Isabella Mariam

The High Court of Orissa Single Bench of Justice Sanjeeb Kumar Panigrahi has rejected an appeal challenging an arbitral award while also addressing a connected writ petition concerning settlement under the Vivad se Vishwas II (Contractual Disputes) Scheme, 2023. The Court upheld the arbitral award and the order of the District Judge, finding no grounds for interference under Section 37 of the Arbitration and Conciliation Act, 1996. It further ruled that Clause 18 of the settlement scheme is mandatory, holding that when a contractor opts for resolution within its framework, the procuring entity is bound to accept the claim if it falls under the prescribed conditions, thereby reinforcing the principle of legitimate expectation

The dispute arose from a tender invited by the Paradip Port Trust for railway works connected with deep draft berths. Modi Projects Limited submitted its bid in November 2013, following which a letter of award was issued in December 2014 for a contract value exceeding seventy-eight crore rupees. The work was scheduled to commence in January 2015 with completion targeted for April 2016. A formal agreement was executed in June 2015.

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During execution, the contractor sought an extension of time in March 2016, which was granted until March 2017, subject to liquidated damages. The work was not completed within the extended period, and in April 2017 the contract was terminated by the Port Trust. The contractor invoked arbitration proceedings challenging the termination, imposition of damages, and raising claims for delay-related losses.

A sole arbitrator, Justice (Retd.) M.M. Das, was appointed to decide the matter. On 12 April 2019, the arbitrator awarded a sum of ₹13.66 crore in favour of the contractor. The Port Trust challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, before the District Judge, Jagatsinghpur. On 4 February 2023, the District Judge dismissed the challenge, holding that the award did not violate public policy, did not shock the conscience of the court, and did not suffer from patent illegality.

Aggrieved, the Port Trust filed an appeal under Section 37 of the Act before the Orissa High Court in March 2023. While this appeal was pending, the contractor filed Writ Petition No. 7019 of 2024 seeking directions to the Port Trust to consider its proposal under the Vivad se Vishwas II (Contractual Disputes) Scheme, 2023. The contractor argued that Clause 18 of the scheme required mandatory acceptance of claims below ₹500 crore if compliant with the scheme’s guidelines.

In the appeal, the Port Trust contended that both the arbitrator and the District Judge failed to appreciate errors in fact and law, and that the District Judge had disposed of the matter without proper application of mind. The contractor, on the other hand, argued that the award was based on evidence, that the appellate scope under Section 37 was extremely limited, and that no grounds had been shown for interference. The issues before the Court, therefore, were whether the arbitral award required interference under Section 37, and whether Clause 18 of the settlement scheme was mandatory in nature.

The Court began by outlining the scope of Section 37 of the Arbitration and Conciliation Act, noting that appellate powers are “very restricted and narrow.” It recorded that judicial interference is permissible only when an award stands contrary to fundamental policy, justice or morality, or is patently illegal. The judgment referred to precedent and stated that “an impugned award cannot be interfered unless the substantive provision of law or the terms of the agreement are breached.”

On the meaning of patent illegality, the Court cited earlier Supreme Court rulings. It recorded that “if an award is contrary to substantive law, the provisions of the Act, or the terms of the contract, it would be patently illegal and could be interfered with under Section 34.” It further observed that not every error qualifies, and that “a higher standard is required to prove patent illegality as compared to a mere defect or ambiguity or error.”

The Court examined the arbitral record and the District Judge’s order, noting that the arbitrator relied on written submissions, documentary evidence, and party statements to quantify the claims. It stated that “such a finding having being arrived at cannot be trifled with in the absence of a glaring error.” It concluded that neither the award nor the District Judge’s order was “so perverse or suffers from patent illegality which requires interference.”

Turning to the writ petition, the Court considered Clause 18 of the Vivad se Vishwas II (Contractual Disputes) Scheme. The judgment recorded that “where the claim is 500 crore or less, then the entity ‘will have to accept’ the claim if the claim is covered as per the guidelines.” It observed that this provision removed discretion from procuring entities. The Court noted that “once a contractor makes a claim in compliance with its parameters, the procuring entity does not have the discretion to disregard it.”

It further stated that refusal to accept such claims would be arbitrary and contrary to Article 14, observing that the scheme was introduced in recognition of the fact that contractors often succeed in arbitration, leading to greater liability on the State. The Court remarked on the doctrine of legitimate expectation, recording that “contractors, reading the scheme, are led to believe that if their awards are within the stipulated parameters, they can obtain a final settlement.”

Ultimately, the Court held that the scheme imposed a binding obligation. It concluded that “once the twin conditions are satisfied—that the award is monetary in nature and the amount is below ₹500 crore—the procuring entity ‘shall’ accept the claim.”

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Justice Panigrahi directed that “the impugned order as well as the Arbitral Award warrant no interference under Section 37 of the A&C Act.”.  The Appellant is directed to take a decision on the proposal of the Respondent Contractor within 3 weeks from the date of this judgment/order. If the claim of the Respondent Contractor is found to be in compliance of the guidelines laid down in ‘Vivad se Vishwas II’ (contractual disputes) scheme dated 29.5.2023, then the claim shall be disbursed within 4 weeks thereafter.”

It was ordered that both the arbitration appeal and the writ petition were disposed of with no order as to costs. “Interim order, if any, passed earlier in any of the applications stands vacated.”

Advocates Representing the Parties

For the Petitioners: Mr. Goutam Mishra, Senior Advocate along with Mr. Jyoti Ranjan Deo, Advocate

For the Respondents: Ms. Pami Rath, Senior Advocate along with Mr. J. Mohanty, Advocate; Mr. P.K. Parhi, Deputy Solicitor General of India (for Union of India)

Case Title: Paradip Port Trust v. Modi Projects Limited & connected matters

Case Number: ARBA No. 8 of 2023 along with W.P.(C) No. 7019 of 2024

Bench: Justice Dr. Sanjeeb Kumar Panigrahi