# Mohd. Ishtiyak Khan v. State of U.P. & Anr. Opp. Parties

- **Citation:** (2023) 10 ILRA 599
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2023-10-17
- **Case number:** Crl. Misc. Bail Cancellation Application No. 177 of 2023
- **Bench:** Krishan Pahal
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/mohd-ishtiyak-khan-v-state-of-u-p-anr-opp-parties-49294
- **Pages:** 41

## Text

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10 All. Hindustan Steelwork Construction Ltd. Vs. NOIDA
559
accordance with the MoU, GCC and
Supplementary MoU.

23 (g). Issue no.9 has been decided in
favour of HSCL and it has been held that
Clause 3 of the Supplementary MoU
prohibited claim in respect of escalation
and compensation only from 22.9.2003 till
recommencement of the work. It did not
preclude HSCL from making claim in
respect
of
compensation/escalation
subsequent to re-commencement of the
work.

23 (h). Issue no.10 as to whether
suspension of work was due to reasons
beyond control of NOIDA, was decided
against NOIDA holding that it was
responsible for unnecessarily holding up
the work for a period of 928 days.

23 (i). Issue no.11 has been decided in
favour of HSCL holding that the claimantappellant had complied with the prerequisite
conditions
before
seeking
reference to the arbitration.

23 (j). Issue no.12 as to whether
costing/estimation
done
by
IIT,
was
acceptable or not, has been decided in
favour of HSCL.

23 (k). Issue no.13 related to claim in
respect of price variation - post recommencement of the work. The tribunal,
after considering various clauses of the
MoU, GCC and Supplementary MoU made
distinction between claim in respect of
price variation and compensation under
Clause 13(ii)(b) of GCC. It held that Price
Variation Clause in the original MoU
(Clause 7) and GCC (Clause 8) remained
eclipsed only during work suspension
period. Post recommencement of work,
these clauses revived, and the claim of
Rs.23.94 crores towards price variation -
post recommencement of work, was fully
admissible and was allowed.

23 (l). Issue no.14 in respect of
damages @ Rs.4 lakh per day during work
suspension period has been decided in
favour of HSCL and a sum of Rs.35.92
crores has been awarded as liquidated
damages under Clause 13(ii)(b) of GCC.

23 (m). Issue no.14-A related to award
of interest on account of late payment of
4th RA bill. It has been decided in favour
of HSCL and a sum of Rs.1.66 crores has
been awarded in its favour.

23 (n). Issue no.15 relating to claim on
account of extra bank guarantee charges
was rejected.

23 (o). Issue no.16 relating to claim
for damages on account of loss of profit has
been rejected.

23 (p). Issues no.17 and 18 pertaining
to claim in respect of extra work have also
been decided against HSCL.

23 (q). Issue no.19 has been decided in
favour of HSCL and it has been awarded
Rs.48.85 lakhs towards final bill.

23 (r). Issue no.20 has been decided in
favour of HSCL and it is held that HSCL is
entitled to pendente lite and future interest
on the sums awarded.

24. Claim No.1 - towards price
escalation has been dealt with under Issue
No.13. It has been decided in favour of
HSCL. The other major Claim No.2 -
towards damages @ Rs.4 lakh per day for
the period work remained suspended, also
decided in favour of HSCL, is covered
under Issues No.1, 2, 3 and 14.

PROCEEDINGS
BEFORE
COMMERCIAL COURT (Sec. 34 of the
Act)

25. NOIDA, feeling aggrieved by the
award, filed objections under Section 34 of
the Act before the Commercial Court,
Gautam Budh Nagar, which has been
allowed by the impugned order dated
23.05.2022.
560 INDIAN LAW REPORTS ALLAHABAD SERIES

26. The Commercial Court did not
find any perversity in respect of the finding
recorded by the tribunal on issue no.13 i.e.
claim in respect of price variation (Claim
No.1). However, it has set aside the award
of Rs.35.02 crores towards damages on
account of suspension of work for period of
928 days (Claim No.2). It held that HSCL
by signing the Supplementary MoU had
surrendered its right to compensation
during period of suspension of the contract.
It also repelled the plea of coercion, duress,
undue influence and unequal bargaining
power set up by HSCL and the finding of
the arbitral tribunal that Supplementary
MoU is void and unenforceable. The award
of
liquidated
damages
under
Clause
13(ii)(b) of GCC while deciding issue no.
14 is held to suffer from a patent illegality
warranting exercise of power under Section
34 of the Act.

