Arbitration and Conciliation Act, 1996 – s. 34 – The award passed by the Arbitrator was modified by the Civil Judge and the Respondents were directed to pay Rs.3,71,564 (25% of tender amount) along with Rs.10,000/- as costs towards the arbitration @ 9% interest – Propriety:

* Author

[2024] 1 S.C.R. 281 : 2024 INSC 17

S.V. Samudram

v.

State of Karnataka & Anr

(Civil Appeal No. 8067 of 2019)

04 January 2024

[Abhay S. Oka and Sanjay Karol*, JJ.]

Issue for Consideration

The Civil Judge modified the award passed by the Arbitrator

reducing the amount awarded as also interest thereupon, i.e.,

Rs.14,68,239/- @ 18% to only 25% of the tender amount which

equals to Rs.3,71,564/- and the interest percentage thereon was

reduced to 9%. Whether the modification of the arbitral award as

carried out by the Civil Judge as confirmed by the High Court,

was justified within law.

Headnotes

Arbitration and Conciliation Act, 1996 – s. 34 – The award

passed by the Arbitrator was modified by the Civil Judge and

the Respondents were directed to pay Rs.3,71,564 (25% of

tender amount) along with Rs.10,000/- as costs towards the

arbitration @ 9% interest – Propriety:

Held: It is settled that any court u/s. 34 would have no jurisdiction

to modify the arbitral award, which at best, given the same to

be in conflict with the grounds specified u/s. 34 would be wholly

unsustainable in law – Also, the Arbitrator’s view, generally is

considered to be binding upon the parties unless it is set aside on

certain specified grounds – In the instant case, award passed on

18.02.2003 was prior to the amendment brought in Section 34 by

virtue of the Arbitration and Conciliation (Amendment) Act, 2015

– Prior to the Amending Act, it was open for the Court to examine

the award as to whether it was in conflict with, (a) public policy of

India; (b) induced or affected by fraud; (c) corruption; and (d) any

violation of the provisions of s.75 and s.81 of the Act – In the given

situation, the only provision under which the award could have been

assailed was for it to have been in conflict with the public policy

of India – A perusal of the judgment and order of the Civil Judge

does not reflect fidelity to the text of the statute – Nowhere does 

282 [2024] 1 S.C.R.

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it stand explained, as to, under which ground(s) mentioned u/s.

34 of the Act, did the Court find sufficient reason to intervene – In

fact, quite opposite thereto, the Court undertook a re-appreciation

of the matter, and upon its own view of the evidence, modified the

order – None of the reasons recorded allude to the award being

contrary to the public policy of India, which would enable the court

to look into the merits of the award – The award passed by the

Arbitrator in which he has not only referred to and considered the

materials on record in their entirety but also, after due application

of mind, assigned reasons for arriving at this conclusion, either

rejecting, accepting or reducing the claim set out by the ClaimantAppellant – The view taken by the Arbitrator is a plausible view and

could not have been substituted for its own by the Court – Thus,

the modification of the arbitral award by the Civil Judge does not

stand scrutiny, and must be set aside. [Paras 28, 29, 30, 31, 33]

Arbitration and Conciliation Act, 1996 – s. 37 – The High Court

upheld the modification of the arbitral award by the Civil Judge

u/s. 37 of the Act – Propriety:

Held: The Single Judge of the High Court, similar to the Civil Judge

u/s. 34, appears to have not concerned themselves with the contours

of s.37 of the Act – The Court u/s. 37 had only three options:- (a)

Confirming the award of the Arbitrator; (b) Setting aside the award

as modified u/s. 34; and (c) Rejecting the application(s) u/s. 34 and

37 – The single Judge has examined the reasoning adopted by the

Arbitrator in respect of certain claims (claims 3 and 7, particularly)

and held that allowing a claim for escalation of cost, was without

satisfactory material having been placed on record and is “perverse

and contrary to the public policy” – However, it appears that such

a holding on part of the Judge is without giving reasons therefor

– It has not been discussed as to what the evidence was before

the single Judge to arrive at such conclusion – In the absence of

compliance with the well laid out parameters and contours of both

s.34 and s.37 of the Act, the impugned judgments are set aside

– Consequently, the award dated 18.02.2003 of the Arbitrator is

restored. [Paras 39, 42, 43, 47]

Case Law Cited

National Highways Authority of India v. M. Hakeen and

Another (2021) 9 SCC 1; Dakshin Haryana Bijli Vitran

Nigam Limited v. Navigant Technologies Private Limited

[2021] 1 SCR 1135: (2021) 7 SCC 657; Associate 

[2024] 1 S.C.R. 283

S.V. Samudram v. State of Karnataka & Anr

Builders v. DDA [2014] 13 SCR 895: (2015) 3 SCC

49;Ssangyong Engineering and Construction Company

Limited v. National Highways Authority of India (2019)

15 SCC 131: [2019] 7 SCR 522; MMTC Ltd. v. Vedanta

Ltd [2019] 3 SCR 1023: (2019) 4 SCC 163; UHL Power

Company Ltd v. State of Himachal Pradesh [2022] 1

SCR 1: (2022) 4 SCC 116; Hyder Consulting (UK) Ltd.

v. State of Orissa [2014] 14 SCR 1029:(2015) 2 SCC

189 – relied on.

Larsen Air Conditioning and Refrigration Company v.

Union of India & Others [2023] 11 SCR 86: 2023 SCC

On Line 982; Dyna Technologies Private Limited v.

