individual in his private capacity which may
be dispensed with without infringing any public right or public
policy. Where there is no express prohibition against
contracting out of it, it is necessary to consider whether the Act
is one which is intended to deal with private rights only or
whether it is an Act which is intended as a matter of public
policy.”

19. The doctrine of public policy may be summarised thus 11:

“Public policy or the policy of the law is an illusive concept; it

has been described as „untrustworthy guide‟, „variable quality‟,
„uncertain one‟, „unruly horse‟, etc.; the primary duty of a
court of law is to enforce a promise which the parties have
made and to uphold the sanctity of contracts which form the
basis of society, but in certain cases, the court may relieve them
of their duty on a rule founded on what is called the public
policy; but the doctrine is extended not only to harmful cases
but also to harmful tendencies; this doctrine of public policy is
only a branch of common law, and just like any other branch of
common law, it is governed by precedents; the principles have
been crystallised under different heads and though it is
permissible for the courts to expound and apply them to
different situations, it should only be invoked in clear and
incontestable cases of harm to the public.”

(Underlining supplied)

12. The following principles can be culled out from the

aforesaid paragraphs:

(i) Public policy is a changing concept, it is not static but

dynamic; it changes from time to time and the Courts have been

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empowered while interpreting this doctrine to resort to, judicial

legislation euphemistically called „interpretation‟, to further the
public interest, equity, good conscience and justice.

(ii) A law which is made for individual benefit can be waived by

an individual/private person, however, when such law includes
a public interest/public policy element, such rights arising from
the law cannot be waived because the same becomes a matter
of public policy/public interest.

14. A Division Bench of this court has also recently considered

the legal position under Section 23 of the Contract Act in the
judgment reported as Ircon International Ltd. v. NBCC, 155
(2008) DLT 226. The relevant paragraphs of this judgment are
paras 15, 20, 21, 27 and 28:

15. The learned Counsel for the appellant has also relied upon
(2006) 2 SCC 628 : AIR 2006 SC 963, (2006) 6 SCC 315 : AIR
1965 Pat. 239 : AIR 1996 All. 72 and AIR (37) 1950 Lah. 174
wherein the part of the arbitration agreement, “which makes
the arbitrator's determination „final‟ and binding between the
parties” and declares that the parties have waived the right of
an appeal or objection „in any jurisdiction‟, has been held to be
hit by Section 28 of the Contract Act and also being against
public policy.

20. After considering the judgments relied upon by the

appellant and discussed by us above, we are of the opinion that
a person may waive his rights. Such waiver of rights is
permissible even in relation to a benefit conferred under the
law. But it is trite that no right can be waived where public
policy or public interest is involved. The contract between the
parties must be in obedience to law and not in derogation
thereof. Contracting out is permissible provided it does not deal
with a matter of public policy. An agreement under no

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circumstances can violate the public policy [Centrotrade

Minerals and Metal Inc. v. Hindustan Copper Ltd., (2006) 11
SCC 245].

21. Section 28 of the Contract Act which provides for

agreements in restraint of legal proceedings as void, the parties
cannot by a contract seek to exclude the application of a
statutory provision as it is not valid Mukul Dutta Gupta v.
Indian Airlines Corpn., AIR 1962 Cal. 1311. The most obvious
and direct form of contracting out of a statute is where a party
agrees not to make a claim for a benefit for which a statute
provides. But it may take many other forms, varying with the
nature, subject matter and the object or purpose of the statute,
and the means selected to escape from its provisions or its
operations. Express statutory prohibitions against contracting
out renders void an agreement or clause that is inconsistent
with it. But when there is no express prohibition in the statute,
an agreement; the operation of which defeats or circumvents
the purpose or policy of the statute, would also be barred.

27. The object of the rule is, that no party/person should be left
remedy less. Necessary corollary to this would be that, if no
adequate remedy is provided for by a special statute through
the Forum established under it for a particular
purpose/situation, civil Courts remedy to administer justice
cannot be said to be ousted to deal with even such cases.

28. So far as the part in the arbitration, clause in the said

agreement regarding the non-applicability of the Act of 1996 is
concerned, we consider that it is void and the parties cannot by
themselves exclude the statute itself which is being drafted by
the Legislature to look after the arbitration matters.
(underlining is mine)

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15. The issue therefore boils down to whether rights which are
created by Section 73 and 55 of the Contract Act can or cannot
be contractually waived. If there is a public policy or public
interest element in these Sections, then the rights under these
sections cannot be waived. Let us examine the matter. If we
look at that portion of the Contract Act, 1872 till Section 73 it
broadly comprises of three parts. The first part is the formation
and the requirements for the formation of a legal
agreement/contract. The second part deals with the
performance thereof. The third part deals with the effect of
breach of the contract.

Provisions pertaining to the effect of breach of contract, two of

which provisions are Sections 73 and 55, in my opinion, are the
very heart, foundation and the basis for existence of the
Contract Act. This is because a contract which can be broken at
will, will destroy the very edifice of the Contract Act. After all,
why enter into a contract in the first place when such contracts
can be broken by breaches of the other party without any
consequential effect upon the guilty party? It therefore is a
matter of public policy that the sanctity of the contracts and the
bindingness thereof should be given precedence over the
entitlement to breach the same by virtue of contractual clauses
with no remedy to the aggrieved party. Contracts are entered
into because they are sacrosanct. If Sections 73 and 55 are not
allowed to prevail, then, in my opinion, parties would in fact
not even enter into contracts because commercial contracts are
entered into for the purpose of profits and benefits and which
elements will be non-existent if deliberate breaches without any
consequences on the guilty party are permitted. If there has to
be no benefit and commercial gain out of a contract, because,
the same can be broken at will without any consequences on the
guilty party, the entire sub-stratum of contractual relations will
stand imploded and exploded. It is inconceivable that in
contracts performance is at the will of a person without any

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threat or fear of any consequences of a breach of contract.

Putting it differently, the entire commercial world will be in
complete turmoil if the effect of Sections 55 and 73 of the
Contract Act are taken away.

In view of the observations of the Supreme Court in the case of

India Financial (supra) and the Division Bench of this court in
Ircon International (supra) and again of the Supreme Court in
the case of M.G. Brothers, the expressions “public policy” and
“if permitted will defeat the provisions of law” in Section 23
have to be interpreted to further the object of the Contract Act
and not defeat the same. That being so, it is clearly a matter
public policy and public interest that the sanctity of the
contracts are preserved. To permit a contractual clause having
the object to defeat the very contract itself, is a matter of grave
public interest. If such a Clause is allowed to stand, then, the
same will defeat the very basis of existence of the Contract Act.
Having thus expounded at some length I thus need not say any
further on the intendment of the Contract Act and the public
interest/public policy behind Sections 55 and 73 thereof.

16. Provisions of the contract which will set at naught the

legislative intendment of the Contract Act, I would hold the
same to be void being against public interest and public policy.
Such clauses are also void because it would defeat the
provisions of law which is surely not in public interest to ensure
smooth operation of commercial relations. I therefore hold that
the contractual clauses such as Clauses 11A to 11C, on their
interpretation to disentitle the aggrieved party to the benefits of
Sections 55 and 73, would be void being violative of Section 23
of the Contract Act. The interpretation given by the Supreme
Court in the Ram Nath International case is a literal and strict
interpretation of clauses whereby the expression “reason
beyond the control of the contractor” has been so strictly and
literally interpreted to include even those cases which are on

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account of the defaults of the employer itself and but for the
said judgment I would have preferred to interpret the clauses in
the manner which the Arbitrator has done and not strike them
down by applying Section 23 of the Contract Act. I have also
reproduced above the reasoning given in the Award which in
my opinion, would otherwise have been enough to dispose of
this case, however, the said findings in the award being totally
against a direct opposite interpretation given to such clauses by
the Supreme Court, would therefore have to give way.

