U.P. Public Works Deptt. Thru. Chief Engineer Central Zone Lko. vs M/S Vriddhi Infratech India Pvt. Ltd. Thru. Signatory Sandeep Anne

HIGH COURT OF JUDICATURE AT ALLAHABAD
LUCKNOW
Arbitration Appeal No. - 35 of 2025
U.P. Public Works Deptt. through Chief
Engineer Central Zone Lko.
…..Appellant(s)
Versus
M/s Vriddhi Infratech India Pvt. Ltd.,
through Signatory Sandeep Anne
…..Respondent(s)
Counsel for Appellant(s) : Pritish Kumar (AAG), Tushar Verma
(ACSC)
Counsel for Respondent(s) : Manish Singh
AFR
Reserved on : 21.04.2026
Delivered on : 21.07.2026
Chief Justice Court
HON’BLE ARUN BHANSALI, CHIEF JUSTICE
HON’BLE JASPREET SINGH, J.

(Per: Jaspreet Singh, J.)
1. The Uttar Pradesh Public Works Department (in short 'the
appellant/department') has instituted the instant appeal under Section 37
of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as
the 'Act of 1996') against the judgment and order dated 18.07.2025
passed by the Commercial Court, Court No. I, Lucknow in Arbitration
Case No. 25 of 2024 whereby the petition preferred by the
appellant/department under Section 34 of the Act of 1996 was dismissed,
as a consequence, the award passed by the Sole Arbitrator dated
27.01.2024, has been affirmed.
FACTUAL BACKGROUND:-
2. The appellant/department had invited tenders for the work of
widening and strengthening of Bilraya-Panwari Road (SH-21) from CH.
75.00 to 98.00 and Nepalpur-Bijwar Road (ODR) from 0.00 to 3.00 Km
in District Sitapur from two (2) Lane to Four (4) (length 44.70 kms). The

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bid submitted by the respondent-contractor was accepted by the
department and the parties then entered in a contract on 27.04.2016 for a
total contract price of Rs. 155,89,46,798.65/-.
3. As per the contract, the date of commencement of work was
27.04.2016 and it was intended to be completed by 26.04.2018. However,
the contractor sought time extension, which was granted and the
contractor completed the work within the extended period and the
department issued a completion certificate to the respondent on
10.04.2019.
4. The work under the aforesaid contract started in the year 2016
which was under the old tax regime, which comprised of Value Added
Tax, State Excise etc. Significantly, from the 01st of July, 2017, a new tax
regime was introduced known as the Goods and Service Tax, 2017 (in
short 'GST') which repealed the Value Added Tax.
5. This change in the tax regime impacted the price of different items
which were scheduled in the contract in question. At the time of entering
in the contract, the respondent-contractor quoted the price of items,
inclusive of all taxes applicable under the old tax regime.
6. However, with the advent of the new GST regime, constructions
work (such as the contract in question) attracted 12% GST and was
payable to the Contractor and the same was required to be deposited by
the contractor, directly with the GST Department.
7. The dispute arose post 01.07.2017 when the respondent-contractor
demanded GST on the running account bills for the scheduled items as
mentioned in the bills of quantities (BOQ) relating to the work done after
30.06.2017 based on calculation as per the Standard Operating Procedure
(in short 'the SOP') issued by the Ministry of Road Transport and
Highways (MoRTH) relating to GST impact on EPC contract, dated
19.11.2018.
8. The appellant-department disputed the calculation and payment of
the GST to the contractor on the premise that it was bound by the

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Notification/Government Orders issued by the State-Government dated
09.11.2017 and 10.12.2019.
9. The respondent invoked Clause 24 of the conditions of contract
relating to disputes resolution and at the first instance sought adjudication
by the Dispute Review Expert (hereinafter referred to as ‘DRE’).
10. Sri N.K. Kanodia who was the DRE submitted his finding on
21.12.2020 and held that the Government Orders dated 09.11.2017 and
12.10.2019 confirmed the procedure to be adopted and followed by the
appellant-department relating to GST impact and its calculation in
context of construction agreement. It also gave a finding that the
respondent-contractor was entitled to payment of GST on the claim of
price adjustment made by the contractor. Since the contractor was not
satisfied with the conclusions of the DRE relating to the mode of
calculation as per the Government Order dated 10.12.2019, hence, it
invoked the arbitration clause to escalate the matter.
11. The contractor then filed a petition under Section 11(6) of the Act
of 1996 bearing C.M. Arbitration Application No. 7 of 2022 which was
allowed by this Court on 31.03.2022 and it appointed a Sole Arbitrator.
12. The claimant-respondent filed its statement of claim before the
Sole Arbitrator on 11.07.2022 wherein it claimed a sum of Rs.
3,36,25,034/- towards the GST on the work done plus 15% penalty and
18% per annum interest from the March, 2019 till July, 2023 amounting
to Rs. 8,26,61,388/-. It also claimed GST on the price adjustment relating
to the work executed amounting to Rs. 94,77,038/-plus 15% penalty and
18% interest per annum from March, 2019 till July, 2023 amounting to
Rs. 2,32,97,675/-. It also claimed a sum of Rs. 66,500/- which was
payable by the appellant-department as their share of remuneration to the
DRE. Thus, a total claim of Rs. 11,35,80,273/- was laid before the Sole
Arbitrator.
13. The appellant-department contested the claim petition by filing its
statement of defence. The primary defence was that the GST became
applicable from 01.07.2017 and as the contract was funded by the State,

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hence, the department was bound by the Government Orders issued by
the State Government dated 09.11.2017 and 10.12.2019 relating to the
imposition of GST on running contracts i.e. to say which had commenced
prior to the enforcement of GST and were being completed after the cut-
off date i.e. 01.07.2017.
14. It was also pleaded that under the GST regime, the Contractor is to
furnish the monthly returns with the GST Department and the contractor
was called upon to furnish detailed statement relating to the deductions
made under the GST but the statement was not provided by the claimant-
respondent.
15. The department also stated that even the DRE had held that the
Government Orders dated 09.11.2017 and 10.12.2019 were applicable
and applying the procedure contained in the said Government Orders for
calculating the GST, it revealed that the appellant had paid some amount
in excess, hence, a sum of Rs. 75,90,431/- was recoverable from the
respondents.
16. The department though relied on the findings of the DRE but it did
not agree to the payment of GST on the price adjustments. It also stated
that since the claimant-respondent has filed the claims on incorrect
calculations and premise and it did not discharge its obligations of
depositing the GST with the GST Department, hence, the appellant
cannot be made liable for any tax, penalty or interest which was the
liability of the respondent, arising on account of the failure of the
respondent to comply with its tax obligations.
17. On the basis of the pleadings exchanged between the parties, the
Sole Arbitrator framed 11 issues which are being reproduced hereafter for
ease of reference:-
“1. Whether the contract dated 27.04.2016, entered between the
parties was Item rate contract or was percentage based
contract?
2. Whether the Government of India, Ministry of Road
Transport and Highways (MoRTH) circular No. RD/G-
20017/26/2018-W&A dated 19th November 2018 is applicable

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to the instant case for the purpose of calculation of G.S.T.
amount?
3. Whether MoRTH circular dated 19.11.2018 is not applicable
in the instant case, because, the project in question was of U.P.
Government and was also funded by it?
4. Whether the U.P. Govt. G.O. No. 1956/23.10.2019-12
(Samanya)/2017TC-2, dated 10.12.2019 has not been complied
with by respondent in calculating and paying G.S.T. Amount?
5. Whether there has been inordinate delay in registration of
respondent under the provisions of U.P.G.S.T. Act 2017? If so,
its effect?
6. Whether there was no need of fresh registration under the
provisions of U.P.G.S.T. Act, 2017, because, the respondent
was registered earlier on 19.10.2006 under the Commercial Tax
Department?
7. Whether the respondent is liable to pay G.S.T. to claimant on
price escalation/ adjustment?
8. Whether the claimant is entitled to receive G.S.T. amount
from respondent as claimed in the claim petition?
9. Whether the claimant is entitled to get reimbursement of
interest and penalty on alleged G.S.T. amount, due to alleged
non-payment of G.S.T. amount by respondent in time?
10. Whether the claimant is entitled to get reimbursement of
respondent's share of fee paid to Disputes Review Expert?
11. To what relief, if any, is the claimant entitled?”
18. The Sole Arbitrator after allowing the parties to lead evidence and
granting detailed hearing made his award dated 27.01.2024.
18.1. In the award, the Sole Arbitrator while dealing with issue no. 1,
held that the contract in between the parties was an item rate contract.
18.2. While considering issue nos. 2 and 3 which were taken up together,
the Sole Arbitrator held that since the contract contained a specific
stipulation that all work would be carried out as per the MoRTH
specifications and all chapters of Ministry of Road Transport and
Highways and specifications for road and bridge was made part of the
agreement and even the State Government by its notification had made
the standard building document procurement of civil works as issued by
the MoRTH, applicable to all Government Contracts of over Rs. 5 crores,
hence, the notification of MoRTH dated 19.11.2008 would be applicable
and the SOP mentioned therein for considering the impact and

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calculation of the GST would apply and not the Government Orders
issued by the State Government dated 09.11.2017 and 10.12.2019.
18.3. In respect of issue no. 4, the Sole Arbitrator held that the claimant
did not dispute the mode of calculation on GST but stated that those
calculations were as per the Government Orders of the State dated
09.11.2017 and 10.12.2019 and while dealing with issue nos. 2 and 3, it
was already held that the same were not applicable, hence, issue no. 4
came to be decided accordingly.
18.4. Issues nos. 5 and 6 were taken up together by the Sole Arbitrator
and it was held that post the GST regime, there was no need for fresh
registration under the GST Act for the appellant-department.
18.5. Considering issue no. 7, the Sole Arbitrator held that the appellant
had paid the price adjustment to the respondent as it was part of the work
done and there could be no justification for not paying the GST towards
the said price escalation. It further held that this had also been noticed by
the DRE while giving his findings but the amount was not paid by the
appellant. Hence, the respondent was held entitled to the GST on the
price escalation/adjustment.
18.6. Considering issue no. 8, the Sole Arbitrator found the respondent
to be entitled to receive (a) a sum of Rs. 3,36.25.034/- as GST on the
value of work done (b) Rs. 94,77,038/- on the price adjustments (c) Rs.
75,90,431/- which was unlawfully deducted by the appellant from the
final bill payable to the respondent.
18.7. While considering issue no. 9, the Sole Arbitrator held that since
the GST amount was not paid by the appellant, hence, the respondent was
entitled to 15% penalty and 18% interest from March, 2019 till July,
2023 by referring to Sections 50 and 74 of the U.P. GST Act, 2017. It
also held that the amount of Rs. 75,90,431/- which was wrongfully
deducted from the final payment would also carry penalty and interest @
15% and 18% per annum respectively from the date the deduction was
made till the date of its actual payment.

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18.8. Issue no. 10 was decided in favour of the respondent and it was
held that the appellant was required to pay its share of the fee payable to
the DRE, which was paid by the respondent, hence, a sum of Rs. 66,500/-
was allowed on the aforesaid count.
18.9. With the aforesaid findings, the claim petition was allowed vide
award dated 27.01.2024, awarding a total sum of Rs. 11,35,80,273/- with
penalty @ 15% and interest @ 18% per annum was also granted. The
award provided that the aforesaid payments, except the sum of Rs.
66,500/- (which related to the payment of appellant's share to the DRE),
would be subject to the final assessment made by the GST Department.
However, as far as the amount of Rs. 66,500/- is concerned, the same
would carry interest at the rate of 9% per annum from the date of the
award till the date of its actual payment. It further provided that after the
final assessment by the GST Department, if any amount payable towards
GST or interest or penalty, remains unpaid or is not required to be paid to
the GST Department then after adjustment of the amount already
deposited by the claimant, the same shall be refunded by the respondent
to the appellant within a period of two weeks from the date of final
assessment by the GST Department and the information in this regard
would be given by the claimant-respondent to the appellant. In case if the
contractor failed to refund the said amount then the appellant would be
entitled to recover the same from the respondent in accordance with law.
19. The appellant being aggrieved from the said award dated
27.01.2024, filed a petition for setting aside of the award under Section
34 of the Act of 1996 before the Commercial Court-I, Lucknow which
was registered as Arbitration Case No. 25 of 2024. The Commercial
Court-I, Lucknow after hearing the parties dismissed the petition under
Section 34 of the Act of 1996 vide its judgment dated 18.07.2025 holding
that the view taken by the Sole Arbitrator was based on material evidence
before it and the view so taken regarding applicability of the Government
Orders and the payment of GST did not suffer from any patent illegality
nor it was hit by any fundamental principles of law. Consequently it
affirmed the award dated 27.01.2024.

