PATEL ENGINEERING LTD. versus NORTH EASTERN ELECTRIC POWER CORPORATION LTD. (NEEPCO)

[2020] 4 S.C.R.

APATEL ENGINEERING LTD.

NORTH EASTERN ELECTRIC POWERCORPORATION LTD. (NEEPCO)

(Special Leave Petition (C) Nos. 3584-3585 of 2020)

MAY 22, 2020

[R. BANUMATHI, INDU MALHOTRAAND ANIRUDDHA BOSE, JJ.]

Arbitration and Conciliation Act, 1996 – ss. 34 and 37 – TheCrespondent-North Eastern Electric Power Corporation Ltd.(NEEPCO) filed three applications u/s. 34 of the Act, 1996challenging the three arbitral awards dated 29.03.2016 – TheAdditional Deputy Commissioner (Judicial) vide common judgmentdated 27.04.2018 rejected the applications and upheld the threeDarbitral awards – The respondent-NEEPCO filed appeals u/s. 37 ofthe Act, 1996 before the High Court and the same were allowed byjudgment dated 26.02.2019 and the judgment dated 27.04.2018passed by the Additional Deputy Commissioner was set aside –Aggrieved, the petitioner preferred Special Leave Petitions, whichwere dismissed – After the dismissal of the SLPs, the petitioner filedEreview petitions before the High Court on the ground that thejudgment of the High Court dated 26.02.2019 suffered from errorapparent on the face of the record – The said review petitions weredismissed by the High Court by order dated 10.10.2019 – On appeal,held: In the instant case, the High Court in its judgment datedF26.02.2019 has referred to the Supreme Court judgment in AssociatedBuilders at length and arrived at the correct conclusion that anarbitral award can be set aside u/s. 34, if it is patently illegal orperverse – This finding of the High Court was in conformity withthe Supreme Court judgment in Ssangyong Engineering – The HighCourt held that no reasonable person could have arrived at aGdifferent conclusion while interpreting clauses 2.7 and 3.4 of theBoQ and clauses 32(ii) (a) 33(iii) of the conditions of contract –The case was decided on the ground that the arbitral award is aperverse award and on holistic reading of all the terms andconditions of the Contract, the view taken by the Arbitrator is notH

PATEL ENGINEERING LTD. v. NORTH EASTERN ELECTRICPOWER CORPORATION LTD. (NEEPCO)

even possible view – The view of the High Court was correct –Thus, the High Court rightly dismissed the review petitions by theimpugned order dated 10.10.2019 – Resultantly, all the Special LeavePetitions are dismissed.

Ssangyong Engineering and Construction CompanyLimited v. National Highways Authority of India (NHAI)(2019) 15 SCC 131 : [2019] 7 SCR 522; AssociateBuilders v. Delhi Development Authority (2015) 3 SCC49; [2014] 13 SCR 895 – relied on.

Bussa Overseas and Properties Private Limited andAnother v. Union of India and Another (2016) 4 SCC696 : [2016] 1 SCR 266; Durga Shankar Mehta v.Thakur Raghuraj Singh and Others [1955] 1 SCR 267;Shanker Motiram Nale v. Shiolalsing Gannusing Rajput(1994) 2 SCC 753; Thungabhadra Industries Ltd. v.Government of Andhra Pradesh Represented by theDeputy Commissioner of Commercial Taxes, Anantapur[1964] 5 SCR 174; Oil & Natural Gas CorporationLtd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : [2003] 3SCR 691; Oil & Natural Gas Corporation Ltd. v. WesternGeco International Limited (2014) 9 SCC 263 : [2014]12 SCR 1; HRD Corporation (Marcus Oil andChemical Division) v. GAIL (India) Limted (2018) 12SCC 471: [2017] 11 SCR 857; Board of Control forCricket in India v. Kochi Cricket Private Limited andOthers (2018) 6 SCC 287 : [2018] 2 SCR 829 –referred to.

CIVIL APPELLATE JURISDICTION: Special Leave Petition(Civil) Nos. 3584-3585 of 2020.

From the Judgment and Order dated 10.10.2019 of the High Courtof Meghalaya at Shillong in Review Petition No. 16 of 2019 and MC(Review Petition) No. 14 of 2019 respectively.

