PARSA KENTE COLLIERIES LIMITED vs RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LIMITED
- Court
- Rajasthan High Court
[2026:RJ-JP:20260-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
D.B. Civil Miscellaneous Appeal No. 2007/2023
Parsa Kente Collieries Limited, Having Its Registered Office At
6F-32, Mahima Triniti, Plot No.5, Swej Farm, New Sanganer
Road, Sodala, Jaipur 302019 (Raj.), Presently having its
registered office at- S-20, Mahima Triniti, Plot No.05, Swej Farm,
New Sanganer Road, Sodala, Jaipur 302019 (Raj.).
----Appellant/Claimant
Versus
Rajasthan Rajya Vidyut Utpadan Nigam Limited, Having Its
Registered Office At:-Vidyut Bhawan, Janpath, Jyoti Nagar,
Jaipur-302005 (Raj.).
----Respondent/Non-Claimant
For Appellant : Mr. Vikram Nankani, Sr. Adv. (through
V.C.) assisted by Mr. Sandeep Pathak,
Ms. Abhisaar Bairagi,
Mr. Milind Sharma (through V.C.),
Mr. Ausaf Ayyab &
Mr. Utkarsh Meena
For Respondent : Mr. Kartik Seth with
Ms. Ratakshi Sarvaria
HON'BLE THE ACTING CHIEF JUSTICE MR. SANJEEV PRAKASH SHARMA
HON'BLE MR. JUSTICE BIPIN GUPTA
JUDGMENT
Date of conclusion of Arguments : 07/05/2026
Date on which judgment was reserved : 07/05/2026
Whether the full judgment or only the
operative part is pronounced : Full judgment
st
Date of pronouncement : 21 /05/2026
REPORTABLE
(Per Hon’ble the Acting Chief Justice)
1. The present Civil Miscellaneous Appeal filed under Section 37
of the Arbitration and Conciliation Act, 1996 (hereinafter referred
to as the ‘Act of 1996’) assails the order dated 20.05.2023 passed
by the learned Commercial Court No. 1, Jaipur Metropolitan-II,
Jaipur (hereinafter referred to as ‘Commercial Court’) wherein the
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application filed under Section 34 of the Act of 1996 was allowed
and the arbitral award dated 15.01.2021 and additional award
dated 05.07.2021 were set aside.
2. Brief facts of the case are that the appellant is a joint
venture company incorporated under the Companies Act, 1956
and has its registered office in Jaipur, which was formed with the
objective of undertaking the development of the Parsa East and
Kanta Basan Coal Block, mining, beneficiation, arranging for
transportation and delivery of coal to thermal power stations
owned and operated by the respondent, which is an undertaking
of the Government of Rajasthan and is engaged in the business of
generation and sale of electricity in the state of Rajasthan.
3. On 16.07.2008, the appellant and respondent executed the
Coal Mining and Delivery Agreement (hereinafter referred to as
‘CMDA’) (with Addendum dated 22.09.2010 and Supplementary
Agreement dated 29.07.2016) for coal block development, mining
of coal and its delivery to thermal power stations owned and
operated by the respondent. A mining lease was granted by the
Government of Chhattisgarh to the respondent on 30.05.2012,
wherein mining and supply were being done as per the CMDA.
1
However, owing to cancellation of the allotment by the Apex Court
(and resulting cancellation of mining lease), the Supplementary
Agreement was entered into between the parties (pursuant to the
respondent’s application under the provisions of the Coal Mines
(Special Provisions) Act, 2015) to continue with the terms and
conditions of the CMDA.
1 Judgment dated 25.08.2014 and order dated 24.09.2014 in Writ Petition (Criminal) No. 120/2012
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4. During the operation of this agreement, various disputes
pertaining to non-reimbursement (by the respondent) of certain
costs borne by the appellant as part of carrying out the operations
arose. To resolve the same, the appellant initiated arbitration
proceedings against the respondent, culminating in the award
dated 15.01.2021 whereby, the learned Arbitrator fully/partially
allowed most claims made by the appellant. Thereafter, the
appellant preferred an application under Section 33(4) of the Act
of 1996 on the ground that the learned Arbitrator did not address
the claim pertaining to the additional cost of Rs.66.70 crores
incurred by the appellant for land acquisition in four villages. The
learned Arbitrator, vide additional award dated 05.07.2021,
allowed this claim and awarded interest on the said amount.
5. Thereafter, the respondent filed an application under Section
34 of the Act of 1996 before the learned Commercial Court
challenging the award dated 15.01.2021 and additional award
dated 05.07.2021. Vide order dated 20.05.2023, the learned
Commercial Court allowed the application and set aside the
aforementioned award and additional award.
6. Learned Senior Counsel appearing for the appellant submits
that the learned Commercial Court has not given any reasons for
setting aside the well reasoned awards of the Arbitrator, which
were passed after examining all the relevant material and has
exceeded the scope of Section 34 of the Act of 1996, which bars
the Courts from sitting in appeal over an arbitral award and
challenging it on merits, but rather it confines appeals to certain
limited grounds enumerated under the said provision, i.e., on
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grounds of being contrary to public policy, being patently illegal or
being perverse. In this regard, the learned Senior Counsel also
states that the Arbitrator’s interpretation of a contractual term is
to be respected as he is the Sole Judge of law and facts and that
the learned Commercial Court has also erroneously and
unjustifiably interfered with multiple interpretations made by the
learned Arbitrator.