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20. In the aforesaid backdrop, the award dated 27.01.2024 and the
judgment of the Commercial Court-I, Lucknow dated 18.07.2025 were
challenged before this Court, in this appeal under Section 37 of the Act of
1996.
SUBMISSIONS ON BEHALF OF THE APPELLANT:-
21. Sri Pritish Kumar, learned Senior Counsel and Additional
Advocate General for the State of U.P. along with Sri Tushar Verma,
learned Additional Chief Standing Counsel for the appellant has
structured his submissions in three parts.
22. A. The dispute relating to GST was not arbitrable between the
parties:-
22.1 Elaborating the aforesaid submission, it was urged that a dispute
relating to taxation is not contractual, hence, it would not fall within the
purview of disputes covered by the arbitration clause in the agreement.
It was submitted that within the contractual framework, if it was to be
determined as to who was liable to pay the tax then such a dispute could
fall within the contractual dispute and could have been referred for
arbitration. However, the dispute in the instant case relates to the
quantum and the manner in which the tax is to be calculated. This type of
a dispute is within the exclusive domain of the Taxing Authority. Hence,
the contracting parties nor the Sole Arbitrator could not have settled such
a dispute or determine the quantum of tax payable.
22.2. It was further urged that the GST Act of 2017 is a complete code in
itself. It is the Taxing Authority who determines the quantum of tax and
finalizes the assessment. Any finding given by the Sole Arbitrator
relating to the quantum of tax is not binding on the Taxing Authority.
Thus, the dispute sought to be raised by the respondent relating to
quantum of tax, being non-arbitrable, could not have been made the
subject matter of arbitration. Accordingly, the award passed by the Sole
Arbitrator determining the tax liability and fastening it on the appellant is
a patent error which vitiates the award and the Commercial Court too

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failed to delve into this aspect of the matter and as such the award and the
judgment of the Commercial Court is liable to be set aside.
23. (B) The learned Senior Counsel for the appellant next submitted that
the circular and the guidelines including the SOP issued by the MoRTH
relating to the issue of taxation was not binding on the appellant-
department.
23.1. It was urged that the contract between the parties clearly provided
that the MoRTH guidelines were applicable only for the purposes of
technical specifications. Borrowing technical specifications for the
project in question would not mean that any guidelines issued by MoRTH
would be applicable even if it related to any tax matter. The contract was
floated and funded by the State of U.P. and the appellant being a State
instrumentality was bound by the Government Orders addressed to the
appellant relating to imposition and calculation of tax.
23.2. Taking his submissions forward, the learned Senior Counsel
further urged that even if at all the SOP issued by the MoRTH was
applicable then at best it could only be for EPC contract and in the instant
case, admittedly the contract between the parties was an item rate
contract. The SOP of the MoRTH was not a document which could be
mandatorily applied in the contract such as the present one. It was merely
a directory document and could not be legally and compulsorily enforced
against the appellant especially in respect of the contentious issues of tax.
23.3. Furthermore, there is no dispute between the parties regarding the
technical specifications. There is no dispute relating to the measurement
of the work done and other ancillary and related issues as provided in the
contract. It is for these sort of issues that the technical specifications of
MoRTH were borrowed in the instant contract and thus the reasoning of
Sole Arbitrator that since technical specifications were borrowed from
the MoRTH, hence, the issue of taxation which arises from the instant
contract, would also be governed by the MoRTH guidelines, is patently
erroneous. This aspect of the matter was not appropriately considered by

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the Commercial Court which renders the impugned judgment and award
susceptible to judicial scrutiny.
24. (C). The learned Senior Counsel next submitted that the Arbitral
Tribunal while passing the award relating to a tax dispute has given his
findings and made the tax payable by the appellant subject to the final
assessment made by the GST Authority which makes the award
inconclusive and it does not vest finality with the award.
24.1. In this regard, it was submitted that it is one thing to determine as
to which of the contracting party is liable to pay tax relating to
transactions covered by the contract. However, it is a completely
different thing to determine and calculate the tax and determine which
one of the contracting party would pay the tax to the other contracting
party and the outcome thereof would be subject to final determination to
be made by the Taxing Authorities.
24.2. It was urged that the Sole Arbitrator has not only quantified the tax
liability but it has also held the amount to be payable along with interest
and penalty irrespective of the fact whether such liability of penalty and
interest had actually been demanded by the Taxing Authorities from the
respondent i.e. the assessee who is liable to pay such tax.
24.3. Thus, for all the aforesaid reasons, it was urged that the award and
the judgment passed by the Arbitral Tribunal and the Commercial Court
respectively being patently erroneous deserve to be set aside and the
appeal be allowed.
25. In support of his aforesaid submissions, the learned Senior Counsel
for the appellant has relied upon the decision of the Apex Court in Vidya
Droliya v. Durga Trading Corporation : (2021) 2 SCC 1 for indicating
that tax disputes do not partake the nature of the contractual dispute and
are not arbitrable.
26. He has also relied upon a decision of the Calcutta High Court in
Usha Martin Ltd. v. Eastern Gases Ltd. : (2022) SCC OnLine Cal.
3342 to buttress his submissions that the Arbitral Tribunal cannot

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delegate its duty to adjudicate to any third party, as in the instant case, the
Sole Arbitrator has made its award subject to final assessment made by
the GST Authority.
SUBMISSIONS ON BEHALF OF THE RESPONDENT:-
27. Sri Manish Singh, learned counsel appearing for the respondent
submitted that the appellant had never disputed, at any stage, that the
dispute between the parties was not arbitrable. The appellant did not raise
the objection relating to non- arbitrability of the dispute before the High
Court in proceedings under Section 11(6) of the Act of 1996. The
aforesaid objection was also not raised before the Sole Arbitrator under
Section 16 of the Act of 1996. Even before the Commercial Court, the
appellant did not raise the ground of non- arbitrability of disputes and it
is for the first time this issue has been raised before this Court in an
appeal under Section 37 of the Act of 1996.
28. It was further submitted that actually there is no dispute between
the parties as to who has to pay the tax. The dispute arose only on
account of the fact that at the time the contract was entered between the
st
parties prior to 31 July, 2017, the parties were governed by VAT. In the
instant contract, all the items which were quoted by the respondent were
all inclusive of 4% of VAT charges. The appellant under the VAT regime
deducted 4% VAT from the running bills and deposited the same with the
Commercial Tax Department. It is after the implementation of the GST
regime that the GST charge on the work done, fell in 12% category and
with the changed tax regime, the appellant paid the running bills without
deducting VAT, however, it was required to pay the shortfall (12% GST -
4% VAT=8% (approx) GST). In this context, the appellant was required
to pay 8% (approx) difference for the work done post 01.07.2017.
29. It was further submitted that primarily, there is no dispute as far as
the liability to pay GST is concerned. It is also admitted by the appellant
that post 01.07.2017, as per the GST regime, the bills submitted by the
respondent indicated payment of GST at 12% which was to be paid by
the appellant, however, what came under dispute was the manner in

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which the GST was to be calculated, in respect of contracts which had
been entered between the parties under the VAT regime and continued
and finished post 01.07.2017, under the GST regime.
30. It is in this context that the MoRTH had issued a SOP dated
19.11.2018 which explained the manner in which the tax was to be paid
by factoring the change in the tax rates as well as the impact of the GST
on such contracts.
31. It was further submitted that the two Government Orders relied
upon by the appellant dated 09.11.2017 and 10.12.2019 both indicate that
for contracts above Rs. 5 crores, the MoRTH document should be
adhered. Once the parties had clearly agreed to incorporate the MoRTH
specifications and guidelines then the issue of taxation as explained by
the MoRTH in its SOP dated 19.11.2018 also became applicable. It is in
this context that the Sole Arbitrator noticed the MoRTH specifications
and SOP and applied the same to the dispute as to how the tax was to be
determined while making payments in respect of contracts which were
entered under the VAT regime and were continued and finished under the
GST regime.
32. In the aforesaid backdrop, the learned counsel for the respondent
submitted that the award made by the Arbitral Tribunal was bifurcated
into three parts:-
32.1. The first part relate to the actual work done. The value of the work
done was taken as the base for ascertaining the GST liability amounting
to Rs. 3,36,25,034/-. It was submitted that ample evidence was before the
Arbitral Tribunal indicating that the appellant in similar circumstances
relating to another contractor, had paid the difference of the GST (12%-
4% i.e. 8% (approx) additionally).
32.2. The respondent apart from the aforesaid exemplar had also filed
evidence indicating the impact of GST on the contract and the manner in
which the difference is to be determined by bringing on record the report
of a Chartered Accountant. A separate report by a Chartered Engineer
was also placed on record to explain the impact of GST on the contracts.

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Another separate report from a third party Chartered Accounting and
Auditing Firm was also placed on record. This expert evidence,
indicating the impact of GST on the current project and the liability of
GST, was not controverted by the appellant nor any expert evidence was
led by the appellant to indicate that the evidence of the respondent was
either unreliable or suffered from any error.
32.3. In such a situation, it was not open for the appellant to challenge
the award, especially when the award had been passed after taking into
account the material evidence available on record. The said award has
been affirmed by the Commercial Court and needless to say that the
scope of an appeal under Section 37 is narrow and it will not encourage
this Appellate Court to enter into the realm of re-appraisal of evidence.
33. The second part of the award related to the unpaid GST on the
price adjustment/escalation. It was submitted on behalf of the respondent
that the contract in question was completed successfully after receiving
time extension. Many items which were not taxable under VAT regime
were made subject matter of tax under the GST regime attracting 12%
tax. There was no dispute relating to the extra work done and the price
escalation/adjustment. Once, this issue in itself was not disputed, in such
circumstances, the GST attracted on the escalated/price adjustment as per
the GST regime was liable to be paid by the appellant/department. This
aspect of the matter was also ruled in favour of the respondent by the
DRE while giving its findings.
33.1. Once, it was found that the respondent was entitled to the
escalated/price adjustment then as a fortiorari, the respondent was
entitled to the GST which was to be paid by the appellant on the
aforesaid enhanced/price adjustment. Thus, the second part of the award
related to this unpaid GST on the amount of price adjustment/escalation.
34. The learned counsel for the respondent further submitted that the
third part of the award was nothing but a refund of a sum of Rs.
75,90,431/- which was illegally recovered by the Department towards

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GST, on the premise that an excess amount had been paid to the
respondent.
34.1. The appellant applying its own formula initially recovered a sum
of Rs. 75,90,431/- on the premise that excess amount had been paid by
the Department to the respondent. This deduction was found to be illegal
and therefore the same was directed to be refunded.
35. It was also urged that three components, as mentioned above,
constitute the major part of the awarded amount. Since the said amount
had been illegally recovered and the Department did not pay the GST on
the work done as well as on the price escalation/price adjustment, hence,
considering Section 50 of the GST Act, 2017, the Sole Arbitrator directed
the appellant to pay the interest and penalty, which the respondent would
have paid to the GST Department. A minuscule portion of the awarded
sum relates to the appellant's share of fee, which they were obligated to
pay to the DRE, but was not paid, hence, that amount has been awarded
in favour of the respondent.
36. It is thus urged that there is no patent illegality nor the findings
returned by the Sole Arbitrator suffer from any violation of law or being
against the public policy or law of the Country. The view taken by the
Sole Arbitrator is based on the material evidence on record which cannot
be said to be erroneous.
37. The learned counsel for the respondent in support of his
submissions has relied upon following decisions which have been
primarily relied upon for the purposes of emphasizing the scope of an
appeal under Section 37 of the Act of 1996.
(i) AC Choksi Share Broker (P) Ltd. v. Jatin Pratap
Desai : (2025) 5 SCC 321.
(ii) UCM Coal Co. Ltd. v. Adani Enterprises Ltd. : (2025)
SCC OnLine All 7608; and
(iii) Sanjay Gandhi Post Graduate Institute of Medical
Science v. Trishul Enterprises : (2026) SCC OnLine
All 367.

