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to Section 48(2)(b); secondly, it limits the expanse of public policy of India to the three specified categories by using the words “only if”. Whereas, Explanation 2 lays down the standard for adjudging whether there is a contravention with the fundamental policy of Indian law by providing that a review on merits of the dispute shall not be done. This limits the scope of the enquiry on an application under either Section 34(2)(b)(ii) or Section 48(2)(b) of the 1996 Act.

45Copy pinpoint45. The Amendment, 2015 by inserting sub-section (2-A)41 in Section 34, carves out an additional ground for annulment of an arbitral award arising out of arbitrations other than international commercial arbitrations. Sub-section (2-A) provides that the Court may also set aside an award if that is vitiated by patent illegality appearing on the face of the award. This power of the Court is, however, circumscribed by the Proviso, which states that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.

46Copy pinpoint46. Explanation 1 to Section 34(2)(b)(ii), specifies that an arbitral 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.

47Copy pinpoint47. In the instant case, there is no allegation that the making of the award was induced or affected by fraud or corruption, or was in violation of Section 75 or Section 81. Therefore, we shall confine our exercise in assessing as to whether the arbitral award is in contravention with the fundamental policy of Indian law, and/ or whether it conflicts with the most basic notions of morality or justice. Additionally, in the light of the provisions of sub-section (2-A) of Section 34, we shall examine whether there is any patent illegality on the face of the award.

48Copy pinpoint48. Before undertaking the aforesaid exercise, it would be apposite to consider as to how the expressions (a) “in contravention with the fundamental policy of Indian law”; (b) “in conflict with the most basic notions of morality or justice”; and (c) “patent illegality” have been construed.

41 See Footnote 18

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In contravention with the fundamental policy of Indian law

49Copy pinpoint49. As discussed above, till the Amendment, 2015 the expression “in contravention with the fundamental policy of Indian law” was not found in the 1996 Act. Yet, in Renusagar (supra), in the context of enforcement of a foreign award, while construing the phrase “contrary to the public policy”, this Court held that for a foreign award to be contrary to public policy mere contravention of law would not be enough rather it should be contrary to: (a) the fundamental policy of Indian law; and /or (b) the interest of India; and/ or (c) justice or morality.

50Copy pinpoint50. In the judicial pronouncements that followed Renusagar (supra), already discussed above, the domain of what could be considered contrary to the ‘public policy of India’/ ‘fundamental policy of Indian law’ expanded, resulting in much greater interference with arbitral awards than what the lawmakers intended. This led to the Amendment, 2015 in the 1996 Act.

51Copy pinpoint51. In Ssangyong Engineering (supra), this Court dealt with the effect of the Amendment, 2015. While doing so, it took note of a supplementary report of February 2015 of the Law Commission of India made in the context of the proposed 2015 amendments. The said supplementary report has been extracted in paragraph 30 of that judgment. The key features of it are summarized below: (a) Mere violation of law of India would not be a violation of public policy in cases of international commercial arbitrations held in India. (b) The proposed 2015 amendments in 1996 Act (i.e., in Sections 34(2)(b)(ii) and 48(2)(b) including insertion of sub-section (2-A) in Section 34) were on the assumption that the terms, such as, “fundamental policy of Indian law” or conflict with “most basic notions of morality or justice” would not be widely construed. (c) The power to review an award on merits is contrary to the object of the Act and international practice. (d) The judgment in Western Geco (supra) would expand the court’s power, contrary to international practice. Hence, a clarification needs to be incorporated to ensure that the term ‘fundamental policy of Indian law’ is narrowly construed. The

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applicability of Wednesbury principles to public policy will open the floodgates. Hence, Explanation 2 to Section 34(2)(b)(ii) has been proposed. After taking note of the supplementary report, the statement of objects and reasons of the Amendment Act, 2015, and the amended provisions of Sections 28, 34 and 48, this Court held: “34. What is clear, therefore, is that the expression public policy of India, whether contained in section 34 or in section 48, would now mean the fundamental policy of Indian law as explained in paras 18 and 27 of Associate Builders i.e. the fundamental policy of Indian law would be relegated to Renusagar’s understanding of this expression. This would necessarily mean that Western Geco expansion has been done away with. In short, Western Geco, as explained in Paras 28 and 29 of Associate Builders, would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach the court’s intervention would be on the merits of the award, which cannot be permitted post amendment. However, in so far as principles of natural justice are concerned, as contained in sections 18 and 34(2)(a) (iii) of the 1996 Act, these continue to be the grounds of challenge of an award, as is contained in para 30 of Associate Builders. 35.***** 36******

37. In so far as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015 to section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter, but which does not amount to mere erroneous application of the law. In short, what is not subsumed within the fundamental policy of Indian law, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the back door when it comes to setting aside an award on the ground of patent illegality.

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38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.

39. To elucidate, para 42.¹ of Associate Builders, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.² of Associate Builders, however, would remain, for if an arbitrator gives no reasons for an award and contravenes section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.

40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair minded or reasonable person would; in short, that the arbitrator’s view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with the matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34 (2-A).

41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders, while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterized as perverse. ********* ******* *******

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69. We therefore hold, following the aforesaid authorities, that in the guise of misinterpretation of the contract, and consequent errors of jurisdiction, it is not possible to state that the arbitral award would be beyond the scope of submission to arbitration if otherwise the aforesaid misinterpretation [which would include going beyond the terms of the contract], could be said to have been fairly comprehended as disputes within the arbitration agreement or which were referred to the decision of the arbitrators as understood by the authorities above. If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of patent illegality, which, as we have seen, would not apply to international commercial arbitrations that are decided under Part II of the 1996 Act. To bring in by the back door grounds relatable to Section 28 (3) of the 1996 Act to be matters beyond the scope of submission to arbitration under section 34(2)(a)(iv) would not be permissible as this ground must be construed narrowly and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the arbitral tribunal.”

52Copy pinpoint52. The legal position which emerges from the aforesaid discussion is that after the ‘2015 amendments’ in Section 34 (2)(b)(ii) and Section 48(2)(b) of the 1996 Act, the phrase “in conflict with the public policy of India” must be accorded a restricted meaning in terms of Explanation 1. The expression “in contravention with the fundamental policy of Indian law” by use of the word ‘fundamental’ before the phrase ‘policy of Indian law’ makes the expression narrower in its application than the phrase “in contravention with the policy of Indian law”, which means mere contravention of law is not enough to make an award vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country. Without intending to exhaustively enumerate instances of such contravention, by way of illustration, it could be said that (a)

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violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and (c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law. However, while assessing whether there has been a contravention of the fundamental policy of Indian law, the extent of judicial scrutiny must not exceed the limit as set out in Explanation 2 to Section 34(2)(b)(ii). Most basic notions of morality and justice

53Copy pinpoint53. In Renusagar (supra) this Court held that an arbitral award is in conflict with the public policy of India if it is, inter alia, contrary to “justice and morality”. Explanation 1, inserted by 2015 Amendment, makes it clear that an award is in conflict with the public policy of India, inter alia, if it conflicts with the ‘most basic notions of morality or justice’. Justice

54Copy pinpoint54. Justice is the virtue by which the society/ court / tribunal gives a man his due, opposed to injury or wrong. Justice is an act of rendering what is right and equitable towards one who has suffered a wrong. Therefore, while tempering justice with mercy, the court must be very conscious, that it has to do justice in exact conformity with some obligatory law, for the reason that human actions are found to be just or unjust on the basis of whether the same are in conformity with, or in opposition to, the law.42 Therefore, in ‘judicial sense’, justice is nothing more nor less than exact conformity to some obligatory law; and all human actions are either just or unjust as they are in conformity with, or in opposition to, the law.43

55Copy pinpoint55. But, importantly, the term ‘legal justice’ is not used in Explanation 1, therefore simple conformity or non-conformity with the law is not the test to determine whether an award is in conflict with the public policy of India in terms of Explanation 1. The test is that it must conflict with the most basic notions of justice. For lack of any objective criteria, it is difficult to enumerate the ‘most basic notions

42 Union of India v. Ajeet Singh, (2013) 4 SCC 186, paragraph 26. 43 P. Ramanatha Aiyar’s Advanced Law Lexicon, 6th Edition, Volume III, page 2621.