7. In support of the above arguments, learned Senior Counsel
relies on the decision of the Apex Court in Atlanta Limited
Through Its Managing Director vs Union of India
Represented By Chief Engineer, Military Engineering
2
Service . Learned Senior Counsel, in their written submissions,
also stated that the learned Commercial Court misapplied the
judgement of the Apex Court in Project Director, National
Highways No. 45 E And 220 National Highways Authority Of
3
India vs M. Hakeem And Another , erroneously concluding that
severance of an award would mean its modification though the
present case involves partial severance which is a different
concept.
8. Learned Senior Counsel appearing for the appellant also
submitted that the learned Commercial Court erroneously
concluded that the additional award was passed by the learned
Arbitrator without any reasoning and also wrongly observed that
the learned Arbitrator has not examined the aspect of limitation in
the additional award. Learned Senior Counsel in this regard
submits that the additional award dated 05.07.2021 arose out of
2 (2022) 3 SCC 739
3 (2021) 9 SCC 1
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the award dated 15.01.2021. Learned Senior Counsel further
submits that the learned Commercial Court did not assign any
reasons while rejecting the application made under Section 33(4)
of the Act of 1996.
9. Learned Senior Counsel also stated that the learned
Commercial Court erroneously sought to re-appreciate the
evidence on record and substituted his view for that of the
Arbitrator, thereby exceeding the scope of Section 34 of the Act of
1996. Regarding the principle of acting within the confines of
Section 34 of the Act of 1996, learned Senior Counsel relies on the
judgments of the Apex Court in Uttarakhand Purv Sainik
4
Kalyan Nigam Limited vs Northern Coal Field Limited ,
Bhaven Construction Through Authorised Signatory
Premjibhai K. Shah vs Executive Engineer, Sardar Sarovar
5
Narmada Nigam Limited and Another and Rashtriya Ispat
6
Nigam Limited vs Dewan Chand Ram Saran . Learned Senior
Counsel also states that the learned Commercial Court failed to
consider that a writ petition filed by the respondent is pending
7
before the High Court of Chhattisgarh (as stated in the award).
10. Learned Senior Counsel for the appellant further states that
the Apex Court in Delhi Airport Metro Express Private Limited
8
vs Delhi Metro Rail Corporation Limited clarified that such
‘patent illegality’ must go to the root of the matter and if such
illegality is of a trivial nature, then an award cannot be said to be
patently illegal. Learned Senior Counsel further submits that the
4 (2020) 2 SCC 455
5 (2022) 1 SCC 75
6 (2012) 5 SCC 306
7 Rajasthan Rajya Vidyut Utpadan Nigam Limited vs State of Chhattisgarh WPC No. 2530/2020
8 (2022) 1 SCC 131
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respondent never took the ground of patent illegality in any of
their written or oral pleadings. Learned Senior Counsel also
submits that the learned Commercial Court failed to consider the
fact that under Section 34(2A) of the Act of 1996, the ‘patent
illegality’ must be contrary to public policy, which is not so in the
present case, as this is a purely commercial transaction lacking
any public policy element (as also stated in the CMDA).
11. Learned Senior Counsel for the appellant further submits
that the learned Commercial Court erred in interfering with the
Arbitration’s reasonable interpretation of Clause 7 of the CMDA by
interpreting the words ‘‘ adversely and directly ’’ and holding the
Arbitrator’s finding regarding Force Majeure to be patently illegal.
Learned Senior Counsel also states that the learned Commercial
Court failed to consider the lack of evidence by the respondent
showing occurrence of a force majeure event. Learned Senior
Counsel further states that the learned Commercial Court failed to
consider Clause 7.1 of the CMDA (which was interpreted by the
Arbitrator) whereby ‘‘ Change in Law ’’ defined political Force
Majeure events. Learned Senior Counsel also submits that the
learned Commercial Court exceeded its jurisdiction under Section
34 of the Act of 1996 by identifying alleged errors in the award.
12. Learned Senior Counsel for the appellant also submits that
the learned Commercial Court failed to appreciate the fact that the
cause of action arose when the respondent rejected the
appellant’s claim for reimbursement of legal fees (as the
respondent had requested that claim for arbitration should not be
pressed until such a claim is being considered by them) and that
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the respondent was obligated to pay its own legal fees. Learned
Senior Counsel also relies on the decisions of the Apex Court in
9
B And T AG vs Ministry of Defence and CLP India Private
10
Limited vs Gujarat Urja Vikas Nigam Limited and Another
to submit that limitation period commences when cause of action
arises (with the Arbitrator adopting the same interpretation) and
mentions that the learned Commercial Court has erroneously held
respondent’s failure to respond to the communication as giving
rise to the cause of action. Learned Senior Counsel further states
that the learned Commercial Court has erroneously held that the
letters/reminders sent subsequently to the claimant would not
extend the limitation time and has cited judgments inapplicable to
this case and that the Arbitrator’s view (which is the only plausible
view here), even if implausible, is to be upheld.
