***

SATYEN VAIDYA, J. –

The instant petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) has been filed with a prayer to set-aside the Arbitral Award dated 11.06.2015.

2. The petitioners (hereinafter referred to as ‘the employer’) allege that the impugned award is not in consonance with the contract between the parties; the Arbitrator has misconducted himself by not taking advice from a technical person; the award is without there being any satisfactory evidence and lastly that the award is in conflict with public policy of India.

3. Brief facts necessary for adjudication of the petition are as under: -

3.1 Respondent (hereinafter referred to as ‘the contractor’) was awarded work “Construction of Mair to Tikker via. Makrana Khungan Lahra Phahal road Km. 0/0 to 19/120 (Phase-1) (SH: - ROFD for 5/7 Mtrs. wide, C.D. soiling, wearing, tarring, drain, parapet in between Km. 0/0 to 7/405 under NABARD RIDF-XVII)”, vide award letter dated 06.09.2012.

3.2 The total cost of the work was Rs. 1,88,72,618/-.

3.3 The stipulated period for completion of work was two years to be reckoned from the 15th day after the issuance of award letter. Thus, the stipulated date of commencement of work was 21.09.2012.

3.4 The execution of work remained incomplete even after lapse of entire contract period.

3.5 The contractor attributed the reasons for non-completion of work to the employer by alleging that the employer did not handover hinderance free site to the contractor for execution of work; as the employer had failed to obtain clearance under the Forest Conservation Act in respect of the forest land involved within the scope of the work.

3.6 The contractor completed the work quantified at Rs. 98,17,820/- only.

3.7 As per the employer, the involvement of forest land was to the extent of 600 meters only in the entire stretch of over 7 Kms of road required to be constructed under the contract.

3.8. The employer attributed the reasons for incomplete work to the contractor by alleging slow pace of work; deficiencies in the executed work and breach of terms of contract.

3.9 The employer submitted that the contractor could not be absolved of his liability to complete the work except on a stretch of 600 meters as the remaining site was completely hinderance free.

4. The contractor invoked the arbitration clause and on his petition under Section 11 of the Act, sole Arbitrator was appointed.

5. The contractor preferred following claims before the Arbitrator:-

6. The employer filed a counter claim claiming Rs. 53,000/- on account of the cost of arbitration.

7. The Arbitrator allowed the claims of the contractor. As against claim No. 1, a sum of Rs.11,24,447/- has been awarded; as against claim No. 2, the employer has been directed to release the earnest money and bank guarantee in favour of the contractor; Rs. 50,000/- and Rs 2,40,392/- have been awarded against claim No. 3 and 4 respectively.

7.1 Further the contractor has been awarded interest @ 9% per annum on the amount awarded against claim No. 1 from the date of entering into reference i.e. 19.12.2014, till the actual payment.

7.2 Cost of Rs. 50,000/- has also been awarded in favour of the contractor.

8. The counter claim of the employer has been rejected.

9. I have heard learned counsel for the parties and have also gone through the record.

10. Record reveals that the parties have been afforded fullest opportunity to represent their respective cases by the Arbitrator. The impugned award contains detailed reasons based on analyses of the material on record.

11. The Arbitrator has recorded a specific finding that the involvement of forest land was there and the employer had failed to obtain the clearance under FCA not only before award the work to the contractor but during the entire contract period also. Learned Additional Advocate General representing the employer has not been able to challenge such finding. Rather, he submitted that the involvement of forest land in the entire stretch of proposed road was to the extent of 600 meters only. Thus, there is a clear admission as to existence of forest land in the proposed road for which work was awarded to the contractor.

12. The Arbitrator after discussing the evidence of the parties has concluded that the stand of the employer with respect to involvement of only 600 meters of forest land remained unsubstantiated. The Arbitrator has disbelieved the documentary evidence produced by the employer on the basis of lack of authenticity. Learned Additional Advocate General has not been able to take this Court through any piece of documentary evidence, which had been wrongly rejected by the Arbitrator.

13. Even otherwise also I have found that the findings recorded and conclusions drawn by the Arbitrator are duly supported by material on record.

14. Noticeably, the employer did not produce before the Arbitrator any authentic site plan showing extent of forest land. The revenue record was also not produced. Though, the employer had propagated that it had applied for clearance under FCA, but no document evidencing such fact was produced, which otherwise could have been the best evidence to prove the extent of forest land involved in the work.