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of justice’. More so, justice to one may be injustice to another. This difficulty has been acknowledged by many renowned jurists, as is reflected in the observations of this Court in Delhi Administration v. Gurdip Singh Uban,44 extracted below: “23. The words ‘justice’ and ‘injustice’, in our view, are sometimes loosely used and have different meanings to different persons particularly to those arrayed on opposite sides. One man’s justice is another’s injustice [Raplph Waldo Emerson: Essays (1803-82), First Series, 1841, “Circles]. Justice Cardozo said: “The web is entangled and obscure, shot through with a multitude of shades and colors, the skeins irregular and broken. Many hues that seem to be simple, are found, when analyzed, to be a complex and uncertain blend. Justice itself, which we are wont to appeal to what as a test as well as an ideal, may mean different things to different minds and at different times. Attempts to objectify its standards or even to describe them have never wholly succeeded (Selected Writings of Cardozo, pp 223-224, Falcon Publications, 1947).”

56Copy pinpoint56. In Associate Builders (supra), while this Court was dealing with the concept “public policy of India”, in the context of a Section 34 challenge prior to 2015 amendment, it was held that an award can be said to be against justice only when it shocks the conscience of the court.⁴⁵ The Court illustrated by stating that where an arbitral award, without recording reasons, awards an amount much more than what the claim is restricted to, it would certainly shock the conscience of the court and render the award vulnerable and liable to be set aside on the ground that it is contrary to justice.

57Copy pinpoint57. In Ssyangyong (supra), which dealt with post 2015 amendment scenario, it was observed that an argument to set aside an award on the ground of being in conflict with ‘most basic notions of justice’, can be raised only in very exceptional circumstances, that is, when the conscience of the court is shocked by infraction of some fundamental principle of justice. Notably, in that case the majority award created a new contract for the parties by applying a unilateral circular, and

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by substituting a workable formula under the agreement by another, dehors the agreement. This, in the view of the Court, breached the fundamental principles of justice, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered with the other party.46 However, a note of caution was expressed in the judgment by observing that this ground is available only in very exceptional circumstances and under no circumstance can any court interfere with an arbitral award on the ground that justice has not been done in the opinion of the court because that would be an entry into the merits of the dispute.

58Copy pinpoint58. In the light of the discussion above, in our view, when we talk about justice being done, it is about rendering, in accord with law, what is right and equitable to one who has suffered a wrong. Justice is the virtue by which the society/ court / tribunal gives a man his due, opposed to injury or wrong. Dispensation of justice in its quality may vary, dependent on person who dispenses it. A trained judicial mind may dispense justice in a manner different from what a person of ordinary prudence would do. This is so, because a trained judicial mind is likely to figure out even minor infractions of law/ norms which may escape the attention of a person with ordinary prudence. Therefore, the placement of words “most basic notions” before “of justice” in Explanation 1 has its significance. Notably, at the time when the 2015 Amendment was brought, the existing law with regard to grounds for setting aside an arbitral award, as interpreted by this Court, was that an arbitral award would be in conflict with public policy of India, if it is contrary to: (a) the fundamental policy of Indian law; (b) the interest of India; (c) justice or morality; and /or is (d) patently illegal. As we have already noticed, the object of inserting Explanations 1 and 2 in place of earlier explanation to Section 34(2)(b)(ii) was to limit the scope of interference with an arbitral award, therefore the amendment consciously qualified the term ‘justice’ with ‘most basic notions’ of it. In such circumstances, giving a broad dimension to this category47 would be deviating from the legislative intent. In our view, therefore, considering that the concept of justice is open- textured, and notions of justice could evolve with changing needs of the society, it would

46 See paragraph 76 of the judgment in Ssyanyong (supra) 47 in conflict with most basic notions of morality or justice

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not be prudent to cull out “the most basic notions of justice”. Suffice it to observe, they48 ought to be such elementary principles of justice that their violation could be figured out by a prudent member of the public who may, or may not, be judicially trained, which means, that their violation would shock the conscience of a legally trained mind. In other words, this ground would be available to set aside an arbitral award, if the award conflicts with such elementary/ fundamental principles of justice that it shocks the conscience of the Court. Morality

59Copy pinpoint59. The other ground is of morality. On the question of morality, in Associate Builders (supra), this Court, after referring to the provisions of Section 23 of the Contract Act, 1872; earlier decision of this Court in Gherulal (supra); and Indian Contract Act by Pollock and Mulla, held that judicial precedents have confined morality to sexual morality. And if ‘morality’ were to go beyond sexual morality, it would cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. The court also clarified that interference on this ground would be only if something shocks the court’s conscience.49 Patent Illegality

60Copy pinpoint60. Sub-section (2-A) of Section 34 of the 1996 Act, which was inserted by 2015 Amendment, provides that an arbitral award not arising out of international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is visited by patent illegality appearing on the face of the award. The proviso to sub-section (2-A) 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. In Saw Pipes (supra), while dealing with the phrase ‘public policy of India’ as used in Section 34, this court took the view that the concept of public policy connotes some matter which concerns public good and public interest. If the award, on the face of it, patently violates statutory provisions, it cannot be said to be in public interest. Thus, an award could also be set aside if it is patently illegal. It was, however, clarified that illegality must go to the root of

48 most basic notions of justice 49 See paragraph 39 of Associate Builders (supra)

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the matter and if the illegality is of trivial nature, it cannot be held that award is against public policy.

61Copy pinpoint61. In Associate Builders (supra), this Court held that an award would be patently illegal, if it is contrary to: (a) substantive provisions of law of India; (b) provisions of the 1996 Act; and (c) terms of the contract.50 The Court clarified that if an award is contrary to the substantive provisions of law of India, in effect, it is in contravention of Section 28(1)(a)51 of the 1996 Act. Similarly, violating terms of the contract, in effect, is in contravention of Section 28(3) of the 1996 Act.

62Copy pinpoint62. In Ssangyong (supra) this Court specifically dealt with the 2015 Amendment which inserted sub-section (2-A) in Section 34 of the 1996 Act. It was held that “patent illegality appearing on the face of the award” refers to such illegality as goes to the root of matter, but which does not amount to mere erroneous application of law. It was also clarified that what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to ‘public policy’ or ‘public interest’, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.52 Further, it was observed, reappreciation of evidence is not permissible under this category of challenge to an arbitral award.53

50 See also three-Judge Bench decision of this Court in State of Chhattisgarh v. SAL Udyog (P) Ltd. (2022) 2 SCC 275 51 Section 28. -- Rules applicable to substance of dispute. — (1) Where the place of arbitration is situated in India,-- (a) In an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India ******* (2) ***** (3) while deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction. (As substituted by Act 3 of 2016 w.e.f 23.10.2015) Prior to substitution by Act 3 of 2016, sub-section (3) of Section 28 read as under: “(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction. 52 See paragraph 37 of Ssyangyong (supra) 53 See paragraph 38 of Ssyangyong (supra)

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Perversity as a ground of challenge

63Copy pinpoint63. Perversity as a ground for setting aside an arbitral award was recognized in Western Geco (supra). Therein it was observed that an arbitral decision must not be perverse or so irrational that no reasonable person would have arrived at the same. It was observed that if an award is perverse, it would be against the public policy of India.

64Copy pinpoint64. In Associate Builders (supra) certain tests were laid down to determine whether a decision of an arbitral tribunal could be considered perverse. In this context, it was observed that where: (i) a finding is based on no evidence; or (ii) an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. However, by way of a note of caution, it was observed that when a court applies these tests it does not act as a court of appeal and, consequently, errors of fact cannot be corrected. Though, 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. It was also observed that 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 that score.

65Copy pinpoint65. In Ssangyong (supra), which dealt with the legal position post 2015 amendment in Section 34 of the 1996 Act, it was observed that a decision which is perverse, while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. It was pointed out that an award based on no evidence, or which ignores vital evidence, would be perverse and thus patently illegal. It was also observed that a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence in as much as such decision is not based on evidence led by the parties, and therefore, would also have to be characterized as perverse.54

54 See Paragraph 41 of Ssyangyong (supra).

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66Copy pinpoint66. The tests laid down in Associate Builders (supra) to determine perversity were followed in Ssyanyong (supra) and later approved by a three-Judge Bench of this Court in Patel Engineering Limited v. North Eastern Electric Power Corporation Limited.55

67Copy pinpoint67. In a recent three-Judge Bench decision of this Court in Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd.,56 the ground of patent illegality /perversity was delineated in the following terms: “40. In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; Or, that the view of the arbitrator is not even a possible view. A finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of patent illegality. An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within its jurisdiction or violating a fundamental principle of natural justice.” Scope of interference with an arbitral award

68Copy pinpoint68. The aforesaid judicial precedents make it clear that while exercising power under Section 34 of the 1996 Act the Court does not sit in appeal over the arbitral award. Interference with an arbitral award is only on limited grounds as set out in Section 34 of the 1996 Act. A possible view by the arbitrator on facts is to be respected as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon. It is only when an arbitral award could be categorized as perverse, that on an error of fact an arbitral award may be set aside. Further, a mere erroneous application of the law or wrong appreciation of evidence by itself is not a ground to set aside an award as is clear from the provisions of sub-section (2-A) of Section 34 of the 1996 Act.

