CMA/1151/2011 of UNION OF INDIA [UOI],REP.BY CHIEF ENGINEER, BANGALORE. Vs M/S PHOENIX ENGINEERS AND CONTRACTORS, SECBAD AND ANOTHER on 10 September 2026

IN THE HIGH COURT FOR THE STATE OF TELANGANA AT: HYDERABAD

HON’BLE SRI JUSTICE K. LAKSHMAN AND HON’BLE SMT. JUSTICE K. SUJANA

CIVIL MISCELLANEOUS APPEAL No. 1151 OF 2011 (CNR No. HBHC010578072011) Reserved on: 24.08.2026 Pronounced on:10 .09.2026 Uploaded on: 10.09.2026

Between

Union of India repr. by Chief Engineer, Bangalore …Appellant

and

M/s Phoenix Engineers & Contractors and Another …Respondents

This Court passed the following

JUDGMENT: (per Hon’ble Sri Justice K. Lakshman) Heard Mr. N. Bhujanga Rao, learned Deputy Solicitor General of India for the Appellant and Mr. G. Jonathan, learned counsel for Respondent No. 1.

2. This Appeal has been filed under Section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter, “the Act, 1996”) assailing the judgment dated 30.06.2011 in A.O.P. No. 466 of 2003

passed by the Learned Principal District Judge, Ranga Reddy District, at L.B. Nagar; whereby the petition filed under Section 34 of the Act, 1996 seeking to set aside the arbitral award dated 31.12.2002 was dismissed.

3. The Appellant and Respondent No. 1 entered into an agreement bearing No. CE(AF)/BAN/AFA/HYD-07 of 1994-95 for construction of School Building Type ‘A’ and Staff Quarters to Kendriya Vidyalaya No. 2 at AFA Hyderabad. The total cost of construction was Rs. 1,51,41,809.31/-. The construction commenced on 14.04.1994 and was completed on 25.08.1998. During the course of execution of the contract, certain disputes arose between the parties, due to which the matter was referred to arbitration. Respondent No. 2 was appointed as the Sole Arbitrator in terms of the Arbitration Agreement.

4. Before the learned arbitrator, Respondent No. 1 made fourteen (14) claims whereas the Appellant made four (4) counter- claims. The arbitrator passed an award dated 31.12.2002 partly allowing the claims of Respondent No. 1. The total amount claimed by Respondent No. 1 was Rs. 1,79,60,874/, of which claims to the extent of Rs. 10,71,712/- were allowed. On the contrary, the Appellant claimed an amount of Rs. 1,20,000/-, of which claims to the extent of Rs. 5,970/- were allowed. The claims of Respondent No. 1 allowed by the Learned Arbitrator are extracted in a table hereunder: Claim No. Nature of Claim Award

Due to not supplying water as per contract, but charging for it Rs. 64,717/-

Non-payment of accepted contract rates for water tank and cycle shed Rs. 1,01,495/-

Due to change of soil condition from hard dense to black cotton Rs. 56,500/-

Damages for delayed payments for inadequate funds position Rs. 8,500/-

Damages due to supervision of work, delay in giving decision, order in specialized work without payment Rs. 2,16,000/-

Damages due to prolongation of contract Rs. 6,24,500/- 11 & 12 Arbitration and other legal expenses & interest on all payments withheld and on the claims @ 18% p.a. from the date of actual completion till the date of decree Simple interest @12% from 01.07.1999 and future interest @10% from 01.04.2003

5. Aggrieved by the said award, the Appellant herein filed a petition under Section 34 of the Act, 1996 vide A.O.P. No. 466 of 2003 seeking to set aside the award contending that the arbitral award was beyond the scope of reference, vague, uncertain and incorrect. The learned arbitrator erred in rejecting the counter-claims of the Appellant herein and wrongly considered the inadmissible evidence adduced by Respondent No. 1 contractor. On the contrary, Respondent No. 1 argued that the petition filed under Section 34 of the Act, 1996 was not maintainable as none of the grounds raised by the Appellant fell within the ambit of the said provision, and thereby the petition was liable to be dismissed.

6. The Learned Judge referred to a catena of judgments of the Supreme Court pertaining to the limited jurisdiction of a Court under Section 34 of the Act, 1996 while examining the correctness of an arbitral award. It was observed that the arbitrator minutely considered the submissions made by both parties and logically sustained a part of the claims while rejecting the others. Thus, the Learned Judge dismissed the petition holding that the reasoning of the arbitrator was well-founded and logical, not requiring any interference. Challenging the said judgment, the Appellant preferred the present appeal.