15. In above circumstances, though, the requirement of clearance under FCA was proved, but the extent of forest land involved was not proved, therefore, the Arbitrator was not wrong in upholding the contention of the contractor attributing reasons for non-completion of work to the employer.

16. The contention of employer that the contractor had not completed the work to the extent of hinderance free site available to him has also been rightly rejected.

17. Once, the employer was held to be responsible for not providing hinderance free site to the contractor, the award of loss or profit @ 13% of the amount of balance work cannot be said to be unreasonable. The Arbitrator has provided detailed reasons for arriving at said conclusion. Similarly, no fault can be found with the award, whereby a meagre sum of Rs. 50,000/- has been awarded to the contractor on account of compensation for idle labour and machinery. Rest of the award is a necessary consequence and within the discretion of the Arbitrator.

18. The scope of interference with arbitral award in proceedings under Section 34 of the Act is limited. The contravention with fundamental policy of Indian law as also patent illegality should emerge on the face of the award itself. It is impermissible for the court to sit in appeal or review over the findings recorded by the arbitral tribunal.

19. In Associate Builders Vs. Delhi Development Authority, 2015 (3) SCC 49, it was held as under:-

42. In the 1996 Act, this principle is substituted by the 'patent illegality' principle which, in turn, contains three sub heads-

42.1 (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is a really a contravention of Section 28(1)(a) of the Act, which reads as under:

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

(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"

42.2 (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality- for example if an arbitrator gives no reasons for an award in contravention of section 31(3) of the Act, such award will be liable to be set aside.

42.3 (c) Equally, the third sub-head of patent illegality is really a contravention of Section 28 (3) of the Arbitration Act, which reads as under:-

"28. Rules applicable to substance of dispute.-

(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

This last contravention must be understood with a caveat. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.”

20. In Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India (NHAI) reported in 2019 (15) SCC 131, it was held as under:-

“37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

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

39. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), 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 paragraphs 42.3 to 45 in Associate Builders (supra), 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(2A).

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

21. In Delhi Airport Metro Express Private Limited Vs. Delhi Metro Rail Corporation Limited reported in 2022 (1) SCC 131, it has been held 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 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 SainikKalyan 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] .)”

22. In UHL Power Company Ltd. Vs. State of Himachal Pradesh, 2022 (4) SCC 116, a Three-Judge Bench of Hon’ble Supreme Court expounded the scope of interference under Section 34 of Arbitration and Conciliation Act, 1996, and has held as under:-

“15. This Court also accepts as correct, the view expressed by the appellate court that the learned Single Judge committed a gross error in re-appreciating 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 is examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. V. Vedanta Ltd., the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act have been explained in the following words: (SCC pp.166-67, para 11).

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 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 statues and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury 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.”

23. Recently in Delhi Metro Rail Corporation Limited Vs. Delhi Airport Metro Express Private Limited, (2024) 6 SCC 357, the scope of interference with arbitral award has been discussed as under:-

“35. In Associate Builders v. DDA , a two- Judge Bench of this Court held that although the interpretation of a contract is exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would take, is impermissible. A patent illegality arises where the arbitrator adopts a view which is not a possible view. A view can be regarded as not even a possible view where no reasonable body of persons could possibly have taken it. This Court held with reference to Sections 28(1)(a) and 28(3), that the arbitrator must take into account the terms of the contract and the usages of trade applicable to the transaction. The decision or award should not be perverse or irrational. An award is rendered perverse or irrational where the findings are:

(i) based on no evidence;

(ii) based on irrelevant material; or

(iii) ignores vital evidence

39. In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view. 12 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 under the head of "patent illegality". An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice.”

24. Learned Additional Advocate General has not been able to point out any material on the basis of which the findings recorded by learned Arbitrator can be termed to be either patently illegal or perverse. The view taken by the Arbitrator is a possible view. The employer has also not been able to establish its allegations with respect to slow pace of work; misconduct, if any, of the contractor and breach of terms of contract etc.

25. Hence, keeping in view the facts of the case and above noted exposition of law, I find no reasons to interfere with the impugned award.

26. The petition is, accordingly, dismissed with no order as to costs.

27. Pending miscellaneous application(s), if any, shall also stand disposed of.

Petition dismissed.

********