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38. The Court had heard the learned counsel for the parties at length
and also perused the material on record.
39. The first issue that requires consideration is whether a dispute
relating to taxation can be made the subject matter of arbitration.
40. In this regard, a court while formally considering as to whether a
dispute is arbitrable or non-arbitrable must follow the following
postulates which have been culled out from judicial pronouncements of
the Apex Court and has gained universal acceptance.
(i) Whether the action giving rise to the disputes lies in the
realm of acts in rem. Any act which leads to a dispute which
requires adjudication and the effect of such judgment or
adjudication is that it determines a status of the party or
things, which is distinct from a particular interest in it of a
party to a litigation and such adjudication/judgment is
conclusive evidence for and against all persons whether
parties or strangers to the matter actually decided, such
judgments operate in rem and such kind of disputes are
generally not arbitrable. [ see Vidya Darolia (supra) ];
(ii) Legal action against sovereign function of the State is also
non arbitrable as it is the State which has the exclusive
domain, right and duty to perform such functions. Any
decision and adjudication of and by the State which has a
public interest element involved including such rights
relating to legitimacy of marriage, citizenship, winding up of
the companies, are considered to be non arbitrable. The only
exception is where a statute in relation to a regulatory or
adjudicatory mechanism either expressly or by clear
implication permits arbitration;
(iii) All such matters wherein the cause of action and subject
matter of dispute affects third party rights which may have an
all pervading effect and requires centralized adjudication in

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contradistinction to cases where mutual adjudication would
not be proper and enforceable, are also non-arbitrable;
(iv) Where the subject matter of the dispute is expressly or by
implication made non arbitrable as per statute.
41. Now to answer specifically, the issue, whether a dispute relating to
taxation is arbitrable or not, can be considered under two distinct heads:-
(A) Disputes relating to tax which can be resolved within the
contract can be resolved through arbitration and
(B) Disputes which requires statutory determination through
tax laws and such disputes cannot be resolved through
arbitration.
41.1 Head-A: Such disputes are covered under Head A, which arise from
an agreement over which the Arbitrator has the jurisdiction to interpret
the terms of the contract to settle private obligations such as:
(i) Any such matter arising out of the contract which requires,
deciding inter se tax liability that is to say which party is
contractually liable and obligated to pay or deposit the tax;
(ii) Any such disputes which require adjudication within the
contract relating to which party is obligated to receive
reimbursement of tax paid;
(iii) Contractual issues relating to tax sharing or indemnity
clause or determination of the fact as to which party to the contract
is obligated to indemnify the other in respect of statutory taxes and
penalties;
(iv) Any interpretation of any clause contained in the contract
including or to give meaning to any phrase in the contract
including words and phrases such as “inclusive of all taxes” and
whether the use of such words would include a newly introduced
tax or any other change or statutory modification of any taxing

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ARPL No. 35 of 2025
regime or if such tax may impact and constitute an ‘extra cost’,
under the contract.
41.2. Head B: - All such matters would fall under Head B, which relates
to tax and which cannot bind a third party, are generally not arbitrable
such as:
(i) In matters relating to tax between the contracting parties, if
any such issue or adjudication is made by an Arbitrator which may
have the impact of encroaching upon the exclusive domain of a
taxing authority then it cannot be decided by an Arbitrator;
(ii) Similarly, any issue arising between the contracting parties
relating to the determination as to whether any particular
transaction is legally taxable or has the impact of challenging a
statutory tax arrangement issued by a taxing authority, cannot be
made the subject matter of arbitration;
(iii) Issue which may involve determination of any classification
or entry as specified by a taxing statute, which may be applicable
in between the contracting parties;
(iv) Issue relating to determination of rate of taxation, which
may be in dispute between the contracting parties including as to
whether any of the contracting parties is eligible for any statutory
exemption from tax or any tax concession;
(v) Disputes between any contracting party and the State
Authority relating to tax also cannot be decided by the Arbitrator.
41.3. In other words, what is required to be truly seen is not what the
parties agreed but what the law mandates. A question of statutory
interpretation and fiscal categorization which may lie in the exclusive
domain of the taxing authority including in its appellate hierarchy,
including Tribunal constituted under the taxing statute, such disputes
would necessarily require the Arbitrator to render a finding on the
applicable tax rate, classification of goods or entries in the taxing statute,

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ARPL No. 35 of 2025
these are all issues which are in the hands of the taxing authorities and
not the Arbitrator.
41.4. The Arbitrator is a creature of contract and its jurisdiction to decide
the dispute may be co-extensive with the contract but if it requires any
determination relating to tax rates or classification of goods under any
particular entry of the taxing statute or the quantum of any tax liability or
the adjudication requires referencing to any Executive Tax Notification
and Statutory Tax Rates Schedules, then such disputes even though
arising out of a contract ceases to be contractual in nature and it
metamorphosis into a fiscal regulatory issue. Such issues are governed by
the taxing statute which are a complete code in themselves and cannot be
subjected to determination by a private forum such as an Arbitral
Tribunal.
42. Now, the facts of the instant case would reveal that admittedly,
there is no dispute between the parties as to whether the tax (GST in the
instant case) is payable or not. Rather the dispute is confined only to the
extent as to whether the payable tax is to be calculated as per the MoRTH
guidelines and SOP dated 19.11.2018 or as per the Government Orders
issued by the State of U.P. dated 09.11.2017 and 10.12.2019.
43. It is also not disputed that as per the contract which was entered
between the parties in April 2016, the contractor had quoted the rates of
the items to be supplied inclusive of 4% VAT (the then applicable tax). It
is also not disputed that VAT regime of taxation was repealed and a new
tax regime came into effect from 01.07.2017 (GST regime).
44. It is also not disputed that as per the new tax regime, the GST
would be paid by the appellant department on the goods supplied to it by
the respondent. It is also not disputed that post 01.07.2017 the
department had paid certain running bills to the respondent by factoring
the GST.
45. Thus, the dispute is not as which of the contracting party has to pay
the GST rather the entire essence of adjudication before the Arbitral
Tribunal was in respect to whether the GST is liable to be calculated as

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ARPL No. 35 of 2025
per the SOP of MoRTH dated 19.11.2018 or as per Govt. Orders issued
by the State of U.P. dated 09.11.2017 and 10.12.019.
46. This dispute was first taken up by the DRE in terms of the dispute
resolution mechanism envisaged in the contract itself and the DRE gave
his finding that the department was liable to pay the GST to the
respondent on the price adjustment/price escalation. It also gave a finding
that in order to determine the quantum of GST, the Government Order
issued by the State would be binding on the department.
47. It is from this point onward that the respondent escalated the
matter before the Arbitral Tribunal urging that they were entitled to the
GST, which is to be calculated in terms of the SOP of the MoRTH and
not the Government Order issued by the State. Hence, it can be clearly
deciphered that the dispute related as to the applicability of Government
Orders issued by the State of U.P. or the SOP of the MoRTH dated
19.11.2018 for the purposes of GST calculation in the post GST era. It
did not involves adjudication of any transaction, under the contact,
attracting GST or not. It also did not involve challenge to any statutory
tax arrangement nor did it involve determination of any classification or
entry or rate of taxation specified by a taxing statute and certainly it did
not involve any dispute between the contracting party and the State as a
sovereign.
48. Thus, in light of the aforesaid factual background and applying the
axiomatic principles as noticed hereinbefore, it would be seen that the
issue raised in the instant proceedings are not which falls under the
aforesaid considered Head-B rather it falls within the Head-A and thus it
cannot be said that the dispute raised by the respondent was not
arbitrable.
49. Furthermore, it will also be relevant to notice that the issue of non
arbitrability, as sought to be raised in this appeal, by attempting to bring
the disputes within the aforesaid discussed Head B, then it ought to have
been raised by the department before Arbitral Tribunal in terms of
Section 16 of the Act of 1996 which was not done. Even during the entire

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ARPL No. 35 of 2025
arbitral proceedings, no such objection was raised nor any such pleadings
were delivered by the department raising any such plea. Hence, even the
Arbitral Tribunal though framed 11 issues yet none related to
jurisdictional and non-arbitribility of the dispute in context with Head-B
mentioned hereinabove rather the tenor of the objections were to be
effect that the Arbitrator had incorrectly relied upon the SOP of the
MoRTH dated 19.11.2018 and erred in ignoring the State Government
Notifications dated 09.11.2017 and 10.12.2019 and it is only for the first
time during the course of submission before this Court that the appellant
had taken the plea of jurisdictional non-arbitrability of disputes.
50. This Court has already held that the actual dispute between the
parties falls under the Head-A as explained above and not under the
Head-B , hence for all the aforesaid reasons, the first contention raised by
the appellant regarding jurisdictional non-arbitrability of disputes does
not find favour with this Court and hence it is turned down.
51. The next submission advanced on behalf of the appellant was that
the SOP dated 19.11.2018 issued by the MoRTH was not applicable and
it was the Govt. Orders dated 09.11.2017 and 10.12.2019 which were
applicable and the Sole Arbitrator by holding that the SOP dated
19.11.2018 was applicable has erred and it has rendered the award
patently illegal and liable to be set aside.
52. In order to examine the strength of the aforesaid submission, it will
be appropriate to consider the nature of the contract, its relevant clauses
and the reasoning given by the Arbitrator.
53. The contract in question, dated 07.04.2016, related to widening
and strengthening of Bilraya and Panwari Road SH 21 from CH 75 to
CH98 and Nepalapur Bijwar Road from CH 0 to CH 3 in Sitapur District
from two lane to four lane. The copy of the contract has been made a part
of the supplementary-affidavit dated 27.10.2025, filed by the appellant
before this Court.
54. In the said contract, under the special condition of the contract,
clause-3 specifically stated that “All the works shall be carried out as per

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ARPL No. 35 of 2025
MoRTH specification i.e. all chapters of Ministry of Road Transport &
Highway and Specification for Road & Bridge Works (V revision
published by IRC New Delhi 2013) and it is part of the agreement.
In the contract, under the Head of Technical Specification, it states
as under:
“ TECHNICAL SPECIFICATION ”
“Work will be executed as per MoRTH Specification Vth
edition-2013/PWD detailed Specifications/IRC codes/latest circulars/
Govt. Orders issued from time to time and also as per directions
Engineer-in-Charge.”
55. The contract also contained stipulation of price adjustment in
Clause 47. Clause 25.3 related to arbitration. It will also be relevant to
take note of the Govt. Order dated 24.07.2017 issued by the Special
Secretary, Govt. of Uttar Pradesh and addressed to Chief Engineer
(Development and all departmental heads of the PWD stating that all
contracts of the PWD over five crore would follow the standard bidding
documents procurement of civil works as published by the Ministry of
Road Transport and Highways.
56. The contract further envisaged that the expenditure on the said
project was to be met from the budget of the Govt. of Uttar Pradesh. In
the bill of quantities (BOQ) in clause 8, it was mentioned that the method
of measurement of completed work for payment shall be in accordance
with Specification for Road and Bridge Work published by the Ministry
of Surface Transport. Moreover, the contract also mentioned matters
about the general methodology for construction of major items. Under
the said heading, road work which required earth work, GSB, WNN,
Cemented Sub Base, Prime Quote, TACK Quote, EC, (open graded), Seal
Quote, DDM, BC, PCC, RCC, reinforcement of Steel of works and was
to be done as per directions of the Engineer.
57. The aforesaid clauses have been noticed by this Court only for the
purpose of clarity to ascertain as to what extent and purpose, the MoRTH
Technical guidelines have been borrowed in the contract.
58. Now, Clause 45 of the contract which relates to tax, reads as
under:-