Crompton Greaves Limited [2019] 15 SCR 295: (2019)

20 SCC 1; Konkan Railway Corpn. Ltd. v. Chenab Bridge

Project [2023] 11 SCR 215: (2023) 9 SCC 85; Delhi

Airport Metro Express Private Limited v. Delhi Metro

Rail Corporation Limited (2022) 1 SCC 131; DDA v. R.S

Sharma [2008] 12 SCR 785: (2008) 13 SCC 80; Indian

Oil Corpn. Ltd. v. Shree Ganesh Petroleum (2022) 4

SCC 463; J.G Engineers (P) Ltd. v. UOI [2011] 8 SCR

486: (2011) 5 SCC 758 – referred to.

List of Acts

Arbitration and Conciliation Act, 1996 [Prior to Arbitration and

Conciliation (Amendment) Act, 2015].

List of Keywords

Arbitration; Examination of award by the Court; Conflict with

the public policy; Modification of arbitral award.

Case Arising From

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8067 of 2019.

From the Judgment and Order dated 07.02.2017 of the High Court

of Karnataka Circuit Bench at Dharwad in MFA No.24507 of 2010.

Appearances for Parties

Anil Kaushik, Abhishek Mishra, Mrs. Shashi Sharma, Rajat Rana,

Ms. Anju Kaushik, Ms. Arunima Dwivedi, Advs. for the Appellant.

Avishkar Singhvi, AAG, V. N. Raghupathy, Manendra Pal Gupta,

Vivek Kumar Singh, Advs. for the Respondents.

284 [2024] 1 S.C.R.

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Judgment / Order of the Supreme Court

Judgment

Sanjay Karol J.

1. The issue arising for consideration in this Civil Appeal, which lays

challenge to a judgment and order dated 7th February, 2017 passed

by the High Court of Karnataka (Dharwad Bench) in MFA No. 24507

of 2010 (AA) under Section 37(1) of the Arbitration and Conciliation

Act, 19961

, is whether the High Court was justified in confirming

the orderdated 22nd April, 2010 under Section 34 of the Arbitration

& Conciliation Act, 1996 passed by the Senior Civil Judge,Sirsi, in

Civil Misc. No. 08/2003, whereby the award passed by the learned

Arbitrator was modified and the amount awarded was reduced.

FACTS

2. As borne out from the judgments rendered by the Courts below,

the facts, are:-

2.1 Mr. S.V.Samudram2

 is a registered Class II Civil Engineering

Contractor and had secured a contract from the Karnataka State

Public Works Department to construct the office and residence

of the Chief Conservator of Forests at Sirsi for an amount of

Rs. 14.86 Lakhs.

2.2 The said contract was entered into between the parties on

29th January, 1990 with the stipulation that the possession of

the construction site would be handed over to the ClaimantAppellant on 8thMarch, 1990 and the work allotted was to be

completedon or before 6thMay 1992 i.e., 18 months from the

date of the agreement excluding the monsoon season.

2.3 It is undisputed that the work as allotted could not be completed

by the Claimant-Appellant, for which,he held the authorities of

the State responsible as they allegedly did not clear his bills,

repeatedly at every stage and also due to delays caused by

change of site and in delivery of material for such construction.

1 A&C Act, for short.

2 Hereinafter, the Claimant-Appellant

[2024] 1 S.C.R. 285

S.V. Samudram v. State of Karnataka & Anr

2.4 For settlement and adjudication of disputes, the parties to the

contract resorted to the arbitral mechanism and resultantly,

inArbitration Petition dated 31stMay, 2002, Mr. S.K Angadi,

Chief Engineer (Retd.) stood appointed as the Arbitrator on

30thJuly, 2002.

PROCEEDINGS BEFORE THE LEARNED ARBITRATOR

3. Pursuant thereto, the Claimant-Appellant herein filed his claim before

the learned Arbitrator totalling to Rs.18,06,439/- along with an interest

payable thereupon @ 18% per annum, payable from 9thMarch, 1994

till date of payment.

4. Having heard both sides, the three primary issues identified were:-

(a) inordinate delay in handing over of site for performance of

contract;

(b) non-supply of working drawings and designs; and

(c) delay in supply of materials.

5. For each of these issues, the learned Arbitrator, upon examination

of the evidence before him found the Respondents liable. A précis

of the reasoning adopted, is as under:-

S.No. Point of

Consideration

Reasoning

1 Delay in handing

over the entire

s i t e f o r t o t a l

performance of the

contract.

1) Non handling over the entire site in time

is one of the reasons which resulted in noncompletion of the work within the stipulated

time of 18 months.

There is a delay of 9 months in handing

over possession of complete site.

Possession of office building was handed

over on 07.03.1990

Possession of quarters building was handed

over on December 1990. 

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2 Delay in supply of

working drawings,

designs, etc.

1) Drawing showing typical excavation plan

for footings, details of columns were issued

to claimant during September 1990, with

adelay of 6 months

2) The drawing of R28 was not supplied by

April 1991 but on 1st July 1991. There was

a delay of 3 months.

3) Drawing showing the details of 1st

floor slab of the office of the Conservator

of Forest was found to be prepared by

13.10.1992 but supplied on 01.11.1992 i.e.

after expiration of contract on 06.05.1992.