27. The Commercial Court placed
reliance on a judgement of Delhi High
Court in M/s Classic Motors Limited Vs.
Maruti Udyog Limited1, wherein four
factors have been laid down to ascertain
whether any duress or coercion has been
played upon any party in a commercial
contract. The factors are: (i) Did the party
protest before or soon after the agreement?
(ii) Did the party took any step to avoid the
contract? (iii) Did the party has any
alternative course of action or remedy? and
(iv) Did the party convey benefit of the
independent advice?

28. The Commercial Court held that
the appellant failed to pass the test laid
down in the said judgement. It also placed
reliance on the judgement of the Supreme
Court in Central Inland Water Transport
Corporation
Ltd.
Vs.
Brojo
Nath
Ganguly2, judgement of Bombay High
Court in Balaji Pressure Vessels Ltd. Vs.
Bharat Petroleum Corporation Ltd.3 and
judgement of Andhra Pradesh High Court
in Government of Andhra Pradesh
Irrigation Department Vs. G. Kondala
Rao4 and held that the plea of coercion and
undue
influence
was
after
thought,
"patently erroneous, perverse, in ignorance
of vital evidence on record, contrary to the
terms of the Supplementary MoU and in
clear breach of public policy of India".

29. The Commercial Court thereafter
relying on Dakshin Haryana Bijli Vitran
Nigam
Ltd.
Vs.
M/s
Navigant
Technologies Pvt. Ltd.5 held that since in
relation to some of the issues, the findings
are perverse, against public policy of India
and covered by grounds contained in subsection (2) and (2-A) of Section 34 of the
Act, the award cannot be upheld in part as
it would amount to modifying the award.
Accordingly, the award has been set aside
in its entirety.

30. We have heard Sri Amit Saxena,
Senior Advocate assisted by Sri Varad
Nath and Sri Pranay Agarwala, learned
counsel for the appellant and Sri Manish
Goyal, Senior Advocate assisted by Sri
Kaushalendra Nath Singh and Ms. Anjali
Goklani, learned counsel for the respondent
at great length and perused the material on
record with the assistance of learned
counsel for the parties.

SUBMISSIONS
OF
LEARNED
COUNSEL FOR THE APPELLANT :

31. It is submitted on behalf of the
appellant that the impugned order of the
Commercial Court is manifestly illegal and
contrary to the well established principles
on which an award of an Arbitral Tribunal
could be set aside. The tribunal decided
Issues No. 1, 2, 3 and 14 relating to award
10 All. Hindustan Steelwork Construction Ltd. Vs. NOIDA
561
of damages during suspension period in
terms of Clause 13(ii)(b) of the GCC after
taking into consideration the case of the
parties, evidence on record and the law laid
down by the Supreme Court in respect of
fraud and coercion. The power of the court
under Section 34 of the Act is limited one,
circumscribed by the parameters laid down
under the said provision. To hold an award
to be opposed to public policy of India, the
patent illegality should go to the root of the
matter. In deciding objections under
Section 34 of the Act, the court does not
exercise the power of an appellate court
and it cannot re-appreciate or re-assess
evidence. Once the tribunal had assessed
the evidence before it in detail, the court
does not have jurisdiction to take another
view even if it is possible. The court has to
examine whether the view taken by the
Arbitrator is a plausible view on the facts,
pleadings and evidence before it. Once the
view taken is found to be a plausible view,
the court will not have power to substitute
its findings in place of the findings
recorded by the Arbitral Tribunal. The
extent of judicial scrutiny under Section 34
is very limited.

32. It is urged that the Arbitral Tribunal
had
in
great
detail
considered
the
stipulations contained in the MoU, GCC
and Supplementary MoU as well as the
communication exchanged between the
parties during the period contract remained
suspended. It had also duly considered the
directions
issued
by
the
State
Government which prompted NOIDA to
compel the appellant to enter into
Supplementary MoU on terms dictated by
it and thereafter arrived at a finding of
fact that execution of the Supplementary
MoU by the appellant was a result of
undue influence and coercion.
The
appellant had no other option left with it
but to accept the conditions imposed
upon it for resuming the work or else the
consequences
would
have
been
disastrous. It would have resulted in
termination of the contract; blacklisting
of the appellant; difference in cost of
balance work got executed from third
party being realised from the appellant;
invocation of bank guarantee of Rs.15.30
crores; non payment of unpaid dues of
Rs.8.21 crores; loss of reputation and
incurring heavy amount in litigation. It is
also urged that the NOIDA was conscious
of his imbalance in negotiating power and
it got legal opinion to compel the
appellant to give up its right to claim
damages under the original MoU. The
Supplementary MoU dated 5.04.2006 was
prepared and drafted by NOIDA and the
appellant was directed to sign the same
within 15 days. NOIDA had included in
the Supplementary MoU various terms
which absolves it of its liabilities arising
out of its unilateral act of suspending the
contract.

