Holding

An arbitral award can be set aside only on a patent illegality apparent on its face, and courts may not re‑appreciate evidence; the High Court’s interference exceeded its jurisdiction, so the award is restored in full.

Summary

Reliance Infrastructure Ltd. built a power plant for the State of Goa under a Power Purchase Agreement, but the State failed to pay for the electricity generated. The parties referred their dispute to a sole arbitrator, who awarded Rs. 278.29 crore with interest at 15% per annum. The High Court reduced the interest rate to 10% and set aside portions of the award relating to variable charges, down‑rating, 4 MW power and net‑ting‑out, alleging patent illegality. The Supreme Court held that an arbitral award is not an ordinary adjudicatory order and may be interfered with only on a patent illegality apparent on the face of the award; the High Court had over‑stepped its jurisdiction by re‑appreciating evidence and substituting its own view. The Court also found that the arbitrator’s interest rate of 15% was within the permissible range and that none of the award’s findings constituted patent illegality. Consequently, the High Court’s modifications were set aside and the award was restored in its entirety.

Issues considered

The scope of judicial interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
Whether the High Court correctly identified a patent illegality in the arbitral award.
Whether the interest rate of 15% per annum awarded by the arbitrator can be reduced to 10% by the court.
Whether the award's findings on variable charges, down‑rating, 4 MW power and net‑ting‑out amount to patent illegality.
Whether procedural deficiencies such as non‑appointment of an expert or breach of natural justice justify setting aside the award.

Legislation cited

Arbitration and Conciliation Act, 1996s. 26, s. 28, s. 31(7), s. 34, s. 34(2-A), s. 34(2)(b), s. 34(2)(b)(i), s. 34(2)(b)(ii), s. 37

Subjects

ArbitrationSection 34Section 37Patent illegalityArbitral awardInterest ratePower Purchase AgreementRe‑appreciation of evidenceNatural justiceCommercial arbitration

Judgment

[2023] 8 S.C.R. 379 379

RELIANCE INFRASTRUCTURE LTD. A
v.
STATE OF GOA
(Civil Appeal No. 3615 of 2023)
MAY 10, 2023 B
[DINESH MAHESHWARI AND SANJAY KUMAR, JJ.]
Arbitration and Conciliation Act, 1996: ss. 34, 37 – Arbitral
award – Scope of interference – Held: Arbitral award is not an
ordinary adjudicatory order so as to be lightly interfered with by
C
the Courts u/ss. 34 or 37 as if dealing with an appeal or revision
against a decision of any subordinate Court – An award could be
said to be suffering from “patent illegality” only if it is an illegality
apparent on the face of the award and not to be searched out by
way of re-appreciation of evidence – Possibility of interference would
arise only if the construction of the arbitrator is such which could D
not be made by any fair-minded and reasonable person – Narrow
scope of “patent illegality” cannot be breached by mere use of
different expressions which nevertheless refer only to “error” and
not to “patent illegality” – If an arbitrator construes the term of
contract in a reasonable manner, the award cannot be set aside
E
with reference to the deduction drawn from construction – Restraint
is required to be shown while examining the validity of arbitral award
by the Courts, else interference with the award after reassessing
the factual aspects would be defeating the object of the Act – On
facts, the appellants constructed a power plant for the State under
a power purchase agreement-PPA, however, the State failed to pay F
for the power generated by the plant – Matter referred to the
arbitrator, wherein the appellants awarded a sum of Rs. 292.22
crore along with an interest of 15% p.a. from the date of the award
till the date of payment, however, the High Court reduced the interest
rate awarded to 10% p.a.– High Court misdirected itself on the
G
major issues concerning the merits of the award – Nothing of a
patent illegality apparent on the face of the award pointed out – As
the prevailing interest rates at the time were in the range of 13% to
14% p.a., the arbitrator acted within his jurisdiction in awarding
the interest rate of 15% p.a. post award and there was no
justification to reduce the same to 10% p.a. – There had been no H
379
380 SUPREME COURT REPORTS [2023] 8 S.C.R.

A such flaw in the judgment and order passed by the Commercial
Court which called for interference by the High Court on the
parameters and within the periphery of ss. 34/37 – Part of the
impugned judgment and order passed by the High Court, which
modifies the award and the order of the Commercial Court is set
aside and the award is restored in its entirety.
B
Disposing of the appeals, the Court
HELD: 1.1 Arbitral award is not an ordinary adjudicatory
order so as to be lightly interfered with by the courts under
sections 34 or 37 of the Arbitration and Conciliation Act, 1996 as
C if dealing with an appeal or revision against a decision of any
subordinate court. The significant aspect is that it is not a mere
illegality which would call for interference, but it has to be “a
patent illegality”, which obviously signifies that it ought to be
apparent on the face of the award and not the one which is culled
out by way of a long-drawn analysis of the pleadings and evidence.
D Of course, when the terms and conditions of the agreement
governing the parties are completely ignored, the matter would
be different and an award carrying such a shortcoming shall be
directly hit by Section 28(3) of the Act, which enjoins upon an
arbitral tribunal to decide in accordance with the terms of contract
E while taking into account the usage of trade applicable to the
transaction. If an arbitrator construes the term of contract in a
reasonable manner, the award cannot be set aside with reference
to the deduction drawn from construction. The possibility of
interference would arise only if the construction of the arbitrator
is such which could not be made by any fair-minded and reasonable
F person. [Para 18][433-D-G]
1.2 The instant case had not been a case of the fundamental
alteration of the terms of contract during the currency of contract
and for that matter, the parties having definitely exchanged
communication and having brought into existence an agreement
G which, even if construed as supplemental to original one, had
been of material difference in regard to the use of particular fuel
and then raising of invoices on that basis with reference to
fluctuating price of fuel as also the exchange rate of foreign
currency (US dollar). [Para 19.3][436-B-C]
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 381

1.3 The matter can be examined from yet another angle. If A
the terms agreed to by the parties with exchange of
communications commencing from 20.03.2013 were to be
ignored, the result would be of ignoring such terms of contract of
the parties which had come into existence and which were binding
on both. Viewed thus, coupled with the fact that only the limited
B
dispute was presented for arbitration (i.e., as to whether power
was to be supplied on the basis of fixed rate of fuel and fixed rate
of currency or on variable charges), the Arbitral tribunal has been
justified in focusing on the core issue raised, rather than going
astray and entering into such an analysis which was not germane
to the issue at hand. [Para 20][436-C-E] C
1.4 No ground for challenge under Sections 34 or 37 of the
Act was made out in relation to the award pertaining to variable
charges. Hence, the High Court has not been right in setting
aside the award relating to variable charges on the ground of so-
called non-consideration of clauses 12.1.4 to 12.1.7 of Power D
Purchase Agreement. [Para 21][436-F]
1.5 The High Court, even while reminding itself of the
limitation of jurisdiction, committed the same error by extensively
dissecting the evidence while assuming that clauses 12.1.4 to
12.1.7 were decisive of the matter without taking a close look at E
the material propositions which formed the dispute and which
were presented by the parties before the arbitral tribunal. As
regards variable charges, the core question before the tribunal
had been as to whether the claimant agreed to supply electricity
on fixed charges with fixed rate of foreign currency while using
the alternate fuel. This question was essentially to be determined F
with reference to the new contract that came into existence with
exchange of communications between the parties. The arbitrator
precisely decided the matter with reference to, and after analysis
of, that evidence. It had neither been a case of the arbitrator not
taking into consideration the terms of contract applicable to the G
issue at hand nor of any such finding which no fair-minded or
reasonable person could have possibly rendered ever. Viewed in
the light of core dispute presented to the arbitral tribunal by the
parties, the submissions that the arbitral tribunal has not examined

H
382 SUPREME COURT REPORTS [2023] 8 S.C.R.

A the question as to whether the correspondence in question
resulted in change of fundamentals of contract, do not make out
a case for interference because novation of the terms of contract
as regards fuel had not been a matter of dispute at all. The core
question was as to how the new terms were to operate. The
arbitral tribunal precisely dealt with the same in accordance with
B
law. [Para 21.1][436-F-H; 437-A-C]
1.6 What has been observed and held in disapproval of
interference by the High Court in the item of award pertaining to
variable charges more or less apply to the other items too, where
the High Court has interfered and has upturned the award. On
C every such score, the High Court has rather entered into merits
of the matter as if dealing with a regular appeal. It has been a
clear case of the High Court travelling beyond the periphery of
Section 34 as also Section 37 of the Act. [Para 22][437-D-E]
1.7 The Arbitral Tribunal held that the issue relating to
D downrating of capacity was settled between the parties and the
parties should not be allowed to reagitate the same, whereas the
High Court found shortcomings in the discussions of the arbitral
tribunal as regards the meaning and effect of the certificate dated
08.11.2005 and as to whether the claimant could have made any
E claim on that basis or not. The High Court even proceeded to
analyse the minutes of the meeting. It has clearly been a case of
value and worth attached to a particular evidence by arbitral
tribunal, which was considered not satisfactory by the High Court;
and rejection of the contention of the Government by the arbitral
tribunal was found to be erroneous. However, thereafter, the High
F Court again observed that it was not a case of re-appreciation of
evidence but being a case of no evidence, there had been patent
illegality. [Paras 23.3, 24][441-D-F]
1.8 The High Court travelled beyond its jurisdiction under
Section 37 and rather than remaining within the confines of
G consideration under Section 34 of the Act, entered into the arena
which is exclusively within the arbitrator’s domain. What the
arbitral tribunal held in regard to this item had exclusively been
its view on the evidence on record and the relevant surrounding

H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 383

facts/factors. The view so taken by the arbitral tribunal cannot be A
said to be wholly perverse or suffering from patent illegality so
as to be interfered with. Even if two views are possible, the Court
cannot substitute its own view with that of the arbitral tribunal.
[Para 24.1][442-F-G]
1.9 The questions in relation to the issue concerning B
downrating, that adverse inference ought to be drawn against
the claimant for failure to produce OEM recommendations, are
only pertaining to the principles of appreciation of evidence. In
the regular adjudicatory process, the Court may presume
existence of certain facts under Section 114 of the Evidence Act,
1872; and in terms of Illustration (g) thereof, the Court is entitled C
to draw an inference that the evidence which could be but not
produced would, if produced, be unfavourable to the person who
withholds it. However, in a given case, while determining the
dispute by way of arbitration, whether the arbitrator draws such
adverse inference or not, is essentially a matter of appreciation D
of evidence; and if not drawing of adverse inference is also
permitted to be raised as a ground of challenge under Section
34, it would open the confines of limited interference in an award;
and would carry the propensity of converting the proceedings
under Section 34 and under Section 37 into the proceedings of
regular appeal/revision against the award and thereby, again E
violating the principles that re-appreciation of evidence is not
envisaged in the proceedings under Section 34 of the Act of 1996.
It gets per force reiterated that an award could be said to be
suffering from “patent illegality” only if it is an illegality apparent
on the face of the award and not to be searched out by way of re- F
appreciation of evidence. The submissions as regards drawing of
adverse inference are themselves adverse to the ethos of
Sections 34 and 37 of the Act of 1996 and are required to be
rejected. [Para 25][442-H; 443-A-E]
1.10 As regards the question of downrating, the questions G
relating to the value of certificate dated 08.11.2005 and the effect
of the claimant not taking up this issue earlier would again fall
directly within the arena of appreciation of evidence and reach to
the extent of rendering the finding on preponderance of

H
384 SUPREME COURT REPORTS [2023] 8 S.C.R.

A probabilities. The arbitral tribunal has taken a particular view of
the evidence before it. If it were an appeal against the award, the
approach of the Court could have been different but, not so while
examining the award within the confines of Section 34 of the Act.
Even in a regular appeal against a decree of the trial court, the
appellate court would not substitute its own views without
B
specifically recording a finding as to the error in the decision
under challenge. In any case, if the approach of the High Court in
the present case is countenanced, the result would only be of
making every award susceptible to challenge before the Court
on those very grounds which are, otherwise, of appeal or revision
C and which are not permitted by the legislature to be taken under
Section 34 of the Act of 1996. [Para 25.1][443-E-H]
1.11 The approach of the High Court in relation to the two
comparatively minor issues relating to variable charges on 4MW
power and netting-out principles is also suffering from the same
D error, where the High Court deeply analysed the evidence on
record to hold that the arbitral tribunal has not been correct in
its propositions or inferences. [Para 26][444-A-B]
1.12 As regards the award relating to variable charges on 4
MW power, the High Court stepped into the arena which is
E reserved for the arbitral tribunal. It is noticed that the parties
had agreed to a particular methodology of billing for supply of
15.8 MW power but, at the same time, retained with them the
right to revert back to 19.8 MW supply at any future point of
time. With reference to the dealings of the parties, the arbitral
tribunal took a particular view of the matter. It cannot be said
F that the view as taken by the arbitral tribunal was entirely
impermissible or implausible. There was no scope for interference
by the Court. [Para 29][445-B]
1.13 The aspect of netting-out depended on the terms of
contract of the parties and the deductions to be drawn from the
G evidence on record. The arbitral tribunal had drawn the particular
conclusion on the basis of notes dated 13.09.2014 and 18.09.2014.
The arbitral tribunal considered the documentary evidence before
it, as well as the provisions of the contract relating to supply of

H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 385

backup power by Government of Goa to the claimant when the A
power station was under shutdown for the period May 2014 to
August 2014. The arbitral tribunal further referred to the
communications which also include the decision of the
Government of Goa as to the rate at which power during the shut
down period was to be supplied to the claimant and on this basis,
B
came to the finding that a fixed rate which was not to be multiplied
as per the provisions of the PPA was agreed between the parties.
The award also gave reasons for such finding. Even if it be
assumed that another view is possible, it cannot be said that the
arbitral tribunal has taken such a view which no fair-minded and
reasonable person could have ever taken. The High Court C
substituted its own view and reinterpreted the documentary
evidence before it for setting aside the award. Such a substitution
of view is not permissible for the Court under Section 34 of Act.
There arise no question of it being permissible under Section 37
of the Act. [Paras 30, 31.1][445-C-F; 446-E]
D
1.14 In regard to the question of interest, the High Court
rightly held that the arbitral tribunal was justified in following the
contractual provisions and the provisions of Section 31(7) of the
Act; and has rightly not interfered with the award of interest for
the pre-reference period and the period during which the
proceedings were pending before the arbitral tribunal. The State E
is not right in contending that the interest could not have been
awarded during the period of reference to the arbitrator. In regard
to this aspect, the submissions to the effect that pre-reference
period interest was not based on any compelling reasons and
contractual provisions for interest were in terrorem are liable to F
be discarded, could only be rejected for being not even standing
within the periphery of Section 34 of the Act of 1996. However,
insofar as post-award period is concerned, the High Court has
reduced the rate of interest from 15% to 10% relying on the
principles of proportionality. The said reduction of rate of interest
by the High Court is also unjustified. The provisions of Section G
31(7)(b) that unless the award otherwise directs, the sum payable
under the arbitral award shall carry interest at the rate of 2%
higher than the current rate of interest prevalent on the date of
the award, from the date of the award to the date of payment. The
H
386 SUPREME COURT REPORTS [2023] 8 S.C.R.