WithC

Special Leave Petition (Civil) Nos. 3438-3439, 3434-3435 of 2020.Tushar Mehta, SG, Harish Salve, Neeraj Kishan Kaul, HuzeffaAhmadi, Sr. Advs., Syed Jafar Alam, Ketan Gaur, Ashish Bhan, RajendraDangwal, Mohit Rohatgi, Aayush Mitruka, Deepak Joshi, Ms. Liz Mathew,Advs. for the appearing parties.D

The following Order of the Court was passed:

1. These special leave petitions arise out of the impugned orderdated 10.10.2019 passed by the High Court of Meghalaya at Shillong inEand by which the High Court declined to entertain the review petitionsfiled by the petitioner seeking review of the judgment and order dated26.02.2019 in Arbitration Appeal Nos.3, 4 and 5 of 2018 on the groundthat no ground for review is made out and that there is delay in filingthe application for review.

2. We have heard Mr. Harish Salve and Mr. Neeraj Kishan Kaul,learned Senior counsel appearing on behalf of the petitioner. On behalfof the respondent, we have heard Mr. Tushar Mehta, learned SolicitorGeneral and Mr. Huzeffa Ahmadi, learned Senior counsel at some length,even at the time of the admission.

3. The learned sole arbitrator has passed the arbitral award dated29.03.2016 in respect of Package-I holding as follows:-

“Based on my findings above, I have no hesitation incoming to the considered finding that the contract itselfprovides rate(s) for payment of extra lead in item Nos.2.7Hand 3.4 of the BOO for surface and underground structures

PATEL ENGINEERING LTD. v. NORTH EASTERN ELECTRICPOWER CORPORATION LTD. (NEEPCO)

respectively. Admittedly material had been transported froma lead much longer than that envisaged at the time of awardof work in favour of the claimant. It is also an admitted caseof the parties that the claimant is entitled to extra paymentfor the extra lead. The only point at issue is whether Clause33(ii)(a) or Clause 33(iii) would be applicable for workingout the rate payable for transportation. In view of my findings,I have no hesitation in holding that the payment of extra leadis to be determined in accordance with Clause 33(ii)(a) forthe item which has deviated being already available in thecontract.

I, therefore, answer the reference as follows:

The rate for extra lead for transportation of sand andboulders from Government approved quarries to the worksite for package-I works under KaHEP shall be decided interms of Clause 33(ii)(a) of Part-III, Volume-I, Conditions ofContract of Book-II of Contract Agreement No.NEEPCO/ED/QP/C&P/R/C/KaHEP/560 of 2004-05 dated 17.12.2004.”

Similar Declaratory Arbitral Awards dated 29.03.2016 werepassed by the learned sole arbitrator in respect of the other two ArbitralReferences in respect of contracts pertaining to Package-II and Package-III of the project.

4. Respondent-North Eastern Electric Power Corporation Ltd.(NEEPCO) filed three applications under Section 34 of the Arbitrationand Conciliation Act, 1996 before the Additional Deputy Commissioner(Judicial), Shillong challenging the three arbitral awards dated 29.03.2016in respect of Packages-I, II and III. The Additional Deputy Commissioner(Judicial) vide common judgment dated 27.04.2018 rejected theapplications under Section 34 of the Act and upheld all the three arbitralawards. The respondent-NEEPCO filed three appeals under Section 37of the Act before the High Court in Arbitration Appeal No(s).3, 4 and 5of 2018. By the common judgment dated 26.02.2019, the High Courtallowed the respondent’s appeals and set aside the common judgmentdated 27.04.2018 passed by the Additional Deputy Commissioner(Judicial).

5. Aggrieved by the common judgment dated 26.02.2019, thepetitioner preferred special leave petitions before the Supreme Court in

ASLP (C) Nos.13629-13631 of 2019. After hearing both the parties, theSupreme Court vide order dated 19.07.2019 dismissed all the three SLPsfiled by the petitioner holding that the Court is not inclined to interfere inthe matters.