17. I may finally note that the Supreme Court in its recent
judgment reported as G. Ramachandra Reddy v. UOI, (2009) 6
SCC 414 has, though without referring to Section 23 of the
Contract Act, held that a clause in a contract cannot prevent
the award of damages although the same are otherwise payable
in law.

18. The issue which now remains to be addressed however is

does Ram Nath International's judgment hold the field or the
judgment in Asian Techs Ltd applies? This indeed is a vexed
question and ordinarily, as already stated, I would not have
ventured to enter into this area of controversy but, since, the
learned senior counsel for the petitioner has very strongly
pressed for decision on this aspect also, I am accordingly
adverting to this aspect. Before doing so, I may note that both
the judgments of Asian Techs Ltd. and Ram Nath International
are of benches of two Judges. Further, the decision in Asian
Techs case does not refer to the judgment of Ram Nath
International case although identical clauses have also been
dealt with in the Asian Techs case. In terms of the various Full
Bench judgments of different High Courts and the Division
Bench judgment of this Court, I have the onerous obligation, as
the learned senior counsel for the petitioner put, to decide that
which of the two judgments should operate. One way in my
opinion, would be that the effect of the two cases and the ratio

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of the two cases can be said to be distinguishable because the

judgment in the Ram Nath International case, does not deal
with the position that Arbitrators right to award such damages
is unfettered and a contractual clauses which debars payment
of damages only prevents the department from doing so. That
however, would be an over simplification, because, both the
judgments squarely deal with the issue of an arbitration Award
entitling or disentitling a contractor for damages.

19. In my opinion, if I look at the issue from both the micro and
macro positions, keeping in focus the intendment of legislation
called the Contract Act, then, the judgment in the case of Asian
Techs Ltd. can be said to laying down a law which would
further the object and purpose of the Contract Act. I must
hasten to add that I am still doubtful whether I am entitled to
decide the aspect that out of two decisions of Supreme Court,
which one is to prevail, therefore, my observations are strictly
in terms of the limited parameters of the facts of the present
case required to decide the aspect of the entitlement or the
disentitlement to damages in view of the provisions of Section
55 and 73 of the Contract Act. I would with all due respect to
the learned senior counsel for the petitioner, would not venture
further and would leave it finally for a larger Bench of this
court or the Supreme Court itself to consider whether at all
there is any conflict between the judgments of Ram Nath
International and Asian Techs Ltd and if there is a conflict, the
ratio of which of the two judgments ought to prevail. I am
therefore, deciding this case, to make things very clear, only on
the basis of the decision that contractual clauses which prohibit
the entitlement to rightful damages of a person is clearly hit
and are void by virtue of Section 23 of the Contract Act.

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49. This court has extensively dealt with the aforesaid principal of law in
the judgment of Ircon International Ltd. v. GPT-Rahee JV, 2022 SCC
OnLine Del 839 as follows:
“32. The contention that the Arbitral Tribunal has failed to
appreciate that only a small fraction of the total admitted
amount was payable by Ircon at the material time, is
unpersuasive.
33. It is clear that Arbitral Tribunal had examined various
facets of the disputes and has taken an informed decision. The
scope of interference on the ground of patent illegality under
Section 34(2A) of the A&C Act does not extend to re-
appreciating the material before the Arbitral Tribunal and re-
adjudicating the disputes.
34. The contention that the impugned award is vitiated by
patent illegality as it is based on no evidence is also unmerited.
It is necessary to bear in mind that the Indian Evidence Act,
1872 and the strict rules of evidence are inapplicable to
arbitral proceedings. The Arbitral Tribunal is required to
render a decision after evaluating the material placed before it.
XXX
39. The Arbitral Tribunal accepted that there was certain delay
on the part of the respondent as well. However, the Arbitral
Tribunal concluded that the delays on the part of Ircon were in
respect of “critical aspects" and the said delays were dominant
in prolongation of the works. The conclusion of the Arbitral
Tribunal in this regard is set out below:
"10.160. The Respondent has committed fundamental breaches
in not providing site for construction of workshop etc. in time.
Further there has been abnormal delay I providing good GFC
for construction drawings. Delay was also caused because of
change in drawings from time to time. Like-wise, absence of
incorporation of strengthening provisions in the drawings too
caused the delay. The timeless, as specified in the contract,
were not adhered to. There were some other delays caused by

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the Respondent. It is also recorded that there were initial delays

on the part of the Claimant as well as insofar as preparatory
work is concerned as the signing of the contract itself was
delayed due to non-submission of Performance Security, Bank
Guarantee for mobilization advance, etc. An overall picture
which emerges is that for significant part of the contract, there
is contributory/concurrent delay on the part of Claimant as well
which happened parallel during the project. However, certain
delays occurred solely because of the non-fulfilment of
obligations by the Respondent.”
40. The Arbitral Tribunal is of the view that given that the
parties had contributed to certain delays, it was essential to
apply the principle of apportionment. After evaluating the
reasons for the delay, the Arbitral Tribunal concluded that half
of the delay could be apportioned to both Ircon and the
respondent. However, for the remaining half, Ircon was solely
responsible for the same. Therefore, only half of the claim made
by the respondent on account of idling costs was allowed by the
Arbitral Tribunal. The relevant paragraph of the impugned
award embodying the said conclusion is set out below:
"10.171 Keeping in view all the aforesaid considerations, I am
of the view that the Claimant would be entitled to the losses
suffered by it because of certain fundamental delays on the part
of the Respondent, but at the same time, the claim preferred by
the Claimant to be reduced by applying the principle of
apportionment because of the reason that to some extent, delays
are caused due to the factors attributable to the Claimant itself.
After considering the overall circumstances, the period of delay
solely attributable to the Respondent is reduced to half, as for
the other period, the Claimant is also liable and therefore,
cannot take advantage. The Claims for compensation on the
ground of delay are adjudicated on this yardstick.”

50. This court will now refer to the judgments wherein the same clauses
of the GCC of the respondent has been considered by the tribunal and given

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finding that apart from Extension of time the contractor can also claim
damages due to the delay on the part of the employer.
51. The Coordinate Bench of this court in the judgment of Ircon
International Ltd. v. DMRC, 2023 SCC OnLine Del 6368 held as
follows:

“15. Contractor's entire challenge to the impugned Award is

premised on the ground of „patent illegality‟ which has been
explained in plethora of decisions lastly being Delhi Airport
Metro Express (P) Ltd. v. DMRC1, wherein it was stated that:—
“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 categorised 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 reappreciate
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
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

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which are not supplied to the other party is a facet of perversity

falling within the expression “patent illegality”.”
16. Through Claim No. 2, Contractor had claimed extra cost
incurred due to prolongation of the project. As noted above, the
Contract was delayed by 18 months for which, Contractor had
sought four EOTs by way of four letters namely 17.02.2017,
12.10.2017, 26.12.2017 and 23.08.2018, which were granted by
the DMRC.
17. Pertinently, DMRC granted EOT on all the four occasions
without imposing any liquidated damages. Indisputably, the
Contractor reserved its right to seek compensation only at the
time of seeking third EOT vide its letter dated 26.12.2017, and
in the earlier requests it did not claim any monetary
compensation due to the extensions.
18. AT declined to compensate the Contractor for the
remaining 12-month period holding that the Contractor had
accepted EOT granted by DMRC without compensation and no
right to claim the same was reserved by the Contractor, unlike
the third EOT sought for the period 01.01.2018 to 30.06.2018.
According to the Contractor, the AT committed a judicial error
amounting to patent illegality in denying compensation on the
ground that the Contractor had forgone its right to claim
compensation for the extension sought on the other three
occasions.
19. Contractor has referred to judgments in K.N.
Sathyapalan v. State of Kerala2, Asian Techs Ltd. v. Union of
India3, Bharat Drilling v. State of Jharkhand4 and Simplex
Concrete Piles (India) Pvt. Ltd. v. Union of India5 to contend
that even though Clause 4.4 of the Contract and Clauses 2.2
and 8.3 of GCC prohibit the payment of monetary
compensation in the cases of EOT however, the Contractor
could still claim compensation under Section 73 of the Contract
Act, in the event of breach of contract-which the DMRC did by
not handing over the sites to the Contractor by the promised
time.