55 [2020] 4 SCR 156 : (2020) 7 SCC 167 56 [2024] 4 SCR 473 : 2024 INSC 292

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69Copy pinpoint69. In Dyna Technologies (supra), a three-Judge Bench of this Court held that Courts need to be cognizant of the fact that arbitral awards are not to be interfered with in a casual and cavalier manner, unless the court concludes that the perversity of the award goes to the root of the matter and there is no possibility of an alternative interpretation that may sustain the arbitral award. It was observed that jurisdiction under Section 34 cannot be equated with the normal appellate jurisdiction. Rather, the approach ought to be to respect the finality of the arbitral award as well as party’s autonomy to get their dispute adjudicated by an alternative forum as provided under the law.

70Copy pinpoint70. Now, we shall examine the scope of interference with an arbitral award on ground of insufficient, or improper/erroneous, or lack of, reasons. Reasons for the Award – When reasons, or lack of it, could vitiate an arbitral award.

71Copy pinpoint71. Section 31 (3)57 of the 1996 Act provides that an arbitral award shall state 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. 71.¹ As to the form of a reasoned award, in Russell on Arbitration (24th Edition, page 304) it is stated thus: “6.032. No particular form is required for a reasoned award although ‘the giving of clearly expressed reasons responsive to the issues as they were debated before the arbitrators reduces the scope for the making of unmeritorious challenges’. When giving a reasoned award the tribunal need only set out what, on its view of the evidence, did or did not happen and explain succinctly why, in the light of what happened, the tribunal has reached its decision, and state what that decision is. In order to avoid being vulnerable to challenge, the tribunal’s reasons must deal with all the issues that were put to it. It should set out its findings of fact and its reasoning so as to

57 Section 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.

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enable the parties to understand them and state why particular points were decisive. It should also indicate the tribunal’s findings and reasoning on issues argued before it but not considered decisive, so as to enable the parties and the court to consider the position with respect to appeal on all the issues before the tribunal. When dealing with controversial matters, it is helpful for the tribunal to set out not only its view of what occurred, but also to make it clear that it has considered any alternative version and has rejected it. Even if several reasons lead to the same result, the tribunal should still set them out. That said, so long as the relevant issues are addressed there is no need to deal with every possible argument or to explain why the tribunal attached more weight to some evidence than to other evidence. The tribunal is not expected to recite at great length communications exchanged or submissions made by the parties. Nor is it required to set out each step by which it reached its conclusion or to deal with each and every point made by the parties. It is sufficient that the tribunal should explain what its findings are and the evidential route by which it reached its conclusions. 71.² On the requirement of recording reasons in an arbitral award and consequences of lack of, or inadequate, reasons in an arbitral award, this Court in Dyna Technologies (supra) held: “34. The mandate under section 31 (3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.

35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasonings in the order are improper,

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they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided in section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the court while exercising jurisdiction under section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue even if the court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the tribunal, the court needs to have regard to the document submitted by the parties and the contentions raised before the tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.” 71.3 We find ourselves in agreement with the view taken in Dyna Technologies (supra), as extracted above. Therefore, in our view, for the purposes of addressing an application to set aside an arbitral award on the ground of improper or inadequate reasons, or lack of reasons, awards can broadly be placed in three categories: (1) where no reasons are recorded, or the reasons recorded are unintelligible; (2) where reasons are improper, that is, they reveal a flaw in the decision- making process; and (3) where reasons appear inadequate.

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71.4 Awards falling in category (1) are vulnerable as they would be in conflict with the provisions of Section 31(3) of the 1996 Act. Therefore, such awards are liable to be set aside under Section 34, 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. 71.5 Awards falling in category (2) are amenable to a challenge on ground of impropriety or perversity, strictly in accordance with the grounds set out in Section 34 of the 1996 Act. 71.⁶ Awards falling in category (3) require to be dealt with care. In a challenge to such award, before taking a decision the Court must take into consideration the nature of the issues arising between the parties in the arbitral proceedings and the degree of reasoning required to address them. The Court must thereafter carefully peruse the award, and the documents referred to therein. If reasons are intelligible and adequate on a fair-reading of the award and, in appropriate cases, implicit in the documents referred to therein, the award is not to be set aside for inadequacy of reasons. However, if gaps are such that they render the reasoning in support of the award unintelligible, or lacking, the Court exercising power under Section 34 may set aside the award. Scope of interference with the interpretation / construction of a contract accorded in an arbitral award.

72Copy pinpoint72. An arbitral tribunal must decide in accordance with the terms of the contract. In a case where an arbitral tribunal passes an award against the terms of the contract, the award would be patently illegal. However, an arbitral tribunal has jurisdiction to interpret a contract having regard to terms and conditions of the contract, conduct of the parties including correspondences exchanged, circumstances of the case and pleadings of the parties. If the conclusion of the arbitrator is based on a possible view of the matter, the Court should not intefere.58 But where, on a full reading of the contract, the view of

58 See: Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Limited, (2009) 10 SCC 63; Pure Helium India (P) Ltd v. ONGC, (2003) 8 SCC 593; McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181; MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163

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the arbitral tribunal on the terms of a contract is not a possible view, the award would be considered perverse and as such amenable to interference.59 Whether unexpressed term can be read into a contract as an implied condition.

73Copy pinpoint73. Ordinarily, terms of the contract are to be understood in the way the parties wanted and intended them to be. In agreements of arbitration, where party autonomy is the grund norm, how the parties worked out the agreement, is one of the indicators to decipher the intention, apart from the plain or grammatical meaning of the expressions used.60

74Copy pinpoint74. However, reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by the parties thereto. An unexpressed term can be implied if, and only if, the court finds that the parties must have intended that term to form part of their contract. It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them. Rather, it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, forms part of the contract.61

75Copy pinpoint75. But before an implied condition, not expressly found in the contract, is read into a contract, by invoking the business efficacy doctrine, it must satisfy following five conditions: a. it must be reasonable and equitable; b. it must be necessary to give business efficacy to the contract, that is, a term will not be implied if the contract is effective without it; c. it must be obvious that “it goes without saying”; d. it must be capable of clear expression; e. it must not contradict any terms of the contract.62

59 South East Asia Marine Engg. & Construction Ltd. (SEAMEC Ltd.) v. Oil India Ltd., (2020) 5 SCC 164 60 Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126. 61 Adani Power (Mundra) Ltd. v. Gujarat ERC, (2019) 19 SCC 9 62 Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) and Another, (2018) 11 SCC 508, followed in Adani Power (supra)

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ANALYSIS/ DISCUSSION

76Copy pinpoint76. Having noticed the legal principles governing a challenge to an arbitral award, we shall now proceed to address the issues culled out above, which arise for our consideration in these appeals. GITA POWER (R-2) BOUND BY THE ARBITRATION AGREEMENT AND THEREFORE JOINTLY AND SEVERALLY LIABLE

77Copy pinpoint77. To have a clear understanding of the issue as to whether Gita Power (R-2), the appellant in the connected appeal, could be subjected to arbitral proceedings and made jointly and severally liable along with OPG for the dues of Enexio, a look at the facts relating to formation of the contract including the conduct of the parties would be apposite.

