RELIANCE INFRASTRUCTURE LTD. versus STATE OF GOA

[2023] 8 S.C.R. 379

RELIANCE INFRASTRUCTURE LTD.

STATE OF GOA

(Civil Appeal No. 3615 of 2023)

MAY 10, 2023

[DINESH MAHESHWARI AND SANJAY KUMAR, JJ.]

Arbitration and Conciliation Act, 1996: ss. 34, 37 – Arbitralaward – Scope of interference – Held: Arbitral award is not anordinary adjudicatory order so as to be lightly interfered with bythe Courts u/ss. 34 or 37 as if dealing with an appeal or revisionagainst decision of any subordinate Court – An award could besaid to be suffering from “patent illegality” only if it is an illegalityapparent on the face of the award and not to be searched out byway of re-appreciation of evidence – Possibility of interference wouldarise only if the construction of the arbitrator is such which couldnot be made by any fair-minded and reasonable person – Narrowscope of “patent illegality” cannot be breached by mere use ofdifferent expressions which nevertheless refer only to “error” andnot to “patent illegality” – If an arbitrator construes the term ofcontract in reasonable manner, the award cannot be set asidewith reference to the deduction drawn from construction – Restraintis required to be shown while examining the validity of arbitral awardby the Courts, else interference with the award after reassessingthe factual aspects would be defeating the object of the Act – Onfacts, the appellants constructed power plant for the State undera power purchase agreement-PPA, however, the State failed to payfor the power generated by the plant – Matter referred to thearbitrator, wherein the appellants awarded sum of Rs. 292.22crore along with an interest of 15% p.a. from the date of the awardtill the date of payment, however, the High Court reduced the interestrate awarded to 10% p.a.– High Court misdirected itself on themajor issues concerning the merits of the award – Nothing of apatent illegality apparent on the face of the award pointed out – Asthe prevailing interest rates at the time were in the range of 13% to14% p.a., the arbitrator acted within his jurisdiction in awardingthe interest rate of 15% p.a. post award and there was nojustification to reduce the same to 10% p.a. – There had been no

Asuch flaw in the judgment and order passed by the CommercialCourt which called for interference by the High Court on theparameters and within the periphery of ss. 34/37 – Part of theimpugned judgment and order passed by the High Court, whichmodifies the award and the order of the Commercial Court is setaside and the award is restored in its entirety.B

Disposing of the appeals, the Court

HELD: 1.1 Arbitral award is not an ordinary adjudicatoryorder so as to be lightly interfered with by the courts undersections 34 or 37 of the Arbitration and Conciliation Act, 1996 asCif dealing with an appeal or revision against decision of anysubordinate court. The significant aspect is that it is not mereillegality which would call for interference, but it has to be “apatent illegality”, which obviously signifies that it ought to beapparent on the face of the award and not the one which is culledout by way of long-drawn analysis of the pleadings and evidence.DOf course, when the terms and conditions of the agreementgoverning the parties are completely ignored, the matter wouldbe different and an award carrying such shortcoming shall bedirectly hit by Section 28(3) of the Act, which enjoins upon anarbitral tribunal to decide in accordance with the terms of contractEwhile taking into account the usage of trade applicable to thetransaction. If an arbitrator construes the term of contract in areasonable manner, the award cannot be set aside with referenceto the deduction drawn from construction. The possibility ofinterference would arise only if the construction of the arbitratoris such which could not be made by any fair-minded and reasonableFperson. [Para 18][433-D-G]1.2 The instant case had not been case of the fundamentalalteration of the terms of contract during the currency of contractand for that matter, the parties having definitely exchangedcommunication and having brought into existence an agreementGwhich, even if construed as supplemental to original one, hadbeen of material difference in regard to the use of particular fueland then raising of invoices on that basis with reference tofluctuating price of fuel as also the exchange rate of foreigncurrency (US dollar). [Para 19.3][436-B-C]

1.3 The matter can be examined from yet another angle. Ifthe terms agreed to by the parties with exchange ofcommunications commencing from 20.03.2013 were to beignored, the result would be of ignoring such terms of contract ofthe parties which had come into existence and which were bindingon both. Viewed thus, coupled with the fact that only the limiteddispute was presented for arbitration (i.e., as to whether powerwas to be supplied on the basis of fixed rate of fuel and fixed rateof currency or on variable charges), the Arbitral tribunal has beenjustified in focusing on the core issue raised, rather than goingastray and entering into such an analysis which was not germaneto the issue at hand. [Para 20][436-C-E]

1.4 No ground for challenge under Sections 34 or 37 of theAct was made out in relation to the award pertaining to variablecharges. Hence, the High Court has not been right in settingaside the award relating to variable charges on the ground of so-called non-consideration of clauses 12.1.4 to 12.1.7 of PowerPurchase Agreement. [Para 21][436-F]

1.5 The High Court, even while reminding itself of thelimitation of jurisdiction, committed the same error by extensivelydissecting the evidence while assuming that clauses 12.1.4 to12.1.7 were decisive of the matter without taking close look atthe material propositions which formed the dispute and whichwere presented by the parties before the arbitral tribunal. Asregards variable charges, the core question before the tribunalhad been as to whether the claimant agreed to supply electricityon fixed charges with fixed rate of foreign currency while usingthe alternate fuel. This question was essentially to be determinedwith reference to the new contract that came into existence withexchange of communications between the parties. The arbitratorprecisely decided the matter with reference to, and after analysisof, that evidence. It had neither been case of the arbitrator nottaking into consideration the terms of contract applicable to theissue at hand nor of any such finding which no fair-minded orreasonable person could have possibly rendered ever. Viewed inthe light of core dispute presented to the arbitral tribunal by theparties, the submissions that the arbitral tribunal has not examined

Athe question as to whether the correspondence in questionresulted in change of fundamentals of contract, do not make outa case for interference because novation of the terms of contractas regards fuel had not been matter of dispute at all. The corequestion was as to how the new terms were to operate. Thearbitral tribunal precisely dealt with the same in accordance withBlaw. [Para 21.1][436-F-H; 437-A-C]

1.6 What has been observed and held in disapproval ofinterference by the High Court in the item of award pertaining tovariable charges more or less apply to the other items too, wherethe High Court has interfered and has upturned the award. OnCevery such score, the High Court has rather entered into meritsof the matter as if dealing with regular appeal. It has been aclear case of the High Court travelling beyond the periphery ofSection 34 as also Section 37 of the Act. [Para 22][437-D-E]

1.7 The Arbitral Tribunal held that the issue relating toDdownrating of capacity was settled between the parties and theparties should not be allowed to reagitate the same, whereas theHigh Court found shortcomings in the discussions of the arbitraltribunal as regards the meaning and effect of the certificate dated08.11.2005 and as to whether the claimant could have made any

Eclaim on that basis or not. The High Court even proceeded toanalyse the minutes of the meeting. It has clearly been case ofvalue and worth attached to particular evidence by arbitraltribunal, which was considered not satisfactory by the High Court;and rejection of the contention of the Government by the arbitraltribunal was found to be erroneous. However, thereafter, the HighFCourt again observed that it was not case of re-appreciation ofevidence but being case of no evidence, there had been patentillegality. [Paras 23.3, 24][441-D-F]

1.8 The High Court travelled beyond its jurisdiction underSection 37 and rather than remaining within the confines ofGconsideration under Section 34 of the Act, entered into the arenawhich is exclusively within the arbitrator’s domain. What thearbitral tribunal held in regard to this item had exclusively beenits view on the evidence on record and the relevant surrounding

facts/factors. The view so taken by the arbitral tribunal cannot besaid to be wholly perverse or suffering from patent illegality soas to be interfered with. Even if two views are possible, the Courtcannot substitute its own view with that of the arbitral tribunal.[Para 24.1][442-F-G]

1.9 The questions in relation to the issue concerningdownrating, that adverse inference ought to be drawn againstthe claimant for failure to produce OEM recommendations, areonly pertaining to the principles of appreciation of evidence. Inthe regular adjudicatory process, the Court may presumeexistence of certain facts under Section 114 of the Evidence Act,1872; and in terms of Illustration (g) thereof, the Court is entitledto draw an inference that the evidence which could be but notproduced would, if produced, be unfavourable to the person whowithholds it. However, in given case, while determining thedispute by way of arbitration, whether the arbitrator draws suchadverse inference or not, is essentially matter of appreciationof evidence; and if not drawing of adverse inference is alsopermitted to be raised as ground of challenge under Section34, it would open the confines of limited interference in an award;and would carry the propensity of converting the proceedingsunder Section 34 and under Section 37 into the proceedings ofregular appeal/revision against the award and thereby, againviolating the principles that re-appreciation of evidence is notenvisaged in the proceedings under Section 34 of the Act of 1996.It gets per force reiterated that an award could be said to besuffering from “patent illegality” only if it is an illegality apparenton the face of the award and not to be searched out by way of re-appreciation of evidence. The submissions as regards drawing ofadverse inference are themselves adverse to the ethos ofSections 34 and 37 of the Act of 1996 and are required to berejected. [Para 25][442-H; 443-A-E]

1.10 As regards the question of downrating, the questionsrelating to the value of certificate dated 08.11.2005 and the effectof the claimant not taking up this issue earlier would again falldirectly within the arena of appreciation of evidence and reach tothe extent of rendering the finding on preponderance of

Aprobabilities. The arbitral tribunal has taken particular view ofthe evidence before it. If it were an appeal against the award, theapproach of the Court could have been different but, not so whileexamining the award within the confines of Section 34 of the Act.Even in regular appeal against decree of the trial court, theappellate court would not substitute its own views withoutBspecifically recording finding as to the error in the decisionunder challenge. In any case, if the approach of the High Court inthe present case is countenanced, the result would only be ofmaking every award susceptible to challenge before the Courton those very grounds which are, otherwise, of appeal or revisionCand which are not permitted by the legislature to be taken underSection 34 of the Act of 1996. [Para 25.1][443-E-H]

1.11 The approach of the High Court in relation to the twocomparatively minor issues relating to variable charges on 4MWpower and netting-out principles is also suffering from the sameDerror, where the High Court deeply analysed the evidence onrecord to hold that the arbitral tribunal has not been correct inits propositions or inferences. [Para 26][444-A-B]

1.12 As regards the award relating to variable charges on 4MW power, the High Court stepped into the arena which isEreserved for the arbitral tribunal. It is noticed that the partieshad agreed to particular methodology of billing for supply of15.8 MW power but, at the same time, retained with them theright to revert back to 19.8 MW supply at any future point oftime. With reference to the dealings of the parties, the arbitraltribunal took particular view of the matter. It cannot be saidFthat the view as taken by the arbitral tribunal was entirelyimpermissible or implausible. There was no scope for interferenceby the Court. [Para 29][445-B]

1.13 The aspect of netting-out depended on the terms ofcontract of the parties and the deductions to be drawn from theGevidence on record. The arbitral tribunal had drawn the particularconclusion on the basis of notes dated 13.09.2014 and 18.09.2014.The arbitral tribunal considered the documentary evidence beforeit, as well as the provisions of the contract relating to supply of

backup power by Government of Goa to the claimant when thepower station was under shutdown for the period May 2014 toAugust 2014. The arbitral tribunal further referred to thecommunications which also include the decision of theGovernment of Goa as to the rate at which power during the shutdown period was to be supplied to the claimant and on this basis,came to the finding that fixed rate which was not to be multipliedas per the provisions of the PPA was agreed between the parties.The award also gave reasons for such finding. Even if it beassumed that another view is possible, it cannot be said that thearbitral tribunal has taken such view which no fair-minded andreasonable person could have ever taken. The High Courtsubstituted its own view and reinterpreted the documentaryevidence before it for setting aside the award. Such substitutionof view is not permissible for the Court under Section 34 of Act.There arise no question of it being permissible under Section 37of the Act. [Paras 30, 31.1][445-C-F; 446-E]1.14 In regard to the question of interest, the High Courtrightly held that the arbitral tribunal was justified in following thecontractual provisions and the provisions of Section 31(7) of theAct; and has rightly not interfered with the award of interest forthe pre-reference period and the period during which theproceedings were pending before the arbitral tribunal. The Stateis not right in contending that the interest could not have beenawarded during the period of reference to the arbitrator. In regardto this aspect, the submissions to the effect that pre-referenceperiod interest was not based on any compelling reasons andcontractual provisions for interest were in terrorem are liable tobe discarded, could only be rejected for being not even standingwithin the periphery of Section 34 of the Act of 1996. However,insofar as post-award period is concerned, the High Court hasreduced the rate of interest from 15% to 10% relying on theprinciples of proportionality. The said reduction of rate of interestby the High Court is also unjustified. The provisions of Section31(7)(b) that unless the award otherwise directs, the sum payableunder the arbitral award shall carry interest at the rate of 2%higher than the current rate of interest prevalent on the date ofthe award, from the date of the award to the date of payment. The

Aexpression “current rate of interest” has been explained in theExplanation to the said Section to have the same meaning asassigned under Section 2(b) of the Interest Act, 1978. The HighCourt held that Court may reduce interest awarded by thearbitrator when such interest does not reflect the prevailingeconomic condition or where it is not found reasonable or whereBit promotes interest of justice. There is no basis in the impugnedjudgment of the High Court for reducing the rate of interest.[Paras 32.1, 33, 34][446-G-H; 447-A-B, F-H; 448-A]

1.15 The High Court seems to have not considered therelevant factual aspects. On the contrary, the prevailing interestCrate being the prime lending rate of State Bank of India was inthe range of 13% to 14% per annum. Thus, the arbitral tribunalwas justified in granting interest at the rate of 15% per annumpost award. The arbitral tribunal was well within its jurisdictionunder Section 31 of the Act to award interest at the rate of 15%

Dp.a. and there was no justification to reduce the same to 10% p.a.The High Court was not exercising any equity jurisdiction so asto resettle the rate of interest as deemed fit by it. It had been amatter relating to an award made by the arbitral tribunal in acommercial dispute. [Para 34.1][448-C-E]

E1.16 The High Court could only be said to have misdirecteditself on the major issues concerning merits of the award.However, it is observed that it had not been as if the CommercialCourt did not examine the material issues arising fordetermination while dealing with the case in terms of Section 34of the Act of 1996. [Para 35][448-G]F

1.17 After taking note of the submissions of parties, theCommercial Court precisely framed the points for determinationand then, dealt with every point on the anvil of Section 34 of theAct of 1996. The High Court was not justified in making acomment about framing of points for determination by CommercialGCourt and then observing that the Commercial Court merelyreproduced the findings of the award. The Commercial Courtdealing with Section 34 application was not acting as Court ofAppeal. Yet, the Commercial Court enumerated the issues raised

and then returned the findings after examining the record andwhile rejecting the submissions made on behalf of the State. Therehad been no such flaw in the judgment and order passed by theCommercial Court which called for interference by the High Courton the parameters and within the periphery of Sections 34/37 ofthe Act of 1996. [Para 35.1][448-H; 449-A-C]

1.18 The narrow scope of “patent illegality” cannot bebreached by mere use of different expressions which neverthelessrefer only to “error” and not to “patent illegality”. Restraint isrequired to be shown while examining the validity of arbitral awardby the Courts, else interference with the award after reassessingthe factual aspects would be defeating the object of the Act of1996. This is part from the fact that such an approach wouldrender several judicial pronouncements of this Court redundantif the arbitral awards are set aside by categorizing them as“perverse” or “patently illegal” without appreciating the contoursof these expressions. [Para 36][450-B-D]

1.19 In the impugned judgment, the High Court thoughreferred to the principles laid down by this Court in SsangyongEngineering’s case but then, reproduced an analysis by SingleJudge of the High Court and proceeded to decide the matterwith reference to the passages so extracted. Enunciation of thisCourt ought to have been examined by the Division Bench of theHigh Court while dealing with the matter at hand, rather thanrelying on the analysis by Single Judge of the High Court.Nothing is said more in this regard, essentially because the latterdecisions of this Court like those in Delhi Airport Metro Expressand Haryana Tourism Limited were not available before the HighCourt at the time of passing of the impugned judgment and orderdated 08.03.2021. Nevertheless, the principles expounded by thisCourt in Associate Builders and Ssangyong Engineering’s casewere available and the matter was required to be dealt with inreference to those principles. Leaving this aspect at that, sufficeit would be to observe for the present purpose that the impugnedjudgment and order, insofar it interferes with the findings andthe conclusions of the award in question, cannot be sustainedand is required to be set aside. [Para 37][450-D-G]

388SUPREME COURT REPORTS

A1.20 Fact of the matter remains that nothing of patentillegality apparent on the face of the award has been pointed out.The submissions essentially are of indicating some alleged errorson the merits of the case which do not fall within the parametersof Section 34 of the Act of 1996. Hence, that part of the impugnedjudgment and order as passed by the High Court, which modifiesBthe award and the order of the Commercial Court, is set asideand consequently, the award in question is restored in its entirety.[Paras 38, 39][451-A-C]

Ssangyong Engineering and Construction Co. Ltd. v.NHAI: (2019) 15 SCC 131 : [2019] 7 SCR 522;CAssociate Builders v. Delhi Development Authority(2015) 3 SCC 49 : [2014] 13 SCR 895; Delhi AirportMetro Express Pvt. Ltd. v. Delhi Metro Rail CorporationLtd. (2022) 1 SCC 131– relied on.