33. Even after resumption of work
on 8.04.2006, NOIDA continued to
withhold payments due to the appellant
for
the
works
executed
prior
to
suspension of work until the work was
completed and delivered by the appellant
Company on 30.04.2008. NOIDA failed
to provide completion certificate and also
withheld the bank guarantee.

34.
After having
successfully
delivered the Project, the appellant was in
a position to invoke the arbitration
machinery for seeking damages under the
MoU. It did so by way of its letter dated
20.03.2009 and wherein it specifically
made
a
claim
for
price
variation
(Rs.2394.20 lakhs) and damages for
suspension of work (Rs.3712.00 lakhs).
562 INDIAN LAW REPORTS ALLAHABAD SERIES
Again in para 9 of the arbitration
application filed by the appellant under
Section 11 of the ACA before this Court,
the plea of coercion was specifically taken.

35. It was thus contended that the plea
of coercion and undue influence was duly
taken by the appellant at the first
opportunity. The Arbitral Tribunal was
well within its jurisdiction to examine the
said plea and to record findings in favour of
the appellant. The Commercial Court has
wrongly held that the plea of coercion and
undue influence or unequal bargaining
power is not applicable in commercial
contracts. In support of the said contention,
learned counsel for the appellant has placed
reliance on various judgements which will
be discussed while dealing with the
contention.

36. The judgement of the Delhi
High Court in Classic Motors was
wrongly treated by the Commercial Court
as laying down public policy of India.
The said judgement was rendered by a
Single Judge of Delhi High Court while
deciding objections under Section 34.
The said judgement does not consider
various decisions of the Supreme Court
on the subject of coercion and undue
influence. The Commercial Court has
also wrongly relied on the judgement in
Central
Inland
Water
Transport
Corporation Ltd. and Balaji Pressure
Vessels Ltd.

37. The issue pertaining to coercion
and duress is a pure question of fact. It
was decided by the Arbitral Tribunal after
hearing both the parties and considering
all the material evidence on record. The
view taken by the Arbitral Tribunal in this
behalf
was
a
plausible
view.
The
Commercial Court erred in re-appreciating
the
evidence
and
giving
its
own
interpretation to the same.

38. The Supplementary MoU was
drafted by NOIDA and the appellant had no
option but to agree to the conditions
contained therein, failing which, the
appellant, who had already invested huge
sum of money in the Project, was bound to
be sidelined, apart from being visited with
evil consequences provided under the
original contract. Consequently, there was
no consensus ad idem between the parties.

39. The Supplementary MoU did not
override or amend or delete Clause
13(2)(b) of the GCC, either specifically or
by
necessary
implications.
The
Supplementary MoU does not even refer to
Clause
13(ii)(b)
of
the
GCC.
The
Commercial Court has relied upon the
intention and reasoning of executing the
Supplementary MoU but overlooked that
no such intention was evident from the
language of the Supplementary MoU.

40. The Arbitrator held that the
Supplementary MoU did not amend the
MoU by deleting the Price Variation
Clause. The Commercial Court has upheld
claim under Price Variation Claim. The
same
reasoning
as
upheld
by
the
Commercial Court in relation to the Claim
awarded for Price Variation would apply to
the claim of Rs. 4 Lakhs per day under
Clause 13 (ii)(b) of the GCC.

41. The Commercial Court accepted
the Award given by the Arbitrator in
relation to issue no. 13 i.e. with respect to
Award of Rs. 23.94 Cr on account of price
variation. Despite having upheld the award
on that claim, the Commercial Court has
wrongly held that since there is no power to
modify the award, "the entire award has to
10 All. Hindustan Steelwork Construction Ltd. Vs. NOIDA
563
be set aside", relying on a Supreme Court
judgement in
the
case
of
Dakshin
Haryana Bijli Vitaran Nigam Ltd. vs M/s
Navigant Technologies (P) Ltd. (supra).

