STATE OF CHHATTISGARH & ANR. versus M/S SAL UDYOG PRIVATE LIMITED

Citation: [2021] 11 S.C.R. 142 · Decided: 08-11-2021 · Supreme Court of India · Bench: N.V. RAMANA · Disposal: Disposed off

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 11 S.C.R.
STATE OF CHHATTISGARH & ANR.
v.
M/S SAL UDYOG PRIVATE LIMITED
(Civil Appeal No. 4353 of 2010)
NOVEMBER 08, 2021
[N. V. RAMANA, CJI, SURYA KANT AND
HIMA KOHLI, JJ]
Arbitration and Conciliation Act, 1996: ss. 34, 37, 34(2A),
28(3) – Arbitral award – Interference with – Patent illegality – On
facts, agreement between the parties wherein the State agreed to
supply sal seeds to the respondent-company –  Agreement clause
providing for imposition of supervision charges on the amounts
calculated towards the cost of the Sal seeds in the expenditure
incurred by the State Government – However, the respondent-
company claimed refund of the excess amount purportedly paid by
it to the appellant-State towards supervision charges incurred for
supply of Sal seeds – Arbitral award by the arbitrator that there
was no basis to admit any such “indirect expenses” – Plea by the
appellant-State that the Arbitrator as also the High Court ignored
the binding terms of the contract governing the parties relating to
recovery of ‘supervision charges’ from the respondent-Company –
Held: An arbitral award may be set aside when there is “patent
illegality” – Failure on the part of the Sole Arbitrator to decide in
accordance with the terms of the contract governing the parties,
attract the “patent illegality ground”, as it amounts to gross
contravention of s. 28(3), that enjoins the Arbitral Tribunal to take
into account the terms of the contract while making an Award –
This is the patent illegality manifest on the face of the Arbitral Award
inasmuch as the express terms and conditions of the Agreement
governing the parties as also the Circular issued by the Government
have been completely ignored – Award permitting deduction of
‘supervision charges’ recovered from the respondent-Company by
the appellant-State as a part of the expenditure incurred by it while
calculating the price of the Sal seeds, is quashed and set aside.
ss. 34(2A), 37 – Application for setting aside arbitral award
– Power of, when award vitiated by patent illegality – Applicability
[2021] 11 S.C.R. 142
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of the ground of patent illegality to appeal u/s. 37 – Held: s. 34(2A)
empowers the Court to set aside an award if it finds that the same is
vitiated by patent illegality appearing on the face of the award –
Provision that enables a Court acting on its own in deciding a
petition u/s.34 for setting aside an Award, would be available in an
appeal preferred u/s. 37 of the  Act – Expression used in the sub-
rule is “the Court finds that” – Once the appellant-State takes such
a ground in the s. 37 petition and it was duly noted in the impugned
judgment, the High Court ought to have interfered by resorting to
s. 34(2A), a provision which would be equally available for
application to an appealable order u/s. 37 as it is to a petition filed
u/s. 34 – Plea of waiver taken against the appellant-State on the
ground that it did not raise such an objection in the grounds spelt
out in the s. 34 petition and is, thus, estopped from taking the same
in the appeal u/s. 37 or before this Court, not available to the
respondent.
Disposing of the appeal, the Court
HELD: 1.1 The law on interference in matters of Awards
under the Arbitration and Conciliation Act, 1996 has been
circumscribed with the object of minimising interference by courts
in arbitration matters. One of the grounds on which an Award
may be set aside is “patent illegality”. [Para 13][151-G; 152-A]
1.2 It is an admitted position that both, the Original
Agreement dated 30th August, 1979 and the Renewed Agreement
dated 30th April, 1992 included a clause relating to levy of
“supervision charges”. Most of the terms and conditions of the
Original Agreement-Clause 6(b) and the Renewed Agreement-
Clause 5(b) are materially the same. The said clauses stipulate
that expenses incurred by the State Government towards supply
of Sal seeds were to include amongst others, ‘supervision
charges’. Clause 8 of the first Agreement is identical to Clause 7
of the second Agreement which stipulates that supply of Sal seeds
to the respondent-Company would be against advance payment.
There is also a similarity between Clause 9(ii) of the Agreement
dated 30th July, 1979 and Clause 8(ii) of the Agreement dated
30th April, 1992, that require the respondent-Company to take
delivery of the collected Sal seeds within a stipulated time and
STATE OF CHHATTISGARH & ANR. v. M/S SAL UDYOG
PR

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