Vedanta Ltd. v. Shenzhen Shandong Nuclear PowerDConstruction Co. Ltd: (2019) 11 SCC 465 : [2018] 12SCR 829 – distinguished.

MMTC Limited v. Vedanta Limited (2019) 4 SCC 163 :[2019] 3 SCR 1023; State of Chhattisgarh and Ors. v.Sal Udyog Pvt. Ltd. (2022) 2 SCC 275; NHAI v. M.EHakeem (2021) 9 SCC 1; PSA SICAL Terminals (P) Ltd.v. Board of Trustees of V.O. Chidambranar Port TrustTuticorin and Ors. (2021) SCC Online SC 508 HaryanaTourism Ltd. v. Kandhari Beverages Ltd. (2022) 3 SCC237; UHL Power Company Limited v. State of HimachalPradesh (2022) 4 SCC 116 – referred to.F

Case Law Reference

(2022) 1 SCC 131relied onPara 36, 37A[2019] 7 SCR 522relied onPara 37CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3615of 2023.

From the Judgment and Order dated 08.03.2021 of the High Courtof Judicature at Bombay at Goa in COMAP No. 12 of 2019.

With

Civil Appeal No. 3616 of 2023.

R. Venkataramani, AG, Ritin Rai, Parag P. Tripathi, Sr. Advs.,Ms. Ruchira Gupta, Shishir Deshpande, Shreeharsha Peechara, Ms.Nancy Shah, Mahesh Agarwal, Rishi Agrawala, Ms. Niyati Kohli, Ms.Sukriti Bhatnagar, Anirudh Dusaj, Rajesh Kumar, E. C. Agrawala, Ms.Anjali C., Surendra Khot, Agni Som, Advs. for the appearing parties.

The Judgment of the Court was delivered by

DINESH MAHESHWARI, J.

Table of Contents[*]

* Ed. Note: Pagination in the Table of Contents is as per the original judgment.

APreliminary

Leave granted.

2. These two appeals, preferred against the judgment and orderdated 08.03.2021, as passed by the High Court of Judicature at Bombay,Goa Bench in Commercial Appeal No. 12 of 2019, one by RelianceBInfrastructure Limited[1], being the appeal arising out of SLP (Civil)No.8493 of 2021; and another by the State of Goa[2], being the appealarising out of SLP (Civil) No.16778 of 2021, have been consideredtogether and are taken up for disposal by this common judgment.

3. By way of the impugned judgment and order dated 08.03.2021,Cwhile dealing with an appeal under Section 37 of the Arbitration andConciliation Act, 1996[3] read with Section 13 of the Commercial Courts,Commercial Division and Commercial Appellate Divisions of High CourtsAct, 2015, the High Court has proceeded to upset the order dated12.09.2019, as passed by the Principal District & Sessions Judge, NorthGoa, Panjim[4] in dismissing the application filed under Section 34 of theDAct; and has partially set aside the award dated 16.02.2018, as made bythe Arbitral Tribunal comprising of the Sole Arbitrator, former Judge ofthis Court.

Relevant factual aspects and background

4. Shorn of unnecessary details, the relevant factual aspects couldEbe usefully summarised as follows:

4.1. On 10.01.1997, the claimant entered into Power PurchaseAgreement[5] with the Government of Goa to commission and operate apower generation station of 39.8 MW capacity for the period 14.08.1999to 13.08.2014. The power station was to use ‘Naphtha’ as fuel to generateFelectricity along with provision for using ‘Alternate Fuel’. The claimantcommenced commercial operation on 14.08.1999.

4.2. Various supplementary agreements were entered intobetween the parties from September 1997 to November 2001. By theFirst Supplementary Power Purchase Agreement dated 10.09.1997, itGwas mutually agreed to convert the generating station from Open Cycle

1 Hereinafter also referred to as ‘the claimant’.

2 Hereinafter also referred to as ‘the State’ or ‘the Government of Goa’.

3 Hereinafter also referred to as ‘the Act of 1996’ or simply ‘the Act’.

4 Hereinafter also referred to as ‘the Commercial Court’.

5 ‘PPA’, for short.

Generating Station into Combined Cycle Generating Station with acapacity of 48 MW. The Contracted Capacity was increased from 39402KW to 46560 KW. Furthermore, the claimant was authorized to sellpower in excess of 39.8 MW to consumers due to the combined cycleoperation. On 20.09.2000, the Second Supplementary Agreement wasexecuted between the parties, which enabled the claimant to conductcertain direct sales of power to consumers with permission. Thecomputation of tariff was based on the ‘New Rated Capacity,’ whichwas deemed to be the Contracted Capacity. The agreement also mandatedthe provision of backup power by the Government of Goa to the claimantfor distribution to its consumers in case of scheduled or unscheduledoutages, as specified in the agreement. On 05.11.2001, the parties enteredinto the Third Supplementary Agreement, which specified reduction insupply of power by the claimant to the extent of 19.8 MW from March2004 until the end of the PPA term, i.e., 13.08.2014 This 19.8 MWquantum was designated as ‘New Rated Capacity’.

4.3. It appears that in view of power being costly, the Governmentof Goa intended to stop the purchase from the claimant and addressed aletter to that effect on 20.03.2013. However, in view of provision inthe PPA for use of alternate fuel, by its communication dated 21.03.2013,the claimant gave its proposal to the Government of Goa to supply powerby using Regassified Liquefied Natural Gas[6], which was being broughtup to Goa by GAIL by its pipeline. The claimant gave formula bywhich the per unit cost of power would be billed by it to the Governmentof Goa. This particular aspect relating to the claimant’s proposal to switchover to the alternate fuel and charges payable in that regard has formeda major part of contentions in this case. Hence, little elaboration shallbe apposite.

4.3.1. On 26.04.2013, the Government of Goa replied to theclaimant’s letter dated 21.03.2013, inter alia, in the following terms: -

“In view of your offer under reference, the Governmenthas decided to continue to purchase power @ Rs. 8.58 per unitw.e.f. 01/04/2013 as per your formula proposed in the letterdated 21/03/2013 considering the present rates of fuel and dollar.The same may be noted for records and incorporated in your powerbills. The revised fixed rate shall be applicable from 1[st ]April 2013.”

[2023] 8 S.C.R.

A4.3.2. On 30.04.2013, the claimant, however, sought clarificationfrom the Government regarding the formula-based tariff payable for thesupply of electricity, inter alia, in the following words: -

“1. With regard to the price mentioned in our proposal dated21.03.2013, the tariff of Rs.8.58/unit is based on theBprevailing RLNG price ($17.2/mmbtu) and INR/USD exchangerate (1 $ = Rs 54) and is therefore not fixed. The same shall varydepending upon the fuel price in the market and the INR/USDexchange rate.”

4.3.3. It has been the case of the claimant that initially, theCGovernment of Goa agreed to fixed per unit price but, when it wasclarified that the price would not be fixed, the Government agreed topurchase the same considering the prevailing rates of fuel and dollarupto the expiry of the PPA while requiring that for this purpose,documentation showing the price of fuel and dollar be incorporated inthe bills raised by the claimant. In this regard, communication receivedDby the claimant from the Chief Electrical Engineer dated 23.05.2013 hasbeen relied upon. For its relevance, this communication dated 23.05.2013is reproduced, in extenso, as under : -

“GOVERNMENT OF GOA

ELECTRICTY DEPARTMENTEOFFICE OF THE CHIEF ELECTRICAL ENGINEER

No. 20/3/CEE/Tech/13-14/824

Date: 23.05.2013

FTo,

M/s. Reliance Infrastructure Limited,

Goa Power Station,

Opp. Sancoale Industrial Estate,

GZurinagar, Goa- 403 726

Sub: Proposal for supply of power on RLNG

Ref: 1. RINFRA/GPS/GOG/2013/16 dt. 21.03.2013 addressed tothis office and copy enclosed to the Hon’ble Chief Minister,State of Goa and others.

Sir,

In view of your offer under reference, the Government hasdecided to continue to purchase power as per your formulaeproposed in the letter dated 21.03.2013 considering the prevailingrates of fuel and dollar up to the expiry of the existing PPA. Thesame may be noted for records and incorporated in your powerbills with due documentations of prices of fuel and dollar

Yours faithfully

(S. Lekshminath)

Chief Electrical Engineer”

4.3.4. It has also been the case of the claimant that in fact, thedecision to purchase power at fluctuating price was approved by decisiontaken by the Cabinet Committee headed by the Chief Minister of theState of Goa.

4.4. The claimant’s grievance has been that its monthly invoiceswere paid upto March 2013 and monthly invoice for April 2013 was paidpartly; but, from May 2013 onwards, its invoices were not paid. In regardto the unpaid invoices of the claimant, partly for April 2013 and thereafterfrom May 2013 till April 2014 (after which the plant was shut down),several communications were exchanged between the parties and theclaimant submitted revised invoices but the grievance of the claimantremained unredressed.

4.5. On 19.05.2015, the claimant filed petition before the JointElectricity Regulatory Commission[7] for recovery of its dues. The Statesubmitted before JERC that an Arbitrator be appointed in terms of PPAto adjudicate upon the disputes. On 11.12.2015, JERC, based onagreement of both the parties, referred the disputes to the Sole ArbitratorMr. Justice B. P. Singh (Former Judge of this Court) in pursuance of itspowers under Section 86(1)(f) of the Electricity Act, 2003. The arbitrationproceedings under this reference have led to the present appeals.

7 ‘JERC’, for short.

394SUPREME COURT REPORTS

AArbitration proceedings and award

5. After long-drawn proceedings of arbitration with filing of claim,reply and counter claim, rejoinder, sur-rejoinder, amendment of counterclaim, filing of various applications and written submissions, the ArbitralTribunal ultimately passed the award dated 16.02.2018 whereby it directedBthe State to pay to the claimant sum of Rs. 278.29 crore (principalamount) together with interest for the period up to 31.10.2017; to payfurther interest from 31.10.2017 at the rate of 15% per annum from thedate of award until the date of full payment of the amount includinginterest as on the date of the award until effective payment/realization;and further clarified that in case the non-claimant would pay the entireCamount together with interest within two months from the date of theaward, it shall not be liable for payment of interest after the date of theaward.

5.1. We shall refer to the findings of the Arbitral Tribunal, to theextent relevant, at the appropriate juncture hereafter. However, to takeDinto comprehension as to what was presented to the Arbitral Tribunal byway of dispute and as to what material points called for determination, itmay be noticed that the parties jointly formulated the issues on whichthe Arbitral Tribunal was required to give its ruling; and the same wereduly taken note of by the Arbitral Tribunal in the following words:-E“34. The parties in the joint statement submitted by them oncomputation of the claim amount payable by the Respondent tothe claimant have themselves succinctly formulated the issues onwhich this Tribunal is required to give its ruling, which are asfollows:Fa) Contention of the Respondent that Rated Capacity is requiredto be downrated from September 2000 till the expiry of the PPA,i.e. 13th August, 2014, relying on the draft Notification issued bythe Ministry of Power, Government of India referred to by theRespondent during its arguments.

Gb) Respondent’s claim for credit to be given to it of 4 MW for 12hours on daily basis for weekdays in computing the Tariff HeatRate for arriving at the Fuel Cost (Variable Charges) from January,2009 till 13th August 2014. The Respondent has made this claimby referring to letters dated 2nd January, 2009 and 19th January,2009.H

c) Contention of the respondent that the claimant had agreed tosupply power based on fixed rate of Fuel price and fixed rateof exchange in terms of US Dollar to INR for supply of powerusing RLNG as fuel from June, 2013 onwards;

d) Claim of the Claimant that it is entitled to Fuel FacilitationCharges for supply of power by using RLNG from June 2013,and

e) Contention of the respondent that back-up power supplied by itfrom May, 2014 till 13th August, 2014 was 1.25 times of Rs. 3.78/kWh, being the rate specified by the respondent in its letter dated18th September, 2014.”

5.2. Out of the five issues aforementioned, four were decided bythe Arbitral Tribunal in favour of the claimant (except that relating tofuel facilitation charges). The parties also presented various alternativesof calculation for arriving at the amount payable in terms of findings.Having examined these alternatives and with reference to its findings,the Tribunal made the award in the following terms: -

“77. This Tribunal after considering all aspects of the matter hasdecided four of the issues in favour of the Claimant, and one infavour of the Respondent. The scenario attracted in view of theabove findings is Scenario 22. Accordingly, the Claimant will beentitled to sum of Rs.119.32 Crores by way of principal amountand sum of Rs 158.98 Crores by way of interest for the periodup to 31.10.2017 totaling Rs. 278.29 Crores. For the periodsubsequent to 31[st] October 2017, the Claimant shall be entitled tointerest calculated at the same rate as for the period prior to thatdate, till the date of the award. The Claimant shall also be entitledto payment of interest at the rate of 15% per annum on the aboveamount from the date of the award till the actual payment of thefull amount awarded together with interest. If the full payment ofthe amount awarded together with interest is made within theperiod of two months from the date of the award, the Respondentshall not be liable to pay interest for any period subsequent to thedate of the award, otherwise, it shall be liable to pay interest atthe rate of 15% per annum from the date of the award till the dateof payment/realisation in full. In this view of the matter the Tribunalmakes the following.

AAWARD

1. The Respondent shall pay to the Claimant sum of Rs.278.29Crores by way of payment of the principal amount together withinterest for the period up to October 31, 2017.

2. The Respondent shall pay to the Claimant interest on the aboveamount, for the period from October 31, 2017 till the date of theaward, calculated at the same rate as for the period prior toOctober, 31,2017.

3. The Respondent shall pay to the Claimant interest on the totalCamount awarded together with interest payable on October 31,2017, at the rate of 15% per annum from the date of the Awardtill full payment of the amount, including interest as on the date ofthe Award is paid/realised.

4. Provided that, in case the Respondent pays to the Claimant theDentire amount together with interest awarded within two monthsof the date of the Award, it shall not be liable to pay interest forthe period subsequent to the date of the Award.

5. The parties shall bear their own respective costs of thisEproceeding.”

Challenge to the award under Section 34 of the Act

6. The award so made by the Arbitral Tribunal was challenged bythe State under Section 34 of the Act before the Commercial Court. AFvast variety of contentions urged on behalf of the parties were dulyconsidered by the Court and the relevant points were answered in favourof the claimant and thereby, the award was upheld while rejecting theapplication under Section 34.

6.1. The relevant observations and findings of the CommercialGCourt, to the extent necessary, shall be referred hereafter at theappropriate stage. However, we may extract the points for determinationformulated by the Commercial Court and their answers, as indicated inthe impugned judgment and order dated 12.09.2019, as follows: -

“27. Following points arise for my determination:

DEFGH

AThe appeal under Section 37 of the Act

7. In challenge to the aforesaid order dated 12.09.2019 as passedby the Commercial Court, the State preferred Commercial Appeal No.12 of 2019 under Section 37 of the Act before the High Court of Judicatureat Bombay, Goa Bench that has been partly allowed by the High CourtBby the impugned judgment and order dated 08.03.2021 and thereby,substantial and material parts of the findings in the award in questionhave been reversed.

7.1. Again, we shall refer to the relevant findings of the HighCourt at the appropriate stage but, in order to indicate the points takenCup for determination by the High Court with reference to the rivalcontentions, the following extraction shall be apposite: -

“39. We have considered the rival submissions made by the learnedCounsel for the parties. We have also considered the material onrecord, which includes the impugned Award, as well as theDimpugned Judgment and Order made by the Commercial Court.Based on the rival contentions, the following points now arise forour determination:

(A) The scope of the provisions of Section 34 of theArbitration Act (as amended in 2017).

(B) Whether the Appellant has made out case of breachof natural justice in the course of the arbitral proceedingswarranting interference with the impugned Award?