4) The drawings with details of lintel

beams, roof beams, slab, etc of quarters

was prepared by 05.10.1991 & supplied

on 15.10.1991 but the changed site for

construction was handed over to claimant

on 14.02.1991.

3 In the matter of

delay in supply of

materials

On study of documentary evidence, he

found adequate steel & cement required

for the work was not supplied by the

respondent in time.

6. As such, against a total of 11 claims, amounts were awarded against

9 claims. The summary of the award is extracted as under:-

SUMMARY OF THE AWARD

S.No. Description of Claim Amount of

Claim

Award Amount

1 Payment on loss of Oh. and

incidentals

Rs. 83,300/- Rs. 83,300/-

2 Payment on loss of Profit Rs. 83,300/- Rs. 83,300/-

3 Payment on Idle labour Rs. 1,77,300/- Rs. 1,77,300/-

4 Payment on idle machinery Rs.98,500/- Rejected

5 Payment of extra expenses on

procurement of water at the

changed site of work

Rs.24,000/- Rejected

[2024] 1 S.C.R. 287

S.V. Samudram v. State of Karnataka & Anr

6 Payment of extra expenses on

shuttering, centring, fabrication

done earlier subsequently

dismantled.

Rs.15,800/- Rs.15,800/-

7 Payment on revised rates on

the work executed beyond the

originally stipulated time

Rs.11,33,000/- Rs.9,67,300/-

8 Payment on refund of freek

rates recovered in work bills

Rs.33,469/- Rs.33,469/-

9 Payment on refund of security

deposit

Rs.57,770/- Rs.57,770/-

10 Payment of interest, pre

arbitration, pendentelite and

future interest

@18% p.a. on

a l l a m o u n t s

due from claim

No.1 to 9 from,

09.03.94 till the

date of payment

Payment of interest

@ 18% p.a. on all

amounts due from

09.3.94 till the date

of payment

11 Cost of Arbitration Rs.1,00,000/- Rs.50,000/-

PROCEEDINGS UNDER SECTION 34 OF THE A&C ACT

7. Assailing the same, the Respondent preferred a petition under Section

34 of the A&C Act in which the learned Civil Judge, Sirsi, found 2

points to be arising for his consideration which he recorded as: –

“1. Whether the petitioner made out the proper grounds

that the award passed by the arbitrator is not supported

by sound reasonings and it is in arbitrary nature and it is

liable to be set aside?

2. What order?”

8. The award passed by the learned Arbitrator was modified and the

Respondents were directed to pay Rs.3,71,564 (25% of tender

amount) along with Rs.10,000/- as costs towards the arbitration @

9% interest. The reasons supplied for such modification, as they

come forth upon a perusal of the judgement are:-

8.1 The change in site of the residential quarters was barely at

the distance of 200m from the earlier site. Even if there was a

change in site, the work of constructing the office building could

have begun as there was no change in that regard but he had 

288 [2024] 1 S.C.R.

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not even started excavation in order to lay down a foundation.

Therefore, the question of loss of payment to the labourers

and materials collected for construction, does not arise and

the losses allegedly suffered by the Claimant-Appellant were

“only at his imagination”.

8.2 On the machinery being idle, it was not explained as to how

many days the same was idle. It is “for his whims and fancies

the petitioner is claiming as if he has sustained loss”.

8.3 So far as the claim for water facilities, the contention of the

Respondents has been accepted that per the agreement, the

Claimant-Appellant was to look after the same and therefore,

Respondents would not be liable therefor.

8.4 Since it is the Claimant-Appellant who did not complete the

construction in time, he could not make a claim for the rates

for the year 1989–90 and cannot claim interest thereupon.

8.5 No evidence to lend support to the contention of the ClaimantAppellant that there was a delay in supplying the material. On

which material being supplied, was there a delay, is unexplained.

Counter allegation, instead is that even after clearing all bills,

the Claimant-Appellant had not picked up speed on the work.

All the correspondence is only to escape payment of penalty.

8.6 The only delay is of handing over of the site of the residential

house. The same was done on 7th March, 1990. The ClaimantAppellant has not explained that despite such handing over

of possession by August 1990, no excavation work for the

foundation had commenced.

8.7 For the changes in design, it is observed that since the changes

were minor it does not require any extra payment. The same

would only be payable if there was duplication of work/removal

of earlier construction as per the alteration.

8.8 The cost of arbitration being awarded at Rs.50,000/- is “at

exorbitant rate.”Even if the argument of delay and laches on

part of the Department is accepted, “it cannot be ruled out that

the Department always in right path” and the extent of the same

cannot be accepted.

[2024] 1 S.C.R. 289

S.V. Samudram v. State of Karnataka & Anr

8.9 It was also observed that there was a justification for the learned

Arbitrator to award an amount which is almost equal to the

amount of tender, that too on such a high rate of interest which

causes an undue encumbrance on the exchequer.

8.10 The remaining critical observations stand dealt with subsequently.

PROCEEDINGS UNDER SECTION 37 OF THE A&C ACT

9. The High Court, vide its judgement under challenge before us, has

confirmed the modification of the arbitral award as has been done

by the learned Civil Judge, Sirsi, dismissing the application on part

of the Claimant-Appellant.

9.1 It has been observed that the primary dispute is in respect of

claim No. 7 which is the grant of revised rates of the escalated

cost of work. The High Court has held that the view of the

Arbitrator that the Department is solely responsible for the

breach of the contract, cannot be accepted as the shift in venue

was only in respect of the residential quarters and not for the

office complex.

