Arbitral award based on perverse findings regarding contract commencement and unconditional extensions constitutes patent illegality.

The parties entered into a construction contract on December 4, 2013, for a commercial complex.

Work commenced on February 12, 2014, although a formal "notice to commence" was not issued and the sanctioned building plan was only obtained on January 19, 2016.

The respondent granted four extensions of time without levying liquidated damages, but eventually terminated the contract on May 17, 2017, alleging slow progress (approx. 60-62% completion).

An Arbitral Tribunal ruled the termination illegal, finding the respondent in material breach due to the delay in obtaining the sanctioned plan and the fact that extensions were granted without damages.

A Single Judge of the High Court set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996, prompting this appeal.

1. Whether the Arbitral Tribunal’s finding that the contract could only legally commence upon the Sanctioned Building Plan was perverse and contrary to the evidence on record.

2. Whether the grant of extensions "without prejudice" by the respondent constituted a waiver of the right to claim liquidated damages or blame the appellant for delay.

3. Whether the Single Judge correctly exercised jurisdiction under Section 34 to set aside the award on the grounds of patent illegality.

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, which permits setting aside an award for "patent illegality" appearing on the face of the award.

It further relied on the principles of Section 37 regarding the limited scope of appellate interference, citing *Somdatt Builders-NCC-NEC(JV) vs. National Highways Authority of India*, which mandates that an appellate court must only ensure the Section 34 court acted within its limited power.

The court also considered Section 28(3), requiring the Tribunal to take into account the terms of the contract and trade usages.

The Division Bench found that the Arbitral Tribunal committed a fundamental error by ignoring the conduct of the parties.

Both parties had accepted February 12, 2014, as the commencement date in their pleadings and had proceeded with work and payments long before the building plan was sanctioned.

Consequently, the Tribunal’s finding that there was "no legal commencement" until 2016 was deemed perverse as no reasonable person could reach that conclusion given the evidence.

Regarding the extensions, the Court noted the Tribunal failed to adjudicate the impact of the "without prejudice" caveat attached to the extensions granted by the respondent.

The Court held that the Tribunal’s failure to differentiate between legal and actual commencement and its misinterpretation of the extension letters placed the award on a "wrong pedestal," justifying the Single Judge's intervention.

The Court held that an award is vitiated by patent illegality if it draws inferences that no reasonable person could draw from the record or ignores vital evidence regarding the parties' ad idem commencement of work.

The stay on the judgment was refused.