13. Learned Senior Counsel for the appellant further submits
that the learned Commercial Court has erred in interfering with
the findings in paragraphs 155-157 and has effectively
re-interpreted the CMDA, despite the fact that the Arbitrator’s
interpretation of Clause 3 of the CMDA was plausible and
supported by sound reasoning. Learned Senior Counsel relied on
the decision of the Apex Court in MMTC Limited vs Vedanta
11
Limited and Delhi High Court in Astonfield Renewables Pvt.
12
Ltd. & Anr. vs Ravinder Raina to submit that interpreting the
contract is within the purview of the Arbitrator and that as per the
decision of the Apex Court in Indian Oil Corporation Limited
9 (2024) 5 SCC 358
10 (2020) 5 SCC 185
11 (2019) 4 SCC 163
12 2018 SCC OnLine Del 6665
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Through Its Senior Manager vs Shree Ganesh Petroleum
Rajgurunagar Through Its Propreitor Laxman Dagdu
13
Thite , the Court does not sit in appeal over an arbitral award.
Learned counsel further submits that the claimant obtained all
necessary approvals.
14. Learned Senior Counsel for the appellant submits that the
learned Commercial Court erred in examining the evidence of the
witness in exercise of its jurisdiction under Section 34 of the Act of
1996 and in contravention of the judgments of the Apex Court in
Atlanta Limited (supra) and Ravindra Kumar Gupta and
14
Company vs Union of India when no violation of statue or
public policy was made out or that Arbitrator’s approach was
arbitrary.
15. Learned Senior Counsel for the appellant further submits
that the Arbitrator already considered the 2007 Policy to be
‘change in law’ as per the CMDA and the Arbitrator was bound by
principle of issues estoppel. Learned counsel also relies on the
decision of the Delhi High Court in National Highways Authority
15
of India vs IRB Goa Tollway Private Limited wherein it was
held that under Section 34 of the Act of 1996, a Court cannot
interfere with an award suo moto without any specific plea.
Learned Senior Counsel further submits that the learned
Commercial Court erroneously set aside those claims with which
no error was found by the Court and that the acceptable claims
ought to have been severed into a separate award.
13 (2022) 4 SCC 463
14 (2010) 1 SCC 409
15 2022 SCC OnLine Del 533
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16. Per contra , as per the material available on record, one of
the submissions made by the learned counsel for respondent was
that the role of the Arbitrator is to conduct the arbitration within
the confines of the terms of the contract and cannot exercise
powers beyond those stipulated in the contract or exercise power
ex debito justitiae and therefore the award is patently illegal.
17. Learned counsel for the respondent has further submitted
that the Arbitrator failed to address those terms of the CMDA
which were relevant for adjudication of the second claim,
rendering the finding on the same to be perverse and patently
illegal. Learned counsel also submitted that case of Shivashakti
16
Sugars Limited vs Shree Renuka Sugar Limited And Others
relied upon by the Arbitrator has no relevance to the present case
which is based upon a different set of facts and that it is trite law
that a decision serves as a precedent of its own facts and that
courts, prior to relying upon a decision, must explain the
relevance of its facts to the case at hand.
18. Learned counsel has further submitted that the Arbitrator
erroneously interpreted the expression ‘‘ Change in Law ’’ to include
judicial pronouncements and such interpretation is erroneous as
the CMDA mentions that a Force Majeure event will not relieve any
party from their obligation to comply with the ‘‘ Applicable Law ’’,
which in this case includes the decision of any court or regulatory
body having jurisdiction over the matter.
19. We have considered the submissions made by the learned
counsels for the parties.
16 (2017) 7 SCC 729
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20. Prior to examining the contentions on merits, it would be
apposite to circumscribe the scope of the present discussion. In
this regard, it would be apposite to first quote the relevant
provisions from the Act of 1996 as under:
" 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 [establishes on the basis
of the record of the arbitral tribunal 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.]
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[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.]
[(2A) 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.]
(3) An application for setting aside may not be made after
three months have elapsed from the date on which the party
making that application had received the arbitral award or, if a
request had been made under section 33, from the date on
which that request had been disposed of by the arbitral
tribunal:
Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the application
within the said period of three months it may entertain the
application within a further period of thirty days, but not
thereafter.
(4) On receipt of an application under sub-section (1), the
Court may, where it is appropriate and it is so requested by a
party, adjourn the proceedings for a period of time determined
by it in order to give the arbitral tribunal an opportunity to
resume the arbitral proceedings or to take such other action
as in the opinion of arbitral tribunal will eliminate the grounds
for setting aside the arbitral award.
[(5) An application under this section shall be filed by a party
only after issuing a prior notice to the other party and such
application shall be accompanied by an affidavit by the
applicant endorsing compliance with the said requirement.]
[(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year
from the date on which the notice referred to in sub-section
(5) is served upon the other party.]
................................................