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20. According to this Court, the Contractor is not required to

go as far as to invoke Section 73 of the Contract Act and the
aforesaid judgments to assail the award, since the AT has
rather recognised the Contractor's right to claim compensation
regardless of prohibitive nature of Clause 4.4 of the Contract
and Clauses 2.2 and 8.3 of GCC by referring to the judgment
in Simplex Concrete Piles (Supra). AT's reluctance to award
compensation stems from the Contractor's own waiver of the
right to claim compensation, that happened in the first, second
and fourth EOT sought by the Contractor, as opined by the AT.
AT read the four extension letters sent by the Contractor and
interpreted them to conclude that it was only the third one
dated 26.12.2017, where the right to claim compensation was
reserved. Therefore, according to the AT, out of 18 months of
extension, only 6 months were eligible for compensation. The
AT does return a finding of fact and interpretation of the
contract clauses, in favour of the Contractor, to conclude that
DMRC was responsible for delaying the progressive handing
over of the sites to the Contractor.
21. The interpretation of the extension letters by AT, is very
well within its judicial prerogative. It will be judicially
inappropriate for this court sitting in this jurisdiction, to re-
examine the evidence and re-interpret the same as per its own
understanding. The interpretation adopted by the AT of the
evidence is a plausible view and certainly not the kind that will
call for any interference from this court.”

52. Furthermore in the judgment of Delhi Metro Rail Corporation Ltd. v.

J. Kumar-Crtg JV 2022 SCC OnLine Del 1210 held as foloows:

“30. The next question to be examined is whether the Arbitral

Tribunal's decision to award sum of Rs. 7,68,46,375/- as
compensation on account of idling/under-utilization of
resources deployed at Ashram station during the initial period
of twenty-nine months due to delay in finalizing the revised

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layout of the station and the delay in handing over of the land,
is patently illegal.
31. The Arbitral Tribunal evaluated the evidence led by the
parties and found that there was an inordinate delay on the part
of DMRC in handing over the land at Ashram Station. The said
land was required to be handed over by August, 2012. The
works were to commence on 16.07.2012 and the stipulated
period for completion of the Contract was agreed at three years
six months. Admittedly, there was a delay of more than twenty-
eight months in handing over the site. Further, the length of the
station was also reduced. The delay was largely for various
reasons including certain litigation in respect of “Marble
House” area. Admittedly, the Architectural Designs Drawings
had to be revised to restrict the length of the station within the
available area and to add another floor for creating additional
space. DMRC opposed the claim by referring to the contractual
provisions. It relied on Clause 2.2 of GCC and Clause 8.3 of
GCC, which are set out below:
“2.2. The Employer shall grant the Contractor right of access
to, and/or possession of, the Site progressively for the
completion of Works. Such right and possession may not be
exclusive to the Contractor. The Contractor will draw/modify
the schedule for completion of Works according to progressive
possession/light of such sites.
If the Contractor suffers delay from failure on the part of the
Employer to grant right of access to, or possession of the Site,
the Contractor shall give notice to the Engineer in a period of
28 days of such occurrence. After receipt of such notice the
Engineer shall proceed to determine any extension of time to
which the Contractor is entitled and shall notify the Contractor
accordingly.
For any such delay in handing over of site, Contractors will be
entitled to only reasonable extension of time and no monetary
claims whatsoever shall be paid.
*** *** *** ***

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8.3. In case of delay on the part of the Contractor, the

Contractor shall be liable to pay liquidated damages and any
other compensation for the damages suffered by the Employer
as per clause 8.5. This is without prejudice to the right of the
Employer to rescind the Contract.
Failure or delay by the Employer or the Engineer, to hand over
to the Contractor the Site necessary for execution of Works or
any part of the Works, or to give necessary notice to commence
the Works For to provide necessary Drawings or instructions
or classifications or to supply any material, plant or machinery,
which under the Contract the responsibility of the Employer,
shall in no way affect or vitiate the Contract or alter the
character thereof; or entitle the Contractor to damages or
compensation thereof but in any such casa, the Engineer shall
extent the time period for the completion of the Contract, as in
his opinion is/are reasonable.”
32. The Arbitral Tribunal examined the said clauses and found
that the same were violative of Section 23 of the Contract Act.
The Arbitral Tribunal had also relied upon the following
passage from the decision dated 23.02.2010 of this Court
in Simplex Concrete Piles v. Union of India, (2010) 115 DRJ
616:
“Provisions of the contract which will set at naught the
legislative intendment of the Contract Act, I would hold the
same to be void being against public• interest and public policy.
Such clauses are also void because it would defeat the
provisions of law which is surely not in public interest to ensure
Smooth operation of commercial relations. I therefore hold that
the contractual clauses such as Clauses 11A to 11C, on their
interpretation to disentitle the aggrieved party to the benefits of
Sections 55 and 73, would be void being violative of Section 23
of the Contract Act.”
33. The Arbitral Tribunal found that DMRC was in breach of
its obligation. It had the option to order suspension of work as
per the Contract clause at Ashram Station, however, it had

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failed to do so. In the circumstances, DMRC was required to

compensate CRTG for its breaches. In the circumstances, the
Arbitral Tribunal held that Clauses 2.2 and 8.3 of GCC would
not absolve DMRC of its liability to pay compensation.
34. The Arbitral Tribunal has jurisdiction to decide the
question of fact as well as of law. Clearly, the decision of the
Arbitral Tribunal that by virtue of Section 23 of the Contract
Act, Clauses 2.2 and 8.3 of GCC which proscribe CRTG from
claiming compensation due under Sections 55 and 73 of the
Contract Act are unenforceable, is a plausible view [See
: Simplex Concrete Piles v. Union of India (Supra)].
35. In view of the above, DMRC's petition is unmerited and is
liable to be dismissed.”

53. In view of the aforesaid judgement, it is settled law that the learned
Arbitral Tribunal can award damages when the clause of the contract
contemplates that only extension of time can be given as remedy when there
is a delay on the part of the employer. Hence, the act of awarding the
damages to the aggrieved party does not amount to transgression from the
terms of the contract.
54. Furthermore, as per Section 23 of the Indian Contract Act when there
is a Contract which contains clauses that are against the public policy then
such consideration or object of an agreement is considered unlawful and
void.
55. In the instant facts, the impugned award merits interference since the
award has shocked the conscience of the court due to the fact that despite
holding that there is a delay on the part of the respondent and there has been
wrongful termination of the contract by the respondent. The learned Tribunal

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has not awarded any damages to the petitioner. Learned Arbitral Tribunal
has wrongly not awarded any damages to the petitioner.
56. The learned Tribunal failed to appreciate the fact that such a clause
which restricts the right of the party to claim damages is a prohibitionary
clause and is wrongly disentitles the aggrieved party to claim damages. Such
clause is against the public policy since it is contrary to the fundamental
policy of Indian law.
57. The learned Tribunal has failed to appreciate the issue at hand that the
contract has already been terminated and the petitioner could not take
recourse to Extension of time. Hence, the situation is unprecedented for and
no clause in the contract which deals with the situation wherein the contract
is terminated at the end of the respondent due to the default on its part.
Therefore, in such a situation, the arbitrator has to travel beyond the terms of
the contract since there is no provision dealing with the same in the contract.
58. It has wrongly relied upon the Clause 2.2 and Clause 8.3 of GCC to
hold that despite the delay on the part of the respondent, the petitioner is
entitled to extension of time. Since, the petitioner’s contract is terminated
and there is no extension of time which the petitioner could have availed of.
59. In such a situation, this court is of the opinion that the party aggrieved
must be compensated in terms of unliquidated damages. Unliquidated
damages are awarded to restore the aggrieved party to the same position as
deems reasonable, which it would have been in if there was no breach of
contract. It has been held by the various courts in a catena of judgements,

