Paragraph numbers below are the court’s original numbering, recovered from the source text.
23. As it is evident from the extracted provisions, as above that prior to the Amending Act, it was open for the Court to examine the award as to whether it was in conflict with, (a) public policy of India; (b) induced or affected by fraud; (c) corruption; and (d) any violation of the provisions of Section 75 and 81 of the A&C Act.
24. In the instant case, the only provision under which the award could have been assailed was for it to have been in conflict with the public policy of India. This concept has been elaborately considered by this Court in Associate Builders(supra); Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India11,in the following terms:-
25. In Associate Builders (supra) the Court observed- “19. When it came to construing the expression “the public policy of India” contained in Section 34(2)(b)(ii) of the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held: (SCC pp. 727-28 & 744-45, paras 31 & 74) “31. Therefore, in our view, the phrase ‘public policy of India’ used in Section 34 in context is required to be given (2019) 15 SCC 131 (Two Judges Bench) 296 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. Hence, in our view in addition to narrower meaning given to the term ‘public policy’ in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be—award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.” (Emphasis supplied)
26. Ssangyong Engineering(supra) followed the observations of Associate Builders (supra). To efficiently encapsulate the extent thereof particularly in the context of Indian awards, we may refer only to para 37 where it has been held:- “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 [2024] 1 S.C.R. S.V. Samudram v. State of Karnataka & Anr 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.”
27. The position in Associate Builders(supra) was recently summarised as hereinbelow recorded by Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum12 “42. In Associate Builders, this Court held that an award could be said to be against the public policy of India in, inter alia, the following circumstances: 42.1. When an award is, on its face, in patent violation of a statutory provision. 42.2. When the arbitrator/Arbitral Tribunal has failed to adopt a judicial approach in deciding the dispute. 42.3. When an award is in violation of the principles of natural justice. 42.4. When an award is unreasonable or perverse. 42.5. When an award is patently illegal, which would include an award in patent contravention of any substantive law of India or in patent breach of the 1996 Act. 42.6. When an award is contrary to the interest of India, or against justice or morality, in the sense that it shocks the conscience of the Court.” JUDGMENT PASSED UNDER SECTION 34 A&C ACT
28. A perusal of the judgment and order of the learned Civil Judge, in the considered view of this Court, does not reflect fidelity to the text of the statute. Nowhere does it stand explained, as to, under which ground(s) mentioned under Section 34 of the A&C Act, did the Court find sufficient reason to intervene. In fact, quite opposite thereto, the Court undertook a re-appreciation of the matter, and upon its own view of the evidence, modified the order. (2022) 4 SCC 463 (2-Judge Bench) 298
29. As the above extracted judgment shows, merits of the award are only to be gone into, if the award is demonstrated to be contrary to the public policy of India. The reasons recorded by the learned Civil Judge for modifying the arbitral award, as reflected from a perusal thereof, have been recorded in an earlier section of the judgment. None of those reasons even so much as allude to the award being contrary to the public policy of India, which would enable the court to look into the merits of the award.
30. We have carefully perused the award passed by the Arbitrator in which he has not only referred to and considered the materials on record in their entirety but also, after due application of mind, assigned reasons for arriving at this conclusion, either rejecting, accepting or reducing the claim set out by the Claimant-Appellant. Noticeably, during the arbitral proceedings none of the parties raised any objection to the Arbitrator adjudicating the dispute, be it on any ground, including bias. Each one of the claims stands separately considered and dealt with.
31. We find that the view taken by the Arbitrator is a plausible view and could not have been substituted for its own by the Court.