42. The Commercial Court has erred
in law in proceeding on this assumed legal
position that where an award comprises
several distinct monetary claims being
awarded on independent grounds, and
award of some of the monetary claims are
interfered with under Section 34 then the
entirety of the award is set aside even
though the award on other claims was
upheld.

43. The judgement Dakshin Haryana
Bijli Vitaran Nigam Ltd.'s case relied
upon
in
the
impugned
order,
is
distinguishable on facts. In the said case,
it was not really dealing with the issue
of modification of an Award by the
court
under
Section
34
of
the
Arbitration Act, however, it had relied
upon the law laid down in the case of
McDermott
International
Inc
vs.
Burn Standard Co. Limited6 to decide
the issue of relevance of a dissenting
opinion.

44. In the present case, there were
several distinct amounts awarded by the
Tribunal on independent reasonings,
including, inter alia, an amount of Rs.
23.94 Cr towards Price Variation and an
amount of Rs. 35.92 Cr under Clause 13
(ii)(b) of GCC. The Commercial Court
could not have set aside the entire Award
because it found that the Award of Rs.
35.92 Cr under Clause 13 (ii)(b) of GCC
was against public policy. The Court is
fully empowered to set aside the award in
regard to particular claim only, while
refusing to interfere with the remaining
portion of the Award.

SUBMISSIONS
OF
LEARNED
COUNSEL FOR THE RESPONDENT:

45. The award of the Arbitral
Tribunal
primarily
flows
from
the
erroneous finding that the Supplementary
MoU between the parties was signed under
coercion and duress. The said finding is not
supported by the evidence on record and
hence amounts to a patent illegality as
envisaged under Section 34 of the Act.

46. It has to be ascertained whether
the party alleging coercion exercised a free
will or not while entering into the
Supplemental Agreement. For this purpose
there are several factors which need to be
looked into. They are (1) Did the party
protest before or soon after the agreement?
(2) Did the party take any steps to avoid
contract? (3) Did the party have an
alternative course of action or remedy? If
so, did the party pursue or attempt to
pursue the same? (4) Did the party convey
benefit of independent advice?

47. If the aforesaid factors are applied
on the present facts, the Arbitral Tribunal
failed to consider, that HSCL in their own
wisdom and being fully conscious of their
legal rights and remedy, sent letters dated
29.4.2005 & 10.5.2005 to NOIDA. In these
letter(s) HSCL expressly submitted to
complete the contract at the fixed value of
Rs.106.10 crore and voluntarily agreed to
claim no compensation or price escalation
at all under the contract. Those letters
formed the part of the Supplementary MoU
and no prompt protest was lodged by
HSCL.
Since
22.03.2006,
when
the
Supplementary MoU was executed and
work
was
continued
after
recommencement, HSCL did not protest to
the execution of the Supplementary MoU,
in any form or manner. Almost after
564 INDIAN LAW REPORTS ALLAHABAD SERIES
completion of the entire contract and
reaping benefits under it, HSCL used the
term coercion, in an attempt to create a
false dispute between the parties by going
contrary to the conduct and express
agreement. The plea of coercion and undue
influence was not only sham and an
afterthought, but also merely a cause to
secure unjust enrichment at the cost of
public exchequer.

48. As regards the second and third
factor to prove coercion, the question
remained as to whether HSCL took any
step to avoid the contract or did HSCL
have an alternative course of action or
remedy? No steps were taken to either
avoid the contract or pursue the rights and
remedies under the MoU or GCC. Despite
being aware of its right both under the
Contract and GCC, HSCL conspicuously
chose to remain oblivious in exercising its
right, to avoid execution of Supplementary
MoU under coercion or undue influence.

49. Fourth factor pertains to whether
HSCL convey benefit of the independent
advice? It is undisputed that HSCL was an
organization
which
is
regulated
and
controlled by the Government of India. By
no stretch of imagination, it can be
assumed that the state entity i.e. NOIDA
can exercise coercion and undue influence
on an entity which is under control of the
Government of India. There is no reason to
assume, that HSCL being regulated by
Central Government of India, didn't have
able
resources
or
means
to
have
independent legal advice to determine the
rights under the contract and were forced to
enter into a transaction on exercise of
coercion and undue influence.