9.2 The estimation of cost is based on the tender notification

relating to the year 1989-90. Costs in the year 1992 could not

be expected to have risen hundred percent as claimed. Nothing

is reflected on record to show, what precluded the ClaimantAppellant from commencing the work of the office building. It

is on this ground that the claim of escalation of the ClaimantAppellant be allowed by the learned Arbitrator, has been termed

as perverse and contrary to the public policy.

9.3 Findings of delay being solely on account of the Department,

cannot be countenanced and the quantification of damages

in respect thereto is unreasonable. “It would be a case of

misconduct on the part of the arbitrator amenable to Section

34 of the Act”

9.4 Claim No. 3 in respect of idle labour being allowed to the tune

of Rs.1,77,300/- “shocks the conscience of the court.” It is so

because there was no basis for the labour to be idle.

9.5 The award of Rs.50,000/-towards cost of arbitration is excessive.

It was further observed that escalation of costs cannot be granted

on “assumptions and presumptions” and, therefore, awarding 

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the claims, that too almost equal to the tender amount, cannot

be sustained.

10. The learned Civil Judge, Sirsi, to restate, modified the award passed

by the learned Arbitrator reducing the amount awarded as also interest

thereupon, i.e., Rs.14,68,239/- @ 18% to only 25% of the tender

amount which equals to Rs.3,71,564/- and the interest percentage

thereon was reduced to 9%. This was found to be justified by the

learned Single Judge.

CONSIDERATION AND CONCLUSION

11. It is in this background, that we are required to consider whether

the modification of the arbitral award as carried out by the learned

Civil Judge as confirmed by the High Court, was justified within law?

12. It would be useful to examine the expositions of this Court on the

scope to interfere with arbitral awards under Sections 34 & 37 of

the A&C Act.

13. The Judgment and Order of the learned Civil Judge was dated 22nd

April 2010.

14. The position as to whether an arbitral award can be modified in the

proceedings initiated under Sections 34/37 of the A&C Act is no

longer res integra. While noting the provisions, more specifically,

Section 34(4) of the A&C Act; the decisions rendered by this Court,

including the principles of international law enunciated in several

decisions recorded in the treatise “Redfern and Hunter on International

Arbitration, 6th Edition”, this Court in National Highways Authority of

India v. M. Hakeen and Another3

, categorically held that any court

under Section 34 would have no jurisdiction to modify the arbitral

award, which at best, given the same to be in conflict with the grounds

specified under Section 34 would be wholly unsustainable in law. The

Court categorically observed that any attempt to “modify an award”

under Section 34 would amount to “crossing the Lakshman Rekha”.

15. On the exact same issue we may also note another opinion rendered

by this Court in Dakshin Haryana Bijli Vitran Nigam Limited v.

Navigant Technologies Private Limited4

 in the following terms:-

3 (2021) 9 SCC 1 (2-JudgeBench)

4 (2021) 7 SCC 657 (2-Judge Bench)

[2024] 1 S.C.R. 291

S.V. Samudram v. State of Karnataka & Anr

“44. In law, where the court sets aside the award passed

by the majority members of the Tribunal, the underlying

disputes would require to be decided afresh in an

appropriate proceeding. Under Section 34 of the Arbitration

Act, the court may either dismiss the objections filed, and

uphold the award, or set aside the award if the grounds

contained in sub-sections (2) and (2-A) are made out. There

is no power to modify an arbitral award. In McDermott

International Inc. v. Burn Standard Co. Ltd. [McDermott

International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC

181] , this Court held as under : (SCC p. 208, para 52)

“52. The 1996 Act makes provision for the supervisory

role of courts, for the review of the arbitral award only to

ensure fairness. Intervention of the court is envisaged in

few circumstances only, like, in case of fraud or bias by

the arbitrators, violation of natural justice, etc. The court

cannot correct errors of the arbitrators. It can only quash

the award leaving the parties free to begin the arbitration

again if it is desired. So, the scheme of the provision aims

at keeping the supervisory role of the court at minimum level

and this can be justified as parties to the agreement make

a conscious decision to exclude the court’s jurisdiction by

opting for arbitration as they prefer the expediency and

finality offered by it.”

(Emphasis Supplied)

16. The principle stands reiterated as late as 2023 in Larsen Air

Conditioning and Refrigration Companyv.Union of India &

Others5

.

17. We may notice certain principles to be considered in adjudication

of challenges to arbitration proceedings of this nature. It is a settled

principle of law that arbitral proceedings are per se not comparable

to judicial proceedings before the Court (Dyna Technologies Private

Limited v. Crompton Greaves Limited6

). The Arbitrator’s view,

generally is considered to be binding upon the parties unless it is

5 2023 SCC OnLine 982 (2-Judge Bench)

6 (2019) 20 SCC 1 (3-Judge Bench)

292 [2024] 1 S.C.R.

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set aside on certain specified grounds. In the very same decision

taking note of the opinion as is in “Russel on Arbitration”, reiterated

the need for the Court to look at the substance of the findings,

rather than its form, stood reiterated and the need for adopting an

approach of reading the award in a fair and just manner, and not in

what is termed as “an unduly literal way”. All that is required is as

to whether the reasons borne out are intelligible or not for adequacy

of reasons cannot stand in the way of making the award to be

intelligibly readable.

18. Emphasizingly, it is reiterated that if the view taken by the Arbitrator is

a plausible view, no interference on the specified grounds is warranted

(Konkan Railway Corpn. Ltd. v. Chenab Bridge Project 7

).