37. Appealable orders. —(1) [Notwithstanding anything
contained in any other law for the time being in force, an
appeal] shall lie from the following orders (and from no
others) to the Court authorised by law to hear appeals from
original decrees of the Court passing the order, namely:—
[(a) refusing to refer the parties to arbitration
under section 8;
(b) granting or refusing to grant any measure
under section 9;
(c) setting aside or refusing to set aside an arbitral
award under section 34.]
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(2) An appeal shall also lie to a Court from an order of the
arbitral tribunal.—
(a) accepting the plea referred to in sub-section (2)
or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim measure
under section 17.
(3) No second appeal shall lie from an order passed in appeal
under this section, but nothing in this section shall affect or
takeaway any right to appeal to the Supreme Court."
21. While discussing the scope of Section 37 of the Act of 1996,
the Apex Court recently in Jan De Nul Dredging India Private
17
Limited vs Tuticorin Port Trust , after examining a catena of
judgments, had held as under:
‘‘ 35. The gist of the aforesaid decisions is that the
jurisdiction of the court under Section 37 of the Act is
akin to the jurisdiction of the court under Section 34 of
the Act, and, therefore, the scope of interference by
the court in appeal under Section 37 cannot go beyond
the grounds on which challenge can be made to the
award under Section 34 of the Act. Moreover, the
courts exercising powers under Sections 34 and 37, do
not act as a normal court, and therefore, ought not to
interfere with the arbitral award on a mere possibility
of an alternative view.
36. In other words, the scope of interference of the
court with the arbitral matters is virtually prohibited, if
not absolutely barred. The powers of the appellate
court are even more restricted than the powers
conferred by Section 34 of the Act. The appellate power
under Section 37 of the Act is exercisable only to find
out if the court exercising power under Section 34 of
the Act, has acted within its limits as prescribed
thereunder or has exceeded or failed to exercise the
power so conferred. The appellate court exercising
powers under Section 37 of the Act has no authority of
law to consider the matter in dispute before the Arbitral
Tribunal on merits so as to hold as to whether the
award of the Arbitral Tribunal is right or wrong. The
appellate court in exercise of such power cannot sit as
an ordinary court of appeal and reappraise the
evidence to record a contrary finding. The award of the
Arbitral Tribunal cannot be touched by the court unless
it is contrary to the substantive provision of law or any
provision of the Act or the terms of the agreement.’’
22. From a perusal of the above decision, it is apparent that the
scope of judicial scrutiny envisaged under Section 37 of the Act of
17 (2026) 3 SCC 186
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1996 is limited to the grounds enumerated under Section 34 of
the Act of 1996. Regarding the scope of Section 34 of the Act of
1996, apart from the unambiguous criteria enumerated under the
said provision, one of us ( Sanjeev Prakash Sharma, Acting Chief
Justice ), in a recent decision delivered in a Co-ordinate Bench in
State of Rajasthan And Others vs Shri I.J. Mamtani And
18
Another , after examining a catena of precedents on the aspect
setting aside of an award on grounds of perversity or
arbitrariness, had held as under:
‘‘13. Although, the award may not fall in any of the
categories under Section 34 of the Act of 1996,
however, an interpretation has been taken by the
Hon’ble Apex Court in certain cases where the Court
can interfere with an award, if the same has been
passed arbitrarily or where there is a perversity to the
extent that the award could not have been passed by
any reasonable person.
...............
15. Before proceeding further, we deem it fit to
enumerate the following non-exhaustive principles to
aid in determination of whether to set aside an award
on grounds of arbitrariness or perversity:
a. The finding lacks any or sufficient evidence
b. Conclusion drawn from material available on
record is perverse to the extent that no
reasonable person examining such material would
have arrived at such conclusion
c. Key facts or evidence were not given due
consideration
d. Violation of due legal process or principles of
natural justice, particularly where it has a material
effect on the outcome of the dispute
e. Disregarding the opinion of experts without
assigning sufficient reasons, particularly in
technical matters
f. Decision amounted to rewriting of contract
g. Tribunal exceeded its mandate in any manner
h. Arbitrariness or perversity goes to the root of
the matter
While the above-mentioned principles provide useful
guidance, they have to be examined in the context of
the unique facts and circumstances of each case.’’
18 D.B. Civil Miscellaneous Appeal No. 2530/2024, dated 05.03.2026
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23. We also note that decision of the Apex Court in Delhi Airport
Metro Express Private Limited (supra) relied on by the learned
Senior Counsel for the appellant was contradicted by the Apex
19
Court in a subsequent curative petition which had disagreed with
the findings given in the said decision. In this decision, the Apex
Court had also discussed the scope of the term ‘patent illegality’.
The relevant part is quoted herein under:
‘‘ 35. In Associate Builders v. DDA, a two-Judge Bench
of this Court held that although the interpretation of a
contract is exclusively within the domain of the
arbitrator, construction of a contract in a manner that
no fair-minded or reasonable person would take, is
impermissible. A patent illegality arises where the
arbitrator adopts a view which is not a possible view. A
view can be regarded as not even a possible view
where no reasonable body of persons could possibly
have taken it. This Court held with reference to
Sections 28(1)(a) and 28(3), that the arbitrator must
take into account the terms of the contract and the
usages of trade applicable to the transaction. The
decision or award should not be perverse or irrational.