A expression “current rate of interest” has been explained in the
Explanation to the said Section to have the same meaning as
assigned under Section 2(b) of the Interest Act, 1978. The High
Court held that Court may reduce interest awarded by the
arbitrator when such interest does not reflect the prevailing
economic condition or where it is not found reasonable or where
B
it promotes interest of justice. There is no basis in the impugned
judgment of the High Court for reducing the rate of interest.
[Paras 32.1, 33, 34][446-G-H; 447-A-B, F-H; 448-A]
1.15 The High Court seems to have not considered the
relevant factual aspects. On the contrary, the prevailing interest
C rate being the prime lending rate of State Bank of India was in
the range of 13% to 14% per annum. Thus, the arbitral tribunal
was justified in granting interest at the rate of 15% per annum
post award. The arbitral tribunal was well within its jurisdiction
under Section 31 of the Act to award interest at the rate of 15%
D p.a. and there was no justification to reduce the same to 10% p.a.
The High Court was not exercising any equity jurisdiction so as
to resettle the rate of interest as deemed fit by it. It had been a
matter relating to an award made by the arbitral tribunal in a
commercial dispute. [Para 34.1][448-C-E]
E 1.16 The High Court could only be said to have misdirected
itself on the major issues concerning merits of the award.
However, it is observed that it had not been as if the Commercial
Court did not examine the material issues arising for
determination while dealing with the case in terms of Section 34
of the Act of 1996. [Para 35][448-G]
F
1.17 After taking note of the submissions of parties, the
Commercial Court precisely framed the points for determination
and then, dealt with every point on the anvil of Section 34 of the
Act of 1996. The High Court was not justified in making a
comment about framing of points for determination by Commercial
G Court and then observing that the Commercial Court merely
reproduced the findings of the award. The Commercial Court
dealing with Section 34 application was not acting as a Court of
Appeal. Yet, the Commercial Court enumerated the issues raised

H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 387

and then returned the findings after examining the record and A
while rejecting the submissions made on behalf of the State. There
had been no such flaw in the judgment and order passed by the
Commercial Court which called for interference by the High Court
on the parameters and within the periphery of Sections 34/37 of
the Act of 1996. [Para 35.1][448-H; 449-A-C]
B
1.18 The narrow scope of “patent illegality” cannot be
breached by mere use of different expressions which nevertheless
refer only to “error” and not to “patent illegality”. Restraint is
required to be shown while examining the validity of arbitral award
by the Courts, else interference with the award after reassessing
the factual aspects would be defeating the object of the Act of C
1996. This is a part from the fact that such an approach would
render several judicial pronouncements of this Court redundant
if the arbitral awards are set aside by categorizing them as
“perverse” or “patently illegal” without appreciating the contours
of these expressions. [Para 36][450-B-D] D
1.19 In the impugned judgment, the High Court though
referred to the principles laid down by this Court in Ssangyong
Engineering’s case but then, reproduced an analysis by a Single
Judge of the High Court and proceeded to decide the matter
with reference to the passages so extracted. Enunciation of this E
Court ought to have been examined by the Division Bench of the
High Court while dealing with the matter at hand, rather than
relying on the analysis by a Single Judge of the High Court.
Nothing is said more in this regard, essentially because the latter
decisions of this Court like those in Delhi Airport Metro Express
and Haryana Tourism Limited were not available before the High F
Court at the time of passing of the impugned judgment and order
dated 08.03.2021. Nevertheless, the principles expounded by this
Court in Associate Builders and Ssangyong Engineering’s case
were available and the matter was required to be dealt with in
reference to those principles. Leaving this aspect at that, suffice G
it would be to observe for the present purpose that the impugned
judgment and order, insofar it interferes with the findings and
the conclusions of the award in question, cannot be sustained
and is required to be set aside. [Para 37][450-D-G]

H
388 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 1.20 Fact of the matter remains that nothing of a patent
illegality apparent on the face of the award has been pointed out.
The submissions essentially are of indicating some alleged errors
on the merits of the case which do not fall within the parameters
of Section 34 of the Act of 1996. Hence, that part of the impugned
judgment and order as passed by the High Court, which modifies
B
the award and the order of the Commercial Court, is set aside
and consequently, the award in question is restored in its entirety.
[Paras 38, 39][451-A-C]
Ssangyong Engineering and Construction Co. Ltd. v.
NHAI: (2019) 15 SCC 131 : [2019] 7 SCR 522;
C Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 : [2014] 13 SCR 895; Delhi Airport
Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation
Ltd. (2022) 1 SCC 131– relied on.
Vedanta Ltd. v. Shenzhen Shandong Nuclear Power
D Construction Co. Ltd: (2019) 11 SCC 465 : [2018] 12
SCR 829 – distinguished.
MMTC Limited v. Vedanta Limited (2019) 4 SCC 163 :
[2019] 3 SCR 1023; State of Chhattisgarh and Ors. v.
Sal Udyog Pvt. Ltd. (2022) 2 SCC 275; NHAI v. M.
E Hakeem (2021) 9 SCC 1; PSA SICAL Terminals (P) Ltd.
v. Board of Trustees of V.O. Chidambranar Port Trust
Tuticorin and Ors. (2021) SCC Online SC 508 Haryana
Tourism Ltd. v. Kandhari Beverages Ltd. (2022) 3 SCC
237; UHL Power Company Limited v. State of Himachal
Pradesh (2022) 4 SCC 116 – referred to.
F
Case Law Reference
(2022) 3 SCC 237 referred to Para 9.4
[2019] 3 SCR 1023 referred to Para 10.1
(2022) 2 SCC 275 referred to Para 10.2
G
(2021) 9 SCC 1 referred to Para 10.8
(2022) 4 SCC 116 referred to Para 13.6
[2014] 13 SCR 895 relied on Para 18, 37
[2018] 12 SCR 829 distinguished Para 34
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 389

(2022) 1 SCC 131 relied on Para 36, 37 A
[2019] 7 SCR 522 relied on Para 37
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3615
of 2023.
From the Judgment and Order dated 08.03.2021 of the High Court
of Judicature at Bombay at Goa in COMAP No. 12 of 2019. B
With
Civil Appeal No. 3616 of 2023.
R. Venkataramani, AG, Ritin Rai, Parag P. Tripathi, Sr. Advs.,
Ms. Ruchira Gupta, Shishir Deshpande, Shreeharsha Peechara, Ms.
Nancy Shah, Mahesh Agarwal, Rishi Agrawala, Ms. Niyati Kohli, Ms. C
Sukriti Bhatnagar, Anirudh Dusaj, Rajesh Kumar, E. C. Agrawala, Ms.
Anjali C., Surendra Khot, Agni Som, Advs. for the appearing parties.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
D
Table of Contents*
Preliminary ........................................................................................... 2
Relevant factual aspects and background ........................................... 3
Arbitration proceedings and award ...................................................... 7
Challenge to the award under Section 34 of the Act ........................... 9 E
The appeal under Section 37 of the Act ............................................. 11
Rival Submissions .............................................................................. 15
Relevant Statutory provisions ............................................................ 29
The scope of challenge to an arbitral award under Section 34
F
and the scope of appeal under Section 37 of the Act ........................ 33
Questions relating to proceedings and procedure .............................. 41
The award relating to variable charges on use of alternate fuel ....... 44
The award relating to downrating of the plant ................................... 58
The award relating to variable charges on 4 MW power .................. 65 G
The award relating to netting-out principle ........................................ 67
Interest in award ................................................................................ 68
Final comments, observations, and conclusion................................... 71
* Ed. Note: Pagination in the Table of Contents is as per the original judgment. H
390 SUPREME COURT REPORTS [2023] 8 S.C.R.

A Preliminary
Leave granted.
2. These two appeals, preferred against the judgment and order
dated 08.03.2021, as passed by the High Court of Judicature at Bombay,
Goa Bench in Commercial Appeal No. 12 of 2019, one by Reliance
B Infrastructure Limited1, being the appeal arising out of SLP (Civil)
No.8493 of 2021; and another by the State of Goa 2, being the appeal
arising out of SLP (Civil) No.16778 of 2021, have been considered
together and are taken up for disposal by this common judgment.
3. By way of the impugned judgment and order dated 08.03.2021,
C while dealing with an appeal under Section 37 of the Arbitration and
Conciliation Act, 19963 read with Section 13 of the Commercial Courts,
Commercial Division and Commercial Appellate Divisions of High Courts
Act, 2015, the High Court has proceeded to upset the order dated
12.09.2019, as passed by the Principal District & Sessions Judge, North
Goa, Panjim4 in dismissing the application filed under Section 34 of the
D
Act; and has partially set aside the award dated 16.02.2018, as made by
the Arbitral Tribunal comprising of the Sole Arbitrator, a former Judge of
this Court.
Relevant factual aspects and background
4. Shorn of unnecessary details, the relevant factual aspects could
E
be usefully summarised as follows:
4.1. On 10.01.1997, the claimant entered into a Power Purchase
Agreement5 with the Government of Goa to commission and operate a
power generation station of 39.8 MW capacity for the period 14.08.1999
to 13.08.2014. The power station was to use ‘Naphtha’ as fuel to generate
F electricity along with a provision for using ‘Alternate Fuel’. The claimant
commenced commercial operation on 14.08.1999.
4.2. Various supplementary agreements were entered into
between the parties from September 1997 to November 2001. By the
First Supplementary Power Purchase Agreement dated 10.09.1997, it
G was mutually agreed to convert the generating station from Open Cycle
1
Hereinafter also referred to as ‘the claimant’.
2
Hereinafter also referred to as ‘the State’ or ‘the Government of Goa’.
3
Hereinafter also referred to as ‘the Act of 1996’ or simply ‘the Act’.
4
Hereinafter also referred to as ‘the Commercial Court’.
5
H ‘PPA’, for short.
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 391
[DINESH MAHESHWARI, J.]

Generating Station into a Combined Cycle Generating Station with a A
capacity of 48 MW. The Contracted Capacity was increased from 39402
KW to 46560 KW. Furthermore, the claimant was authorized to sell
power in excess of 39.8 MW to consumers due to the combined cycle
operation. On 20.09.2000, the Second Supplementary Agreement was
executed between the parties, which enabled the claimant to conduct
B
certain direct sales of power to consumers with permission. The
computation of tariff was based on the ‘New Rated Capacity,’ which
was deemed to be the Contracted Capacity. The agreement also mandated
the provision of backup power by the Government of Goa to the claimant
for distribution to its consumers in case of scheduled or unscheduled
outages, as specified in the agreement. On 05.11.2001, the parties entered C
into the Third Supplementary Agreement, which specified a reduction in
supply of power by the claimant to the extent of 19.8 MW from March
2004 until the end of the PPA term, i.e., 13.08.2014 This 19.8 MW
quantum was designated as ‘New Rated Capacity’.
4.3. It appears that in view of power being costly, the Government D
of Goa intended to stop the purchase from the claimant and addressed a
letter to that effect on 20.03.2013. However, in view of a provision in
the PPA for use of alternate fuel, by its communication dated 21.03.2013,
the claimant gave its proposal to the Government of Goa to supply power
by using Regassified Liquefied Natural Gas6, which was being brought
up to Goa by GAIL by its pipeline. The claimant gave a formula by E
which the per unit cost of power would be billed by it to the Government
of Goa. This particular aspect relating to the claimant’s proposal to switch
over to the alternate fuel and charges payable in that regard has formed
a major part of contentions in this case. Hence, a little elaboration shall
be apposite. F
4.3.1. On 26.04.2013, the Government of Goa replied to the
claimant’s letter dated 21.03.2013, inter alia, in the following terms: -
“In view of your offer under reference, the Government
has decided to continue to purchase power @ Rs. 8.58 per unit
w.e.f. 01/04/2013 as per your formula proposed in the letter G
dated 21/03/2013 considering the present rates of fuel and dollar.
The same may be noted for records and incorporated in your power
bills. The revised fixed rate shall be applicable from 1st April 2013.”

6
‘RLNG’, for short. H
392 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 4.3.2. On 30.04.2013, the claimant, however, sought a clarification
from the Government regarding the formula-based tariff payable for the
supply of electricity, inter alia, in the following words: -
“1. With regard to the price mentioned in our proposal dated
21.03.2013, the tariff of Rs.8.58/unit is based on the
B prevailing RLNG price ($17.2/mmbtu) and INR/USD exchange
rate (1 $ = Rs 54) and is therefore not fixed. The same shall vary
depending upon the fuel price in the market and the INR/USD
exchange rate.”
4.3.3. It has been the case of the claimant that initially, the
C Government of Goa agreed to a fixed per unit price but, when it was
clarified that the price would not be fixed, the Government agreed to
purchase the same considering the prevailing rates of fuel and dollar
upto the expiry of the PPA while requiring that for this purpose,
documentation showing the price of fuel and dollar be incorporated in
the bills raised by the claimant. In this regard, a communication received
D by the claimant from the Chief Electrical Engineer dated 23.05.2013 has
been relied upon. For its relevance, this communication dated 23.05.2013
is reproduced, in extenso, as under : -
“GOVERNMENT OF GOA

E ELECTRICTY DEPARTMENT
OFFICE OF THE CHIEF ELECTRICAL ENGINEER
No. 20/3/CEE/Tech/13-14/824
Date: 23.05.2013
F To,
M/s. Reliance Infrastructure Limited,
Goa Power Station,
Opp. Sancoale Industrial Estate,
G Zurinagar, Goa- 403 726
Sub: Proposal for supply of power on RLNG
Ref: 1. RINFRA/GPS/GOG/2013/16 dt. 21.03.2013 addressed to
this office and a copy enclosed to the Hon’ble Chief Minister,
State of Goa and others.
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 393
[DINESH MAHESHWARI, J.]

Sir, A
…..
In view of your offer under reference, the Government has
decided to continue to purchase power as per your formulae
proposed in the letter dated 21.03.2013 considering the prevailing
rates of fuel and dollar up to the expiry of the existing PPA. The B
same may be noted for records and incorporated in your power
bills with due documentations of prices of fuel and dollar
…
Yours faithfully C
Sd/-
(S. Lekshminath)
Chief Electrical Engineer”
4.3.4. It has also been the case of the claimant that in fact, the D
decision to purchase power at fluctuating price was approved by a decision
taken by the Cabinet Committee headed by the Chief Minister of the
State of Goa.
4.4. The claimant’s grievance has been that its monthly invoices
were paid upto March 2013 and monthly invoice for April 2013 was paid E
partly; but, from May 2013 onwards, its invoices were not paid. In regard
to the unpaid invoices of the claimant, partly for April 2013 and thereafter
from May 2013 till April 2014 (after which the plant was shut down),
several communications were exchanged between the parties and the
claimant submitted revised invoices but the grievance of the claimant
remained unredressed. F

4.5. On 19.05.2015, the claimant filed a petition before the Joint
Electricity Regulatory Commission7 for recovery of its dues. The State
submitted before JERC that an Arbitrator be appointed in terms of PPA
to adjudicate upon the disputes. On 11.12.2015, JERC, based on
agreement of both the parties, referred the disputes to the Sole Arbitrator G
Mr. Justice B. P. Singh (Former Judge of this Court) in pursuance of its
powers under Section 86(1)(f) of the Electricity Act, 2003. The arbitration
proceedings under this reference have led to the present appeals.

7
‘JERC’, for short. H
394 SUPREME COURT REPORTS [2023] 8 S.C.R.

A Arbitration proceedings and award
5. After long-drawn proceedings of arbitration with filing of claim,
reply and counter claim, rejoinder, sur-rejoinder, amendment of counter
claim, filing of various applications and written submissions, the Arbitral
Tribunal ultimately passed the award dated 16.02.2018 whereby it directed
B the State to pay to the claimant a sum of Rs. 278.29 crore (principal
amount) together with interest for the period up to 31.10.2017; to pay
further interest from 31.10.2017 at the rate of 15% per annum from the
date of award until the date of full payment of the amount including
interest as on the date of the award until effective payment/realization;
and further clarified that in case the non-claimant would pay the entire
C amount together with interest within two months from the date of the
award, it shall not be liable for payment of interest after the date of the
award.
5.1. We shall refer to the findings of the Arbitral Tribunal, to the
extent relevant, at the appropriate juncture hereafter. However, to take
D into comprehension as to what was presented to the Arbitral Tribunal by
way of dispute and as to what material points called for determination, it
may be noticed that the parties jointly formulated the issues on which
the Arbitral Tribunal was required to give its ruling; and the same were
duly taken note of by the Arbitral Tribunal in the following words:-
E “34. The parties in the joint statement submitted by them on
computation of the claim amount payable by the Respondent to
the claimant have themselves succinctly formulated the issues on
which this Tribunal is required to give its ruling, which are as
follows:
F a) Contention of the Respondent that Rated Capacity is required
to be downrated from September 2000 till the expiry of the PPA,
i.e. 13th August, 2014, relying on the draft Notification issued by
the Ministry of Power, Government of India referred to by the
Respondent during its arguments.
G b) Respondent’s claim for credit to be given to it of 4 MW for 12
hours on daily basis for weekdays in computing the Tariff Heat
Rate for arriving at the Fuel Cost (Variable Charges) from January,
2009 till 13th August 2014. The Respondent has made this claim
by referring to letters dated 2nd January, 2009 and 19th January,
2009.
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 395
[DINESH MAHESHWARI, J.]

c) Contention of the respondent that the claimant had agreed to A
supply power based on a fixed rate of Fuel price and a fixed rate
of exchange in terms of US Dollar to INR for supply of power
using RLNG as fuel from June, 2013 onwards;
d) Claim of the Claimant that it is entitled to Fuel Facilitation
Charges for supply of power by using RLNG from June 2013, B
and
e) Contention of the respondent that back-up power supplied by it
from May, 2014 till 13th August, 2014 was 1.25 times of Rs. 3.78/
kWh, being the rate specified by the respondent in its letter dated
18th September, 2014.” C
5.2. Out of the five issues aforementioned, four were decided by
the Arbitral Tribunal in favour of the claimant (except that relating to
fuel facilitation charges). The parties also presented various alternatives
of calculation for arriving at the amount payable in terms of findings.
Having examined these alternatives and with reference to its findings, D
the Tribunal made the award in the following terms: -
“77. This Tribunal after considering all aspects of the matter has
decided four of the issues in favour of the Claimant, and one in
favour of the Respondent. The scenario attracted in view of the
above findings is Scenario 22. Accordingly, the Claimant will be E
entitled to a sum of Rs.119.32 Crores by way of principal amount
and a sum of Rs 158.98 Crores by way of interest for the period
up to 31.10.2017 totaling Rs. 278.29 Crores. For the period
subsequent to 31st October 2017, the Claimant shall be entitled to
interest calculated at the same rate as for the period prior to that
date, till the date of the award. The Claimant shall also be entitled F
to payment of interest at the rate of 15% per annum on the above
amount from the date of the award till the actual payment of the
full amount awarded together with interest. If the full payment of
the amount awarded together with interest is made within the
period of two months from the date of the award, the Respondent G
shall not be liable to pay interest for any period subsequent to the
date of the award, otherwise, it shall be liable to pay interest at
the rate of 15% per annum from the date of the award till the date
of payment/realisation in full. In this view of the matter the Tribunal
makes the following.
H
396 SUPREME COURT REPORTS [2023] 8 S.C.R.