19. It is also a settled principle of law that an award passed by a technical

expert is not meant to be scrutinised in the same manner as is the

one prepared by a legally trained mind (Delhi Airport Metro Express

Private Limited v. Delhi Metro Rail Corporation Limited8

).

20. We are dealing with an award passed on 18th February, 2003, prior

to the amendment brought in Section 34 by virtue of the Arbitration

and Conciliation (Amendment) Act, 2015. For the purpose of ready

reference the relevant portion of the amended and the unamended

provisions are extracted as under :-

“Prior to 2015 Amendment

34. Application for setting aside arbitral award. -

(1) Recourse to a court against an arbitral awärd may be

made only by an application 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-

…

(v) the composition of the Arbitral Tribunal or the arbitral

procedure was not in accordance with the agreement of

the parties, unless such agreement was in conflict with

a provision of this Part from which the parties cannot

7 (2023) 9 SCC 85 (Three Judge Bench)

8 (2022) 1 SCC 131 (Two Judges Bench)

[2024] 1 S.C.R. 293

S.V. Samudram v. State of Karnataka & Anr

derogate, or, failing such agreement, was not in accordance

with this Part; or

(b) the court finds that—

(i) the subject-matter of the dispute is not capable of

settlement by arbitration under the law for the time

being in force, or

(ii) the arbitral award is in conflict with the public policy

of India.

Explanation.-Without prejudice to the generality of subclause (ii), it is hereby declared, for the avoidance of any

doubt, that an award is in conflict with the public policy of

India if the making of the award was induced or affected

by fraud or corruption or was in violation of Section 75

or Section 81.

(Emphasis supplied)

Post 2015 Amendment

34. Application for setting aside arbitral award.—(1)

Recourse to a Court against an arbitral award may be

made only by an application 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—

…

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of

settlement by arbitration under the law for the time

being in force, or

(ii) the arbitral award is in conflict with the public policy

of India.

[Explanation 1.—For the avoidance of any doubt, it is

clarified that an award is in conflict with the public policy

of India, only if,—

(i) the making of the award was induced or affected by

fraud or corruption or was in violation of Section 75

or Section 81; or

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(ii) it is in contravention with the fundamental policy of

Indian law; or

(iii) it is in conflict with the most basic notions of morality

or justice.

Explanation 2.—For the avoidance of doubt, the test as

to whether there is a contravention with the fundamental

policy of Indian law shall not entail a review on the merits

of the dispute.]

[(2-A) An arbitral award arising out of arbitrations other

than international commercial arbitrations, may also be

set aside by the court, if the court finds that the award is

vitiated by patent illegality appearing on the face of the

award:

Provided that an award shall not be set aside merely on

the ground of an erroneous application of the law or by

reappreciation of evidence.]”

21. In so far as the state of the law prior to such Amendment is concerned,

the situation stands encapsulated by this Court, in DDA v. R.S

Sharma9

 where the grounds whereby courts may intervene against

arbitral award, were listed.

22. Observations of this Court in Associate Builders v. DDA10 are also

of note. It was held:

“15. This section in conjunction with Section 5 makes it

clear that an arbitration award that is governed by Part

I of the Arbitration and Conciliation Act, 1996 can be set

aside only on grounds mentioned under Sections 34(2)

and (3), and not otherwise. Section 5 reads as follows:

“5. Extent of judicial intervention.—Notwithstanding

anything contained in any other law for the time being in

force, in matters governed by this Part, no judicial authority

shall intervene except where so provided in this Part.”

9 (2008) 13 SCC 80 (2 Judge Bench)

10 (2015) 3 SCC 49 (2 Judge Bench)

[2024] 1 S.C.R. 295

S.V. Samudram v. State of Karnataka & Anr

16. It is important to note that the 1996 Act was enacted

to replace the 1940 Arbitration Act in order to provide for

an arbitral procedure which is fair, efficient and capable

of meeting the needs of arbitration; also to provide that

the tribunal gives reasons for an arbitral award; to ensure

that the tribunal remains within the limits of its jurisdiction;

and to minimise the supervisory roles of courts in the

arbitral process.

17. It will be seen that none of the grounds contained in

sub-section (2)(a) of Section 34 deal with the merits of

the decision rendered by an arbitral award. It is only when

we come to the award being in conflict with the public

policy of India that the merits of an arbitral award are to

be looked into under certain specified circumstances.”

(Emphasis Supplied)

23. As it is evident from the extracted provisions, as above that prior to

the Amending Act, it was open for the Court to examine the award

as to whether it was in conflict with, (a) public policy of India; (b)

induced or affected by fraud; (c) corruption; and (d) any violation of

the provisions of Section 75 and 81 of the A&C Act.

24. In the instant case, the only provision under which the award could

have been assailed was for it to have been in conflict with the public

policy of India. This concept has been elaborately considered by this

Court in Associate Builders(supra); Ssangyong Engineering and

Construction Company Limited v. National Highways Authority

of India11,in the following terms:-

25. In Associate Builders (supra) the Court observed-

“19. When it came to construing the expression “the

public policy of India” contained in Section 34(2)(b)(ii) of

the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw

Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held:

(SCC pp. 727-28 & 744-45, paras 31 & 74)

“31. Therefore, in our view, the phrase ‘public policy of

India’ used in Section 34 in context is required to be given

11 (2019) 15 SCC 131 (Two Judges Bench)

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a wider meaning. It can be stated that the concept of

public policy connotes some matter which concerns public

good and the public interest. What is for public good or in

public interest or what would be injurious or harmful to the

public good or public interest has varied from time to time.