50. The power to set aside only part
of the award is conferred on court by
Section 34 only in one contingency which
is to be found in Clause (iv) of sub-section
(2) of Section 34 of the Act. In all other
cases, if the court finds that only a part of
the award is affected by illegality which is
pointed out to the court, the court cannot
itself modify the award, but if a party to the
petition applies to the court in exercise of
its power under sub-section 4 of Section
34, the court can direct the arbitral tribunal
to resume the proceedings and take such
action to eliminate the ground for setting
aside the award. The placement of the
proviso under sub-clause (iv) of clause (a)
of sub-section 2 is crucial as it limits the
application of the proviso to the said subclause alone. This position cannot be
overlooked to extend the application of the
proviso to the entire sub-section (2).

POINTS FOR DETERMINATION:

51. Two points which arise for
determination are:

(A) Whether award of damages during
the period of suspension of contract (Claim
No.2), by the arbitral tribunal falls within
the clutches of sub-section (2) or (2-A) of
Section 34 of the Act, so as to warrant
interference by the Court.

(B) Whether the Court, in proceeding
emanating from Section 34 of the Act has
power to sever bad part of the award from
good part even in situations not covered
under the proviso to Section 34 (2) (a) (iv)
of the Act?

ANALYSIS

Point No.1:

52. Section 34 of the Act specifies the
grounds on which arbitral award can be set
10 All. Hindustan Steelwork Construction Ltd. Vs. NOIDA
565
aside by the court. It is noteworthy that
Section 34 was amended by Act No.3 of
2016 w.e.f. 23.10.2015. The application in
the present case was filed post amendment
and would therefore be governed by the
amended provisions. The relevant part of
Section 34 is as follows:-

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--

(a) the party making the application
furnishes proof that -

(i) a party was under some incapacity;
or

(ii) the arbitration agreement is not
valid under the law to which the parties
have subjected it or, failing any indication
thereon, under the law for the time being in
force; or

(iii) the party making the application
was not given proper notice of the
appointment of an arbitrator or of the
arbitral proceedings or was otherwise
unable to present his case; or

(iv) the arbitral award deals with a
dispute not contemplated by or not falling
within the terms of the submission to
arbitration, or it contains decisions on
matters beyond the scope of the submission
to arbitration:

Provided that, if the decisions on
matters submitted to arbitration can be
separated from those not so submitted, only
that part of the arbitral award which
contains decisions on matters not submitted
to arbitration may be set aside; or

(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 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 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

(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."

Precedents on scope of Section 34 :

53. In Ssangyong Engineering and
Construction
Company
Ltd.
Vs.
566 INDIAN LAW REPORTS ALLAHABAD SERIES
National Highways Authority of India
(NHAI)7, the Supreme Court considered
the scope of Section 34 as amended. The
Supreme Court also noted the amendments
carried out simultaneously in Section 48,
which deals with 'foreign awards', so as to
bring the said provision in line with the
amendments made in Section 34.

54. The Supreme Court explained that
the phrase "public policy of India" used in
Section 34 and 48 would now mean the
"fundamental policy of Indian Law" as
explained in paras 18 and 27 of Associate
Builders. Therein reliance was placed on
the meaning assigned to the aforesaid
expression in Renu Sagar. Para 18 and 27
of Associate Builders reads thus:-

18. In Renusagar Power Co. Ltd. v.
General Electric Co.3, the Supreme Court
construed Section 7(1)(b)(ii) of the Foreign
Awards (Recognition and Enforcement)
Act, 1961:
7. Conditions for enforcement of foreign
awards. (1) A foreign award may not be
enforced under this Act-

(b) if the Court dealing with the case is
satisfied that-

(ii) the enforcement of the award will
be contrary to the public policy."

In construing the expression "public
policy" in the context of a foreign award,
the Court held that an award contrary to

(i) The fundamental policy of Indian
law,

(ii) The interest of India,

(iii) Justice or morality,

would be set aside on the ground that
it would be contrary to the public policy of
India. It went on further to hold that a
contravention of the provisions of the
Foreign Exchange Regulation Act would be
contrary to the public policy of India in that
the statute is enacted for the national
economic interest to ensure that the nation
does not lose foreign exchange which is
essential for the economic survival of the
nation (see SCC p. 685, para 75). Equally,
disregarding orders passed by the superior
courts
in
India
could
also
be
a
contravention of the fundamental policy of
Indian law, but the recovery of compound
interest on interest, being contrary to statute
only,
would
not
contravene
any
fundamental policy of Indian law (see SCC
pp. 689 & 693, paras 85 & 95).

