Ramesh Kumar Jain vs. Bharat Aluminium Company Limited (Balco)

2025 INSC 1457
REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO OF 2025
(Arising out of SLP (C) No. 14529 of 2023)
RAMESH KUMAR JAIN ….APPELLANT

VERSUS

BHARAT ALUMINIUM COMPANY
LIMITED (BALCO) ….RESPONDENT


J U D G M E N T

ARAVIND KUMAR, J.

1. Heard. Leave Granted.
2. We have been called upon to examine the correctness of the Judgement and
order dated 03.05.2023 passed by the High Court of Chhattisgarh at Bilaspur
in ARBA No. 05 of 2017 whereby the arbitral award dated 15.07.2012 passed
by the sole Arbitrator awarding a sum of Rs. 3,71,80,584 (Three crores seventy-
Signature Not Verified
Digitally signed by
RASHI GUPTA
Date: 2025.12.18
18:03:07 IST
Reason:
one lacs eighty thousand five hundred eighty-four only) along with the statutory
Page 1 of 28


interest to the appellant, affirmed by the Commercial Court by judgement and
order dated 02.01.2017 in MJC No. 33/16 while exercising jurisdiction under
section 34 Arbitration and Conciliation Act, 1996 (hereinafter “ A&C Act ”) has
been set aside by the High Court in exercise of its limited appellate jurisdiction
under section 37 of the A&C Act.
3. The facts shorn of unnecessary details are set forth herein under:
3.1. The respondent-Bharat Aluminum Company Limited (in short
“BALCO”) invited a tender for the purpose of mining and transporting
3,70,000 Metric Tons (MTs) of Bauxite from Mainpat mines to
respondent’s Korba Alumina plant. The appellant submitted his bid at
Rs. 697/- per metric ton which happened to be the lowest among all the
bids received. Therefore, the respondent, after negotiation, entered into
an agreement with the appellant for mining and transporting of 2,22,000
MTs of Bauxite from the Mainpat Mines to Alumina plant at rate of Rs.
634.20 per MT on 11.12.1999. The said work had to be completed
within a period of 18 months i.e., by May 2001 but it was extended up
to September 2001. After the appellant had completed supplying the
agreed quantity of bauxite, the respondent by letter dated 05.01.2002
requested the appellant to continue the work of mining and transporting
and the rate for the extra work was agreed to be decided in due course
of time after consulting with the appellant. Thereafter, appellant
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continued the work and supplied total quantity of 1,95,000 MT of
Bauxite between 16.06.2001 to 31.03.2002. Subsequently, dispute
arose between the parties regarding the payment of extra work
performed by the appellant which led to invocation of arbitration clause
and the claimant approached the High Court by filing an application
seeking appointment of an arbitrator under section 11(6) of the A&C
Act. The High Court by way of order dated 12.04.2007 in MCC No.
192 of 2006 referred the said dispute to the Tribunal as per clause J of
the agreement between the parties.
3.2. The sole arbitrator after considering the pleadings filed by the appellant
and respondent formulated 13 (Thirteen) issues. The learned sole
arbitrator after hearing both the parties at length passed the arbitral
award dated 15.07.2012 in favour of the appellant as follows:

Page 3 of 28

3.3. On the above sum, 12% p.a. interest was awarded from 01.09.2007 to
15.07.2012 which came to Rs. 1,37,22,801 (One crore thirty-seven lacs
twenty-two thousand eight hundred and one only). Hence, on adding
the said sum the total award of Rs. 3,71,80,584 and statutory interest as
per section 31(7)(b) of the A&C Act from the date of award till payment
by the respondent was ordered by the arbitral tribunal.
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3.4. Being aggrieved by the arbitral award, the respondent preferred an
objection petition under section 34 of the A&C Act bearing no. MJC
No. 33/16 before the Commercial court. On meticulous consideration
the civil court came to the conclusion that the sole arbitrator had given
a well-reasoned findings on each claim after considering the oral and
documentary evidence which could not be regarded as arbitrary or
capricious especially in the light of section 34(2)(b)(ii) of A&C Act and
therefore, refused to interfere and affirmed the arbitral award dated
15.07.2002 by way of judgement and order dated 02.01.2017.
3.5. The respondent being not satisfied with the findings of civil court
invoked the limited appellate jurisdiction of the High Court under
Section 37 of A&C Act by preferring ARBA No. 05 of 2017 against
judgement and order dated 02.01.2017. The said appeal came to be
allowed by the impugned judgement and the arbitral award dated
15.07.2012 affirmed by civil court by order dated 02.01.2017 has been
set aside.
3.6. Aggrieved by the same, the appellant, the original claimant, is in appeal
before us.