However, the award which is, on the face of it, patently

in violation of statutory provisions cannot be said to be

in public interest. Such award/judgment/decision is likely

to adversely affect the administration of justice. Hence,

in our view in addition to narrower meaning given to the

term ‘public policy’ in Renusagar case [Renusagar Power

Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644]

it is required to be held that the award could be set aside

if it is patently illegal. The result would be—award could

be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality

is of trivial nature it cannot be held that award is against

the public policy. Award could also be set aside if it is so

unfair and unreasonable that it shocks the conscience of

the court. Such award is opposed to public policy and is

required to be adjudged void.”

(Emphasis supplied)

26. Ssangyong Engineering(supra) followed the observations of

Associate Builders (supra). To efficiently encapsulate the extent

thereof particularly in the context of Indian awards, we may refer

only to para 37 where it has been held:-

“37. Insofar as domestic awards made in India are

concerned, an additional ground is now available under

sub-section (2-A), added by the Amendment Act, 2015, to

Section 34. Here, there must be patent illegality appearing

on the face of the award, which refers to such illegality as

goes to the root of the matter but which does not amount 

[2024] 1 S.C.R. 297

S.V. Samudram v. State of Karnataka & Anr

to mere erroneous application of the law. In short, what

is not subsumed within “the fundamental policy of Indian

law”, namely, the contravention of a statute not linked to

public policy or public interest, cannot be brought in by

the backdoor when it comes to setting aside an award on

the ground of patent illegality.”

27. The position in Associate Builders(supra) was recently summarised

as hereinbelow recorded by Indian Oil Corpn. Ltd. v. Shree Ganesh

Petroleum12

“42. In Associate Builders, this Court held that an award

could be said to be against the public policy of India in,

inter alia, the following circumstances:

42.1. When an award is, on its face, in patent violation of

a statutory provision.

42.2. When the arbitrator/Arbitral Tribunal has failed to

adopt a judicial approach in deciding the dispute.

42.3. When an award is in violation of the principles of

natural justice.

42.4. When an award is unreasonable or perverse.

42.5. When an award is patently illegal, which would include

an award in patent contravention of any substantive law

of India or in patent breach of the 1996 Act.

42.6. When an award is contrary to the interest of India,

or against justice or morality, in the sense that it shocks

the conscience of the Court.”

JUDGMENT PASSED UNDER SECTION 34 A&C ACT

28. A perusal of the judgment and order of the learned Civil Judge, in

the considered view of this Court, does not reflect fidelity to the text

of the statute. Nowhere does it stand explained, as to, under which

ground(s) mentioned under Section 34 of the A&C Act, did the Court

find sufficient reason to intervene. In fact, quite opposite thereto, the

Court undertook a re-appreciation of the matter, and upon its own

view of the evidence, modified the order.

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29. As the above extracted judgment shows, merits of the award are

only to be gone into, if the award is demonstrated to be contrary to

the public policy of India. The reasons recorded by the learned Civil

Judge for modifying the arbitral award, as reflected from a perusal

thereof, have been recorded in an earlier section of the judgment.

None of those reasons even so much as allude to the award being

contrary to the public policy of India, which would enable the court

to look into the merits of the award.

30. We have carefully perused the award passed by the Arbitrator in

which he has not only referred to and considered the materials

on record in their entirety but also, after due application of mind,

assigned reasons for arriving at this conclusion, either rejecting,

accepting or reducing the claim set out by the Claimant-Appellant.

Noticeably, during the arbitral proceedings none of the parties raised

any objection to the Arbitrator adjudicating the dispute, be it on any

ground, including bias. Each one of the claims stands separately

considered and dealt with.

31. We find that the view taken by the Arbitrator is a plausible view and

could not have been substituted for its own by the Court.

32. The reasons assigned by the Court under Section 34 of the A &C

Act, to our mind, are totally extraneous to the controversy, to the lis

between the parties and not borne out from the record. In fact, they

are mutually contradictory.

32.1 In awarding an amount of 25% of the tender amount (incorrectly

recorded as “over the tender amount” in some parts of the

judgment of the learned Civil Judge, Sirsi) in favour of the

Claimant-Appellant, the Court has ipso facto accepted that the

Claimant-Appellant had not breached the terms of the contract.

In fact, the Court appears to have accepted the Claimant’s

contention of delay in handing over the site drawings and supply

of materials. The Court while noticing the change in the drawings,

resorted to, a misadventure by observing that the changes in

the drawings were “only minor” in the dimension of beam which

as we find the Court have contradicted itself by recording the

same to have been “noticed as essential in the execution of the

contract”. The Court, in our considered view had no business

to state that the Claimant is claiming the amount is from the

pocket of the concerned engineer or his property.