27. Coming to each of the heads
contained in Saw Pipes judgment, we will
first deal with the head "fundamental policy
of Indian law". It has already been seen
from Renusagar3 judgment that violation of
the Foreign Exchange Act and disregarding
orders of superior courts in India would be
regarded
as
being
contrary
to
the
fundamental policy of Indian law. To this it
could be added that the binding effect of
the judgment of a superior court being
disregarded would be equally violative of
the fundamental policy of Indian law.

55. While holding that the test laid
down in Renu Sagar would hold good
even in respect of the amended provision,
the wider interpretation given to the
expression
in
ONGC
Limited
Vs.
Western Geco International Ltd8 is held
not to lay down the correct position of law.
Thus, under the guise of interfering with an
award on the ground that the Arbitrator has
not adopted a judicial approach, the courts'
intervention would be on the merits of the
award,
which
is
held
to
be
the
impermissible post-amendment.

56. The Supreme Court also noted that
interference with the award on the ground
that it concerns "interest of India" has since
been deleted and, therefore, no longer
10 All. Hindustan Steelwork Construction Ltd. Vs. NOIDA
567
available for setting aside an award. It is
also
clarified
that
the
ground
for
interference on the basis that it is in conflict
with justice or morality is now to be
understood as a conflict with "most basic
notions of morality or justice". Thus, the
public policy of India is held to be confined
to (a) the fundamental policy of Indian Law
as understood in paragraphs 18 and 27 of
Associate Builders; (b) if it is against basic
notions of justice or morality as understood
in paras 36 to 39 of Associate Builders. It
is held that with the insertion of sub-section
(2-A) to Section 34, an additional ground
has been made available under Section 34
i.e. "patent illegality appearing on the face
of the award". The proviso clarifies that the
patent illegality should be such as goes to
the root of the matter. It should not merely
be confined to an erroneous application of
law. It also does not permit re-appreciation
of evidence. The addition of the said
ground does not mean that what is not
subsumed within the fundamental policy of
India, namely, the contravention of Statute
not linked to public policy or public
interest, can be brought in by the backdoor
when it comes to setting aside of an award
on the ground of patent illegality.

57. Before proceeding further, it
would be advantageous to note paragraphs
36 and 37 of Associate Builders, which
have
been
approved
in
Ssangyong
Engineering:-

36. The third ground of public policy
is, if an award is against justice or morality.
These are two different concepts in law. An
award can be said to be against justice only
when it shocks the conscience of the court.
An illustration of this can be given. A
claimant is content with restricting his
claim, let us say to Rs 30 lakhs in a
statement of claim before the arbitrator and
at no point does he seek to claim anything
more. The arbitral award ultimately awards
him Rs 45 lakhs without any acceptable
reason or justification. Obviously, this
would shock the conscience of the court
and the arbitral award would be liable to be
set aside on the ground that it is contrary to
"justice".

37. The other ground is of "morality".
Just as the expression "public policy" also
occurs in Section 23 of the Contract Act,
1872 so does the expression "morality".
Two illustrations to the said section are
interesting for they explain to us the scope
of the expression "morality":

"(j) A, who is B's Mukhtar, promises
to exercise his influence, as such, with B in
favour of C. and C promises to pay 1000
rupees to A. The agreement is void,
because it is immoral.

(k) A agrees to let her daughter to hire
to B for concubinage. The agreement is
void, because it is immoral, though the
letting may not be punishable under the
Indian Penal Code (45 of 1860)."

58. In paragraphs 38 and 39
(Associate Builders), it has been explained
that the concept of morality as envisaged
under Section 23 of the Contract Act is
confined to sexual immorality and not to
any other case. As regards construction of
the terms of a contract, it has been held that
it is primarily for an arbitrator to decide
unless the arbitrator construes the contract
in a manner that no fair minded or
respectable person would construe it. In
other
words,
interference
with
an
interpretation given by the arbitrator to the
terms of the contract is not warranted if it is
a possible view.