REASONING ASSIGNED UNDER THE IMPUGNED JUDGEMENT


4. At the outset, before examining the submissions made by the learned Senior
counsels appearing on behalf of the parties, we deem it apt and appropriate to
examine the reasonings given by the high court for setting aside the concurrent
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findings in favour of the appellant. Hence the same has been encapsulated
hereinbelow.
5. The first and foremost reason given by the High Court is that fixation of
additional cost from Rs. 634.20 PMT to the tune of Rs. 644.20 PMT by addition
of Rs. 10/- per metric ton for the extra work determined by the sole arbitrator
on the basis of principle of “ quantum meruit” was without jurisdiction since
the letter dated 05.01.2002 whereunder the appellant was obligated to perform
extra work of excavation did not fix any rate. Therefore, in the absence of the
agreement, the arbitrator could not have fixed the rate, as such it amounted to
rewriting of the contract. The High Court further relied upon the decision of
this court in Mahanagar Telephone Nigam Limited v. Tata Communications
1
Limited to arrive at an conclusions that principle of “ quantum meruit” could
not have been applied since its application is limited to cases wherein the price
has not been fixed by the contract but in the instant case since previously the
rate was accepted and work was done, fixation of amount of compensation
additionally by Rs. 10/- PMT was erroneous which falls under the realm of
exceeding jurisdiction or rewriting of the contract which according to the High
Court tantamounts to “patent illegality”.
6. Another reason assigned by the High Court for allowing the appeal of the
respondent was that the learned arbitrator had assessed the damages only on the
basis of oral statement and on the guess work, therefore, the same was not
sustainable and according to the High Court it also fell within the sweep of

1
(2019) 5 SCC 341
Page 6 of 28


patent illegality. Further, the High Court while considering the award with
respect to extra cost for transportation borne due to restriction on carrying
capacity of trucks relied upon the specific statement made by the claimant
during the trial in respect of Question No. 45 to arrive at conclusion that
respondent was not prima facie responsible for any reduction in weight, hence
the loss caused on transportation cannot be attributed to the respondent. It was
held that arbitrator had merely relied upon the tabular statement given by the
appellant without examining the basis of rate and calculation on which the loss
was determined. Hence, it was of the opinion that claim of appellant was not
based on the evidence and facts relied upon. Therefore, in the absence of any
documentary evidence on record to show that appellant was restricted to carry
only 10.2 MT, the award on the basis of alleged loss was only a guess work. In
this regard, the High Court placed reliance on the decisions of this court
rendered in Kailash Nath Associates v. Delhi Development Authority and
2
Anr. to hold that Arbitrator cannot rewrite the award and the part of findings
of the arbitrator which is without any evidence and beyond the terms of contract
would be a patent illegality.
7. The High court further concluded that the tribunal in respect of idle machinery
and idle manpower merely relied upon the tabular chart tendered by the
appellant which was only a self-declaratory opinion and not based on evidence
of facts.


2
(2015) 4 SCC 136
Page 7 of 28


SUBMISSIONS ON BEHALF OF THE PARTIES
8.
Learned Senior Counsel Shri Mukul Rohatgi appearing on behalf of the
appellant submitted that the High Court exceeded its jurisdiction in
reappraising the factual matrix and arriving at a different conclusion to that of
the arbitrator. The High Court was acting as an appellate court while the
jurisdiction in section 37 of A&C Act is restricted by virtue of the act and the
lens of scrutiny under the said provision is very narrow. The High Court went
into the merits of the case and has re-appreciated and re-examined the
documents and evidence on record which was impermissible under section 37
of the A&C Act. To buttress the said contention, the learned senior counsel
relied upon the law laid down by this court in Delhi Airport Metro Express
3
Pvt. Ltd. v. Delhi Metro Rail Corporation .
9.
The learned senior counsel further submitted that under section 34 and section
37 of the Act, the court does not sit in appeal and it cannot go into the merits of
the matter. Hence, in the present case, the High court acted in excess of
jurisdiction conferred upon it by law. In this regard reliance was placed upon
4
the case of MMTC Limited v. Vedanta Ltd.
10. The Learned senior counsel vehemently submitted that arbitral tribunal has
given detailed reasons for the conclusion that it had reached while passing the
award. Further, the claims awarded by the arbitral tribunal have been
supplemented with proper reasons and justifications. The award was upheld by
the commercial court, Raipur and the application under section 34 of the Act