32. The reasons assigned by the Court under Section 34 of the A &C Act, to our mind, are totally extraneous to the controversy, to the lis between the parties and not borne out from the record. In fact, they are mutually contradictory. 32.1 In awarding an amount of 25% of the tender amount (incorrectly recorded as “over the tender amount” in some parts of the judgment of the learned Civil Judge, Sirsi) in favour of the Claimant-Appellant, the Court has ipso facto accepted that the Claimant-Appellant had not breached the terms of the contract. In fact, the Court appears to have accepted the Claimant’s contention of delay in handing over the site drawings and supply of materials. The Court while noticing the change in the drawings, resorted to, a misadventure by observing that the changes in the drawings were “only minor” in the dimension of beam which as we find the Court have contradicted itself by recording the same to have been “noticed as essential in the execution of the contract”. The Court, in our considered view had no business to state that the Claimant is claiming the amount is from the pocket of the concerned engineer or his property. [2024] 1 S.C.R. S.V. Samudram v. State of Karnataka & Anr “…Whether the claimant is claiming the such amount is from the pocket of concerned Engineers or from his property, whey should so much amount be paid from exchequer amount, it is heavily cast on the tax payer, that has to be consider by the court…” 32.2 Further observations as we extract hereunder, justifying the interference in the award, in our considered opinion, are totally scandalous: – “…Admittedly the arbitrator who is retired Engineer after retirement there will be no holding on the department, when the claimant is going to benefit so much amount there will be benefit to the arbitrator…” 32.3 The Court imputed its personal knowledge in assigning reasons by observing :- “…Even in this case also if the report of the arbitrator is accepted as it is, it is heavy burden on the exchequer not on the department…” 32.4 The reasoning given by the Court in interfering with the award which is extracted immediately hereafter, in our view, is preposterous: – “…It is the common sense and the general observation, whenever the work is entrusted to any contractor to put up the construction what they do is, they use to start excavation to lay a foundation. It is not the case of the 2nd opponent regarding digging at original spot or laying any foundation for construction of the residential house. So, under such circumstances the alleged loss pleaded by the opponent No.2 is only at his imagination.” 32.5 For it is no business of the Court to consider the burden on the exchequer. All that is required by the Court is to see as to whether the contracting parties have agreed to bind themselves to the terms with the only supervisory jurisdiction of the Court to consider breach thereof, in the light of the grounds specified under Section 34. 32.6 To our mind, the court lost sight of the fact that the civil contract was composite in nature that is having contracted both of 300 the building of the office and residence together. In these circumstances, the contractor could not have commenced work of part of the project when the complete site and the drawings were not handed over to him. In the absence of the parties have agreed otherwise, work could not have commenced. Hence, observation of the court, advisory in nature, for the contractor to have commenced the work for one part of the contract is unwarranted and uncalled for, in fact perverse. 32.7 The other observation that there was a delay on the part of the contractor in completing the work or speeding up the work does not reflect in the record. They are nothing short of mere conjectures. This is more so in view of the absence of invocation of the arbitration clause or initiation of the proceedings thereunder on the part of the Respondent against the contractor as also not raising any counter claims for adjudication by the Arbitrator. 32.8 Accounting for the legal position, the court could have at best set aside the award and could not modify the same. 32.9 We also notice the learned Arbitrator, to have accepted the contention of the Claimant-Appellant that there was a delay in supply of drawings, which in turn caused delay in placing the orders for steel and other such requirements. The Civil Judge had disagreed therewith on a mere reference to “Ex. R 38 to 95” showing prompt supply. There is no discussion whatsoever. Another instance is noteworthy. It was observed that the question of idleness of the labour does not arise if there was another building to be constructed, and therefore, such claim cannot be paid. This is a clear instance of the court supplanting its view in place of the Arbitrator, which is not a permissible exercise, and is completely de-hors to the jurisdiction under Section 34.
33. As such, the modification of the arbitral award by the learned Civil Judge, Sirsi, does not stand scrutiny, and must be set aside. JUDGMENT UNDER SECTION 37 A&C ACT
34. Moving further, we now consider the judgment impugned before us, i.e., the order of the High Court upholding such modification, under the jurisdiction of Section 37 of the A&C Act. [2024] 1 S.C.R. S.V. Samudram v. State of Karnataka & Anr
35. It has been observed by this Court in MMTC Ltd. v. Vedanta Ltd.13 “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.” (Emphasis Supplied)
36. This view has been referred to with approval by a bench of three learned Judges in UHL Power Company Ltd v. State of Himachal Pradesh14.In respect of Section 37, this court observed:- “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.”
37. This Court has not lost sight of the fact that, as a consequence to our discussion as aforesaid, holding that the judgment and order under Section 34 of the A&C Act does not stand judicial scrutiny, an independent evaluation of the impugned judgment may not be required in view of the holding referred to supra in MMTC Ltd. However, we proceed to examine the same.
38. We may also notice that the circumscribed nature of the exercise of power under Sections 34 and 37 i.e., interference with an arbitral award, is clearly demonstrated by legislative intent. The Arbitration Act of 1940 had a provision (Section 15) which allowed for a court (2019) 4 SCC 163(2 Judge Bench) (2022) 4 SCC 116(3-Judge Bench) 302 to interfere in awards, however, under the current legislation, that provision has been omitted.15
39. The learned Single Judge, similar to the learned Civil Judge under Section 34, appears to have not concerned themselves with the contours of Section 37 of the A&C Act. The impugned judgment reads like a judgment rendered by an appellate court, for whom re- examination of merits is open to be taken as the course of action.
40. We find the Court to have held the award to be perverse and contrary to public policy. The basis for such a finding being the delay on the part of the contractor in completion of the work which “could have been avoided”. Significantly, as we have observed earlier such a finding is not backed by any material on record.
41. What appears to have weighed with the court is that the factoring of the cost escalation between the years 1989-90 and 1992 by 100% was exaggerated. But then equally, there is no justification in granting lump sum escalation by 25% of the contract value. Well, this cannot be a reason to modify the award for the parties are governed by the terms and conditions and the price escalation stood justified by the petitioner based on cogent and reliable material as was so counted by the Arbitrator in partly accepting and/or rejecting the claims.
