The Supreme Court, in Ramesh Kumar Jain v. Bharat Aluminium Company Ltd (BALCO) (2025 INSC 1457), has restored an arbitral award that was set aside by the Chhattisgarh High Court, reaffirming the narrow scope of judicial interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The ruling underscores that courts cannot re-appreciate evidence or substitute their own commercial assessment under the guise of “patent illegality”.
Background of the dispute
In 1999, BALCO awarded a contract to Ramesh Kumar Jain for mining and transporting 2.22 lakh metric tonnes of bauxite from Mainpat to its Korba alumina plant at a rate of ₹634.20 per MT, to be completed within 18 months. The contract period was later extended until September 2001.
After the agreed quantity was completed, BALCO, by a letter dated January 5, 2002, requested the contractor to continue operations, stating that the rates for the additional quantity would be decided later through mutual consultation. Acting on this request, Jain supplied an additional 1.95 lakh MT of bauxite between June 2001 and March 2002. Disputes subsequently arose regarding payment for the extra work and related claims, triggering arbitration under the contract.
Arbitral award
The sole arbitrator framed 13 issues and delivered an award on July 15, 2012, granting Jain a total of ₹2.34 crore under various heads, including:
- ₹31.85 lakh towards extra work at an additional ₹10 per MT,
- ₹1.23 crore for increased transportation costs caused by restrictions on truck load capacity,
- ₹71.36 lakh for idle manpower and machinery during a 67-day strike, and
- ₹8.30 lakh towards interest for delay in payment of the 15th running account bill.
Certain claims, such as extra overburden removal, were expressly rejected. The arbitrator also awarded 12% interest from September 1, 2007 to July 15, 2012, taking the total award to ₹3.71 crore, with post-award interest payable under Section 31(7)(b) of the Act.
Proceedings before the courts
BALCO’s challenge under Section 34 was dismissed by the Commercial Court at Raipur, which found the award to be reasoned, evidence-based and not contrary to public policy.
However, in an appeal under Section 37, the Chhattisgarh High Court set aside the award, holding that the arbitrator had exceeded his jurisdiction by invoking quantum meruit, relied on conjecture and oral assertions without documentary proof, and ignored parts of the contractual framework and evidence, thereby committing “patent illegality”.
Supreme Court’s analysis
Allowing the contractor’s appeal, the Supreme Court held that the High Court had transgressed the limited scope of review available under Sections 34 and 37. The Court reiterated that arbitral awards are not subject to appellate scrutiny and that courts cannot re-weigh evidence or reinterpret contracts merely because another view is possible.
On the meaning of “patent illegality”, the Court clarified that it is confined to cases where findings are based on no evidence, are wholly contrary to the contract, or are so irrational as to shock the judicial conscience. Errors of fact, or even debatable errors of law in contract interpretation, do not justify interference.
Quantum meruit and Section 70
Addressing the High Court’s criticism of the award for extra work, the Supreme Court upheld the arbitrator’s reliance on Section 70 of the Contract Act, which embodies the doctrine of quantum meruit for non-gratuitous acts. The Court noted that the additional bauxite was supplied after completion of the original contract quantity, at BALCO’s request, with a clear understanding that rates would be settled later. BALCO accepted and benefited from the work.
In these circumstances, compensating the contractor was a straightforward application of Section 70 and did not amount to rewriting the contract. The Court emphasised that the arbitrator had awarded only a modest additional rate after assessing the evidence and balancing equities.
Evidence and quantification of damages
The Court also rejected the High Court’s finding that the damages were based on guesswork. It observed that the arbitrator had relied on witness testimony, correspondence and admissions from BALCO’s own officials, and had pruned exaggerated claims while rejecting some entirely.
Recognising that exact mathematical precision is often impossible in construction and mining disputes, the Court reiterated that arbitrators are permitted to use reasonable and honest estimation where loss is established, provided there is a rational link between the evidence and the conclusion.
Final outcome
The Supreme Court set aside the High Court’s judgment and restored both the arbitral award and the Commercial Court’s order under Section 34. It held that none of the findings suffered from patent illegality or perversity, and that the High Court had impermissibly substituted its own assessment for that of the arbitrator.
Significance
The ruling reinforces two key principles in Indian arbitration law:
first, that quantum meruit under Section 70 can validly support claims for extra work where the contract is silent on price but the beneficiary has accepted the benefit; and second, that courts must exercise extreme restraint under Sections 34 and 37, intervening only where an award is fundamentally flawed, and not merely because a different view on facts or valuation is possible.