78Copy pinpoint78. The relevant facts in this regard, which find mention in the award, are as follows: (a) There were two companies, namely, Gita Power (R-2) and OPG (appellant). Gita Power is the holding company of OPG. Two Tenders were floated. One by a Gujarat Company in the same group, which related to design, manufacture, delivery to site, erection testing and commissioning of two ACC units with auxiliaries for a thermal power plant in Gujarat (for short Gujarat Unit). The other was issued by OPG in respect of design, manufacture, delivery to site, erection testing and commissioning of an ACC unit with auxiliaries for a thermal power plant at Gummidipoondi in Tamil Nadu (for short T.N. Unit). (b) Enexio (R-1 – the claimant) submitted a single unpriced techno- commercial offer covering both projects. Following negotiations, a revised techno commercial offer covering both projects was submitted in August 2012. Thereafter, following further negotiations, another technical offer covering both projects was submitted by Enexio on 6 October 2012. (c) On 5 November 2012, with reference to the techno offers, OPG addressed a letter to Enexio, in respect of T.N. Unit, stating thus: “Design, Engineering, Supply, Installation, Testing and Commissioning of Air Cooled Condenser with auxiliaries for 1 X 160 MW (Phase III) Coal Based Power Project at Gummudipoondi.

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We refer to your offer GCTQD/ OPG - Gujarat – Gummidipoondi /4239/12 / Rev 2 dated October 6, 2012 and technical and commercial discussions we had with you of date. We have pleasure in informing you of our intent to award a contract for Air Cooled Condenser with auxiliaries in conformance to the discussions you had with us. Price: The price for the total scope is Rs. 44,00,00,000/- (Forty four crores only). Price basis: F.O.R. destination (Power Project site at Gummidipoondi) Taxes and Duties: Extra at actuals, but inclusive of port handling charges. Delivery schedule: The overall agreed time for takeover of equipment will be March 2014.” (d) On 4 March 2013, Gita Power (R-2), holding company of OPG, issued two separate Purchase Orders for: (i) Design, Engineering and Supply of 1 Unit of ACC with Auxiliaries for 160 MW Coal Based project at Gummidipoondi (Supply Purchase Order); and (ii) Erection and Commissioning of 1 Unit of ACC with Auxiliaries for 160 MW Coal Based Power project at Gummidipoondi (Erection Purchase Order). (e) Pursuant to these purchase orders, on 1 April 2013 Enexio (R- 1) submitted a Work Schedule. As per which, commissioning of the ACC Unit was planned on 31 March 2014. (f) On 13 June 2013, the foundations for the ACC Unit were handed over to Enexio (R-1) by OPG. (g) On 4 July 2013 Enexio received 10% of the Order price and on 23 July 2013 second payment of 10% of the Order price was received by Enexio. Both payments were made by Gita Power (R-2).

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(h) While the work was in progress, OPG issued two separate Purchase Orders, namely, supply purchase order and erection purchase order, on similar terms and with similar references as were there in the Purchase Orders issued by R-2 (Gita Power). (i) In the statement of defense, it was stated that when the purchase orders were ready for issue, since Gita Power (R-2) was the holding company of OPG, it was felt that in the commercial interest of the project, the order for supply and erection of ACC Unit should be placed on the claimant by R-2. The statement of defense further states that soon after issuance of the purchase orders in the beginning of April 2013, OPG and R-2 were advised that as the project was being set up by OPG, and it had all the required registrations, etc. it would be advisable that the Purchase Orders placed on the claimant by R-2 for supply and erection of ACC Unit be substituted/ replaced by Purchase Orders in the name of OPG. In addition to above, OPG pleaded that the substitution/ replacement of purchase orders maintained the continuity of the rights and obligations undertaken from 4 March 2013.

79Copy pinpoint79. Based on the above-noted facts, and the evidence brought on record during the arbitral proceedings, the Tribunal concluded that the ‘Group of Companies’ doctrine is applicable, as OPG and R-2 have represented themselves as a single economic entity which could switch duties and obligations from one to the other. The Tribunal held that – (a) R-2 is a proper party; (b) both OPG and R-2 were bound by the arbitration agreements, which gave rise to the arbitral proceedings; and (c) OPG and R-2 were jointly and severally liable to the claimant for complying with the award.

80Copy pinpoint80. In Cox & Kings Ltd. v. SAP India (P) Ltd.,63 a Constitution Bench of this Court held that by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of its formation, performance, and discharge of the contract, a Court or Arbitral Tribunal is empowered to determine whether a non-signatory is a party to an arbitration agreement. It was held that ‘Group of Companies’ doctrine is premised on ascertaining

63 [2023] 15 SCR 621 : (2024) 4 SCC 1

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the intention of the non- signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject matter, composite nature of the transaction, and performance of the contract.

81Copy pinpoint81. In the instant case, the Arbitral Tribunal has found that: (a) Gita Power is the holding company of OPG; (b) Gita Power had issued the Purchase Orders and had actively participated in the formation of the contract even though the ACC unit of Gummudipoondi was of OPG; (c) initial 10% of the purchase price was provided by Gita Power (R-2); (d) the subsequent Purchase Orders issued by OPG were on similar terms and were issued by way of affirmation to obviate technical issues. In our view, the above circumstances had a material bearing for invocation of “Group of Companies doctrine” to bind Gita Power (R-2) with the arbitration agreement and fasten it with liability, jointly and severally with OPG, in respect of the Purchase Orders relating to ACC Unit of Gummudipoondi project. Thus, bearing in mind that an arbitral tribunal has jurisdiction to interpret a contract having regard to the terms and conditions of the contract and conduct of the parties including correspondences exchanged, and, further, taking into account the provisions of sub-section (2-A) of Section 34 of the 1996 Act limiting the scope of interference with a finding returned in an arbitral award, we do not find a good reason to interfere with the above findings of the Arbitral Tribunal more so when it is based on a possible view of the matter. We, therefore, reject the argument on behalf of R-2 that it was not bound by the arbitration agreement and that it ought not to have been made jointly and severally liable along with OPG for the dues payable to Enexio. Sub-issue (a) is decided in the aforesaid terms. ENEXIO’S CLAIM NOT BARRED BY LIMITATION.

82Copy pinpoint82. On the issue as to whether Enexio’s claim was barred by time, the submissions of the appellants, inter alia, are: (a) The date fixed by the contract for completion of the obligations of supply of goods and erection of ACC unit is 31 March 2014. Hence, the date of reckoning for the purposes of limitation ought to be 31 March 2014.

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(b) The contract was a mixture of supply of goods and services (i.e., works). Therefore, Article 14 of the Schedule to the 1963 Act applied for the price of goods supplied, and Article 18 applied for the price of works provided, for computing the limitation period of the claim. In either case, the limitation period of three years would commence to run, not later than, from 31 March 2014. (c) Even if it is assumed that the deemed date of completion was 21 September 2015 (as held by the arbitral tribunal), the claim being filed on 2 May 2019, was well beyond 3 years from that date. (d) Once the period of limitation started to run, in terms of Articles 14 and 18, mere negotiations could not have extended the period of limitation. Therefore, the award, which takes a contrary view, is patently illegal.

83Copy pinpoint83. Before proceeding further, we must remind ourselves that sub-section (1) of Section 4364 of the 1996 Act makes the Limitation Act, 1963 (in short, 1963 Act) applicable to arbitrations as it applies to proceedings in Court. Sub-section (2) of Section 43 provides that unless otherwise agreed by the parties, an arbitral proceeding shall be deemed to have commenced on the date specified in Section 21.⁶⁵ On a conjoint reading of sub-sections (1) and (2) of Section 43 of the 1996 Act

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along with Sections 366 and 2 (j)67 of the 1963 Act it is clear that if on the date of commencement of the arbitral proceeding, as referred to in Section 21 of the 1996 Act, the claim(s) is/are barred by limitation, as per the provisions of the 1963 Act, the Arbitral Tribunal will have to reject such claim(s) as barred by limitation.68

84Copy pinpoint84. In the case in hand there is no dispute between the parties that the arbitral proceedings, in terms of Section 21 of the 1996 Act, commenced on 2 May 2019. Therefore, our exercise would be to determine whether the period of limitation got over prior to that date or not. For that purpose, it would be necessary to ascertain as to which Article of the Schedule was applicable to the claim. And if more than one applied, which one applied to which part of the claim.

85Copy pinpoint85. According to the appellant(s) (i.e., OPG and Gita Power – appellant in the connected appeal), Articles 14 and 18 of the Schedule to the 1963 Act applied to the claim. Importantly, the award does not specify the Article(s) which were applied except Article 58 which was applied to the declaratory relief sought in the claim and which was found barred by time. However, as the claim is based on a contract, we will also consider the applicability of Article 55 and the residuary Article 113 of the Schedule,69 if none other Article(s) were applicable to the claim.

