Can a High Court set aside a domestic arbitral award under Section 37 on the ground of patent illegality after it has been affirmed under Section 34 of the A&C Act?

 

Summary

Category Data
Court Supreme Court of India
Case Number C.A. No.-015037-015037 – 2025
Diary Number 24603/2023
Judge Name HON’BLE MR. JUSTICE ARAVIND KUMAR
Bench HON’BLE MR. JUSTICE ARAVIND KUMAR; HON’BLE MR. JUSTICE N.V. ANJARIA
Precedent Value Binding precedent
Overrules / Affirms
  • Overrules High Court judgment dated 03.05.2023 (ARBA No. 05/2017)
  • Affirms Commercial Court order dated 02.01.2017 and arbitral award dated 15.07.2012
Type of Law Arbitration and Conciliation Act, 1996
Questions of Law Whether interference with an arbitral award by a High Court under Section 37 on ground of patent illegality is sustainable once the award has been affirmed under Section 34 of the A&C Act.
Ratio Decidendi
  • Part I of the A&C Act enshrines minimal judicial intervention, limiting set-aside (Sec 34) and appeal (Sec 37) to grounds expressly stated.
  • Section 37 appeals cannot exceed the narrow supervisory scope of Section 34, precluding re-appraisal of merits or facts.
  • “Patent illegality” must be a glaring violation—award on no evidence or in direct conflict with express contract terms—to warrant interference.
  • Arbitrators remain masters of fact and evidence; courts must not supplant reasonable inferences or substitute their own view.
  • Where a contract is silent as to price for extra work, the tribunal may award compensation on quantum meruit (Section 70, Contract Act) without “rewriting” the contract.
Judgments Relied Upon
  • ONGC Ltd. v. Saw Pipes Ltd. (2003)
  • Associate Builders v. DDA (2014)
  • SsangYong Engg. v. NHAI (2019)
  • MMTC Ltd. v. Vedanta Ltd. (2019)
  • Mahanagar Telephone Nigam Ltd. v. Tata Communications Ltd. (2019)
  • Delhi Airport Metro Express v. DMRC (2022)
  • Hindustan Constr. Co. v. NHAI (2024)
Logic / Jurisprudence / Authorities Relied Upon by the Court
  • Legislative intent under Section 5 A&C Act—embed arbitration and curb judicial intrusion.
  • Narrow lens of Sections 34 & 37; courts do not sit in appeal (ON NG; MMTC; Associate Builders).
  • Patent illegality jurisprudence refined post-2015 amendment—glaring, root-going errors only (SsangYong).
  • Section 31(7)(a) equity and Section 70 Contract Act for quantum meruit where contract silent.
Facts as Summarised by the Court Appellant won a tender to mine/transport bauxite at Rs. 634.20/MT; supplied extra 195,000 MT at respondent’s request without an agreed rate for extra work. Arbitration awarded ₹3.71 crore + interest on various heads (extra work, transport cost, idle machinery/manpower). Civil and commercial courts upheld; High Court set aside award. Appeal to SC.

Practical Impact

Category Impact
Binding On All subordinate courts and commercial courts
Persuasive For High Courts and tribunals debating Section 34/37 appellate scope
Overrules High Court of Chhattisgarh judgment in ARBA No. 05/2017 (03.05.2023)
Follows
  • ONGC Ltd. v. Saw Pipes Ltd.
  • Associate Builders v. DDA
  • SsangYong Engg. v. NHAI
  • MMTC v. Vedanta

What’s New / What Lawyers Should Note

  • Reinforces that Section 37 appeal cannot re-appraise evidence or substitute judicial views for arbitrator’s findings.
  • Clarifies “patent illegality” demands a glaring, root-going error—mere misinterpretation or “guesswork” is insufficient.
  • Confirms tribunals may award quantum meruit under Section 70 of the Contract Act when contracts are silent on price for extra work, without “rewriting” the agreement.
  • Emphasizes respect for arbitrator as master of evidence; courts must discern a rational path in the award, not impose their own corrections.

Summary of Legal Reasoning

  1. Minimal Judicial Intervention: Section 5 bars court interference save Section 34/37 grounds; awards stand unless they offend public policy or suffer patent illegality.
  2. Narrow Scope of Review: Section 37 appeals are co-extensive with Section 34; neither permits merits review or fact re-appraisal (ONGC; MMTC; LAC).
  3. Patent Illegality Defined: Post-2015 amendment, patent illegality means a manifest, root-going violation—award on no evidence or in direct conflict with express contract or statute (SsangYong).
  4. Contractual Autonomy: Arbitrators must follow express terms; yet, where contract is silent on price for extra work, Section 70 remedy (quantum meruit) may fill the gap without breaching contract terms.
  5. Evidence & Reasoning: Tribunal’s award drawn from oral testimony, documentary correspondence and a reasoned application of equity suffices; High Court impermissibly substituted its own view.

Arguments by the Parties

Petitioner

  • High Court exceeded Section 37 jurisdiction by re-appreciating evidence and rewriting contract.
  • Arbitral award contains detailed, reasoned findings on each claim; HC’s view on “patent illegality” misconstrues narrow remedy.
  • Quantum meruit was permissible: extra work ordered by respondent, price was left open; Section 70 Contract Act applied properly.

Respondent

  • Contract lacked any clause to vary the rate; existing rate and diesel-variation clause covered transport cost.
  • Arbitrator relied on guesses and self-served schedules without documentary proof; no route or penalty records.
  • Award rewrote express contract terms and granted compensation on no evidence—HC rightly set it aside.

Factual Background

Appellant secured a tender to mine/transport 222,000 MT bauxite at Rs. 634.20/MT and completed it by September 2001. Respondent requested continuation of work; the parties did not agree fresh rates. Appellant supplied an additional 195,000 MT to March 2002. Dispute arose over payment for extra work, leading to arbitration. The sole arbitrator awarded ≈₹3.72 crore plus interest. The Commercial Court dismissed challenges under Section 34; the High Court under Section 37 set aside the award for “patent illegality.” The appellant appealed.

Statutory Analysis

  • Section 5 A&C Act: minimal judicial interference.
  • Section 31(7): equity and reasons requirement.
  • Section 34(2)/(2A): narrow grounds for setting aside, including patent illegality, but not factual reappraisal.
  • Section 37: appellate remedy co-extensive with Section 34.
  • Section 70 Contract Act: obligation to pay for non-gratuitous work when contract silent on price.

Alert Indicators

  • ✔ Precedent Followed – Affirms narrow review under Sections 34/37
  • 🔄 Conflicting Decisions – Disagrees with High Court’s broader approach to “patent illegality”

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