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that when there is a breach of contract, the party which has been the contract
is liable to pay damages to the party aggrieved.
60. This Court is of the opinion that, the learned Tribunal has erred in not
awarding the damages to the petitioner despite holding that the delay is
attributable to the respondent. Hence, rendering the petitioner remediless.
61. The learned Tribunal should have taken looked into the situation at
hand, there is no extension of time which could have been granted to the
petitioner since the contract had terminated. Moreover, the petitioner never
committed any such delay in execution of the contract as held by the
Tribunal itself.
62. In the instant petition, the petitioner has placed on record various
damages suffered by him due to the delay caused by the respondent in
execution of the contract. Such as the delay in handing over of hindrance
free site, delay in delay in issuing goods for construction drawings, delay in
providing decisions and instructions, act or omissions of other contractor on
whose performance, the performance of the petitioner was dependent, etc.
63. In light of the aforesaid findings, this Court is of the view that
rejection of Claim No. 3 in the Impugned Award by relying upon Clause 8.3
is erroneous as the said clause pertains to power of engineer and the nature
of claim that can be made before the engineer. Thus, the same cannot be
interpreted to exclude Arbitrator from its ambit from granting an award of
damages or compensating the petitioner for breach of contract as
contemplated by Section 73 of Indian Contract Act.

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64. The Hon’ble Supreme Court in Asian (Supra) and this Court in
Simplex Concrete (Supra) has cogently enumerated that keeping the
sanctity of contracts and its bindingness is a matter of public policy and the
same must be given precedence over the entitlement to breach of the said
contract vide clauses rendering no remedy of damages to the aggrieved
party.
65. Thus, the rejection of Claim No. 3 in Impugned Award is liable to be
set aside and the petitioner is entitled for damages due to inaction and delays
by the respondent.
Claim no. 4- Loss of profit
66. With respect to Claim No. 4, which underscores the loss of profit to
the tune of 20% of total contract value of Rs. 41,57,15,242/- less than work
done of Rs. 7,47,06,820/-, the Arbitral Tribunal’s analysis is reproduced
hereinunder-

“9.3.3 i) Issues related to the delay in start and execution have

been analysed and discussed in detail in the case of Claim 1.
ii) Clause 8.3 of the GCC is very specific which says that in
case of failure or delay by the Employer in handing over the
site or to provide necessary drawings, which under the
Contract is the responsibility of the Employer, in no way entitle
the Contractor to damages or compensation thereof. The
relevant extract of Clause 8.3 is already reproduced in para
8.3.3 supra.
iii) As brought out in para 6.3.4.2 supra the Tribunal is guided
by the Subsection (3) of Section 28 of the Arbitration and
Conciliation Act, 1996 as

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amended by Arbitration and Conciliation (Amendment) Act,

2015, which
provides as under:
"(3) While deciding and making an award, the arbitral tribunal
shall, In all cases, take into account the terms of the contact
and trade usages applicable to the transactions".
iv) In view of position brought out above, and provision of GCC
Clause 8.3, the claim for loss of profit preferred by the
Claimant is not tenable.
9.3.4 Decision of the Tribunal: As discussed in para 9.3.3, the
Claim 4 for loss of profit on unexecuted portion of the work is
rejected by the Tribunal.”

67. The learned Tribunal has relied upon the Clause 8.3 of GCC and
accordingly held that any delay on account of the respondent shall entitle the
Contractor to a remedy of extension of time which the Engineer deems
reasonable. Moreover, the Contract does not provide any compensation to
the petitioner by way of damages.
68. Therefore, the learned Tribunal acting in accordance with the terms
and conditions of the Contract cannot award damages despite there being a
delay on part of the petitioner.
69. The Hon’ble Supreme Court in the judgment of Unibros v. All India
Radio 2023 SCC OnLine SC 1366, enunciated the scope of claiming loss of
profit in an arbitral proceedings. The relevant portion of the said judgment is
reproduced herein below:
“8. The appeal is directed towards dismissal of the appellant's
claim for compensation relating to loss of profits (Claim No. 12). It
is undeniably established that the appellant's claim for loss of profit
stems from the delay attributed to the respondent in completing the

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project. It is further evident that the loss of profit sought in the

present case is primarily based on the grounds that the appellant,
having been retained longer than the period stipulated in the
contract and its resources being blocked for execution of the work
relatable to the contract in question, it could have taken up any
other work order and earned profit elsewhere.
9. The contentions advanced on behalf of the appellant tasks us to
resolve a recurring issue which, while not unprecedented, has
consistently confronted the courts leading it to navigate various
circumstances under which a claim for loss of profit may be
allowed in cases of delay simpliciter in the execution of a contract.
10. However, the contentions so raised, need not detain us for too
long. Quite apart from the appeal raising the question as to whether
a claim on account of loss of profit is liable to succeed merely on
the ground that there has been delay in the execution of the
construction contract, attributable to the employer, the question
that first needs to be answered on facts and in the circumstances is
whether the Second Award is in conflict with the public policy of
India (as held by the learned Single Judge, since affirmed by the
Division Bench).
11. What would constitute “public policy of India” has been lucidly
explained by this Court in ONGC Ltd. v. Saw Pipes Ltd.6:
“31…, the phrase „public policy of India‟ used in Section 34 in
context is required to be given a wider meaning. It can be stated
that the concept of public policy connotes some matter which
concerns public good and the public interest. What is for public
good or in public interest or what would be injurious or harmful to
the public good or public interest has varied from time to time.
However, the award which is, on the face of it, patently in violation
of statutory provisions cannot be said to be in public interest. Such
award/judgment/decision is likely to adversely affect the
administration of justice.”

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12. Subsequent decisions of this Court have interpreted “public

policy of India” to include, among others, compliance with
fundamental policy of Indian law, statutes and judicial precedents,
need for judicial approach, compliance with natural justice,
Wednesbury unreasonableness and patent illegality. We may refer
to the decision in Associated Builders (supra) in this behalf.
15. Considering the aforesaid reasons, even though little else
remains to be decided, we would like to briefly address the
appellant's claim of loss of profit. In Bharat Cooking Coal (supra),
this Court reaffirmed the principle that a claim for such loss of
profit will only be considered when supported by adequate
evidence. It was observed:
“24. … It is not unusual for the contractors to claim loss of profit
arising out of diminution in turnover on account of delay in the
matter of completion of the work. What he should establish in such
a situation is that had he received the amount due under the
contract, he could have utilised the same for some other business in
which he could have earned profit. Unless such a plea is raised and
established, claim for loss of profits could not have been granted. In
this case, no such material is available on record. In the absence of
any evidence, the arbitrator could not have awarded the same.”
(emphasis ours)
16. To support a claim for loss of profit arising from a delayed
contract or missed opportunities from other available contracts that
the appellant could have earned elsewhere by taking up any, it
becomes imperative for the claimant to substantiate the presence of
a viable opportunity through compelling evidence. This evidence
should convincingly demonstrate that had the contract been
executed promptly, the contractor could have secured
supplementary profits utilizing its existing resources elsewhere.
17. One might ask, what would be the nature and quality of such
evidence? In our opinion, it will be contingent upon the facts and
circumstances of each case. However, it may generally include

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independent contemporaneous evidence such as other potential

projects that the contractor had in the pipeline that could have been
undertaken if not for the delays, the total number of tendering
opportunities that the contractor received and declined owing to the
prolongation of the contract, financial statements, or any clauses in
the contract related to delays, extensions of time, and compensation
for loss of profit. While this list is not exhaustive and may include
any other piece of evidence that the court may find relevant, what is
cut and dried is that in adjudging a claim towards loss of profits,
the court may not make a guess in the dark; the credibility of the
evidence, therefore, is the evidence of the credibility of such claim.
18. Hudson's formula, while attained acceptability and is well
understood in trade, does not, however, apply in a vacuum.
Hudson's formula, as well as other methods used to calculate
claims for loss of off-site overheads and profit, do not directly
measure the contractor's exact costs. Instead, they provide an
estimate of the losses the contractor may have suffered. While these
formulae are helpful when needed, they alone cannot prove the
contractor's loss of profit. They are useful in assessing losses, but
only if the contractor has shown with evidence the loss of profits
and opportunities it suffered owing to the prolongation.
19. The law, as it should stand thus, is that for claims related to loss
of profit, profitability or opportunities to succeed, one would be
required to establish the following conditions : first, there was a
delay in the completion of the contract; second, such delay is not
attributable to the claimant; third, the claimant's status as an
established contractor, handling substantial projects; and fourth,
credible evidence to substantiate the claim of loss of profitability.
On perusal of the records, we are satisfied that the fourth condition,
namely, the evidence to substantiate the claim of loss of profitability
remains unfulfilled in the present case.”