66 Section 3. — Bar of limitation. – (1) Subject to the provisions contained in sections 4 to 24 inclusive, every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defense. (2) For the purposes of this Act – (a) a suit is instituted – (i) in an ordinary case, when the plaint is presented to the proper officer; (ii) in the case of a pauper, when his application for leave to sue as a pauper is made; and (iii) in the case of a claim against the company which is being wound up by the court, when the claimant first sends in his claim to the official liquidator; (b) any claim by way of a set-off or a counter claim, shall be treated as a separate suit and shall be deemed to have been instituted – (i) in the case of a set off, on the same date as the suit in which the set off is pleaded; (ii) in the case of a counter claim, on the date on which the counter claim is made in court; (c) an application by notice of motion in a High Court is made when the application is presented to the proper officer of that court. 67 Section 2. Definitions. – In this Act, unless the context otherwise requires, -- (j) ‘period of limitation’ means the period of limitation prescribed for any suit, appeal or application by the Schedule, and ‘prescribed period’ means the period of limitation computed in accordance with the provisions of this Act. 68 State of Goa v. Praveen Enterprises, (2012) 12 SCC 581, paragraph 16. 69 The Schedule (PERIODS OF LIMITATION) See sections 2(j) and 3: PART II - SUITS RELATING TO CONTRACTS

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Facts having material bearing on limitation

86Copy pinpoint86. For a proper determination of the aforesaid issue, we need to have a close look at the material facts relevant to the issue of limitation. In our view, the material facts,70 inter alia, are: (a) There was a composite Tender inviting offer for design, manufacture, delivery to site, erection, testing and commissioning of an ACC unit with auxiliaries for a thermal power plant. (b) Enexio submitted a composite unpriced techno-commercial offer for the project. (c) On 5 November 2012, with reference to the techno offer, OPG addressed a letter71 expressing intent to award contract for the project at a composite cost of 44 crores. This letter also sets out a tentative date for completion / takeover of the project i.e., March 2014.

Article No. Description of Suit Period of Limitation Time from which period begins to run

14. For the price of goods sold Three years The date of the delivery of the and delivered where no fixed goods period is agreed upon

18. For the price of work done by Three years When the work is done. the plaintiff for the defendant at his request, where no time has been fixed for payment.

55. For compensation for the Three years When the contract is broken or breach of any contract, (where there are successive express or implied not herein breaches) when the breach specially provided for. in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases.

PART III – SUITS RELATING TO DECLARATIONS

58. To obtain any other Three years When the right to sue first Declaration accrues.

PART X – SUITS FOR WHICH THERE IS NO PRESCRIBED PERIOD

113. Any suit for which no period of Three years When the right to sue limitation is provided elsewhere accrues. in this Schedule

70 As gathered from paragraph 7 (including sub paragraphs 7.¹ to 7.⁷⁶) of the Arbitral Award under the title ‘Background to the Dispute’ 71 Quoted in paragraph 79 (c) above

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(d) In that backdrop, on 4 March 2013, Gita Power (R-2) issued two separate orders, one, for Design, Engineering and Supply of 1 Unit of ACC with Auxiliaries (Supply Purchase Order) and, second, for Erection and Commissioning of it (Erection Purchase Order). (e) Pursuant to these purchase orders, on 1 April 2013, Enexio (R- 1) submitted a Work Schedule. As per which, commissioning of the ACC Unit was planned on 31 March 2014. In furtherance thereof, Enexio received 10% of the order price in advance on 4 July 2013, and another 10% on 23 July 2013. Both the advance payments were received from Gita Power (R-2). (f) While the work was in progress, in July 2013 OPG issued two orders replicating those that were issued by Gita Power (R-2) with insignificant variation. (g) As per the Supply Purchase Order, payments were to be made in the following order: Payments: (i) 10% of Order Price as advance money on submission of request for advance and advance payment bank guarantee for 10% of the Order Price, valid until completion of supply; (ii) 10% against approval of Engineering Documentation; (iii) 65% of the Order Price on Pro Rata basis along with 100% taxes after receipt of material at site; (iv) 5% of the Order Price upon submission of (a) invoice, and (b) certificate on completion of punch points duly signed by Parties; (v) 5% of the Contract Price upon submission of (a) invoice, (b) take over certificate of Equipment issued by Purchaser; and (iii) warranty bond for 10% of the contract valid up to the end of warranty period; (vi) 5% of the Contract Price upon submission of (a) invoice, (b) certificate of completion of performance test of equipment by purchaser;

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(vii) Payments to be made within 25 days of submission of invoice/ request for payment and other documents (h) Annexure A of the Supply Purchase Order carried commercial conditions, inter alia, providing for Performance Guarantee Test in the following terms: (1) The Performance Guarantee Test of the equipment shall be carried out immediately after takeover of the equipment but in no case later than two months from the date of takeover. (2) Performance guarantee test will be carried out by the representatives and manpower of the purchaser under the supervision of the supplier’s engineer. (3) In case the performance guarantee test is not carried out due to reasons outside supplier’s control within 180 days from the date of takeover, the guaranteed performance shall be deemed to have been achieved and all liabilities of supplier with respect to the performance guarantee test shall be over. Within these said 180 days, the supplier remains liable for the guaranteed performance of the equipment. (4) The Erection Purchase Order repeated most of the clauses of the supply purchase order and provided for payment in the following manner: Payment (i) 80% against progress of work on pro rata basis and against certification by site officials. (ii) 10% after mechanical completion / Punch list. (iii) 10% of the contract price after Commissioning against bank guarantee in favor of the owner for equivalent value and valid for the entire warranty period. (j) Enexio (R-1) asserted that it finished its work under the contract on or about February 2015. However, on 12 March 2015, OPG complained to Enexio in writing that certain work remained and, therefore, Enexio must instruct its team to complete the pending work.

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(k) Enexio claimed that successful operation of the vacuum pump was carried out on 21 May 2015, which implies commissioning of the ACC unit. In response OPG asserted that three components of the ACC unit were defective. (l) On 2 July 2015, OPG issued a debit note towards modifications to the turbine generator building. Thereafter, on 24 August 2015, OPG issued two debit notes: (i) towards work related to lifting of the vertical duct; and (ii) towards liquidated damages permissible under the Supply Purchase Order and Erection Purchase Order for the delay in execution. (m) On 28 August 2015 Enexio wrote to OPG questioning the debit notes. (n) On 21 September 2015 Enexio informed OPG that the turbine generator was running at full load and, thereby, requested OPG to arrange for Performance Guarantee Test (PG Test). This request was repeated by e-mails dated 3 October 2015 and 8 October 2015. Later, on 9 October 2015, Enexio sent a letter to OPG attaching six protocols confirming commissioning of all relevant segments of the project. Not only that, on 20 October 2015, Enexio sent a procedure for the PG Test. But the PG Test was not undertaken. (o) On 12 January 2016, OPG issued debit note against OPG’s account for customs duty. (p) On 22 August 2016 OPG informed Enexio that fan assembly had detached. On 20 January 2017 Enexio sent an e-mail to OPG, saying: “Sir, This is further to our visit to your site on 7/1/2016. Considering the time availability and on the interest of closing the issue, we suggest the following:

1. Using in-situ machining agency, the shaft dia variation can be machined out after dismantling the hub and blade assembly alone. Gearbox will not be disturbed at all. We already obtained offer for this.

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2. To match the machined out shaft dia and key way, existing fan hub bore and key way can be rebuild and machined after machining out existing bore by 5mm.

3. To start the work, the spare gearbox supplied by us at free of cost can be used and remaining seven gear boxes can be attended one or two at a time.

4. You being a valuable customer to us, we wish to execute the correction work even though this failure happened after our guarantee. We will depute our engineer to site for entire work.

5. But we could not bear the commercial implications since we already suffered loss and our money is also locked up in this project due to various reasons cited in our various earlier letters.

72 See Paragraph 7 of this judgment.

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Enexio in the claim. However, the minutes indicated that it was not payable because of certain deductions claimed by OPG. According to Enexio, those deductions (i.e. towards customs duty and liquidated damages) were incorrectly recorded in the minutes even though there was no agreement in respect thereof. (t) On 26 May 2018, on reiteration of demand by Enexio, OPG responded, vide communication dated 26 May 2018, and offered Rs.3 crores to Enexio as full and final settlement of the account. This offer was rejected by Enexio. Whereafter, arbitration proceeding commenced. Material Observations in the Award.