An award is rendered perverse or irrational where the
findings are:
(i) based on no evidence;
(ii) based on irrelevant material; or
(iii) ignores vital evidence.
36. Patent illegality may also arise where the award is
in breach of the provisions of the arbitration statute, as
when for instance the award contains no reasons at all,
so as to be described as unreasoned.
37. A fundamental breach of the principles of natural
justice will result in a patent illegality, where for
instance the arbitrator has let in evidence behind the
back of a party. In the above decision, this Court in
Associate Builders v. DDA observed:(SCC pp. 75 & 81,
paras 31 & 42)
“31. The third juristic principle is that a decision
which is perverse or so irrational that no
reasonable person would have arrived at the same
is important and requires some degree of
explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account
something irrelevant to the decision which it
arrives at; or
(iii) ignores vital evidence in arriving at its
decision,
such decision would necessarily be perverse.
*
42.1. … 42.2. (b) A contravention of the
Arbitration Act itself would be regarded as a
19 Delhi Metro Rail Corporation Limited vs Delhi Airport Metro Express Private Limited (2024) 6 SCC
357
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patent illegality — for example if an arbitrator
gives no reasons for an award in contravention of
Section 31(3) of the Act, such award will be liable
to be set aside.” (emphasis supplied)’’
24. Coming to the merits of the dispute, to ascertain whether the
learned Commercial Court exceeded its jurisdiction under Section
34 of the Act of 1996, it would be apposite to quote the relevant
portions of the order dated 20.05.2023:
‘‘107............The learned sr. counsel of the applicant
submitted in argument that the rakes had to be empty
within 4 hours and so they put the coal directly to the
boilers. That means, they have no facility to kept the
coal and waited for the analysis report to come. But the
evidence of their witness Sh. Hemraj RW1 is reflected
otherwise……...
108. It is clear from the evidence of Sh. Hemraj RW1
that before CIMFR the analysis report was received
within 4 to 5 days and after CIMFR, it takes around 23
days. The CIMFR is deployed after June, 2017 prior to
that the testing was done at the plant. The applicant
have the capability to store the coal for 10 to 15 days.
But they did not store due to some practical difficulties.
These practical difficulties are easy to be forseen. But
neither the staking of coal for the period up to which
the analysis report came was done nor some other
remedify measures were taken. In that context, the
arbitral tribunal applies the doctrine of contra
proferentem. The view of the arbitral tribunal of
invoking the doctrine of contra proferentem in the fact
of the case is a plausible view and this court should not
interfere in the view of the arbitral tribunal.
……………………...
115. The claimant have examined only witness i.e., Sh.
Dalip Kumar Jha as CW 1. But his evidence shows that
most of the answers to questions in cross examination,
his reply was , it is a matter of record, I am not aware,
it is a technical matter, I cannot comment, it is not in
my affidavit. If shows that the claimant did not lead the
best evidence. There are certain facts which are for the
claimant to prove by evidence although by documents
or by oral evidence. It is also correct the most of the
facts are to be proved by the documentary evidence for
which the oral evidence have not much of a
significance. But the fact that it is implicite in the
agreement that the coal which is not according to the
parameters to be return to the claimant to improve the
quality of coal is to be proved by claimant by laying
foundational facts through documentary as well as oral
evidence. The witness of the claimant did not able to
prove this fact.
………………………
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125.……….The tribunal after consider that the
subsequent event altered the economic basis of the
contract and it will adversely affects the contract or
part of contract. But claim 7.1 uses the word
"adversely and directly." "And" is a co-ordinating
conjunction. It connect two words. Here it connect
"adversely" and "directly" that means "adversely"
cannot be read in isolation and the conjunction "and"
should not be read as "or". So, as per clause 7.1 of the
CMDA, as mentioned by the tribunal in para no. 151 of
the award, that, (1) event which is beyond the
reasonable control of the parties. (2) adversely and
directly render the performance of whole or part of the
contract impossible. Not considering the word directly
with adversely changed a whole lot of meaning to the
above provision.
126. The tribunal after in the preceding paragraphs for
example in para 164, 166, 170 interpret the above
clause only on the basis of "adverse impact" of
cancellation of coal block by the judgment. Whether, it
render the performance of the part or whole of the
contract "adversely and directly" impossible has not be
considered by the arbitral tribunal. Can it "directly" also
frustate the contract not been considered by the
tribunal. It may be adverse to the economic interest of
the claimant but it will not "directly" render the
performance of contract wholly or partly impossible.
Though the cancellation of coal block may not be
contemplation of the parties but as has been stated
above, the use of the word "as in affect from time to
time" in the definition of "applicable law" and "after the
effective date" in definition of change of law, show it is
within contemplation of parties that changes many
occurs in the laws. So, the reading of word "adversely"
in isolation and not in relation to directly is a patent
illegality.
…………………………………………………..