6. After dismissal of the SLPs, the petitioner filed review petitionsBbefore the High Court on the ground that the judgment of the High Courtdated 26.02.2019 suffers from error apparent on the face of the recordas it had not taken into consideration the amendments made to Arbitrationand Conciliation Act, 1996 by Amendment Act of 2015. The said reviewpetitions came to be dismissed by the High Court vide the impugnedorders.C

7. We heard the matter at some length at the time of admissionand carefully considered the submissions of the learned counsel appearingfor the parties and the judgments relied upon by both the sides and thejudgment of the High Court dated 26.02.2019 and other materials onrecord.D

8. Contention of the learned Senior counsel for the petitioner isthat dismissal of the earlier SLP vide order dated 19.07.2019 is non-speaking order and not on merits and hence no objection could be takenfor filing of the review petition. Placing reliance upon Bussa Overseas[1]and Constitution Bench decisions in Durga Shankar Mehta[2], it wasEsubmitted that Article 136 of the Constitution confers on the SupremeCourt special or residuary powers which are exercisable outside thepurview of the ordinary laws in cases where the needs of justice demandinterference by the Supreme Court. It was submitted that in paragraph(30) of Bussa Overseas[3], the Supreme Court held that though the decisionin Shanker Motiram Nale[4 ]referred to Order 47 Rule 7 of the Code ofFCivil Procedure bars an appeal against the order of the court rejectingthe review, it is not to be understood that the court has curtailed theplenary jurisdiction under Article 136 of the Constitution by taking recourseto the provisions in the Code of Civil Procedure.

1 Bussa Overseas and Properties Private Limited and Another v. Union of India andAnother (2016) 4 SCC 696

2 Durga Shankar Mehta v. Thakur Raghuraj Singh and Others (1955) 1 SCR 2673 Bussa Overseas and Properties Private Limited and Another v. Union of India andAnother (2016) 4 SCC 696H4 Shanker Motiram Nale v. Shiolalsing Gannusing Rajput (1994) 2 SCC 753

9. Mr. Tushar Mehta, learned Solicitor General also relied uponBussa Overseas[5]and contended that the appeal is not maintainableagainst the order rejecting the application for review of judgment andsuch appeal is not against the main judgment. In support of his contention,learned Solicitor General has placed reliance upon paragraph (22), whichreads as under:-

“22. Recently in Sandhya Educational Society vs. Union ofIndia (2014) 7 SCC 701, the Court referred to the decision inVinod Kapoor vs. State of Goa (2012) 12 SCC 378 and opinedthus: (SCC p. 706, para 16)

“16. This Court in Vinod Kapoor v. State of Goa (2012) 12SCC 378, has categorically observed that once the special leavepetition is dismissed as withdrawn without obtaining appropriatepermission to file special leave petition once over again afterexhausting the remedy of review petition before the High Court,the same is not maintainable.”

10. After considering the Constitution Bench decision in DurgaShankar Mehta[6 ]and number of other judgments, in Bussa Overseas[7],the Court held that consistency is the cornerstone of the administrationof justice and courts have evolved and formulated principle that if thebasic judgment is not assailed and the challenge is only to the orderpassed in review, the Supreme Court is obliged not to entertain suchspecial leave petitions. In paragraphs (30) and (31) of Bussa Overseas[8],the Supreme Court held as under:-“30. The decisions pertaining to maintainability of special leavepetition or for that matter appeal have to be seemly understood.Though in the decision in Shanker Motiram Nale ShiolalsingGannusing Rajput (1994) 2 SCC 753, the two-Judge Benchreferred to Order 47 Rule 7 of the Code of Civil Procedure thatbars an appeal against the order of the court rejecting the review,it is not to be understood that the Court has curtailed the plenaryjurisdiction under Article 136 of the Constitution by taking recourse

5 Bussa Overseas and Properties Private Limited and Another v. Union of India and

Another (2016) 4 SCC 696

6 Durga Shankar Mehta v. Thakur Raghuraj Singh and Others (1955) 1 SCR 2677 Bussa Overseas and Properties Private Limited and Another v. Union of India andAnother (2016) 4 SCC 696

Ato the provisions in the Code of Civil Procedure. It has to beunderstood that the Court has evolved and formulated principlethat if the basic judgment is not assailed and the challenge is onlyto the order passed in review, this Court is obliged not to entertainsuch special leave petition. The said principle has gained theauthoritative status and has been treated as precedential principleBfor more than two decades and we are disposed to think thatthere is hardly any necessity not to be guided by the said precedent.

