Summary
The Court partly set aside an arbitral award directing refund of supervision charges paid on Sal-seed supplies. The arbitrator had disregarded express contractual terms and an applicable government circular authorising those charges, despite their long-standing payment without protest. This was patent illegality going to the root of the matter. The omission of a specific objection from the Section 34 petition did not bar consideration of the ground raised in the Section 37 appeal.
Issues
- Whether the award’s disregard of the agreed supervision-charge provisions warranted interference for patent illegality.
- Whether omission of the specific ground in the Section 34 petition barred its consideration on appeal.
Provisions considered
- Section 28(3), Arbitration and Conciliation Act, 1996Ignoring the express agreement on supervision charges constituted a gross failure to decide consistently with the governing contractual terms. (¶¶ 13, 17, 18, 22, 25)
- Sections 34(2A) and 37, Arbitration and Conciliation Act, 1996Patent illegality apparent on the award could be considered in the Section 37 appeal; the asserted waiver did not prevent the court exercising that power on this record. (¶¶ 23, 24, 25)
Held
- Patent illegality must go to the root of the matter. Mere legal error or a competing reasonable contractual interpretation does not justify interference, nor may courts reappreciate evidence as in an ordinary appeal. A view outside the contract or ignoring vital material may satisfy the test. (¶¶ 13, 14, 15)
- The agreement expressly included supervision charges in the supply price, and the government circular provided for ten per cent supervision charges. The company had paid them without protest until termination. Disallowing them as unsupported indirect expenditure ignored the contract and circular and amounted to patent illegality. (¶¶ 17, 18, 19, 20, 21, 22, 25)
- The State had raised the objection before the arbitrator and in its Section 37 grounds, which the High Court recorded but did not answer. The statutory expression the Court finds permitted consideration of apparent patent illegality; omission of the specific ground in the Section 34 petition did not establish the alleged waiver. The relied-on amendment precedent did not require a contrary result. (¶¶ 22, 23, 24)
- Leave and adjudication were confined to supervision charges. Only the portion allowing their deduction or refund was quashed, with corresponding modification of the High Court judgment; other objections to the award were not examined. (¶¶ 7, 16, 25, 26)
Result
Appeal partly allowed; award set aside only insofar as it permitted deduction of supervision charges recovered by the State, and High Court judgment modified to that extent. Parties to bear their own costs.