70. The Hon’ble Supreme Court in the aforesaid judgment has enunciated
on the aspect that in cases where there is a loss of profit alleged by the party

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claiming such loss and has produced material on record for the same.
Moreover, the party claiming such loss of profit shall establish that a
situation is that had he received the amount due under the contract, he could
have utilised the same for some other business in which he could have
earned profit from it.
71. In the instant petition, the petitioner has placed on record certain
proofs to substantiate its claim for loss of profit and the Tribunal has the
jurisdiction to transgress the boundary of the GCC and award loss of profit
to the petitioner.
72. The Tribunal’s cannot in accordance with the clauses of the Contract
restrict the party from getting the loss of profit which it otherwise is duly
entitled for. Since, there has been a delay on the part of the respondent and
the petitioner has suffered loss of profit due to the same.
73. In view of the discussion as well as the reasoning of this Court in
allowing the Claim no. 3 of the petitioner, this Court is of the view that
reliance placed by the Tribunal upon Clause 8.3 is misconceived as it only
pertains to the case of delay and not the eventuality of wrongful termination
which is the basis of the aforesaid Claim. Moreover, such Claim was made
for loss of profits in view of illegal termination of contract and hence, the
same cannot be rejected by relying on Clause 8.3.
74. Thus, rejection of Claim 4 by Impugned Award is liable to be set
aside and the petitioner is entitled to the loss of profit.
75. Accordingly, the claim no. 4 has been set aside by this Court.

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Claim 6- Financial loss to the claimant due to loss of commercial

reputation

76. In respect of Claim no. 6, which pertains to financial loss to the

petitioner due to loss of commercial reputation to the tune of Rs.
3,48,75,000/-, the Tribunal’s analysis is reproduced hereinbelow-

“The Claimant have based their claim on impairment of

financial standing with financial institutions. This is quantified
by a statement that cash margins in issue of bank guarantees
has been increased from 0.5% per annum to 1.25% per annum
resulting in annual financial loss of Rs 3,48,75,000/-. This
would translate to a requirement of Bank Guarantee to the tune
of 465 Cr in a year. No supporting evidence for the same has
been furnished. The Tribunal considers that whether it is a case
of liquidated financial loss or unliquidated, financial loss has to
be proved in accordance with the established principle of law
and evidence. Merely alleging the loss is not sufficient to claim
damages. 11.3.2 The Claimant have alleged that due to
wrongful termination of the Contract, the Claimant entered into
a vicious circle of liquidity crisis ultimately leading to
Corporate Insolvency Resolution Process under IBC 2016.
Considering the position indicated in the 'Resolution Plan'
furnished by the Claimant in CD VII, Contract CC-16 does not
seem to be the cause of the insolvency resolution process 2016.
Accordingly, basing CC-16 as the sole reason for financial loss
leading to CIRP is not tenable.
11.3.3 There is no clause in the Contract which entitles the
Claimant to claim any amount on account of loss of commercial
reputation.
11.3.4 The Arbitral Tribunal finds that the claim is
unsubstantiated by the Claimant and not due under any Clauses
of the Contract.

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11.4 Decision of the Tribunal: Finding that the claim of Rs

3,48,75,000.00 on account of loss of commercial reputation is
unsubstantiated and not covered by any Contract provision, as
discussed above, the Tribunal rejects the same.”
77. The Tribunal has held that the petitioner has merely alleged that there
is a loss of commercial reputation however, there is no proof produced in
this regard by the petitioner. Moreover, the Tribunal is of the view that the
petitioner’s contention due to the alleged wrongful termination of the
Contract and the petitioner had to undergo through a liquidity crisis which
led to the Corporate Insolvency Resolution Process under Insolvency
Bankruptcy Code, 2016 is not the sole reason for financial losses incurred by
the petitioner. Hence, due to no evidence/ material on record, the learned
Tribunal held that the claim for financial reputation is not substantiated by
the petitioner.
78. In light of the aforesaid findings, this Court is of the view that it is a
matter of record that the petitioner was subjected to proceedings under the
Insolvency and Bankruptcy Code, 2016. However, the inference of alleged
liquidity crunch resulting from actions of respondent and leading the
petitioner into Corporate Insolvency Resolution Process is erroneous since,
there is no evidence placed on record in this regard. Moreover, there is no
clause in the Contract pertaining to damages which can be claimed on
account of loss of financial reputation.
79. This Court is of the view that the petitioner, in accordance with the
Indian Contract Act have to prove that there is an actual loss to its financial
reputation which the it has failed to produce on record. Further, the Claim

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herein is narrowly restricted to the extent of the loss which is a direct

consequence of breach of contract.
80. Thus, the rejection of Claim no. 6 by the Impugned Award by the
Tribunal merits no interference and the petitioner is not entitled to
compensation insofar as loss of commercial reputation to the tune of Rs.
3,48,75,000/- is concerned.

Claim no. 7- Cost of the Arbitration

81. In respect of Claim no. 7, which underscores cost of Arbitration
Proceedings, the Tribunal’s analysis is reproduced hereinbelow-
“12.3.1 The Claimant have argued that they have to incur cost
of the arbitration as the Respondent have denied their due and
genuine payments. It is further stated that the Tribunal has
powers to award cost in terms of Section 31 of the Arbitration
and Conciliation Act.
12.3.2 The Respondent have argued that the Claimant have
dragged the Respondent into arbitration and as such the
Claimant is not entitled for their claim. It is added by the
Respondent that it is the Respondent who are entitled for Rs
50,00,000/- toward cost of arbitration and not the Claimant.
[This is not withstanding the fact that under counterclaim 4, the
Respondent have claim of only Rs 25,00,000/- towards cost of
arbitration].
12.3.3 Section 31 of the Arbitration and Conciliation Act does
not bind the Tribunal to award cost in all cases. Section 31(8)
of 1996 Act starts with "Unless otherwise agreed by the
parties,-(a) the cost of the arbitration shall be fixed by the
arbitral Tribunal; b) the amount of such costs; and when such
costs are to be paid."
12.3.4 Clause 17.11 of the GOG stipulates as under-

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"17.11: Cost of Arbitration - The cost of arbitration shall be

borne by the respective parties. The cost shall, Inter alia,
include the fees of the Arbitrator(s) as per rates fixed by the
Employer from time to time".
12.3.5 Both the parties to the Contract have agreed to the
above stipulation while entering into the Agreement.
12.3.6 Decision of the Tribunal: In view of above discussions
and specific provision of Clause 17.11 of the GOG in the
Contract the Tribunal rejects the demand of the Claimant for
the cost of present Arbitration. The claim of the Respondent
towards cost of the arbitration has been decided by the
Tribunal in para 17.3.2 infra. Whereas the Section 31-A of the
Amendment Act 2015 Act reads "...shall have the discretion to
determine whether costs are payable by one party to another‟

82. The learned Tribunal has relied upon Clause 17.11 of GCC which
states that cost of arbitration shall be borne by the parties and accordingly,
the Tribunal held that both the parties were to bear their respective cost of
arbitration.
83. After looking into the reasons given above by the learned Arbitrator, it
is crystal clear that the learned Arbitrator has considered the submissions
made by the parties as well as the documents which were referred by them,
and after considering them, has reached to the right conclusion that as per
the terms of the GCC the cost of arbitration shall be borne by the parties.
Accordingly, the Tribunal directed that both the parties shall bear their
respective cost of arbitration.
84. Thus, the rejection of Claim no. 7 of the petitioner in the Impugned
Award by the Tribunal merits no interference.