31. In this context, we may profitably reproduce passage fromState of A.P. v. A.P. Jaiswal (2001) 1 SCC 748, wherein three-Judge Bench has observed thus: (SCC p. 761, para 24)

“24. Consistency is the cornerstone of the administration ofjustice. It is consistency which creates confidence in the systemand this consistency can never be achieved without respect tothe rule of finality. It is with view to achieve consistency injudicial pronouncements, the courts have evolved the rule ofDprecedents, principle of stare decisis, etc. These rules andprinciple are based on public policy….” (emphasis supplied)

The Supreme Court held that the decision rendered inThungabhadra Industries Ltd.[9 ]is not correct.

E11. It was submitted by the learned Solicitor General andlearned Senior counsel appearing on behalf of the respondent that theearlier SLP was heard at length and thereafter, the SLP came to bedismissed as there was no ground to interfere in the matters. Afterdismissal of the SLP and without seeking for liberty, the petitionerthereafter filed the review petition.F

12. In our considered view, it is not necessary to go into the questionof maintainability of these SLPs preferred against the order rejectingthe review, after the challenge to the main judgment had been rejectedin the earlier SLPs. As noted earlier, in this case, the judgment of theHigh Court under Section 37 of the Act was challenged before theGSupreme Court and the SLPs were dismissed by the Supreme Courtafter hearing the Senior Counsel for the parties vide order dated

8 Bussa Overseas and Properties Private Limited and Another v. Union of India andAnother (2016) 4 SCC 696

9 Thungabhadra Industries Ltd. v. Government of Andhra Pradesh Represented by theHDeputy Commissioner of Commercial Taxes, Anantapur (1964) 5 SCR 174

19.07.2019. Be it noted when the earlier SLPs were dismissed, no libertywas taken to file the review before the High Court. Be that as it may,we are not inclined to go into this aspect any further.

13. On behalf of the petitioner, Mr. Harish Salve and Mr. NeerajKishan Kaul, learned Senior counsel mainly contended that in thejudgment of the High Court dated 26.02.2019, the High Court erroneouslyapplied the provisions as applicable prior to the Amendment Act, 2015and the judgment of the High Court suffers from error apparent on theface of the record since the High Court relied upon the decision in SawPipes Ltd.[10]and Western Geco International Limited[11], which are nolonger good law after the Amendment Act, 2015 brought into effectfrom 23.10.2015. It is submitted that the judgment of the High Courtdated 26.02.2019 suffers from error apparent on the face of the recordand therefore, the petitioner is justified in seeking the review of thejudgment dated 26.02.2019 and the High Court was not right in rejectingthe review petition. In support of the contention of the petitioners, reliancewas placed upon HRD Corporation[12]and Ssangyong Engineering andConstruction Company Limited[13].

14. Mr. Tushar Mehta, learned Solicitor General and Mr. HuzeffaAhmadi, learned Senior counsel have submitted that at the time whenthe earlier SLP(C) Nos.13629-13631 of 2019 were heard, they wereheard at length and all the arguments including the effect of theamendment to Section 34 was also raised and only thereafter, the earlierSLPs came to be dismissed. It was submitted that though the dismissalof order dated 19.07.2019 is non-speaking order, the petitioner hadraised all contentious points, now urged, and faced an order of dismissal,and the petitioner cannot be allowed to reagitate the matter by filing areview petition.

15. In Board of Control for Cricket in India[14], the SupremeCourt held that the Amendment Act, 2015 would apply to Section 34

10 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 70511 Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited (2014) 9SCC 263

12 HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limted

(2018) 12 SCC 471

13 Ssangyong Engineering and Construction Company Limited v. National HighwaysAuthority of India (NHAI) (2019) 15 SCC 131, Para No.19

14 Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others(2018) 6 SCC 287

Apetitions that are made after 23.10.2015 (the day on which theAmendment Act came into force). In the present case, admittedly, afterthe arbitral awards are dated 29.03.2016, the applications under Section34 of the Act were filed before the Judicial Commissioner, Shillong asper the decision in Board of Control for Cricket in India[15], the provisionsof the Amendment Act would apply.B

16. Patent illegality as ground for setting aside domestic awardwas first expounded in the judgment of Saw Pipes Ltd.[16 ]where thisCourt was dealing with domestic award. This Court gave widerinterpretation to the ‘public policy of India’ in Section 34(2)(b)(ii) in PartI of the 1996 Act. The Court held that an award would be “patentlyCillegal”, if it is contrary to the substantive provisions of law; or, provisionsof the 1996 Act; or, terms of the contract.