A AWARD

1. The Respondent shall pay to the Claimant a sum of Rs.278.29
Crores by way of payment of the principal amount together with
interest for the period up to October 31, 2017.

B 2. The Respondent shall pay to the Claimant interest on the above
amount, for the period from October 31, 2017 till the date of the
award, calculated at the same rate as for the period prior to
October, 31,2017.

3. The Respondent shall pay to the Claimant interest on the total
C amount awarded together with interest payable on October 31,
2017, at the rate of 15% per annum from the date of the Award
till full payment of the amount, including interest as on the date of
the Award is paid/realised.

4. Provided that, in case the Respondent pays to the Claimant the
D
entire amount together with interest awarded within two months
of the date of the Award, it shall not be liable to pay interest for
the period subsequent to the date of the Award.

5. The parties shall bear their own respective costs of this
E proceeding.”

Challenge to the award under Section 34 of the Act

6. The award so made by the Arbitral Tribunal was challenged by
the State under Section 34 of the Act before the Commercial Court. A
F vast variety of contentions urged on behalf of the parties were duly
considered by the Court and the relevant points were answered in favour
of the claimant and thereby, the award was upheld while rejecting the
application under Section 34.

6.1. The relevant observations and findings of the Commercial
G Court, to the extent necessary, shall be referred hereafter at the
appropriate stage. However, we may extract the points for determination
formulated by the Commercial Court and their answers, as indicated in
the impugned judgment and order dated 12.09.2019, as follows: -

“27. Following points arise for my determination:
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 397
[DINESH MAHESHWARI, J.]

A

B

C

D

E

F

G

H
398 SUPREME COURT REPORTS [2023] 8 S.C.R.

A The appeal under Section 37 of the Act
7. In challenge to the aforesaid order dated 12.09.2019 as passed
by the Commercial Court, the State preferred Commercial Appeal No.
12 of 2019 under Section 37 of the Act before the High Court of Judicature
at Bombay, Goa Bench that has been partly allowed by the High Court
B by the impugned judgment and order dated 08.03.2021 and thereby,
substantial and material parts of the findings in the award in question
have been reversed.
7.1. Again, we shall refer to the relevant findings of the High
Court at the appropriate stage but, in order to indicate the points taken
C up for determination by the High Court with reference to the rival
contentions, the following extraction shall be apposite: -
“39. We have considered the rival submissions made by the learned
Counsel for the parties. We have also considered the material on
record, which includes the impugned Award, as well as the
D impugned Judgment and Order made by the Commercial Court.
Based on the rival contentions, the following points now arise for
our determination:
(A) The scope of the provisions of Section 34 of the
Arbitration Act (as amended in 2017).
E (B) Whether the Appellant has made out a case of breach
of natural justice in the course of the arbitral proceedings
warranting interference with the impugned Award?
(C) Whether the Appellant has made out a case that the
impugned Award on the aspect of variable charges for Rs. 24.66
F crores is required to be set aside?
(D) Whether the Appellant has made out a case that the
impugned Award on the aspect of downrating for Rs. 18.53 crores
is required to be set aside?
(E) Whether the Appellant has made out a case that the
G impugned Award on the aspect of variable charges on 4 MW
power which was permitted to be traded for Rs. 3.94 crores is
required to be set aside?
(F) Whether the Appellant has made out a case that the
impugned Award on the aspect of netting out for Rs. 2.36 crores
H is required to be set aside?
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 399
[DINESH MAHESHWARI, J.]

(G) Whether the award of interest for the period up to the A
making of the impugned Award as well as the post Award period,
warrants interference?
(H) Whether the computations at Schedules 2 and 3 to the
impugned Award are ex facie incorrect and were made without
affording sufficient opportunity to the Appellant? B
(I) Whether the impugned Judgment and Order made by
the Commercial Court upholding the impugned Award is ex
facie erroneous and warrants interference?”
7.2. As regards point (A) aforesaid, the High Court, though
C
mentioned a decision of this Court in the case of Ssangyong Engineering
and Construction Co. Ltd. v. NHAI: (2019) 15 SCC 131, wherein
principles have been laid down for dealing with challenge to an award
under Section 34 of the Act of 1996 but, thereafter, considered it
appropriate to refer to the analysis by a learned Single Judge of the High
Court and, after reproducing a few passages from that decision of the D
learned Single Judge, observed that the submissions would be evaluated
with reference to the principles so stated. Be that as it may, thereafter,
the High Court dealt with the questions raised by the State as regards
the alleged breach of principles of natural justice in point (B) and rejected
all such contentions with reference to the record of proceedings as also
E
the pleadings and evidence of the parties. However, the High Court
proceeded to disapprove the award in relation to the claims covered by
the aforementioned points (C), (D), (E) and (F). Of course, on point (G),
in relation to the award of interest for the pre-reference period and the
period during which proceedings were pending before Arbitrator, the
High Court found no reason to interfere but then, with reference to the F
decision of this Court in Vedanta Ltd. v. Shenzhen Shandong Nuclear
Power Construction Co. Ltd: (2019) 11 SCC 465, considered it
appropriate to reduce the rate of interest to 10% from 15% p.a. In point
(H), the High Court found no fault in the computations attached to the
award as Schedules 2 and 3 but, in point (I) observed that the Commercial G
Court only summarised the submissions of the parties and made a brief
reference to the award without independent application of mind to the
contentions raised. This, according to the High Court, had not been a
satisfactory way of disposing of an application under Section 34 of the
Act of 1996.
H
400 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 7.3. The High Court concluded on the matter with the following
observations and directions: -
“195. For all the aforesaid reasons, we partly allow this appeal
and set aside both the impugned judgment and order as well as
the impugned award on the issues of variable charges (Rs. 24.66
B crores approx), downrating (Rs. 18.53 crores approx.), variable
charges on 4MW power (Rs. 3.94 crores approx.), and netting
out (Rs. 2.36 crores approx.). We reduce the interest rate from
15% to 10% per annum, payable from the date of Award till the
date of payment of the determined amount. The rest of the
impugned Award is however not interfered with.
C
196. Since we have rejected the challenge to the summary of
computations in Schedule 2 of the impugned Award, even after
holding the issues of downrating, 4 MW power, fuel formula,
facilitation fuel charges, and netting out in favour of the Appellant,
the Appellant is still due and payable principal amount of Rs. 70.58
D crores together with interest component with which we have not
interfered with. This amount comes to Rs. 151.97 crores as of
31.10.2017. On this amount of Rs. 151.97 crores, the Appellant
will have to pay interest at the approved rate for the period from
31.10.2017 till the date of the Award i.e. 16.2.2018. Thereafter,
E however, the Appellant will have to pay interest at the rate of
10% per annum from the date of Award till the payment of the
amount to the Respondent.
197. The Appellant had already deposited an amount of Rs. 25
crores before the Commercial Court as a condition for a stay on
F the execution of the impugned Award. Thereafter, the Appellant
deposited a further amount of Rs. 94 crores in this Court in terms
of our order dated 8.11.2019. The Respondent was permitted to
withdraw both these amounts by furnishing bank guarantees of a
Nationalized Bank. The Respondent was directed to keep alive
such bank guarantees until the disposal of this Commercial Appeal
G and for 15 days thereafter.
198. Though we have partly allowed this appeal, it is unlikely that
the Respondent might have to bring back any portion of the amounts
withdrawn by it. The Respondent to, therefore, assess this position
and deposit such amount, if any, in this Court within 14 days from
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 401
[DINESH MAHESHWARI, J.]

today. Only if no amount is to be brought back, the Respondent A
need not keep the bank guarantees alive beyond 15 days from
today.
199. Further, if despite our order partly allowing this appeal, the
Appellant is still due and payable to the Respondent the amounts
over and above those which the Respondent has already withdrawn B
against bank guarantees, then, obviously, the Respondent need
not keep the bank guarantees alive for more than 15 days from
today. The Appellant to then deposit the balance amount in this
Court within four weeks from today. The Respondent will have
the liberty to withdraw such amount, once the same is deposited.
C
200. The appeal is partly allowed in the aforesaid terms. There
shall be no order for costs.”
Rival Submissions
8. In view of the above, the claimant has approached this Court
challenging the judgment and order of the High Court to the extent it D
sets aside the award partially. The State of Goa, on the other hand, has
laid a limited challenge to the judgment of the High Court. We may
briefly summarise the principal contentions urged on behalf of the parties.
9. Mr. Parag P. Tripathi, learned senior counsel appearing on behalf
of the claimant, has made a variety of submissions in challenge to the E
part of the impugned judgment and order dated 08.03.2021 whereby,
substantial part of the award in question has been upturned by the High
Court.
9.1. At the outset, learned senior counsel has submitted that the
scope of interference under Section 37 of the Act of 1996 is limited and F
is restricted to the grounds mentioned in Section 34 thereof; and if the
view of the Arbitrator is a plausible view, the Court will not interfere or
substitute its own view with that of the Arbitrator. Further, re-appreciation
of evidence or review on merits is not permissible under the provisions
of the Act unless the award is shown to be in conflict with the ‘public
G
policy of India’ or vitiated by ‘patent illegality appearing on the face of
the award’.
9.2. With respect to the submission that the application of the
State for appointment of expert under Section 26 of the Arbitration Act
had not been decided by the Arbitral Tribunal, learned senior counsel
H
402 SUPREME COURT REPORTS [2023] 8 S.C.R.

A has submitted that the High Court had noted in paragraphs 51 and 52 of
the impugned judgment that the prayer seeking appointment of expert
was deleted by the State itself. Further, the State never challenged
rejection of its counter claim and the amounts were calculated jointly by
both the parties.
B 9.3. As regards variable charges to the tune of about Rs. 24.66
crore, learned senior counsel for the claimant has submitted that the
Arbitral Tribunal came to a categorical finding of fact that the parties
had agreed that sale of electricity by using alternate fuel RLNG would
not be at fixed price and would be based on the fluctuating price of US
dollar and fuel. It has also been submitted that although the State had
C argued before the High Court that certain clauses of PPA had not been
considered by the Arbitral Tribunal, and the High Court held that the
Arbitral Tribunal did not consider the issue raised regarding non-
compliance with clauses 12.1.4. to 12.1.7. of the PPA but, the said clauses
related only to Fuel Supply Contract8 for Naphtha, and not the alternate
D fuel. There was a separate clause i.e., clause 12.1.9. relating to change
in fuel in terms of use of alternate fuel and hence, clauses 12.1.4. to
12.1.7 were inapplicable. In fact, the Arbitral Tribunal had observed that
the Government of Goa had even agreed to the formula on the basis of
which the tariff would be computed for alternate fuel. According to
learned senior counsel, the High Court applied an inapplicable clause,
E while ignoring the fact that all the relevant documents including the price
certificate and dollar rate received from PSUs were forwarded along
with invoices. Further, the Government of Goa continued to take power
from the claimant without dispute or demur. Even otherwise, no issues
were raised contemporaneously by the Government of Goa, and the
F supposed non-compliance of clauses 12.1.4. to 12.1.7 was raised for the
first time in the sur-rejoinder before the Arbitral Tribunal.
9.4. As regards downrating amount of about Rs. 18.53 crore,
learned senior counsel has recapitulated the contention of the Government
of Goa before the Arbitral Tribunal that the Rated Capacity was required
G to be downrated from September 2000 until 13.08.2014 (date of expiry
of PPA), on the basis of a draft notification issued by the Ministry of
Power, Government of India. Learned counsel has countered this by
relying on the observations of the Arbitral Tribunal that the issue of
downrating was irrelevant given the subsequent amendment to the PPA,
8
H ‘FSC’, for short.
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 403
[DINESH MAHESHWARI, J.]

restricting the assured supply to 19.8 MW as the New Rated Capacity, A
without referring to downrating of such capacity. Hence, the State was
not justified in contending that there was an annual downrating of the
Rated Capacity. It has been argued that the Arbitral Tribunal had
considered the definition of ‘contracted capacity’ and other contractual
provisions as well as various provisions of the PPA and supplementary
B
PPAs by which, there was a reduction to Rated Capacity of 19.8 MW
to hold that the parties were bound by the contractual provisions. These
findings of the Arbitral Tribunal were supported by the Original Equipment
Manufacturer’s9 Certificate dated 08.11.2005 and Minutes of Meeting
dated 05.04.2007, based on which, all the invoices were reconciled and
it was agreed that future invoices would be calculated in the same manner. C
The Arbitral Tribunal found that this agreement was the basis of all the
future invoices and the said invoices were both approved and paid by
the Government of Goa up to March 2013 and a part of April 2013. It
was also held that this issue of downrating capacity should not be reagitated
having already been settled by the parties. Learned counsel would submit
D
that the High Court has erroneously proceeded to draw an adverse
inference against the claimant owing to its failure to produce the OEM’s
recommendation and has erroneously entered into the process of
interpretation of the Minutes of Meeting dated 05.04.2007. Learned senior
counsel, while relying on the decisions of this Court in Delhi Airport
Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.: (2022) E
1 SCC 131 and Haryana Tourism Ltd. v. Kandhari Beverages Ltd.:
(2022) 3 SCC 237, has submitted that in the appeal under Section 37 of
the Act, re-appreciation of evidence was not permissible at all.
9.5. In regard to the question of variable charges on 4 MW power,
it has been argued that the issue before the Arbitral Tribunal was as to F
whether the Government of Goa was justified in claiming credits for 4
MW in computing tariff heat rate for arriving at the fuel cost variable
charges from January, 2009 to 30.08.2014. This claim was made by the
Government in reference to the letters dated 02.01.2009 and 19.01.2009.
It has been contented that the Arbitral Tribunal, after appreciating the
evidence including the said letters, concluded that Government of Goa G
was exempted from payment of only fixed cost with regard to this 4
MW power permitted to be supplied to the other consumers; and the
said letter dated 19.01.2009, in no way, affected the committed power

9
‘OEM’, for short. H
404 SUPREME COURT REPORTS [2023] 8 S.C.R.

A supply by the claimant to the Government. Moreover, the Government
had maintained its right to revert to take the said 4 MW power in future
with all the terms and conditions of PPA remaining the same; and variable
charges billed to the Government for supply to them were as per PPA.
According to the learned counsel, the High Court erroneously re-
appreciated the letters to substitute its own view with that of the Arbitral
B
Tribunal.
9.6. With respect to the issue related to supply of backup power
by the Government to the claimant in case of a scheduled outage (when
the plant was shut between May and August, 2014), the Government
claimed its entitlement to 1.25 times the approved rate of Rs. 3.78 per
C
unit which was agreed to in the letter dated 18.09.2014. Learned senior
counsel has submitted that the Arbitral Tribunal rightly came to the finding
that the rate per unit was a fixed amount since determination of average
cost of energy had become irrelevant, by relying on office memorandums
dated 13.08.2014 and 18.09.2014. According to the learned counsel, this
D again has only been a matter of re-appreciation of evidence by the High
Court.
9.7. In respect of reduction of interest post-award from 15% to
10% p.a. based on the principles of proportionality and reasonableness
with reliance on the decision in Vedanta Ltd. (supra), learned senior
E counsel has submitted that post-award interest was awarded under
Section 31(7)(b) of the Act of 1996 and the claimant had handed over
the statement indicating that prime lending rate was approximately 13%
p.a. and above and, therefore, award of interest @ 15% p.a. was justified.
10. Mr. R. Venkataramani, the learned Attorney General for India,
F appearing on behalf of the State has countered the submissions made on
behalf of the claimant and has argued that the High Court has rightly
interfered with the award in question that suffered from patent illegalities.
The learned Attorney General has also questioned the observations and
findings in the impugned judgment and order dated 08.03.2021 to the
extent the submissions of the State have been rejected or overruled.
G
10.1. Learned Attorney General has referred to various decisions
of this Court on the scope of interference under Sections 34 and 37 of
the Act of 1996 including those in Ssangyong Engineering (supra);
MMTC Limited v. Vedanta Limited: (2019) 4 SCC 163; and PSA
SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 405
[DINESH MAHESHWARI, J.]