130……..Pleadings of both the parties i.e., statement of
claim and statement of defence has been perused. Para
no. 6, which seems from sub para 6.1 to 6.32 relates
to claim of interest on overdue payment as per the
agreement. The reply to this para was given by the
applicant in their statement of defence in para no. 7.1
to 7.7. In their statement of defence they did not utter
a word regarding para 6.15. Though the objection of
limitation was not taken by the applicant but still the
arbitral tribunal can look into it and this court can also
go into the question of limitation, if any. applicant did
not able to show what was that payment which was
pending beyond three years on which interest cannot
be charged. They merely pluck out a sentence from the
pleading. Other grounds mentioned in the application
has already been answered by the arbitral tribunal. The
language of clause 6.3 of the CMDA is plain and simple
and does not require any interpretation………
……………………………...
167. The finding of the arbitral tribunal on claim no. 2,
4, 6, 7 and 8 set aside on the reasons set out above
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and as per the law laid down by Hon'ble Supreme Court
of India this court cannot modify the award. So, the
application under Section 34 of the Act, 1996 filed by
the applicant is allowed and the arbitral award dated
15.01.2021 and additional award dated 05.07.2021 are
set aside.’’
25. With regards to the conclusion reached by the learned
Commercial Court pertaining to the non-severability of the award,
it would be prudent to note that the prevailing law (as laid down
by the Apex Court) mentioned by the learned Commercial Court in
paragraph 167, basis which the said conclusion was reached,
already stands overruled vide the decision of the Apex Court in
20
Gayatri Balasamy vs ISG Novasoft Technologies Limited
(as also noted by us in a prima facie view in this case vide order
dated 22.04.2026) wherein it was held as under:
‘‘ 33. We hold that the power conferred under the
proviso to Section 34(2)(a)(iv) is clarificatory in nature.
The authority to sever the “invalid” portion of an
arbitral award from the “valid” portion, while remaining
within the narrow confines of Section 34, is inherent in
the Court's jurisdiction when setting aside an award.
34. To this extent, the doctrine of omne majus continet
in se minus—the greater power includes the lesser—
applies squarely. The authority to set aside an arbitral
award necessarily encompasses the power to set it
aside in part, rather than in its entirety. This
interpretation is practical and pragmatic. It would be
incongruous to hold that power to set aside would only
mean power to set aside the award in its entirety and
not in part. A contrary interpretation would not only be
inconsistent with the statutory framework but may also
result in valid determinations being unnecessarily
nullified.
35. However, we must add a caveat that not all awards
can be severed or segregated into separate silos.
Partial setting aside may not be feasible when the
“valid” and “invalid” portions are legally and practically
inseparable. In simpler words, the “valid” and “invalid”
portions must not be interdependent or intrinsically
intertwined. If they are, the award cannot be set aside
in part.
............................
45. We are thus of the opinion that the Section 34
Court can apply the doctrine of severability and modify
20 (2025) 7 SCC 1
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a portion of the award while retaining the rest. This is
subject to parts of the award being separable, legally
and practically, as stipulated in Part II of our
Analysis .’’
While the order of the learned Commercial Court predates the
decision in Gayatri Balasamy (supra), it is settled law that
Courts are bound by the prevailing law as on the date of
adjudication of the case, which in this case would be the principles
expounded in Gayatri Balasamy (supra), which are contrary to
the conclusion drawn by learned Commercial Court and therefore,
such conclusion is contrary to the current prevailing law.
26. Apart from the above, a perusal of paragraphs 125 and 126
of the order of the learned Commercial Court also reveals that the
learned Commercial Court has proceeded to erroneously
reinterpret the provisions of the agreement, as the same was
done without assigning adequate reasons demonstrating that the
interpretation made by the Arbitrator was unconscionable,
including satisfying any of the criteria enumerated in State of
Rajasthan And Others (supra) and therefore, fell within the
confines of ‘patent illegality’. In the context of patent illegality, the
Apex Court in Ssangyong Engineering and Construction
Company Limited vs National Highways Authority of India
21
(NHAI) had held as under:
‘‘ 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 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
21 (2019) 15 SCC 131
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public interest, cannot be brought in by the backdoor
when it comes to setting aside an award on the ground
of patent illegality.
38. Secondly, it is also made clear that reappreciation
of evidence, which is what an appellate court is
permitted to do, cannot be permitted under the ground
of patent illegality appearing on the face of the award.
...............................
40. The change made in Section 28(3) by the
Amendment Act really follows what is stated in paras
42.3 to 45 in Associate Builders, namely, that the
construction of the terms of a contract is primarily for
an arbitrator to decide, unless the arbitrator construes
the contract in a manner that no fair-minded or
reasonable person would; in short, that the arbitrator's
view is not even a possible view to take. Also, if the
arbitrator wanders outside the contract and deals with
matters not allotted to him, he commits an error of
jurisdiction. This ground of challenge will now fall within
the new ground added under Section 34(2-A).
41. What is important to note is that a decision which
is perverse, as understood in paras 31 and 32 of
Associate Builders, while no longer being a ground for
challenge under “public policy of India”, would certainly
amount to a patent illegality appearing on the face of
the award. Thus, a finding based on no evidence at all
or an award which ignores vital evidence in arriving at
its decision would be perverse and liable to be set aside
on the ground of patent illegality. Additionally, a finding
based on documents taken behind the back of the
parties by the arbitrator would also qualify as a
decision based on no evidence inasmuch as such
decision is not based on evidence led by the parties,
and therefore, would also have to be characterised as
perverse.”