17. In the subsequent judgment of Associate Builders[17], this Courtdiscussed the ground of patent illegality as ground under public policyfor setting aside domestic award. The relevant extract of the judgmentDin Associate Builders case (supra) reads as follows:-

“40. Patent Illegality

We now come to the fourth head of public policy namely, patentillegality. It must be remembered that under the explanation toESection 34(2)(b), an award is said to be in conflict with the publicpolicy of India if the making of the award was induced or affectedby fraud or corruption. This ground is perhaps the earliest groundon which courts in England set aside awards under English law.Added to this ground (in 1802) is the ground that an arbitral awardwould be set aside if there were an error of law by theFarbitrator….”

“42. In the 1996 Act, this principle is substituted by the ‘patentillegality’ principle which, in turn, contains three sub heads-

42.1 (a) contravention of the substantive law of India wouldresult in the death knell of an arbitral award. This must beGunderstood in the sense that such illegality must go to the root of

15 Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others(2018) 6 SCC 287

16 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705

17 Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, paras 40 to 45.

PATEL ENGINEERING LTD. v. NORTH EASTERN ELECTRICPOWER CORPORATION LTD. (NEEPCO)

the matter and cannot be of trivial nature. This again is reallya contravention of Section 28(1)(a) of the Act, which reads asunder:

28. Rules applicable to substance of dispute.—(1) Where theplace of arbitration is situated in India,-

(a) in an arbitration other than an international commercialarbitration, the arbitral tribunal shall decide the disputesubmitted to arbitration in accordance with the substantivelaw for the time being in force in India;

42.2 (b) contravention of the Arbitration Act itself would beregarded as patent illegality-for example if an arbitrator givesno reasons for an award in contravention of Section 31(3) of theAct, such award will be liable to be set aside.

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

28. Rules applicable to substance of dispute.-

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

This last contravention must be understood with caveat. Anarbitral tribunal must decide in accordance with the terms of thecontract, but if an arbitrator construes term of the contract in areasonable manner, it will not mean that the award can be setaside on this ground. Construction of the terms of contract isprimarily for an arbitrator to decide unless the arbitrator construesthe contract in such way that it could be said to be somethingthat no fair minded or reasonable person could do.” (emphasissupplied)

18. The Law Commission in its 246[th] Report[18] recommended theinsertion of the ground of ‘patent illegality’ for setting aside domesticaward by the insertion of clause (2A) in Section 34 of the Act. Therelevant extract from the Report of the Law Commission is extractedherein below:-

18 Available at : http://lawcommissionofindia.nic.in/reports/Report246.pdf

“It is for this reason that the Commission has recommended theaddition of section 34 (2A) to deal with purely domestic awards,which may also be set aside by the Court if the Court finds thatsuch award is vitiated by “patent illegality appearing on the faceof the award.” In order to provide balance and to avoid excessiveintervention, it is clarified in the proposed proviso to the proposedsection 34 (2A) that such “an award shall not be set aside merelyon the ground of an erroneous application of the law or byreappreciating evidence.” The Commission believes that this willgo long way to assuage the fears of the judiciary as well as theother users of arbitration law who expect, and given thecircumstances prevalent in our country, legitimately so, greaterredress against purely domestic awards. This would also do awaywith the unintended consequences of the decision of the SupremeCourt in ONGC v. Saw Pipes Ltd, (2003) 5 SCC 705, which,although in the context of purely domestic award, had theunfortunate effect of being extended to apply equally to bothawards arising out of international commercial arbitrations as wellas foreign awards, given the statutory language of the Act. …”(emphasis supplied)

To give effect to the said recommendation, it was suggested that:

“(iii) After the Explanation in sub-section (2), insert sub-section‘(2A) An arbitral award arising out of arbitrations other thaninternational commercial arbitrations, may also be set aside bythe Court if the Court finds that the award is vitiated by patentillegality appearing on the face of the award. Provided that anaward shall not be set aside merely on the ground of an erroneousapplication of the law or by re-appreciating evidence.’