87Copy pinpoint87. We shall now extract few observations/ findings in the award which, in our view, would be useful in determining the limitation issue. These observations/ findings, with their corresponding paragraph number in the award, are extracted below: “1). On 1st April 2013 the Claimant prepared its L¹ Network Schedule which indicated the final activities leading to commissioning ..: Hook up with TG: 8-Mar-14 to 14-Mar-14 Commissioning 22-Mar-14 to 31-Mar-14. ……(para 13.² of the award) 2). The Purchase Orders are silent on the mode of payment of the Claimant’s invoices except to note that: 7.3. 65% of the Order Price shall be paid on Pro rata basis along with 100% Taxes and Duties after receipt of material at site. 7.⁷ Payments will be made within twenty-five days of submission of Invoice/ request for payment and other documents. ….. (para 13.08 (b) of the award) 3). No indication is given in the Purchase Orders as to what ‘other documents are required. …..(para 13.08 (c) of the award)

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4). The claimant asserts that until November 2013 payments were made to the claimant initially by Respondent no.² and subsequently by Respondent no.¹ by cheque/ RTGS but from 12th November 2013 all subsequent payments were made by letter of credit. In order to receive payment by this method the claimant asserts that additional documentation was required which created delays in payment. ……(para 13.08 (d) of the award) 5). Respondent no.¹ denies that there was delay in clearing payments to the claimant and asserts that all payments validly due to the claimant were made in time. Respondent no.¹ asserts that: (i) Invoices were submitted by the claimant later than the date on the face of the invoice; (ii) To compute the period in which payment of an invoice is to be made the start date is the date on which the invoice, complete with all supporting documents, is received by Respondent no.¹ which must be after receipt of the relevant material at site; and (iii) In many cases, invoices were not accompanied by the required backup documents and the payment of the invoice could not be released until these backup documents were submitted by the claimant. ……(para 13.08 (e) of the award) 6). The tribunal accepts that delays by the Claimant in submitting its invoices, in providing the backup materials and in crediting payment to its account would be included in the times computed by the claimant between the date of the invoice and the date of payment as included in its tabulation of its invoices. However, examination of Exhibit C-21 indicates that for invoices paid before 12 November 2013, over 90%, were paid in less than 50 days from the invoice date. Whereas, for invoices paid after 12 November only about 30% were paid within 50 days. Indeed, about 25% of the invoices dated after 12 November 2013 were not paid for 100 days or longer. These percentages satisfy

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the tribunal that the introduction of payment by letter of credit, as it was arranged by Respondent no.¹, was more onerous than could reasonably have been anticipated by the claimant when it entered into the contracts. …..(para 13.08 (g) of the award) 7). Respondent no.¹ decided that the original design of the Hot well drain pump was unnecessarily large and changed the specified pump to a smaller pump on 21st November

2013. As a result, both the pump and the electric motor, which was required to drive the pump, had to be re- ordered. The claimant asserts, and respondent no.¹ does not deny, that the original pump and motor would have been delivered to site on or about 17th February 2014. ……..(para 13.10 (a) of the award) 8). It was agreed at the hearing in this arbitration that the actual delivery date of the motors (which arrived a few days after the pump) could be taken as on or about 7th May 2014. Thus, there was a delay of approximately 79 days in delivery. ……(para 13.10 (b) of the award). 9). On balance, the Tribunal is satisfied that the drain pump together with its motor, although a low value component, was a necessary part of the ACC unit and the decision by Respondent no. 1 to replace it at a late stage risked delaying the project. The time elapsed between the original estimated delivery date, and the assumed actual delivery date was 79 days. …….(para 13.10 (e) of the award) 10). The tribunal finds the following facts to be significant: (i) The ACC unit could not be connected to the turbine generator flange until the turbine generator was in place to have the connection made. Thus, welding of the ACC unit to the turbine flange was dependent on both completion of the horizontal duct and pressure balancing bellows by the claimant and the installation of the turbine on behalf of Respondent no.¹.

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(ii) The ACC unit could not be commissioned, nor could the PG test be conducted without a flow of turbine exhaust steam. The turbine must be operational to provide the necessary flow of exhaust steam. Thus, both commissioning and the PG test were dependent on both the ACC unit and the turbine being operational. (iii) Up until the claimant was ready to erect the first part of the horizontal duct there is no evidence that the claimant was delayed by any other construction activity on site. The claimant states that the vertical duct erection was completed on 15th July 2014. The vertical duct should have been completed on 7th February 2014. Thus, the tribunal finds that at 15th July 2014 the claimant was 158 days behind its program which is not attributable to non-readiness of Respondent no.¹. (iv) The tribunal is satisfied that steam flowing (steam blowing) was being conducted by the turbine generator contractor in early February 2015 which would have been likely to have prevented the welding of the duct to the turbine flange. This process also indicates that the turbine was not operational. (v) On the basis of Mr. Parasuram’s evidence, the tribunal finds that the claimant had completed the connection between the horizontal duct and the turbine generator flange around February 2015 but that commissioning of the ACC unit did not start until April 2015. Mr. Parasuram attributes the delay between February and April 2015 to Respondent no.1’s other contractors having outstanding work. Thus, completion of the Hook-up as described in the L¹ network Schedule which should have taken place on 14th March 2014 did not take place until mid- February 2015 by which time the ACC unit construction was about 343 days behind schedule. On the evidence presented to the tribunal it is not possible to apportion the further delay of about 158

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days which occurred between 15th July 2014 and mid- February 2015 between slow progress by the claimant and hindrance to the claimant’s work by the ongoing turbine generator installation. However, the tribunal is satisfied that at least part of this delay was not attributable to the claimant. ……..(para 13.13 (c) of the award) 11). The tribunal now considers when, if at all, the ACC system was completed. There are three certificates which are referred to in the erection purchase order. These are: A certificate on competition of punch points; A Take Over Certificate of Equipment; and A certificate of competition of performance test. None of these certificates have been issued. ………(para 13.13 (d) of the award) 12). The only certificate issued by the respondents was dated 2 nd March 2017. In separate correspondence, Respondent no.¹ stated that this certificate was issued for marketing purposes and did not absolve the claimant from its contractual obligation under the Purchase Orders. ……..(para 13.13 (e) of the award) 13). Notwithstanding the respondents’ caveat, the issuance by the respondents of the 2nd March 2017 certificate is considered significant by the tribunal. The respondents knew the purpose for which the certificate was required by the claimant and, if it did not believe in the veracity of what it was certifying, even for marketing purposes, then it behaved dishonestly. The tribunal has no basis for assuming that the respondents would have acted in such a dishonest manner and thus, concludes that the respondents must have believed that the ACC unit was operating satisfactorily when it issued that certificate. The certificate states that the ACC unit was operating satisfactorily from May 2015. However, the tribunal does

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not rely on this date as it was not material to the purpose for which the certificate was required and was the date included in the draft certificate provided by the claimant. ……….(para 13.13 (f) of the award) 14). The tribunal concludes that all the criteria for issuing all three of the certificates listed above would have to be met before the ACC unit could be certified to be operating satisfactorily. The last alleged defects notified by Respondent no.¹ in 2015, which has been exhibited, is dated 4th July 2015. (The fan assembly detached more than a year later, and that event could not have been the basis for withholding the relevant certificates through 2015). In its e-mail of 4th July 2015, Respondent no.¹ notes gearbox defects but gave no details nor is the tribunal provided with any information about what action, if any, was taken in relation to the alleged gearbox defect. However, the tribunal is satisfied that on 4th July 2015 the ACC units were not yet in fit condition to merit the issue of the three relevant certificates. ……….(para 13.13 (g) of the award) 15). The first indication that the claimant thought it was ready for a performance guarantee test was in its e-mail dated 21st September 2015. There is no evidence to suggest that both the certificate on completion of punch points and takeover certificate of equipment should not have been issued on or before 21st September 2015. In the absence of any evidence from Respondent no.¹ that there were any remaining punch points or that the ACC system was not capable of being taken over, the tribunal finds that these certificates are deemed to have been issued on 21st September 2015 a delay from the planned date of 539 days. ……(para 13.13 (h) of the award) 16). Equally, there is no further indication that the ACC unit was not capable of passing the PG test on 21st September