Port Trust Tuticorin and Ors.: (2021) SCC Online SC 508. It has A
been submitted that this is not a case of two plausible views by the
Arbitral Tribunal but a case of non-advertence to, and non-consideration
of, the relevant contractual clauses leading to patent illegalities. According
to the learned Attorney General, the Arbitral Tribunal had approached
the entire case from an altogether wrong angle; and when the Arbitrator
B
adverted to wrong questions, the result has been of wrong answers.
Learned Attorney General would submit that the High Court rightly
interfered with the order under Section 34 of the Act of 1996 considering
the fact that the Commercial Court did not adjudicate upon the arbitral
award and rather framed separate issues like a regular Appellate Court.
C
10.2. It has been strenuously argued by the learned Attorney
General that in the award in question, the Arbitral Tribunal proceeded to
rely upon certain correspondence between the parties but, failed to
examine the root question as to whether such correspondence had the
effect of variation of terms of contract and as to whether such
correspondence changed the fundamentals of contract. The learned D
Attorney General has re-emphasised that the Arbitral Tribunal has not
considered the relevant clauses of the contract and this had been a matter
of patent illegality. Two decisions of this Court have been relied on in
this regard, namely State of Chhattisgarh and Ors. v. Sal Udyog Pvt.
Ltd.: (2022) 2 SCC 275 and Associate Builders v. Delhi Development
E
Authority: (2015) 3 SCC 49. Hence, it has been contended that the
award would be liable to be set aside on the ground of patent illegality
under Section 34(2A) of the Act of 1996 because an Arbitral Tribunal
cannot rewrite the contract between parties and the award was made in
ignorance of vital evidence.
F
10.3. As regards procedural aspects, it has been argued on behalf
of the State that there had been clear violation of the principles of natural
justice since the application seeking appointment of an expert in terms
of Section 26 of the Act was not disposed of by the Arbitral Tribunal,
although an order was passed by the Tribunal that it would be decided at
an appropriate time. It has been contended that failure of the Tribunal to G
consider the application for appointment of expert had resulted in denial
of equal opportunity to the State to the present its case, in violation of
Section 18 of the Act. It has also been submitted that the High Court
overlooked the purpose and intent behind appointment of an expert under
Section 26 of the Act of 1996.
H
406 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 10.3.1. Another application was filed by the State seeking
production of 13 documents by the claimant, including drafts of progress
and developments in negotiations of each Fuel Supply Contract, minutes
of meetings with fuel suppliers as well as the OEM recommendations
with respect to downrating of net generating capacity. It has been
submitted that this application was also not disposed of by the Arbitral
B
Tribunal. Learned Attorney General would submit that non-production
of documents has seriously prejudiced the State because certain
documents like the OEM manual were crucial for its defence; and it
was incumbent upon the claimant to produce the documents in its exclusive
possession; and an adverse inference ought to have been drawn against
C the claimant for want of production of these documents.
10.3.2. It has further been submitted that the request of the
State to file additional written submissions was not granted by the
Arbitral Tribunal even after additional written submissions were placed
on record by the claimant. Merely because a joint exercise was done
D and 24 permutations of calculation were submitted by the parties, at
no point did the State give up its claims regarding interest or the quantum
thereof.
10.4. In regard to variable charges, learned Attorney General has
submitted that applicability of clauses 12.4 to 12.7 of the PPA was not
E considered or discussed in the award. These clauses had a material
bearing on the question of liability of the Government of Goa to pay Rs.
24.66 crore on account of variable charges relatable to change in fuel
from Naphtha to RLNG; and there had not been any finding by the
Arbitral Tribunal that the aforesaid clauses were not applicable when
there was change to RNLG from Naphtha. It has further been contended
F that the claimant was obligated to keep the Government updated about
its negotiations with fuel suppliers and provide the correspondence with
potential suppliers and other drafts. The letter dated 23.05.2013 stated
that all the terms and conditions of the PPA were to remain unaffected
and the non-production of FSCs and detailed invoices took the opportunity
G to object to the same away from the Government. In light of the terms
of the PPA, the submission of the claimant that the Government could
not have frozen dollar rate and RLNG rate, would be unsustainable.
Moreover, it would be wrong to assert that if fuel facilitation charges
had not been given to the claimant by the Arbitral Tribunal, the requirement
of providing FSCs would be waived off.
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 407
[DINESH MAHESHWARI, J.]

10.5. As regards downrating amounting to Rs. 18.53 crore, learned A
Attorney General has submitted that the Arbitral Tribunal wrongly held
that the issue of downrating was resolved between parties on 05.04.2007
and failed to appreciate the relevant contractual provisions concerning
downrating. The definition of ‘contractual capacity’ as defined under
the PPA required that downrating be taken into account, and this definition
B
was not amended by the Supplementary PPAs. Therefore, it was not
open for the Tribunal to hold that downrating had been given a go-by.
Given that the claimant did not produce the OEM recommendations, the
State had to rely upon a draft notification issued by the Ministry of Power
to calculate downrating. It has been submitted that this failure to produce
the OEM recommendations would necessitate an adverse inference being C
drawn against the claimant and the claimant could not have subsequently
relied on the certificate dated 08.11.2005 to argue that no degradation
had taken place, vitiating the applicability of downrating. It has been
submitted that the certificate dated 08.11.2005 cannot be held to be
conclusive as to the degradation of the plant beyond the date of issuance
D
of the aforesaid certificate and, therefore, the contractual stipulation
could not have been ignored. Downrating would have to be applied in
terms of the contract irrespective of changes in contracted capacity
because, if the concept of downrating had become redundant, the claimant
would have pointed it out in the year 2007 itself.
10.6. Insofar as the award of Rs. 3.94 crore towards variable E
charges on 4 MW power is concerned, learned Attorney General has
submitted that variable charges were only to be paid in respect of power
actually purchased, whereas fixed charges were payable regardless of
actual purchase since there was no connection with infrastructure costs.
The contention on this score has been that they are not liable to pay F
variable charges for electricity which had not been supplied to them,
particularly when the parties had also agreed to waive fixed charges in
that respect. Therefore, the Arbitral Tribunal erred in directing payment
towards variable charges for 4 MW electricity, which was never supplied
to the Government of Goa. The contracted capacity for the duration
when the claimant was permitted to sell to third parties was reduced by G
4 MW and; hence, while billing the variable charges for that period,
contracted capacity also had to be reduced. It has been submitted that
the failure to do so has resulted in a situation where the Government
was charged by the claimant for variable charges on units sold to third
parties. This has resulted in a dual profit to the claimant, for having been H
408 SUPREME COURT REPORTS [2023] 8 S.C.R.

A held entitled to recover variable costs for 4 MW electricity from the
State despite not supplying electricity to it; and also being compensated
for both fixed charges and variable charges for 4 MW electricity by
such third parties. It has further been submitted that the Arbitral Tribunal
relied on the letter dated 19.01.2009 which permitted the claimant to
trade 4 MW of electricity to third parties but, failed to observe that this
B
was in response to a previous communication by the claimant in which,
the issue of fixed charges was specifically raised. Thus, the letter dated
19.01.2009 cannot be viewed as acquiescence to payment of variable
charges on 4MW power; and the finding of the Arbitral Tribunal in this
regard had been perverse.
C
10.7. Learned Attorney General has also submitted that the Arbitral
Tribunal has again ignored the contractual clauses mandating netting-
out while making an award in the sum of Rs. 2.36 crore. It has been
argued that clause 15 of the Second Supplementary PPA provided that
all the backup energy supplied by the Government during an unscheduled
D or forced outage would be netted-out against energy supplied by the
power station to the Government in the subsequent billing period in the
ratio of one unit of backup power equal to one and quarter of unit of
energy supplied. Both parties had construed this to mean that the claimant
would be liable to pay charges for the netted-out energy at the prevailing
rate in the proximate billing period. The Arbitral Tribunal has failed to
E
take note of the mandatory nature of netting-out for unscheduled power
outages under clause 15 and solely focused on the interpretation of the
document dated 18.09.2014. It has been submitted that the determination
of rate at Rs. 3.78 per unit was the base rate for calculation of netting-
out and could not be construed as waiver of the said provisions of the
F contract. Further, the claimant had failed to supply electricity during the
relevant billing period which led to a need to determine the base rate.
The claimant was liable to pay for 1.25 times the units supplied to
consumer by the Government, although the claimant contended that they
would only be liable to return 1 unit. In fact, the base rate of Rs. 3.78
G was much lower than the last paid rate, which was Rs. 12.57 per unit. In
any event, there was no amendment to exclude netting from the calculation
of the rate in terms of clause 23.1 of the PPA and no waiver on the part
of the Government.
10.8. Finally, as regards the question of interest, it has been argued
that there was no reason for the Arbitral Tribunal to award any interest
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 409
[DINESH MAHESHWARI, J.]

before the date of award as the invoices were not paid being in dispute A
because the claimant was charging inflated bills; and the amount that
was payable could not be crystallized for the claimant having failed to
provide the Government of Goa with the necessary details and documents.
Such documents were provided only during the arbitration proceedings
and thus, if at all any amount towards interest was considered due and
B
payable; the same could start only from the date when the final amount
was crystallized. It has also been suggested that the contractual provisions
for interest were in terrorem and liable to be discarded having regard to
Section 74 of the Contract Act, 1872. Although the High Court rightly
reduced the post-award interest but only modified the amount. It has
been further submitted, by relying on NHAI v. M. Hakeem: (2021) 9 C
SCC 1, that such course of action was not permissible as modification
of an award would not be possible under Section 34 of the Act of 1996.
Thus, the award of interest of the Tribunal was liable to be set aside as
being patently illegal.
10.9. A few other submissions have also been made by the learned D
Attorney General with reference to the calculation of the awarded amount.
It has been contended that as per the PPA, the claimant was required to
submit its bills according to the forecast period and thereafter for each
subsequent financial year; however, the claimant submitted bills for the
tariff period which resulted in inflated bills. Further, the Arbitral Tribunal
E
calculated the amount to be awarded based on the supposed mutually
agreed upon table of calculations; however, the set of calculations
provided by the claimant was disputed by the State. The Tribunal did not
advert to the submission that the principal amount to be paid would be
Rs. 60.76 crore as opposed to Rs. 70.58 crore claimed by claimant.
According to the learned Attorney General, the claimant has resorted to F
exorbitant billing de hors the contract and the amount payable could not
be crystallized on account of the fact that the claimant did not provide
details of the electricity sold to third parties so as to ascertain liability,
and this documentation was only provided during arbitration proceedings.
11. We have given anxious consideration to the rival submissions G
and have examined the record with reference to the law applicable.
Relevant Statutory provisions
12. Since the present appeals relate to an arbitral award, which
was carried in challenge under Section 34 and in appeal under Section
H
410 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 37 of the Act of 1996; and looking to the variety of submissions made,
we may usefully take note of the relevant statutory provisions contained
in Sections 26, 28, 34 and 37 of the Act of 1996 as follows:
“26. Expert appointment by arbitral tribunal.-(1) Unless
otherwise agreed by the parties, the arbitral tribunal may—
B (a) appoint one or more experts to report to it on specific
issues to be determined by the arbitral tribunal, and
(b) require a party to give the expert any relevant
information or to produce, or to provide access to, any
relevant documents, goods or other property for his
C inspection.
(2) Unless otherwise agreed by the parties, if a party so requests
or if the arbitral tribunal considers it necessary, the expert shall,
after delivery of his written or oral report, participate in an oral
hearing where the parties have the opportunity to put questions to
D him and to present expert witnesses in order to testify on the
points at issue.
(3) Unless otherwise agreed by the parties, the expert shall, on
the request of a party, make available to that party for examination
all documents, goods or other property in the possession of the
E expert with which he was provided in order to prepare his report.
**** **** ****
28. Rules applicable to substance of dispute.-(1) Where the
place of arbitration is situate in India,—
F (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;
(b) in international commercial arbitration,—
G (i) the arbitral tribunal shall decide the dispute in
accordance with the rules of law designated by the
parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal
system of a given country shall be construed, unless
H otherwise expressed, as directly referring to the
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 411
[DINESH MAHESHWARI, J.]

substantive law of that country and not to its conflict of A
laws rules;
(iii) failing any designation of the law under clause (a)
by the parties, the arbitral tribunal shall apply the rules
of law it considers to be appropriate given all the
circumstances surrounding the dispute. B
(2) The arbitral tribunal shall decide ex aequo et bono or as
amiable compositeur only if the parties have expressly authorised
it to do so.
10
[(3) While deciding and making an award, the arbitral tribunal
shall, in all cases, take into account the terms of the contract and C
trade usages applicable to the transaction.]
**** **** ****
34. Application for setting aside arbitral award.-(1) Recourse
to a Court against an arbitral award may be made only by an
application for setting aside such award in accordance with sub- D
section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application 11[establishes on the basis
of the record of the arbitral tribunal that] —
E
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being
in force; or F
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to
present his case; or
10
Subs. by Act 3 of 2016, sec. 14, for sub-section (3) (w.r.e.f. 23-10-2015). Sub-section
G
(3), before substitution, stood 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.”.
11
Subs. by Act 33 of 2019, sec 7, for “furnishes proof that” [w.e.f. 30-8-2019, vide
S.O. 3154(E), dated 30 th August, 2019]. H
412 SUPREME COURT REPORTS [2023] 8 S.C.R.

A (iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to
arbitration:
B Provided that, if the decisions on matters
submitted to arbitration can be separated from those
not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted
to arbitration may be set aside; or
C (v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement
of the parties, unless such agreement was in conflict
with a provision of this Part from which the parties
cannot derogate, or, failing such agreement, was not
in accordance with this Part; or
D
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force, or
E (ii) the arbitral award is in conflict with the public policy
of India.
12
[Explanation 1.—For the avoidance of any doubt, it is clarified
that an award is in conflict with the public policy of India, only
if,—
F
(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
G
12
Subs. by Act 3 of 2016, sec. 18(I), for the Explanation (w.r.e.f. 23-10-2015). The
Explanation, before substitution, stood as under:
“Explanation. -Without prejudice to the generality of sub-clause (ii) it is hereby
declared, for the avoidance of any doubt, that an award is in conflict with the public
policy of India if the making of the award was induced or affected by fraud or
H corruption or was in violation of section 75 or section 81.”
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 413
[DINESH MAHESHWARI, J.]

(iii) it is in conflict with the most basic notions of morality A
or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.]
13 B
[(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
C
of an erroneous application of the law or by reappreciation of
evidence.]
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making
that application had received the arbitral award or, if a request
D
had been made under section 33, from the date on which that
request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within
the said period of three months it may entertain the application
E
within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the F
arbitral proceedings or to take such other action as in the opinion
of arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
14
[(5) An application under this section shall be filed by a party
only after issuing a prior notice to the other party and such G
application shall be accompanied by an affidavit by the applicant
endorsing compliance with the said requirement.

13
Ins. by Act 3 of 2016, sec. 18(II) (w.r.e.f. 23-10-2015).
14
Ins. by Act 3 of 2016, sec. 18(III) (w.r.e.f. 23-10-2015). H
414 SUPREME COURT REPORTS [2023] 8 S.C.R.

A (6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from
the date on which the notice referred to in sub-section (5) is served
upon the other party.]
**** **** ****
B
37. Appealable orders.-(1) 15 [Notwithstanding anything
contained in any other law for the time being in force, an appeal]
shall lie from the following orders (and from no others) to the
Court authorised by law to hear appeals from original decrees of
the Court passing the order, namely:—
C 16
[(a) refusing to refer the parties to arbitration under section 8;
(b) granting or refusing to grant any measure under section 9;
(c) setting aside or refusing to set aside an arbitral award under
section 34.]
D
(2) An Appeal shall also lie to a court from an order of the arbitral
tribunal.-
(a) accepting the plea referred to in sub-section (2) or sub-section
(3) of section 16; or
E (b) granting or refusing to grant an interim measure under section
17.
(3) No second appeal shall lie from an order passed in appeal
under this section, but nothing in this section shall affect or take
away any right to appeal to the Supreme Court.”
F
12.1. Section 31(7) of the Act of 1996 as regards interest in award
may also be usefully noticed which reads as under:-
“31. Form and contents of arbitral award.-
xxx xxx xxx
G
15
Subs. by Act 33 of 2019, sec 8, for “An appeal” [w.e.f. 30-8-2019, vide S.O. 3154(E),
dated 30 th August, 2019].
16
Subs. by Act 3 of 2016, sec. 20, for clauses (a) and (b) (w.r.e.f. 23-10-2015). Clauses
(a) and (b), before substitution stood as under:
“(a) granting or refusing to grant any measure under section 9;
H (b) setting aside or refusing to set aside an arbitral award under section 34.”
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 415
[DINESH MAHESHWARI, J.]

(7) (a) Unless otherwise agreed by the parties, where and in so A
far as an arbitral award is for the payment of money, the arbitral
tribunal may include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the whole or any
part of the money, for the whole or any part of the period between
the date on which the cause of action arose and the date on which
B
the award is made.
17
[(b) A sum directed to be paid by an arbitral award shall, unless
the award otherwise directs, carry interest at the rate of two per
cent. higher than the current rate of interest prevalent on the date
of award, from the date of award to the date of payment.
C
Explanation.-The expression “current rate of interest” shall have
the same meaning as assigned to it under clause (b) of section 2
of the Interest Act, 1978 (14 of 1978)]
xxx xxx xxx”
The scope of challenge to an arbitral award under Section 34 D
and the scope of appeal under Section 37 of the Act
13. Having regard to the contentions urged and the issues raised,
it shall also be apposite to take note of the principles enunciated by this
Court in some of the relevant decisions cited by the parties on the scope
of challenge to an arbitral award under Section 34 and the scope of E
appeal under Section 37 of the Act of 1996.
13.1. In MMTC Limited (supra), this Court took note of various
decisions including that in the case of Associate Builders (supra) and
exposited on the limited scope of interference under Section 34 and
further narrower scope of appeal under Section 37 of the Act of 1996, F
particularly when dealing with the concurrent findings (of the Arbitrator
and then of the Court). This Court, inter alia, held as under: -
“11. As far as Section 34 is concerned, the position is well-
settled by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground provided G

17
Subs. by Act 3 of 2016, sec. 16(i), for clause (b) (w.r.e.f. 23-10-2015). Clause (b),
before substitution, stood as under:
“(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise
directs, carry interest at the rate of eighteen per centum per annum from the date of
the award to the date of payment.” H
416 SUPREME COURT REPORTS [2023] 8 S.C.R.

