2019 INSC 0161
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1862 OF 2014
MMTC LTD.  … APPELLANT
Versus
M/S VEDANTA LTD.  … RESPONDENT
J U D G M E N T
MOHAN M. SHANTANAGOUDAR, J.
This civil appeal arises out  of the judgment and  final  order
dated 09.02.2009 passed by a Division Bench of the High Court
of Judicature at Bombay in Appeal No. 949 of 2002, affirming the
judgment   and   order   dated   05.08.2002   of   the   Learned   Single
Judge   whereby   the   Appellant’s   Objections   Petition   challenging
the   Majority   Award  dated   27.06.2001   had  been   disallowed.   Vide
the   Majority   Award,   the   Appellant   had   been   directed   to   pay
certain amounts to the Respondent under their agreement dated
14.12.1993.
2.  The brief facts leading to the instant appeal are as follows:
M/s   Sterlite   Industries   (India)   Ltd.,   (renamed   M/s   Vedanta   Ltd.,
the   Respondent   herein)   was   a   manufacturer   of   continuous   Cast
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Copper   Rods.  Vide  the  agreement  dated  14.12.1993,  MMTC  Ltd.
(the Appellant herein), a government company, was appointed as
a   consignment   agent   from   whom   the   Respondent   could   avail
services   such   as   storage,   handling   and   marketing   of   the   copper
rods produced by the Respondent. Such rods were to be stored at
various   godowns   of   the   Appellant.   The   agreement   dated
14.12.1993 contained an arbitration clause. 
3.   Importantly,   under   the   aforementioned   agreement,   the
Appellant raised its own invoices in the name of the customers of
the   products   sold   and   delivered.   Goods   were   to   be   sold   only
against   payment   of   100%   advance   by   the   customer   to   the
Appellant,   who   then   had   to   remit   the   same   to   the   Respondent
after deducting service charges (i.e. commission) at the rate of Rs.
500/­ per metric tonne. 
4.  The   aforementioned   agreement   was   materially   altered   for
the   first   time   on   06.01.1994,   in   terms   of   a   Memorandum   of
Understanding between the parties. This amendment enabled the
Appellant to supply goods to customers against a letter of credit
(usance   or   stand­by),   i.e.   without   advance   payment,   while
maintaining that it was the “total responsibility” of the Appellant
to ensure the bona fides of the letter of credit furnished and that
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the   principal   and   interest   were   paid   on   the   due   date   for   the
supplies   made   against   the   letter   of   credit.   In   case   of   a   stand­by
letter of credit, it was further specified that it was the Appellant’s
responsibility,   in   the   event   of   non­payment   by   the   due   date,   to
negotiate the  stand­by  letter  of credit in a timely  way  and credit
the sale proceeds to the Respondent. Interest was fixed at 18.25%
per annum.
5.  A further revision to the above terms was undertaken vide a
meeting between the parties on 20.01.1994, the minutes of which
indicate   that   the   Appellant   could   thereafter   extend   credit   to
customers   on   its   own   terms   and   responsibility,   and   in   case   of
credit   being   extended,   payment   to   the   Respondent   was   to   be
effected by the Appellant upon delivery of the copper rods to the
customer.
6.  The dispute in the instant matter pertains to supplies of the
Respondent’s   copper   rods   made   by   the   Appellant   to   Hindustan
Transmission   Products   Ltd.   (in   short,   “HTPL”)   after   April   1995.
Payment   for   the   same  were  not  made  by   HTPL  to   the   Appellant,
who   also   subsequently   failed   to   make   payment   for   the   supplied
goods   to   the   Respondent.   Hence,   the   Respondent   invoked   the
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arbitration   clause   under   the   agreement   dated   14.12.1993   and
the dispute was referred to a three­member arbitral tribunal. 
7.  The   majority   of   the   arbitral   tribunal   found   in   favour   the
Respondent,   and   vide   its   award   dated   27.06.2001,   inter   alia
directed   the   Appellant   to   pay   to   the   Respondent   a   sum   of   Rs.