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Claim no. 8- Payment of Interest

85. In respect of Claim no. 8, which underscores payment of interest, the
Tribunal’s analysis is reproduced hereinbelow-
“13.3.1 The Claimant have Claimed pre-suit, pendent-lite and
future interest @ 18% per annum on all the claims preferred
under this arbitration on following grounds;
i) Their dues have not been paid on time and as such they have
to be compensated for the deprivation of the same;
ii) The Tribunal have powers to grant pre-suit, pendent-lite and
future interest as per Section 31(7) (a) & (b) of the Arbitration
and Conciliation Act;
iii) The case laws mentioned in para 13.1.5 support such a
claim of the Claimant.
13.3.2 The Respondent have argued that the Claimant is neither
entitled for any loss under the contract nor the interest thereon,
whether anti-lite, pendente-lite and post-lite interest, as alleged
by the Claimant.
13.3.3 The Tribunal observes that there has been difference of
opinion between the Parties regarding certain payments. These
have manifested in the shape of claims and counterclaims
which are under adjudication by this Tribunal. In all such
disputes, the Claimant/Counterclaimant always allege that they
have been deprived of their rightful dues and as such need to be
compensated for the same. The present arbitration case is in no
way different, to seek and merit any specific and special relief.
13.3.4 The Claimant have sought relief quoting Section 31(7)
(a) & (b) of the Arbitration and Reconciliation Act 1996, which
reads;
"7(a) Unless otherwise agreed by the parties, where and insofar
as an arbitral award is for payment of money,
7(b) A sum directed to be paid by an arbitral award shall,
unless the award

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otherwise directs, carry interest at the rate of eighteen per

centum per annum from the date of award to the date of
payment."
13.3.5 Clause 17.10 of the GCC in this regard, stipulates as
under:
"Where the Arbitral Award is for the payment of money, no
interest shall be payable on whole or any part of the money for
any period, till the date on which the award is made".
Both the parties have agreed to the GCC clause 17.10 while
entering into this Agreement. As such the Tribunal holds that
with both the parties agreeing that there shall be no payment of
interest till date of award, question of payment of interest as
per provisions of Section 31 (7)(a) of the Act 1996 does not
arise.
13.3.6 The Claimant have cited case laws as in para 13.1.5 in
support of their claim. The Tribunal finds that these are not
applicable to the facts, circumstances and contract provisions
of the present case. It is well established, through these
judgements also, that where the Contract Agreement does not
prohibit grant of interest and where a party claims interest and
that dispute (along with principal amount or independently) is
referred to the arbitrator, he shall have powers to award
interest pendente lite. In the present case Clause 17.10 of the
Contract between the Parties is very specific when it stipulates
that no interest shall be payable on whole or any part of the
money for any period, till the date on which the award is
made".
13.3.7 Decision of the Tribunal: Considering the above
analysis and findings, the Tribunal awards NIL interest anti lite
as well as pendente lite. As regards interest from the date of
award, provisions of para 18.2.1 infra shall be applicable.”

86. The learned Tribunal has referred to Clause 17.10 of GCC which
stipulates that there shall be no payment of interest till date of award.

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Accordingly, the Tribunal did not award any anti- lite and pendente lite
interest.
87. This Court is of the view that the Arbitral Tribunal being a creature of
the Contract and has to act according to the clauses of the Contract.
88. Therefore, the rejection of Claim No. 8 by Impugned Award merits no
interference and the petitioner is not entitled to payment of interest.
SETTING ASIDE OF THE AWARD UNDER SECTION 34
89. In view of the foregoing discussion, this Court is of the opinion that
clause 3 and clause 4 of the Impugned Award are on the face of it, patently
in violation of statutory provisions of Contract law therefore, they are not in
public interest. Such an award is likely to adversely affect the administration
of justice.
90. The said claims should be set aside since it is contrary to fundamental
policy of Indian Law and patently illegal. Moreover, the illegality in these
claims are such that they go to the root of the matter and is not of trivial
nature.
91. Furthermore, the award of the learned tribunal in terms of these claims
is so unfair and unreasonable that shocks the conscience of the Court since,
the learned tribunal despite taking into consideration the delay caused in the
project is attributable to the respondent, it did not give any remedy to the
petitioner. The tribunal gave the reasoning that the petitioner cannot be
given since, the Contract only provides for extension of time. However, the
learned Tribunal failed to appreciate the fact that in the peculiar facts, the
petitioner was not given the same and instead, the Contract was terminated

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by the respondent. Such a situation which was not anticipated in the

Contract, the learned Tribunal should have transgressed the boundary of
Contract and granted the relief to the petitioner which it is rightly entitled to
and have accordingly, have also placed material on record to support their
claims.
92. In view of the aforesaid discussion, this Court will discuss the scope
of setting aside the Award under Section 34 of the Act.
93. It is a settled principle of law that various claims of the award can be
severed and the court by way of entertaining an application under section 34
can set aside certain claims of the award which in the opinion of the court is
perverse and illegal. Such piecemealing of award would not affect the claims
which have been upheld by the court.
94. Modification of the award is when, the court makes certain
changes/modification in the claim example by way of modifying the amount
of damages awarded, modifying the interest rate, etc., instead of setting aside
claim. The purpose of ensuring that there is no modification of the award
passed by the tribunal is that the modification requires that there should be
appreciation of evidence and pleadings on record. Under section 34 of the
Act, this court cannot re appreciate the pleadings and evidence on record to
arrive at conclusion and accordingly make changes in the award passed by
the tribunal. This Court under section 34 can therefore set aside certain
claims on the grounds mentioned in section 34 of the Act.

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95. Such claims which are set aside by the court does not amount to
modification of the award. It merely infers that the court has partially
set aside the award.
96. The aforesaid principle of law pertaining to setting aside of the
Award under Section 34 of the Act has been discussed in the judgment of
Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. (2019) 20 SCC 1,
this Court held as follows: (SCC p. 15, paras 36-37)
“36. At this juncture it must be noted that the legislative
intention of providing Section 34(4) in the Arbitration Act was
to make the award enforceable, after giving an opportunity to
the Tribunal to undo the curable defects. This provision cannot
be brushed aside and the High Court [Crompton Greaves Ltd.
v. Dyna Technologies (P) Ltd., 2007 SCC OnLine Mad 427]
could not have proceeded further to determine the issue on
merits.
37. In case of absence of reasoning the utility has been
provided under Section 34(4) of the Arbitration Act to cure
such defects. When there is complete perversity in the
reasoning then only it can be challenged under the provisions
of Section 34 of the Arbitration Act. The power vested under
Section 34(4) of the Arbitration Act to cure defects can be
utilised in cases where the arbitral award does not provide any
reasoning or if the award has some gap in the reasoning or
otherwise and that can be cured so as to avoid a challenge
based on the aforesaid curable defects under Section 34 of the
Arbitration Act. However, in this case such remand to the
Tribunal would not be beneficial as this case has taken more
than 25 years for its adjudication. It is in this state of affairs
that we lament that the purpose of arbitration as an effective
and expeditious forum itself stands effaced.”

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97. In the judgment titled Larsen Air Conditioning and Refrigration

Company v. Union of India 2023 Scc OnLine SC 982, the Hon’ble
Supreme Court held as follows:
“15. The limited and extremely circumscribed jurisdiction of
the court under Section 34 of the Act, permits the court to
interfere with an award, sans the grounds of patent illegality,
i.e., that “illegality must go to the root of the matter and cannot
be of a trivial nature”; and that the 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” [ref :
Associate Builders (supra)]. The other ground would be denial
of natural justice. In appeal, Section 37 of the Act grants
narrower scope to the appellate court to review the findings in
an award, if it has been upheld, or substantially upheld under
Section 34. It is important to notice that the old Act contained a
provision which enabled the court to modify an award.
However, that power has been consciously omitted by
Parliament, while enacting the Act of 1996. This means that the
Parliamentary intent was to exclude power to modify an award,
in any manner, to the court. This position has been iterated
decisively by this court in M. Hakeem:

“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

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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.”