A under Section 34(2)(b)(ii) i.e. if the award is against the public
policy of India. As per the legal position clarified through decisions
of this Court prior to the amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn, includes a violation of the
fundamental policy of Indian law, a violation of the interest of
India, conflict with justice or morality, and the existence of patent
B
illegality in the arbitral award. Additionally, the concept of the
“fundamental policy of Indian law” would cover compliance with
statutes and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice, and Wednesbury
[Associated Provincial Picture Houses v. Wednesbury Corpn.,
C (1948) 1 KB 223 (CA)] reasonableness. Furthermore, “patent
illegality” itself has been held to mean contravention of the
substantive law of India, contravention of the 1996 Act, and
contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court
D may interfere with an arbitral award in terms of Section 34(2)(b)(ii),
but such interference does not entail a review of the merits of the
dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral award may
E
not be interfered with if the view taken by the arbitrator is a possible
view based on facts. (See Associate Builders v. DDA [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204].
Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes
Ltd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal
F Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation,
(2006) 4 SCC 445]; and McDermott International Inc. v. Burn
Standard Co. Ltd. [McDermott International Inc. v. Burn Standard
Co. Ltd., (2006) 11 SCC 181])
13. It is relevant to note that after the 2015 Amendment to
G Section 34, the above position stands somewhat modified. Pursuant
to the insertion of Explanation 1 to Section 34(2), the scope of
contravention of Indian public policy has been modified to the
extent that it now means fraud or corruption in the making of the
award, violation of Section 75 or Section 81 of the Act,
contravention of the fundamental policy of Indian law, and conflict
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 417
[DINESH MAHESHWARI, J.]

with the most basic notions of justice or morality. Additionally, A
sub-section (2-A) has been inserted in Section 34, which provides
that in case of domestic arbitrations, violation of Indian public
policy also includes patent illegality appearing on the face of the
award. The proviso to the same states that an award shall not be
set aside merely on the ground of an erroneous application of the B
law or by reappreciation of evidence.
14. As far as interference with an order made under Section
34, as per Section 37, is concerned, it cannot be disputed that
such interference under Section 37 cannot travel beyond the
restrictions laid down under Section 34. In other words, the court C
cannot undertake an independent assessment of the merits of the
award, and must only ascertain that the exercise of power by the
court under Section 34 has not exceeded the scope of the provision.
Thus, it is evident that in case an arbitral award has been confirmed
by the court under Section 34 and by the court in an appeal under
Section 37, this Court must be extremely cautious and slow to D
disturb such concurrent findings.”
13.2. In the case of Ssangyong Engineering (supra), this Court
has set out the scope of challenge under Section 34 of the Act of 1996 in
further details in the following words: -
E
“37. Insofar 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
F
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 backdoor
when it comes to setting aside an award on the ground of patent
illegality. G
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.
H
418 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 39. To elucidate, para 42.1 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,
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 [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would
B
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
C
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204] , 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
D even a possible view to take. Also, if the arbitrator wanders outside
the contract and deals with 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
E perverse, as understood in paras 31 and 32 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204] , 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
F 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
G therefore, would also have to be characterised as perverse.”
13.3. The limited scope of challenge under Section 34 of the Act
was once again highlighted by this Court in the case of PSA SICAL
Terminals (supra) and this Court particularly explained the relevant tests
as under :-
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 419
[DINESH MAHESHWARI, J.]

“43. It will thus appear to be a more than settled legal position, A
that in an application under Section 34, the court is not expected
to act as an appellate court and reappreciate the evidence. The
scope of interference would be limited to grounds provided under
Section 34 of the Arbitration Act. The interference would be so
warranted when the award is in violation of “public policy of India”,
B
which has been held to mean “the fundamental policy of Indian
law”. A judicial intervention on account of interfering on the merits
of the award would not be permissible. However, the principles
of natural justice as contained in Section 18 and 34(2)(a)(iii) of
the Arbitration Act would continue to be the grounds of challenge
of an award. The ground for interference on the basis that the C
award is in conflict with justice or morality is now to be understood
as a conflict with the “most basic notions of morality or justice”.
It is only such arbitral awards that shock the conscience of the
court, that can be set aside on the said ground. An award would
be set aside on the ground of patent illegality appearing on the D
face of the award and as such, which goes to the roots of the
matter. However, an illegality with regard to a mere erroneous
application of law would not be a ground for interference. Equally,
reappreciation of evidence would not be permissible on the ground
of patent illegality appearing on the face of the award.
E
44. A decision which is perverse, though would not be a ground
for challenge under “public policy of India”, would certainly amount
to a patent illegality appearing on the face of the award. However,
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. F

45. To understand the test of perversity, it will also be appropriate
to refer to paragraph 31 and 32 from the judgment of this Court in
Associate Builders (supra), which read thus:
“31. The third juristic principle is that a decision which is perverse G
or so irrational that no reasonable person would have arrived at
the same is important and requires some degree of explanation. It
is settled law 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 H
420 SUPREME COURT REPORTS [2023] 8 S.C.R.

A arrives at; or(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in two judgments.
In Excise and Taxation Officer-cum-Assessing Authority v. Gopi
Nath & Sons [1992 Supp (2) SCC 312], it was held : (SCC p.
B 317, para 7)
“7. ... It is, no doubt, true that if a finding of fact is arrived at
by ignoring or excluding relevant material or by taking into
consideration irrelevant material or if the finding so outrageously
defies logic as to suffer from the vice of irrationality incurring
the blame of being perverse, then, the finding is rendered infirm
C in law.””
13.4. In Delhi Airport Metro Express (supra), this Court again
surveyed the case-law and explained the contours of the Courts’ power
to review the arbitral awards. Therein, this Court not only re-affirmed
the principles aforesaid but also highlighted an area of serious concern
D while pointing out “a disturbing tendency” of the Courts in setting aside
arbitral awards after dissecting and re-assessing factual aspects. This
Court also underscored the pertinent features and scope of the expression
“patent illegality” while reiterating that the Courts do not sit in appeal
over the arbitral award. The relevant and significant passages of this
judgment could be usefully extracted as under: -
E
“26. A cumulative reading of the UNCITRAL Model Law and Rules,
the legislative intent with which the 1996 Act is made, Section 5
and Section 34 of the 1996 Act would make it clear that judicial
interference with the arbitral awards is limited to the grounds in
Section 34. While deciding applications filed under Section 34 of
F the Act, Courts are mandated to strictly act in accordance with
and within the confines of Section 34, refraining from appreciation
or reappreciation of matters of fact as well as law.
(See Uttarakhand PurvSainikKalyan Nigam Ltd. v. Northern Coal
Field Ltd. [Uttarakhand PurvSainik Kalyan Nigam Ltd. v.
Northern Coal Field Ltd., (2020) 2 SCC 455 : (2020) 1 SCC (Civ)
G
570], Bhaven Construction v. Sardar Sarovar Narmada Nigam
Ltd. [Bhaven Construction v. Sardar Sarovar Narmada Nigam
Ltd., (2022) 1 SCC 75] and Rashtriya Ispat Nigam Ltd. v. Dewan
Chand Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan Chand
Ram Saran, (2012) 5 SCC 306] .)
H **** **** ****
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 421
[DINESH MAHESHWARI, J.]

28. This Court has in several other judgments interpreted Section A
34 of the 1996 Act to stress on the restraint to be shown by Courts
while examining the validity of the arbitral awards. The limited
grounds available to Courts for annulment of arbitral awards are
well known to legally trained minds. However, the difficulty arises
in applying the well-established principles for interference
B
to the facts of each case that come up before the Courts.
There is a disturbing tendency of Courts setting aside
arbitral awards, after dissecting and reassessing factual
aspects of the cases to come to a conclusion that the award
needs intervention and thereafter, dubbing the award to be
vitiated by either perversity or patent illegality, apart from C
the other grounds available for annulment of the award. This
approach would lead to corrosion of the object of the 1996
Act and the endeavours made to preserve this object, which
is minimal judicial interference with arbitral awards. That
apart, several judicial pronouncements of this Court would
D
become a dead letter if arbitral awards are set aside by
categorising them as perverse or patently illegal without
appreciating the contours of the said expressions.
29. Patent illegality should be illegality which goes to the root of
the matter. In other words, every error of law committed by the
Arbitral Tribunal would not fall within the expression “patent E
illegality”. Likewise, erroneous application of law cannot be
categorised as patent illegality. In addition, contravention of law
not linked to public policy or public interest is beyond the scope of
the expression “patent illegality”. What is prohibited is for
Courts to reappreciate evidence to conclude that the award F
suffers from patent illegality appearing on the face of the
award, as Courts do not sit in appeal against the arbitral award.
The permissible grounds for interference with a domestic award
under Section 34(2-A) on the ground of patent illegality is when
the arbitrator takes a view which is not even a possible one, or
interprets a clause in the contract in such a manner which no fair- G
minded or reasonable person would, or if the arbitrator commits
an error of jurisdiction by wandering outside the contract and
dealing with matters not allotted to them. An arbitral award stating
no reasons for its findings would make itself susceptible to
challenge on this account. The conclusions of the arbitrator which H
422 SUPREME COURT REPORTS [2023] 8 S.C.R.

A are based on no evidence or have been arrived at by ignoring vital
evidence are perverse and can be set aside on the ground of
patent illegality. Also, consideration of documents which are not
supplied to the other party is a facet of perversity falling within
the expression “patent illegality”.
B 30. Section 34(2)(b) refers to the other grounds on which a court
can set aside an arbitral award. If a dispute which is not capable
of settlement by arbitration is the subject-matter of the award or
if the award is in conflict with public policy of India, the award is
liable to be set aside. Explanation (1), amended by the 2015
Amendment Act, clarified the expression “public policy of India”
C and its connotations for the purposes of reviewing arbitral awards.
It has been made clear that an award would be in conflict with
public policy of India only when it is induced or affected by fraud
or corruption or is in violation of Section 75 or Section 81 of the
1996 Act, if it is in contravention with the fundamental policy of
D Indian law or if it is in conflict with the most basic notions of
morality or justice.
**** **** ****
42. The Division Bench referred to various factors leading to the
termination notice, to conclude that the award shocks the
E conscience of the court. The discussion in SCC OnLine Del para
103 of the impugned judgment [DMRC v. Delhi Airport Metro
Express (P) Ltd., 2019 SCC OnLine Del 6562] amounts to
appreciation or reappreciation of the facts which is not permissible
under Section 34 of the 1996 Act. The Division Bench further
held [DMRC v. Delhi Airport Metro Express (P) Ltd., 2019 SCC
F OnLine Del 6562] that the fact of AMEL being operated without
any adverse event for a period of more than four years since the
date of issuance of the CMRS certificate, was not given due
importance by the Arbitral Tribunal. As the arbitrator is the sole
Judge of the quality as well as the quantity of the evidence, the
G task of being a Judge on the evidence before the Tribunal does
not fall upon the Court in exercise of its jurisdiction under Section
34. [State of Rajasthan v. Puri Construction Co. Ltd., (1994) 6
SCC 485] On the basis of the issues submitted by the parties, the
Arbitral Tribunal framed issues for consideration and answered
the said issues. Subsequent events need not be taken into account.”
H (emphasis supplied)
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 423
[DINESH MAHESHWARI, J.]

13.5. In the case of Haryana Tourism Ltd. (supra), this Court A
yet again pointed out the limited scope of interference under Sections 34
and 37 of the Act; and disapproved interference by the High Court under
Section 37 of the Act while entering into merits of the claim in the following
words: -
“8. So far as the impugned judgment and order passed by the B
High Court quashing and setting aside the award and the order
passed by the Additional District Judge under Section 34 of the
Arbitration Act are concerned, it is required to be noted that in an
appeal under Section 37 of the Arbitration Act, the High Court
has entered into the merits of the claim, which is not permissible
in exercise of powers under Section 37 of the Arbitration Act. C

9. As per settled position of law laid down by this Court in a
catena of decisions, an award can be set aside only if the award
is against the public policy of India. The award can be set aside
under Sections 34/37 of the Arbitration Act, if the award is found
to be contrary to: (a) fundamental policy of Indian Law; or (b) the D
interest of India; or (c) justice or morality; or (d) if it is patently
illegal. None of the aforesaid exceptions shall be applicable to the
facts of the case on hand. The High Court has entered into the
merits of the claim and has decided the appeal under Section 37
of the Arbitration Act as if the High Court was deciding the appeal E
against the judgment and decree passed by the learned trial Court.
Thus, the High Court has exercised the jurisdiction not vested in it
under Section 37 of the Arbitration Act. The impugned judgment
and order passed by the High Court is hence not sustainable.”
13.6. As regards the limited scope of interference under Sections F
34/37 of the Act, we may also usefully refer to the following observations
of a 3-Judge Bench of this Court in the case of UHL Power Company
Limited v. State of Himachal Pradesh: (2022) 4 SCC 116: -
“15. This Court also accepts as correct, the view expressed by
the appellate court that the learned Single Judge committed a gross G
error in reappreciating the findings returned by the Arbitral Tribunal
and taking an entirely different view in respect of the interpretation
of the relevant clauses of the implementation agreement governing
the parties inasmuch as it was not open to the said court to do so
in proceedings under Section 34 of the Arbitration Act, by virtually
acting as a court of appeal. H
424 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 16. As it is, the jurisdiction conferred on courts under Section 34
of the Arbitration Act is fairly narrow, when it comes to the scope
of an appeal under Section 37 of the Arbitration Act, the jurisdiction
of an appellate court in examining an order, setting aside or refusing
to set aside an award, is all the more circumscribed.”
B 13.7. The learned Attorney General has referred to another 3-
Judge Bench decision of this Court in the case of Sal Udyog Private
Limited (supra), wherein this Court indeed interfered with the award in
question when the same was found suffering from non-consideration of
a relevant contractual clause. In the said decision too, the principles
aforesaid in Delhi Airport Metro Express, Ssangyong Engineering
C and other cases were referred to and thereafter, this Court applied the
principles to the facts of that case. We shall refer to the said decision
later at an appropriate juncture.
13.8. Keeping in view the aforementioned principles enunciated
by this Court with regard to the limited scope of interference in an arbitral
D award by a Court in the exercise of its jurisdiction under Section 34 of
the Act, which is all the more circumscribed in an appeal under Section
37, we may examine the rival submissions of the parties in relation to the
matters dealt with by the High Court.
Questions relating to proceedings and procedure
E
14. It has been argued on behalf of the State that in the arbitration
proceedings, it had made an application for appointment of an expert
under Section 26 of the Act but the same was not decided by the Arbitral
Tribunal. In our view, the High Court has dealt with this issue in its
proper perspective and this baseless objection has rightly been rejected.
F We find it rather strange that such an objection standing at contradiction
to its own stand before the Arbitral Tribunal and against its own amended
pleading has at all been projected by the State as a ground of challenge
to the award in question. It appears that in the counter claim filed by
Government of Goa before the Arbitral Tribunal, initially it was prayed
G that all transactions and invoices raised by the claimant need to be re-
examined through a technical cum financial expert so as to ascertain the
correctness of the bills in terms of Section 26 of the Act but, thereafter,
the Government itself amended its counter claim, as permitted under
Section 23 of the Act by the Arbitral Tribunal, and dropped this prayer. It
was then pleaded by the Government that it had engaged the services of
H an expert and with his assistance, had reworked the amount which was
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 425
[DINESH MAHESHWARI, J.]

payable by the claimant to it. The High Court has held that after such A
deletion of the prayer, it was reasonable for the Arbitral Tribunal to proceed
on the basis that the application under Section 26 of the Act was either
rendered infructuous or was abandoned by Government of Goa; and
that it had not been able to show any prejudice on account of non-disposal
of the application. We are in agreement with the High Court on this
B
score. It is also noticeable that in challenge to the award, the Government
of Goa has not agitated the rejection of its counter claim. In fact, there
remains no ambiguity as regards the Arbitral Tribunal attending on all
the relevant aspects of the matter. In this regard, we may usefully
reproduce paragraph 31 of the award where the Arbitral Tribunal
specifically noticed the submissions made on behalf of the Government C
of Goa about exercise having been undertaken to workout the details
pertaining to the counter claim and permitted the Government to specify
the amount with reference to different heads and with necessary
particulars. Paragraph 31 of the award reads as under:-
“31. In the course of hearing of the matter, on 18.10.2016, learned D
counsel appearing on behalf of the Respondent stated that his
client has undertaken an exercise to work out the details pertaining
to the counter claim, since no specified amount had been claimed
by the Respondent in its counter claim. He submitted that he would
like that the figures be placed before this Tribunal by way of
amendment of the pleadings, if necessary. The Tribunal permitted E
the Respondent to convey to the Claimant in writing the amount
which the Respondent claimed by way of counter claim in the
instant proceedings under different heads and with necessary
particulars. The Claimant was given liberty to file its objections.”
14.1. Another submission on behalf of the Government has been F
that for non-production of certain documents by the claimant, an adverse
inference ought to have been drawn against them by the Arbitral Tribunal.
It is again a rule of evidence as to whether adverse inference is to be
drawn or not; and to what effect. The High Court has dealt with this
issue and has held that most of the documents were made available to
G
the Government of Goa. High Court has further held that the other
documents sought for by Government of Goa were not made available
to it because the claimant had clearly stated that such documents were
not available with it at the relevant time or did not exist at the relevant
time. It has further been held that in absence of Government of Goa
establishing any serious prejudice, there was no breach of principles of H
426 SUPREME COURT REPORTS [2023] 8 S.C.R.

