ARB O.P(COM.DIV.)/491/2022 of M/s RS Development and Constructions India Private Vs M/s Indian Port Rail AND Ropeway Corporation Ltd. on 4 November 2026

COMMON ORDER

The Arbitration Original petition has been filed seeking set aside the Award passed by the Learned Tribunal dated 14.04.2022 and received on 25.04.2022 along with a direction to the respondent to pay the costs.

2. The present application has been filed seeking to permit applicant/ petitioner to raise the Additional Grounds filed by the Petitioner in Arb.O.P. (Com.Div) No.491 of 2022.

3. Heard Mr.R.Murali the learned counsel for Ms. A.Madhumathi the learned counsel appearing on behalf of the petitioner and Mr. P.T.Ramkumar the learned Standing Counsel for Railways appearing on behalf of the respondent, in both the Arb.O.P.(COM.DIV.) & Appln.

4. The primordial issue with regard to the validity of the arbitral proceedings had been raised by the petitioner in challenging the Award passed by making a reliance upon a constitutional Bench judgment of the Hon’ble Apex Court reported in (2025) 4 SCC 641 in the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Company. The same was contested by the respondent by contending that one of the Arbitrator so appointed was a nominee of the petitioner and also that the very same issue which was also taken on an application filed under Section 14 for termination of the mandate, which also stood rejected with liberty to the petitioner to raise those grounds before the arbitral proceedings interalia holding that the Arbitrators were not under the control of the respondents and further the judgment of the Hon’ble Apex Court indicated supra was sought not to be applied as it is only prospective and not retrospective and reliance upon three Judges Bench judgment which was over-turned by the Constitution Bench reported in (2020) 14 SCC 712 was sought to be driven home.

5. An application seeking for raising additional grounds was also filed in that regard, which this Court finds no impediment in ordering as even without the said additional grounds sought to be raised, the grounds that are raised being the questions of law could also be raised during the course of the final hearing in the Section 34 Petition.

6. The core issue that is now to be considered is what could be the impact of the arbitration proceedings presided over by the Arbitrator drawn from the panel of one of the parties which in the present case is the respondent herein. The Constitution Bench judgment reported in (2025) 4 SCC 641 had held when there is an unbridled power with the Government company in postulating the manner in which the Arbitrators are to be appointed that too from a curated panel maintained by them, it would lead to a possibility of bias. In the present facts and circumstances of the case, even though grounds were raised before the arbitral proceedings on the liberty granted by this Court in a Section 14 petition, the Arbitrator had failed to answer the said issue. This itself would substantiate the bias in the minds of the Arbitrators. The reasons attributed by the Constitution Bench was mainly on the necessity of maintaining the principle of minimum judicial interference in the arbitral proceedings. Even though, the Hon’ble Apex court had held that the said ruling was only construed as a prospective over-ruling, it should be noted that Section 34 of the Arbitration Act provides that an arbitral Award could be set aside if it is found that the said Award conflicts with the public policy of India which also includes a conflict with the most basic notions of morality of justice. In this regard, it would also be useful to refer to the deliberations of the Constitution Bench in the following paragraphs:- “….

157. Section 34 of the Arbitration Act specifies the grounds for setting aside an arbitral award. The grounds are separated into two categories :

(i) Section 34(2)(a) contains those grounds that have to be proved by the parties; and (ii) Section 34(2)(b) contains grounds that a court has to examine ex officio. The challenge of arbitral awards on ex officio grounds is “of fundamental importance to the institution of arbitration as a whole”. [ Peter Binder, International Commercial Arbitration and Conciliations in UNCITRAL Model Law Jurisdictions, (2nd Edn., Sweet and Maxwell, 2005) p. 274.]

158. Section 34(2)(b) specifically provides that an arbitral award may be set aside if the court finds that the arbitral award conflicts with the public policy of India. The provision further clarifies “public policy of India” to only mean that : (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.

159. This Court has construed the expression “public policy of India” appearing under Section 34 to mean the “fundamental policy of Indian law”. [Ssangyong Engg. & Construction Co. Ltd.v.NHAI, (2019) 15 SCC 131, para 34 : (2020) 2 SCC (Civ) 213; NHAI v. P. Nagaraju, (2022) 15 SCC 1 : (2024) 2 SCC (Civ) 414, para 39] The concept of “fundamental policy of Indian law” has been held to cover compliance with statutes and judicial precedents, adopting a judicial approach, and compliance with the principles of natural justice. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163, para 11 : (2019) 2 SCC (Civ) 293] In OPG Power Generation (India) (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd. [OPG Power Generation (India) (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd., (2025) 2 SCC 417 : (2025) 1 SCC (Civ) 54] , this Court explained the concept of “fundamental policy of Indian law” thus : (SCC

pp. 467-68, paras 55-56) “55. … The expression “in contravention with the fundamental policy of Indian law” by use of the word “fundamental” before the phrase “policy of Indian law” makes the expression narrower in its application than the phrase “in contravention with the policy of Indian law”, which means mere contravention of law is not enough to make an award vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country.