(C) Whether the Appellant has made out case that theimpugned Award on the aspect of variable charges for Rs. 24.66Fcrores is required to be set aside?

(D) Whether the Appellant has made out case that theimpugned Award on the aspect of downrating for Rs. 18.53 croresis required to be set aside?

(E) Whether the Appellant has made out case that theimpugned Award on the aspect of variable charges on 4 MWpower which was permitted to be traded for Rs. 3.94 crores isrequired to be set aside?

(F) Whether the Appellant has made out case that theimpugned Award on the aspect of netting out for Rs. 2.36 croresHis required to be set aside?

(G) Whether the award of interest for the period up to themaking of the impugned Award as well as the post Award period,warrants interference?

(H) Whether the computations at Schedules 2 and 3 to theimpugned Award are ex facie incorrect and were made withoutaffording sufficient opportunity to the Appellant?

(I) Whether the impugned Judgment and Order made bythe Commercial Court upholding the impugned Award is exfacie erroneous and warrants interference?”

7.2. As regards point (A) aforesaid, the High Court, thoughmentioned decision of this Court in the case of Ssangyong Engineeringand Construction Co. Ltd. v. NHAI: (2019) 15 SCC 131, whereinprinciples have been laid down for dealing with challenge to an awardunder Section 34 of the Act of 1996 but, thereafter, considered itappropriate to refer to the analysis by learned Single Judge of the HighCourt and, after reproducing few passages from that decision of thelearned Single Judge, observed that the submissions would be evaluatedwith reference to the principles so stated. Be that as it may, thereafter,the High Court dealt with the questions raised by the State as regardsthe alleged breach of principles of natural justice in point (B) and rejectedall such contentions with reference to the record of proceedings as alsothe pleadings and evidence of the parties. However, the High Courtproceeded to disapprove the award in relation to the claims covered bythe aforementioned points (C), (D), (E) and (F). Of course, on point (G),in relation to the award of interest for the pre-reference period and theperiod during which proceedings were pending before Arbitrator, theHigh Court found no reason to interfere but then, with reference to thedecision of this Court in Vedanta Ltd. v. Shenzhen Shandong NuclearPower Construction Co. Ltd: (2019) 11 SCC 465, considered itappropriate to reduce the rate of interest to 10% from 15% p.a. In point(H), the High Court found no fault in the computations attached to theaward as Schedules 2 and 3 but, in point (I) observed that the CommercialCourt only summarised the submissions of the parties and made briefreference to the award without independent application of mind to thecontentions raised. This, according to the High Court, had not been asatisfactory way of disposing of an application under Section 34 of theAct of 1996.

A7.3. The High Court concluded on the matter with the followingobservations and directions: -

“195. For all the aforesaid reasons, we partly allow this appealand set aside both the impugned judgment and order as well asthe impugned award on the issues of variable charges (Rs. 24.66crores approx), downrating (Rs. 18.53 crores approx.), variablecharges on 4MW power (Rs. 3.94 crores approx.), and nettingout (Rs. 2.36 crores approx.). We reduce the interest rate from15% to 10% per annum, payable from the date of Award till thedate of payment of the determined amount. The rest of theimpugned Award is however not interfered with.

196. Since we have rejected the challenge to the summary ofcomputations in Schedule 2 of the impugned Award, even afterholding the issues of downrating, 4 MW power, fuel formula,facilitation fuel charges, and netting out in favour of the Appellant,the Appellant is still due and payable principal amount of Rs. 70.58crores together with interest component with which we have notinterfered with. This amount comes to Rs. 151.97 crores as of31.10.2017. On this amount of Rs. 151.97 crores, the Appellantwill have to pay interest at the approved rate for the period from31.10.2017 till the date of the Award i.e. 16.2.2018. Thereafter,however, the Appellant will have to pay interest at the rate of10% per annum from the date of Award till the payment of theamount to the Respondent.

197. The Appellant had already deposited an amount of Rs. 25crores before the Commercial Court as condition for stay onthe execution of the impugned Award. Thereafter, the Appellantdeposited further amount of Rs. 94 crores in this Court in termsof our order dated 8.11.2019. The Respondent was permitted towithdraw both these amounts by furnishing bank guarantees of aNationalized Bank. The Respondent was directed to keep alivesuch bank guarantees until the disposal of this Commercial Appealand for 15 days thereafter.

198. Though we have partly allowed this appeal, it is unlikely thatthe Respondent might have to bring back any portion of the amountswithdrawn by it. The Respondent to, therefore, assess this positionand deposit such amount, if any, in this Court within 14 days from

today. Only if no amount is to be brought back, the Respondentneed not keep the bank guarantees alive beyond 15 days fromtoday.

199. Further, if despite our order partly allowing this appeal, theAppellant is still due and payable to the Respondent the amountsover and above those which the Respondent has already withdrawnagainst bank guarantees, then, obviously, the Respondent neednot keep the bank guarantees alive for more than 15 days fromtoday. The Appellant to then deposit the balance amount in thisCourt within four weeks from today. The Respondent will havethe liberty to withdraw such amount, once the same is deposited.

200. The appeal is partly allowed in the aforesaid terms. Thereshall be no order for costs.”

Rival Submissions

8. In view of the above, the claimant has approached this Courtchallenging the judgment and order of the High Court to the extent itsets aside the award partially. The State of Goa, on the other hand, haslaid limited challenge to the judgment of the High Court. We maybriefly summarise the principal contentions urged on behalf of the parties.

9. Mr. Parag P. Tripathi, learned senior counsel appearing on behalfof the claimant, has made variety of submissions in challenge to thepart of the impugned judgment and order dated 08.03.2021 whereby,substantial part of the award in question has been upturned by the HighCourt.

9.1. At the outset, learned senior counsel has submitted that thescope of interference under Section 37 of the Act of 1996 is limited andis restricted to the grounds mentioned in Section 34 thereof; and if theview of the Arbitrator is plausible view, the Court will not interfere orsubstitute its own view with that of the Arbitrator. Further, re-appreciationof evidence or review on merits is not permissible under the provisionsof the Act unless the award is shown to be in conflict with the ‘publicpolicy of India’ or vitiated by ‘patent illegality appearing on the face ofthe award’.

9.2. With respect to the submission that the application of theState for appointment of expert under Section 26 of the Arbitration Acthad not been decided by the Arbitral Tribunal, learned senior counsel

Ahas submitted that the High Court had noted in paragraphs 51 and 52 ofthe impugned judgment that the prayer seeking appointment of expertwas deleted by the State itself. Further, the State never challengedrejection of its counter claim and the amounts were calculated jointly byboth the parties.B9.3. As regards variable charges to the tune of about Rs. 24.66crore, learned senior counsel for the claimant has submitted that theArbitral Tribunal came to categorical finding of fact that the partieshad agreed that sale of electricity by using alternate fuel RLNG wouldnot be at fixed price and would be based on the fluctuating price of USdollar and fuel. It has also been submitted that although the State hadCargued before the High Court that certain clauses of PPA had not beenconsidered by the Arbitral Tribunal, and the High Court held that theArbitral Tribunal did not consider the issue raised regarding non-compliance with clauses 12.1.4. to 12.1.7. of the PPA but, the said clausesrelated only to Fuel Supply Contract[8] for Naphtha, and not the alternateDfuel. There was separate clause i.e., clause 12.1.9. relating to changein fuel in terms of use of alternate fuel and hence, clauses 12.1.4. to12.1.7 were inapplicable. In fact, the Arbitral Tribunal had observed thatthe Government of Goa had even agreed to the formula on the basis ofwhich the tariff would be computed for alternate fuel. According tolearned senior counsel, the High Court applied an inapplicable clause,Ewhile ignoring the fact that all the relevant documents including the pricecertificate and dollar rate received from PSUs were forwarded alongwith invoices. Further, the Government of Goa continued to take powerfrom the claimant without dispute or demur. Even otherwise, no issueswere raised contemporaneously by the Government of Goa, and theFsupposed non-compliance of clauses 12.1.4. to 12.1.7 was raised for thefirst time in the sur-rejoinder before the Arbitral Tribunal.

9.4. As regards downrating amount of about Rs. 18.53 crore,learned senior counsel has recapitulated the contention of the Governmentof Goa before the Arbitral Tribunal that the Rated Capacity was requiredGto be downrated from September 2000 until 13.08.2014 (date of expiryof PPA), on the basis of draft notification issued by the Ministry ofPower, Government of India. Learned counsel has countered this byrelying on the observations of the Arbitral Tribunal that the issue ofdownrating was irrelevant given the subsequent amendment to the PPA,

H8 ‘FSC’, for short.

restricting the assured supply to 19.8 MW as the New Rated Capacity,without referring to downrating of such capacity. Hence, the State wasnot justified in contending that there was an annual downrating of theRated Capacity. It has been argued that the Arbitral Tribunal hadconsidered the definition of ‘contracted capacity’ and other contractualprovisions as well as various provisions of the PPA and supplementaryPPAs by which, there was reduction to Rated Capacity of 19.8 MWto hold that the parties were bound by the contractual provisions. Thesefindings of the Arbitral Tribunal were supported by the Original EquipmentManufacturer’s[9] Certificate dated 08.11.2005 and Minutes of Meetingdated 05.04.2007, based on which, all the invoices were reconciled andit was agreed that future invoices would be calculated in the same manner.The Arbitral Tribunal found that this agreement was the basis of all thefuture invoices and the said invoices were both approved and paid bythe Government of Goa up to March 2013 and part of April 2013. Itwas also held that this issue of downrating capacity should not be reagitatedhaving already been settled by the parties. Learned counsel would submitthat the High Court has erroneously proceeded to draw an adverseinference against the claimant owing to its failure to produce the OEM’srecommendation and has erroneously entered into the process ofinterpretation of the Minutes of Meeting dated 05.04.2007. Learned seniorcounsel, while relying on the decisions of this Court in Delhi AirportMetro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.: (2022)1 SCC 131 and Haryana Tourism Ltd. v. Kandhari Beverages Ltd.:(2022) 3 SCC 237, has submitted that in the appeal under Section 37 of

the Act, re-appreciation of evidence was not permissible at all.

9.5. In regard to the question of variable charges on 4 MW power,it has been argued that the issue before the Arbitral Tribunal was as towhether the Government of Goa was justified in claiming credits for 4MW in computing tariff heat rate for arriving at the fuel cost variablecharges from January, 2009 to 30.08.2014. This claim was made by theGovernment in reference to the letters dated 02.01.2009 and 19.01.2009.It has been contented that the Arbitral Tribunal, after appreciating theevidence including the said letters, concluded that Government of Goawas exempted from payment of only fixed cost with regard to this 4MW power permitted to be supplied to the other consumers; and thesaid letter dated 19.01.2009, in no way, affected the committed power

9 ‘OEM’, for short.

CDE

Asupply by the claimant to the Government. Moreover, the Governmenthad maintained its right to revert to take the said 4 MW power in futurewith all the terms and conditions of PPA remaining the same; and variablecharges billed to the Government for supply to them were as per PPA.According to the learned counsel, the High Court erroneously re-appreciated the letters to substitute its own view with that of the ArbitralBTribunal.

9.6. With respect to the issue related to supply of backup powerby the Government to the claimant in case of scheduled outage (whenthe plant was shut between May and August, 2014), the Governmentclaimed its entitlement to 1.25 times the approved rate of Rs. 3.78 perCunit which was agreed to in the letter dated 18.09.2014. Learned seniorcounsel has submitted that the Arbitral Tribunal rightly came to the findingthat the rate per unit was fixed amount since determination of averagecost of energy had become irrelevant, by relying on office memorandumsdated 13.08.2014 and 18.09.2014. According to the learned counsel, thisDagain has only been matter of re-appreciation of evidence by the HighCourt.9.7. In respect of reduction of interest post-award from 15% to10% p.a. based on the principles of proportionality and reasonablenesswith reliance on the decision in Vedanta Ltd. (supra), learned seniorEcounsel has submitted that post-award interest was awarded underSection 31(7)(b) of the Act of 1996 and the claimant had handed overthe statement indicating that prime lending rate was approximately 13%p.a. and above and, therefore, award of interest @ 15% p.a. was justified.

10. Mr. R. Venkataramani, the learned Attorney General for India,Fappearing on behalf of the State has countered the submissions made onbehalf of the claimant and has argued that the High Court has rightlyinterfered with the award in question that suffered from patent illegalities.The learned Attorney General has also questioned the observations andfindings in the impugned judgment and order dated 08.03.2021 to theextent the submissions of the State have been rejected or overruled.G

10.1. Learned Attorney General has referred to various decisionsof this Court on the scope of interference under Sections 34 and 37 ofthe Act of 1996 including those in Ssangyong Engineering (supra);MMTC Limited v. Vedanta Limited: (2019) 4 SCC 163; and PSASICAL Terminals (P) Ltd. v. Board of Trustees of V.O. ChidambranarH

Port Trust Tuticorin and Ors.: (2021) SCC Online SC 508. It hasbeen submitted that this is not case of two plausible views by theArbitral Tribunal but case of non-advertence to, and non-considerationof, the relevant contractual clauses leading to patent illegalities. Accordingto the learned Attorney General, the Arbitral Tribunal had approachedthe entire case from an altogether wrong angle; and when the Arbitratoradverted to wrong questions, the result has been of wrong answers.Learned Attorney General would submit that the High Court rightlyinterfered with the order under Section 34 of the Act of 1996 consideringthe fact that the Commercial Court did not adjudicate upon the arbitralaward and rather framed separate issues like regular Appellate Court.

10.2. It has been strenuously argued by the learned AttorneyGeneral that in the award in question, the Arbitral Tribunal proceeded torely upon certain correspondence between the parties but, failed toexamine the root question as to whether such correspondence had theeffect of variation of terms of contract and as to whether suchcorrespondence changed the fundamentals of contract. The learnedAttorney General has re-emphasised that the Arbitral Tribunal has notconsidered the relevant clauses of the contract and this had been matterof patent illegality. Two decisions of this Court have been relied on inthis regard, namely State of Chhattisgarh and Ors. v. Sal Udyog Pvt.Ltd.: (2022) 2 SCC 275 and Associate Builders v. Delhi DevelopmentAuthority: (2015) 3 SCC 49. Hence, it has been contended that theaward would be liable to be set aside on the ground of patent illegalityunder Section 34(2A) of the Act of 1996 because an Arbitral Tribunalcannot rewrite the contract between parties and the award was made inignorance of vital evidence.

10.3. As regards procedural aspects, it has been argued on behalfof the State that there had been clear violation of the principles of naturaljustice since the application seeking appointment of an expert in termsof Section 26 of the Act was not disposed of by the Arbitral Tribunal,although an order was passed by the Tribunal that it would be decided atan appropriate time. It has been contended that failure of the Tribunal toconsider the application for appointment of expert had resulted in denialof equal opportunity to the State to the present its case, in violation ofSection 18 of the Act. It has also been submitted that the High Courtoverlooked the purpose and intent behind appointment of an expert underSection 26 of the Act of 1996.

A10.3.1. Another application was filed by the State seekingproduction of 13 documents by the claimant, including drafts of progressand developments in negotiations of each Fuel Supply Contract, minutesof meetings with fuel suppliers as well as the OEM recommendationswith respect to downrating of net generating capacity. It has beensubmitted that this application was also not disposed of by the ArbitralBTribunal. Learned Attorney General would submit that non-productionof documents has seriously prejudiced the State because certaindocuments like the OEM manual were crucial for its defence; and itwas incumbent upon the claimant to produce the documents in its exclusivepossession; and an adverse inference ought to have been drawn againstCthe claimant for want of production of these documents.

10.3.2. It has further been submitted that the request of theState to file additional written submissions was not granted by theArbitral Tribunal even after additional written submissions were placedon record by the claimant. Merely because joint exercise was doneDand 24 permutations of calculation were submitted by the parties, atno point did the State give up its claims regarding interest or the quantumthereof.