[2024] 1 S.C.R. 299

S.V. Samudram v. State of Karnataka & Anr

“…Whether the claimant is claiming the such amount is from

the pocket of concerned Engineers or from his property,

whey should so much amount be paid from exchequer

amount, it is heavily cast on the tax payer, that has to be

consider by the court…”

32.2 Further observations as we extract hereunder, justifying the

interference in the award, in our considered opinion, are totally

scandalous: -

“…Admittedly the arbitrator who is retired Engineer after

retirement there will be no holding on the department,

when the claimant is going to benefit so much amount

there will be benefit to the arbitrator…”

32.3 The Court imputed its personal knowledge in assigning reasons

by observing :-

“…Even in this case also if the report of the arbitrator is

accepted as it is, it is heavy burden on the exchequer not

on the department…”

32.4 The reasoning given by the Court in interfering with the

award which is extracted immediately hereafter, in our view,

is preposterous: -

“…It is the common sense and the general observation,

whenever the work is entrusted to any contractor to put

up the construction what they do is, they use to start

excavation to lay a foundation. It is not the case of the

2nd opponent regarding digging at original spot or laying

any foundation for construction of the residential house.

So, under such circumstances the alleged loss pleaded

by the opponent No.2 is only at his imagination.”

32.5 For it is no business of the Court to consider the burden on

the exchequer. All that is required by the Court is to see as to

whether the contracting parties have agreed to bind themselves

to the terms with the only supervisory jurisdiction of the Court

to consider breach thereof, in the light of the grounds specified

under Section 34.

32.6 To our mind, the court lost sight of the fact that the civil contract

was composite in nature that is having contracted both of 

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the building of the office and residence together. In these

circumstances, the contractor could not have commenced work

of part of the project when the complete site and the drawings

were not handed over to him. In the absence of the parties have

agreed otherwise, work could not have commenced. Hence,

observation of the court, advisory in nature, for the contractor

to have commenced the work for one part of the contract is

unwarranted and uncalled for, in fact perverse.

32.7 The other observation that there was a delay on the part

of the contractor in completing the work or speeding up the

work does not reflect in the record. They are nothing short of

mere conjectures. This is more so in view of the absence of

invocation of the arbitration clause or initiation of the proceedings

thereunder on the part of the Respondent against the contractor

as also not raising any counter claims for adjudication by the

Arbitrator.

32.8 Accounting for the legal position, the court could have at best

set aside the award and could not modify the same.

32.9 We also notice the learned Arbitrator, to have accepted the

contention of the Claimant-Appellant that there was a delay in

supply of drawings, which in turn caused delay in placing the

orders for steel and other such requirements. The Civil Judge

had disagreed therewith on a mere reference to “Ex. R 38 to

95” showing prompt supply. There is no discussion whatsoever.

Another instance is noteworthy. It was observed that the question

of idleness of the labour does not arise if there was another

building to be constructed, and therefore, such claim cannot be

paid. This is a clear instance of the court supplanting its view

in place of the Arbitrator, which is not a permissible exercise,

and is completely de-hors to the jurisdiction under Section 34.

33. As such, the modification of the arbitral award by the learned Civil

Judge, Sirsi, does not stand scrutiny, and must be set aside.

JUDGMENT UNDER SECTION 37 A&C ACT

34. Moving further, we now consider the judgment impugned before us,

i.e., the order of the High Court upholding such modification, under

the jurisdiction of Section 37 of the A&C Act. 

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S.V. Samudram v. State of Karnataka & Anr

35. It has been observed by this Court in MMTC Ltd. v. Vedanta Ltd.13

“14. As far as interference with an order made under

Section 34, as per Section 37, is concerned, it cannot be

disputed that such interference under Section 37 cannot

travel beyond the restrictions laid down under Section 34.

In other words, the court cannot undertake an independent

assessment of the merits of the award, and must only

ascertain that the exercise of power by the court under

Section 34 has not exceeded the scope of the provision.

Thus, it is evident that in case an arbitral award has been

confirmed by the court under Section 34 and by the court in

an appeal under Section 37, this Court must be extremely

cautious and slow to disturb such concurrent findings.”

(Emphasis Supplied)

36. This view has been referred to with approval by a bench of three

learned Judges in UHL Power Company Ltd v. State of Himachal

Pradesh14.In respect of Section 37, this court observed:-

“16. As it is, the jurisdiction conferred on courts under

Section 34 of the Arbitration Act is fairly narrow, when

it comes to the scope of an appeal under Section 37 of

the Arbitration Act, the jurisdiction of an appellate court in

examining an order, setting aside or refusing to set aside

an award, is all the more circumscribed.”

37. This Court has not lost sight of the fact that, as a consequence to

our discussion as aforesaid, holding that the judgment and order

under Section 34 of the A&C Act does not stand judicial scrutiny,

an independent evaluation of the impugned judgment may not be

required in view of the holding referred to supra in MMTC Ltd.

However, we proceed to examine the same.

38. We may also notice that the circumscribed nature of the exercise

of power under Sections 34 and 37 i.e., interference with an arbitral

award, is clearly demonstrated by legislative intent. The Arbitration

Act of 1940 had a provision (Section 15) which allowed for a court

13 (2019) 4 SCC 163(2 Judge Bench)

14 (2022) 4 SCC 116(3-Judge Bench)

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to interfere in awards, however, under the current legislation, that

provision has been omitted.15

39. The learned Single Judge, similar to the learned Civil Judge under

Section 34, appears to have not concerned themselves with the

contours of Section 37 of the A&C Act. The impugned judgment

reads like a judgment rendered by an appellate court, for whom reexamination of merits is open to be taken as the course of action.

40. We find the Court to have held the award to be perverse and contrary

to public policy. The basis for such a finding being the delay on the

part of the contractor in completion of the work which “could have

been avoided”. Significantly, as we have observed earlier such a

finding is not backed by any material on record.