15,73,77,296/­   with   interest   at   the   rate   of   14%   p.a.   from
05.02.1997 till the date of the award and at the rate of 18% p.a.
thereafter, as well as an amount of Rs. 2.25 crores as interest on
overdue   payment   up   to   05.02.1996.   The   said   award   was
confirmed   by   the   learned   Single   Judge   of   the   High   Court   of
Bombay as well as the Division Bench thereof.
8.  There   were   several   grounds   of   challenge   raised   by   the
Appellant   before   the   learned   Single   Judge   of   the   High   Court;
however,   before   the   Division   Bench   as   well   as   before   this   Court
the   main   ground  raised  concerns  the  arbitrability   of  the   dispute
under   the   arbitration   clause   under   the   agreement   dated
14.12.1993. This ground encompasses all other arguments raised
by the Appellant. To elaborate, it is the case of the Appellant that
it   used   to   supply   the   goods   of   the   Respondent   to   customers
arranged   by   the   Appellant   as   per   the   Agreement   dated
14.12.1993 only. However, sometimes, the Appellant had to make
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a deviation from this procedure at the request of the Respondent,
i.e.   M/s   Vedanta   Ltd.,   by   allowing   customers   arranged   by   M/s
Vedanta Ltd. to lift its goods stored in the Appellant’s godowns. It
is   further   the   case   of   the   Appellant   that   whenever   it   made   this
deviation,   the  Appellant   was   not   bound   by   the  contract  between
the   Respondent   and   the   relevant   customer,   inasmuch   as   such
contract   was   independent   of   and   totally   different   from   the
agreement   dated   14.12.1993.   Whenever   there   was   a   direct
agreement   between   the   Respondent   and   its   customers   (not
arranged   through   the   Appellant),   the   payment   was   to   be   made
directly   by   the   customers   to   the   Respondent   for   which   the
Appellant   would   not   be   responsible.   However,   if   the   transaction
took   place   pursuant   to   the   agreement   dated   14.12.1993,   i.e.   if
the   Appellant   was   supplying   the   Respondent’s   goods   to
customers booked through the Appellant, the Appellant would be
responsible   for   collecting   the   sale   consideration   from   the
customers,   and   to   remit   the   same   to   the   Respondent   by
deducting commission as agreed. Therefore, the direct agreement
between   the   Respondent   and   its   customer   HTPL   in   the   instant
case   would   not   be   binding   on   the   Appellant,   and   consequently
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could not have been subjected to the arbitration proceedings that
led to the arbitral award dated 27.06.2001.
9.  On the contrary, the case of the Respondent is that there is
no such distinction within the nature of transactions undertaken
by   the   Appellant   on   behalf   of   the   Respondent.   Moreover,   it   is
submitted   that   though   there   was   an   agreement   between   the
Respondent   and   HTPL,   the   terms   of   such   agreement   were
communicated to the Appellant, upon whose acceptance of such
terms   the   agreement   dated   14.12.1993   stood   modified   to   such
extent.
10.  Before   proceeding   further,   we   find   it   necessary   to   briefly
revisit   the   existing   position   of   law   with   respect   to   the   scope   of
interference   with   an   arbitral   award   in   India,   though   we   do   not
wish   to   burden   this   judgment   by   discussing   the   principles
regarding   the   same   in   detail.   Such   interference   may   be
undertaken   in   terms   of   Section   34   or   Section   37   of   the
Arbitration and Conciliation Act, 1996 (for short, “the 1996 Act”).
While the former deals with challenges to an arbitral award itself,
the   latter,   inter   alia ,   deals   with   appeals   against   an   order   made
under Section 34 setting aside or refusing to set aside an arbitral
award. 