Therefore, what is only required to be assessed at this stage is
whether the view taken by the Arbitrator is a plausible one or
whether the illegality ‘‘ goes to the root of the matter ’’. From a
perusal of the award dated 15.01.2021, it is evident that the
Arbitrator, though did not explicitly examine the word ‘‘ directly ’’,
he did examine the effect of subsequent legislative changes on the
operation of the CMDA itself and therefore, the said view cannot
be said to be patently illegal and no grounds to interfere with the
said interpretation arise. The relevant portion of the award is
quoted herein under:
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‘‘166. The filing of a writ petition against the process of
th
allocation of the coal blocks, the order dated 25
August 2014 cancelling the allotment of the coal block
in question along with other coal blocks by the
Supreme Court is definitely an unforeseen event and is
beyond the control of the parties. The cancellation of
allotment of the coal mine, the existence of which was
the very fundamental of the CMDA and which in fact
forms the very basis of the execution of the contract is
definitely an adverse event. The said event altered the
very fundamentals on the basis of which the parties
had executed the contract. Consequent to the order
passed by the Supreme Court it would have been open
to both the parties to take the plea that they were
unable to perform their obligations under the contract
and the contract stood frustrated in its entirety.
167. However, the promulgation of the coal ordinance
by the Central Government followed by the enactment
of the Coal Act, the total impossibility was turned into a
possibility in as much as the allocation of the coal mine
was restored but it gave rise to new obligations which
entailed new cost and expenses, which could not have
been envisaged by the parties when they executed the
CMDA. There was no mechanism by which the
obligation to incur the new category of expenses like
payment of stamp duty etc. for a fresh mining lease,
was to be apportioned between the parties. The new
set of expenses were all in the nature one-time or
capital expenditure, i.e., expenses which in the
operation of a mining lease are incurred by parties only
once. Acquisition of land, execution of mining lease,
payment of stamp duty, development of the mine is
incurred only on a single occasion and after the said
activities are complete the mine is operated for a long
duration of time, without having to incur such expenses
over and over again.
168. As already held above, no man of ordinary
prudence could have contemplated or foreseen that
allocation of the coal block would be cancelled and/or
the same will be reallotted pursuant to legislative
intervention. It is an unforeseen situation which could
not have been provided for. Had a bystander drawn
attention to the fact situation of cancellation of the
allotment and its re-allotment consequent to
legislation, the answer of the parties could only be that
in such a situation the parties would be absolved of
their obligations. Thus, the imposition of the additional
charges on account of cancellation of the allotment and
its reallotment consequent to legislation is definitely an
event the parties had not contemplated and provided
for under the CMDA and thus such expense is liable to
be borne by the respondent.’’
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Furthermore, in the context of contractual interpretation, the Apex
Court recently in Prakash Atlanta (JV) vs National Highways
22
Authority of India mentioned that:
‘‘ 27. As long back as in the year 2006, in McDermott
International Inc. v. Burn Standard Co. Ltd., this Court
affirmed that construction of a contract is within the
jurisdiction of the arbitrator and interpretation thereof
is a matter for the arbitrator to determine, even if it
gives rise to a question of law. This was affirmed in
National Highways Authority of India v. ITD
Cementation India Limited, wherein this Court held that
construction of the terms of a contract is primarily for
an arbitrator to decide and he is entitled to take the
view that he holds to be the correct one, after
considering the material and after interpreting the
terms of the contract. It was observed that the Court,
while considering a challenge to an arbitral award, does
not sit in appeal over the findings and decision therein,
unless the arbitrator construed the contract in such a
way that no fair-minded or reasonable person would
do. We may note that, in this case, the issue was
whether additional costs owing to a change in the
seigniorage fee had been taken into account in the
indexing of inputs, while providing for price adjustment
in the contract. NHAI had contended that the said levy
was already factored into the indexing price formula
and, therefore, no further payments were to be made
to the contractor.’’
27. The objective of the Act of 1996 is to reduce litigation and
ensure finality of the awards of the Arbitrator. Therefore, it is
settled law that a Court exercising powers under Section 34 of the
Act of 1996 does not sit in appeal over the findings of the
Arbitrator barring the narrow exceptions enumerated under
Section 34 of the Act of 1996, which in this case have not been
met. In this regard, on the aspect of re-appreciation of evidence,
the Apex Court in PSA Sical Terminals Private Limited vs
Board of Trustees Of V.O. Chidambranar Port Trust
23
Tuticorin And Others has held as under:
22 2026 SCC OnLine SC 98
23 (2023) 15 SCC 781
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‘‘ 40. It will thus appear to be a more than settled legal
position, that in an application under Section 34, the
court is not expected to act as an appellate court and
reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34
of the Arbitration Act. The interference would be so
warranted when the award is in violation of “public
policy of India”, which has been held to mean “the
fundamental policy of Indian law”. A judicial
intervention on account of interfering on the merits of
the award would not be permissible. However, the
principles of natural justice as contained in Sections 18
and 34(2)(a)(iii) of the Arbitration Act would continue
to be the grounds of challenge of an award. The ground
for interference on the basis that the award is in
conflict with justice or morality is now to be understood
as a conflict with the “most basic notions of morality or
justice”. It is only such arbitral awards that shock the
conscience of the court, that can be set aside on the
said ground. An award would be set aside on the
ground of patent illegality appearing on the face of the
award and as such, which goes to the roots of the
matter. However, an illegality with regard to a mere
erroneous application of law would not be a ground for
interference. Equally, reappreciation of evidence would
not be permissible on the ground of patent illegality
appearing on the face of the award.