41. What appears to have weighed with the court is that the factoring of

the cost escalation between the years 1989-90 and 1992 by 100%

was exaggerated. But then equally, there is no justification in granting

lump sum escalation by 25% of the contract value. Well, this cannot

be a reason to modify the award for the parties are governed by the

terms and conditions and the price escalation stood justified by the

petitioner based on cogent and reliable material as was so counted

by the Arbitrator in partly accepting and/or rejecting the claims.

42. In our considered opinion, the court while confirming the modification

of the award committed the very same mistake which the Court under

Section 34 of the A&C Act, made.

The Court under Section 37 had only three options:-

(a) Confirming the award of the Arbitrator;

(b) Setting aside the award as modified under Section 34; and

(c) Rejecting the application(s) under Section 34 and 37.

43. The learned single Judge has examined the reasoning adopted by

the learned Arbitrator in respect of certain claims (claims 3 and 7,

particularly) and held that allowing a claim for escalation of cost,

was without satisfactory material having been placed on record and

is “perverse and contrary to the public policy”. However, it appears

15 Larsen Air Conditioning and Refrigration Company v. Union of India and Others 2023 SCC OnLine 982

(2-Judge Bench)

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S.V. Samudram v. State of Karnataka & Anr

that such a holding on part of the Judge is without giving reasons

therefor. It has not been discussed as to what the evidence was

before the learned single Judge to arrive at such conclusion. This

is of course, entirely without reference to the scope delineated by

various judgements of this Court as also, the statutory scheme of

the A & C Act.

44. Having referred to J.G Engineers (P)Ltd. v. UOI16and more

particularly para 27 thereof, it has been held that the award passed

by the learned Arbitrator is “patently illegal, unreasonable, contrary to

public policy.” There is no reason forthcoming as to how the holding

of the learned Arbitrator flies in the face of public policy.

ON INTEREST

45. On the issue of interest, we notice that the Arbitrator has awarded

interest @ 18% p.a., w.e.f. 09 March 1994 which stood reduced to

9%. The transaction being commercial in nature, we see no reason

as to why the claimant could not be entitled to interest in terms

of the rate quantified by the Arbitrator which includes the period

of pre-arbitration, pendantelite and future. We notice this Court to

have stated in Hyder Consulting (UK) Ltd. v. State of Orissa17,

through S.A. Bobde, J. (as His Lordship then was) speaking for the

majority as under:

“4. Clause (a) of sub-section (7) provides that where an

award is made for the payment of money, the Arbitral

Tribunal may include interest in the sum for which the

award is made. In plain terms, this provision confers a

power upon the Arbitral Tribunal while making an award

for payment of money, to include interest in the sum for

which the award is made on either the whole or any part

of the money and for the whole or any part of the period

for the entire pre-award period between the date on

which the cause of action arose and the date on which

the award is made... The significant words occurring in

clause (a) of sub-section (7) of Section 31 of the Act are

“the sum for which the award is made”. On a plain reading,

this expression refers to the total amount or sum for the

16 (2011) 5 SCC 758 (2 Judge Bench)

17 (2015) 2 SCC 189 (3-Judge Bench)

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payment for which the award is made. Parliament has not

added a qualification like “principal” to the word “sum”, and

therefore, the word “sum” here simply means “a particular

amount of money”. In Section 31(7), this particular amount

of money may include interest from the date of cause of

action to the date of the award.

… ….

7. Thus, when used as a noun, as it seems to have been

used in this provision, the word “sum” simply means “an

amount of money”; whatever it may include — “principal”

and “interest” or one of the two. Once the meaning of the

word “sum” is clear, the same meaning must be ascribed

to the word in clause (b) of sub-section (7) of Section 31

of the Act, where it provides that a sum directed to be

paid by an arbitral award “shall … carry interest …” from

the date of the award to the date of the payment i.e. postaward. In other words, what clause (b) of sub-section (7)

of Section 31 of the Act directs is that the “sum”, which

is directed to be paid by the award, whether inclusive

or exclusive of interest, shall carry interest at the rate of

eighteen per cent per annum for the post-award period,

unless otherwise ordered.

…

9. The purpose of enacting this provision is clear, namely,

to encourage early payment of the awarded sum and

to discourage the usual delay, which accompanies the

execution of the award in the same manner as if it were

a decree of the court vide Section 36 of the Act.”

(Emphasis Supplied)

46. Keeping in view the aforesaid observations of this Court, it cannot

be doubted that the Claimant-Appellant is entitled to interest. We

find that the learned Arbitrator, as hitherto observed, has awarded

18% interest and the same stood reduced by the Courts below to

9% without any legal basis therefor. In exercise of our powers under

Article 142, we deem it appropriate to, in order to ensure substantial

justice,inter se the parties, of awarding interest @ 9 % p.a. from the

date of award pendantelite and future, till date of payment. 

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CONCLUSION

47. In the absence of compliance with the well laid out parameters and

contours of both Section 34 and Section 37 of the A&C Act, the

impugned judgement(s)referred to in Para 1 (supra) are required to

be set aside. Consequently, the award dated 18thFebruary 2003 of

the learned Arbitrator is restored, for any challenge thereto has failed.

48. The appeal is allowed with a direction to the State of Karnataka to

expeditiously pay the amount. No costs.

Headnotes prepared by: Ankit Gyan Result of the case: Appeal allowed.