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11. As far as Section 34 is concerned, the position is well­settled
by   now   that   the   Court   does   not   sit   in   appeal   over   the   arbitral
award   and   may   interfere   on   merits   on   the   limited   ground
provided under Section 34(2)(b)(ii), i.e. if the award is against the
public   policy   of   India.   As  per  the   legal   position   clarified   through
decisions of this Court prior to the amendments to the 1996 Act
in   2015,   a   violation   of   Indian   public   policy,   in   turn,   includes   a
violation   of   the   fundamental   policy   of   Indian   law,   a   violation   of
the   interest   of   India,   conflict   with   justice   or   morality,   and   the
existence   of   patent   illegality   in   the   arbitral   award.   Additionally,
the concept of the “fundamental policy of Indian law” would cover
compliance   with   statutes   and   judicial   precedents,   adopting   a
judicial   approach,   compliance   with   the   principles   of   natural
justice,   and   Wednesbury   reasonableness.   Furthermore,   “patent
illegality”   itself   has   been   held   to   mean   contravention   of   the
substantive   law   of   India,   contravention   of   the   1996   Act,   and
contravention of the terms of the contract. 
It   is   only   if   one   of   these   conditions   is   met   that   the   Court
may  interfere with an arbitral award in terms of Section 34(2)(b)
(ii), but such interference does not entail a review of the merits of
the dispute, and is limited to situations where the findings of the
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arbitrator   are   arbitrary,   capricious   or   perverse,   or   when   the
conscience   of   the   Court   is   shocked,   or   when   the   illegality   is   not
trivial  but goes to  the  root  of  the matter. An  arbitral  award may
not   be   interfered   with   if   the   view   taken   by   the   arbitrator   is   a
possible   view   based   on   facts.   (See   Associate   Builders   v.   DDA ,
(2015) 3 SCC 49). Also see  ONGC Ltd. v. Saw Pipes Ltd. , (2003)
5   SCC   705;   Hindustan   Zinc   Ltd.   v.   Friends   Coal
Carbonisation ,   (2006)   4   SCC   445;   and   McDermott
International v. Burn Standard Co. Ltd. , (2006) 11 SCC 181).
It   is   relevant   to   note   that   after   the   2015   amendments   to
Section   34,   the   above   position   stands   somewhat   modified.
Pursuant   to   the   insertion   of   Explanation   1   to   Section   34(2),   the
scope of contravention of Indian public policy has been modified
to the extent that it now means fraud or corruption in the making
of   the   award,   violation   of   Section   75   or   Section   81   of   the   Act,
contravention   of   the   fundamental   policy   of   Indian   law,   and
conflict   with   the   most   basic   notions   of   justice   or   morality.
Additionally,   sub­section   (2A)   has   been   inserted   in   Section   34,
which provides that in case of domestic arbitrations, violation of
Indian   public   policy   also   includes   patent   illegality   appearing   on
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the   face   of   the   award.   The   proviso   to   the   same   states   that   an
award   shall   not   be   set   aside   merely   on   the   ground   of   an
erroneous   application   of   the   law   or   by   re­appreciation   of
evidence.
12.  As far as interference with an order made under Section 34,
as per Section 37, is concerned, it cannot be disputed that such
interference   under   Section   37   cannot   travel   beyond   the
restrictions   laid   down   under   Section   34.   In   other   words,   the
Court   cannot   undertake   an   independent   assessment   of   the
merits of the award, and must only ascertain that the exercise of
power by the Court under Section 34 has not exceeded the scope
of the provision.  Thus, it is evident that in case an arbitral award
has   been   confirmed   by   the   Court   under   Section   34   and   by   the
Court   in   an   appeal   under   Section   37,   this   Court   must   be
extremely cautious and slow to disturb such concurrent findings.
13.     Having   noted   the   above   grounds   for   interference   with   an
arbitral   award,   it   must   now   be   noted   that   the   instant   question
pertains   to   determining   whether   the   arbitral   award   deals   with   a
dispute not contemplated by or not falling within the terms of the
submission   to   arbitration,   or   contains   decisions   on   matters
beyond the scope of the submission to arbitration. However, this
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question   has   been   addressed   by   the   Courts   in   terms   of   the
construction  of   the   contract   between   the   parties,  and   as  such   it
can be safely said that a review of such a construction cannot be
made   in   terms   of   re­assessment   of   the   material   on   record,   but
only   in   terms   of   the   principles   governing   interference   with   an
award as discussed above.