3
(2022) 1 SCC 131
4
(2019) 4 SCC 163
Page 8 of 28


was dismissed as “being without substance”. Hence, it was not proper for the
High Court to set aside the award in the name of patent illegality, merely
because the reason that the High Court’s interpretation of facts were different
than that of the arbitral tribunal.
11. He further submitted that Interpretation of the contract is a matter for the
arbitrator to determine based on evidence and communications and an error in
interpretation is not a basis for interference under section 34 of A&C Act. To
back his contention, he placed reliance upon Hindustan Construction
5
Company Ltd. v. NHAI , MMTC Ltd. (supra) and Associate Builders v. Delhi
6
Development Authority .
12. The learned senior counsel while placing reliance upon Parsa Kente Collieries
7
Ltd. v. RRVUN Ltd. vehemently submitted that arbitral tribunal is the master
of evidence and findings of facts which are arrived at by the arbitrators based
on evidence on record and not to be scrutinized, as if the court was sitting in
appeal.
13. He further submitted that as long as there is material available before the
arbitrator to show damages have been suffered, but such material does not give
him an insight into the granular details, the arbitrator is permitted the leeway to
employ honest guesswork and/or a rough and ready method for quantifying the
damages. To buttress the said contention, the learned senior counsel relied upon
8
Construction and Design Services v. Delhi Development Authority .

5
(2024) 2 SCC 613
6
(2015) 3 SCC 49
7
(2019) 7 SCC 236
8
(2015) 14 SCC 263
Page 9 of 28


14. He also submitted that High court with respect to extra work from July 2001
to March 2002, was factually not correct in stating that earlier rate was agreed
between the parties. For the subsequent period from July 2001 onwards, the
respondent had taken out fresh tenders which were later withdrawn despite the
petitioner being the lowest bidder. Nonetheless the respondent requested the
petitioner to continue the work but the rates were never agreed between the
parties which is an admitted fact as evident from the letters dated 15.08.2001
and 05.01.2002.
15. He also submitted that the tribunal considered the fact that the strike at
respondent’s plant was an issue between the management and workers of the
respondent. Since there was no Force Majeure clause in the contract and the
strike was not an Act of God, the petitioner was entitled for compensation with
respect to idle machinery and manpower.
16. Per Contra, Learned Senior Counsel Shri Ranjith Kumar appearing for the
respondent submits that there was no clause for in the contract for increasing
the rate except for the diesel variation clause. He further contended that
petitioner from the beginning of the contract, started protesting and raising
unnecessary demands for increasing the price of the contract by comparing it
with the contract awarded by the respondent to a third party. The respondent
through its letter dated 25.03.2000 had already informed the petitioner that it
should not be of his concern who the respondent pays or at what rate, for the
bauxite purchased from outside.
17. He further contended that it was specifically mentioned in the contract that the
contractor should investigate and inspect the work, site and surrounding area
Page 10 of 28


and keep all circumstances in mind before submitting the tender. He also
submitted that the Sole arbitrator after holding that neither party has agreed to
the rate, has proceeded to guess that the prices have arisen by Rs. 10/- without
any evidence or materials to support such findings. He further contended that
additional work was executed at existing rate, and that the additional work was
executed at existing rate, and that the claimant had accepted the amount and did
not challenge the same. The respondent paid the petitioner Rs. 657/- throughout
the period and the rate was impliedly agreed between the parties.
18. With reference to route map, the learned senior counsel contended that there
was no specific route map prescribed in the contract for transportation of the
bauxite. The petitioner contended that they had to carry the bauxite from the
longest route which was costing them additional 50 KM distance for which the
respondent was liable to pay as per the diesel variation clause, which is
completely baseless. It was an admitted fact that the petitioner was not bound
by the contract to follow any particular route. Further, bare perusal of clause
2(a) of the contract i.e., the diesel variation clause shows that it depends on the
rate of the diesel and not on the distance and the word ‘average’ has been
mentioned for the entire contract irrespective of the route which the contractor
choses for transportation.
19. He further submits that the Learned sole arbitrator without appreciating the
specific bar under clause 6 and without giving a simple meaning to the terms
therein, went beyond the terms of the contract to allow the claim for idle
machinery. The arbitrator adopted a hyper-technical approach which is not
permissible while interpreting the terms of the contract.
Page 11 of 28