A natural justice merely because the Arbitral Tribunal had failed to make a
formal order on the application seeking production of documents. We
are in agreement with the said observations and findings of the High
Court.
14.2. Government of Goa’s contention that opportunity was not
B granted by the Arbitral Tribunal to file additional written submission has
also been dealt with by the High Court with the finding that sufficient
opportunity was given by the Arbitral Tribunal since there were at least
two meetings/hearings before the learned Arbitrator where the
Government of Goa did neither file nor seek leave to file written
submissions in response to the claimant’s written clarifications/
C submissions. We are in agreement with these findings too.
14.3. In fact, the submissions of the aforesaid nature, attempting
to find fault with the proceedings of arbitration on such hyper-technical
but baseless grounds only show an attempt on the part of the State to
somehow question the award and seek interference, irrespective of the
D principles laid down by this Court.
14.4. In regard to the aforesaid procedural aspects of the matter,
the High Court has cautiously taken note of the record of proceedings
and has proceeded only within the confines of its jurisdiction to reject
these contentions.
E
15. The question, however, is as to whether the High Court
remained within those confines while dealing with the other points of
challenge pertaining to the items of claim and consideration of the Arbitral
Tribunal in that regard. We may examine the point-wise consideration of
the High Court with reference to the applicable principles.
F
The award relating to variable charges on use of alternate
fuel
16. The claimant has assailed the judgment of the High Court by
which it has set aside the award towards variable charges of Rs. 24.66
crore. It is the case of the claimant that the ground on which the High
G
Court has set aside the award was not at all an issue before the Arbitral
Tribunal; that in any case, the State has referred to such clauses of the
PPA which were not applicable to supply of electricity by using RLNG
as alternate fuel; and that these clauses were applicable only for supply
of electricity using ‘Naphtha’ as fuel. Per contra, it has been argued on
H behalf of the State that the Arbitral Tribunal has approached the entire
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 427
[DINESH MAHESHWARI, J.]

case from an altogether wrong angle; and when the Tribunal adverted to A
wrong questions, the result has been of wrong answers. This, according
to the learned Attorney General, has been a gross illegality and perversity
on the part of the Arbitral Tribunal.
16.1. We find it difficult to accept the submission of the learned
Attorney General. In our view, on the issue of entitlement to raise invoices B
based on fluctuating price of fuel and rate of dollar, the Arbitral Tribunal
has held in favour of the claimant after thorough examination of the
documentary evidence before it and while focusing on core issue raised
before it.
16.2. After taking note of relevant submissions and after having C
examined the entire documentary evidence, the Arbitral Tribunal returned
a clear finding on facts in the following terms: -
“41. The facts noticed above which are based entirely on the
documentary record placed before the Tribunal clearly establish
that the proposal made by the Claimant under its letter dated 21st D
of March 2013 was an offer for supply of energy at a rate based
on the formula contained in the aforesaid communication. It was
clearly mentioned that the entire PPA and all other terms and
conditions shall remain unchanged except for change in calculation
of Variable charges in Monthly Tariff. The formula for working
out the costs was also described as “Proposed Monthly Variable E
Charge Formula” A Monthly Sample Calculation based on
assumed values of landed cost of oil, and dollar rate, was appended
to the proposal to show that the cost would be less than what was
being paid by the Respondent. When the Respondent accepted
the proposal and responded by its letter of 26th of April 2012 F
which referred to the cost at the rate of Rs. 8.58 per unit, which
was described as the “ revised fixed rate”, the Claimant clarified
the position immediately by stating in its letter of 30th of April
2013 to the Respondent that the price mentioned in the proposal
dated 21st of March 2013, was not for a fixed cost of power
supplied, and that the same shall vary depending upon the fuel G
price in the market and the exchange rate. They therefore
requested the Respondent to confirm that the tariff was formula
based and shall vary with changes in the fuel price in the market
and dollar variation. Thereafter it appears that the parties were
not able to resolve the differences that surfaced,, and ultimately H
428 SUPREME COURT REPORTS [2023] 8 S.C.R.

A the matter was placed before the Cabinet of the Government of
Goa on May 22, 2013. After having considered the matter, the
Cabinet took a very clear and categoric decision to purchase power
from the Claimant at the rate given in the proposal of the Claimant,
which would vary, based on the international price of gas and
exchange rate fluctuations. The decision was communicated to
B
all offices concerned with a request to report compliance. On the
very next day, the Respondent by its letter dated 23rd of May
2013 confirmed that the Government had decided to continue to
purchase power as per the formula proposed by the Claimant in
their letter dated 21st of March 2013 considering the prevailing
C rates of fuel and dollar up to the expiry of the existing PPA. The
same communication also directed that the power bills must be
submitted with due documentation of prices of fuel and dollar.
42. These facts clearly establish that the price of power to be
supplied by the Claimant was not based on fixed dollar rate or
D landing cost of fuel. The proposal clearly made these charges
variable, and clarified the position further when the Respondent
wrongly understood it to mean a fixed rate formula. Ultimately,
the Cabinet of the Government of Goa took a decision clearly in
favour of the stand of the Claimant. It was faintly argued that the
Cabinet decision was not binding because, pursuant to it no order
E was drawn up by the State Government. Relying on the decision
of the Hon’ble Supreme Court (AIR 1963 S.C 395) in Bachhittar
Singh Vs State of Punjab, it was contended that unless the Cabinet
decision is followed by a formal order drawn up by the State
Government, it does not have any binding effect. The submission
F is wholly untenable. On facts, in the decision referred to the Court
was concerned with the note of the Revenue Minister in the file,,
and was not a decision taken by the Cabinet at its meeting.
Secondly, in the instant case the decision of the Cabinet was
communicated to all concerned officers directing them to act in
accordance with the order and report compliance. Pursuant to
G the said decision, a letter was written by the Respondent to the
Claimant accepting the proposal based on variable charge in
accordance with the prevailing cost of fuel and dollar. This clearly
shows that the Government acted upon the said decision of the
Cabinet.
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 429
[DINESH MAHESHWARI, J.]

43. For all these reasons, the Tribunal finds that the plea of the A
Claimant that the Respondent was obliged to pay for the power
purchased by it pursuant to the proposal accepted by it, on the
basis of invoices prepared and submitted by the Claimant taking
into account the variable cost of oil and dollar, must be accepted,
and the plea of the Respondent to the contrary, must be rejected.”
B
16.3. Insofar as the contention of State with regard to non-
consideration of clauses 12.1.4 to 12.1.7 of PPA is concerned, in our
view, the claimant is right in its submission that the main issue raised
before the Arbitral Tribunal was only as to whether the agreement was
to supply power on a fixed rate of fuel price and fixed rate of exchange
in terms of US dollar to Indian rupee. C

16.4. It might appear that in the latter part of the pleadings, the
Government of Goa referred to the aforesaid clauses 12.1.4 to 12.1.7 of
PPA but, fact of the matter remains that they were not as such considered
by the parties to be forming material propositions of law or facts so as to
form the part of the issue before the Arbitral Tribunal. Even on the first D
principles pertaining to settlement of issues, like those in Order XIV
Rule 1 of the Code of Civil Procedure, 190818, the Court, while dealing
with regular civil suit, would be ascertaining as to upon what material
proposition of fact or law the parties are at variance, and thereupon
would frame and record the issues on which the right decision of the E
case appears to depend. The present case had been that of arbitration
18
Order XIV Rule 1 CPC reads as under: -
“1. Framing of issues.—(1) Issues arise when a material proposition of fact or
law is affirmed by the one party and denied by the other.
(2) Material propositions are those propositions of law or fact which a plaintiff
F
must allege in order to show a right to sue or a defendant must allege in order to
constitute his defence.
(3) Each material proposition affirmed by one party and denied by the other
shall form the subject of a distinct issue.
(4) Issues are of two kinds:
(a) issues of fact,
(b) issues of law. G
(5) At the first hearing of the suit the Court shall, after reading the plaint and the
written statements, if any, and after examination under rule 2 of Order X and after
hearing the parties or their pleaders, ascertain upon what material propositions of
fact or of law the parties are at variance, and shall thereupon proceed to frame and
record the issues on which the right decision of the case appears to depend.
(6) Nothing in this rule requires the Court to frame and record issues where the
defendant at the first hearing of the suit makes no defence.” H
430 SUPREME COURT REPORTS [2023] 8 S.C.R.

A and, obviously, the Arbitral Tribunal was not obliged to frame issues on
each and every fact pleaded or disputed. The Arbitral Tribunal was only
expected to arbitrate on the dispute presented to it. Significantly, in the
present case, the parties themselves succinctly formulated the issues on
which the Arbitral Tribunal was required to give its ruling and therein, as
regards this matter of variable charges, the question posed was with
B
reference to assertion of the Government of Goa that the claimant had
agreed to supply power based on fixed rate of fuel price and a fixed rate
of exchange in terms of price of US dollar to INR for supply of power
using RLNG as fuel from June, 2013 onwards (vide point C in paragraph
34 of the award-reproduced hereinabove). The Tribunal, therefore, rightly
C indicated that the real issue was as to whether the invoices prepared by
the claimant were in accordance with the terms and conditions of the
proposal made by the claimant and accepted by the Government; and
the core of dispute was as to whether price of energy to be supplied was
based upon a fixed dollar rate and a fixed import price irrespective of
actual fluctuations. The Tribunal indeed adverted to all the relevant facts
D
and evidence in that regard and determined this issue in favour of the
claimant.
16.5. In view of the real issue projected and agitated before the
Arbitral Tribunal, reference to clauses 12.1.4 to 12.1.7 of PPA had
obviously been unnecessary. This is coupled with the submissions of the
E claimant that the definition of “Fuel Supply Contract” in PPA was
restricted to a contract entered into between the claimant and a fuel
supplier for supply of “Naphtha”, and not pertaining to alternate fuel
also. For ready reference, we may reproduce the definitions of “Fuel”
as also “Fuel Supply Contract” in the PPA which read as under: -
F “ ‘Fuel’ means Naphtha or any Alternate Fuel;
*** *** ***
‘Fuel Supply Contract’ shall mean any contract entered into
between RSPCL and any Fuel Supplier for the supply of Naphtha
G pursuant to clause 12;”
16.5.1. If “Alternate Fuel” is also to be read alongwith “Naphtha”
in the aforesaid definition, that would be either re-writing the contract or
at least reading something into the contract by stretching the principles
of construction of document. This would, in our view, be travelling into
the area of such construction of the terms of contract which were not
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 431
[DINESH MAHESHWARI, J.]

forming the part of the material propositions of fact on which the parties A
were at variance. As noticed, the core of variance of the parties had
only been as to whether the claimant was to supply energy on a fixed
rate of fuel and fixed rate of foreign currency after the parties had
agreed to the use of alternate fuel.
16.6. We have only broadly referred to the salient features of the B
dealings between the parties. In fact, not much dilation and dissection of
the record is required because the Arbitral Tribunal has indeed examined
all the relevant aspects of the matter in necessary details.
16.7. In any case, all documents which showed the cost at which
alternate fuel was procured and the prevailing dollar rate were supported C
by price certificates forwarded to Government of Goa with each and
every invoice, and such certificates had been from Public Sector
Undertakings. There is nothing on record to show nor has Government
of Goa demonstrated that it had either contemporaneously asked for
any documents or had disputed or denied the correctness of such
certificates. D

16.8. The Arbitral Tribunal has noticed that the decision of the
cabinet was produced before it by Government of Goa itself. There is
also a finding of fact in the award that the communication dated
23.05.2013 to purchase power at a fluctuating rate of fuel and exchange
rate of dollar, conveyed to the claimant by Government of Goa, was E
pursuant to the cabinet decision taken on 22.05.2013. This has been a
particular view taken by the Arbitral Tribunal of the evidence on record.
We are unable to appreciate as to how such a view on evidence could
have been substituted by another view on the same evidence by the
High Court. In an overall view of the record, we are unable to agree that F
the Arbitral Tribunal had approached the case from an altogether wrong
angle or it had asked wrong questions. In our view, the Arbitral Tribunal
had squarely answered the issue, which was raised jointly by the parties
before it.
17. True it is that consideration of any adjudicatory forum would G
be vitiated by asking wrong questions but then, in our view, this flaw
operates against the consideration of the High Court rather than against
the consideration of the Arbitral Tribunal.
17.1. As noticed, the High Court has reproduced all the said
clauses of the contract under the heading “Fuel Supply” and then,
H
432 SUPREME COURT REPORTS [2023] 8 S.C.R.

A elaborately discussed the features related with their operation, particularly
clauses 12.1.4 to 12.1.7. The High Court has found this aspect to be a
vital issue and non-consideration thereof has been taken to be a patent
illegality. It was observed and held, inter alia, as under:
“88. According to us, the issue about the applicability and the
B non-compliance of contractual clauses 12.1.4 to 12.1.7 was one
of the most relevant and vital issues which arose before the learned
Arbitrator. A substantial claim was made by the Respondent
towards variable charges, of which, the fuel component was the
most dominant. Ultimately, the learned Arbitrator has made an
Award in an amount of Rs. 24.66 crores (approximately) towards
C variable charges post the switch of the fuel from Naphtha to
RLNG. Such a substantial award has been made without even
adverting to, much less considering or evaluating the issue raised
by the Appellant about applicability and non-compliance with the
contractual clauses 12.1.4 to 12.1.7. This amounts to patent
D illegality because the Award to that extent can be said to have
been made ignoring or even disregarding contractual provisions
to be found in clauses 12.1.4 to 12.1.7 of the PPA. The Award to
this extent will have to be held as vitiated by patent illegality
because Award ignores vital evidence on the issue of applicability
and non-compliance with the contractual provisions in clauses
E 12.1.4 to 12.1.7.”
17.2. The High Court has also proceeded to observe and reiterate
that interference was being made not because of the Court disagreeing
with any interpretation of the contractual clauses by the Arbitrator but
because the Arbitrator failed to look into the relevant contractual
F provisions. The High Court justified its interference while observing as
under: -
“98. According to us, all these predicates are attracted when it
comes to impugned Award concerning the variable charges. The
interference is by no means, merit-based. Interference is because
G the Arbitrator in the present case has failed to even advert to
much less go into the merits of one of the most vital and relevant
issues concerning the applicability and non-compliance with the
contractual provisions. The interference is not because the
interpretation of the contractual clauses by the learned Arbitrator
H is wrong or because we disagree with such interpretation. The
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 433
[DINESH MAHESHWARI, J.]

interference is because the learned Arbitrator failed to even look A
into the contractual provisions to find out if the same were given
a go by post the switch of fuel from Naphtha to RLNG. The
interference is because the learned Arbitrator failed to take note
of and interpret the contractual clauses to find out whether they
were breached as alleged by the Appellant though denied by the
B
Respondent. Without even adverting to much less taking into
consideration the contractual provisions which governed the
relationship between the parties, the learned Arbitrator was not
justified in making an Award of Rs. 24.66 crores in favour of the
Respondent. Accordingly, we set aside the impugned Award to
the extent it awards Rs. 24.66 crores to the Respondent towards C
the variable charges.”
18. As noticed, arbitral award is not an ordinary adjudicatory order
so as to be lightly interfered with by the Courts under Sections 34 or 37
of the Act of 1996 as if dealing with an appeal or revision against a
decision of any subordinate Court. The expression “patent illegality” has D
been exposited by this Court in the cases referred hereinbefore. The
significant aspect to be reiterated is that it is not a mere illegality which
would call for interference, but it has to be “a patent illegality”, which
obviously signifies that it ought to be apparent on the face of the award
and not the one which is culled out by way of a long-drawn analysis of
the pleadings and evidence. Of course, when the terms and conditions E
of the agreement governing the parties are completely ignored, the matter
would be different and an award carrying such a shortcoming shall be
directly hit by Section 28(3) of the Act, which enjoins upon an Arbitral
Tribunal to decide in accordance with the terms of contract while taking
into account the usage of trade applicable to the transaction. As said by F
this Court in Associate Builders (supra), if an Arbitrator construes the
term of contract in a reasonable manner, the award cannot be set aside
with reference to the deduction drawn from construction. The possibility
of interference would arise only if the construction of the Arbitrator is
such which could not be made by any fairminded and reasonable person.
G
19. The case of SAL Udyog Private Limited (supra) cited by
learned Attorney General is an apposite example as to when the principles
governing “patent illegality” come into operation. In that case, in the
contract concerning supply of Sal seeds, the respondent-contractor had
continued to operate until 21.12.1998, when the contract was terminated
H
434 SUPREME COURT REPORTS [2023] 8 S.C.R.