16. In view of the foregoing discussion, the impugned judgment

warrants interference and is hereby set aside to the extent of
modification of rate of interest for past, pendente lite and future
interest. The 18% per annum rate of interest, as awarded by the
arbitrator on 21.01.1999 (in Claim No. 9) is reinstated. The
respondent-state is hereby directed to accordingly pay the dues
within 8 weeks from the date of this judgment.”

98. Moreover in the judgment of Union of India v. Alcon Builders &

Engineer (P) Ltd 2023 SCC OnLine Del 160, the following observations
were made :
“On partial setting aside of an award
18. In the course of hearing the parties, a preliminary query was
raised as to whether, in exercise of its jurisdiction under Section 34 of
the A&C Act, this Court can partly set aside an arbitral award.
Learned counsel for the parties answered the query in the affirmative,
to say that in any case, the challenge was only to the arbitrator's
decision on two aspects; and the parties have accepted and acted
upon the rest of the award. That being said however, this Court finds
it necessary to refer to the decision of the Supreme Court in NHAI v.
M. Hakeem [NHAI v. M. Hakeem, (2021) 9 SCC 1], in which case it
was held that the court's power under Section 34 of the A&C Act does

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not include the power to “modify” an award. The question then arises
whether partial setting aside of an award would amount to
“modification” thereof. It would be beneficial at this point to extract
para 42 of M. Hakeem case [NHAI v. M. Hakeem, (2021) 9 SCC 1]
which reads as under : (SCC p. 28, para 42)

“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. [McDermott International Inc. v.
Burn Standard Co. Ltd., (2006) 11 SCC 181], Kinnari Mullick v.
Ghanshyam Das Damani [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. [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant
Technologies (P) Ltd., (2021) 7 SCC 657 : (2021) 4 SCC (Civ)
157] 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.”

19. Upon a closer reading of M. Hakeem case [NHAI v. M. Hakeem,

(2021) 9 SCC 1] however, it transpires that the said case concerned a
claim for payment of compensation for land acquisition and the
District Court, in exercise of its powers under Section 34 of the A&C
Act, had increased the quantum of compensation awarded by the
competent authority. M. Hakeem case [NHAI v. M. Hakeem, (2021) 9

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SCC 1] therefore, was not a case where some of several claims made
before the Arbitral Tribunal were set aside.

20. In order to better appreciate and apply M. Hakeem case [NHAI v.

M. Hakeem, (2021) 9 SCC 1], and to understand the correct meaning
of what amounts to “modification” of an arbitral award, it is
necessary to refer to the following decisions:

21. In J.G. Engineers (P) Ltd. v. Union of India [J.G. Engineers (P)
Ltd. v. Union of India, (2011) 5 SCC 758 : (2011) 3 SCC (Civ) 128]
which involved multiple claims dealt with and decided by the
arbitrator, this is what the Supreme Court had to say : (SCC p. 775,
para 25)

“25. 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….”
22. Then again, in R.S. Jiwani v. Ircon International Ltd. [R.S. Jiwani
v. Ircon International Ltd., 2009 SCC OnLine Bom 2021] a Full
Bench of the Bombay High Court has dealt with the concept of
severability of the decisions on various claims/counterclaims
comprised in an award and has held as follows….

23. The judgment in R.S. Jiwani case [R.S. Jiwani v. Ircon

International Ltd., 2009 SCC OnLine Bom 2021] has been relied upon
recently in a judgment of the Bombay High Court in NHAI v. Commr.
[NHAI v. Commr., 2022 SCC OnLine Bom 1688]
*****
28. Upon a combined and meaningful reading of the provisions of
the A&C Act and the aforesaid judicial precedents, in the opinion
of this Court, the following position emerges:
29. A court exercising power under Section 34 of the A&C Act
cannot “modify” an arbitral award;

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30. The arbitrator's decision on each claim and counterclaim, taken

individually, is final. “Modification” means to substitute the court's
own decision for the decision made by the arbitrator on any given
claim or counterclaim; which the court cannot do.
31. If objections are filed under Section 34, impugning the
arbitrator's decision only on some of the claims or counterclaims, it
is not necessary for the court to set aside the entire arbitral award
viz. the decision on all claims and counterclaims. This follows from
the limited ambit of the court's powers under Section 34. Besides,
the decision on a Section 34 petition cannot go beyond the scope of
the challenge itself.
32. When the arbitrator's decisions on multiple claims and
counterclaims are severable and not interdependent, the court is
empowered under Section 34 to set aside or uphold the arbitrator's
decisions on individual and severable claims or counterclaims;
without having to set aside the entire arbitral award. That would
not amount to modification of the arbitral award.
33. The above is also in line with the overarching principle that the
scope of interference by the court under the A&C Act in arbitral
proceedings and arbitral awards, is to be minimal. The statute does
not command the court to go for the overkill. To adapt a phrase
famously used by Justice Felix Frankfurter, while exercising power
under Section 34, it is not necessary to burn the house to roast the
pig.”

99. The Coordinate Bench of this Court in the judgment of NHAI v.

Trichy Thanjavur Expressway Ltd. 2023 SCC OnLine Del 5183 has
summarized the law pertaining to setting aside of the Award under Section
34 as follows:
100.
“87. The Court thus records its conclusions as follows:—

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A. While attempting to answer the issues flagged above, we must at

the outset, acknowledge the shift in legislative policy which
underlies the Act and which mandates intervention by courts to be
minimal. This flows from the recognition of the theory that once
parties have agreed to the resolution of their disputes by an
alternative adjudigcatory forum, courts must, as a matter of first
principle, refrain from interfering with the same except on the
limited grounds that the statute recognises. Courts are thus obliged
to bear in mind the principle of minimalist intervention insofar as
awards are concerned.

B. However, at the same time while courts are enjoined to follow the
minimalist intervention route, it would clearly be a travesty of justice
if courts were to fail to intervene where circumstances warrant and
demand corrective measures being adopted. It is these compulsions
which have led to courts evolving the serious irregularity or the
patent illegality grounds to interfere with an award. Section 34 is a
clear and unequivocal embodiment of the Legislature's intent to
balance these competing facets of arbitration.

C. Undisputedly, Section 34(2)(a)(iii) speaks of a part of an award

being exorcised from the rest. The Court finds no justification to
confer too much credence on Article 34 of the Model Law ultimately
failing to allude to a partial setting aside power even though that was
provisioned for in explicit terms in draft Articles 29, 30, 40 and 41.
This since neither the Working Group Reports nor the
contemporaneous material that we have noticed hereinbefore seem to
suggest a conscious deletion of that power. The considerable
material, on the aspects surrounding partial setting aside that we
have had an occasion to review, does not evidence any deliberation or
discussion which may have predicated or actuated its deletion. The
said material is also not indicative of any principled decision that may
have been taken by member nations for deletion of the partial setting
aside power. Its absence from Article 34 which came to be ultimately
adopted stands lost in a mist of conjecture.

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D. We find that the key to understanding the intent underlying the

placement of the Proviso in sub-clause (iii) of Section 34(2)(a) is in
the nature of the grounds for setting aside which are spoken of in
clause (a). As would be manifest from a reading of the five sub-
clauses which are positioned in Section 34(2)(a), those constitute
grounds which would strike at the very heart of the arbitral
proceedings. The grounds for setting aside which are set forth in
clause (a) strike at the very foundation of validity of arbitration
proceedings. Sub-Clauses (i) to (v) thus principally constitute grounds
which would render the arbitration proceedings void ab initio.
Although the Section 34(2)(a)(iv) ground for setting aside also falls in
the same genre of a fundamental invalidity, the Legislature has sought
to temper the potential fallout of the award being set aside in toto on
that score.