20. He has also submitted that the arbitrator after holding that the petitioner had not
submitted any documentary evidence on record in respect of the claim for
alleged loss due to idle machinery and manpower, however erroneously granted
75% of the alleged amount claimed. The High Court rightly held that there is
no evidence to show that the mining process came to stand still and there is no
document to show the expenses incurred by the petitioner.
21. He submitted that petitioner continued to work and execute a quantity of
1,95,000 MT from 16.06.2001 to 31.03.2002 and respondent was paying the
petitioner at the existing rate plus Rs. 23/- as diesel escalation. The respondent
paid the petitioner Rs. 657/- inclusive of diesel rate throughout the period and
the rate was impliedly agreed between the parties. The contention of the
petitioner that they were expecting a payment of Rs. 697/- PMT is baseless for
the reason that the tender 01.01.2001 was cancelled because the bidders offered
a very high rate which was not acceptable to the respondent.
22. He further submitted that there was no documentary evidence on record to show
that the penalty was imposed by the respondent over the carrying capacity. The
Arbitrator wrongly allowed the claim for extra cost of transportation to be borne
by the respondent in the absence of any evidence. Only an unsubstantiated
tabular statement was placed on record by the petitioner and the basis on which
the facts and figures were arrived at therein was absent since there was no
evidence.
23. He vehemently submitted that the contract does not permit the Ld. Arbitrator
to decide the rates between the parties. It could not have applied the principle
of quantum meruit and fixed the rates between the parties. The Award, is thus,
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against the most basic notions of morality and justice. To buttress his
9
submissions, he placed reliance upon SsangYong Engineering v. NHAI ,
10 11
MTNL v. TATA Communications , and Alopi Parshad v. Union of India .
24. He also submitted that Ld. Arbitrator has re-written the contract since the rates
were fixed at Rs. 634.20/- PMT and the extension of contract was on the same
terms and conditions. Once the rates are fixed, the arbitrator could not award
an additional amount. To back the said contention, he has placed reliance upon
12
Satyanarayan Construction Company v. Union of India .
25. He lastly submitted that Ld. Arbitrator while awarding a sum of Rs. 10/- as a
reasonable compensation to the petitioner has not been relied upon any
evidence and merely a guesswork. He has placed reliance upon Kailash Nath
13
Associates v. DDA , to buttress the said contention.

POINT FOR OUR CONSIDERATION
26. Having heard the learned senior counsels at length on behalf of both the parties
and after examining the material on record, we are of the considered opinion
that the core issue that arises for our consideration is: Whether interference with
the arbitral award by the High Court under Section 37 of the Arbitration and
Conciliation Act, 1996 on the ground of patent illegality is sustainable when

9
(2019) 15 SCC 131
10
(2019) 5 SCC 341
11
AIR 1960 SC 588
12
(2011) 15 SCC 101
13
(2015) 4 SCC 136
Page 13 of 28


once the award has been affirmed under section 34 of the Arbitration and
Conciliation Act, 1996?

DISCUSSION & OUR ANALYSIS
27. The Arbitration and Conciliation Act, 1996 avows to provide a speedy, cost-
effective & efficacious mode of alternative dispute resolution with a policy of
minimal judicial intervention. The same is apparent from the legislative intent
explicitly mandated under section 5 of A&C Act which envisages an embargo
upon the judiciary to interfere in arbitral proceedings save in circumstance
expressly stipulated under Part I of the Act. Hence, it is clear that judicial
interference is circumscribed with only exception being the statutorily
mandated remedies which we find under section(s) 34 and 37 of the A&C Act.
28. The bare perusal of section 34 mandates a narrow lens of supervisory
jurisdiction to set aside the arbitral award strictly on the grounds and parameters
enumerated in sub-section (2) & (3) thereof. The interference is permitted
where the award is found to be in contravention to public policy of India; is
contrary to the fundamental policy of Indian Law; or offends the most basic
notions of morality or justice. Hence, a plain and purposive reading of the
section 34 makes it abundantly clear that the scope of interference by a judicial
body is extremely narrow. It is a settled proposition of law as has been
constantly observed by this court and we reiterate, the courts exercising
jurisdiction under section 34 do not sit in appeal over the arbitral award hence
they are not expected to examine the legality, reasonableness or correctness of
findings on facts or law unless they come under any of grounds mandated in
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14
the said provision. In ONGC Limited. v. Saw Pipes Limited , this court held
that an award can be set aside under Section 34 on the following grounds: “(a)
contravention of 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.”
29. When it comes to section 37 of the A&C Act it provides for a limited appellate
remedy against an order either setting aside or refusing to set aside an arbitral
award passed by civil court in exercise of its power under section 34. This court
15
in MMTC Ltd. v. Vedanta Ltd. , at Paragraph 14 observed that interference
with an order made under section 37 cannot travel beyond the restrictions laid
down in section 34. Further in Konkan Railway Corporation Limited v.
16
Chenab Bridge Project Undertaking this court at Paragraph 18 observed that
the scope of appellate scrutiny under section 37 is necessarily co-extensive with
the parameters mandated under section 34 of the Act and hence the said
provision does not enlarge the jurisdiction of the appellate court. Even this court
has observed in M/s. Hindustan Construction Company Limited v. M/s.
17
National Highways Authority of India , wherein one of us (Justice Aravind
Kumar) was part of the bench at Paragraph 26 that the standard of scrutiny of
an arbitral award is very narrow and it is not the judicial review of an award.
Further in Paragraph 27 it was observed that awards which contains reasons,
especially when they interpret contractual terms, ought not to be interfered with
lightly . This court has also observed in Larsen Air Conditioning and