[NOTE: The proposed S.34(2A) provides an additional, albeitcarefully limited, ground for setting aside an award arising out ofa domestic arbitration (and not an international commercialarbitration). The scope of review is based on the patent illegalitystandard set out by the Supreme Court in ONGC Ltd. v. SawPipes Ltd., (2003) 5 SCC 705. The proviso creates exceptions forerroneous application of the law and re-appreciation of evidence,which cannot be the basis for setting aside awards.]” (emphasissupplied)

19. Pursuant to the recommendations of the Law Commission,the 1996 Act was amended by Act 3 of 2016, which came into forcew.e.f. 23.10.2015. The ground of “patent illegality” for setting aside adomestic award has been given statutory force in Section 34(2A) of the1996 Act. The ground of “patent illegality” cannot be invoked ininternational commercial arbitrations seated in India. Even in the case ofa foreign award under the New York Convention, the ground of “patentillegality” cannot be raised as ground to resist enforcement, since thisground is absent in Section 48 of the 1996 Act. The newly inserted sub-section (2A) in Section 34, reads as follows:-

“(2A) An arbitral award arising out of arbitrations other thaninternational commercial arbitrations, may also be set aside bythe Court, if the Court finds that the award is vitiated by patentillegality appearing on the face of the award :

Provided that an award shall not be set aside merely on the groundof an erroneous application of the law or by reappreciation ofevidence.”

20. In Ssangyong Engineering and Construction CompanyLimited[19], this Court was considering challenge to an award passed inan international commercial arbitration, between the Appellant – companya foreign entity registered under the laws of Korea, and the Respondent,a Government of India undertaking. In paragraph (19) of the judgment,this Court noted that the expansive interpretation given to “public policyof India” in the Saw Pipes (supra) and Western Geco InternationalLimited[20 ]cases, which had been done away with, and new ground of“patent illegality” was introduced which would apply to applications underSection 34 made on or after 23.10.2015. In paragraphs (36) and (37) ofthe judgment, this Court held that insofar as domestic awards areconcerned, the additional ground of patent illegality was now availableunder sub-section (2A) to Section 34. However, re-appreciation ofevidence was not permitted under the ground of “patent illegality”appearing on the face of the award.

21. In paragraphs (39) and (40) of Ssangyong Engineering(supra), the Court reiterated paragraphs (42.2) and (42.3) of Associate

19 Ssangyong Engineering and Construction Company Limited v. National HighwaysAuthority of India (NHAI) (2019) 15 SCC 131

20 Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited (2014) 9SCC 263

ABuilders (supra) wherein, it was held that the construction of the termsof contract is primarily for an arbitrator to decide, unless the arbitratorconstrues contract in manner which no fair minded or reasonableperson would take i.e. if the view taken by the arbitrator is not even apossible view to take. In paragraphs (39) and (40), the Supreme Courtheld as under:-B

“39. To elucidate, para 42.1 of Associate Builders v. DelhiDevelopment Authority (2015) 3 SCC 49, namely, merecontravention of the substantive law of India, by itself, is no longera ground available to set aside an arbitral award. Para 42.2 ofAssociate Buildersv. Delhi Development Authority (2015) 3 SCCC49, however, would remain, for if an arbitrator gives no reasonsfor an award and contravenes Section 31(3) of the 1996 Act, thatwould certainly amount to patent illegality on the face of theaward.

40. The change made in Section 28(3) by the Amendment ActDreally follows what is stated in paras 42.3 to 45 in AssociateBuilders v. Delhi Development Authority (2015) 3 SCC 49,namely, that the construction of the terms of contract is primarilyfor an arbitrator to decide, unless the arbitrator construes thecontract in manner that no fair-minded or reasonable personEwould; in short, that the arbitrator’s view is not even possibleview to take. Also, if the arbitrator wanders outside the contractand deals with matters not allotted to him, he commits an error ofjurisdiction. This ground of challenge will now fall within the newground added under Section 34(2-A).” (emphasis supplied)

F22. The present case arises out of domestic award betweentwo Indian entities. The ground of patent illegality is ground availableunder the statute for setting aside domestic award, if the decision ofthe arbitrator is found to be perverse, or, so irrational that no reasonableperson would have arrived at the same; or, the construction of the contractis such that no fair or reasonable person would take; or, that the view ofGthe arbitrator is not even possible view.