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“45. Tax
45/1 the rates quoted by the contractor shall be deemed to be inclusive
of the sales and other taxes that the contractor will have to pay for the
performance of this contract. The employer will perform such duty in
regard to the deduction of such taxes at source as per applicable law.”
59. The Arbitral Award dated 27.01.2024 would reveal that the Sole
Arbitrator had framed 11 issues but the bone of contention between the
parties was encapsulated in issue nos.2, 3 and 4. Issue no.2 was whether
the circular of MoRTH dated 19.11.2018 is applicable for the purposes of
GST calculation. Issue no.3 was, whether MoRTH circular dated
09.11.2018 is not applicable because the project in question was funded
by the U.P. Govt.. Issue No. 4 related to the fact whether the U.P.
Government Order dated 10.12.2019 had not been complied with by the
respondent while calculating and paying GST. As a corollary to the
aforesaid three issues, the issue nos. 8 and 9 also gains significance. Issue
no. 8 related to whether the claimant was entitled to receive GST amount
from the appellant as claimed in the Claim Petition. Issue no.9 related to
whether the claimant is entitled to receive reimbursement of interest and
penalty on alleged GST amount, due to alleged non-payment of GST
amount in time.
60. Before proceeding further, it will be appropriate to consider the
two Government Orders dated 19.11.2017 and 10.12.2019 issued by the
State-Government vis-à-vis with the SOP guidelines dated 19.11.2018
issued by MoRTH.
61. There are two Government Orders of the same date i.e. 09.11.2017
which have been brought on record at a running page 216 of the
Supplementary Affidavit filed by the appellant dated 27.10.2025. The
first Government Order bearing No. 1535/23.10.2017-12 (General)/2017
is a direction for the Public Works Department relating to chargibility of
GST on contracts entered up to 30.06.2017. In the said Government
Order, it was clearly stated that all service receivers who have entered
into contracts uptill 30.06.2017, whereupon service tax etc. was being
charged, now shall be governed by the GST and the difference in the tax
rates would be deducted by the service receivers and all notifications

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ARPL No. 35 of 2025
relating to GST and its imposition and implementation including issued
by the GST Council from time to time, would be compulsorily followed.
62. The other Government Order of the same date bearing No.
1614/23.10.2017-12 (General)/2017 related to the manner in which the
GST was to be calculated. A complete formula was provided in terms
whereof the Departments were required to make provisions for the GST
as mentioned in the said Government order.
63. On the other hand, the SOP dated 19.11.2018, issued by MoRTH
refers to implementation of CGST/Standard Operating Procedure. The
said SOP in Clause 5 mentioned, the incidence of application of service
tax/GST. It further refers to payments for EPC contracts which is
mentioned in Clause 6 (i) to (v). The said SOP also gives an illustration
regarding the manner in which the GST is to be worked out relating to
EPC contracts.
64. For the ease of reference, Clause 5 and 6 of the MoRTH SOP dated
19.11.2018 is being reproduced hereinafter:-
“5. Incidence of application of Service Tax/GST
incidence of the applicability of taxes shall be as follows:-
Sr.
No.
Completion
Invoice
Payment Date Applicability of Taxes Applicable
of Service
Date
TDS
Service
Works
Contract
Tax (WCT)
GST
Tax
1 Before June
Before
June 30,
Before June 30,
Yes Yes No WCT TDS
30, 2017
2017
2017
2 Before June
Before
June 30,
After June 30,
Yes Yes No WCT TDS
30, 2017
2017
2017
3 Before June
After June
After June 30,
No No Yes GST TDS
30, 2017
30, 2017
2017
4 After June
After June
After June 30,
No No Yes GST TDS
30, 2017
30, 2017
2017
6. Payments for EPC Contracts
6.1. The contract price is quoted lump-sum and inclusive of all
taxes in most of EPC contracts; these taxes have now been
subsumed under GST. In order to arrive at the incidence of
application of Service Tax/GST as mentioned at Para 5 above, the
total work shall be categorized as follows:-
(1) Works completed up to 30.06.2017 and Billing completed by
30.06.2017.

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ARPL No. 35 of 2025
(ii) Works completed up to 30.06.2017 and Billing not completed
by 30.06.2017.
(iii) Works yet to be completed as on 01.07.2017.
6.2. GST Act, 2017 shall be applicable for all the works mentioned
above at (ii) & (iii) Following procedure may be adopted by the
Ministry/ ROs/ PIUs/ various Executing Agencies while making
payments as per the provisions in the contracts:
(I) The project components under different major heads (like Earth,
Sand, Aggregates. Steel, Cement, Bitumen etc.) are to be intimated
by the contractor and checked/confirmed by the respective IE/ AE
in consultation with the concerned RO/PD for each of the Project.
(ii) In order to compile the above information, an indicative Excel
format is suggested for guidance and attached (at Annexure-I). It
indicates various project components which attract various types of
taxes including Excise Duty, CST, VAT/WCT and other taxes,
which were already included in the contract price as per the original
contract. The same format can be used to compile the information
for each ongoing project, taking into consideration the GST Input
Tax Credit available for the project. The project components and
rates shown are only indicative and should be modified as per the
project actuals and shall be certified by the statutory auditors of the
Contractor/Developer/Company. In case, appointment of Statutory
Auditor is not mandatory, then it can be certified by a Practicing
Chartered Accountant.
(iii) After completion of the said exercise, the costs against the
subsumed taxes (Excise duty, CST, VAT/ WCT etc.) in the
particular contract are to be finalized and to be mutually agreed by
IE/AE/ Ministry/concerned Executive Agency/ Contractor. The cost
of subsumed taxes factored in the contract value is required to be
reduced from the original contract price to arrive at the actual
balance cost of the project.
(iv) Based on such certification and mutual agreement, the
concerned RO/ PD shall either pay or recover the net impact of the
GST after accounting for subsumed tax component and input tax
(GST) credit. The contractor shall be responsible for correct
declaration of GST liability and shall provide the supporting
documents, if required.
(v) This will be an interim arrangement till the completion of the
project and the final impact of GST (positive or negative) shall be
worked out at the time of Final bill.”
65. At this stage, it will also be extremely important to consider the
significance of the two documents i.e. (a) the SOP/Guidelines issued by
MoRTH and (b) the two Government Orders issued by the State of U.P.,
is.
(i) Apparently, from the contractual clauses, it reveals that by
borrowing the MoRTH technical specifications, it would result in
MoRTH dictating the engineering standards, usage of raw material,

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ARPL No. 35 of 2025
quantity, quality, quality tests, details regarding recording of work
done, measurement of the work done and other like related
matters. Such guidelines or standards set by MoRTH cannot dictate
statutory laws Central or State, even GST rates or compliances or
local Tax Laws.
(ii) Taxes are governed by statutory laws and contractual clauses
cannot override these laws. Moreover, the technical measures
borrowed for the purposes of engineering standards cannot impose
or create tax jurisdictions or obligations.
(iii) Contractual implementation and its administration generally
treats the Technical, Financial and Commercial Requirements
separately and borrowing one does not implicitly subsume the
other, unless specifically provided for. Furthermore, financial
aspect is different from the issues of taxation which is a specialized
jurisdiction and unless there is a clear import made in respect
thereto, it cannot be assumed.
(iv) It must be kept in mind that the Government Orders are
issued by the State Government and can be of various types,
depending upon its source. If a Government Order has its source
from a Statute or a Legislation then it is treated as a subordinate
and delegated legislation. However, certain Government Orders,
which are issued for easing out its day to day work, then they are
executive instructions which nevertheless is binding on the
Government Department, though, may not have statutory
enforceability against the citizen.
(v) It is in this context that the Government Orders dated
09.11.2017 and 10.12.2019 issued by the State Government were
binding on the appellant-department.
(vi) Apparently, from the bare perusal of the MoRTH SOP, it
would reveal that it is a guiding and a directory document which
takes into consideration the issues relating to managing financial
variations, escalations and change of scope of work. An illustration

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ARPL No. 35 of 2025
appended to the SOP reflects as to how the introduction of GST
would impact EPC contracts which were entered prior to the
appointed date i.e. 01.07.2017 but went on and were concluded in
the GST regime.
(viii) In this backdrop, it is reiterated that in absence of any clear
material or stipulation on record, it cannot be said that merely by
borrowing technical specifications from the MoRTH, the taxing
guidelines would also be applicable and would be binding on the
contracting parties.
66. Now, the stage is set to examine the records and ascertain as to
whether by merely borrowing the MoRTH technical specifications in the
contract, the SOP issued by the MoRTH dated 19.11.2018 would also
become binding on the appellant-department so as to subsume all rights
within relating to tax matters including the GST and whether the Govt.
Order would have an overriding impact over the MoRTH SOP, will also
have to be seen in context with the discussions which shall take place
hereinafter.
67. The instant contract relates to widening of road and road building.
The contract states that technical specifications of MoRTH have been
borrowed. The contract placed before this Court does not specify that any
tax regime or provision relating to taxation mentioned in the MoRTH
guidelines would also be applicable to the instant contract.
68 . There is no material evidence on record which could establish that
what were those specifications which were borrowed from the MoRTH
document. It does not indicate as to whether the MoRTH document had
any provision regarding the tax regime applicable to the parties entering
into a contract as per the MoRTH guidelines. The MoRTH document was
not placed on record of this Court which could indicate that apart from
technical specifications, the taxing clauses in MoRTH document was also
borrowed, nor it could be shown that what actual clauses relating to tax
were incorporated in the MoRTH document.

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69. Significantly, the special conditions of contract in Clause 3 states
that the work shall be carried out as per the MoRTH specifications and it
is for that limited purpose the MoRTH guidelines become applicable and
binding. The said contract also has a specific clause relating to tax as
contained in Clause 45 which only notes that the rates quoted by the
contractor would be deemed to be inclusive of all the sales and other tax
which the contractor has to pay for the performance of the contract. The
employer i.e. the Department herein is also obligated to perform such
duties in regard to the deduction of such tax at source as per applicable
law.
70. The aforesaid two clauses 3 and 45 as mentioned herein have
already been reproduced in the earlier paragraphs for the purposes of
reference and to bring out with clarity a fact that the manner in which the
reference to the MoRTH specifications have been borrowed in the
contract is only in respect of technical specifications for building and
widening of roads which includes and related to the nature, the quality
and quantity of the material used and it did not include or relate to any
tax including GST.
71. As already noticed above, there is a distinction between a tax
liability which is squarely governed by the tax laws and a contractual
liability even though related to tax would be only determinative of the
fact that which of the two contracting parties is obligated to pay the tax.
Any dispute in this regard may be binding between the parties but it can
have no impact on the Taxing Authority.
72. In light of the above, before the Sole Arbitrator could have
returned a categorical finding regarding applicability of MoRTH
guideline, it ought to have first noticed as to what was the extent of the
MoRTH guidelines which were made applicable and whether there was
any clause in the MoRTH guidelines relating to tax which would have an
overriding impact on the contract entered between the parties.
73. There is no clause in the entire contract which says that in case of
any ambiguity between the contract and the MoRTH guidelines, it would

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ARPL No. 35 of 2025
be the MoRTH document which would prevail and that too relating to
tax. In absence of any categorical contractual clause or agreement, any
finding in this regard holding that the MoRTH Circular/SOP is applicable
merely because the contract between the parties states that the technical
specifications of the MoRTH would be applicable is not per-se not
emerging or flowing from the contract or the material on record.
75. The contract entered between the parties is to be read as it is and in
its entirety. In light of the clauses as mentioned above which borrows the
th
MoRTH specifications read with Government Order dated 24 July, 2017
(which is at running page 215 of the Supplementary Affidavit filed before
this Court by the appellant dated 27.10.2025) it only states that all such
contracts over 5 crores would be done as per the standard bidding
document, procurement of civil works as issued by the MoRTH.
76. In case if the respondent seeks to impute a specific tax compliance
provision in the instant contract, then it was its burden to have brought
the MoRTH document on record and ought to have referred to specific
provisions therein to establish that it would override the clauses of the
contract entered between the parties or even in case of any ambiguity in
the contract or any part which is silent in the instant contract, the grey
area would be filled or covered by the specifications/clauses/
arrangements as provided in MoRTH guidelines including relating to
taxation or what would be the order of precedence to be followed in case
of ambiguity.
77. In absence of this clear material, the finding given by the Sole
Arbitrator holding that the contract provided for borrowing the technical
specifications from MoRTH, hence, the illustrative SOP issued by
MoRTH relating to calculation of GST for EPC contracts would become
applicable, cannot be sustained.
78. The record would also indicate that this issue was also raised
before the DRE. He too in his findings concluded that the MoRTH
guidelines were only applicable for the purposes of technical
specifications and Government Orders relating to compliance of GST