10.4. In regard to variable charges, learned Attorney General hassubmitted that applicability of clauses 12.4 to 12.7 of the PPA was notEconsidered or discussed in the award. These clauses had materialbearing on the question of liability of the Government of Goa to pay Rs.24.66 crore on account of variable charges relatable to change in fuelfrom Naphtha to RLNG; and there had not been any finding by theArbitral Tribunal that the aforesaid clauses were not applicable whenthere was change to RNLG from Naphtha. It has further been contendedFthat the claimant was obligated to keep the Government updated aboutits negotiations with fuel suppliers and provide the correspondence withpotential suppliers and other drafts. The letter dated 23.05.2013 statedthat all the terms and conditions of the PPA were to remain unaffectedand the non-production of FSCs and detailed invoices took the opportunityGto object to the same away from the Government. In light of the termsof the PPA, the submission of the claimant that the Government couldnot have frozen dollar rate and RLNG rate, would be unsustainable.Moreover, it would be wrong to assert that if fuel facilitation chargeshad not been given to the claimant by the Arbitral Tribunal, the requirementof providing FSCs would be waived off.H

10.5. As regards downrating amounting to Rs. 18.53 crore, learnedAttorney General has submitted that the Arbitral Tribunal wrongly heldthat the issue of downrating was resolved between parties on 05.04.2007and failed to appreciate the relevant contractual provisions concerningdownrating. The definition of ‘contractual capacity’ as defined underthe PPA required that downrating be taken into account, and this definitionwas not amended by the Supplementary PPAs. Therefore, it was notopen for the Tribunal to hold that downrating had been given go-by.Given that the claimant did not produce the OEM recommendations, theState had to rely upon draft notification issued by the Ministry of Powerto calculate downrating. It has been submitted that this failure to producethe OEM recommendations would necessitate an adverse inference beingdrawn against the claimant and the claimant could not have subsequentlyrelied on the certificate dated 08.11.2005 to argue that no degradationhad taken place, vitiating the applicability of downrating. It has beensubmitted that the certificate dated 08.11.2005 cannot be held to beconclusive as to the degradation of the plant beyond the date of issuanceof the aforesaid certificate and, therefore, the contractual stipulationcould not have been ignored. Downrating would have to be applied interms of the contract irrespective of changes in contracted capacitybecause, if the concept of downrating had become redundant, the claimantwould have pointed it out in the year 2007 itself.10.6. Insofar as the award of Rs. 3.94 crore towards variablecharges on 4 MW power is concerned, learned Attorney General hassubmitted that variable charges were only to be paid in respect of poweractually purchased, whereas fixed charges were payable regardless ofactual purchase since there was no connection with infrastructure costs.The contention on this score has been that they are not liable to payvariable charges for electricity which had not been supplied to them,particularly when the parties had also agreed to waive fixed charges inthat respect. Therefore, the Arbitral Tribunal erred in directing paymenttowards variable charges for 4 MW electricity, which was never suppliedto the Government of Goa. The contracted capacity for the durationwhen the claimant was permitted to sell to third parties was reduced by4 MW and; hence, while billing the variable charges for that period,contracted capacity also had to be reduced. It has been submitted thatthe failure to do so has resulted in situation where the Governmentwas charged by the claimant for variable charges on units sold to thirdparties. This has resulted in dual profit to the claimant, for having been

Aheld entitled to recover variable costs for 4 MW electricity from theState despite not supplying electricity to it; and also being compensatedfor both fixed charges and variable charges for 4 MW electricity bysuch third parties. It has further been submitted that the Arbitral Tribunalrelied on the letter dated 19.01.2009 which permitted the claimant totrade 4 MW of electricity to third parties but, failed to observe that thisBwas in response to previous communication by the claimant in which,the issue of fixed charges was specifically raised. Thus, the letter dated19.01.2009 cannot be viewed as acquiescence to payment of variablecharges on 4MW power; and the finding of the Arbitral Tribunal in thisregard had been perverse.C

10.7. Learned Attorney General has also submitted that the ArbitralTribunal has again ignored the contractual clauses mandating netting-out while making an award in the sum of Rs. 2.36 crore. It has beenargued that clause 15 of the Second Supplementary PPA provided thatall the backup energy supplied by the Government during an unscheduledDor forced outage would be netted-out against energy supplied by thepower station to the Government in the subsequent billing period in theratio of one unit of backup power equal to one and quarter of unit ofenergy supplied. Both parties had construed this to mean that the claimantwould be liable to pay charges for the netted-out energy at the prevailingrate in the proximate billing period. The Arbitral Tribunal has failed toEtake note of the mandatory nature of netting-out for unscheduled poweroutages under clause 15 and solely focused on the interpretation of thedocument dated 18.09.2014. It has been submitted that the determinationof rate at Rs. 3.78 per unit was the base rate for calculation of netting-out and could not be construed as waiver of the said provisions of theFcontract. Further, the claimant had failed to supply electricity during therelevant billing period which led to need to determine the base rate.The claimant was liable to pay for 1.25 times the units supplied toconsumer by the Government, although the claimant contended that theywould only be liable to return 1 unit. In fact, the base rate of Rs. 3.78Gwas much lower than the last paid rate, which was Rs. 12.57 per unit. Inany event, there was no amendment to exclude netting from the calculationof the rate in terms of clause 23.1 of the PPA and no waiver on the partof the Government.

10.8. Finally, as regards the question of interest, it has been arguedthat there was no reason for the Arbitral Tribunal to award any interestH

before the date of award as the invoices were not paid being in disputebecause the claimant was charging inflated bills; and the amount thatwas payable could not be crystallized for the claimant having failed toprovide the Government of Goa with the necessary details and documents.Such documents were provided only during the arbitration proceedingsand thus, if at all any amount towards interest was considered due andpayable; the same could start only from the date when the final amountwas crystallized. It has also been suggested that the contractual provisionsfor interest were in terrorem and liable to be discarded having regard toSection 74 of the Contract Act, 1872. Although the High Court rightlyreduced the post-award interest but only modified the amount. It hasbeen further submitted, by relying on NHAI v. M. Hakeem: (2021) 9SCC 1, that such course of action was not permissible as modificationof an award would not be possible under Section 34 of the Act of 1996.Thus, the award of interest of the Tribunal was liable to be set aside asbeing patently illegal.

10.9. few other submissions have also been made by the learnedAttorney General with reference to the calculation of the awarded amount.It has been contended that as per the PPA, the claimant was required tosubmit its bills according to the forecast period and thereafter for eachsubsequent financial year; however, the claimant submitted bills for thetariff period which resulted in inflated bills. Further, the Arbitral Tribunalcalculated the amount to be awarded based on the supposed mutuallyagreed upon table of calculations; however, the set of calculationsprovided by the claimant was disputed by the State. The Tribunal did notadvert to the submission that the principal amount to be paid would beRs. 60.76 crore as opposed to Rs. 70.58 crore claimed by claimant.According to the learned Attorney General, the claimant has resorted toexorbitant billing de hors the contract and the amount payable could notbe crystallized on account of the fact that the claimant did not providedetails of the electricity sold to third parties so as to ascertain liability,and this documentation was only provided during arbitration proceedings.

11. We have given anxious consideration to the rival submissionsand have examined the record with reference to the law applicable.

Relevant Statutory provisions

12. Since the present appeals relate to an arbitral award, whichwas carried in challenge under Section 34 and in appeal under Section

A37 of the Act of 1996; and looking to the variety of submissions made,we may usefully take note of the relevant statutory provisions containedin Sections 26, 28, 34 and 37 of the Act of 1996 as follows:

“26. Expert appointment by arbitral tribunal.-(1) Unlessotherwise agreed by the parties, the arbitral tribunal may—

(a)appoint one or more experts to report to it on specificissues to be determined by the arbitral tribunal, and

(b)require party to give the expert any relevantinformation or to produce, or to provide access to, anyrelevant documents, goods or other property for hisinspection.

(2) Unless otherwise agreed by the parties, if party so requestsor if the arbitral tribunal considers it necessary, the expert shall,after delivery of his written or oral report, participate in an oralhearing where the parties have the opportunity to put questions toDhim and to present expert witnesses in order to testify on thepoints at issue.

(3) Unless otherwise agreed by the parties, the expert shall, onthe request of party, make available to that party for examinationall documents, goods or other property in the possession of theexpert with which he was provided in order to prepare his report.

********

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

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

(b)in international commercial arbitration,—

(i) the arbitral tribunal shall decide the dispute inaccordance with the rules of law designated by theparties as applicable to the substance of the dispute;

(ii) any designation by the parties of the law or legalsystem of given country shall be construed, unlessotherwise expressed, as directly referring to the

substantive law of that country and not to its conflict oflaws rules;

(iii) failing any designation of the law under clause (a)by the parties, the arbitral tribunal shall apply the rulesof law it considers to be appropriate given all thecircumstances surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequo et bono or asamiable compositeur only if the parties have expressly authorisedit to do so.

10[(3) While deciding and making an award, the arbitral tribunalshall, in all cases, take into account the terms of the contract andtrade usages applicable to the transaction.]

********

34. Application for setting aside arbitral award.-(1) Recourseto Court against an arbitral award may be made only by anapplication 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 [11][establishes on the basisof the record of the arbitral tribunal that] —

(i)a party was under some incapacity, or

(ii)the arbitration agreement is not valid under the lawto which the parties have subjected it or, failing anyindication thereon, under the law for the time beingin force; or

(iii) the party making the application was not given propernotice of the appointment of an arbitrator or of thearbitral proceedings or was otherwise unable topresent his case; or

10 Subs. by Act 3 of 2016, sec. 14, for sub-section (3) (w.r.e.f. 23-10-2015). Sub-section

(3), before substitution, stood as under:

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

11 Subs. by Act 33 of 2019, sec 7, for “furnishes proof that” [w.e.f. 30-8-2019, videS.O. 3154(E), dated 30[th] August, 2019].

A(iv) the arbitral award deals with dispute notcontemplated by or not falling within the terms ofthe submission to arbitration, or it contains decisionson matters beyond the scope of the submission toarbitration:

Provided that, if the decisions on matterssubmitted to arbitration can be separated from thosenot so submitted, only that part of the arbitral awardwhich contains decisions on matters not submittedto arbitration may be set aside; or

(v)the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreementof the parties, unless such agreement was in conflictwith provision of this Part from which the partiescannot derogate, or, failing such agreement, was notin accordance with this Part; or

(b) the Court finds that—

(i)the subject-matter of the dispute is not capable ofsettlement by arbitration under the law for the timebeing in force, or

(ii)the arbitral award is in conflict with the public policyof India.

12[Explanation 1.—For the avoidance of any doubt, it is clarifiedthat an award is in conflict with the public policy of India, onlyif,—

(i)the making of the award was induced or affected byfraud or corruption or was in violation of section 75or section 81; or

(ii)it is in contravention with the fundamental policy ofIndian law; or

12 Subs. by Act 3 of 2016, sec. 18(I), for the Explanation (w.r.e.f. 23-10-2015). TheExplanation, before substitution, stood as under:

“Explanation. -Without prejudice to the generality of sub-clause (ii) it is herebydeclared, for the avoidance of any doubt, that an award is in conflict with the publicpolicy of India if the making of the award was induced or affected by fraud orHcorruption or was in violation of section 75 or section 81.”

(iii) it is in conflict with the most basic notions of moralityor justice.

Explanation 2.—For the avoidance of doubt, the test as to whetherthere is contravention with the fundamental policy of Indian lawshall not entail review on the merits of the dispute.]

13[(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.]

(3) An application for setting aside may not be made after threemonths have elapsed from the date on which the party makingthat application had received the arbitral award or, if requesthad been made under section 33, from the date on which thatrequest had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant wasprevented by sufficient cause from making the application withinthe said period of three months it may entertain the applicationwithin further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Courtmay, where it is appropriate and it is so requested by party,adjourn the proceedings for period of time determined by it inorder to give the arbitral tribunal an opportunity to resume thearbitral proceedings or to take such other action as in the opinionof arbitral tribunal will eliminate the grounds for setting aside thearbitral award.

14[(5) An application under this section shall be filed by partyonly after issuing prior notice to the other party and suchapplication shall be accompanied by an affidavit by the applicantendorsing compliance with the said requirement.

13 Ins. by Act 3 of 2016, sec. 18(II) (w.r.e.f. 23-10-2015).

14 Ins. by Act 3 of 2016, sec. 18(III) (w.r.e.f. 23-10-2015).

(6) An application under this section shall be disposed ofexpeditiously, and in any event, within period of one year fromthe date on which the notice referred to in sub-section (5) is servedupon the other party.]

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37. Appealable orders.-(1) [15][Notwithstanding anythingcontained in any other law for the time being in force, an appeal]shall lie from the following orders (and from no others) to theCourt authorised by law to hear appeals from original decrees ofthe Court passing the order, namely:—

16[(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award undersection 34.]

D(2) An Appeal shall also lie to court from an order of the arbitraltribunal.-

(a) accepting the plea referred to in sub-section (2) or sub-section(3) of section 16; or

E(b) granting or refusing to grant an interim measure under section17.

(3) No second appeal shall lie from an order passed in appealunder this section, but nothing in this section shall affect or takeaway any right to appeal to the Supreme Court.”

12.1. Section 31(7) of the Act of 1996 as regards interest in awardmay also be usefully noticed which reads as under:-

“31. Form and contents of arbitral award.-

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15 Subs. by Act 33 of 2019, sec 8, for “An appeal” [w.e.f. 30-8-2019, vide S.O. 3154(E),dated 30[th] August, 2019].

16 Subs. by Act 3 of 2016, sec. 20, for clauses (a) and (b) (w.r.e.f. 23-10-2015). Clauses

(a) and (b), before substitution stood as under:

“(a) granting or refusing to grant any measure under section 9;

(b) setting aside or refusing to set aside an arbitral award under section 34.”

(7) (a) Unless otherwise agreed by the parties, where and in sofar as an arbitral award is for the payment of money, the arbitraltribunal may include in the sum for which the award is madeinterest, at such rate as it deems reasonable, on the whole or anypart of the money, for the whole or any part of the period betweenthe date on which the cause of action arose and the date on whichthe award is made.

17[(b) sum directed to be paid by an arbitral award shall, unlessthe award otherwise directs, carry interest at the rate of two percent. higher than the current rate of interest prevalent on the dateof award, from the date of award to the date of payment.

Explanation.-The expression “current rate of interest” shall havethe same meaning as assigned to it under clause (b) of section 2of the Interest Act, 1978 (14 of 1978)]

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The scope of challenge to an arbitral award under Section 34and the scope of appeal under Section 37 of the Act

13. Having regard to the contentions urged and the issues raised,it shall also be apposite to take note of the principles enunciated by thisCourt in some of the relevant decisions cited by the parties on the scopeof challenge to an arbitral award under Section 34 and the scope ofappeal under Section 37 of the Act of 1996.

13.1. In MMTC Limited (supra), this Court took note of variousdecisions including that in the case of Associate Builders (supra) andexposited on the limited scope of interference under Section 34 andfurther narrower scope of appeal under Section 37 of the Act of 1996,particularly when dealing with the concurrent findings (of the Arbitratorand 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 arbitralaward and may interfere on merits on the limited ground provided

17 Subs. by Act 3 of 2016, sec. 16(i), for clause (b) (w.r.e.f. 23-10-2015). Clause (b),before substitution, stood as under:

“(b) sum directed to be paid by an arbitral award shall, unless the award otherwisedirects, carry interest at the rate of eighteen per centum per annum from the date ofthe award to the date of payment.”

under Section 34(2)(b)(ii) i.e. if the award is against the publicpolicy of India. As per the legal position clarified through decisionsof this Court prior to the amendments to the 1996 Act in 2015, aviolation of Indian public policy, in turn, includes violation of thefundamental policy of Indian law, violation of the interest ofIndia, conflict with justice or morality, and the existence of patentillegality in the arbitral award. Additionally, the concept of the“fundamental policy of Indian law” would cover compliance withstatutes and judicial precedents, adopting judicial approach,compliance with the principles of natural justice, and Wednesbury[Associated Provincial Picture Houses v. Wednesbury Corpn.,“(1948) 1 KB 223 (CA)] reasonableness. Furthermore, patentillegality” itself has been held to mean contravention of thesubstantive law of India, contravention of the 1996 Act, andcontravention of the terms of the contract.

12. It is only if one of these conditions is met that the Courtmay interfere with an arbitral award in terms of Section 34(2)(b)(ii),but such interference does not entail review of the merits of thedispute, and is limited to situations where the findings of thearbitrator are arbitrary, capricious or perverse, or when theconscience of the Court is shocked, or when the illegality is nottrivial but goes to the root of the matter. An arbitral award maynot be interfered with if the view taken by the arbitrator is possibleview based on facts. (See Associate Builders v. DDA [AssociateBuilders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204].Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw PipesLtd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends CoalCarbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation,(2006) 4 SCC 445]; and McDermott International Inc. v. BurnStandard Co. Ltd. [McDermott International Inc. v. Burn StandardCo. Ltd., (2006) 11 SCC 181])

13. It is relevant to note that after the 2015 Amendment toSection 34, the above position stands somewhat modified. Pursuantto the insertion of Explanation 1 to Section 34(2), the scope ofcontravention of Indian public policy has been modified to theextent that it now means fraud or corruption in the making of theaward, 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 providesthat in case of domestic arbitrations, violation of Indian publicpolicy also includes patent illegality appearing on the face of theaward. The proviso to the same states that an award shall not beset aside merely on the ground of an erroneous application of thelaw or by reappreciation of evidence.

