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2025 Supreme(Bom) 791
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SOMASEKHAR SUNDARESAN, J.
Batliboi Environmental Engineering Ltd. - Applicant
Versus
Hindustan Petroleum Corporation Limited – Respondent
Arbitration Application No.338 Of 2024
Decided On : 11-03-2025
For the Appellant :Mr. Virag Tulzapurkar, Senior Advocate a/w. Mr. Aadil Parsurampuria & Mr. Aalam Parsurampuria i/b. Mr. Prashant Parsurampuria, Advocates for Applicant
For the Respondent:Mr. Zal Andhyarujina, Senior Advocate a/w. Mr. Vijay Purohit, Mr. Jahaan Dastur, Mr. Pratik Jhaveri, Mr. Faizan Mithaiwala & Mr. Vinit Kamdar i/b. P & A Law Offices, Advocates for Respondent.
The Supreme Court's ruling did not adjudicate on the merits of the case, allowing for fresh arbitration after setting aside the arbitral award due to lack of reasoning.
Headnote:
(A) Arbitration and Conciliation Act, 1996 - Sections 34 and 37 - Supreme Court's ruling on merits - The Supreme Court upheld the Division Bench's decision to set aside an arbitral award, emphasizing that the award lacked reasoning and was unsustainable - The court clarified that the setting aside of the award restores parties to their original position, allowing for fresh arbitration - The core issue was whether the disputes had been adjudicated on merits, with the court concluding they had not - The court appointed a sole arbitrator to adjudicate the disputes anew. (Paras 1, 10, 39, 41)
(B) Doctrine of Merger - The Section 37 Judgement merges into the SC Judgement, but the Supreme Court did not rule on the merits of the case, maintaining the limited scope of review under the Act. (Paras 29, 31)
Facts of the case:
The applicant, Batliboi, was awarded a contract by HPCL for a sewage treatment plant. Disputes arose, leading to arbitration and subsequent judicial reviews, culminating in the Supreme Court's ruling that the arbitral award was unsustainable due to lack of reasoning. (Paras 2-4)
Findings of Court:
The Supreme Court found the arbitral award to be untenable and ruled that the parties should be restored to their pre-arbitral positions, allowing for fresh arbitration. (Paras 10, 39)
Issues: The main issue was whether the disputes had been adjudicated on merits, with the court determining that they had not, thus allowing for a new arbitration. (Paras 1, 10)
Ratio Decidendi: The court held that the Supreme Court's ruling did not constitute an adjudication on merits, and the setting aside of the arbitral award permits the parties to arbitrate afresh. (Paras 10, 39)
Result: The application was disposed of by referring all disputes to arbitration with a newly appointed sole arbitrator.
Based on the provided legal document, the key points are as follows:
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The Supreme Court's ruling did not decide on the merits of the case but focused on the procedural aspects of setting aside the arbitral award, which was found to lack reasoning and was unsustainable (!) (!) .
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The Court clarified that the setting aside of the arbitral award restores the parties to their original position, allowing for a fresh arbitration process, since the previous disputes had not been adjudicated on merits (!) (!) .
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The jurisdiction exercised by the courts under Sections 34 and 37 of the Arbitration and Conciliation Act is limited to judicial review for fairness and legality, not an appellate review on merits. The Court emphasized that its review was confined to whether the arbitral award was perverse, lacked reasoning, or was otherwise invalid under the law (!) (!) .
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The Supreme Court did not substitute its own assessment of the evidence or merits but analyzed whether the arbitral award was sustainable or had legal deficiencies such as lack of analysis, contradictions, or errors in computation (!) (!) .
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The Court explicitly stated that its findings were on the correctness of the arbitral award's reasoning and legality, not on the substantive merits of the claims. The Court’s review was confined to procedural and legal validity, not factual adjudication (!) (!) .
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The doctrine of merger, which posits that the decision of a lower court merges into a higher court’s judgment upon appeal, applies here because the Supreme Court’s judgment explicitly endorsed the findings of the prior judgment only to the extent of their legal validity, not as a final adjudication on the merits (!) (!) .
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The Supreme Court’s judgment made it clear that it was not commenting on the substantive merits but was upholding the procedural correctness of the earlier findings that the arbitral award was unsustainable due to procedural flaws, such as lack of reasoning and incorrect computation (!) (!) .