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ARPL No. 35 of 2025
provisions were specific and binding on the appellant and it would
prevail over the MoRTH SOP.
79. The record would also indicate that initially there was a difference
of opinion between the parties regarding the nature of the contract itself,
however, before the Sole Arbitrator, there was a consensus and the
contracting parties agreed that the contract in question was an item based
rate contract.
80. The appellant had raised a dispute before the Sole Arbitrator that
the MoRTH SOP dated 19.11.2018 was applicable to EPC contract
(Clause 6 and the illustration as incorporated in the SOP, as quoted
above). This Clause 6 indicates that the illustration given therein was in
context with the EPC contracts. There is no material to indicate that the
said SOP would be applicable to item rate based contract. It also does not
indicate that the said SOP though applicable for EPC contracts could be
borrowed or be made applicable to item rate based contracts.
81. Before a finding could have been recorded by the Sole Arbitrator
applying the illustration as given in the SOP relating to EPC contracts to
item rate based contract, then at least it should have considered some
material evidence or reference to any clause in the contract between the
parties which could throw some light or permit borrowing the illustration
relating to EPC contract to item rate based contracts, especially when the
MoRTH SOP did not extend its applicability to item rate based contracts
nor it stated that the illustration was applicable to all types of contract.
82. There is no averment or evidence to suggest that there is no other
separate document relating to item rate based contract. There is no
positive statement that apart from this SOP relating to EPC contracts,
there is no other separate guidelines for item rate based contract nor there
is any evidence to indicate that the said illustration applicable for EPC
contracts can ipso-facto be followed for item rate based contracts, nor the
Sole Arbitrator has given any reason or finding in this regard.
83. The Sole Arbitrator, however, concluded that even though the SOP
refers to an EPC contract, the same can be made applicable for an item

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ARPL No. 35 of 2025
based rate contract on the premise that both the contracts are similar.
However, in the trade industry relating to road construction contracts,
there is a difference in EPC and item rate based contract. This distinction
assumes significance for the reasons that it was a specific case of the
appellant that the illustration and the methodology mentioned in the SOP
dated 19.11.2018 is applicable only for EPC contracts and since the
contract in between the parties in the instant case was an item based rate
contract, hence, the same could not be made binding without consensus
between the parties.
84. Furthermore, the usage of the word ‘may’ in Clause 6 in the SOP
and clause 6.2 (iv) which speaks of mutual agreement is indicative that
the said SOP is merely a guideline which may be directory in nature and
not mandatory as already noticed hereinabove, hence, without any
clinching evidence to the effect that the parties to the contract agreed to
get their tax liability governed by the SOP dated 19.11.2018 or the parties
mutually agreed to do so, till then it cannot be made binding upon the
appellant.
84. If the Sole Arbitrator was of the view that the SOP relating to EPC
contract could be made binding to an item rate based contract then it
ought to have referred to some evidence, clauses of the contract entered
between the parties. In absence of any such reference merely concluding
that the SOP would bind item rate based contract also would amount to
giving a finding based on conjectures and assumptions which has no role
to play in an award. By doing so, the Sole Arbitrator has read into the
contract something which is not present, which is reflected in his award
which then would be based on conjectures and it would make the award
susceptible for interference.
87. As far as the two Government Orders dated 09.11.2017 and
10.12.2019 are concerned, they have been issued by the State, in course
of its business and partakes the nature of executive instructions which
necessarily makes it binding on the appellant.

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ARPL No. 35 of 2025
88. In the given situation, before this Court, the issue is not as much as
who has to pay the GST but it has got to do with the manner in which the
GST is to be calculated relating to the contract in question and the right
of the contractor to recover the said GST paid to the Tax Authority, from
the appellant.
89. It will be apposite to take a pinhole view of the GST Act. The GST
st
regime introduced from 01 July, 2017 is primarily based on self-
assessment under the GST laws. There are primarily two types of
transactions. One where the transaction crosses two different State
borders and in such a situation the transactions would attract the IGST
i.e. Integrated Goods and Services Tax. This IGST is a composite and
binding tax levied and collected by the Central Government which is
later apportioned to the State where the goods are consumed. It is for this
purpose that there can never be a CGST, SGST and IGST charged on the
same invoice. However, where seller and the buyer are located within the
same State then two components of CGST and SGST are charged
simultaneously and one tax invoice clearly indicates the separate
chargabiity of CGST and the SGST.
90. A party who is liable to pay the GST as per the scheme of the GST
Act of 2017 is to furnish his returns periodically as mentioned in the Act
on the basis of best self assessment. Once such returns are submitted
before the GST Authorities, they have the discretion of either accepting
the said returns, the way they are and conclude the assessment and in
case if they are not satisfied then they have a right to enquire into the
same in terms of the Section 73 and Section 74 of the GST Act, 2017.
91. However, in order to invoke the powers both under Section 73 and
74 of the GST Act, 2017, the tax Authorities are required to issue notice
to the assessee calling upon him to explain the self-assessment and in
case if the authorities are satisfied, they may conclude the same or they
may call upon the assessee to furnish an explanation for any shortfall in
tax paid. Any such order passed by the GST Authorities under Section 73

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or Section 74 is susceptible to scrutiny before the Appellate Authority or
the GST Tribunal as envisaged in the GST Act itself.
92. Illustratively, the respondent being the contractor was required to
furnish his statements/periodical assessments and it would necessarily
have been made under the provisions of the GST Act and also indicating
the payment of GST. The contractor could have furnished his GST
returns as per the MoRTH SOP. In case if the same was accepted by the
GST Authorities then the assessment would have been completed and it
would have been clearly shown how much tax was paid referrable to the
contract in question.
93. Since the work in the instant case stood completed in the Financial
year 2018-19 and a completion certificate was issued on 10.04.2019 then
any GST liability outstanding would have been made known to the
respondent by the GST Authorities by issuing a notice, however, there is
no document on record or brought to the notice of this Court nor any
consideration regarding it has been made by the Sole Arbitrator
indicating that for the period under the contract, any notice under Section
73 or Section 74 had been issued to the contractor by the GST
Authorities.
th
94. The respondent along with his short counter affidavit dated 14
January, 2026 has annexed the copies of the rejoinder affidavit to the
second supplementary affidavit filed by the respondent during the
arbitration proceedings as Annexure SA-1. From the perusal of the said
Annexure SA-1, it would indicate that the GST receipts have been placed
on record including a statement regarding the input tax credit which was
available to the respondent, however, that does not per se indicate that
some amount, which in some of the receipts have been, shown as
voluntarily payment by the respondents towards interest or penalty is
actually referrable for this particular contract for the period in question
nor there is any discussion in this regard by the Sole Arbitrator to arrive
at its conclusion in the award on this aspect of the matter.

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95. As per the GST Act, the liability to pay tax is on the assessee i.e.
the respondent and it was always open for him to deposit the tax in time
in case if the same was not done then it is the respondent who is to bear
the interest and penalty, if any. The respondent was required to mitigate
his losses, inasmuch as, it was always open for the respondent to have
paid the taxes in time to avoid imposition of penalty or interest and then
could have recovered the same from the appellant (if permissible) and
could have also claimed interest/penalty on the said outstanding amount,
if it was solely attributable to the negligence or want of due diligence of
the appellant.
96. This aspect has not been considered by the Sole Arbitrator who has
merely on the premise that the GST has not been paid by the appellant to
the respondent, hence, invoking the provisions of Section 50 of the GST
Act, the amount determined by the Arbitrator has been made payable as
per interest and penalty provided under the GST Act.
97. Even if the Sole Arbitrator had to do so then the Sole Arbitrator
ought to have recorded a clear finding that the tax of a particular amount
was due and payable by the respondent within time to be specified which
could not be paid on account of negligence or non-payment by the
department which led the respondent to suffer interest and penalty and
had to be paid to the GST Department and this interest plus penalty was
recoverable from the appellant under the contract.
98. The learned counsel for the respondents had referred to the report
by the Chartered Accountant, another report of the Chartered Engineer
and yet another report of an Independent Chartered Accounting Firm,
they too indicate the impact of the GST on the contract and it is reflective
of the fact, that with the change in the tax regime i.e. from VAT to GST,
certain items which earlier were not taxable have been made taxable in
the new regime, how this would impact the rights and the incidence of
taxation and on which basis the tax will have to be calculated has not
been amplified.

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99. The Sole Arbitrator has merely proceeded in a compartmentalized
way i.e. to say, it held that the technical specifications were borrowed in
the contract, therefore, the MoRTH guidelines even for tax purposes
would become applicable, consequently, the formula given for the EPC
contracts would be applicable to the instant contract despite the said
contract being an item rate based contract and as a fortiorari, the
Government Orders have been held to be not applicable. There is no
consideration or reasons given in the award as to how a
regulatory/directory document, would have an overbearing impact on a
State-Government order, which was binding on the particular department
to which it related to and it also prescribed, a particular methodology as
to how the GST was to be calculated related to contracts entered in old
tax regime and concluded in post GST regime.
100. Furthermore, the Sole Arbitrator while making his award has left
the issue open to the extent that the amount as awarded by him is
required to be paid by the appellant which would then be subject to the
final assessment by the GST Authorities and in case if excess amount had
been paid, the same would be returned by the respondent to the appellant
and in case of any shortfall then the appellant would still be liable to pay
the said shortfall. This finding given by the Sole Arbitrator in its award
leads to ambiguity and it also does not attach finality to the award.
101. What is significant to notice that this arrangement could have been
made only as an interim measure during the pendency of the proceedings
especially in terms of the GST Act when the contract itself had concluded
in the financial year 2018-19 and the maximum period for concluding an
assessment under the GST Act is 3 years. Thus, at the time of making of
the award in the year 2024, the assessments would have become final and
that would have been the best evidence which could have been placed
before the Arbitrator to establish that the respondent was entitled to claim
any shortfall of the GST and consequential interest or penalty from the
appellant.
102. In light of the aforesaid discussions, following position emerges:-

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(i) The basic premise of the Sole Arbitrator in his award, is
the applicability of the MoRTH SOP dated 19.11.2018. In this
regard, as already noticed above, there was no material on
record to indicate that the MoRTH specifications as made
applicable in the contract included any tax arrangements.
(ii) The Sole Arbitrator did not discuss under what
circumstances, the Government Orders dated 09.11.2017 and
10.12.2019 would not be binding and applicable which relates
to GST and a particular formula having been indicated therein,
when they being executive instructions were binding on the
Department.
(iii) There was no consideration of any material on record by
the Sole Arbitrator as to how the said SOP could be made
binding when that in itself appeared to be directory and
applicable to to the parties only with mutual consent and its
applicability was limited only on EPC contracts and in absence
of any clause or material evidence by which it could be made
applicable to item rate based contracts, hence, it could not have
been ipso-facto made applicable and that too without cogent
reasoning.
(iv) In absence of any challenge to the Government Order
dated 10.12.2019 and without recording any cogent reason to
discard its applicability and then to hold that the said
Government Order was not applicable merely because the
MoRTH had issued a SOP and it did not prima facie establish
that such tax arrangement of MoRTH was binding despite there
being no such clause in the contract nor any material on record
established this fact.
(v) The Sole Arbitrator in absence of any cogent evidence or
material could not have given a finding regarding
deficiency/shortfall in payment of GST which could attract
penalty and interest and make it payable without recording

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clear finding as to its quantum, periods and that such shortfall
or deficiency in tax, or penalty/interest was paid by the
respondent but on account of sole negligence or want of due
diligence of the appellant it was recoverable from the appellant.
Thus, the Sole Arbitrator erred by acting as an Assessing
Officer.
(vi) The reference made by the Sole Arbitrator to certain
exemplars to draw parallel that in cases of some other
contractors, the State had paid the GST at same rate which is
now being denied to the respondent, could only be considered
with supporting assessment orders or other like evidence to
show the similarity between the contract entered by the parties
to the instant dispute and the one as mentioned in the exemplar
and then it could be made applicable and binding on the
appellant.
(vii) Importantly, the Sole Arbitrator and both the contracting
parties have not noticed the import of Chapter XX of the GST
Act, 2017 which contains the transitional provisions. In this
regard inter alia Section 142 (2) which relates to contracts
entered prior to the appointed date i.e. 01.07.2017 and wherein
post the appointed date there is either upward or downward
revision and how will it be catered to has been provided for.
Thus, Section 142 (2), 142 (10) and 142 (11) may have some
bearing on the controversy, which at least should have been
noticed, considered and a finding should have been given
whether the said sections were applicable or not. However,
there is a stoic silence on this aspect as there is no reference to
this aspect in the award.
(Viii) The expert evidence said to have been filed by the
respondent also does not consider the impact of Sections
142(2), (10) and (11) of the GST Act, 2017 and in absence
thereof, a definite finding returned by the Sole Arbitrator that