14
(2003) 5 SCC 705
15
(2019) 4 SCC 163
16
(2023) 9 SCC 85
17
2023 INSC 768
Page 15 of 28


18
Refrigeration Company v. Union of India and Ors. at Paragraph 15 that the
scope of interference in exercise of appellate power under section 37 is even
narrower to review the findings of the awards, if it has been upheld or
substantially upheld under section 34. Hence, it is very well settled that arbitral
awards are not liable to be set aside merely on the ground of erroneous in law
or alleged misappreciation of evidence and there is a threshold that the party
seeking for the award to be set aside has to satisfy, before the judicial body
could enter into the realm of exercising its power under section(s) 34 & 37. It
is also apt and appropriate to note that re-assessment or re-appreciation of
evidence lies outside the contours of judicial review under section(s) 34 and 37.
This court in Punjab State Civil Supplies Corporation Limited & Anr. v. M/s.
19
Sanman Rice Mills & Ors. , at Paragraph 12 observed that even when the
arbitral awards may appear to be unreasonable and non-speaking that by itself
would not warrant the courts to interfere with the award unless that
unreasonableness has harmed the public policy or fundamental policy of Indian
law. It might be a possibility that on re-appreciation of evidence, the courts may
take another view which may be even more plausible but that also does not
leave scope for the courts to reappraise the evidence and arrive at a different
view. This court in Batliboi Environmental Engineers Limited v. Hindustan
20
Petroleum Corporation Limited & Anr. held that the arbitrator is generally
considered as ultimate master of quality and quantity of evidence. Even an
award which is based on little or no evidence would not be held to be invalid

18
(2023) 15 SCC 472
19
2024 INSC 742
20
2023 INSC 850
Page 16 of 28


on this score. At times, the decisions are taken by the arbitrator acting on equity
and such decisions can be just and fair therefore award should not be overridden
under section 34 and 37 of the A&C Act on the ground that the approach of the
arbitrator was arbitrary or capricious.
30. Hence, in the light of the aforesaid discussion, we would deal with the
submissions made by the learned senior counsels on behalf of the parties. But
there is yet another aspect that warrants our attention before delving into the
analysis of submission and that is the setting aside of the impugned order by
the High Court by placing reliance on the ground of “patent illegality”
therefore, it becomes imperative to understand the true import of the said term
before we move further.
31. Prior to 2015 amendment, the ground of “patent illegality” emerged as result
of judicial interpretation in ONGC Ltd. (supra) while interpreting “public
policy” mandated under section 34(2)(b)(ii) of A&C Act wherein this court for
the first time read patent illegality as a sub-ground to set aside the award on the
broader purport of “public policy”. In Paragraph 22 of the decision this court
observed: Therefore, in a case where the validity of award is challenged, there
is no necessity of giving a narrower meaning to the term “public policy of
India”. On the contrary, wider meaning is required to be given so that the
“patently illegal award” passed by the arbitral tribunal could be set aside.”
This court went on to illustrate what would constitute patent illegality at
Paragraph 22 and we extract the same for easy reference:

“……Take for illustration a case wherein there is a specific
provision in the contract that for delayed payment of the amount due
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and payable, no interest would be payable, still however, if the
arbitrator has passed an award granting interest, it would be against
the terms of the contract and thereby against the provision of Section
28(3) of the Act which specifically provides that "Arbitral Tribunal
shall decide in accordance with the terms of the contract". Further,
where there is a specific usage of the trade that if the payment is
made beyond a period of one month, then the party would be
required to pay the said amount with interest at the rate of 15 per
cent. Despite the evidence being produced on record for such usage,
if the arbitrator refuses to grant such interest on the ground of
equity, such award would also be in violation of sub-sections (2) and
(3) of Section 28. Section 28(2) specifically provides that the
arbitrator shall decide ex aequo et bono (according to what is just
and good) only if the parties have expressly authorised him to do so.
Similarly, if the award is patently against the statutory provisions of
substantive law which is in force in India or is passed without giving
an opportunity of hearing to the parties as provided under Section
24 or without giving any reason in a case where parties have not
agreed that no reasons are to be recorded, it would be against the
statutory provisions. In all such cases, the award is required to be
set aside on the ground of “patent illegality”.”


