1. Arbitration award — Appeal under Section 37, Arbitration Act — Challenge to order setting aside award under Section 34. (Para 1 , 2 , 3 , 4 , 5 )
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2026 Supreme(Raj) 326
HIGH COURT OF JUDICATURE FOR RAJASTHAN, BENCH AT JAIPUR
SANJEEV PRAKASH SHARMA, ACJ., BIPIN GUPTA, J.
Parsa Kente Collieries Limited – Appellant
Versus
Rajasthan Rajya Vidyut Utpadan Nigam Limited – Respondent
D.B. Civil Miscellaneous Appeal No. 2007 of 2023
Decided On : 21-05-2026
Advocates Appeared:
For the Appellant : Mr. Vikram Nankani, Sr. Adv., assisted by Mr. Sandeep Pathak, Ms. Abhisaar Bairagi, Mr. Milind Sharma, Mr. Ausaf Ayyab & Mr. Utkarsh Meena.
For the Respondent: Mr. Kartik Seth with Ms. Ratakshi Sarvaria.
For the Appellant : Mr. Vikram Nankani, Sr. Adv., assisted by Mr. Sandeep Pathak, Ms. Abhisaar Bairagi, Mr. Milind Sharma, Mr. Ausaf Ayyab & Mr. Utkarsh Meena.
For the Respondent: Mr. Kartik Seth with Ms. Ratakshi Sarvaria.
Courts cannot re-appreciate evidence or substitute their own interpretation of a contract for that of an arbitrator under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, provided the arbitrator's view is a plausible one and not patently illegal.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 34 and 37 - Scope of interference by Courts in setting aside or appealing an arbitral award - Power of the Court under Section 34 to set aside an award on grounds of patent illegality, public policy, or perversity - Re-appreciation of evidence and re-interpretation of contractual terms prohibited - An award cannot be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence (Paras 20, 21, 23, 27).
(B) Patent Illegality - Must go to the root of the matter and not be of a trivial nature - A view taken by an arbitrator is a possible view, and a court cannot substitute its own view for that of the arbitrator unless the interpretation is such that no fair-minded or reasonable person would take it (Paras 23, 26).
(C) Severability of Award - A Court exercising power under Section 34 has the inherent authority to sever the invalid portion of an award from the valid portion, provided the parts are legally and practically separable and not intrinsically intertwined (Para 25).
Facts of the case:
A joint venture company entered into a Coal Mining and Delivery Agreement for coal block development and supply. Disputes arose regarding the non-reimbursement of certain costs. Arbitration proceedings were initiated, resulting in an award and a subsequent additional award. A challenge was filed under Section 34 of the Act of 1996, and the Commercial Court set aside both the awards on the grounds that the arbitrator had misread the contract and failed to appreciate evidence. This order was subsequently appealed under Section 37.
Findings of Court:
The Commercial Court exceeded its jurisdiction by re-appreciating evidence and re-interpreting the contract as if it were an appellate court. The Arbitrator's interpretation of the contractual terms, specifically regarding force majeure and change in law, was a plausible view and did not suffer from patent illegality. Furthermore, the conclusion that the award was not severable was contrary to prevailing law.
Issues: Whether the Commercial Court exceeded its jurisdiction under Section 34 of the Act of 1996 by re-appreciating evidence and re-interpreting the contractual terms of the agreement, and whether the arbitral awards were properly set aside.
Ratio Decidendi: The court ruled that judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, is strictly limited to the grounds enumerated in the statute. A court cannot act as an appellate court to re-examine facts or substitute its own interpretation of a contract for that of the arbitrator, provided the arbitrator's view is a plausible one. An award may be severed if the valid and invalid parts are separable.
Result: Civil Misc. Appeal allowed; order of the Commercial Court set aside.
Legal Category Hierarchy
- practice and procedure
- civil procedure
- contract law
- administrative law
Table of Contents
2. Appellant argued court exceeded Section 34 scope; respondent argued award patently illegal and perverse. (Para 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 )
3. Commercial Court re-appreciated evidence and reinterpreted contract, exceeding limited jurisdiction under Section 34. (Para 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 )
4. Section 34 court cannot sit in appeal; interference limited to patent illegality going to root or perversity. (Para 21 , 22 , 23 , 24 , 26 , 27 )
5. Appeal allowed; Commercial Court order set aside; arbitral award and additional award restored. (Para 33 , 34 , 35 , 36 , 37 )