E. The Proviso to sub-clause (iv) seeks to address a comprehensibly

conceivable situation where while some parts of the award may have
dealt with non-arbitrable issues or disputes falling outside the scope
of the reference, its other components or parts constitute an
adjudication which could have been validly undertaken by the AT. The
Proviso thus seeks to address such a situation and redeems as well as
rescues the valid parts of an award. This saves the parties from the
spectre of commencing arbitral proceedings all over and from scratch
in respect of all issues including those which could have validly
formed part of the arbitration.

F. The grounds for setting aside encapsulated in Section 34(2)(b) on

the other hand relate to the merits of the challenge that may be raised
in respect of an award and really do not deal with fundamental
invalidity. However, the mere fact that the Proviso found in sub-
clause (iv) of Section 34(2)(a) is not replicated or reiterated in clause
(b) of that provision does not lead one to an inevitable conclusion that
partial setting aside is considered alien when a court is considering a
challenging to an award on a ground referable to that clause. In fact,

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the Proviso itself provides a befitting answer to any interpretation to

the contrary. The Proviso placed in Section 34(2)(a)(iv) is not only an
acknowledgment of partial setting aside not being a concept foreign to
the setting aside power but also of parts of the award being
legitimately viewed as separate and distinct. The Proviso itself
envisages parts of an award being severable, capable of segregation
and being carved out. The Proviso is, in fact, the clearest
manifestation of both an award being set aside in part as well as an
award comprising of distinct components and parts.

G. Undoubtedly, an award may comprise a decision rendered on

multiple claims. Each claim though arising out of a composite
contract or transaction may be founded on distinct facts and flowing
from separate identifiable obligations. Just as claims may come to be
preferred resting on a particular contractual right and corresponding
obligation, the decision which an AT may render on a particular
claim could also be based on a construction of a particular covenant
and thus stand independently without drawing sustenance on a
decision rendered in the context of another. If such claims be
separate, complete and self-contained in themselves, any decision
rendered thereon would hypothetically be able to stand and survive
irrespective of an invalidity which may taint a decision on others. As
long as a claim is not subordinate, in the sense of being entwined or
interdependent upon another, a decision rendered on the same by the
AT would constitute an award in itself.

H. While awards as conventionally drawn, arranged and prepared

may represent an amalgam of decisions rendered by the AT on each
claim, every part thereof is, in fact, a manifestation of the decision
rendered by it on each claim that may be laid before it. The award
rendered on each such claim rules on the entitlement of the claimant
and the right asserted in that regard. One could, therefore, validly,
subject of course to the facts of a particular case, be entitled to view
and acknowledge them as binding decisions rendered by the AT on
separate and distinct claims.

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I. Once an award is understood as consisting of separate components,

each standing separately and independent of the other, there appears
to be no hurdle in the way of courts adopting the doctrine of
severability and invoking a power to set aside an award partly. The
power so wielded would continue to remain one confined to “setting
aside” as the provision bids one to do and would thus constitute a
valid exercise of jurisdiction under Section 34 of the Act.

J. The Supreme Court in M. Hakeem, has enunciated the setting aside

power as being equivalent to a power to annul or setting at knot an
Arbitral Award. It has essentially held that bearing in mind the plain
language of Section 34 coupled with the Act having desisted from
adopting powers of modification or remission that existed in the
erstwhile 1940 Act, a court while considering a challenge under
Section 34 would not have the power to modify.

K. The expression “modify” would clearly mean a variation or

modulation of the ultimate relief that may be accorded by an AT.
However, when a Section 34 Court were to consider exercising a
power to partially set aside, it would clearly not amount to a
modification or variation of the award. It would be confined to an
offending part of the award coming to be annulled and set aside. It is
this distinction between a modification of an award and its partial
setting aside that must be borne in mind.

L. The power to partially sever an offending part of the award would

ultimately depend on whether the said decision is independent and
distinct and whether an annulment of that part would not disturb or
impact any other finding or declaration that may have been returned
by the AT. The question of severability would have to be decided
bearing in mind whether the claims are interconnected or so
intertwined that one cannot be segregated from the other. This for the
obvious reason that if the part which is sought to be set aside is not
found to stand independently, it would be legally impermissible to

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partially set aside the award. A partial setting aside should not lead to
a component of the award being rendered vulnerable or
unsustainable. It is only when the award relates to a claim which is
found to stand on its own and its setting aside would not have a
cascading impact that the Court could consider adopting the
aforesaid mode.

M. The Court is thus of the firm opinion that the power to set aside
an award in part would have to abide by the considerations
aforenoted mindful of the imperatives of walking a line which
would not dislodge or disturb another part of the award. However
as long as the part which is proposed to be annulled is independent
and stands unattached to any other part of the award and it could
be validly incised without affecting the other components of the
award, the recourse to partial setting aside would be valid and
justified”.

101. In view of the law laid down in the aforesaid judgments, this Court is
of the view that the under section 34 of the Act, the Court is vested with the
jurisdiction to set aside certain problematic portion of the Award which are
patently illegal and shocks the conscience of this Court.
102. However, the setting aside of the Award is subjected to the condition
that the portion of the Award which has been upheld shall have due effect
and cause no such cascading impact.
103. In the instant petition, therefore, this Court in case sets aside claim no.
3 and claim no. 4 then, the other claims shall nor be impacted by it neither
have any perverse consequences.

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CONCLUSION

104. In view of the aforesaid discussion, this Court discerns substantial

material to establish the propositions put forth by the petitioner. Moreover,
the Impugned Award passed in respect of Claim 3 and 4 is ex-facie
erroneous and warrants interference of this Court.

105. The view taken by the learned Tribunal is perverse to the law since,
the damages are not awarded to the petitioner despite the fact that the
learned Tribunal has itself held that there is a delay on the part of respondent
in completion of the project and the termination of the contract done by the
respondent is wrongful. It has wrongfully held that as per the clauses of the
Contract the petitioner is only liable to the extension of time, however the
Tribunal failed to consider as per peculiar facts of the case the contract
instead of being extended has been wrongfully terminated by the respondent.

106. The Impugned Award suffers from patent illegality since, the Tribunal
despite holding that there has been delay on the part of the respondent in
Claim no. 1, did not award damages to the petitioner.

107. Such situations warrants that the petitioner who suffered damages on
account of delay committed by the respondent shall be compensated by the
respondent. Hence, the petitioner is entitled to recover damages from
respondent on the grounds of breach of contract by the respondent.

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108. In view of the foregoing discussion, the petitioner has been able to
make out a claim of intervention of this Court with regard to Claim no. 3 and
4 under Section 34 of the Act.

109. In terms of the Claim no. 6, 7 and 8 this Court is of the opinion that
the petitioner has failed to make out such a case and was unable to show that
the Award needs interference under Section 34 of the Act. This Court is of
the view that the learned tribunal was well within its jurisdiction and
capacity to award the claim/compensation in favor of the respondent in
terms of the aforesaid claims.

110. A perusal of the impugned Award dated 6th March 2020 makes it
evident on the face of the record requires interference under Section 34 of
the Act in terms of Claim no. 3 and Claim no. 4 which deals with the claim
pertaining to damages on Account of Idling of Machines and loss of
overheads and loss of profits respectively.

111. This Court directs that the aforesaid claims are being remitted back to
the Tribunal to decide a fresh, taking into consideration the settled principles
of law and adjudicate the Claim no. 3 and Claim no. 4 afresh.

112. In view of the aforesaid findings, the impugned Award is liable to be

partially set aside.

113. The petition is partially allowed in the aforesaid terms.

114. Pending applications also stand disposed.

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BHAMOO VERMA
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115. The judgment be uploaded on the website forthwith.

(CHANDRA DHARI SINGH)

JUDGE
DECEMBER 12, 2023
gs/db/ryp
Click here to check corrigendum, if any

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O.M.P. (COMM) 311/2021 Page 83 of 83
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:16.12.2023
19:04:26
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