14.  It is equally important to observe at this juncture that while
interpreting   the   terms   of   a   contract,   the   conduct   of   parties   and
correspondences exchanged would also be relevant factors and it
is   within   the   arbitrator’s   jurisdiction   to   consider   the   same.   (See
McDermott   International   Inc.   v.   Burn   Standard   Co.   Ltd.
(supra);   Pure Helium India (P) Ltd. v. ONGC , (2003) 8 SCC 593,
D.D. Sharma v. Union of India , (2004) 5 SCC 325).
15.  We  have  gone  through  the  material  on  record  as  well  as  the
Majority   Award,   and   the   decisions   of   the   learned   Single   Judge
and   the   Division   Bench.   The   majority   of   the   arbitral   tribunal   as
well as the Courts found upon a consideration of the material on
record,   including   the   agreement   dated   14.12.1993,   the
correspondence   between   the   parties   and   the   oral   evidence
adduced,   that   the   agreement   does   not   make   any   distinction
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within   the  type  of  customers,  and   furthermore that  the  supplies
to   HTPL   were   not   made   in   furtherance   of   any   independent
understanding between the Appellant and the Respondent which
was not governed by the agreement dated 14.12.1993.
16.   The   Appellant   has   highlighted   before   us   several
correspondences   addressed   to   it   from   the   Respondent   that   refer
to   the   fact   that   sales   to   HTPL   had   been   made   under   the
Respondent’s   contract   with   HTPL.   Indeed,   it   is   evident   from   the
agreement  dated 28.07.1994 between HTPL and  the  Respondent
that   a   direct   agreement   existed   between   them.   However,   as   is
undisputed, the Appellant received its commission in its entirety
for   the   HTPL   transaction,   and   thus   clearly   was   a   beneficiary   of
the   agreement   between   the   Respondent   and   HTPL.   Moreover,   in
this regard, it was rightly observed in the Majority Award that the
Appellant could not show under what separate agreement it was
entitled to commission from such sales other than the agreement
dated   14.12.1993,   and   for   what   services,   if   its   only   role   in   the
transaction was to allow HTPL to lift goods from its godowns. 
17. Indeed,   it   is   not   the   case   of   the   Appellant   that   it   only
provided   storage   services   to   the   Respondent   by   allowing   the
Respondent to  store its goods in the  warehouse of the Appellant
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(i.e.   that   it   only   acted   as   a   warehouse   for   the   Respondent).   In
fact,   a   series   of   correspondences   amongst   the   Appellant,   the
Respondent and HTPL clearly reveals that the Appellant was also
actively   involved   in   the   transaction   in   question   entered   into
between   the   Respondent   and   HTPL,   and   as   such   was   a
beneficiary   under   their   agreement,   as   observed   supra.   The
Appellant   released   the   Respondent’s   goods   to   HTPL   as   per   the
directions   of   the   Respondent   without   raising   any   objection,   and
thereafter   engaged   in   correspondence   in   respect   of   the
transaction.
18.  It   would   be   appropriate   to   refer   to   some   such
communications   amongst   the   Appellant,   the   Respondent   and
HTPL for illustrative purposes. For instance, as mentioned by the
Respondent   in   a   communication   dated   19.09.1994   addressed   to
HTPL,   the   Appellant   was   to   honour   the   terms   and   conditions   of
the   agreement   between   the   Respondent   and   HTPL.   The   said
communication  also referred to negotiations about issuance of a
letters of credit in favour of the Appellant. Additionally, as can be
seen   from   the   correspondence   from   the   Appellant   to   the
Respondent   dated   26.08.1994,   the   Appellant   wrote   to   it   to
confirm that credit had to be supplied to HTPL at the discounted
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interest   rate   of   16.25%   p.a.,   which   was   affirmed   by   the
Respondent   on   the   same   day.   At   the   same   time,   the
correspondence   dated   28.03.1995   from   the   Respondent   to   the
Appellant discloses that a letter of credit issued by HTPL initially
sent   to   the   Respondent   was   forwarded   to   the   Appellant   with
directions   to   despatch   goods   after   verification   of   the   letter   of
credit and other related papers. 