23. In the present case, the High Court has referred to the judgmentin Associated Builders (supra) at length in paragraph (42) of its judgmentdated 26.02.2019 and arrived at the correct conclusion that an arbitralaward can be set aside under Section 34 if it is patently illegal or perverse.H

This finding of the High Court is in conformity with paragraph (40) ofthe judgment of this Court in Ssangyong Engineering (supra).

24. In the present case, the High Court in paragraph (51) has heldthat no reasonable person could have arrived at different conclusionwhile interpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a)and 33(iii) of the Conditions of Contract. Any other interpretation of theabove clauses would definitely be irrational and in defiance of all logic.The relevant extract reads:-

“51. …Clause 33(iii) specifically provides that “if the rates forsuch items of work cannot be determined in the manner as specifiedin Clause 33(ii), the rates for such items to be executed shall bedetermined by the Engineer-in-Charge on the basis of actual andanalysed cost taking the following into consideration the rates forsuch items of works as are required to be executed due todeviations as stated in sub-clause shall be payable in the manneras stated hereunder…..”. We are of the firm view that this is theonly possible interpretation of Clauses 2.7 and 3.4 of the BoQ andClauses 32(ii)(a) and 33(iii) of the Conditions of Contract. Noreasonable person would arrive at different conclusion whileinterpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a)and 33(iii) of the Conditions of Contract. Any other interpretationof the above clauses would definitely be irrational and defiance ofall logic.” (emphasis supplied)

25. The High Court in paragraph (52) came to the finding that thefindings in the award suffer from the vice of irrationality and perversity,and held as follows:-

“52. The Arbitral Awards and the findings of the learned Arbitratorsuffer from the vice of perversity. The learned Arbitrator hastaken into account various factors irrelevant in coming to thedecision and has ignored vital clauses of the tender documentslike Clause 2 and various Sub-clauses i.e. Sub-clauses 2.1 to 2.8.7under Clause 2 and Clause 3 and various Sub-Clauses i.e. Sub-clauses 3.1 to 3.7 under Clause 3 of the BoQ, Clause 2 and variousSub-clauses i.e. Sub-clause 2.1 to 2.17.7 under Clause 2 andClause 3 and various Sub-clauses i.e. Sub-clause 3.1 to 3.10.5under Clause 3 of “Particular Technical Specifications”, Vol. 2,Part II. The learned Arbitrator has taken into consideration an

Airrelevant fact that while making provisional payment, the initiallead of 3.0 km has been deducted and that this shows that Clause2.7 and 3.4 of the BoQ are applicable. The provisional paymentwas an interim arrangement and was preceded by meetings dated07.12.2012 and 08.12.2012 wherein it was specifically agreedbetween the parties that HoP, NEEPCO would take steps forBreferring the dispute to arbitration and that till the arbitral award,the payment would be made as per the prevailing provisional ratewithout any escalation and that final rate payable for transportationof sand and boulder shall be done on implementation of the arbitralaward. As such the fact that provisional payment was made byCdeducting initial lead of 3.0 km was an irrelevant fact for decidingthe issue. The findings of the learned Arbitrator having been arrivedat by taking into account irrelevant factors and by ignoring vitalclauses, the same suffers from vice of irrationality and perversity.It must be borne in mind that the Arbitral Awards in question areDeclaratory Arbitral Awards and involved interpretation of ClausesD2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of theConditions of Contract and the learned arbitrator was required tointerpret the same in accordance with the established rules ofinterpretation. The findings of the learned Additional DeputyCommissioner (Judicial), Shillong while upholding the arbitralEawards of the learned Arbitrator also suffer from the similar vice.We are, therefore, of the considered view that that the commonorder dated 27.04.2018 passed by the learned Additional DeputyCommissioner (Judicial), Shillong in Arbitration Case No. 5 (T)2016, Arbitration Case No. 6 (T) 2016 and Arbitration Case No. 7(T) 2016 as well as the 3 (three) Arbitral Awards dated 29.03.2016Fpassed by the learned Arbitrator warrant interference in theseappeals under Sec. 37 of the Arbitration and Conciliation Act,1996.