59. In para 41 of the Law Report, it
has been held that a finding based on no
evidence at all or an award which ignores
568 INDIAN LAW REPORTS ALLAHABAD SERIES
vital evidence in arriving at its decision
would be perverse and liable to be set aside
on the ground of patent illegality. Likewise,
an evidence taken behind the back of the
party and a decision based on it would also
fall in the same category, as such a decision
would not be a decision based on evidence
led by the parties.

60. More recently in Delhi Airport
Metro Express Pvt Ltd Vs. Delhi Metro
Rail Corporation Ltd9, the Supreme Court
again considered the scope of interference
by the Court with an award under Section
34 in context of the interpretation given by
the Arbitral Tribunal to the terms of the
contract. In the said judgement again, the
test of "possible view" laid down in
previous judgements has been reiterated as
laying down the correct position of law.
The expression "patent illegality" in
Section 34 (2-A) has been explained thus:-

29. Patent illegality should be illegality
which goes to the root of the matter. In
other words, every error of law committed
by the Arbitral Tribunal would not fall
within the expression "patent illegality".
Likewise, erroneous application of law
cannot be categorised as patent illegality. In
addition, contravention of law not linked to
public policy or public interest is beyond
the
scope
of
the
expression"patent
illegality". What is prohibited is for courts
to re-appreciate evidence to conclude that
the award suffers from patent illegality
appearing on the face of the award, as
courts do not sit in appeal against the
arbitral award. The permissible grounds for
interference with a domestic award under
Section 34(2-A) on the ground of patent
illegality is when the arbitrator takes a view
which is not even a possible one, or
interprets a clause in the contract in such a
manner which no fair-minded or reasonable
person would, or if the arbitrator commits
an error of jurisdiction by wandering
outside the contract and dealing with
matters not allotted to them. An arbitral
award stating no reasons for its findings
would make itself susceptible to challenge
on this account. The conclusions of the
arbitrator which are based on no evidence
or have been arrived at by ignoring vital
evidence are perverse and can be set aside
on the ground of patent illegality. Also,
consideration of documents which are not
supplied to the other party is a facet of
perversity falling within the expression
"patent illegality".

61. In para 31 of the Law Report, the
Supreme Court placing reliance on the
interpretation
given
in
Ssangyong
Engineering reiterated the legal position
that "contravention of a Statute not linked
to a public policy or public interest" cannot
be a ground to set at naught an arbitral
award as being discordant with the
fundamental policy of Indian Law and
neither it can be brought within the confine
to "patent illegality.... ."

62. In Municipal Corporation of
Delhi Vs. Jagan Nath Ashok Kumar and
another10, the Supreme Court held that the
Arbitrator is "the sole judge of the quality
as well as quantity of evidence and it will
not be for this Court to take upon itself the
task of being a judge of the evidence before
the arbitrator. It may be possible that on the
same evidence the Court might have
arrived at a different conclusion than the
one arrived at by the arbitrator but that by it
self is no ground in our view for setting
aside the award of an arbitrator."

63. In State of Jharkhand and
others Vs. HSS Integrated SDN and
another11, the Supreme Court placing
10 All. Hindustan Steelwork Construction Ltd. Vs. NOIDA
569
reliance on NHAI Vs. Progressive -NVR
(JV)12 reaffirmed the "possible view"
theory -

"In Progressive-MVR (supra), after
considering the catena of decisions of this
Court on the scope and ambit of the
proceedings under Section 34 of the
Arbitration Act, this Court has observed
and held that even when the view taken by
the arbitrator is a plausible view, and/or
when two views are possible, a particular
view taken by the Arbitral Tribunal which
is also reasonable should not be interfered
with in a proceeding under Section 34 of
the Arbitration Act."

64. In Maharashtra State Electricity
Distribution Co. Ltd. Vs. Datar Switchgear
Ltd13, it is held that the Arbitral Tribunal is
the master of evidence and the findings of
fact recorded by an Arbitral Tribunal on
basis of the evidence on record are beyond
scope of scrutiny under Section 34 of the
Act. It is observed as follows:-

"The proposition of law that the
Arbitral Tribunal is the master of evidence
and the findings of fact which are arrived at
by the arbitrators on the basis of evidence
on record are not to be scrutinised as if the
Court was sitting in appeal now stands
settled
by
a
catena
of
judgments
pronounced by this Court without any
exception thereto."