14. As far as interference with an order made under Section34, as per Section 37, is concerned, it cannot be disputed thatsuch interference under Section 37 cannot travel beyond therestrictions laid down under Section 34. In other words, the courtcannot undertake an independent assessment of the merits of theaward, and must only ascertain that the exercise of power by thecourt under Section 34 has not exceeded the scope of the provision.Thus, it is evident that in case an arbitral award has been confirmedby the court under Section 34 and by the court in an appeal underSection 37, this Court must be extremely cautious and slow todisturb such concurrent findings.”13.2. In the case of Ssangyong Engineering (supra), this Courthas set out the scope of challenge under Section 34 of the Act of 1996 infurther details in the following words: -

“37. Insofar as domestic awards made in India areconcerned, 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 butwhich does not amount to mere erroneous application of the law.In short, what is not subsumed within “the fundamental policy ofIndian law”, namely, the contravention of statute not linked topublic policy or public interest, cannot be brought in by the backdoorwhen it comes to setting aside an award on the ground of patentillegality.

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

39. To elucidate, para 42.1 of Associate Builders [AssociateBuilders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,namely, mere contravention of the substantive law of India, byitself, is no longer 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, wouldremain, for if an arbitrator gives no reasons for an award andcontravenes Section 31(3) of the 1996 Act, that would certainlyamount to patent illegality on the face of the award.

40. The change made in Section 28(3) by the AmendmentAct really follows what is stated in paras 42.3 to 45 in AssociateBuilders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)2 SCC (Civ) 204] , namely, that the construction of the terms of acontract is primarily for an arbitrator to decide, unless the arbitratorconstrues the contract in manner that no fair-minded orreasonable person would; in short, that the arbitrator’s view is noteven possible view to take. Also, if the arbitrator wanders outsidethe contract and deals with matters not allotted to him, he commitsan error of jurisdiction. This ground of challenge will now fallwithin the new ground added under Section 34(2-A).

41. What is important to note is that decision which isperverse, as understood in paras 31 and 32 of AssociateBuilders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)2 SCC (Civ) 204] , while no longer being ground for challengeunder “public policy of India”, would certainly amount to patentillegality appearing on the face of the award. Thus, finding basedon no evidence at all or an award which ignores vital evidence inarriving at its decision would be perverse and liable to be set asideon the ground of patent illegality. Additionally, finding based ondocuments taken behind the back of the parties by the arbitratorwould also qualify as decision based on no evidence inasmuchas such decision is not based on evidence led by the parties, and”therefore, would also have to be characterised as perverse.

13.3. The limited scope of challenge under Section 34 of the Actwas once again highlighted by this Court in the case of PSA SICALTerminals (supra) and this Court particularly explained the relevant testsas under :-

“43. It will thus appear to be more than settled legal position,that in an application under Section 34, the court is not expectedto act as an appellate court and reappreciate the evidence. Thescope of interference would be limited to grounds provided underSection 34 of the Arbitration Act. The interference would be sowarranted when the award is in violation of “public policy of India”,which has been held to mean “the fundamental policy of Indianlaw”. judicial intervention on account of interfering on the meritsof the award would not be permissible. However, the principlesof natural justice as contained in Section 18 and 34(2)(a)(iii) ofthe Arbitration Act would continue to be the grounds of challengeof an award. The ground for interference on the basis that theaward is in conflict with justice or morality is now to be understoodas conflict with the “most basic notions of morality or justice”.It is only such arbitral awards that shock the conscience of thecourt, that can be set aside on the said ground. An award wouldbe set aside on the ground of patent illegality appearing on theface of the award and as such, which goes to the roots of thematter. However, an illegality with regard to mere erroneousapplication of law would not be ground for interference. Equally,reappreciation of evidence would not be permissible on the groundof patent illegality appearing on the face of the award.

44. decision which is perverse, though would not be groundfor challenge under “public policy of India”, would certainly amountto patent illegality appearing on the face of the award. However,a finding based on no evidence at all or an award which ignoresvital evidence in arriving at its decision would be perverse andliable to be set aside on the ground of patent illegality.

45. To understand the test of perversity, it will also be appropriateto refer to paragraph 31 and 32 from the judgment of this Court inAssociate Builders (supra), which read thus:

“31. The third juristic principle is that decision which is perverseor so irrational that no reasonable person would have arrived atthe same is important and requires some degree of explanation. Itis settled law that where:

(i) finding is based on no evidence, or(ii) an Arbitral Tribunaltakes into account something 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. GopiNath & Sons [1992 Supp (2) SCC 312], it was held : (SCC p.317, para 7)

“7. ... It is, no doubt, true that if finding of fact is arrived atby ignoring or excluding relevant material or by taking intoconsideration irrelevant material or if the finding so outrageouslydefies logic as to suffer from the vice of irrationality incurringthe blame of being perverse, then, the finding is rendered infirmin law.””

13.4. In Delhi Airport Metro Express (supra), this Court againsurveyed the case-law and explained the contours of the Courts’ powerto review the arbitral awards. Therein, this Court not only re-affirmedthe principles aforesaid but also highlighted an area of serious concernwhile pointing out “a disturbing tendency” of the Courts in setting asidearbitral awards after dissecting and re-assessing factual aspects. ThisCourt also underscored the pertinent features and scope of the expression“patent illegality” while reiterating that the Courts do not sit in appealover the arbitral award. The relevant and significant passages of thisjudgment could be usefully extracted as under: -

“26. cumulative reading of the UNCITRAL Model Law and Rules,the legislative intent with which the 1996 Act is made, Section 5and Section 34 of the 1996 Act would make it clear that judicialinterference with the arbitral awards is limited to the grounds inSection 34. While deciding applications filed under Section 34 ofFthe Act, Courts are mandated to strictly act in accordance withand within the confines of Section 34, refraining from appreciationor reappreciation of matters of fact as well as law.(See Uttarakhand PurvSainikKalyan Nigam Ltd. v. Northern CoalField Ltd. [Uttarakhand PurvSainik Kalyan Nigam Ltd. v.Northern Coal Field Ltd., (2020) 2 SCC 455 : (2020) 1 SCC (Civ)G570], Bhaven Construction v. Sardar Sarovar Narmada NigamLtd. [Bhaven Construction v. Sardar Sarovar Narmada NigamLtd., (2022) 1 SCC 75] and Rashtriya Ispat Nigam Ltd. v. DewanChand Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan ChandRam Saran, (2012) 5 SCC 306] .)

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28. This Court has in several other judgments interpreted Section34 of the 1996 Act to stress on the restraint to be shown by Courtswhile examining the validity of the arbitral awards. The limitedgrounds available to Courts for annulment of arbitral awards arewell known to legally trained minds. However, the difficulty arises-in applying the wellestablished principles for interferenceto the facts of each case that come up before the Courts.There is disturbing tendency of Courts setting asidearbitral awards, after dissecting and reassessing factualaspects of the cases to come to conclusion that the awardneeds intervention and thereafter, dubbing the award to bevitiated by either perversity or patent illegality, apart fromthe other grounds available for annulment of the award. Thisapproach would lead to corrosion of the object of the 1996Act and the endeavours made to preserve this object, whichis minimal judicial interference with arbitral awards. Thatapart, several judicial pronouncements of this Court wouldbecome dead letter if arbitral awards are set aside bycategorising them as perverse or patently illegal withoutappreciating the contours of the said expressions.

29. Patent illegality should be illegality which goes to the root ofthe matter. In other words, every error of law committed by theArbitral Tribunal would not fall within the expression “patentillegality”. Likewise, erroneous application of law cannot becategorised as patent illegality. In addition, contravention of lawnot linked to public policy or public interest is beyond the scope ofthe expression “patent illegality”. What is prohibited is forCourts to reappreciate evidence to conclude that the awardsuffers from patent illegality appearing on the face of theaward, as Courts do not sit in appeal against the arbitral award.The permissible grounds for interference with domestic awardunder Section 34(2-A) on the ground of patent illegality is whenthe arbitrator takes view which is not even possible one, or-interprets clause in the contract in such manner which no fairminded or reasonable person would, or if the arbitrator commitsan error of jurisdiction by wandering outside the contract anddealing with matters not allotted to them. An arbitral award statingno reasons for its findings would make itself susceptible tochallenge on this account. The conclusions of the arbitrator which

are based on no evidence or have been arrived at by ignoring vitalevidence are perverse and can be set aside on the ground ofpatent illegality. Also, consideration of documents which are notsupplied to the other party is facet of perversity falling withinthe expression “patent illegality”.

30. Section 34(2)(b) refers to the other grounds on which courtcan set aside an arbitral award. If dispute which is not capableof settlement by arbitration is the subject-matter of the award orif the award is in conflict with public policy of India, the award isliable to be set aside. Explanation (1), amended by the 2015Amendment 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 withpublic policy of India only when it is induced or affected by fraudor corruption or is in violation of Section 75 or Section 81 of the1996 Act, if it is in contravention with the fundamental policy ofIndian law or if it is in conflict with the most basic notions ofmorality or justice.

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42. The Division Bench referred to various factors leading to thetermination notice, to conclude that the award shocks theconscience of the court. The discussion in SCC OnLine Del para103 of the impugned judgment [DMRC v. Delhi Airport MetroExpress (P) Ltd., 2019 SCC OnLine Del 6562] amounts toappreciation or reappreciation of the facts which is not permissibleunder Section 34 of the 1996 Act. The Division Bench furtherheld [DMRC v. Delhi Airport Metro Express (P) Ltd., 2019 SCCOnLine Del 6562] that the fact of AMEL being operated withoutany adverse event for period of more than four years since thedate of issuance of the CMRS certificate, was not given dueimportance by the Arbitral Tribunal. As the arbitrator is the soleJudge of the quality as well as the quantity of the evidence, thetask of being Judge on the evidence before the Tribunal doesnot fall upon the Court in exercise of its jurisdiction under Section34. [State of Rajasthan v. Puri Construction Co. Ltd., (1994) 6SCC 485] On the basis of the issues submitted by the parties, theArbitral Tribunal framed issues for consideration and answeredthe said issues. Subsequent events need not be taken into account.”

(emphasis supplied)

13.5. In the case of Haryana Tourism Ltd. (supra), this Courtyet again pointed out the limited scope of interference under Sections 34and 37 of the Act; and disapproved interference by the High Court underSection 37 of the Act while entering into merits of the claim in the followingwords: -

“8. So far as the impugned judgment and order passed by theHigh Court quashing and setting aside the award and the orderpassed by the Additional District Judge under Section 34 of theArbitration Act are concerned, it is required to be noted that in anappeal under Section 37 of the Arbitration Act, the High Courthas entered into the merits of the claim, which is not permissiblein exercise of powers under Section 37 of the Arbitration Act.

9. As per settled position of law laid down by this Court in acatena of decisions, an award can be set aside only if the awardis against the public policy of India. The award can be set asideunder Sections 34/37 of the Arbitration Act, if the award is foundto be contrary to: (a) fundamental policy of Indian Law; or (b) theinterest of India; or (c) justice or morality; or (d) if it is patentlyillegal. None of the aforesaid exceptions shall be applicable to thefacts of the case on hand. The High Court has entered into themerits of the claim and has decided the appeal under Section 37of the Arbitration Act as if the High Court was deciding the appealagainst the judgment and decree passed by the learned trial Court.Thus, the High Court has exercised the jurisdiction not vested in itunder Section 37 of the Arbitration Act. The impugned judgmentand order passed by the High Court is hence not sustainable.”13.6. As regards the limited scope of interference under Sections34/37 of the Act, we may also usefully refer to the following observationsof 3-Judge Bench of this Court in the case of UHL Power CompanyLimited v. State of Himachal Pradesh: (2022) 4 SCC 116: -

“15. This Court also accepts as correct, the view expressed bythe appellate court that the learned Single Judge committed grosserror in reappreciating the findings returned by the Arbitral Tribunaland taking an entirely different view in respect of the interpretationof the relevant clauses of the implementation agreement governingthe parties inasmuch as it was not open to the said court to do soin proceedings under Section 34 of the Arbitration Act, by virtuallyacting as court of appeal.

424SUPREME COURT REPORTS

A16. As it is, the jurisdiction conferred on courts under Section 34of the Arbitration Act is fairly narrow, when it comes to the scopeof an appeal under Section 37 of the Arbitration Act, the jurisdictionof an appellate court in examining an order, setting aside or refusingto set aside an award, is all the more circumscribed.”

B13.7. The learned Attorney General has referred to another 3-Judge Bench decision of this Court in the case of Sal Udyog PrivateLimited (supra), wherein this Court indeed interfered with the award inquestion when the same was found suffering from non-consideration ofa relevant contractual clause. In the said decision too, the principlesaforesaid in Delhi Airport Metro Express, Ssangyong EngineeringCand other cases were referred to and thereafter, this Court applied theprinciples to the facts of that case. We shall refer to the said decisionlater at an appropriate juncture.

13.8. Keeping in view the aforementioned principles enunciatedby this Court with regard to the limited scope of interference in an arbitralDaward by Court in the exercise of its jurisdiction under Section 34 ofthe Act, which is all the more circumscribed in an appeal under Section37, we may examine the rival submissions of the parties in relation to thematters dealt with by the High Court.

Questions relating to proceedings and procedureE

14. It has been argued on behalf of the State that in the arbitrationproceedings, it had made an application for appointment of an expertunder Section 26 of the Act but the same was not decided by the ArbitralTribunal. In our view, the High Court has dealt with this issue in itsproper perspective and this baseless objection has rightly been rejected.FWe find it rather strange that such an objection standing at contradictionto its own stand before the Arbitral Tribunal and against its own amendedpleading has at all been projected by the State as ground of challengeto the award in question. It appears that in the counter claim filed byGovernment of Goa before the Arbitral Tribunal, initially it was prayedGthat all transactions and invoices raised by the claimant need to be re-examined through technical cum financial expert so as to ascertain thecorrectness of the bills in terms of Section 26 of the Act but, thereafter,the Government itself amended its counter claim, as permitted underSection 23 of the Act by the Arbitral Tribunal, and dropped this prayer. Itwas then pleaded by the Government that it had engaged the services ofHan expert and with his assistance, had reworked the amount which waspayable by the claimant to it. The High Court has held that after suchdeletion of the prayer, it was reasonable for the Arbitral Tribunal to proceedon the basis that the application under Section 26 of the Act was eitherrendered infructuous or was abandoned by Government of Goa; andthat it had not been able to show any prejudice on account of non-disposalof the application. We are in agreement with the High Court on thisscore. It is also noticeable that in challenge to the award, the Governmentof Goa has not agitated the rejection of its counter claim. In fact, thereremains no ambiguity as regards the Arbitral Tribunal attending on allthe relevant aspects of the matter. In this regard, we may usefullyreproduce paragraph 31 of the award where the Arbitral Tribunalspecifically noticed the submissions made on behalf of the Governmentof Goa about exercise having been undertaken to workout the detailspertaining to the counter claim and permitted the Government to specifythe amount with reference to different heads and with necessaryparticulars. Paragraph 31 of the award reads as under:-

“31. In the course of hearing of the matter, on 18.10.2016, learnedcounsel appearing on behalf of the Respondent stated that hisclient has undertaken an exercise to work out the details pertainingto the counter claim, since no specified amount had been claimedby the Respondent in its counter claim. He submitted that he wouldlike that the figures be placed before this Tribunal by way ofamendment of the pleadings, if necessary. The Tribunal permittedthe Respondent to convey to the Claimant in writing the amountwhich the Respondent claimed by way of counter claim in theinstant proceedings under different heads and with necessaryparticulars. The Claimant was given liberty to file its objections.”

14.1. Another submission on behalf of the Government has beenthat for non-production of certain documents by the claimant, an adverseinference ought to have been drawn against them by the Arbitral Tribunal.It is again rule of evidence as to whether adverse inference is to bedrawn or not; and to what effect. The High Court has dealt with thisissue and has held that most of the documents were made available tothe Government of Goa. High Court has further held that the otherdocuments sought for by Government of Goa were not made availableto it because the claimant had clearly stated that such documents werenot available with it at the relevant time or did not exist at the relevanttime. It has further been held that in absence of Government of Goaestablishing any serious prejudice, there was no breach of principles of

Anatural justice merely because the Arbitral Tribunal had failed to make aformal order on the application seeking production of documents. Weare in agreement with the said observations and findings of the HighCourt.