42. In our considered opinion, the court while confirming the modification of the award committed the very same mistake which the Court under Section 34 of the A&C Act, made. The Court under Section 37 had only three options:- (a) Confirming the award of the Arbitrator; (b) Setting aside the award as modified under Section 34; and (c) Rejecting the application(s) under Section 34 and 37.
43. The learned single Judge has examined the reasoning adopted by the learned Arbitrator in respect of certain claims (claims 3 and 7, particularly) and held that allowing a claim for escalation of cost, was without satisfactory material having been placed on record and is “perverse and contrary to the public policy”. However, it appears Larsen Air Conditioning and Refrigration Company v. Union of India and Others 2023 SCC OnLine 982 (2-Judge Bench) [2024] 1 S.C.R. S.V. Samudram v. State of Karnataka & Anr that such a holding on part of the Judge is without giving reasons therefor. It has not been discussed as to what the evidence was before the learned single Judge to arrive at such conclusion. This is of course, entirely without reference to the scope delineated by various judgements of this Court as also, the statutory scheme of the A & C Act.
44. Having referred to J.G Engineers (P)Ltd. v. UOI16and more particularly para 27 thereof, it has been held that the award passed by the learned Arbitrator is “patently illegal, unreasonable, contrary to public policy.” There is no reason forthcoming as to how the holding of the learned Arbitrator flies in the face of public policy. ON INTEREST
45. On the issue of interest, we notice that the Arbitrator has awarded interest @ 18% p.a., w.e.f. 09 March 1994 which stood reduced to 9%. The transaction being commercial in nature, we see no reason as to why the claimant could not be entitled to interest in terms of the rate quantified by the Arbitrator which includes the period of pre-arbitration, pendantelite and future. We notice this Court to have stated in Hyder Consulting (UK) Ltd. v. State of Orissa17, through S.A. Bobde, J. (as His Lordship then was) speaking for the majority as under: “4. Clause (a) of sub-section (7) provides that where an award is made for the payment of money, the Arbitral Tribunal may include interest in the sum for which the award is made. In plain terms, this provision confers a power upon the Arbitral Tribunal while making an award for payment of money, to include interest in the sum for which the award is made on either the whole or any part of the money and for the whole or any part of the period for the entire pre-award period between the date on which the cause of action arose and the date on which the award is made… The significant words occurring in clause (a) of sub-section (7) of Section 31 of the Act are “the sum for which the award is made”. On a plain reading, this expression refers to the total amount or sum for the (2011) 5 SCC 758 (2 Judge Bench) (2015) 2 SCC 189 (3-Judge Bench) 304 payment for which the award is made. Parliament has not added a qualification like “principal” to the word “sum”, and therefore, the word “sum” here simply means “a particular amount of money”. In Section 31(7), this particular amount of money may include interest from the date of cause of action to the date of the award. … …. 7. Thus, when used as a noun, as it seems to have been used in this provision, the word “sum” simply means “an amount of money”; whatever it may include — “principal” and “interest” or one of the two. Once the meaning of the word “sum” is clear, the same meaning must be ascribed to the word in clause (b) of sub-section (7) of Section 31 of the Act, where it provides that a sum directed to be paid by an arbitral award “shall … carry interest …” from the date of the award to the date of the payment i.e. post- award. In other words, what clause (b) of sub-section (7) of Section 31 of the Act directs is that the “sum”, which is directed to be paid by the award, whether inclusive or exclusive of interest, shall carry interest at the rate of eighteen per cent per annum for the post-award period, unless otherwise ordered. 9. The purpose of enacting this provision is clear, namely, to encourage early payment of the awarded sum and to discourage the usual delay, which accompanies the execution of the award in the same manner as if it were a decree of the court vide Section 36 of the Act.” (Emphasis Supplied) 46. Keeping in view the aforesaid observations of this Court, it cannot be doubted that the Claimant-Appellant is entitled to interest. We find that the learned Arbitrator, as hitherto observed, has awarded 18% interest and the same stood reduced by the Courts below to 9% without any legal basis therefor. In exercise of our powers under Article 142, we deem it appropriate to, in order to ensure substantial justice,inter se the parties, of awarding interest @ 9 % p.a. from the date of award pendantelite and future, till date of payment. [2024] 1 S.C.R. S.V. Samudram v. State of Karnataka & Anr CONCLUSION 47. In the absence of compliance with the well laid out parameters and contours of both Section 34 and Section 37 of the A&C Act, the impugned judgement(s)referred to in Para 1 (supra) are required to be set aside. Consequently, the award dated 18thFebruary 2003 of the learned Arbitrator is restored, for any challenge thereto has failed. 48. The appeal is allowed with a direction to the State of Karnataka to expeditiously pay the amount. No costs. Headnotes prepared by: Ankit Gyan Result of the case: Appeal allowed.