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the MoRTH guidelines and SOP would apply is rendered
vulnerable as it looses its core integrity of reasoning.
103. The Sole Arbitrator being a creature of the contract is bound by
its terms and it cannot re-write the contract or fill in the lacunae for
any party. The position noticed hereinabove would indicate that the
Sole Arbitrator has proceeded on conjectures and assumptions and the
findings recorded are not backed by cogent evidence before it. Hence,
the finding on issues nos. 2 to 4 and 8 to 9 being against the material
evidence on record, cannot be sustained.
104. Additionally, an award can be set aside if it is found to be in
violation of fundamental policy of Indian Law or suffers from the vice
of ignoring judicial discipline regarding compliance with principles of
natural justice or the reasoning in the award is based on perversity
which goes to the root of the matter without there being any
possibility of an alternate view.
105. This Court had the occasion to consider the scope of an appeal
under Section 37 of the Act of 1996 in UCM Coal Co. Ltd. v. Adani
Enterprises Ltd. : 2025 SCC OnLine All 7608 and by taking aid of the
previous decisions of the Apex Court on the aforesaid point, this Court in
paras 63 to 67 noticed the perimeter within which the Appellate Court
would exercise its jurisdiction. The relevant paragraphs read as under :-
“63. At the outset, it will be appropriate to notice the contours of scope
and jurisdiction of this Court while dealing with an appeal under
Section 37 of the Act of 1996.
64. The Apex Court in MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC
163 : (2019) 2 SCC (Civ) 293 has held as under:—
“11. As far as Section 34 is concerned, the position is well-settled
by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground
provided under Section 34(2)(b)(ii) i.e. if the award is against the
public policy of India. As per the legal position clarified through
decisions of this Court prior to the amendments to the 1996 Act
in 2015, a violation of Indian public policy, in turn, includes a
violation of the fundamental policy of Indian law, a violation of
the interest of India, conflict with justice or morality, and the
existence of patent illegality in the arbitral award. Additionally,
the concept of the “fundamental policy of Indian law” would
cover compliance with statutes and judicial precedents, adopting

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a judicial approach, compliance with the principles of natural
justice, and Wednesbury [Associated Provincial Picture
Houses v. Wednesbury Corpn., [1948] 1 K.B. 223 (CA)]
reasonableness. Furthermore, “patent illegality” itself has been
held to mean contravention of the substantive law of India,
contravention of the 1996 Act, and contravention of the terms of
the contract.
12. It is only if one of these conditions is met that the Court may
interfere with an arbitral award in terms of Section 34(2) (b)(ii),
but such interference does not entail a review of the merits of the
dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral award may
not be interfered with if the view taken by the arbitrator is a
possible view based on facts. (See Associate
Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204]. Also see ONGC Ltd. v. Saw Pipes
Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705]; Hindustan Zinc Ltd. v. Friends Coal
Carbonisation [Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445]; and McDermott International
Inc. v. Burn Standard Co. Ltd. [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] )
13. It is relevant to note that after the 2015 Amendment to
Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2), the
scope of contravention of Indian public policy has been modified
to the extent that it now means fraud or corruption in the making
of the award, violation of Section 75 or Section 81 of the Act,
contravention of the fundamental policy of Indian law, and
conflict with the most basic notions of justice or morality.
Additionally, sub-section (2-A) has been inserted in Section 34,
which provides that in case of domestic arbitrations, violation of
Indian public policy also includes patent illegality appearing on
the face of the award. The proviso to the same states that an
award shall not be set aside merely on the ground of an
erroneous application of the law or by reappreciation of
evidence.
14. As far as interference with an order made under Section 34,
as per Section 37, is concerned, it cannot be disputed that such
interference under Section 37 cannot travel beyond the
restrictions laid down under Section 34. In other words, the court
cannot undertake an independent assessment of the merits of the
award, and must only ascertain that the exercise of power by the
court under Section 34 has not exceeded the scope of the
provision. Thus, it is evident that in case an arbitral award has
been confirmed by the court under Section 34 and by the court in
an appeal under Section 37, this Court must be extremely
cautious and slow to disturb such concurrent findings.
15. Having noted the above grounds for interference with an
arbitral award, it must now be noted that the instant question
pertains to determining whether the arbitral award deals with a
dispute not contemplated by or not falling within the terms of the

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submission to arbitration, or contains decisions on matters
beyond the scope of the submission to arbitration. However, this
question has been addressed by the courts in terms of the
construction of the contract between the parties, and as such it
can be safely said that a review of such a construction cannot be
made in terms of reassessment of the material on record, but only
in terms of the principles governing interference with an award
as discussed above.
16. It is equally important to observe at this juncture that while
interpreting the terms of a contract, the conduct of parties and
correspondences exchanged would also be relevant factors and it
is within the arbitrator's jurisdiction to consider the same.
[See McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181]; Pure Helium India (P)
Ltd. v. ONGC [Pure Helium India (P) Ltd. v. ONGC, (2003) 8
SCC 593] and D.D. Sharma v. Union of India [D.D.
Sharma v. Union of India, (2004) 5 SCC 325 : (2005) 123 Comp
Cas 135].]”
65. Similarly, the Apex Court in UHL Power Co. Ltd. v. State of
H.P., (2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401 has observed as under:
“16. As it is, the jurisdiction conferred on courts under Section
34 of the Arbitration Act is fairly narrow, when it comes to the
scope of an appeal under Section 37 of the Arbitration Act, the
jurisdiction of an appellate court in examining an order, setting
aside or refusing to set aside an award, is all the more
circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC
Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ)
293], the reasons for vesting such a limited jurisdiction on the
High Court in exercise of powers under Section 34 of the
Arbitration Act have been explained in the following words :
(SCC pp. 166-67, para 11)
“11. As far as Section 34 is concerned, the position is well-
settled by now that the Court does not sit in appeal over the
arbitral award and may interfere on merits on the limited ground
provided under Section 34(2)(b)(ii) i.e. if the award is against
the public policy of India. As per the legal position clarified
through decisions of this Court prior to the amendments to the
1996 Act in 2015, a violation of Indian public policy, in turn,
includes a violation of the fundamental policy of Indian law, a
violation of the interest of India, conflict with justice or
morality, and the existence of patent illegality in the arbitral
award. Additionally, the concept of the “fundamental policy of
Indian law” would cover compliance with statutes and judicial
precedents, adopting a judicial approach, compliance with the
principles of natural justice, and Wednesbury [Associated
Provincial Picture Houses Ltd. v. Wednesbury Corpn., [1948] 1
K.B. 223 (CA)] reasonableness. Furthermore, “patent illegality”
itself has been held to mean contravention of the substantive
law of India, contravention of the 1996 Act, and contravention
of the terms of the contract.”
17. A similar view, as stated above, has been taken by this Court
in K. Sugumar v. Hindustan Petroleum Corpn. Ltd. [K.

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Sugumar v. Hindustan Petroleum Corpn. Ltd., (2020) 12 SCC
539], wherein it has been observed as follows : (SCC p. 540,
para 2)
“2. The contours of the power of the Court under Section 34 of
the Act are too well established to require any reiteration. Even
a bare reading of Section 34 of the Act indicates the highly
constricted power of the civil court to interfere with an arbitral
award. The reason for this is obvious. When parties have chosen
to avail an alternate mechanism for dispute resolution, they
must be left to reconcile themselves to the wisdom of the
decision of the arbitrator and the role of the court should be
restricted to the bare minimum. Interference will be justified
only in cases of commission of misconduct by the arbitrator
which can find manifestation in different forms including
exercise of legal perversity by the arbitrator.”
18. It has also been held time and again by this Court that if
there are two plausible interpretations of the terms and
conditions of the contract, then no fault can be found, if the
learned arbitrator proceeds to accept one interpretation as
against the other. In Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd. [Dyna Technologies (P) Ltd. v. Crompton Greaves
Ltd., (2019) 20 SCC 1], the limitations on the Court while
exercising powers under Section 34 of the Arbitration Act has
been highlighted thus : (SCC p. 12, para 24)
“24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided
therein or as interpreted by various Courts. We need to be
cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless the Court
comes to a conclusion that the perversity of the award goes to
the root of the matter without there being a possibility of
alternative interpretation which may sustain the arbitral award.
Section 34 is different in its approach and cannot be equated
with a normal appellate jurisdiction. The mandate under Section
34 is to respect the finality of the arbitral award and the party
autonomy to get their dispute adjudicated by an alternative
forum as provided under the law. If the Courts were to interfere
with the arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate dispute
resolution would stand frustrated.”
19. In Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut
Utpadan Nigam Ltd. [Parsa Kente Collieries Ltd. v. Rajasthan
Rajya Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236 : (2019) 3
SCC (Civ) 552], adverting to the previous decisions of this
Court in McDermott International Inc. v. Burn Standard Co.
Ltd. [McDermott International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181] and Rashtriya Ispat Nigam
Ltd. v. Dewan Chand Ram Saran [Rashtriya Ispat Nigam
Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306 : (2012) 50
VST 443 : (2012) 14 GSTR 291], wherein it has been observed
that an Arbitral Tribunal must decide in accordance with the
terms of the contract, but if a term of the contract has been
construed in a reasonable manner, then the award ought not to
be set aside on this ground, it has been held thus : (Parsa Kente

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Collieries case [Parsa Kente Collieries Ltd. v. Rajasthan Rajya
Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236 : (2019) 3 SCC
(Civ) 552], SCC pp. 244-45, para 9)
“9.1. … It is further observed and held that construction of the
terms 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. It is further observed by this Court in the
aforesaid decision in para 33 that when a court is applying the
“public policy” test to an arbitration award, it does not act as a
court of appeal and consequently errors of fact cannot be
corrected. A possible view by the arbitrator on facts has
necessarily to pass muster as the arbitrator is the ultimate master
of the quantity and quality of evidence to be relied upon when
he delivers his arbitral award. It is further observed that thus an
award based on little evidence or on evidence which does not
measure up in quality to a trained legal mind would not be held
to be invalid on this score.
9.2. Similar is the view taken by this Court in NHAI v. ITD
Cementation India Ltd. [NHAI v. ITD Cementation India
Ltd., (2015) 14 SCC 21 : (2016) 2 SCC (Civ) 716], SCC para 25
and SAIL v. Gupta Brother Steel Tubes Ltd. [SAIL v. Gupta
Brother Steel Tubes Ltd., (2009) 10 SCC 63 : (2009) 4 SCC
(Civ) 16], SCC para 29.”
(emphasis supplied)
20. In Dyna Technologies [Dyna Technologies (P)
Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1], the view
taken above has been reiterated in the following words : (SCC
p. 12, para 25)
“25. Moreover, umpteen number of judgments of this Court
have categorically held that the courts should not interfere with
an award merely because an alternative view on facts and
interpretation of contract exists. The courts need to be cautious
and should defer to the view taken by the Arbitral Tribunal even
if the reasoning provided in the award is implied unless such
award portrays perversity unpardonable under Section 34 of the
Arbitration Act.”
21. An identical line of reasoning has been adopted in South
East Asia Marine Engg. & Constructions Ltd. (Seamec
Ltd.) v. Oil India Ltd. [South East Asia Marine Engg. &
Constructions Ltd. (Seamec Ltd.) v. Oil India Ltd., (2020) 5
SCC 164 : (2020) 3 SCC (Civ) 1] and it has been held as
follows : (SCC p. 172, paras 12-13)
“12. It is a settled position that a court can set aside the award
only on the grounds as provided in the Arbitration Act as
interpreted by the courts. Recently, this Court in Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd. [Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20
SCC 1] laid down the scope of such interference. This Court
observed as follows : (SCC p. 12, para 24)