14.2. Government of Goa’s contention that opportunity was notBgranted by the Arbitral Tribunal to file additional written submission hasalso been dealt with by the High Court with the finding that sufficientopportunity was given by the Arbitral Tribunal since there were at leasttwo meetings/hearings before the learned Arbitrator where theGovernment of Goa did neither file nor seek leave to file writtensubmissions in response to the claimant’s written clarifications/Csubmissions. We are in agreement with these findings too.

14.3. In fact, the submissions of the aforesaid nature, attemptingto find fault with the proceedings of arbitration on such hyper-technicalbut baseless grounds only show an attempt on the part of the State tosomehow question the award and seek interference, irrespective of theDprinciples laid down by this Court.

14.4. In regard to the aforesaid procedural aspects of the matter,the High Court has cautiously taken note of the record of proceedingsand has proceeded only within the confines of its jurisdiction to rejectthese contentions.E

15. The question, however, is as to whether the High Courtremained within those confines while dealing with the other points ofchallenge pertaining to the items of claim and consideration of the ArbitralTribunal in that regard. We may examine the point-wise consideration ofthe High Court with reference to the applicable principles.F

The award relating to variable charges on use of alternatefuel

16. The claimant has assailed the judgment of the High Court bywhich it has set aside the award towards variable charges of Rs. 24.66crore. It is the case of the claimant that the ground on which the HighGCourt has set aside the award was not at all an issue before the ArbitralTribunal; that in any case, the State has referred to such clauses of thePPA which were not applicable to supply of electricity by using RLNGas alternate fuel; and that these clauses were applicable only for supplyof electricity using ‘Naphtha’ as fuel. Per contra, it has been argued onHbehalf of the State that the Arbitral Tribunal has approached the entire

case from an altogether wrong angle; and when the Tribunal adverted towrong questions, the result has been of wrong answers. This, accordingto the learned Attorney General, has been gross illegality and perversityon the part of the Arbitral Tribunal.

16.1. We find it difficult to accept the submission of the learnedAttorney General. In our view, on the issue of entitlement to raise invoicesbased on fluctuating price of fuel and rate of dollar, the Arbitral Tribunalhas held in favour of the claimant after thorough examination of thedocumentary evidence before it and while focusing on core issue raisedbefore it.

16.2. After taking note of relevant submissions and after havingexamined the entire documentary evidence, the Arbitral Tribunal returneda clear finding on facts in the following terms: -

“41. The facts noticed above which are based entirely on thedocumentary record placed before the Tribunal clearly establishthat the proposal made by the Claimant under its letter dated 21stof March 2013 was an offer for supply of energy at rate basedon the formula contained in the aforesaid communication. It wasclearly mentioned that the entire PPA and all other terms andconditions shall remain unchanged except for change in calculationof Variable charges in Monthly Tariff. The formula for workingout the costs was also described as “Proposed Monthly VariableCharge Formula” Monthly Sample Calculation based onassumed values of landed cost of oil, and dollar rate, was appendedto the proposal to show that the cost would be less than what wasbeing paid by the Respondent. When the Respondent acceptedthe proposal and responded by its letter of 26th of April 2012which referred to the cost at the rate of Rs. 8.58 per unit, whichwas described as the “ revised fixed rate”, the Claimant clarifiedthe position immediately by stating in its letter of 30th of April2013 to the Respondent that the price mentioned in the proposaldated 21st of March 2013, was not for fixed cost of powersupplied, and that the same shall vary depending upon the fuelprice in the market and the exchange rate. They thereforerequested the Respondent to confirm that the tariff was formulabased and shall vary with changes in the fuel price in the marketand dollar variation. Thereafter it appears that the parties werenot able to resolve the differences that surfaced,, and ultimately

EFG

the matter was placed before the Cabinet of the Government ofGoa on May 22, 2013. After having considered the matter, theCabinet took very clear and categoric decision to purchase powerfrom the Claimant at the rate given in the proposal of the Claimant,which would vary, based on the international price of gas andexchange rate fluctuations. The decision was communicated toall offices concerned with request to report compliance. On thevery next day, the Respondent by its letter dated 23rd of May2013 confirmed that the Government had decided to continue topurchase power as per the formula proposed by the Claimant intheir letter dated 21st of March 2013 considering the prevailingrates of fuel and dollar up to the expiry of the existing PPA. Thesame communication also directed that the power bills must besubmitted with due documentation of prices of fuel and dollar.

42. These facts clearly establish that the price of power to besupplied by the Claimant was not based on fixed dollar rate orlanding cost of fuel. The proposal clearly made these chargesvariable, and clarified the position further when the Respondentwrongly understood it to mean fixed rate formula. Ultimately,the Cabinet of the Government of Goa took decision clearly infavour of the stand of the Claimant. It was faintly argued that theCabinet decision was not binding because, pursuant to it no orderwas drawn up by the State Government. Relying on the decisionof the Hon’ble Supreme Court (AIR 1963 S.C 395) in BachhittarSingh Vs State of Punjab, it was contended that unless the Cabinetdecision is followed by formal order drawn up by the StateGovernment, it does not have any binding effect. The submissionis wholly untenable. On facts, in the decision referred to the Courtwas concerned with the note of the Revenue Minister in the file,,and was not decision taken by the Cabinet at its meeting.Secondly, in the instant case the decision of the Cabinet wascommunicated to all concerned officers directing them to act inaccordance with the order and report compliance. Pursuant tothe said decision, letter was written by the Respondent to theClaimant accepting the proposal based on variable charge inaccordance with the prevailing cost of fuel and dollar. This clearlyshows that the Government acted upon the said decision of theCabinet.

43. For all these reasons, the Tribunal finds that the plea of theClaimant that the Respondent was obliged to pay for the powerpurchased by it pursuant to the proposal accepted by it, on thebasis of invoices prepared and submitted by the Claimant takinginto account the variable cost of oil and dollar, must be accepted,and the plea of the Respondent to the contrary, must be rejected.”

16.3. Insofar as the contention of State with regard to non-consideration of clauses 12.1.4 to 12.1.7 of PPA is concerned, in ourview, the claimant is right in its submission that the main issue raisedbefore the Arbitral Tribunal was only as to whether the agreement wasto supply power on fixed rate of fuel price and fixed rate of exchangein terms of US dollar to Indian rupee.

16.4. It might appear that in the latter part of the pleadings, theGovernment of Goa referred to the aforesaid clauses 12.1.4 to 12.1.7 ofPPA but, fact of the matter remains that they were not as such consideredby the parties to be forming material propositions of law or facts so as toform the part of the issue before the Arbitral Tribunal. Even on the firstprinciples pertaining to settlement of issues, like those in Order XIVRule 1 of the Code of Civil Procedure, 1908[18], the Court, while dealingwith regular civil suit, would be ascertaining as to upon what materialproposition of fact or law the parties are at variance, and thereuponwould frame and record the issues on which the right decision of thecase appears to depend. The present case had been that of arbitration

18 Order XIV Rule 1 CPC reads as under: -

“1. Framing of issues.—(1) Issues arise when material proposition of fact orlaw is affirmed by the one party and denied by the other.

(2) Material propositions are those propositions of law or fact which plaintiffmust allege in order to show right to sue or defendant must allege in order toconstitute his defence.

(3) Each material proposition affirmed by one party and denied by the othershall form the subject of distinct issue.

(4) Issues are of two kinds:

(a) issues of fact,

(b) issues of law.

(5) At the first hearing of the suit the Court shall, after reading the plaint and thewritten statements, if any, and after examination under rule 2 of Order X and afterhearing the parties or their pleaders, ascertain upon what material propositions offact or of law the parties are at variance, and shall thereupon proceed to frame andrecord the issues on which the right decision of the case appears to depend.

(6) Nothing in this rule requires the Court to frame and record issues where thedefendant at the first hearing of the suit makes no defence.”

Aand, obviously, the Arbitral Tribunal was not obliged to frame issues oneach and every fact pleaded or disputed. The Arbitral Tribunal was onlyexpected to arbitrate on the dispute presented to it. Significantly, in thepresent case, the parties themselves succinctly formulated the issues onwhich the Arbitral Tribunal was required to give its ruling and therein, asregards this matter of variable charges, the question posed was withBreference to assertion of the Government of Goa that the claimant hadagreed to supply power based on fixed rate of fuel price and fixed rateof exchange in terms of price of US dollar to INR for supply of powerusing RLNG as fuel from June, 2013 onwards (vide point in paragraph34 of the award-reproduced hereinabove). The Tribunal, therefore, rightlyCindicated that the real issue was as to whether the invoices prepared bythe claimant were in accordance with the terms and conditions of theproposal made by the claimant and accepted by the Government; andthe core of dispute was as to whether price of energy to be supplied wasbased upon fixed dollar rate and fixed import price irrespective ofactual fluctuations. The Tribunal indeed adverted to all the relevant factsDand evidence in that regard and determined this issue in favour of theclaimant.

16.5. In view of the real issue projected and agitated before theArbitral Tribunal, reference to clauses 12.1.4 to 12.1.7 of PPA hadobviously been unnecessary. This is coupled with the submissions of theEclaimant that the definition of “Fuel Supply Contract” in PPA wasrestricted to contract entered into between the claimant and fuelsupplier for supply of “Naphtha”, and not pertaining to alternate fuelalso. For ready reference, we may reproduce the definitions of “Fuel”as also “Fuel Supply Contract” in the PPA which read as under: -F“ ‘Fuel’ means Naphtha or any Alternate Fuel;

*********

‘Fuel Supply Contract’ shall mean any contract entered intobetween RSPCL and any Fuel Supplier for the supply of NaphthaGpursuant to clause 12;”

16.5.1. If “Alternate Fuel” is also to be read alongwith “Naphtha”in the aforesaid definition, that would be either re-writing the contract orat least reading something into the contract by stretching the principlesof construction of document. This would, in our view, be travelling intothe area of such construction of the terms of contract which were notH

forming the part of the material propositions of fact on which the partieswere at variance. As noticed, the core of variance of the parties hadonly been as to whether the claimant was to supply energy on fixedrate of fuel and fixed rate of foreign currency after the parties hadagreed to the use of alternate fuel.

16.6. We have only broadly referred to the salient features of thedealings between the parties. In fact, not much dilation and dissection ofthe record is required because the Arbitral Tribunal has indeed examinedall the relevant aspects of the matter in necessary details.

16.7. In any case, all documents which showed the cost at whichalternate fuel was procured and the prevailing dollar rate were supportedby price certificates forwarded to Government of Goa with each andevery invoice, and such certificates had been from Public SectorUndertakings. There is nothing on record to show nor has Governmentof Goa demonstrated that it had either contemporaneously asked forany documents or had disputed or denied the correctness of suchcertificates.

16.8. The Arbitral Tribunal has noticed that the decision of thecabinet was produced before it by Government of Goa itself. There isalso finding of fact in the award that the communication dated23.05.2013 to purchase power at fluctuating rate of fuel and exchangerate of dollar, conveyed to the claimant by Government of Goa, waspursuant to the cabinet decision taken on 22.05.2013. This has been aparticular view taken by the Arbitral Tribunal of the evidence on record.We are unable to appreciate as to how such view on evidence couldhave been substituted by another view on the same evidence by theHigh Court. In an overall view of the record, we are unable to agree thatthe Arbitral Tribunal had approached the case from an altogether wrongangle or it had asked wrong questions. In our view, the Arbitral Tribunalhad squarely answered the issue, which was raised jointly by the partiesbefore it.

17. True it is that consideration of any adjudicatory forum wouldbe vitiated by asking wrong questions but then, in our view, this flawoperates against the consideration of the High Court rather than againstthe consideration of the Arbitral Tribunal.

17.1. As noticed, the High Court has reproduced all the saidclauses of the contract under the heading “Fuel Supply” and then,

Aelaborately discussed the features related with their operation, particularlyclauses 12.1.4 to 12.1.7. The High Court has found this aspect to be avital issue and non-consideration thereof has been taken to be patentillegality. It was observed and held, inter alia, as under:

“88. According to us, the issue about the applicability and theBnon-compliance of contractual clauses 12.1.4 to 12.1.7 was oneof the most relevant and vital issues which arose before the learnedArbitrator. substantial claim was made by the Respondenttowards variable charges, of which, the fuel component was themost dominant. Ultimately, the learned Arbitrator has made anAward in an amount of Rs. 24.66 crores (approximately) towardsCvariable charges post the switch of the fuel from Naphtha toRLNG. Such substantial award has been made without evenadverting to, much less considering or evaluating the issue raisedby the Appellant about applicability and non-compliance with thecontractual clauses 12.1.4 to 12.1.7. This amounts to patentDillegality because the Award to that extent can be said to havebeen made ignoring or even disregarding contractual provisionsto be found in clauses 12.1.4 to 12.1.7 of the PPA. The Award tothis extent will have to be held as vitiated by patent illegalitybecause Award ignores vital evidence on the issue of applicabilityand non-compliance with the contractual provisions in clausesE12.1.4 to 12.1.7.”

17.2. The High Court has also proceeded to observe and reiteratethat interference was being made not because of the Court disagreeingwith any interpretation of the contractual clauses by the Arbitrator butbecause the Arbitrator failed to look into the relevant contractualFprovisions. The High Court justified its interference while observing asunder: -

“98. According to us, all these predicates are attracted when itcomes to impugned Award concerning the variable charges. Theinterference is by no means, merit-based. Interference is becausethe Arbitrator in the present case has failed to even advert tomuch less go into the merits of one of the most vital and relevantissues concerning the applicability and non-compliance with thecontractual provisions. The interference is not because theinterpretation of the contractual clauses by the learned Arbitratoris wrong or because we disagree with such interpretation. The

interference is because the learned Arbitrator failed to even lookinto the contractual provisions to find out if the same were givena go by post the switch of fuel from Naphtha to RLNG. Theinterference is because the learned Arbitrator failed to take noteof and interpret the contractual clauses to find out whether theywere breached as alleged by the Appellant though denied by theRespondent. Without even adverting to much less taking intoconsideration the contractual provisions which governed therelationship between the parties, the learned Arbitrator was notjustified in making an Award of Rs. 24.66 crores in favour of theRespondent. Accordingly, we set aside the impugned Award tothe extent it awards Rs. 24.66 crores to the Respondent towardsthe variable charges.”

18. As noticed, arbitral award is not an ordinary adjudicatory orderso as to be lightly interfered with by the Courts under Sections 34 or 37of the Act of 1996 as if dealing with an appeal or revision against adecision of any subordinate Court. The expression “patent illegality” hasbeen exposited by this Court in the cases referred hereinbefore. Thesignificant aspect to be reiterated is that it is not mere illegality whichwould call for interference, but it has to be “a patent illegality”, whichobviously signifies that it ought to be apparent on the face of the awardand not the one which is culled out by way of long-drawn analysis ofthe pleadings and evidence. Of course, when the terms and conditionsof the agreement governing the parties are completely ignored, the matterwould be different and an award carrying such shortcoming shall bedirectly hit by Section 28(3) of the Act, which enjoins upon an ArbitralTribunal to decide in accordance with the terms of contract while takinginto account the usage of trade applicable to the transaction. As said bythis Court in Associate Builders (supra), if an Arbitrator construes theterm of contract in reasonable manner, the award cannot be set asidewith reference to the deduction drawn from construction. The possibilityof interference would arise only if the construction of the Arbitrator issuch which could not be made by any fairminded and reasonable person.

19. The case of SAL Udyog Private Limited (supra) cited bylearned Attorney General is an apposite example as to when the principlesgoverning “patent illegality” come into operation. In that case, in thecontract concerning supply of Sal seeds, the respondent-contractor hadcontinued to operate until 21.12.1998, when the contract was terminated

Ain accordance with the change in legislation. The respondent thereafterlevied claim for refund of sum of about 1.72 crore, allegedly paid inexcess to the State. The dispute ultimately led to arbitration and an arbitralaward was made in favour of the respondent which was not interferedwith under Sections 34 and 37 of the Act.