2015. However, a PG test can only be deemed satisfactory

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if it is not carried out within 180 days of the issue of the taking over certificate. Accordingly, the PG test would be deemed to have been carried out satisfactorily only after a further 180 days had elapsed. Thus, the tribunal finds that the deemed achievement of Supplier’s liability in respect to Performance Guarantee Test pursuant to Clause 10.5 of Annexure A of the Erection Purchase Order only became effective on 19th March 2016. As the claimant was still requesting a PG test as late as 20th May 2016 the tribunal is satisfied that the deeming provisions apply and the ACC unit is deemed to have passed the PG test. The Erection Purchase Order states that, where the PG test is deemed to have been carried out, the respondents remained liable for the guaranteed performance during the 180 days. However, it is silent on whether the deemed achievement of supplier’s liability in respect to Performance Guarantee test is retrospective to the date when the performance can be said to have been achieved. The tribunal finds that for the purposes of determining the delay caused by the failure to arrange a PG test it would be just to consider that the required performance was achieved on 21st September 2015 - the date on which the tribunal has found that the ACC unit was deemed to have been taken over. ………(para 13.13 (i) of the award) 17). Respondent no.¹ did not issue the takeover certificate of equipment or a certificate of completion nor did it arrange a PG test. However, it has offered no evidence of any defects in the ACC unit that it has shown existed on 21st September

2015. Accordingly, the tribunal is satisfied, on the balance of probabilities, that respondent no.¹ delayed issuing the said certificates and the PG test because it was not in a position, due to other factors beyond the Claimant’s control, to properly commission the ACC unit. Therefore, the tribunal is satisfied that at 21st September 2015, Respondent no.¹ had delayed completion by 539 days and the claimant is entitled to 539 days’ extension of time. …………(para 13.13 (j) of the award)

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18). Summary of Delays

Delay in payment Nil Delay in handing over site Nil Due to change of specification of the Drain Pump 79 days Delay in BBU approval Nil Staircase and pipe rack Hindrance Nil Non-readiness of Respondent no.¹ 539 days The tribunal finds that these delays are not cumulative but parallel. The effect of the drain pump being changed would have occurred before mid-February 2014 when the tribunal found that the project was delayed by 158 days. Thus, the delay at that point for which the claimant was responsible was 158 days less 79 days allowed for the change of drain pump. Thus, the claimant was in culpable delay of 79 days in mid-February. The delay in commissioning occurred after mid-February 2014. Thus, the total extension of time granted by the tribunal is 539 days. …….(para 13.14 of the award) 19). Liquidated Damages As the tribunal has granted an extension of time for completion of the ACC unit to 21st September 2015 and has also found that the requirements for completion of the ACC units were achieved on that date, the tribunal finds that the claimant has no liability for liquidated damages…. ……(para 13.15 of the award)” Relevant Article(s) of the Schedule to the Limitation Act, 1963 applicable to the claim

88Copy pinpoint88. Having taken note of the relevant facts as well as material observations in the arbitral award, we shall now consider as to which Article, or Articles(s), if more than one is applicable, of the Schedule to the 1963 Act would apply to the claim(s) of Enexio. Notably, the claim

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was in respect of: (a) declaration qua invalidity of Debit note(s); (b) outstanding principal amount; and (c) interest. Insofar as relief qua declaration was concerned, it was found barred by time prescribed by Article 58, and there is no serious challenge to that finding. As regards claim for the outstanding principal amount, it was a composite claim for the balance amount payable for supplies made and work done under the Supply Purchase Order and the Erection Purchase Order respectively, which was found within limitation.

89Copy pinpoint89. According to the appellant(s), Article 14 is applicable to the claim in respect of balance amount for the price of the goods supplied under the Supply Purchase Order; and Article 18 would apply to the claim for the work done under the Erection Purchase Order. It is their case that if the project was to be completed by 31 March 2014, three years period should be counted from that date and, therefore, claim would be barred by limitation as on 2 May 2019 i.e., the date of commencement of the arbitral proceeding.

90Copy pinpoint90. Per contra, Enexio’s case is that it is a composite contract for design, manufacture, supply, erection and commissioning of air-cooled condenser unit (ACC Unit) with auxiliaries for 160 MW Coal Based Thermal Power Plant (Project) at Gummidipoondi in the State of Tamil Nadu whereunder payments were to be made on pro rata basis, and final payment was to be made only on completion of the work, subject to issuance of relevant certificates. The completion of work got delayed due to reasons beyond the control of Enexio, as held by the Tribunal, therefore, 539 days of extension, up to the deemed date of completion of the project i.e., 21 September 2015, was granted. In between, the contract was not repudiated by either party. Hence, the limitation period of three years would have to be counted from the date of completion of the work, that is, from 21 September 2015. It is also their case that before expiry of the prescribed period of three years, a written acknowledgment of the outstanding amount was made vide minutes of the meeting dated 19 April 2018. Therefore, by virtue of Section 1873 of the 1963 Act, a fresh

73 Section 18. Effect of acknowledgment in writing.— (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. (2) Where the writing containing the acknowledgement is undated, oral evidence may be given of the

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period of three years would start from the date of acknowledgement, which got further extended, by virtue of the provisions of Section 1974 of the 1963 Act, on account of the offer made on 26 May 2018 to pay Rs. 3 crores as full and final settlement of all dues. Hence, as on 2 May 2019, the claim was not barred by limitation.

91Copy pinpoint91. A plain reading of Article 14 of the Schedule to the 1963 Act, which is pari materia Article 5275 of the First Schedule to the Limitation Act, 1908 (in short 1908 Act), would indicate that it applies where: (a) the suit/ claim is for the price of goods sold and delivered; and (b) no fixed period of credit is agreed upon. Whereas Article 18 of the Schedule, which is pari materia Article 5676 of the First Schedule of the 1908 Act, applies where: (a) the suit/claim is for the price of work done by the plaintiff/ claimant for the defendant at his request; and (b) no time has been fixed for payment. Thus, where a suit is for goods supplied and work done by the plaintiff (a contractor) and the price of materials and the price of work is separately mentioned, and the time for payment is not fixed by the contract, Article 14 will apply to the former claim, and Article 18 to the latter. But where a claim is made for a specific sum of money as one indivisible claim on the contract, without mentioning any

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specific sum as being the price of goods or price of the work done, neither Article 14 nor Article 18 will apply, but only Article 55, which provides for all actions ex contractu (i.e., based on a contract) not otherwise provided for, would apply.⁷⁷

92Copy pinpoint92. Article 55, which is a combination of erstwhile Articles 11578 and 11679 of the First Schedule to the 1908 Act, is a residuary Article in respect of all actions based on a contract not otherwise specially provided for. For the applicability of Article 55, four requirements should be satisfied, namely, (1) the suit should be based on a contract; (2) there must be breach of the contract; (3) the suit should be for compensation; and (4) the suit should not be covered by any other Article specially providing for it.

93Copy pinpoint93. A breach of a contract may be by non-performance, or by repudiation or by both.⁸⁰ In Anson’s Law of Contract (29th Oxford Edition), under the heading ‘Forms of Breach Which Justify Discharge’, it is stated thus: “The right of a party to be treated as discharged from further performance may arise in any one of three ways: the other party to the contract (a) may renounce its liabilities under it; (b) may by its own act make it impossible to fulfil them, (c) may fail to perform what it has promised. Of these forms of breach, the first two may take place not only in the course of performance but also while the contract is still wholly executory i.e., before either party is entitled to demand a performance by the other of the other’s promise. In such a case the breach is usually termed an anticipatory breach. The last can only take place at or during the time for performance of the contract.”

94Copy pinpoint94. Thus, failure of a party to a contract in performing its obligation(s) thereunder could be considered a breach of contract for the purpose of bringing an action against it by the other party. In such an event, the other party can claim compensation or damages, or/ and, in certain cases, obtain specific performance.