19.  The issuance of letters of credit in the name of the Appellant
with  respect to  the  HTPL  transaction  was  similar  to  the  practice
adopted in case of letters of credit or demand drafts issued in all
other   transactions,   whether   directly   negotiated   by   the
Respondent,   or   procured   through   the   Appellant,   which   suggests
that it was the duty of the Appellant in this case as well to ensure
that usance letter of credits issued were bona fide, and in case of
stand­by   letters   of   credit,   that   they   were   negotiated   in   time   in
case   of   failure   of   payment   on   the   due   date,   in   terms   of   the
agreement dated 14.12.1993. 
20.  The   Courts   also   rightly   relied   upon   the   communication
dated 06.12.1995 from the Respondent to the Appellant adverting
to   the   terms   and   conditions   of   the   contract   between   the   parties
and referring to the fact that in respect of the sales made to HTPL
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in the period of April, May and July 1995, an amount of Rs. 9.2
crores   together   with   interest   was   still   to   be   received.   The
response to the above communication, from the Appellant to the
Respondent,   dated   08.12.1995,   stated   that   the   Appellant   had
taken   steps   to   set   the   matter   right,   and   that   the   Appellant   had
had   certain   internal   difficulties   which   had   since   been   resolved
and   the   Respondent   would   have   no   grounds   to   complain
thereafter. This communication  clearly  demonstrates the duty  of
the   Appellant   to   recover   the   dues   from   HTPL   and   forward   the
same to the Respondent.
21.  Another   important   communication   rightly   relied   upon   by
the   Courts   is   the   Appellant’s   letter   dated   24.01.1996   to   the
Respondent,   informing   it   about   the   institution   of   a   suit   for
damages   by   HTPL   with   respect   to   the   quality   of   the   goods
supplied.   This   correspondence   refers   to   HTPL   as   a   customer
introduced to the Appellant by the Respondent. Crucially, it was
addressed   in   terms   of   the   agreement   dated   14.12.1993,   which
amounts to a clear admission that the sales made to HTPL were
in terms of the said agreement.
22.   In   this   view   of   the   matter,   it   is   not   open   to   the   Appellant   to
argue that the agreement between the Respondent and HTPL was
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independent   of   the   agreement   dated   14.12.1993   between   the
Appellant and the Respondent and that the latter did not apply to
such transaction.
23.   Moreover,   as   noticed   in   the   Majority   Award   and   also   by   the
Courts, the oral evidence of the officers of the Appellant indicates
that   the   Appellant   did   not   make   any   effort   to   ensure   that   the
letters   of   credits   pertaining   to   the   supplies   made   to   HTPL   were
honoured,   pointing   towards   gross   negligence   on   the   part   of   the
Appellant.
24.   Based   upon   the   above   discussion,   in   our   opinion,   the   view
taken   in  the   Majority   Award,  as   confirmed  by   the   High   Court  in
the exercise of its powers under Sections 34 and 37 of the 1996
Act,   is   a   possible   view   based   upon   a   reasonable   construction   of
the   terms   of   the   agreement   dated   14.12.1993   between   the
Appellant  and the  Respondent  and  consideration  of the  material
on   record.   We   are   also   of   the   opinion   that   the   dispute   was
covered   under   the   agreement   between   the   Appellant   and   the
Respondent   dated   14.12.1993,   and   as   such   the   dispute   is
governed   by   the   arbitration   clause   under   the   said   agreement.
Thus,   we   find   no   reason   to   disturb   the   Majority   Award   on   the
ground that the subject matter of the dispute was not arbitrable.
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25.   Appeal   is,   therefore,   dismissed   and   the   order   of   the   High
Court   of   Judicature   at   Bombay   in   Appeal   No.   949   of   2002   is
affirmed. 
        ……………..…………………..J.
    [Mohan M. Shantanagoudar]  
 
…………………………………J.
[Vineet Saran]
New Delhi;
February 18, 2019.
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