53. There are additional reasons for interfering with order dated27.04.2018 passed by the learned Additional Deputy Commissioner(Judicial), Shillong and the Arbitral Awards dated 29.03.2016passed by the learned Arbitrator. As the learned counsel for theappellant has submitted, the potential effect of the Arbitral Awardon public exchequer is that the appellant, which is public sectorundertaking, will have to pay sum of about Rs. 3.56 Lakh forevery truckload of 10 cubic metre of sand or boulder (travelling

for 100 km) and the total potential effect would be about Rs.1,000 Crore. We are of the considered view that payment of Rs.3.56 Lakh per truck (10 Cubic Metre) of sand or boulder (100 kmdistance) is definitely case of unjust enrichment which is contraryto the Fundamental Policy of Indian Law. Unjust enrichment beingcontrary to the Fundamental Policy of Indian Law is ground forinterference with an Arbitral Award under Sec. 34(2) of the Act.The Bombay High Court in Angerlehner Structural and CivilEngineering co. v. Municipal Corporation of Greater Mumbai hasrecognized unjust enrichment of party at the cost of publicexchequer as being against the fundamental policy of Indian law.The Bombay High Court has held:

“If the argument of the Contractors is accepted, it lead to themblatantly enriching themselves over and above what they areentitled. Such completely unjust enrichment, that too at thecost of public funds, is abhorrent under the fundamental policyof Indian Law. The award in AJECT, which permits such blatantenrichment is therefore is also vitiated on the ground that it isagainst the fundamental policy of Indian Law.”

We are also of the considered view that the Arbitral Award whichwould potentially result in unjust enrichment of the respondent tothe extent of about Rs. 1,000 Crores is against the fundamentalpolicy of Indian law and, therefore, warrant interference on thiscount as well.

Though this court is not sitting in appeal over the award of thearbitral tribunal, the presence of grounds under Section 34[2] ofthe Act and the satisfaction arrived at by this Court in this regard,warrants interference more so, as the Arbitral Awards in questionare Declaratory Arbitral Awards and involved interpretation ofClauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii)of the Conditions of Contract and the learned arbitrator wasrequired to interpret the same in accordance with the establishedrules of interpretation and in line with the fundamental policy ofIndian law.”

(emphasis supplied)

26. Even though the High Court in paragraph (44) of the judgmentreferred to various judgments, including Western Geco (supra) [which

Ais now no longer good law], the case has been decided on the groundthat the arbitral award is perverse award and on holistic reading ofall the terms and conditions of the contract, the view taken by the arbitratoris not even possible view. The High Court has rightly followed the testset out in paragraph (42.3) of Associate Builders (supra), which wasreiterated in paragraph (40) of the Ssangyong Engineering judgmentB(supra).

27. In our view, while dealing with the appeal under Section 37 ofthe Act, the High Court has considered the matter at length, and heldthat while interpreting the terms of the contract, no reasonable personcould have arrived at different conclusion and that the awards passedby the arbitrator suffer from the vice of irrationality and perversity.

28. The learned Solicitor General Mr. Tushar Mehta andMr. H. Ahmadi, Senior Advocate for the respondent, submitted that allthese contentions were raised in the earlier round when challenge to thesubstantive Judgment dated 26.02.2019 was made. The said challengeDwas repelled by this Court vide Order dated 19.07.2019 by dismissal ofthe earlier SLPs. It is now not open to re-open the matter by filing areview petition on the same grounds, which have been rightly dismissedby the High Court. The Petitioner has failed to make out any error onthe face of the judgment dated 26.02.2019. The High Court by theEimpugned order dated 10.10.2019 rightly dismissed the review petitionsand we do not find any ground warranting interference with the impugnedorder.

29. In the result, all the special leave petitions are dismissed withno order as to costs.

Ankit Gyan

Special Leave Petitions dismissed.