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95Copy pinpoint95. The phrase ‘compensation for breach of contract’, as occurring in Article 55 of the Schedule to the 1963 Act, would comprehend also a claim for money due under a contract. ‘Compensation’ is a general term comprising any payment which a party would be entitled to claim on account of any loss or damage arising from a breach of a contract, and the expression has not been limited only to a claim for unliquidated damages. The expression is wide enough to include a claim for payment of a certain sum.81

96Copy pinpoint96. In Mahomed Ghasita v. Siraj-ud-Din and others,82 the plaintiff was to supply Italian marble and other stone required for flooring and was also to do all the work necessary for constructing the floor. The plaintiff sued for the balance of the money due to him based on this contract and the plaint made no mention of the price of the materials as distinct from the price of the work. The matter came before a Full Bench of the then Lahore High Court. Before the Full Bench the question was, what Article of the Limitation Act, 1908 is applicable to the suit. Sir Shadi Lal C.J., as His Lordship then was, speaking for the Bench held: “The action brought by the plaintiff was for the recovery of the balance of the money due to him on the strength of the contract described above; and the question for consideration is what article of the Limitation Act governs the claim. Our attention has been invited, in the first instance, to article 52,83 which prescribes a period of three years (enlarged to six years by the Punjab Loans Limitation Act of 1904) for the recovery of the price of goods sold and delivered to the defendant; and also to article 56,84 which lays down a period of three years for a suit to recover the price of work done by the plaintiff for

81 See U. N. Mitra’s Law of Limitation and Prescription, Sixteenth Edition, Volume 2, at pages 1342 & 1343, published by LexisNexis. 82 AIR 1922 Lah 198 (FB) : ILR (1921) 2 Lah 376 (FB) : 1921 SCC OnLine Lah 303 83 First Schedule of Limitation Act, 1908 Article Description of Suit Period of Limitation Time from which Period begins to run 52 For the price of goods sold and Three years The date of the delivered, where no fixed period of delivery of the goods. credit is agreed upon.

84 First Schedule of Limitation Act, 1908

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the defendant. Now, as stated above, the plaintiff supplied not only the materials, but also the labour, and it is clear that neither of the aforesaid articles governs the suit in its entirety. It is, however, urged that the action comprises two claims, one for the price of the material supplied by the plaintiff, and the other relating to the price of the work done by him, and that these two claims should be dealt with separately, and that they are governed by article 52 and article 56, respectively. The rule of law is no doubt firmly established that a combination of several claims in one action does not deprive each claim of its specific character and description. The Code of Civil Procedure allows a plaintiff, in certain circumstances, to combine in one action two or more distinct and independent claims, and it is quite possible that one of the claims may be barred by limitation, and the other may be within time; though both of them arise out of one and the same cause of action. In a case of that description there is no reason why the court should not apply to each claim the rule of limitation specially applicable thereto. It is nowhere laid down that only one article should govern the whole of the suit, though it may consist of several independent claims, and that the suit should not be split up into its component parts for the purpose of the law of limitation. The question, however, is whether the action as brought by the plaintiff can be treated as a combination of two distinct claims. Now, the plaint makes no mention of the price of the materials as distinct from the price of the work and contains no reference whatsoever to two claims. There is only one indivisible claim, and that is for the balance of the money due to the plaintiff on the basis of a contract, by which he was to be paid for everything supplied and

Article Description of Suit Period of Limitation Time from which Period begins to run 56 For the price of work done by the Three years When the work is plaintiff for the defendant at his done. request where no time has been fixed for payment.

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done by him in connection with the flooring of the building at a comprehensive rate. The claim, as laid in the plaint is an indivisible one; it cannot be split up into two portions. We must, therefore, hold that it falls neither under article 52, nor under article 56. The learned advocate for the plaintiff contends that as neither of the above articles governs the claim, it should come within article 120.85 The judgment in Radha Kishen v. Basant Lal, which is relied upon in support of this contention, no doubt, related to a suit for the recovery of a sum of money alleged to be due for the work performed and material supplied by the plaintiff to the defendant under a contract, and the learned judges held that neither article 52 nor article 56 was applicable to the entire claim. They then made the following observation – “There is no other articles specially applicable, and hence the only article which can be applied is article 120.” Now with all deference to the learned judges we are unable to hold that there is no other article governing a claim of that character. It seems that their attention was not drawn to article 115,86 which governs every

85 First Schedule of Limitation Act, 1908 Article Description of Suit Period of Limitation Time from which Period begins to run 120 Suit for which no period of Six years When the right to sue limitation is provided elsewhere in accrues. this Schedule.

86 First Schedule of Limitation Act, 1908 Article Description of Suit Period of Limitation Time from which Period begins to run 115 For compensation for the breach Three years When the contract of any contract, express or is broken, or (where implied, not in writing registered there are successive and not herein specially provided breaches) when the for. breach in in respect of which the suit is Instituted occurs, or (where the breach is continuing) when it ceases.

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suit for compensation for the breach of a contract not in writing registered and not specially provided for in the Limitation Act. It is beyond doubt that this article is a general provision applying to all actions ex contractu not specially provided for otherwise; and the present claim certainly arises out of a contract entered into between the parties. The word ‘compensation’ in article 115 as well as in article 11687 has the same meaning as it has in section 7388 of the Indian Contract Act and denotes a sum of money payable to a person on account of the loss or damage caused to him by the breach of a contract. It has been held, and we consider rightly, that a suit to recover a specified sum of money on a contract is a suit for compensation within articles 115 and 116 --- vide Nobocoomar Mookhopadhaya v. Siru Mullick89 and Husain Ali Khan v. Hajiz Ali Khan.90 We are accordingly of opinion that the present claim must be regarded as one for compensation for the breach of a contract, and that there is no special provision in the

87 First Schedule of Limitation Act, 1908 Article Description of Suit Period of Limitation Time from which Period begins to run 116 For compensation for the Six years When the period of limitation breach of a contract in writing would begin to run against registered. a suit brought on a similar contract not registered.

88 The Indian Contract Act, 1872. Section 73. Compensation for loss or damage caused by breach of contract.-- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, would be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract.--- When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. Explanation.-- In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account 89 (1890) ILR 6 Cal 94 90 (1881) ILR 3 All 600 (FB)

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Act which governs the claim. It must, therefore, come under the general provision contained in article 115, which governs every action arising out of contract, not otherwise specially provided for.” (Emphasis supplied)

97Copy pinpoint97. In Dhapia v. Dalla91 before a Full Bench of the Allahabad High Court the question was, what Article of the First Schedule to the 1908 Act would apply to a suit for recovery of a specified sum under a contract. In that suit, the plaintiff had made defendant(s) partner to one half of the fishery rights in the tank arising from a Theka, on the condition that they would pay him half the Theka money. The allegations made in the plaint showed that the defendant(s) had already worked out the Theka in respect of their share in it. As that suit was not filed within three years from the date of breach, it was dismissed by the trial court as barred by limitation by applying Article 11592 of the First Schedule to the 1908 Act. The plaintiff preferred appeal, which was allowed on the finding that Article 12093 of the First Schedule to the 1908 Act applied, whereunder the limitation was six years. When the matter travelled to the High Court, an argument was raised that neither Article 115 nor Article 120 could apply, rather Article 11394 would apply. It was contended before the High Court that Article 113 should apply as the claim is nothing but for specific performance. Rejecting this submission and holding that Article 115 of the First Schedule to 1908 Act would apply, the Full Bench held: “8. In our opinion there is no force in this argument. It is true that there was a contract between the parties inasmuch as the plaintiff gave to the defendants one half of the fishery

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rights in the tank, on the condition that they would pay him half the theka money. The allegations made in the plaint show that the defendants had already worked out the theka in respect of their share in it. All that remained to be done was to pay the proportionate theka money to the plaintiff. In such circumstances no suit for specific performance of contract could be filed: only a suit to enforce the agreement so far as it related to the payment of the proportionate theka money could be, and has been filed.

9. The relevant portion of section 12 of the Specific Relief Act (Act 1 of 1877) reads as follows: “… The specific performance of any contract may in the discretion of the court be enforced— (a) When the act agreed to be done is in the performance, wholly or partly, of a trust; (b) When there exists no standard for ascertaining the actual damages caused by the non-performance of the act agreed to be done; (c) When the act agreed to be done is such that pecuniary compensation for its non- performance would not afford adequate relief, or (d) When it is probable that pecuniary compensation cannot be got for the non- performance of the act agreed to be done……”

10. A suit for the recovery of a specified sum under a contract cannot be said to be a suit of the nature where pecuniary compensation would not afford adequate relief. We are, therefore, of the opinion that the suit out of which this civil revision arises cannot be said to be a suit for the specific performance of a contract and will not be governed by Article 113 of the First Schedule to the Indian Limitation Act, 1908 xxxxx xxxxx

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