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Consequently, the parties are to be restored to their pre-arbitral award positions, and the disputes are to be referred to a newly appointed sole arbitrator for fresh adjudication (!) .
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The appointment of the arbitrator, communication procedures, and procedural directions for the arbitration are specified, emphasizing that no opinion on the merits is expressed in this judgment (!) (!) .
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Overall, the legal process underscores that the scope of judicial review under the relevant sections is limited, and the finality of the Supreme Court’s judgment is confined to procedural validity, not substantive merit, thus permitting the parties to pursue arbitration anew (!) (!) (!) .
Please let me know if you need further analysis or assistance with specific aspects of this case.
JUDGEMENT :
SOMASEKHAR SUNDARESAN, J.
1. Whether observations made by the Supreme Court in the course of upholding an order of a Division Bench of this Court setting aside an arbitral award, would constitute a ruling on merits of the case, disabling arbitration being conducted afresh, is the issue that is presented for adjudication in the facts of this case.
Context and Factual Background:
2. Pursuant to a tender, a bid was made by the Applicant, Batliboi Environmental Engineering Ltd., formerly, Hydraulic & General Engineers (“Batliboi”), and was selected by the Respondent, Hindustan Petroleum Corporation Ltd. (“HPCL”) for construction of a sewage treatment reclamation plant at a refinery of HPCL on a turnkey basis. The arbitration agreement is contained in a purchase order dated February 27, 1992 for a value of Rs. Rs.5.73 crores. Disputes and differences arose. Batliboi made a claim ofRs.3.41 crores spread over eleven heads of claims on HPCL. A sole arbitrator conducted proceedings.
3. The Statement of Claim entailed five specific heads of claims from Batliboi. The Statement of Defence was accompanied by a counter-claim under seven heads of claims from HPCL. Eventually, on March 23, 1999 the Arbitral Tribunal passed an award (“Arbitral Award”), which was upheld by a Learned Single Judge of this Court exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) by an order dated December 4, 2000 (“Section 34 Judgement”).
4. An appeal by HPCL under Section 37 of the Act led to a Division Bench of this Court setting aside the Section 34 Judgement by a judgement dated November 2, 2007 (“Section 37 Judgement”). Batliboi filed a special leavepetition in the Supreme Court under Article 136 of the Constitution of India, which granted leave, considered the appeal and by a reasoned judgement dated September 21, 2023 (“SC Judgement”), upheld the Section 37 Judgement, dismissing Batliboi’s appeal.
5. Batliboi invoked arbitration afresh on October 12, 2023, on the premise that the Arbitral Award having been set aside and Batliboi’s claims not having been dismissed on merits, it was constrained to invoke arbitration afresh. By a reply dated November 7, 2023, HPCL took the stance that Batliboi’s claims had been adjudicated on merits and the same disputes cannot be re-adjudicated again in arbitration. This stand-off led to the captioned Application being filed under Section 11 of the Act.
6. Therefore, at the heart of the controversy before me today lies the question of whether the disputes between the parties stand adjudicated on merits and covered by res judicata – preventing the same issues being adjudicated a second time. Contentions of the Parties:
7. I have heard Mr. Virag Tulzapurkar, Learned Senior Counsel on behalf of Batliboi and Mr. Zal Andhyarujina, Learned Senior Counsel on behalf of HPCL, at length. I have had the benefit of their verbal arguments, written notes on submissions and also copious case law pressed into service.
8. According to Mr. Andhyarujina, in the course of rendering the SC Judgement, the Supreme Court has made extensive observations on merits of the case. The parties even tendered data in a chart to the Supreme Court, Learned Senior Counsel would submit, to buttress the point that the SC Judgement is an adjudication and expression of opinion on merits. He would submit that the SC Judgement endorses the Section 37 Judgement, which means that there are two concurrent findings on merits, and therefore, there is no scope for a fresh adjudication of the merits.
9. In contrast, Mr. Tulzapurkar would submit that the decision in the SC Judgement is essentially that the Arbitral Award did not withstand scrutiny under Section 37 read with Section 34 of the Act. Besides, he would submit, the SC Judgement has led to the Section 37 Judgement merging into the SC Judgement, which necessarily means that the Section 37 Judgement is no longer in existence. Therefore, he would submit, any reference t