B19.1. Therein, the specific ground of challenge by the appellant-State had been that the Arbitrator ignored the binding term of contractgoverning the parties relating to recovery of “supervision charges”. Sucha binding term was brushed aside by the Arbitrator while observing thatthere was no basis to admit any such “indirect expenses”. This Courtfound that the supervision charges were levied by the State and paid byCthe respondent without any demur right from the date parties enteredinto agreement and it was only after termination of the contract that therespondent raised dispute towards supervision charges. It had been aclassic case of the Arbitrator ignoring and rather overriding the terms ofcontract, as would appear from the following observations of this CourtDwith reference to the facts of the case:

“23. On conspectus of the facts of the case, it remains undisputedthat though the appellant State did raise an objection before theArbitral Tribunal on the claim of the respondent Company seekingdeduction of supervision charges, for which it relied on Clause6(b) of the agreement and the Circular dated 27-7-1987 to assertthat recovery of supervision charges along with expenses was apart and parcel of the contract executed with the respondentCompany, the said objection was turned down by the learned solearbitrator by giving complete go-by to the terms and conditionsof the agreement governing the parties and observing that there isno basis to admit any such “indirect expenses”. The Circular dated27-7-1987 issued by the Government of Madhya Pradesh thatprovides for imposition of 10% supervision charges on the amountscalculated towards the cost of the Sal seeds in the expenditureincurred, was also ignored. Pertinently, the respondent Companyhas not denied the fact that supervision charges were being leviedby the appellant State and being paid by it without any demur as apart of the advance payment made on an annual basis, right fromthe date the parties had entered into the first agreement i.e. from30-8-1979. This fact is also borne out from the specimen copiesof the orders filed by the appellant State with the appeal that

amply demonstrate that the cost of the Sal seeds required to bepaid by the respondent Company included “supervision charges”described as “Paryavekshan vyay” in vernacular language. Itwas only after the appellant State had terminated the secondcontract on 21-12-1998, that the respondent Company raised adispute and for the first time, claimed refund of the excess amountpurportedly paid by it to the appellant State towards supervisioncharges incurred for supply of Sal seeds. In our opinion, this is thepatent illegality that is manifest on the face of the arbitral awardinasmuch as the express terms and conditions of the agreementgoverning the parties as also the Circular dated 27-7-1987 issuedby the Government of Madhya Pradesh have been completelyignored.”

19.2. In view of such an error apparent on the face of the record,this Court found the matter to be of patent illegality which was going tothe root of the matter and the impugned award, insofar permittingdeduction of the supervision charges recovered from the respondent,was quashed and set aside being in direct conflict with the terms of thecontract and the relevant circular. This Court held thus:

“26. To sum up, existence of Clause 6(b) in the agreementgoverning the parties, has not been disputed, nor has the applicationof the Circular dated 27-7-1987 issued by the Government ofMadhya Pradesh regarding imposition of 10% supervision chargesand adding the same to cost of the Sal seeds, after deducting theactual expenditure been questioned by the respondent Company.We are, therefore, of the view that failure on the part of the learnedsole arbitrator to decide in accordance with the terms of thecontract governing the parties, would certainly attract the “patentillegality ground”, as the said oversight amounts to grosscontravention of Section 28(3) of the 1996 Act, that enjoins theArbitral Tribunal to take into account the terms of the contractwhile making an award. The said “patent illegality” is not onlyapparent on the face of the award, it goes to the very root of thematter and deserves interference. Accordingly, the present appealis partly allowed and the impugned award, insofar as it haspermitted deduction of “supervision charges” recovered from therespondent Company by the appellant State as part of theexpenditure incurred by it while calculating the price of the Sal

Aseeds, is quashed and set aside, being in direct conflict with theterms of the contract governing the parties and the relevant circular.The impugned judgment dated 21-10-2009 is modified to theaforesaid extent.”

19.3. The aforesaid had not been case of the fundamentalBalteration of the terms of contract during the currency of contract andfor that matter, the parties having definitely exchanged communicationand having brought into existence an agreement which, even if construedas supplemental to original one, had been of material difference in regardto the use of particular fuel and then raising of invoices on that basiswith reference to fluctuating price of fuel as also the exchange rate ofCforeign currency (US dollar).

20. The matter can be examined from yet another angle. If theterms agreed to by the parties with exchange of communicationscommencing from 20.03.2013 were to be ignored, the result would be ofignoring such terms of contract of the parties which had come intoDexistence and which were binding on both. Viewed thus, coupled withthe fact that only the limited dispute was presented for arbitration (i.e.,as to whether power was to be supplied on the basis of fixed rate of fueland fixed rate of currency or on variable charges), the Arbitral Tribunal,in our view, has been justified in focusing on the core issue raised, ratherEthan going astray and entering into such an analysis which was notgermane to the issue at hand.

21. For the reasons aforesaid, in our view, no ground for challengeunder Sections 34 or 37 of the Act was made out in relation to the awardpertaining to variable charges. Hence, the High Court has not been rightFin setting aside the award relating to variable charges on the ground ofso-called non-consideration of clauses 12.1.4 to 12.1.7 of PPA.

21.1. Putting it in other words, the High Court, even whilereminding itself of the limitation of jurisdiction, has committed the sameerror by extensively dissecting the evidence while assuming that clausesG12.1.4 to 12.1.7 were decisive of the matter without taking close lookat the material propositions which formed the dispute and which werepresented by the parties before the Arbitral Tribunal. As regards variablecharges, the core question before the Tribunal had been as to whetherthe claimant agreed to supply electricity on fixed charges with fixed rateof foreign currency while using the alternate fuel. This question wasHessentially to be determined with reference to the new contract that

came into existence with exchange of communications between theparties. The Arbitrator precisely decided the matter with reference to,and after analysis of, that evidence. It had neither been case of theArbitrator not taking into consideration the terms of contract applicableto the issue at hand nor of any such finding which no fair-minded orreasonable person could have possibly rendered ever. Viewed in thelight of core dispute presented to the Arbitral Tribunal by the parties, thesubmissions of the learned Attorney General, that the Arbitral Tribunalhas not examined the question as to whether the correspondence inquestion resulted in change of fundamentals of contract, do not makeout case for interference because novation of the terms of contract asregards fuel had not been matter of dispute at all. The core questionwas as to how the new terms were to operate. The Arbitral Tribunal hasprecisely dealt with the same in accordance with law.

22. What has been observed hereinabove and held in disapprovalof interference by the High Court in the item of award pertaining tovariable charges more or less apply to the other items too, where theHigh Court has interfered and has upturned the award. In view of thedetailed discussion foregoing, we need not elaborate on all other items.Suffice it would be to deal briefly with the same as we find that on everysuch score, the High Court has rather entered into merits of the matteras if dealing with regular appeal. It has been clear case of the HighCourt travelling beyond the periphery of Section 34 as also Section 37 ofthe Act of 1996.

The award relating to downrating of the plant

23. As regards downrating, the issue before the Arbitral Tribunalwas as to whether the plant was required to be downrated till the expiryof PPA as contended by Government of Goa relying on draft notificationissued by Ministry of Power, Government of India.

23.1. The Arbitral Tribunal considered the contractual terms ofthe parties and came to specific finding on interpretation of such termsand conditions that various Supplementary PPAs executed between theparties show that the Rated Capacity of the plant was reduced to 19.8MW and the obligation of the claimant was restricted to assuring supplyupto 19.8 MW without any reference to degradation of such capacity.On considering the material on record, the Arbitral Tribunal held thatGovernment of Goa was not justified in contending that there was any

Adownrating annually of Rated Capacity. In regard to this issue, it is morethan apparent that the Arbitral Tribunal had considered the provisions ofthe contract and had taken particular view thereupon. The Tribunalsaid, inter alia, as under:-

“48. An issue was raised at the stage of arguments relating to thedown rating the generating capacity of the plant annuallycommencing from the first year after Commercial Operation ofthe plant. Such plea does not appear to have been raised in theStatement of Defence by the Respondent even though it iscontended that down rating small fraction of generating capacitywill have huge impact on the monthly invoices. Learned counselfor the Claimant brought to the notice of the Tribunal that it was inparagraph 12 of the sur rejoinder that the Respondent soughtdocuments relating to Original Equipment Manufacturer’s (OEM)recommendations towards down rating of generating capacity asenvisaged in the definition of “Contracted Capacity” which wasrequired to ascertain the implementation of the down rating of thegenerating capacity in accordance with the recommendations ofthe Original Equipment Manufacturer.

49. According to the Respondent in terms of the PPA, thecontracted capacity was defined to be 39.402 KW in the firstyear of commercial operation and down rated annually as peroriginal equipment manufacturer’s recommendation in successiveyears. However, the Claimant did not take into account the downrating factor in any of the bills which it submitted to the Respondent.After the dispute arose, the Respondent observed that the downrating factor ought to have been applied from the year 2000onwards, which was the second year of commercial operation, interms of OEM recommendations. It was therefore that theRespondent sought necessary documents from the Claimant asregards the recommendations of the OEM, but the same werenot provided, contending that the said documents were not availablewith the Claimant. In the circumstances, the Respondent had togo by other material to calculate the down rating factor. TheRespondent has relied upon draft notification issued by theGovernment to calculate the down rating. The said notificationprovides that the down rating would start from the second year ofoperation and would proceed till the fifth year, after which the

plant had to be overhauled as result of which in the sixth year,the down rating would be negligible. Based upon the draftnotification issued by the Ministry for Power, the Respondent hasmade calculations taking into account the down rating right fromthe year 2000.

50. The Claimant responded by contending that draft notificationissued by the Ministry for Power has no value unless the same isduly notified in the Gazette. The Respondent has not relied uponany final notification duly notified. The Government may havethought of not issuing the notification for good reasons. Beingonly draft notification which was never finally issued, it has novalue in law and the Respondent cannot derive any benefit fromsuch draft notification.

51. It is the case of the Claimant that the contracted capacityunder the PPA dated 10th of January 1997 was equal to 39,402kilowatts in the first year of commercial operation and down ratedannually thereafter as per original equipment manufacturer’srecommendation in the subsequent years. Later, the parties agreedto convert the generating station from Open Cycle into CombinedCycle generating station of 48 MW capacity. On 10th September1997, supplementary PPA was entered into which permitted theClaimant to sell power directly in excess of 39.8 MW to consumersin Goa. After the Claimant commenced commercial operation ofthe power station on 14th of August 1999, on completion of oneyear thereafter, second supplementary agreement was enteredinto on 20 September 2000 whereunder the Respondent agreedto consent to sale of electricity in full or in part, to the extent of2000 KW generated at the power station directly to any consumerin Goa. Referring to such other supplementary agreements it wassubmitted that the earlier definition of the contracted capacitywas given go by, and completely changed. The issue with regardto down rating thus became irrelevant, and in any event bysubsequent written agreement, inter alia, amending the earlieragreement, there was no question of any further down rating asalleged. The parties are bound by the contractual provisions. Thevarious supplementary PPAs executed between the parties clearlyshow that the rated capacity was subsequently reduced to 19.8MW and the obligation of the Claimant was restricted to assuring

440SUPREME COURT REPORTS

Asupply up to 19.8 MW without any reference to degradation ofsuch capacity. The Respondent is therefore not justified incontending that there was an alleged down rating annually of therated capacity.”

23.2. The Arbitral Tribunal then considered the documentaryBevidence produced before it, including certificate issued by OEM dated08.11.2005 and Minutes of Meeting dated 05.04.2007, where the issuewas settled and all bills till that date were reconciled and future billswere raised on the basis that there was no downrating. This is clearfrom the following findings in the award in question: -

C“52. What is even more significant is the reliance placed upon thecertificate issued by the OEM namely BHEL-GE Gas TurbineServices, Private Limited dated November 8, 2005. It is certifiedby the OEM that subsequent to the commissioning of the Goaplant of the Claimant recommended inspections of Gas Turbinewere carried out and Turbine was found to be generating theDRated Output without any degradation. Similarly, BGGTS hadcarried out the Hot Gas Path Inspection of GT during AnnualInspection in September 2005. All operating parameters werechecked and the Turbine was found to be generating its RatedOutput without any degradation.

53. The Respondent submitted that the certificate refers to therebeing no degradation of the plant. The degradation and down ratingare two different and distinct concepts which cannot be confusedwith one another. It is not possible to accept this contention becausedown rating becomes necessary only if there is degradation ofFthe plant.

54. The Claimant has also referred to the meetings held betweenthe parties, on 5th April 2007, when the Respondent was dulysatisfied on the issue relating to down rating of contracted capacityas per OEM’s recommendation which were discussed in the saidGcommittee. The Claimant explained that the plant was maintainedas per OEM’s recommendation and there had been no down ratingof contracted capacity. The Claimant had already submitted OEMsletter in this regard, which is dated 8th November 2005. The partiesagreed at the said meeting that the invoices were to be reconciledas per what was stated in the said meeting and all future invoicesHwere to be calculated in the same manner. The minutes of the

said meeting dated 5th April 2007 have been placed on record.Thus, the question of down rating of contracted capacity iscompletely irrelevant. It is not disputed that, based on the minutesof the said meeting and the agreement arrived there at, the invoicesfor the period April 2004 to April 2007 were reconciled and thereconsideration was duly approved by the Respondent and thepayment was made on the basis thereof by the Respondent to theClaimant. All future invoices were raised on the basis of the saidagreement arrived at the meeting and the invoices were dulyapproved by the Respondent and have been paid by the Respondentfor the period up to March 2013 and part of April 2013. In thecircumstances, therefore, the issue relating to the down rating ofcapacity of the plant appears to have been settled between theparties, and should not be allowed to be re-agitated in thisproceeding. This claim is accordingly, rejected.”

23.3. The Arbitral Tribunal thus held that the issue relating todownrating of capacity was settled between the parties and the partiesshould not be allowed to reagitate the same.

24. As regards this issue of downrating, again, we find that theHigh Court has found shortcomings in the discussions of the ArbitralTribunal as regards the meaning and effect of the certificate dated08.11.2005 and as to whether the claimant could have made any claimon that basis or not. The High Court even proceeded to analyse theminutes of the meeting. It has clearly been case of value and worthattached to particular evidence by Arbitral Tribunal, which wasconsidered not satisfactory by the High Court; and rejection of thecontention of the Government by the Arbitral Tribunal was found to beerroneous. However, thereafter, the High Court again observed that itwas not case of re-appreciation of evidence but being case of noevidence, there had been patent illegality. The High Court observed asunder: -

“124. The impugned Award has recorded finding based on thebald statement in the certificate dated 8[th] November 2005 andthere was no degradation of the plant and further, in the absenceof degradation of the plant, the concept of downrating will notapply, Again, this is, with respect, patent illegality. The certificatecould hardly have been regarded as recommendation of OEM.In any case, the certificate referred to the absence of degradation

Ain the year 2005, and based on such certificate, there was noquestion of inferring that there was no degradation of the planteven thereafter. Therefore, the contractual stipulation regardsdownrating, which was never amended or deleted by anysubsequent agreements, could not have been ignored or bypassedbased on the certificate dated 8[th] November 2005 or the minutesBof the meeting dated 5[th] April 2007.

125. The impugned award to the extent it rejects the Appellant’scontention based on the downrating, will, therefore, have to be setaside on the ground that the same is vitiated by patent illegality onthe face of the record. The findings recorded in the impugnedCAward are based only on the certificate dated 8[th] November 2005and the minutes of the meeting dated 5[th] April 2007. None of thedocuments suggests that the contractual term of the downratingwas either done away with or complied with. This is not case ofeither reappreciation of the evidence on record or case ofDinsufficiency of evidence. This is case of no evidence. This is acase of ignoring the contractual provision by incorrectly assumingthat such provision was amended or deleted. The tentative findingsto the contrary are, therefore, ex facie perverse and suffer frompatent illegality on the face of the record. The impugned Award,to the extent it rejects the defence of the Appellant on the issue ofEdownrating and proceeds to make an award of Rs. 18.53 croresin favour of the Respondent is liable to be set aside on the groundof perversity and patent illegality.”

24.1. In regard to this issue, in our view, the High Court has againtravelled beyond its jurisdiction under Section 37 and rather than remainingFwithin the confines of consideration under Section 34 of the Act, hasentered into the arena which is exclusively within the Arbitrator’s domain.What the Arbitral Tribunal has held in regard to this item had exclusivelybeen its view on the evidence on record and the relevant surroundingfacts/factors. The view so taken by the Arbitral Tribunal cannot be saidGto be wholly perverse or suffering from patent illegality so as to beinterfered with. Needless to observe that even if two views are possible,the Court cannot substitute its own view with that of the Arbitral Tribunal.