6. What is the scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996?
The court cannot sit in appeal, reappreciate evidence, or substitute its view; interference is limited to patent illegality, perversity, or grounds under Section 34(2). (Para 21 , 22 , 23 , 24 , 26 , 27 )
7. Can an arbitral award be set aside on grounds of patent illegality for misinterpretation of a contract?
No, if the arbitrator's interpretation is a plausible view; misinterpretation amounts to patent illegality only if no fair-minded person would take that view. (Para 23 , 26 )
8. Can a Section 34 court sever and modify an award?
Yes, the court can sever the invalid portion from the valid portion under the proviso to Section 34(2)(a)(iv), subject to the parts being separable. (Para 25 )
9. What constitutes a perverse finding in an arbitral award?
A finding is perverse if it is based on no evidence, based on irrelevant material, or ignores vital evidence. (Para 23 , 26 )
10. What is the scope of an appeal under Section 37 of the Arbitration Act?
The appellate court's power is even more restricted than Section 34; it can only check if the Section 34 court acted within its limits. (Para 21 )
JUDGMENT :
(SANJEEV PRAKASH SHARMA, ACJ.)
1. The present Civil Miscellaneous Appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act of 1996’) assails the order dated 20.05.2023 passed by the learned Commercial Court No. 1, Jaipur Metropolitan-II, Jaipur (hereinafter referred to as ‘Commercial Court’) wherein the application filed under Section 34 of the Act of 1996 was allowed and the arbitral award dated 15.01.2021 and additional award dated 05.07.2021 were set aside.
2. Brief facts of the case are that the appellant is a joint venture company incorporated under the Companies Act, 1956 and has its registered office in Jaipur, which was formed with the objective of undertaking the development of the Parsa East and Kanta Basan Coal Block, mining, beneficiation, arranging for transportation and delivery of coal to thermal power stations owned and operated by the respondent, which is an undertaking of the Government of Rajasthan and is engaged in the business of generation and sale of electricity in the state of Rajasthan.
3. On 16.07.2008, the appellant and respondent executed the Coal Mining and Delivery Agreement (hereinafter referred to as ‘CMDA’) (with Addendum dated 22.09.2010 and Supplementary Agreement dated 29.07.2016) for coal block development, mining of coal and its delivery to thermal power stations owned and operated by the respondent. A mining lease was granted by the Government of Chhattisgarh to the respondent on 30.05.2012, wherein mining and supply were being done as per the CMDA. However, owing to cancellation of the allotment by the Apex Court, [Judgment dated 25.08.2014 and order dated 24.09.2014 in Writ Petition (Criminal) No. 120/2012] (and resulting cancellation of mining lease), the Supplementary Agreement was entered into between the parties (pursuant to the respondent’s application under the provisions of the Coal Mines (Special Provisions) Act, 2015) to continue with the terms and conditions of the CMDA.
4. During the operation of this agreement, various disputes pertaining to non-reimbursement (by the respondent) of certain costs borne by the appellant as part of carrying out the operations arose. To resolve the same, the appellant initiated arbitration proceedings against the respondent, culminating in the award dated 15.01.2021 whereby, the learned Arbitrator fully/partially allowed most claims made by the appellant. Thereafter, the appellant preferred an application under Section 33(4) of the Act of 1996 on the ground that the learned Arbitrator did not address the claim pertaining to the additional cost of Rs.66.70 crores incurred by the appellant for land acquisition in four villages. The learned Arbitrator, vide additional award dated 05.07.2021, allowed this claim and awarded interest on the said amount.
5. Thereafter, the respondent filed an application under Section 34 of the Act of 1996 before the learned Commercial Court challenging the award dated 15.01.2021 and additional award dated 05.07.2021. Vide order dated 20.05.2023, the learned Commercial Court allowed the application and set aside the aforementioned award and additional award.
6. Learned Senior Counsel appearing for the appellant submits that the learned Commercial Court has not given any reasons for setting aside the well reasoned awards of the Arbitrator, which were passed after examining all the relevant material and has exceeded the scope of Section 34 of the Act of 1996, which bars the Courts from sitting in appeal over an arbitral award and challenging it on merits, but rather it confines appeals to certain limited grounds enumerated under the said provision, i.e., on grounds of being contrary to public policy, being patently illegal or being perverse. In this regard, the learned Senior Counsel also states that the Arbitrator’s interpretation of a contractual term is to be respected as he is the Sole Judge of law and facts and that the learned Commercial Court has also err