21
32. In Associate Builders v. Delhi Development Authority , this court attempted
to filter out what contemplated patent illegality in paras 42.1 to 42.3 under the
following three subheads: firstly, contravention of the substantive law of India;
secondly, contravention of the Arbitration Act itself and thirdly, contravention
of Section 28(3) of the Arbitration Act which mandates the Arbitral Tribunal
to decide the case in accordance with the terms of the contract, taking into
account the usages of the trade applicable to the transaction. With regard to the
third sub-head Justice R.F. Nariman, observed by stating that: if an arbitrator
construes a term of the contract in a reasonable manner, it will not mean that

21
2014 SCC OnLine SC 937
Page 18 of 28


the award can be set aside on this ground. Construction of term of a contract
is primarily for an arbitrator to decide unless the arbitrator construes the
contract in such a way that it could be said to be something that no fair minded
or reasonable person could do.
33. In 2015, by way of the Arbitration and Conciliation (Amendment) Act a new
sub-section (2A) to section 34 of A&C Act was inserted which in addition to
statutorily recognizing the ‘patent illegality’ ground for setting aside a domestic
arbitral award made it an independent and distinct ground from ‘public policy’
under section 34. The proviso to the newly inserted clause further 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”. The legislative intent
behind insertion of this proviso was to avoid excessive intervention to arbitral
award by the courts under the ground of ‘patent illegality’. However, the
Amendment clarified that “an erroneous application of the law” or “re-
appreciation of evidence” does not fall under patent illegality. Hence, the courts
are not to treat every factual error or every divergent interpretation as an
illegality. The illegality must be of a kind that strikes at the heart of the award’s
validity. For instance, if an arbitrator ignores a binding precedent or a clear
prohibition in the contract, that may be patent illegality. Likewise, a finding
based on no evidence at all can be said to be perverse and thus patently illegal.
But where there is some evidence and a reasonably plausible inference has been
drawn by the arbitrators, the courts should ordinarily refrain themselves from
supplanting the views arrived by the arbitrator as that would be the true import
of the legislative intent inherent in the Amendment Act.
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34. Thereafter, this court elucidated the meaning of the expression ‘patent
22
illegality’ in Ssangyong Engg. & Construction Co. Ltd. v. NHAI while
taking into consideration the amendment act of 2015 and held it as a glaring,
evident illegality that goes to the root of the award. This includes: (a) an award
deciding matters outside the scope of the arbitration (beyond the contract or
submission); (b) an award contradicting the substantive law of India or the
Arbitration Act itself; (c) an award against the terms of the contract; and (d) an
award so unreasoned or irrational that it manifests an error on its face.
35. Considering the aforesaid precedents, in our considered view, the said
terminology of ‘patent illegality’ indicates more than one scenario such as the
findings of the arbitrator must shock the judicial conscience or the arbitrator
took into account matters he shouldn’t have, or he must have failed to take into
account vital matters, leading to an unjust result; or the decision is so irrational
that no fair or sensible person would have arrived at it given the same facts. A
classic example for the same is when an award is based on “no evidence” i.e.,
arbitrators cannot conjure figures or facts out of thin air to arrive at his findings.
If a crucial finding is unsupported by any evidence or is a result of ignoring
vital evidence that was placed before the arbitrator, it may be a ground the
warrants interference. However, the said parameter must be applied with
caution by keeping in mind that “no evidence” means truly no relevant
evidence, not scant or weak evidence. If there is some evidence, even a single
witness’s testimony or a set of documents, on which the arbitrator could rely

22
(2019) 15 SCC 13
Page 20 of 28


upon or has relied upon to arrive at his conclusions, the court cannot regard the
conclusion drawn by the arbitrator as patently illegal merely because that
evidence has less probative value. This thin line is stood crossed only when the
arbitral tribunal’s conclusion cannot be reconciled with any permissible view
of the evidence.
36. Having discussed the said law, we move ahead to another limb of the
submission which was espoused by the respondent particularly with reference
to obligations of the arbitrator to decide the dispute in accordance with the
terms of the contract. It is a fundamental principle that the arbitrator cannot
award anything that is contrary to the contract. The arbitrator is bound by clear
stipulations inter se the parties, and an award ignoring such stipulations would
violate public policy by undermining freedom of contract. However, that does
not mean that not every award which gives a benefit not expressly mentioned
in the contract is in violation. The arbitral tribunal in exercise of their power
can very well interpret the implied terms or fill gaps where the contract is silent,
so long as doing so does not contradict any express term. For example, if a
contract is silent on interest on delayed payments, an arbitrator awarding
reasonable interest is not contradicting the contract rather it is a power
exercised by the arbitrator to fulfill the gap on the basis of equity which also
mandated under Section 31(7)(a) of the A&C Act. Similarly, if a contract does
not say either way about compensating extra work done at request, the arbitrator
can imply a term or use principles of restitution to award a reasonable sum,
without violating the terms of contract. The thin line is whether an express
prohibition or restrictions in the contract is breached by the award? If the
Page 21 of 28