..........................
61. ............ We are fully aware, that neither under
Section 34 nor under Section 37 of the Arbitration Act,
the Court is entitled to reappreciate the evidence. The
said limitation would be equally applicable to this Court
also.........’’
28. Before concluding the present discussion, in the context of
the order passed by the learned Commercial Court, it would also
be apposite to refer to the judgement passed by the Karnataka
High Court in Navayuga Engineering Company vs Bangalore
24
Metro Rail Corporation Limited And Others (a Special Leave
Petition challenging the same was recently dismissed by the Apex
25
Court ):
“27. However, as regards the issues emerged in between
the appellant and the respondent respectively for the party
to the appeals, it is relevant to refer to the judgment
rendered by the Hon’ble Supreme Court, in the case of
DELHI AIRPORT METRO EXPRESS PRIVATE LIMITED
vs. DELHI METRO RAIL CORPORATION LIMITED (2021
24 Commercial Appeal No. 136/2022, dated 29.08.2024
25 Bangalore Metro Rail Corporation Limited vs Navayuga Engineering Company Etc 2026 SCC OnLine
SC 874, dated 12.05.2026
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SCC ONLINE SC 695). In this reliance, the Hon’ble
Supreme Court has addressed the issues and has
interpreted Section 34 of the Act, while examining the
validity of the arbitral award. The limited grounds available
to courts for annulment of arbitral awards are well known to
legally trained minds. However, the difficulty arises in
applying the well-established principles for interference to
the facts of each case that come up before the courts. There
is a disturbing tendency of courts setting aside arbitral
awards, after dissecting and reassessing factual aspects of
the cases to come to a conclusion that the award needs
intervention and thereafter, dubbing the award to be vitiated
by either perversity or patent illegality, apart from the other
grounds available for annulment of the award. This approach
would lead to corrosion of the object of the 1996 Act and the
endeavours made to preserve the object, which is minimal
judicial interference with arbitral awards. That apart, several
judicial pronouncements of this Court would become a dead
letter if arbitral awards are set aside by categorizing them as
perverse or patently illegal without appreciating the counters
of the said expressions. This reliance is considered by the
Challenging Court where the proceeding has been initiated
under Section 34 of the Arbitration and Conciliation Act,
1996 relating to the impugned judgment rendered in
Com.A.S.No.228/2018.”
29. In view of the law settled as above, if we examine the
judgement passed by the learned Commercial Court, we find that
the learned Commercial Court has examined the award passed by
the Arbitrator, as if he was re-examining all the facts and
exercising power of an appeal, considering the limited scope
available under Section 34 of the Act of 1996 which requires only
to see whether the award was induced or affected by fraud or
corruption or whether it was in violation of Section 75 or Section
81 of the Act or whether it was in contravention of the
fundamental policy of the Indian law or it is in conflict with the
most basic notions of morality or justice, that it could be
interfered with, is found to be completely absent.
30. We also notice that the learned Commercial Court, in
paragraph 115 of its order also proceeded to re-appreciate the
evidence which was submitted before the Arbitrator, which
amounts to conducting the entire arbitral proceedings afresh. This
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is contrary to the view taken by the learned Commercial Court in
paragraph 144 of the same order, wherein the limited scope of
Section 34 of the Act of 1996 was recognised and it was
mentioned that:
‘‘........ It is an established proposition of law that a
court while exercising jurisdiction under section 34 of
the Act, 1996 does not sit in appeal over the award of
an arbitral tribunal by recessing or re-appreciating the
evidence while applying the test of public policy or
patent illegality.’’
31. We have noticed in the foregoing paras that the award was
passed in accordance with the law and keeping in mind the basic
notions of justice, morality and fundamental policy of Indian law.
32. We also notice that the learned counsel for the respondent
has completely failed in making out any case in support of the
order passed by the learned Commercial Court.
33. In view of the above, we hold that the learned Commercial
Court exceeded its jurisdiction under Section 34 of the Act of
1996. We therefore, are unable to sustain the order passed by the
learned Commercial Court and the same is accordingly set-aside.
34. Consequently, the present Civil Misc. Appeal is allowed.
35. We may note that in spite of giving time to submit written
submissions, no written submissions have been filed by the
respondent.
36. Costs made easy.
37. All pending applications stand disposed of.
(BIPIN GUPTA),J (SANJEEV PRAKASH SHARMA),ACTING CJ
Amit/Himanshu/Reserved
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