A in accordance with the change in legislation. The respondent thereafter
levied a claim for refund of a sum of about 1.72 crore, allegedly paid in
excess to the State. The dispute ultimately led to arbitration and an arbitral
award was made in favour of the respondent which was not interfered
with under Sections 34 and 37 of the Act.
B 19.1. Therein, the specific ground of challenge by the appellant-
State had been that the Arbitrator ignored the binding term of contract
governing the parties relating to recovery of “supervision charges”. Such
a binding term was brushed aside by the Arbitrator while observing that
there was no basis to admit any such “indirect expenses”. This Court
found that the supervision charges were levied by the State and paid by
C
the respondent without any demur right from the date parties entered
into agreement and it was only after termination of the contract that the
respondent raised a dispute towards supervision charges. It had been a
classic case of the Arbitrator ignoring and rather overriding the terms of
contract, as would appear from the following observations of this Court
D with reference to the facts of the case:
“23. On a conspectus of the facts of the case, it remains undisputed
that though the appellant State did raise an objection before the
Arbitral Tribunal on the claim of the respondent Company seeking
deduction of supervision charges, for which it relied on Clause
E 6(b) of the agreement and the Circular dated 27-7-1987 to assert
that recovery of supervision charges along with expenses was a
part and parcel of the contract executed with the respondent
Company, the said objection was turned down by the learned sole
arbitrator by giving a complete go-by to the terms and conditions
of the agreement governing the parties and observing that there is
F
no basis to admit any such “indirect expenses”. The Circular dated
27-7-1987 issued by the Government of Madhya Pradesh that
provides for imposition of 10% supervision charges on the amounts
calculated towards the cost of the Sal seeds in the expenditure
incurred, was also ignored. Pertinently, the respondent Company
G has not denied the fact that supervision charges were being levied
by the appellant State and being paid by it without any demur as a
part of the advance payment made on an annual basis, right from
the date the parties had entered into the first agreement i.e. from
30-8-1979. This fact is also borne out from the specimen copies
of the orders filed by the appellant State with the appeal that
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 435
[DINESH MAHESHWARI, J.]

amply demonstrate that the cost of the Sal seeds required to be A
paid by the respondent Company included “supervision charges”
described as “Paryavekshan vyay” in vernacular language. It
was only after the appellant State had terminated the second
contract on 21-12-1998, that the respondent Company raised a
dispute and for the first time, claimed refund of the excess amount
B
purportedly paid by it to the appellant State towards supervision
charges incurred for supply of Sal seeds. In our opinion, this is the
patent illegality that is manifest on the face of the arbitral award
inasmuch as the express terms and conditions of the agreement
governing the parties as also the Circular dated 27-7-1987 issued
by the Government of Madhya Pradesh have been completely C
ignored.”
19.2. In view of such an error apparent on the face of the record,
this Court found the matter to be of patent illegality which was going to
the root of the matter and the impugned award, insofar permitting
deduction of the supervision charges recovered from the respondent, D
was quashed and set aside being in direct conflict with the terms of the
contract and the relevant circular. This Court held thus:
“26. To sum up, existence of Clause 6(b) in the agreement
governing the parties, has not been disputed, nor has the application
of the Circular dated 27-7-1987 issued by the Government of E
Madhya Pradesh regarding imposition of 10% supervision charges
and adding the same to cost of the Sal seeds, after deducting the
actual expenditure been questioned by the respondent Company.
We are, therefore, of the view that failure on the part of the learned
sole arbitrator to decide in accordance with the terms of the
F
contract governing the parties, would certainly attract the “patent
illegality ground”, as the said oversight amounts to gross
contravention of Section 28(3) of the 1996 Act, that enjoins the
Arbitral Tribunal to take into account the terms of the contract
while making an award. The said “patent illegality” is not only
apparent on the face of the award, it goes to the very root of the G
matter and deserves interference. Accordingly, the present appeal
is partly allowed and the impugned award, insofar as it has
permitted deduction of “supervision charges” recovered from the
respondent Company by the appellant State as a part of the
expenditure incurred by it while calculating the price of the Sal
H
436 SUPREME COURT REPORTS [2023] 8 S.C.R.

A seeds, is quashed and set aside, being in direct conflict with the
terms of the contract governing the parties and the relevant circular.
The impugned judgment dated 21-10-2009 is modified to the
aforesaid extent.”
19.3. The aforesaid had not been a case of the fundamental
B alteration of the terms of contract during the currency of contract and
for that matter, the parties having definitely exchanged communication
and having brought into existence an agreement which, even if construed
as supplemental to original one, had been of material difference in regard
to the use of particular fuel and then raising of invoices on that basis
with reference to fluctuating price of fuel as also the exchange rate of
C foreign currency (US dollar).
20. The matter can be examined from yet another angle. If the
terms agreed to by the parties with exchange of communications
commencing from 20.03.2013 were to be ignored, the result would be of
ignoring such terms of contract of the parties which had come into
D existence and which were binding on both. Viewed thus, coupled with
the fact that only the limited dispute was presented for arbitration (i.e.,
as to whether power was to be supplied on the basis of fixed rate of fuel
and fixed rate of currency or on variable charges), the Arbitral Tribunal,
in our view, has been justified in focusing on the core issue raised, rather
E than going astray and entering into such an analysis which was not
germane to the issue at hand.
21. For the reasons aforesaid, in our view, no ground for challenge
under Sections 34 or 37 of the Act was made out in relation to the award
pertaining to variable charges. Hence, the High Court has not been right
F in setting aside the award relating to variable charges on the ground of
so-called non-consideration of clauses 12.1.4 to 12.1.7 of PPA.
21.1. Putting it in other words, the High Court, even while
reminding itself of the limitation of jurisdiction, has committed the same
error by extensively dissecting the evidence while assuming that clauses
G 12.1.4 to 12.1.7 were decisive of the matter without taking a close look
at the material propositions which formed the dispute and which were
presented by the parties before the Arbitral Tribunal. As regards variable
charges, the core question before the Tribunal had been as to whether
the claimant agreed to supply electricity on fixed charges with fixed rate
of foreign currency while using the alternate fuel. This question was
H essentially to be determined with reference to the new contract that
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 437
[DINESH MAHESHWARI, J.]

came into existence with exchange of communications between the A
parties. The Arbitrator precisely decided the matter with reference to,
and after analysis of, that evidence. It had neither been a case of the
Arbitrator not taking into consideration the terms of contract applicable
to the issue at hand nor of any such finding which no fair-minded or
reasonable person could have possibly rendered ever. Viewed in the
B
light of core dispute presented to the Arbitral Tribunal by the parties, the
submissions of the learned Attorney General, that the Arbitral Tribunal
has not examined the question as to whether the correspondence in
question resulted in change of fundamentals of contract, do not make
out a case for interference because novation of the terms of contract as
regards fuel had not been a matter of dispute at all. The core question C
was as to how the new terms were to operate. The Arbitral Tribunal has
precisely dealt with the same in accordance with law.
22. What has been observed hereinabove and held in disapproval
of interference by the High Court in the item of award pertaining to
variable charges more or less apply to the other items too, where the D
High Court has interfered and has upturned the award. In view of the
detailed discussion foregoing, we need not elaborate on all other items.
Suffice it would be to deal briefly with the same as we find that on every
such score, the High Court has rather entered into merits of the matter
as if dealing with a regular appeal. It has been a clear case of the High
E
Court travelling beyond the periphery of Section 34 as also Section 37 of
the Act of 1996.
The award relating to downrating of the plant
23. As regards downrating, the issue before the Arbitral Tribunal
was as to whether the plant was required to be downrated till the expiry F
of PPA as contended by Government of Goa relying on a draft notification
issued by Ministry of Power, Government of India.
23.1. The Arbitral Tribunal considered the contractual terms of
the parties and came to a specific finding on interpretation of such terms
and conditions that various Supplementary PPAs executed between the G
parties show that the Rated Capacity of the plant was reduced to 19.8
MW and the obligation of the claimant was restricted to assuring supply
upto 19.8 MW without any reference to degradation of such capacity.
On considering the material on record, the Arbitral Tribunal held that
Government of Goa was not justified in contending that there was any
H
438 SUPREME COURT REPORTS [2023] 8 S.C.R.

A downrating annually of Rated Capacity. In regard to this issue, it is more
than apparent that the Arbitral Tribunal had considered the provisions of
the contract and had taken a particular view thereupon. The Tribunal
said, inter alia, as under:-
“48. An issue was raised at the stage of arguments relating to the
B down rating the generating capacity of the plant annually
commencing from the first year after Commercial Operation of
the plant. Such a plea does not appear to have been raised in the
Statement of Defence by the Respondent even though it is
contended that down rating a small fraction of generating capacity
will have a huge impact on the monthly invoices. Learned counsel
C
for the Claimant brought to the notice of the Tribunal that it was in
paragraph 12 of the sur rejoinder that the Respondent sought
documents relating to Original Equipment Manufacturer’s (OEM)
recommendations towards down rating of generating capacity as
envisaged in the definition of “Contracted Capacity” which was
D required to ascertain the implementation of the down rating of the
generating capacity in accordance with the recommendations of
the Original Equipment Manufacturer.
49. According to the Respondent in terms of the PPA, the
contracted capacity was defined to be 39.402 KW in the first
E year of commercial operation and down rated annually as per
original equipment manufacturer’s recommendation in successive
years. However, the Claimant did not take into account the down
rating factor in any of the bills which it submitted to the Respondent.
After the dispute arose, the Respondent observed that the down
rating factor ought to have been applied from the year 2000
F
onwards, which was the second year of commercial operation, in
terms of OEM recommendations. It was therefore that the
Respondent sought necessary documents from the Claimant as
regards the recommendations of the OEM, but the same were
not provided, contending that the said documents were not available
G with the Claimant. In the circumstances, the Respondent had to
go by other material to calculate the down rating factor. The
Respondent has relied upon a draft notification issued by the
Government to calculate the down rating. The said notification
provides that the down rating would start from the second year of
operation and would proceed till the fifth year, after which the
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 439
[DINESH MAHESHWARI, J.]

plant had to be overhauled as a result of which in the sixth year, A
the down rating would be negligible. Based upon the draft
notification issued by the Ministry for Power, the Respondent has
made calculations taking into account the down rating right from
the year 2000.
50. The Claimant responded by contending that a draft notification B
issued by the Ministry for Power has no value unless the same is
duly notified in the Gazette. The Respondent has not relied upon
any final notification duly notified. The Government may have
thought of not issuing the notification for good reasons. Being
only a draft notification which was never finally issued, it has no
C
value in law and the Respondent cannot derive any benefit from
such a draft notification.
51. It is the case of the Claimant that the contracted capacity
under the PPA dated 10th of January 1997 was equal to 39,402
kilowatts in the first year of commercial operation and down rated
D
annually thereafter as per original equipment manufacturer’s
recommendation in the subsequent years. Later, the parties agreed
to convert the generating station from Open Cycle into a Combined
Cycle generating station of 48 MW capacity. On 10th September
1997, a supplementary PPA was entered into which permitted the
Claimant to sell power directly in excess of 39.8 MW to consumers E
in Goa. After the Claimant commenced commercial operation of
the power station on 14th of August 1999, on completion of one
year thereafter, a second supplementary agreement was entered
into on 20 September 2000 whereunder the Respondent agreed
to consent to sale of electricity in full or in part, to the extent of
F
2000 KW generated at the power station directly to any consumer
in Goa. Referring to such other supplementary agreements it was
submitted that the earlier definition of the contracted capacity
was given a go by, and completely changed. The issue with regard
to down rating thus became irrelevant, and in any event by
subsequent written agreement, inter alia, amending the earlier G
agreement, there was no question of any further down rating as
alleged. The parties are bound by the contractual provisions. The
various supplementary PPAs executed between the parties clearly
show that the rated capacity was subsequently reduced to 19.8
MW and the obligation of the Claimant was restricted to assuring
H
440 SUPREME COURT REPORTS [2023] 8 S.C.R.

A supply up to 19.8 MW without any reference to degradation of
such capacity. The Respondent is therefore not justified in
contending that there was an alleged down rating annually of the
rated capacity.”
23.2. The Arbitral Tribunal then considered the documentary
B evidence produced before it, including a certificate issued by OEM dated
08.11.2005 and Minutes of Meeting dated 05.04.2007, where the issue
was settled and all bills till that date were reconciled and future bills
were raised on the basis that there was no downrating. This is clear
from the following findings in the award in question: -
C “52. What is even more significant is the reliance placed upon the
certificate issued by the OEM namely BHEL-GE Gas Turbine
Services, Private Limited dated November 8, 2005. It is certified
by the OEM that subsequent to the commissioning of the Goa
plant of the Claimant recommended inspections of Gas Turbine
were carried out and Turbine was found to be generating the
D Rated Output without any degradation. Similarly, BGGTS had
carried out the Hot Gas Path Inspection of GT during Annual
Inspection in September 2005. All operating parameters were
checked and the Turbine was found to be generating its Rated
Output without any degradation.
E 53. The Respondent submitted that the certificate refers to there
being no degradation of the plant. The degradation and down rating
are two different and distinct concepts which cannot be confused
with one another. It is not possible to accept this contention because
down rating becomes necessary only if there is degradation of
F the plant.
54. The Claimant has also referred to the meetings held between
the parties, on 5th April 2007, when the Respondent was duly
satisfied on the issue relating to down rating of contracted capacity
as per OEM’s recommendation which were discussed in the said
G committee. The Claimant explained that the plant was maintained
as per OEM’s recommendation and there had been no down rating
of contracted capacity. The Claimant had already submitted OEMs
letter in this regard, which is dated 8th November 2005. The parties
agreed at the said meeting that the invoices were to be reconciled
as per what was stated in the said meeting and all future invoices
H were to be calculated in the same manner. The minutes of the
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 441
[DINESH MAHESHWARI, J.]

said meeting dated 5th April 2007 have been placed on record. A
Thus, the question of down rating of contracted capacity is
completely irrelevant. It is not disputed that, based on the minutes
of the said meeting and the agreement arrived there at, the invoices
for the period April 2004 to April 2007 were reconciled and the
reconsideration was duly approved by the Respondent and the
B
payment was made on the basis thereof by the Respondent to the
Claimant. All future invoices were raised on the basis of the said
agreement arrived at the meeting and the invoices were duly
approved by the Respondent and have been paid by the Respondent
for the period up to March 2013 and a part of April 2013. In the
circumstances, therefore, the issue relating to the down rating of C
capacity of the plant appears to have been settled between the
parties, and should not be allowed to be re-agitated in this
proceeding. This claim is accordingly, rejected.”
23.3. The Arbitral Tribunal thus held that the issue relating to
downrating of capacity was settled between the parties and the parties D
should not be allowed to reagitate the same.
24. As regards this issue of downrating, again, we find that the
High Court has found shortcomings in the discussions of the Arbitral
Tribunal as regards the meaning and effect of the certificate dated
08.11.2005 and as to whether the claimant could have made any claim E
on that basis or not. The High Court even proceeded to analyse the
minutes of the meeting. It has clearly been a case of value and worth
attached to a particular evidence by Arbitral Tribunal, which was
considered not satisfactory by the High Court; and rejection of the
contention of the Government by the Arbitral Tribunal was found to be
erroneous. However, thereafter, the High Court again observed that it F
was not a case of re-appreciation of evidence but being a case of no
evidence, there had been patent illegality. The High Court observed as
under: -
“124. The impugned Award has recorded a finding based on the
bald statement in the certificate dated 8th November 2005 and G
there was no degradation of the plant and further, in the absence
of degradation of the plant, the concept of downrating will not
apply, Again, this is, with respect, patent illegality. The certificate
could hardly have been regarded as a recommendation of OEM.
In any case, the certificate referred to the absence of degradation H
442 SUPREME COURT REPORTS [2023] 8 S.C.R.