7. It is the specific contention of the Appellant that the arbitrator erred in partly allowing the claims of Respondent No. 1 while passing the arbitral award. The Appellant made the following submissions: i. The arbitrator exceeded the scope of reference of disputes to arbitration. ii. The arbitral award suffers from patent illegality. iii. The arbitral award is unreasoned and contrary to law under Section 31(3) of the Act. iv. The impugned judgment is not based on reasoning and there is no consideration of the grounds/contentions raised by the Appellant.

8. The Appellant submits that the Learned Judge erred in dismissing the petition filed under Section 34 of the Act, 1996. The arbitral award is vague and uncertain, and the arbitrator failed to appreciate and enquire into the counter-claims made by the Appellant. In support of the aforesaid contentions, the Appellant places reliance on the judgments of the Hon’ble Supreme Court in Dyna Technologies Private Limited v. Crompton Greaves Limited1, PSA SICAL Terminals Private Limited v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Others2, ONGC v. Saw Pipes Limited3, and Grid Corporation of Orissa Limited v. Balasore Technical School4.

9. Per contra, Respondent No. 1 submits that the learned arbitrator fairly and correctly considered the reasons and grounds while partly awarding the claims of Respondent No. 1. Thereafter, the Learned Judge vide impugned judgment dated 30.06.2011 in A.O.P. No. 466 of 2003 clearly observed that there was no error in the arbitral award. The Arbitrator considered all the aspects minutely while passing the award, strictly in accordance with the terms of reference of disputes to arbitration. The Appellant, instead of complying with the aforesaid judgment, unnecessarily preferred an appeal challenging the same, without any justification. Moreover, this Court vide order 1 (2019) 20 SCC 1 2 (2023) 15 SCC 781 3 2003 (5) SCC 705 4 (2000) 9 SCC 552

dated 28.10.2011 in C.M.A. M.P. No. 1975 of 2011 granted interim stay on the execution of the arbitral award insofar as award amount of Rs. 6,24,500/- relating to Claim No. 6 (damages due to prolongation of contract). Respondent No. 1 is claiming 12% interest on Rs. 6,24,500/- awarded in Claim No. 6, contending that it has been 15 years since the interim stay has been granted and more than 28 years since the dispute between the parties is pending.

10. Respondent No. 1 is a partnership firm formed after executing a partnership deed dated 16.07.1993 between the following persons: (1) Mr. Anil Patel, (2) Mr. Amit Patel, (3) Mr. Kishanlal Mehra, and (4) Mr. Ashwini Mehra. It is the specific allegation of Respondent No. 1 firm that Mr. Ashwini Kumar Mehra (Respondent No. 3), who is merely a dummy partner, without informing the other partners and without any authorization, consent or knowledge, fabricated documents and filed C.M.A. M.P. No. 1277 of 2015 in C.M.A. M.P. 1975 of 2011, seeking withdrawal of the amount awarded under Claim Nos. 1 to 5. The said petition was allowed, pursuant to which Respondent No. 3 withdrew the amount after opening a separate bank account by furnishing false and misleading information in SBI, Maredpally branch, allegedly with the help of Branch Manager, and deposited Cheque No. 012179 dated 19.10.2015 for Rs. 12,20,248/-. Thus, the actual owners lodged a police complaint and an FIR was registered vide FIR No. 68 of 2018 dated 07.04.2018. Upon investigation, Respondent No. 3 was arrested and was subsequently released on bail. A case in CC No. 495 of 2018 is pending on the file of X Additional Chief Metropolitan Magistrate, Secunderabad. Therefore, Respondent No. 1 firm prays this Court to pass appropriate orders against Respondent No. 3 and direct him to return the amount of Rs. 12,20,248/- withdrawn along with an interest @24%.

11. Perusal of the grounds of appeal would reveal that the Appellant has preferred the present appeal against the judgment passed in A.O.P No. 466 of 2003, confirming the arbitral award dated 31.12.2002, whereby claims of Respondent No. 1 were partly allowed. However, in the course of oral submissions, Learned Deputy Solicitor General of India largely confined his submissions to Claim No. 6.