answer is in affirmative, the award is liable to struck down. However, where
the contract is simply silent on a legitimate claim which is inherently linked to
the natural corollary of contractual obligation of the parties the arbitrator will
be well within his powers to interpret the contract in the light of principles of
the contractual jurisprudence and apply the equity to that situation. A contrary
interpretation would lead to opening a floodgate whereby a party who may have
dominant position would intentionally not ink down the natural obligation
flowing from the contract and subsequently; after obtaining the benefit the party
would agitate absence of express terms to sway away from even discharging
his alternative obligation of compensating the party at loss. Hence the question
which arises in such situations is, can the party who bears the brunt and suffers
the loss due to silence under the contract regarding the natural contractual
obligation which arises in usual course of business be left in limbo? In our view,
that is the very purpose why section 70 of the Contract Act, 1872, has been an
intrinsic part of our Contract Act. The said provision creates a statutory right
independent of contract, often termed quantum meruit or unjust enrichment
remedy. For ready reference the said provision has been extracted hereinbelow:

“70. Obligation of person enjoying benefit of non-gratuitous act.
Where a person lawfully does anything for another person, or
delivers anything to him, not intending to do so gratuitously, and
such other person enjoys the benefit thereof, the latter is bound to
make compensation to the former in respect of, or to restore, the
thing so done or delivered.”

37. The close scrutiny of the aforesaid provision reveals that it comes into play
when one party confers a benefit on another in circumstances not governed by
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a contract, without intent to act gratuitously. Hence in such situation, the party
taking the benefit is bound to pay compensation to the party who had
gratuitously taken the benefits and the courts including arbitral tribunals, can
award compensation under Section 70 if the conditions are met.
38. Coming to submissions of the parties, we refrain ourselves from meticulously
examining each submission made by the parties since most of the submissions
raised are purely factual in nature and as observed hereinabove, the arbitrator
is considered as the master on question of facts and even an erroneous
interpretation of facts would not lead us to invoke our extra-ordinary
jurisdiction, the only caveat being the said interpretation of facts is patently
illegal that is it is based on no evidence or beyond the scope of contract.
39. Keeping the said position in mind, we have first meticulously examined the
arbitral award dated 15.07.2012 passed by the Learned arbitrator with sole
intent to analyze whether there is any part of the award which is based on no
evidence or is alien to the terms of contract. However, the perusal of the award
as a whole, in our view, does not reveal any findings arrived by the tribunal
which seems unreasonable or capricious, rather, the arbitrator has scrutinized
the material on record: oral evidence of Shri R.K. Jain, the claimant and Shri
A. Hussain, the then Assistant General Manager & Engineer-in-charge, who
was overseeing the performance of the contract in question, adduced during
cross-examination by the Respondent; and documentary evidence in the form
of affidavits and correspondence letters to arrive at individual findings of each
claim. The sheer application of mind at the behest of the arbitrator is apparent
from the very fact that the claims asserted by the appellant were not accepted
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by the arbitrator as a gospel truth but were put on pedestal of evidentiary proof.
The respondent has argued that the arbitrator has based its findings based on
the calculation sheets and guesswork. We would have agreed with the
respondent had there been no evidence available before the arbitrator to arrive
at such findings but the same is not true since the arbitrator after considering
the evidence on record has given its finding. For instance, the claim under Para
19.2 to the tune of Rs. 1,96,11,000 towards extra transportation cost incurred
by the appellant on the premise of restricting the capacity of the truck was
proved by the fact that after the District Transport Officer order was stayed by
the High Court, the respondent did not allow the appellant to deliver at the
weight of 11 MT which was not controverted by the respondent. Also, the
arbitrator was conscious to draw adverse conclusions against the appellant,
where he failed to sufficiently satisfy the basis of the claim and the arbitrator
in such cases has either reduced the said claim substantially while applying the
principle of quantum meruit (as evident from claim under Para 19.1 for
executing the extra work) while balancing the interest of both the parties to the
arbitral proceedings or has completely denied it (as evident from claim under
Para 19.3 for removal of extra burden). Hence, in our view, the overall analysis
of the arbitral award does not reveal any arbitrary exercise of power or findings
which is based on lack of evidence as such to fall within the sweep of “patent
illegality” as held by the impugned judgement. In our assessment, the High
Court allowed itself to be deviated by things that are in truth within a range of
normalcy in arbitral adjudication.
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40. With regard to application of principle of quantum meruit the respondent had
argued the Ld. Arbitrator had erroneously applied the said principle when the
rates were already fixed between the parties. Even the High court observed in
the impugned judgement that the said exercise tantamount to rewriting of
contract. The Impugned judgement has proceeded on an erroneous
understanding of the decision of this Court in Mahanagar Telephone Nigam
23
Limited v. Tata Communications Limited . We say so because the said
decision is applicable to situations where the contract between the parties fully
governs the field and the consideration for the very work in dispute stands
conclusively determined by express contractual terms. However, in the present
case, after the currency of the earlier two contract the appellant continued to
mine and transport the additional work of supplying the additional Bauxite to
the tune 1,95,000 MT at the behest of the respondent, but the price thereof was
left open to be finalized in due course of time by mutual consensus as is evident
from the bare reading of Letter dated 05.01.2002 (Annexure P4) addressed by
the respondent to the claimant, which exercise was never undertaken. In such a
factual matrix, the arbitral tribunal cannot be said to have rewritten or varied
the contract rather the arbitrator addressed a vacuum in the contractual
arrangement by determining reasonable compensation in terms of Section 70
of the Contract Act, 1872, to obviate the possibility of unjust enrichment. The
quantification of additional compensation at Rs. 10/- PMT i.e., from Rs.
634.20/- PMT to Rs. 644.20/- PMT represents an assessment of reasonable