Application to the facts of the case :

65. Keeping in mind the above
principles, we now proceed to examine
whether the Commercial Court acted within
the bounds of its jurisdiction in setting
aside the award in respect of Claim No.2
towards liquidated damages on account of
suspension of work. The said claim of
Rs.35.92 crores was made under Clause 13
of GCC.

66. Clause 13 of GCC confers power
upon the Engineer-in-Chief to suspend
progress of the works or any part thereof
for such time and in such manner as he may
consider necessary. When suspension of
work is for reasons enumerated in sub-para
13(i)(b) or (c), it would entitle the
contractor to damages at the rate of Rs. 4
lakhs per day for the period exceeding 30
days. If suspension is prolonged for more
than four months, it gives further option to
treat such suspension as foreclosure of
contract due to abandonment or reduction
in scope of work. As the entire controversy
hinges on the interpretation and scope of
the said Clause, therefore, it is reproduced
below for convenience of reference:-

CLAUSE 13

Suspension of Work

(i) The Contractor shall, on receipt of
the order in writing of the Engineer-inCharge whose decision shall be final and
binding on the Contractor) suspend the
progress of the works or any part thereof
for such time and in such manner as the
Engineer-In-Charge
may
consider
necessary so as not to cause any damage or
injury to the work already done or endanger
the safety thereof for any of the following
reasons: -

(a) on account of any default on the
part of the Contractor or;

(b) for proper execution of the works
or part thereof for reasons other than the
default of the Contractor; or

(c) for safety of the works or part
thereof.

The Contractor shall, during such
suspension, properly protect and secure the
works to the extent necessary and carryout
570 INDIAN LAW REPORTS ALLAHABAD SERIES
the instructions given by the Engineer-InCharge.

(ii) lf the suspension is ordered for
reasons (b) and (c) in sub-para (i) above.

(a) the Contractor shall be entitled to
an extension of time equal to the period of
every such suspension PLUS 25% for
completion of the item or group of items of
work for which a separate period of
completion is specified in the contract and
of which the suspended work forms a part,
and;

(b) if the total cumulative period of all
such suspensions in respect of an item or
group of items if work for which a separate
period of completion is specified in the
contract exceeds thirty days, the Contractor
shall in addition to (a) above, be entitled to
@ Rs. 4,00,000/- (Rupees Four Lakh) per
day for the period exceeding 30 days.

(iii) If the works or part thereof is
suspended on the orders of the Engineer-In-
Charge for more than four months at a
time, except when suspension is ordered for
reason (a) in sub-para (i) above, the
Contractor may treat such suspension under
clause 11. i.e. foreclosure of Contract due
to abandonment or reduction in scope of
work."

67. The Arbitral Tribunal, while
deciding issue no.10, has held that
suspension of work was for reasons
attributable to the respondent (NOIDA).
The reason for suspension of work, thus,
does not fall under sub-para (a) of Clause
13 (i) of GCC. In such an event, three
situations are contemplated with different
consequences -

(i) the contractor would be entitled to
extension of time equal to the period of
every such suspension, as also, 25% for
completion of the item or group of items of
work for which a separate period of
completion is specified in the contract and
of which suspended work forms a part;

(ii) if the period of suspension exceeds
30 days, the contractor would in addition to
above, be entitled to Rs. 4 lakh per day for
the period exceeding 30 days; and

(iii) if the period of suspension
exceeds four months at a time, as in the
instant case, the contractor had the option
to treat such suspension as 'fore closure of
contract' under Clause 11 of GCC.

68. Clause 11 of GCC contemplates
payment of compensation to the contractor
in the event there is foreclosure of work. It
also provides for the manner of calculation
of compensation. It reads thus : -

CLAUSE 11:

Foreclosure Of Contract Due To
Abandonment Or Reduction In Scope Of
Work.

If at any time after acceptance of the
offer, NOIDA shall decide to abandon or
reduce the scope of the works for any
reason whatsoever and hence not require
the whole or any part of the works to be
carried-out, the Engineer-In-Charge shall
give notice in writing to that effect to the
Contractor and the Contractor shall act
accordingly in the matter. The Contractor
shall have no claim to any payment of
compensation or otherwise whatsoever, on
account of any profit or advantage which
he might have derived from the execution
of the works in full but which he did not
derive in consequence of the foreclosure of
the whole or part of the works.

The Contractor shall be paid at
contract rates full amount for works
executed at site and in addition, a
reasonable amount as certified by the
10 All. Hindustan Steelwork Construction Ltd. Vs.