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‘24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided
therein or as interpreted by various Courts. We need to be
cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless the Court
comes to a conclusion that the perversity of the award goes to
the root of the matter without there being a possibility of
alternative interpretation which may sustain the arbitral award.
Section 34 is different in its approach and cannot be equated
with a normal appellate jurisdiction. The mandate under Section
34 is to respect the finality of the arbitral award and the party
autonomy to get their dispute adjudicated by an alternative
forum as provided under the law. If the Courts were to interfere
with the arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate dispute
resolution would stand frustrated.’
13. It is also settled law that where two views are possible, the
Court cannot interfere in the plausible view taken by the
arbitrator supported by reasoning. This Court in Dyna
Technologies [Dyna Technologies (P) Ltd. v. Crompton Greaves
Ltd., (2019) 20 SCC 1] observed as under : (SCC p. 12, para 25)
‘25. Moreover, umpteen number of judgments of this Court
have categorically held that the Court should not interfere with
an award merely because an alternative view on facts and
interpretation of contract exists. The Courts need to be cautious
and should defer to the view taken by the Arbitral Tribunal even
if the reasoning provided in the award is implied unless such
award portrays perversity unpardonable under Section 34 of the
Arbitration Act.”
66. Again, the Apex Court in Batliboi Environmental Engineers
Ltd. v. Hindustan Petroleum Corpn. Ltd., (2024) 2 SCC 375 : (2024) 1
SCC (Civ) 182, has held as under:—
“32. Post award interference and the extent of the second look by the
courts under Section 34 of the A&C Act has been a subject-matter of
perennial parley. The foundation of arbitration is party autonomy. Parties
have the freedom to enter into an agreement to settle their disputes/claims
by an Arbitral Tribunal, whose decision is binding on the parties.
[See Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1
SCC (Civ) 549, which examines arbitrability and nonarbitrability of
subject-matters and claims, which aspect will not be examined in this
case.] It is argued that the purpose of arbitration is fast and quick one-stop
adjudication as an alternative to court adjudication, and therefore, post
award interference by the courts is un-warranted, and an anathema that
undermines the fundamental edifice of arbitration, which is consensual
and voluntary departure from the right of a party to have its claim or
dispute adjudicated by the judiciary. The process is informal, and need not
be legalistic [ The expression “judicially”, does not equate arbitration with
formal/court proceedings, and would include a just and fair decision.]. Per
contra, it is argued that party autonomy should not be treated as an
absolute defence, as a party despite agreeing to refer the disputes/claims to
a private tribunal consensually, does not barter away the constitutional and
basic human right to have a fair and just resolution of the disputes. The
court must exercise its powers when the award is unfair, arbitrary,
perverse, or otherwise infirm in law. While arbitration is a private form of

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dispute resolution, the conduct of arbitral proceedings must meet the
juristic requirements of due process and procedural fairness and
reasonableness, to achieve a “judicially” sound and objective outcome. If
these requirements, which are equally fundamental to all forms of
adjudication including arbitration, are not sufficiently accommodated in
the arbitral proceedings and the outcome is marred, then the award should
invite intervention by the court.
33. To disentangle and balance the competing principles, the degree and
scope of intervention of courts when an award is challenged by one or
both parties needs to be stated. Reconciliation as a statement of law and in
particular application in a particular case has not been an easy exercise.
We begin by first referring to the views expressed by this Court in
interpreting the width and scope of the post award interference by the
courts under Section 34 of the A&C Act.
*
37. Explanation to sub-clause (ii) to clause (b) to Section 34(2) of the
A&C Act, as quoted above and before its substitution by Act 3 of 2016,
had postulated and declared for avoidance of doubt that an award is “in
conflict with the public policy of India”, if the making of the award is
induced or affected by fraud or corruption, or was in violation of Sections
75 or 81 of the A&C Act. Both Sections 75 and 81 of the A&C Act fall
under Part III of the A&C Act, which deal with conciliation proceedings.
Section 75 of the A&C Act relates to confidentiality of the settlement
proceedings and Section 81 deals with admissibility of evidence in
conciliation proceedings. Suffice it is to note at this stage that while
“fraud” and “corruption” are two specific grounds under “public policy”,
these are not the sole and only grounds on which an award can be set aside
on the ground of “public policy”.
38. Act 3 of 2016 with retrospective effect from 23-10-2015 has
substituted the Explanation referred to above, by two new Explanations
that are differently worded. [Explanations 1 and 2 to sub-clause (ii) to
clause (b) of Section 34(2) of the A&C Act suIn cases where the error
cannot be corrected within the aforesaid
guardrails and if it would require a review on merits or re-adjudication,
the court must refrain from modifying the award and where permissible
in law, remand the matter to the Arbitral Tribunalbstituted vide Act 3 of
2016 read as under:“Explanation 1.— For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy of India, only if
—(i) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or(ii) it is in
contravention with the fundamental policy of Indian law; or(iii) it is in
conflict with the most basic notions of morality or justice. Explanation 2.
—For the avoidance of doubt, the test as to whether there is a
contravention with the fundamental policy of Indian law shall not entail a
review on the merits of the dispute.“Sub-section (2-A) of Section 34 of the
A&C Act inserted vide Act 3 of 2016 reads as under:“34. (2-A) An arbitral
award arising out of arbitrations other than international commercial
arbitrations, may also be set aside by the court, if the court finds that the
award is vitiated by patent illegality appearing on the face of the award :
Provided that an award shall not be set aside merely on the ground of an
erroneous application of the law or by reappreciation of evidence.”] Sub-
section (2-A) to Section 34 of the A&C Act, which was instituted by Act 3
of 2016 with retrospective effect from 23-10-2015, states that the arbitral
award arising out of arbitrations other than international commercial
arbitrations can be set aside by the court, if it is vitiated by patent illegality

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appearing on the face of the award. The proviso to sub-section (2-A) to
Section 34 of the A&C Act also states that the award shall not be set aside
merely on the ground of erroneous application of law or by reappreciation
of evidence. The aforesaid sub-section need not be examined in the facts
of the present case, as we are not required to interpret and apply the
substituted Explanations to sub-clause (ii) to clause (b) to Section 34(2) of
the A&C Act in the present case.
39. The expression “public policy” under Section 34 of the A&C Act is
capable of both wide and narrow interpretation. Taking a broader
interpretation, this Court in ONGC Ltd. v. Saw Pipes Ltd. [ONGC
Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] (for short Saw Pipes), held that
the legislative intent was not to uphold an award if it is in contravention of
provisions of an enactment, since it would be contrary to the basic concept
of justice. The concept of “public policy” connotes a matter which
concerns public good and public interest. An award which is patently in
violation of statutory provisions cannot be held to be in public interest.
Thus, expanding on the scope and expanse of the jurisdiction of the court
under Section 34 of the A&C Act, it was held that an award can be set
aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
40. Nevertheless, the decision in Saw Pipes case [ONGC Ltd. v. Saw
Pipes Ltd., (2003) 5 SCC 705] holds that mere error of fact or law in
reaching the conclusion on the disputed question will not give jurisdiction
to the court to interfere. However, this will depend on three aspects:
(a) whether the reference was made in general terms for deciding the
contractual dispute, in which case the award can be set aside if the award
is based upon erroneous legal position;
(b) this proposition will also hold good in case of a reasoned award, which
on the face of it is erroneous on the legal proposition of law and/or its
application; and
(c) where a specific question of law is submitted to an arbitrator,
erroneous decision on the point of law does not make the award bad,
unless the court is satisfied that arbitrator had proceeded illegally.
In Saw Pipes case [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705], the
Court set aside the award on the ground that the award had not taken into
consideration the terms of the contract before arriving at the conclusion as
to whether the party claiming the damages is entitled to the same.
Reference was made to the provisions of Sections 73 and 74 of the
Contract Act, which relate to liquidated damages, general damages and
penalty stipulations. This view had held the field for a long time and was
applied in subsequent judgments of this Court in Hindustan Zinc
Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445], Centrotrade Minerals & Metals
Inc. v. Hindustan Copper Ltd. [Centrotrade Minerals & Metals
Inc. v. Hindustan Copper Ltd., (2006) 11 SCC 245], DDA v. R.S. Sharma
& Co. [DDA v. R.S. Sharma & Co., (2008) 13 SCC 80], J.G. Engineers
(P) Ltd. v. Union of India [J.G. Engineers (P) Ltd. v. Union of
India, (2011) 5 SCC 758 : (2011) 3 SCC (Civ) 128], and Union of

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ARPL No. 35 of 2025
India v. L.S.N. Murthy [Union of India v. L.S.N. Murthy, (2012) 1 SCC
718 : (2012) 1 SCC (Civ) 368].
41. In 2006, this Court in McDermott International Inc. [McDermott
International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] despite
following the ratio of Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5
SCC 705], made succinct observations regarding the restrictive role of
courts in the post-award interference. In addition to the three grounds
introduced in Renusagar Power Co. Ltd. v. General Electric
Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1)
SCC 644 : (1994) 81 Comp Cas 171], as noticed above, an additional
ground of “patent illegality” was introduced in Saw Pipes Limited, for
exercise of the court's jurisdiction in setting aside an arbitral award. This
Court, in McDermott International Inc. [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], held that patent
illegality, must be such which goes to the root of the matter. The public
policy violation should be so unfair and unreasonable as to shock the
conscience of the court. Arbitrator where s/he acts contrary to or beyond
the express law of contract or grants relief, such awards fall within the
purview of Section 34 of the A&C Act. Further, what would constitute
public policy is a matter dependent upon the nature of transaction and the
statute. Pleadings of the party and material brought before the Court
would be relevant to enable the Court to judge what is in public good or
public interest, or what would otherwise be injurious to public good and
interest at a relevant point. So, this must be distinguished from public
policy of a particular government.
42. A similar view was expressed in Rashtriya Ispat Nigam Ltd. v. Dewan
Chand Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram
Saran, (2012) 5 SCC 306 : (2012) 50 VST 443 : (2012) 14 GSTR 291]
with the clarification that where a term of the contract is capable of two
interpretations and the view taken by the arbitrator is a plausible one, it
cannot be said that the arbitrator travelled outside the jurisdiction or the
view taken the arbitrator is against the terms of the contract. The Court
cannot interfere with the award and substitute its view with the award and
interpretation accepted by the arbitrator, the reason being the Court does
not sit in appeal over the findings and decision of the arbitrator, while
deciding an application under Section 34 of the A&C Act. The arbitrator is
legitimately entitled to take a view after considering the material before
him/her and interpret the agreement. The judgment should be accepted as
final and binding.
43. Subsequently, in ONGC Ltd. v. Western Geco International
Ltd. [ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC
263 : (2014) 5 SCC (Civ) 12] (for short Western Geco), a three-Judge
Bench of this Court observed that the Court, in Saw Pipes [ONGC
Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705], did not examine what would
constitute “fundamental policy of Indian law”. The expression
“fundamental policy of Indian law” in the opinion of this Court includes
all fundamental principles providing as basis for administration of justice
and enforcement of law in this country. There were three distinct and
fundamental juristic principles which form a part and parcel of
“fundamental policy of Indian law”. The first and the foremost principle is
that in every determination by a court or an authority that affects rights of
a citizen or leads to civil consequences, the court or authority must adopt a
judicial approach. Fidelity to judicial approach entails that the court or
authority should not act in an arbitrary, capricious or whimsical manner.
The court or authority should act in a bona fide manner and deal with the