23
(2019) 5 SCC 341
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value for the extra work performed and does not amount to substitution of any
agreed contractual rate as no such sum was mutually inked down by both the
parties. Therefore, we disagree with said view of the High court as the arbitral
award did not rewrite the contract but merely enforced a restitutionary
obligation arising from admitted extra work directed and accepted by the
respondent, where the aspect of consideration was consciously left open and
later misused by the respondent to sway away from discharge of its usual
contractual obligation. Hence, the High Court, in exercise of limited
jurisdiction under Section 37, impermissibly re-appreciated facts and
substituted its own interpretation, contrary to settled law under Associate
Builders, Ssangyong Engineering and MMTC (referred to supra).
41. Further, we have no hesitation to hold that claims in the nature of quantum
meruit or unjust enrichment can be decided by the arbitrator provided they fall
within the scope of disputes referred either explicitly or by necessary
implication. For instance, in a situation like the present, claim for payment for
such work has been entertained as it relates to the performance of the contract.
The measure of compensation under Section 70 is typically the value of the
benefit obtained by the other party or the cost incurred by the claimant in doing
the act (whichever is reasonable to avoid unjust enrichment). The law does not
permit arbitrary awards under Section 70. The award must still be grounded in
evidence of the benefit’s value or the expense incurred. Nonetheless, tribunals
have a degree of discretion to approximate a fair value, especially when exact
evidence is hard to come by, so long as the final figure is reasonable and not
pulled from thin air.
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42. The errors pointed out in the impugned judgement, i.e., lack of evidence,
percentage-based guess allowances, etc. do not, singly or cumulatively, amount
to patent illegality warranting annulment. There were at least some evidence
and logical rationale for each award element. The arbitrator’s approach was
certainly a possible view a reasonable man might take. The High Court,
unfortunately, re-appreciated the evidence and came to a different view, which
is impermissible. The High Court’s scrutinized the award from a stricter
standard of proof than arbitration law demands. Arbitrators are not bound by
the strict rules of evidence as per Section 19 of the A&C Act and may draw on
their knowledge and experience. It is settled that a court should not interfere
simply because the arbitrator’s reasoning is brief or because the arbitrator did
not cite chapter and verse of the contract as long as the path can be discerned
by which the arbitrator arrived at his conclusions. Here, the path is discernible
and not absurd.


CONCLUSION

43. In light of the foregoing analysis, we are of the considered view that impugned
judgement dated 03.05.2023 passed in ARBA No. 05 of 2017 cannot be
sustained and the appeal deserves to be allowed. Accordingly, the appeal stands
allowed and the aforesaid impugned judgement is set aside.
44. Consequently, the judgement and order dated 02.01.2017 passed by
Commercial Court, Raipur in MJC No. 33/16 which affirmed the arbitral award
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passed by the sole arbitrator dated 15.07.2012 is restored. Pending applications,
if any, stands disposed of.


.……………………………., J.
[ARAVIND KUMAR]



.……………………………., J.
[N.V. ANJARIA]

New Delhi;
th
December 18 , 2025.
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