56. Without intending to exhaustively enumerate instances of such contravention, by way of illustration, it could be said that (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and

(c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law.”

160. In Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2024) 7 SCC 197, para 34 : (2024) 3 SCC (Civ) 780] , this Court held that the most basic notions of morality and justice under the concept of “public policy” will include bias.

161. The provisions of the statute, including Section 34, highlight the important role played by the Indian legal system in recognising and enforcing arbitral awards. It is one such instance where the Indian courts exercise a measure of control over the private arbitral process. [Redfern and Hunter on International Arbitration, (7th Edn., 2022) p. 58.] This control over the arbitral process ensures that the arbitral awards are made by following certain minimum standards of due process and justice. [Redfern and Hunter on International Arbitration, (7th Edn., 2022) p. 58.] Thus, the courts must ensure that the arbitral awards are consistent with the fundamental policy of Indian law such as compliance with the principles of natural justice. As a corollary, Section 34 places a responsibility on the Arbitral Tribunals to ensure that the arbitral proceedings are consistent with the fundamental policy of Indian law. [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, pp. 69-70, para 70:“70. Arbitrators, like the courts, are equally bound to resolve and decide disputes in accordance with the public policy of the law. Possibility of failure to abide by public policy consideration in a legislation, which otherwise does not expressly or by necessary implication exclude arbitration, cannot form the basis to overwrite and nullify the arbitration agreement. This would be contrary to and defeat the legislative intent reflected in the public policy objective behind the Arbitration Act. Arbitration has considerable advantages as it gives freedom to the parties to choose an arbitrator of their choice, and it is informal,flexible and quick. Simplicity, informality and expedition are hallmarks of arbitration. Arbitrators are required to be impartial and independent, adhere to natural justice, and follow a fair and just procedure. Arbitrators are normally experts in the subject and perform their tasks by referring to facts, evidence, and relevant case law.”]

162. By agreeing to arbitrate in a public-private contract, the Government or its companies agree to settle their disputes with private contractors through arbitration. Since the activities of the Government have a public

element, it is incumbent upon the Government to ensure that it enters into a contract with the public without adopting any unfair or unreasonable procedure. [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70, para 17; Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489, p. 506, para 12:“12. … It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non- discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.”] Every action of a public authority or a person acting in the public interest or any act that gives rise to a public element must be based on principles of fairness and non-arbitrariness. [LIC v. Consumer Education & Research Centre, (1995) 5 SCC 482 : (1995) 84 Comp Cas 168, para 23] Therefore, the government agencies have to consider the principles of equality and non-arbitrariness when crafting arbitration procedures, including the procedure for the appointment of arbitrators. The terms of the arbitration agreement must meet the minimum standards of equality and fairness. In a public-private contract, the Government and its instrumentalities must ensure that the arbitral process contemplated by the contract is also fair to the other party to avoid arbitrariness.

163. The possibility of bias is real in situations where an arbitration clause allows a government company to unilaterally appoint a sole arbitrator or control the majority of the arbitrators. Since the Government has control over the Arbitral Tribunal, it can chart the course of the arbitration proceedings to the prejudice of the other party. Resultantly, unilateral appointment clauses fail to provide an effective substitute for judicial proceedings in India. Further, a unilateral appointment clause is inherently exclusionary and violates the principle of equal treatment of parties and procedural equality.

164. Unilateral appointment clauses in a public-private contract fail to provide the minimum level of integrity required in authorities performing quasi-judicial functions such as Arbitral Tribunals. Therefore, a unilateral appointment clause is against the principle of arbitration, that is, impartial resolution of disputes between parties. It also violates the nemo judex rule which constitutes the public policy of India in the context of arbitration. Therefore, unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution for being arbitrary in addition to being violative of the equality principle under the Arbitration Act. ….”

7. Even though, the respondent had claimed that the aforesaid judgment could only be applied to prospective cases and not to already initiated or concluded arbitral proceedings, in view of the grounds available under Section 34 to interfere with such an Award and also having given a finding that there has been a bias in the minds of the Arbitrator in view that they have not specifically addressed the issue raised by the petitioner on the liberty granted by this Court as noted above, this Court has no hesitation in interfering with the Award which has been impugned herein.

8. Accordingly, the impugned Award stands set aside. However, the parties are at liberty to workout their remedies in the manner known to law including initiation of a fresh arbitral proceedings.

9. In fine, Arb.O.P.(COM.DIV.)No.491 of 2022 & A.No.769 of 2026 are allowed. However, there shall be no order as to costs. 04.11.2026 Index: Yes/No Speaking/Non-speaking order Neutral Citation: Yes/No GBA

K.KUMARESH BABU J. GBA A Pre-delivery order made in Arb O.P(COM.DIV.) No. 491 of 2022 AND A NO. 769 of 2026 04.11.2026