12. Before we delve into the submissions made by both the learned counsel, it is pertinent to examine the scope of interference by this Court in an appeal filed under Section 37 of the Act, 1996. In this regard, reference is made to the judgment of the Hon’ble Supreme Court in Jan De Nul Dredging India Private Limited v. Tuticorin Port Trust5, wherein it was held that the jurisdiction of the Court under Section 37 of the Act, 1996 is akin to the jurisdiction of the Court under Section 34 of the Act, 1996. Thus, the Court in appeal under Section 37 of the Act, 1996 cannot go beyond the grounds of challenge under Section 34 of the Act, 1996. The powers of the Appellate Court are even more restricted, whereby it can only examine if the Court under Section 34 of the Act, 1996 acted within its limits as prescribed or failed to exercise the power conferred thereunder. As the Appellate Court under Section 37 of the Act, 1996 is not an ordinary court of appeal, it cannot go into the merits of the case or reappraise evidence. The relevant paragraphs of the aforesaid judgment are extracted hereunder:

5 (2026) 3 SCC 186.

35. The gist of the aforesaid decisions is that the jurisdiction of the court under Section 37 of the Act is akin to the jurisdiction of the court under Section 34 of the Act, and, therefore, the scope of interference by the court in appeal under Section 37 cannot go beyond the grounds on which challenge can be made to the award under Section 34 of the Act. Moreover, the courts exercising powers under Sections 34 and 37, do not act as a normal court, and therefore, ought not to interfere with the arbitral award on a mere possibility of an alternative view.

36. In other words, the scope of interference of the court with the arbitral matters is virtually prohibited, if not absolutely barred. The powers of the appellate court are even more restricted than the powers conferred by Section 34 of the Act. The appellate power under Section 37 of the Act is exercisable only to find out if the court exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred. The appellate court exercising powers under Section 37 of the Act has no authority of law to consider the matter in dispute before the Arbitral Tribunal on merits so as to hold as to whether the award of the Arbitral Tribunal is right or wrong. The appellate court in exercise of such power cannot sit as an ordinary court of appeal and reappraise the evidence to record a contrary finding. The award of the Arbitral Tribunal cannot be touched by the court unless it is contrary to the substantive provision of law or any provision of the Act or the terms of the agreement.

13. In the light of the same, we confine our examination to see if the Learned Judge in A.O.P. No. 466 of 2003 acted within prescribed limits or failed to exercise the power conferred under Section 34 of the Act, 1996. In exercise of the limited power conferred under Section 37 of the Act, 1996; we would examine the contentions of the Appellant.

14. The Appellant submits that the arbitral award is an unreasoned award and is vitiated by patent illegality. The learned arbitrator partly allowed the claims of Respondent No. 1 in contravention to the terms and conditions of the contract. Further, two similar claims, Claim Nos. 6 and 9, pertaining to “damages due to prolongation of contract”, were dealt with in an inconsistent manner. Thus, the arbitral award is illegal and perverse and bound to be set aside.

15. Perusal of the arbitral award dated 31.12.2002 would reveal that the learned arbitrator conducted an independent assessment of each of the 14 claims put forth by Respondent No. 1. It is pertinent to note that an award can be set aside on the ground of patent illegality appearing on the face of the award and which goes to the roots of the matter. When an arbitrator does not give any reasons while passing an award, the same would amount to patent illegality. On ex facie examination of the arbitral award, we are unable to conclude that the award is vitiated by patent illegality. Furthermore, the Appellant’s contention that the award is an unreasoned award is untenable. The Learned Arbitrator has passed a speaking award with findings for each claim, substantiated with reasons.

16. Further, the Appellant contends that the learned arbitrator exceeded the scope of reference by adjudicating the disputes and allowing the claims of Respondent No. 1 in contravention to the terms and conditions of the contract. We are unable to accept the said contention. It is pertinent to note that the learned arbitrator, in the present case, is a Chief Engineer and, therefore possesses the requisite technical expertise in terms of subject-matter of the dispute. The Hon’ble Supreme Court in Somdatt Builders-NCC-NEC (JV) v. National Highways Authority of India & Ors.6, has held that the Courts exercising jurisdiction under Sections 34 or 37 of the Act, 1996 should refrain from interfering with the findings of an Arbitral Tribunal, particularly when the arbitrator has taken a plausible view and comprises technical experts. In the present case, Respondent No.

6 (2025) 6 SCC 757.

2 being a Chief Engineer and a technical expert, was well-versed with the subject-matter of dispute and the terms and conditions in the contract. Thus, the findings given by the arbitrator cannot be said to travel beyond the scope of reference or the terms of the contract.

