Arbitral Award Vitiated by Patent Illegality for Disregarding Express Contractual Terms and Misapplying Locus Standi

In brief

The question

1. Whether the Arbitral Tribunal was justified in holding that the Appellant lacked locus standi to maintain the claim due to the transfer of its beneficiation plant

The court held

The High Court answered both issues in the negative. It held that the Arbitral Tribunal had no basis to deny locus standi

It also directed

The Court held that the interpretation of Clause 9 was contrary to the express terms of the contract, amounting to patent illegality

Consequently, the Court allowed the appeal, setting aside the Arbitral Award dated 03.07.2024 and the Commercial Court's order dated 28.07.2025

01Facts

The Appellant, a partnership firm, purchased 1,00,000 MT of iron ore in a 2013 e-auction conducted by the Monitoring Committee (MC) for ₹26.61 Crores

pp. 4-5

The Appellant lifted approximately 47,441 MT but failed to lift the balance, alleging the remaining material's iron (Fe) content was below the 45% threshold

p. 5

The MC rejected a refund request for the unlifted quantity, citing the "as is where is" clause

p. 5

After a decade of litigation, the Supreme Court appointed a fresh Arbitrator (Respondent No. 2), who dismissed the Appellant’s claim in July 2024

pp. 7-8

The Arbitral Tribunal held that: (i) the Appellant lacked locus standi because it had transferred its beneficiation plant to a private limited company, and (ii) Clause 9 of the bid document (regarding refunds) only applied if the MC terminated the contract, not if the bidder failed to lift the material

pp. 8-9, 18, 32

The Commercial Court upheld this award under Section 34 of the Arbitration and Conciliation (A&C) Act

pp. 9-10

02Issues

i.1. Whether the Arbitral Tribunal was justified in holding that the Appellant lacked locus standi to maintain the claim due to the transfer of its beneficiation plant

p. 15

ii.2. Whether the Arbitral Tribunal’s interpretation of Clause 9—limiting refunds only to cases of MC-initiated termination—was a plausible view or constituted "patent illegality" by contradicting the express terms of the contract

p. 23, 31

03Law Applied

The court applied Section 34(2A) and Section 37 of the A&C Act, 1996

p. 2, 13

Sections 73 and 74 of the Indian Contract Act, 1872 regarding damages for breach of contract

p. 33

Delhi Airport Metro Express Pvt. Ltd. v. DMRC, defining "patent illegality" as an error that strikes at the root of the matter, including contravention of the substantive law of India or the terms of the contract

p. 13

Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust, affirming that an award is liable to be set aside if it is contrary to the express terms of the agreement

p. 14

Provisions in the judgment · 7 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 11 Section 28 Section 34 Section 37

Commercial Courts Act, 2015 Section 13

Indian Contract Act, 1872 Section 73 Section 74

04Reasoning

Regarding locus standi, the Court found the Arbitral Tribunal's reasoning perverse; the Appellant was the auction purchaser who deposited the funds, and the mere transfer of a physical asset (the plant) did not divest the firm of its right to a "chose in action" (the refund claim)

pp. 21-23

Furthermore, since the MC never pleaded the transfer as a defense, the Tribunal erred in drawing an adverse inference for non-production of transfer documents

pp. 19-21

Regarding the merits, the Court held the Tribunal's interpretation of Clause 9 "vitiated by patent illegality"

p. 34

Clause 9 explicitly stated that if a buyer fails to lift the entire quantity, the advance for the unlifted quantity "will be refunded" while the security deposit is forfeited

p. 29, 31

The Tribunal's attempt to "redraft" the contract by claiming this clause "made no commercial sense" unless restricted to MC-initiated termination was held to be a violation of the plain language of the agreement

pp. 32-34