25. The questions raised by the learned Attorney General, inrelation to the issue concerning downrating, that adverse inference oughtHto be drawn against the claimant for failure to produce OEM

recommendations, are only pertaining to the principles of appreciation ofevidence. Of course, in the regular adjudicatory process, the Court maypresume existence of certain facts under Section 114 of the IndianEvidence Act, 1872; and in terms of Illustration (g) thereof, the Court isentitled to draw an inference that the evidence which could be but notproduced would, if produced, be unfavourable to the person who withholdsit. However, in given case, while determining the dispute by way ofarbitration, whether the Arbitrator draws such adverse inference or not,is essentially matter of appreciation of evidence; and if not drawing ofadverse inference is also permitted to be raised as ground of challengeunder Section 34, it would open the confines of limited interference in anaward; and would carry the propensity of converting the proceedingsunder Section 34 and under Section 37 into the proceedings of regularappeal/revision against the award and thereby, again violating theprinciples that re-appreciation of evidence is not envisaged in theproceedings under Section 34 of the Act of 1996. It gets per forcereiterated that an award could be said to be suffering from “patentillegality” only if it is an illegality apparent on the face of the award andnot to be searched out by way of re-appreciation of evidence. Thesubmissions as regards drawing of adverse inference are themselvesadverse to the ethos of Sections 34 and 37 of the Act of 1996 and arerequired to be rejected.25.1. In other words, as regards the question of downrating, thequestions relating to the value of certificate dated 08.11.2005 and theeffect of the claimant not taking up this issue earlier would again falldirectly within the arena of appreciation of evidence and reach to theextent of rendering the finding on preponderance of probabilities. TheArbitral Tribunal has taken particular view of the evidence before it. Ifit were an appeal against the award, the approach of the Court couldhave been different but, not so while examining the award within theconfines of Section 34 of the Act. We would hasten to observe in thisregard too that even in regular appeal against decree of the TrialCourt, the Appellate Court would not substitute its own views withoutspecifically recording finding as to the error in the decision underchallenge. In any case, if the approach of the High Court in the presentcase is countenanced, the result would only be of making every awardsusceptible to challenge before the Court on those very grounds whichare, otherwise, of appeal or revision and which are not permitted by thelegislature to be taken under Section 34 of the Act of 1996.

A26. Having found the two major issues dealt with by the HighCourt not standing within the confines of limited jurisdiction under Section34 of the Act of 1996, we may again observe that the approach of theHigh Court in relation to the other two comparatively minor issues relatingto variable charges on 4MW power and netting-out principles is alsosuffering from the same error, where the High Court has deeply analysedBthe evidence on record to hold that the Arbitral Tribunal has not beencorrect in its propositions or inferences.

The award relating to variable charges on 4 MW power

27. The Arbitral Tribunal examined the documentary evidence,Cviz. letters exchanged between the parties dated 02.01.2009 and19.01.2009 and came to finding that State was not justified in itssubmission that the available capacity of the plant stood reduced.

28. In this item too, the High Court has reinterpreted the saidcommunications dated 02.01.2009 and 19.01.2009 by which parties agreedDto the manner of billing for supply of 15.8 MW power out of 19.8 MWcapacity of the power station reserved for Government of Goa bypermitting the balance 4 MW to be sold to third parties; and the HighCourt arrived at different finding of fact on the evidence on record.We may usefully reproduce the summation of the findings by the HighCourt as regards variable charges on 4 MW power as follows:-

“137. The circumstance that there was specific clause excludingthe payment of fixed costs, could not lead to the inference thatthe Appellant had agreed to bear the variable costs in respect ofthis 4 MW power, which variable costs were even otherwise notpayable by the Appellant to the Respondent in terms of the originalFPPA or PSA and the supplementary PPAs. If there was anyproposal for encumbering the Appellant with any charges overand above the charges undertaken by it under the contract, thensurely this ought to have been specified. Such an additional burdencannot be imposed by implication. Therefore, the reasoning thatGbecause there was no reference to variable charges in thecommunication dated 19.1.2009, the same was agreed to be paidby the Appellant is quite perverse and constitutes patent illegalityon the face of the record. According to us, the impugned Awardto the extent it so unjustly enriches the Respondent to the extentof Rs. 3.94 crores conflicts with the most basic notions of moralityHand justice. The impugned Award, to this extent, is also vitiated by

unreasonableness, perversity, and patent illegality apparent on theface of the record.”

29. The High Court has once again stepped into the arena whichis reserved for the Arbitral Tribunal. It is noticed that the parties hadagreed to particular methodology of billing for supply of 15.8 MWpower but, at the same time, retained with them the right to revert backto 19.8 MW supply at any future point of time. With reference to thedealings of the parties, the Arbitral Tribunal has taken particular viewof the matter. It cannot be said that the view as taken by the ArbitralTribunal was entirely impermissible or implausible. There was no scopefor interference by the Court.

The award relating to netting-out principle

30. The aspect of netting-out, again, depended on the terms ofcontract of the parties and the deductions to be drawn from the evidenceon record. The Arbitral Tribunal had drawn the particular conclusion onthe basis of notes dated 13.09.2014 and 18.09.2014. The Arbitral Tribunalconsidered the documentary evidence before it, as well as the provisionsof the contract relating to supply of backup power by Government ofGoa to the claimant when the power station was under shutdown for theperiod May 2014 to August 2014. The Arbitral Tribunal further referredto the communications which also include the decision of the Governmentof Goa as to the rate at which power during the shut down period was tobe supplied to the claimant and on this basis, came to the finding that afixed rate which was not to be multiplied as per the provisions of thePPA was agreed between the parties. The award also gave reasons forsuch finding. Even if it be assumed that another view is possible, it cannotbe said that the Arbitral Tribunal has taken such view which no fair-minded and reasonable person could have ever taken.

31. The High Court has again justified its interference in this itemin the following terms: -

“148. According to us, the impugned Award on the aspect ofnetting out is again vitiated by perversity and patent illegality. Thenote dated 13/8/2014, as well as the communication dated 18/9/2014 on its plain terms, refers only to the determination of rateof Rs. 3.78 P. KWh. for applying the contractual provisionsconcerning netting. This note or this communication wasnecessitated because for the relevant proximate billing period there

Awere no supplies made by the Respondent to the Appellant andtherefore there was no ready rate available based on which thecontractual provisions could be worked for netting out. Therefore,the Appellant determined the rate of Rs. 3.78 P. KWh. as thebase rate for purposes of netting out. There is nothing either inthe noting or in the communication dated 18/9/2014 to even remotelyBsuggest that by determining such base rate, the parties intendedto give complete go-by to the clear and specific contractualprovisions for the multiplication of this base rate into 1.25 forpurposes of netting out in the eventuality of an unscheduled shutdown of the power plant by the Respondent. Therefore, based onCthe noting and the communication dated 18/9/2014, the finding orthe conclusion that the parties had agreed to do away with theclear and specific contractual provisions, is not even plausiblefinding or conclusion. Such finding or conclusion is vitiated byperversity and patent illegality on the face of the record. TheAward of an amount of Rs. 2.36 crores (approximately) to theDRespondent on this score is, therefore, liable to be set aside on thegrounds of perversity and patent illegality on the face of therecord.”

31.1. On this item too, the High Court has substituted its ownview and has reinterpreted the documentary evidence before it for setting

Easide the award. Such substitution of view is not permissible for theCourt under Section 34 of Act. There arise no question of it beingpermissible under Section 37 of the Act.

Interest in award

F32. It has been argued on behalf of the State that the High Courtought not to have rejected its contention with regard to the interest forpre-reference period since the liability to pay interest would arise onlyonce the amount to be paid has been determined.

32.1. In regard to the question of interest, the High Court hasGrightly held that the Arbitral Tribunal was justified in following thecontractual provisions and the provisions of Section 31(7) of the Act;and has rightly not interfered with the award of interest for the pre-reference period and the period during which the proceedings werepending before the Arbitral Tribunal. In our view, the State is not right incontending that the interest could not have been awarded during theH

period of reference to the Arbitrator. In regard to this aspect, thesubmissions to the effect that pre-reference period interest was not basedon any compelling reasons and contractual provisions for interest werein terrorem are liable to be discarded, could only be rejected for beingnot even standing within the periphery of Section 34 of the Act of 1996.

33. However, insofar as post-award period is concerned, the HighCourt has reduced the rate of interest from 15% to 10% by followingthe decision of this Court in the case of Vedanta Ltd. (supra). The HighCourt has relied on the principles of proportionality and has scaled downthe rate of interest to 10% p.a. while observing as under:-

“175. Mr. Bhat handed in statement indicating the interest rates(Benchmark Prime Lending Rates) of the State Bank of India.For the period 2017-18, the rates indicated range around 13 to14% per annum. This is no doubt one of the factors to be takeninto consideration for determining the prevailing economicconditions when the impugned Award was made. Again, referenceis also necessary to the principle of proportionality of the amountawarded as an interest to the principal sums awarded. Havingcumulative regard to all the factors referred to above, we feelthat in the facts and circumstances of the present case, the awardof interest at the rate of 15% per annum is excessive and contraryto the principle of proportionality and reasonableness and the samewill have to be scaled down to 10% per annum. In VedantaLtd. (supra), the Award was dated 9/11/2017 and the Courtawarded interest at the rate of 9% per annum for the INRcomponent. The impugned Award, in our case, was made on 16/2/2018.”

34. We are of the view that the aforesaid reduction of rate ofinterest by the High Court is also unjustified. We have noticed theprovisions of Section 31(7)(b) that unless the award otherwise directs,the sum payable under the arbitral award shall carry interest at the rateof 2% higher than the current rate of interest prevalent on the date ofthe award, from the date of the award to the date of payment. Theexpression “current rate of interest” has been explained in theExplanation to the said Section to have the same meaning as assignedunder Section 2(b) of the Interest Act, 1978. The High Court has referredto the decision in Vedanta Ltd. (supra) to hold that Court may reduceinterest awarded by the Arbitrator when such interest does not reflect

Athe prevailing economic condition or where it is not found reasonable orwhere it promotes interest of justice. We do not find any basis in theimpugned judgment of the High Court for reducing the rate of interest,as in the case of Vedanta Ltd., wherein this Court was dealing with anInternational Commercial Arbitration involving rupee as well as eurocomponents. Moreover, in the case of Vedanta Ltd., the rate of interestBwas reduced in respect of the foreign currency component to bring theinterest rate in line with the international rate on the ground that the rateof interest prevailing on the rupee debt in India and on internationalcurrency abroad were different and the international rates were lower.Such situation is not obtaining in the present case.C

34.1. The High Court seems to have not considered the relevantfactual aspects. On the contrary, as has been submitted before us aswell as the High Court, the prevailing interest rate being the prime lendingrate of State Bank of India was in the range of 13% to 14% per annum.Thus, the Arbitral Tribunal was justified in granting interest at the rate ofD15% per annum post-award. In our view, the Arbitral Tribunal was wellwithin its jurisdiction under Section 31 of the Act to award interest at therate of 15% p.a. and there was no justification to reduce the same to10% p.a. We may observe with respect that the High Court was notexercising any equity jurisdiction so as to resettle the rate of interest asEdeemed fit by it. It had been matter relating to an award made by theArbitral Tribunal in commercial dispute.

Final comments, observations, and conclusion

35. In the foregoing discussion, we have not elaborated on thediscussions and findings of the Commercial Court in its order datedF12.09.2019. Instead, we have directly dealt with the consideration of theHigh Court vis-à-vis the award in question. As noticed, the High Courtcould only be said to have misdirected itself on the major issues concerningmerits of the award. However, before concluding, we may observe thatit had not been as if the Commercial Court did not examine the materialGissues arising for determination while dealing with the case in terms ofSection 34 of the Act of 1996.

35.1. It is noticed that after taking note of the submissions ofparties, the Commercial Court precisely framed the points fordetermination and then, dealt with every point on the anvil of Section 34Hof the Act of 1996. With respect, we do not find the High Court justified

in making comment about framing of points for determination byCommercial Court and then observing that the Commercial Court merelyreproduced the findings of the award. The Commercial Court dealingwith Section 34 application was not acting as Court of Appeal. Yet,looking to the long-drawn arguments, the Commercial Court enumeratedthe issues raised and then returned the findings after examining the recordand while rejecting the submissions made on behalf of the State. Therehad been no such flaw in the judgment and order passed by theCommercial Court which called for interference by the High Court onthe parameters and within the periphery of Sections 34/37 of the Act of1996. We may, for illustration, reproduce paragraph 49 of the order ofthe Commercial Court where, in relation to the issue of variable charges,after taking note of all the factual aspects and contentions of the parties,the Commercial Court held as under: -“49. Above facts clearly show that GOG clearly acceptedand understood that the price of electricity was to be calculatedon the basis of price of fuel and dollar conversion rate and thatletter dated 30.08.2013 and cabinet note were on guiding factorto know the understanding between parties. The Ld. Arbitratorrightly appreciated that the cabinet of GOG took decision clearlyin favour of the stand of the claimant. Ld. Advocate General hasargued that the cabinet decision was not binding because pursuantto it no any decision was taken by the State Government nor anydecision was conveyed to the claimant. Reference was made toJudgment in the case of Bachhittar Singh (supra) wherein it isheld that unless the cabinet decision is followed by formal orderdrawn up by The State Government, it does not have binding effect.Ld. Advocate General also made reference to judgment in thecase of Bombay Chemicals Ltd. v/s. Union of India – 2006(201)ELT 167 Bombay wherein cabinet note was considered on meritsbut it was held that the cabinet note was only to make budgetaryprovision. Without prejudice Ld. Advocate General also submittedthat even if the cabinet note was to be considered it could at themost be for an amount of Rs. 0.76 paise increase and nothingmore than that. In the present case subsequent conduct of GOGin making payments based on variable fuel price shows that theyimplemented the said cabinet decision. In the present case even ifthe said cabinet note is considered to be internal note, it will haveto be considered because GOG accepted variable fuel price and

450SUPREME COURT REPORTS

[2023] 8 S.C.R.

Aalso made payments. Making of payments thereafter are variablefactors which distinguish the above two judgments.For the reasons mentioned above, Point No.1 is answeredin the Affirmative.”

36. The narrow scope of “patent illegality” cannot be breachedBby mere use of different expressions which nevertheless refer only to“error” and not to “patent illegality”. We are impelled to reiterate whathas been stated and underscored by this Court in Delhi Airport MetroExpress (supra) that restraint is required to be shown while examiningthe validity of arbitral award by the Courts, else interference with theCaward after reassessing the factual aspects would be defeating the objectof the Act of 1996. This is apart from the fact that such an approachwould render several judicial pronouncements of this Court redundant ifthe arbitral awards are set aside by categorizing them as “perverse” or“patently illegal” without appreciating the contours of these expressions.

D37. In the passing, we cannot help noticing that in the impugnedjudgment, the High Court though referred to the principles laid down bythis Court in Ssangyong Engineering (supra) but then, reproduced ananalysis by learned Single Judge of the High Court and proceeded todecide the matter with reference to the passages so extracted. Withrespect, we are of the view that enunciation of this Court ought to haveEbeen examined by the Division Bench of the High Court while dealingwith the matter at hand, rather than relying on the analysis by learnedSingle Judge of the High Court. We say no more in this regard, essentiallybecause the latter decisions of this Court like those in Delhi AirportMetro Express and Haryana Tourism Limited were not availableFbefore the High Court at the time of passing of the impugned judgmentand order dated 08.03.2021. Nevertheless, the principles expounded bythis Court in Associate Builders and Ssangyong Engineering (supra)were available and the matter was required to be dealt with in referenceto those principles. Leaving this aspect at that, suffice it would be toobserve for the present purpose that the impugned judgment and orderGdated 08.03.2021, insofar it interferes with the findings and the conclusionsof the award in question, cannot be sustained and is required to be setaside.38. For what has been discussed hereinabove, few othersubmissions made by the learned Attorney General in regard to theHcalculation of the awarded amount and ancillary aspects do not require

elaborate discussion. Fact of the matter remains that nothing of patentillegality apparent on the face of the award has been pointed out. Thesubmissions essentially are of indicating some alleged errors on the meritsof the case which, as noticed, do not fall within the parameters of Section34 of the Act of 1996.

39. Hence, that part of the impugned judgment and order dated08.03.2021 as passed by the High Court, which modifies the award dated16.02.2018 and the order of the Commercial Court dated 12.09.2019, isset aside and consequently, the award in question is restored in its entirety.

40. The appeal filed by the claimant is allowed accordingly andthat filed by the State is dismissed. No costs.

Nidhi Jain

Appeals disposed of.

(Assisted by : Shevali Monga and Shashwat Jain, LCRAs)