17. With respect to the Appellant’s contention that the Learned Arbitrator rendered an inconsistent decision pertaining to two similar claims, i.e., Claim Nos. 6 and 9, by allowing the former while dismissing the latter, we are of the opinion that the said contention cannot be accepted. Although, the heads of both the aforesaid claims read as “Damages due to prolongation of contract”, the substance of both the claims is materially different. While dealing with Claim No. 9, the Learned Arbitrator, in paragraph no. 63 of the arbitral award, categorically mentioned that the claim of Respondent No.1 contractor pertained to payment of extra escalation on account of the unilateral freezing of escalation index by the Appellant. However, as Respondent No. 1 had given an undertaking for freezing the index, the learned arbitrator concluded that the claim was not sustainable. In view thereof, merely because both Claim Nos. 6 and 9 bear the same heading, the same cannot, by itself, establish any inconsistency in the award passed by the learned arbitrator, and at best, appears to be an erroneous description of the claim heading, on account of inadvertence.

18. The Appellant also contends that the learned arbitrator failed to appreciate and enquire into the counter-claims made by the Appellant. We are unable to accept the said contention. It is evident from the arbitral award that the learned arbitrator duly considered the four (4) counter-claims put forth by the Appellant. It was the Appellant who had withdrawn Claim Nos. 1 and 2. In respect of Claim No. 3, the learned arbitrator awarded Rs. 5,970/-, whereas no amount was awarded against Claim No. 4.

19. Coming to the submissions made by Respondent No. 1, we find merit in the contention that the learned arbitrator passed the award after considering all the claims in detail and in accordance with the terms of the contract. Thereafter, even the Learned Judge, while exercising jurisdiction under Section 34 of the Act, 1996 was justified in affirming the said award. Further, Respondent No. 1 has claimed interest @12% p.a. on the amount of Rs. 6,24,500/- awarded in Claim No. 6, in respect of which an interim stay was granted by this Court vide order dated 28.10.2011. It is apt to note that by virtue of the interim stay, Respondent No. 1 has been deprived of the award amount for nearly 15 years. The dispute has been pending for approximately 28 years. In view of the same, we are inclined to award interest @10% p.a. on the amount of Rs. 6,24,500/- awarded under Claim No. 6, from the date of passing the arbitral award till the date of realization.

20. Respondent No. 1 also prays that this Court may pass appropriate order against Respondent No. 3 for filing C.M.A. M.P. No. 1277 of 2015 in a fraudulent and unauthorized manner. Further, Respondent No. 1 firm seeks direction to Learned X Additional Chief Metropolitan Magistrate, Secunderabad to complete the trial in CC No. 495 of 2018 within three (3) months. Also, a direction to Respondent No. 3 to return the amount of Rs. 12,20,248/- along with 24% interest thereon. We have duly considered the submission and prayer of Respondent No. 1. It appears that there are disputes between the partners of Respondent No. 1 firm, which this Court while exercising its power under Section 37 of the Act, 1996, cannot consider or decide, that too, during pendency of CC No. 495 of 2018 on the file of X Additional Chief Metropolitan Magistrate, Secunderabad.

21. Having given due consideration to the submissions advanced, we find it pertinent to reiterate that the Appellate Court must show a great deal of restraint while examining the validity of an arbitral award when such an award has been upheld, wholly or substantially, under Section 34 of the Act, 1996. The scope of intervention is quite narrow and the matter in dispute cannot be considered on merits. In the present case, the learned arbitrator has duly considered the submissions advanced by both the parties and rendered findings based on the evidence on record, which are reasoned. The arbitral award was affirmed by the Learned Judge exercising jurisdiction under Section 34 of the Act, 1996. Therefore, while exercising limited jurisdiction under Section 37 of the Act,

1996; we are not inclined to interfere with the findings in the arbitral award.

22. In the light of the aforesaid discussion, we are of the view that the judgment dated 30.06.2011 passed in A.O.P. No. 466 of 2003 by the Learned Principal District Judge, Ranga Reddy District, at L.B. Nagar, does not warrant any interference. Therefore, this appeal is liable to dismissed, and is accordingly dismissed. The Appellant is permitted to withdraw the amount of Rs. 6,24,500/- along with an interest @10% p.a. from the date of passing the arbitral award till the date of realization. No costs. Consequently, pending miscellaneous petitions, if any, in this appeal shall stand closed.

________________________ JUSTICE K. LAKSHMAN

_______________________ JUSTICE K. SUJANA

Date:10.09.2026. Vvr.