A in the year 2005, and based on such a certificate, there was no
question of inferring that there was no degradation of the plant
even thereafter. Therefore, the contractual stipulation regards
downrating, which was never amended or deleted by any
subsequent agreements, could not have been ignored or bypassed
based on the certificate dated 8th November 2005 or the minutes
B
of the meeting dated 5th April 2007.
125. The impugned award to the extent it rejects the Appellant’s
contention based on the downrating, will, therefore, have to be set
aside on the ground that the same is vitiated by patent illegality on
the face of the record. The findings recorded in the impugned
C Award are based only on the certificate dated 8th November 2005
and the minutes of the meeting dated 5th April 2007. None of the
documents suggests that the contractual term of the downrating
was either done away with or complied with. This is not a case of
either reappreciation of the evidence on record or a case of
D insufficiency of evidence. This is a case of no evidence. This is a
case of ignoring the contractual provision by incorrectly assuming
that such provision was amended or deleted. The tentative findings
to the contrary are, therefore, ex facie perverse and suffer from
patent illegality on the face of the record. The impugned Award,
to the extent it rejects the defence of the Appellant on the issue of
E downrating and proceeds to make an award of Rs. 18.53 crores
in favour of the Respondent is liable to be set aside on the ground
of perversity and patent illegality.”
24.1. In regard to this issue, in our view, the High Court has again
travelled beyond its jurisdiction under Section 37 and rather than remaining
F within the confines of consideration under Section 34 of the Act, has
entered into the arena which is exclusively within the Arbitrator’s domain.
What the Arbitral Tribunal has held in regard to this item had exclusively
been its view on the evidence on record and the relevant surrounding
facts/factors. The view so taken by the Arbitral Tribunal cannot be said
G to be wholly perverse or suffering from patent illegality so as to be
interfered with. Needless to observe that even if two views are possible,
the Court cannot substitute its own view with that of the Arbitral Tribunal.
25. The questions raised by the learned Attorney General, in
relation to the issue concerning downrating, that adverse inference ought
H to be drawn against the claimant for failure to produce OEM
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 443
[DINESH MAHESHWARI, J.]

recommendations, are only pertaining to the principles of appreciation of A
evidence. Of course, in the regular adjudicatory process, the Court may
presume existence of certain facts under Section 114 of the Indian
Evidence Act, 1872; and in terms of Illustration (g) thereof, the Court is
entitled to draw an inference that the evidence which could be but not
produced would, if produced, be unfavourable to the person who withholds
B
it. However, in a given case, while determining the dispute by way of
arbitration, whether the Arbitrator draws such adverse inference or not,
is essentially a matter of appreciation of evidence; and if not drawing of
adverse inference is also permitted to be raised as a ground of challenge
under Section 34, it would open the confines of limited interference in an
award; and would carry the propensity of converting the proceedings C
under Section 34 and under Section 37 into the proceedings of regular
appeal/revision against the award and thereby, again violating the
principles that re-appreciation of evidence is not envisaged in the
proceedings under Section 34 of the Act of 1996. It gets per force
reiterated that an award could be said to be suffering from “patent
D
illegality” only if it is an illegality apparent on the face of the award and
not to be searched out by way of re-appreciation of evidence. The
submissions as regards drawing of adverse inference are themselves
adverse to the ethos of Sections 34 and 37 of the Act of 1996 and are
required to be rejected.
25.1. In other words, as regards the question of downrating, the E
questions relating to the value of certificate dated 08.11.2005 and the
effect of the claimant not taking up this issue earlier would again fall
directly within the arena of appreciation of evidence and reach to the
extent of rendering the finding on preponderance of probabilities. The
Arbitral Tribunal has taken a particular view of the evidence before it. If F
it were an appeal against the award, the approach of the Court could
have been different but, not so while examining the award within the
confines of Section 34 of the Act. We would hasten to observe in this
regard too that even in a regular appeal against a decree of the Trial
Court, the Appellate Court would not substitute its own views without
specifically recording a finding as to the error in the decision under G
challenge. In any case, if the approach of the High Court in the present
case is countenanced, the result would only be of making every award
susceptible to challenge before the Court on those very grounds which
are, otherwise, of appeal or revision and which are not permitted by the
legislature to be taken under Section 34 of the Act of 1996. H
444 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 26. Having found the two major issues dealt with by the High
Court not standing within the confines of limited jurisdiction under Section
34 of the Act of 1996, we may again observe that the approach of the
High Court in relation to the other two comparatively minor issues relating
to variable charges on 4MW power and netting-out principles is also
suffering from the same error, where the High Court has deeply analysed
B
the evidence on record to hold that the Arbitral Tribunal has not been
correct in its propositions or inferences.
The award relating to variable charges on 4 MW power
27. The Arbitral Tribunal examined the documentary evidence,
C viz. letters exchanged between the parties dated 02.01.2009 and
19.01.2009 and came to a finding that State was not justified in its
submission that the available capacity of the plant stood reduced.
28. In this item too, the High Court has reinterpreted the said
communications dated 02.01.2009 and 19.01.2009 by which parties agreed
D to the manner of billing for supply of 15.8 MW power out of 19.8 MW
capacity of the power station reserved for Government of Goa by
permitting the balance 4 MW to be sold to third parties; and the High
Court arrived at a different finding of fact on the evidence on record.
We may usefully reproduce the summation of the findings by the High
Court as regards variable charges on 4 MW power as follows:-
E
“137. The circumstance that there was a specific clause excluding
the payment of fixed costs, could not lead to the inference that
the Appellant had agreed to bear the variable costs in respect of
this 4 MW power, which variable costs were even otherwise not
payable by the Appellant to the Respondent in terms of the original
F PPA or PSA and the supplementary PPAs. If there was any
proposal for encumbering the Appellant with any charges over
and above the charges undertaken by it under the contract, then
surely this ought to have been specified. Such an additional burden
cannot be imposed by implication. Therefore, the reasoning that
G because there was no reference to variable charges in the
communication dated 19.1.2009, the same was agreed to be paid
by the Appellant is quite perverse and constitutes patent illegality
on the face of the record. According to us, the impugned Award
to the extent it so unjustly enriches the Respondent to the extent
of Rs. 3.94 crores conflicts with the most basic notions of morality
H and justice. The impugned Award, to this extent, is also vitiated by
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 445
[DINESH MAHESHWARI, J.]

unreasonableness, perversity, and patent illegality apparent on the A
face of the record.”
29. The High Court has once again stepped into the arena which
is reserved for the Arbitral Tribunal. It is noticed that the parties had
agreed to a particular methodology of billing for supply of 15.8 MW
power but, at the same time, retained with them the right to revert back B
to 19.8 MW supply at any future point of time. With reference to the
dealings of the parties, the Arbitral Tribunal has taken a particular view
of the matter. It cannot be said that the view as taken by the Arbitral
Tribunal was entirely impermissible or implausible. There was no scope
for interference by the Court.
C
The award relating to netting-out principle
30. The aspect of netting-out, again, depended on the terms of
contract of the parties and the deductions to be drawn from the evidence
on record. The Arbitral Tribunal had drawn the particular conclusion on
the basis of notes dated 13.09.2014 and 18.09.2014. The Arbitral Tribunal D
considered the documentary evidence before it, as well as the provisions
of the contract relating to supply of backup power by Government of
Goa to the claimant when the power station was under shutdown for the
period May 2014 to August 2014. The Arbitral Tribunal further referred
to the communications which also include the decision of the Government
of Goa as to the rate at which power during the shut down period was to E
be supplied to the claimant and on this basis, came to the finding that a
fixed rate which was not to be multiplied as per the provisions of the
PPA was agreed between the parties. The award also gave reasons for
such finding. Even if it be assumed that another view is possible, it cannot
be said that the Arbitral Tribunal has taken such a view which no fair- F
minded and reasonable person could have ever taken.
31. The High Court has again justified its interference in this item
in the following terms: -
“148. According to us, the impugned Award on the aspect of
netting out is again vitiated by perversity and patent illegality. The G
note dated 13/8/2014, as well as the communication dated 18/9/
2014 on its plain terms, refers only to the determination of a rate
of Rs. 3.78 P. KWh. for applying the contractual provisions
concerning netting. This note or this communication was
necessitated because for the relevant proximate billing period there
H
446 SUPREME COURT REPORTS [2023] 8 S.C.R.

A were no supplies made by the Respondent to the Appellant and
therefore there was no ready rate available based on which the
contractual provisions could be worked for netting out. Therefore,
the Appellant determined the rate of Rs. 3.78 P. KWh. as the
base rate for purposes of netting out. There is nothing either in
the noting or in the communication dated 18/9/2014 to even remotely
B
suggest that by determining such base rate, the parties intended
to give a complete go-by to the clear and specific contractual
provisions for the multiplication of this base rate into 1.25 for
purposes of netting out in the eventuality of an unscheduled shut
down of the power plant by the Respondent. Therefore, based on
C the noting and the communication dated 18/9/2014, the finding or
the conclusion that the parties had agreed to do away with the
clear and specific contractual provisions, is not even a plausible
finding or conclusion. Such a finding or a conclusion is vitiated by
perversity and patent illegality on the face of the record. The
Award of an amount of Rs. 2.36 crores (approximately) to the
D
Respondent on this score is, therefore, liable to be set aside on the
grounds of perversity and patent illegality on the face of the
record.”
31.1. On this item too, the High Court has substituted its own
view and has reinterpreted the documentary evidence before it for setting
E aside the award. Such a substitution of view is not permissible for the
Court under Section 34 of Act. There arise no question of it being
permissible under Section 37 of the Act.
Interest in award

F 32. It has been argued on behalf of the State that the High Court
ought not to have rejected its contention with regard to the interest for
pre-reference period since the liability to pay interest would arise only
once the amount to be paid has been determined.
32.1. In regard to the question of interest, the High Court has
G rightly held that the Arbitral Tribunal was justified in following the
contractual provisions and the provisions of Section 31(7) of the Act;
and has rightly not interfered with the award of interest for the pre-
reference period and the period during which the proceedings were
pending before the Arbitral Tribunal. In our view, the State is not right in
contending that the interest could not have been awarded during the
H
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 447
[DINESH MAHESHWARI, J.]

period of reference to the Arbitrator. In regard to this aspect, the A
submissions to the effect that pre-reference period interest was not based
on any compelling reasons and contractual provisions for interest were
in terrorem are liable to be discarded, could only be rejected for being
not even standing within the periphery of Section 34 of the Act of 1996.
33. However, insofar as post-award period is concerned, the High B
Court has reduced the rate of interest from 15% to 10% by following
the decision of this Court in the case of Vedanta Ltd. (supra). The High
Court has relied on the principles of proportionality and has scaled down
the rate of interest to 10% p.a. while observing as under:-
“175. Mr. Bhat handed in a statement indicating the interest rates C
(Benchmark Prime Lending Rates) of the State Bank of India.
For the period 2017-18, the rates indicated range around 13 to
14% per annum. This is no doubt one of the factors to be taken
into consideration for determining the prevailing economic
conditions when the impugned Award was made. Again, reference
is also necessary to the principle of proportionality of the amount D
awarded as an interest to the principal sums awarded. Having
cumulative regard to all the factors referred to above, we feel
that in the facts and circumstances of the present case, the award
of interest at the rate of 15% per annum is excessive and contrary
to the principle of proportionality and reasonableness and the same E
will have to be scaled down to 10% per annum. In Vedanta
Ltd. (supra), the Award was dated 9/11/2017 and the Court
awarded interest at the rate of 9% per annum for the INR
component. The impugned Award, in our case, was made on 16/
2/2018.”
F
34. We are of the view that the aforesaid reduction of rate of
interest by the High Court is also unjustified. We have noticed the
provisions of Section 31(7)(b) that unless the award otherwise directs,
the sum payable under the arbitral award shall carry interest at the rate
of 2% higher than the current rate of interest prevalent on the date of
the award, from the date of the award to the date of payment. The G
expression “current rate of interest” has been explained in the
Explanation to the said Section to have the same meaning as assigned
under Section 2(b) of the Interest Act, 1978. The High Court has referred
to the decision in Vedanta Ltd. (supra) to hold that a Court may reduce
interest awarded by the Arbitrator when such interest does not reflect H
448 SUPREME COURT REPORTS [2023] 8 S.C.R.

A the prevailing economic condition or where it is not found reasonable or
where it promotes interest of justice. We do not find any basis in the
impugned judgment of the High Court for reducing the rate of interest,
as in the case of Vedanta Ltd., wherein this Court was dealing with an
International Commercial Arbitration involving rupee as well as euro
components. Moreover, in the case of Vedanta Ltd., the rate of interest
B
was reduced in respect of the foreign currency component to bring the
interest rate in line with the international rate on the ground that the rate
of interest prevailing on the rupee debt in India and on international
currency abroad were different and the international rates were lower.
Such a situation is not obtaining in the present case.
C
34.1. The High Court seems to have not considered the relevant
factual aspects. On the contrary, as has been submitted before us as
well as the High Court, the prevailing interest rate being the prime lending
rate of State Bank of India was in the range of 13% to 14% per annum.
Thus, the Arbitral Tribunal was justified in granting interest at the rate of
D 15% per annum post-award. In our view, the Arbitral Tribunal was well
within its jurisdiction under Section 31 of the Act to award interest at the
rate of 15% p.a. and there was no justification to reduce the same to
10% p.a. We may observe with respect that the High Court was not
exercising any equity jurisdiction so as to resettle the rate of interest as
E deemed fit by it. It had been a matter relating to an award made by the
Arbitral Tribunal in a commercial dispute.
Final comments, observations, and conclusion
35. In the foregoing discussion, we have not elaborated on the
discussions and findings of the Commercial Court in its order dated
F 12.09.2019. Instead, we have directly dealt with the consideration of the
High Court vis-à-vis the award in question. As noticed, the High Court
could only be said to have misdirected itself on the major issues concerning
merits of the award. However, before concluding, we may observe that
it had not been as if the Commercial Court did not examine the material
G issues arising for determination while dealing with the case in terms of
Section 34 of the Act of 1996.
35.1. It is noticed that after taking note of the submissions of
parties, the Commercial Court precisely framed the points for
determination and then, dealt with every point on the anvil of Section 34
H of the Act of 1996. With respect, we do not find the High Court justified
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 449
[DINESH MAHESHWARI, J.]

in making a comment about framing of points for determination by A
Commercial Court and then observing that the Commercial Court merely
reproduced the findings of the award. The Commercial Court dealing
with Section 34 application was not acting as a Court of Appeal. Yet,
looking to the long-drawn arguments, the Commercial Court enumerated
the issues raised and then returned the findings after examining the record
B
and while rejecting the submissions made on behalf of the State. There
had been no such flaw in the judgment and order passed by the
Commercial Court which called for interference by the High Court on
the parameters and within the periphery of Sections 34/37 of the Act of
1996. We may, for illustration, reproduce paragraph 49 of the order of
the Commercial Court where, in relation to the issue of variable charges, C
after taking note of all the factual aspects and contentions of the parties,
the Commercial Court held as under: -
“49. Above facts clearly show that GOG clearly accepted
and understood that the price of electricity was to be calculated
on the basis of price of fuel and dollar conversion rate and that D
letter dated 30.08.2013 and cabinet note were on a guiding factor
to know the understanding between parties. The Ld. Arbitrator
rightly appreciated that the cabinet of GOG took a decision clearly
in favour of the stand of the claimant. Ld. Advocate General has
argued that the cabinet decision was not binding because pursuant
to it no any decision was taken by the State Government nor any E
decision was conveyed to the claimant. Reference was made to
Judgment in the case of Bachhittar Singh (supra) wherein it is
held that unless the cabinet decision is followed by a formal order
drawn up by The State Government, it does not have binding effect.
Ld. Advocate General also made reference to judgment in the F
case of Bombay Chemicals Ltd. v/s. Union of India – 2006(201)
ELT 167 Bombay wherein cabinet note was considered on merits
but it was held that the cabinet note was only to make budgetary
provision. Without prejudice Ld. Advocate General also submitted
that even if the cabinet note was to be considered it could at the
most be for an amount of Rs. 0.76 paise increase and nothing G
more than that. In the present case subsequent conduct of GOG
in making payments based on variable fuel price shows that they
implemented the said cabinet decision. In the present case even if
the said cabinet note is considered to be internal note, it will have
to be considered because GOG accepted variable fuel price and H
450 SUPREME COURT REPORTS [2023] 8 S.C.R.

A also made payments. Making of payments thereafter are variable
factors which distinguish the above two judgments.
For the reasons mentioned above, Point No.1 is answered
in the Affirmative.”
36. The narrow scope of “patent illegality” cannot be breached
B by mere use of different expressions which nevertheless refer only to
“error” and not to “patent illegality”. We are impelled to reiterate what
has been stated and underscored by this Court in Delhi Airport Metro
Express (supra) that restraint is required to be shown while examining
the validity of arbitral award by the Courts, else interference with the
C award after reassessing the factual aspects would be defeating the object
of the Act of 1996. This is apart from the fact that such an approach
would render several judicial pronouncements of this Court redundant if
the arbitral awards are set aside by categorizing them as “perverse” or
“patently illegal” without appreciating the contours of these expressions.

D 37. In the passing, we cannot help noticing that in the impugned
judgment, the High Court though referred to the principles laid down by
this Court in Ssangyong Engineering (supra) but then, reproduced an
analysis by a learned Single Judge of the High Court and proceeded to
decide the matter with reference to the passages so extracted. With
respect, we are of the view that enunciation of this Court ought to have
E been examined by the Division Bench of the High Court while dealing
with the matter at hand, rather than relying on the analysis by a learned
Single Judge of the High Court. We say no more in this regard, essentially
because the latter decisions of this Court like those in Delhi Airport
Metro Express and Haryana Tourism Limited were not available
F before the High Court at the time of passing of the impugned judgment
and order dated 08.03.2021. Nevertheless, the principles expounded by
this Court in Associate Builders and Ssangyong Engineering (supra)
were available and the matter was required to be dealt with in reference
to those principles. Leaving this aspect at that, suffice it would be to
observe for the present purpose that the impugned judgment and order
G dated 08.03.2021, insofar it interferes with the findings and the conclusions
of the award in question, cannot be sustained and is required to be set
aside.
38. For what has been discussed hereinabove, a few other
submissions made by the learned Attorney General in regard to the
H calculation of the awarded amount and ancillary aspects do not require
RELIANCE INFRASTRUCTURE LTD. v. STATE OF GOA 451
[DINESH MAHESHWARI, J.]

elaborate discussion. Fact of the matter remains that nothing of a patent A
illegality apparent on the face of the award has been pointed out. The
submissions essentially are of indicating some alleged errors on the merits
of the case which, as noticed, do not fall within the parameters of Section
34 of the Act of 1996.
39. Hence, that part of the impugned judgment and order dated B
08.03.2021 as passed by the High Court, which modifies the award dated
16.02.2018 and the order of the Commercial Court dated 12.09.2019, is
set aside and consequently, the award in question is restored in its entirety.
40. The appeal filed by the claimant is allowed accordingly and
that filed by the State is dismissed. No costs. C

Nidhi Jain Appeals disposed of.
(Assisted by : Shevali Monga and Shashwat Jain, LCRAs)

D

E

F

G

H