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subject in a fair, reasonable and objective manner. Decision should not be
actuated by extraneous considerations. Secondly, the principles of natural
justice should be followed. This would include the requirement that the
Arbitral Tribunal must apply its mind to the attending facts and
circumstances while taking the view one way or the other. Non-
application of mind is a defect that is fatal to any adjudication. Application
of mind is best done by recording reasons in support of the decision. As
noticed above, Section 31(3)(a) of the A&C Act [ “31. Form and contents
of arbitral award.—(1)-(2) *(3) The arbitral award shall state the
reasons upon which it is based, unless—(a) the parties have agreed that no
reasons are to be given, or(b) the award is an arbitral award on agreed
terms under Section 30”] states that the arbitral award shall state the
reasons on which it is based, unless the parties have agreed that no reasons
are to be given. Sub-clauses (i) and (iii) to Section 34(2) also refer to
different facets of natural justice. In a given case sub-clause to Section
34(2) and sub-clause (ii) to clause (b) to Section 34(2) may equally apply.
Lastly, is the need to ensure that the decision is not perverse or irrational
that no reasonable person would have arrived at the same or be sustained
in a court of law. Perversity or irrationality of a decision is tested on the
touchstone of Wednesbury principle of reasonableness [As expounded
in Associated Provincial Picture Houses Ltd. v. Wednesbury
Corpn., [1948] 1 K.B. 223 (CA).]. At the same time, it was cautioned that
this Court was not attempting an exhaustive enumeration of what would
constitute “fundamental policy of Indian law”, as a straightjacket
definition is not possible. If on facts proved before them, the arbitrators
fail to draw an inference which ought to have been drawn or if they have
drawn an inference which on the face of it, is untenable resulting in
injustice, the adjudication made by an Arbitral Tribunal that enjoys
considerable latitude and play at the joints in making awards, may be
challenged and set aside.
44. The decision of this Court in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] elaborately
examined the question of public policy in the context of Section 34 of the
A&C Act, specifically under the head “fundamental policy of Indian law”.
It was firstly held that the principle of judicial approach demands a
decision to be fair, reasonable and objective. On the obverse side, anything
arbitrary and whimsical would not satisfy the said requirement.
45. Referring to the third principle in Western Geco [ONGC
Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12], it was explained that the decision would be irrational and
perverse if (a) it is based on no evidence; (b) if the Arbitral Tribunal takes
into account something irrelevant to the decision which it arrives at; or (c)
ignores vital evidence in arriving at its decision. The standards prescribed
in State of Haryana v. Gopi Nath & Sons [State of Haryana v. Gopi Nath
& Sons, 1992 Supp (2) SCC 312 : (1990) 77 STC 1] (for short Gopi Nath
& Sons) and Kuldeep Singh v. Delhi Police [Kuldeep Singh v. Delhi
Police, (1999) 2 SCC 10 : 1999 SCC (L&S) 429] should be applied and
relied upon, as good working tests of perversity. In Gopi Nath &
Sons [State of Haryana v. Gopi Nath & Sons, 1992 Supp (2) SCC
312 : (1990) 77 STC 1] it has been held that apart from the cases where a
finding of fact is arrived at by ignoring or excluding relevant materials or
taking into consideration irrelevant material, the finding is perverse and
infirm in law when it outrageously defies logic as to suffer from vice of
irrationality. Kuldeep Singh [Kuldeep Singh v. Delhi Police, (1999) 2 SCC
10 : 1999 SCC (L&S) 429] clarifies that a finding is perverse when it is
based on no evidence or evidence which is thoroughly unreliable and no

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reasonable person would act upon it. If there is some evidence which can
be acted and can be relied upon, however compendious it may be, the
conclusion should not be treated as perverse. This Court in Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] emphasised that the public policy test to an arbitral award does
not give jurisdiction to the court to act as a court of appeal and
consequently errors of fact cannot be corrected. Arbitral Tribunal is the
ultimate master of quality and quantity of evidence. An award based on
little evidence or no evidence, which does not measure up in quality to a
trained legal mind would not be held to be invalid on this score. Every
arbitrator need not necessarily be a person trained in law as a Judge. At
times, decisions are taken acting on equity and such decisions can be just
and fair should not be overturned under Section 34 of the A&C Act on the
ground that the arbitrator's approach was arbitrary or capricious. Referring
to the third ground of public policy, justice or morality, it is observed that
these are two different concepts. An award is against justice when it
shocks the conscience of the court, as in an example where the claimant
has restricted his claim but the Arbitral Tribunal has awarded a higher
amount without any reasonable ground of justification. Morality would
necessarily cover agreements that are illegal and also those which cannot
be enforced given the prevailing mores of the day. Here again interference
would be only if something shocks the court's conscience. Further, “patent
illegality” refers to three sub-heads : (a) contravention of substantive law
of India, which must be restricted and limited such that the illegality must
go to the root of the matter and should not be of a trivial nature. Reference
in this regard was made to clause (a) to Section 28(1) of the A&C Act,
which states that the dispute submitted to arbitration under Part I shall be
in accordance with the substantive law for the time being in force. The
second sub-head would be when the arbitrator gives no reasons in the
award in contravention with Section 31(3) of the A&C Act. The third sub-
head deals with contravention of Section 28(3) of the A&C Act which
states that the Arbitral Tribunal shall decide all cases in accordance with
the terms of the contract and shall take into account the usage of the trade
applicable to the transaction. This last sub-head should be understood with
a caveat that the arbitrator has the right to construe and interpret the terms
of the contract in a reasonable manner. Such interpretation should not be a
ground to set aside the award, as the construction of the terms of the
contract is finally for the arbitrator to decide. The award can be only set
aside under this sub-head if the arbitrator construes the award in a way
that no fair-minded or reasonable person would do.”
67. Recently, the Apex Court in AC Chokshi Share Broker (P) Ltd. v. Jatin
Pratap Desai, (2025) 5 SCC 321 has held as under:—
“29. The limited supervisory role of courts while reviewing an arbitral
award is stipulated in Section 34 of the Act, beyond whose grounds courts
cannot intervene and cannot correct errors in the arbitral award.
[McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC
181, para 52] The appellate jurisdiction under Section 37 is also limited,
as it is constrained by the grounds specified in Section 34 and the court
cannot undertake an independent assessment of the merits of the award by
reappreciating evidence or interfering with a reasonable interpretation of
contractual terms by the Arbitral Tribunal. [MMTC Ltd. v. Vedanta
Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293, para 14; Konkan
Railway Corpn. Ltd. v. Chenab Bridge Project, (2023) 9 SCC 85, para 25 ]
The court under Section 37 must only determine whether the Section 34
court has exercised its jurisdiction properly and rightly, without exceeding
its scope. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC

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(Civ) 293, para 14 : ; Bombay Slum Redevelopment Corpn. (P)
Ltd. v. Samir Narain Bhojwani, (2024) 7 SCC 218, para 26.]
*
31. The term “public policy” in Section 34(2)(b)(ii) has been interpreted
by this Court as meaning (a) the fundamental policy of Indian law, or (b)
the interest of India, or (c) justice or morality. [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644 : (1994) 81 Comp
Cas 171, para 66 ] In ONGC v. Saw Pipes Ltd. [ONGC v. Saw
Pipes, (2003) 5 SCC 705], this Court further held that an arbitral award
can be set aside as being contrary to public policy if it is patently illegal.
The illegality must go to the root of the matter and must be so unfair and
unreasonable that it shocks the court's conscience; it cannot be of a trivial
nature. [Id, para 31; McDermott International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181, para 59.] Such patent illegality includes a
situation where the award is in contravention with substantive law.
[ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705, para 54; Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, para 42.1]
32. Further, an award can be set aside as being opposed to the
“fundamental policy of India” if it is perverse, [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12, para 39]
i.e. the finding is not based on evidence, or the Arbitral Tribunal takes
something irrelevant into account, or ignores vital evidence. [Associate
Builders v. DDA, (2015) 3 SCC 49, paras 32-33 : (2015) 2 SCC (Civ) 204,
para 31 ] However, an award is not perverse if the finding of fact is a
possible view that is based on some reliable evidence. [Kuldeep
Singh v. Delhi Police, (1999) 2 SCC 10 : 1999 SCC (L&S) 429, para 10 :
as cited in Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204.]
”
106. Recently, the Apex Court in Jan De Nul Dredging India (P) Ltd. v.
Tuticorin Port Trust : (2026) 3 SCC 186 noticed the scope of the appeal
under Section 37 of the Act of 1996 and in paragraphs 35 to 37 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

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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.
37. Undoubtedly, in the case at hand, the award of the Arbitral Tribunal
is not contrary to any substantive provision of law or any provision of
the Act. Yet, it has been disturbed by the appellate court, apparently by
giving a different interpretation of the clauses of the licence agreement
which jurisdiction was not vested in it. Ordinarily, the interpretation
given by the Arbitral Tribunal, as affirmed by the court in exercise of
powers under Section 34 of the Act ought to have been accepted.”
107. In light of the detailed discussions held hereinabove where the
findings of the Sole Arbitrator on issues nos. 2 to 4 and 8 to 9 have been
found to be vulnerable then the next delicate question that arises before
the Court is, as to whether the entire award should be set aside or certain
part of the award can be severed and saved by dissecting it from the
offending portion. This specific question was referred to a Constitution
Bench of the Supreme Court and in Gayatri Balasamy v. ISG Novasoft
Technologies Ltd. : (2025) 7 SCC 1 , the Apex Court after considering
the provisions of the Act and the law held that the Courts do possess
limited powers under the Act of 1996 to modify the award by applying
the doctrine of severability in limited circumstances.
108. What would be the limited scope and circumstances was explained
in the majority judgment in Gayatri Balasamy (supra). The propositions
and guidelines laid down by the Apex Court can be summarized as
under:-
(i) Only severable awards are amenable to modification;
A composite or indivisible arbitral award cannot be modified.
Modification is permissible only where the claims, or parts of
the award, are legally and pragmatically severable from the
valid portion. In such cases, the court may sever the invalid
part while preserving the remainder of the award. This
constitutes one of the essential guardrails laid down by the
Supreme Court for the exercise of the limited power to
modify an arbitral award;

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(ii) The error sought to be corrected must be patent and
apparent on the face of the record;
The Supreme Court has clarified that modification is
confined to the correction of obvious and self-evident errors,
such as clerical, computational, or typographical mistakes.
Modification is permissible only where the court has no
uncertainty or doubt as to the correction; if the alleged error
is debatable or not apparent on the face of the record, the
court lacks jurisdiction to modify the award;
(iii) Modification is permissible for correcting or adjusting
post-award interest;
Courts may modify an arbitral award where such
modification is confined to the correction or adjustment of
post-award interest, without disturbing the substantive
findings of the Arbitral Tribunal;
(iv) Where modification is impermissible, the matter must be
remanded;
In cases where the error cannot be corrected within the
aforesaid guardrails and if it would require a review on
merits or re-adjudication, the court must refrain from
modifying the award and where permissible in law, remand
the matter to the Arbitral Tribunal.
109. Testing the award dated 27.01.2024 on the anvil of the postulates,
as noticed above, which have been culled out from the decision of the
Apex Court in Gayatri Balasamy (Supra) , it would reveal that the Sole
Arbitrator has dominantly granted a sum of Rs. 11,35,80,273/- relating to
different facets of payments relating to the GST and also included 15%
penalty and 18% interest which is part covered by issues nos. 2 to 4 and 8
to 9 whereas the minuscule amount of Rs. 66,500/- has been awarded in
favour of the respondent which was the appellant’s share of fee payable
to the DRE and is part of issue no. 10,

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110. Hence, applying the principles as noticed above, this Court is of
the clear view that the findings recorded on issues nos. 2 to 4 and 8 to 9
cannot be sustained. The award made in respect of a sum of Rs. 66,500/-
along with interest at the rate of 9% per annum from the date of the
award till the date of its actual payment emerging from issue no. 10 and
the finding given on issue no. 1 which is based on the consensus of the
parties, can be clearly severed and protected, hence, it is so done.
111. Thus, in view of the above detailed discussions, the instant appeal
deserves to be partly allowed . The judgment of the Commercial Court-I,
Lucknow dated 18.07.2025 passed in Arbitration Case No. 25 of 2024 is
set aside. The award of the Sole Arbitrator dated 27.01.2024 shall stand
partly modified to the extent that the findings on issue nos. 2 to 4 and 8 to
9 shall stand set aside and would be severed from the award and the
remaining portion relating to issues no. 1 and 10 shall remain intact and
protected. The claim relating to grant of Rs. 66,500/- under issue no. 10
is saved as also the finding on issue no. 1, which is based on consensus.
The remaining portion of the award relating to the issues nos. 2 to 4 and
8 to 9 shall be re-adjudicated and for that purpose, the matter is remitted
to the Arbitral Tribunal, to be constituted as per law, who would decide
the issues nos. 2 to 4 and 8 to 9 afresh in light of the observations made
by this Court hereinabove. Resultantly, the appeal is partly allowed in the
aforesaid terms. The parties will bear their own costs.
(Jaspreet Singh, J) (Arun Bhansali, CJ)
July 21, 2026
Asheesh
Digitally signed by :-
ASHEESH KUMAR
High Court of Judicature at Allahabad,
Lucknow Bench