The Supreme Court has set aside the Chhattisgarh High Court’s interference and restored the arbitral award in Ramesh Kumar Jain v. Bharat Aluminium Company Ltd (BALCO) (2025 INSC 1457), reaffirming that courts exercising jurisdiction under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 are not appellate bodies. The Court held that judicial intervention is impermissible where it involves reappreciation of evidence or substitution of the arbitrator’s commercial assessment under the label of “patent illegality”.
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Background of the dispute: a contract that outgrew its paper terms
The dispute traces back to 1999, when BALCO awarded Ramesh Kumar Jain a contract to mine and transport 0.222 million tonnes of bauxite from Mainpat to BALCO’s Korba alumina plant at INR 634.20 (USD 7.05) per tonne, with an 18-month completion timeline. The contract period was later extended until September 2001.
The conflict emerged after the contractor fulfilled the agreed quantity. In a letter dated January 5, 2002, BALCO requested Jain to continue supplying bauxite, stating that rates for the additional quantity would be decided later “through mutual consultation.” Acting on this assurance, Jain supplied an extra 0.195 million tonnes between June 2001 and March 2002. When payments and compensation for the extended work were disputed, arbitration was invoked under the contract.
The arbitral award: calibrated relief, not a blank cheque
A sole arbitrator framed 13 issues and delivered an award on July 15, 2012, granting Jain INR 0.234 billion (USD 259,740) under specific heads:
Several claims, including those for extra overburden removal, were expressly rejected. Interest at 12 per cent was awarded from September 1, 2007 to July 15, 2012, bringing the total to INR 37.1 million (USD 413,512), with post-award interest payable under Section 31(7)(b).
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Divergent judicial approaches: restraint versus overreach
BALCO’s challenge under Section 34 was dismissed by the Commercial Court in Raipur, which held that the award was reasoned, evidence-based and consistent with public policy. The controversy escalated when the Chhattisgarh High Court, exercising appellate jurisdiction under Section 37, set aside the award. It held that the arbitrator had exceeded his jurisdiction by applying quantum meruit, relied on conjecture and oral assertions, and ignored contractual provisions, amounting, in its view, to “patent illegality.”
Supreme Court’s analysis: what “patent illegality” really means
Allowing Jain’s appeal, the Supreme Court found that the High Court had crossed the line from review into reassessment. Reiterating settled law, the Court stressed that arbitral awards are not subject to appellate scrutiny. Courts cannot re-weigh evidence or reinterpret contracts simply because another view appears plausible.
Regarding the definition of "patent illegality," the Court explained that it is limited to situations in which conclusions are unsupported by evidence, completely at odds with the terms of the agreement, or so illogical as to be shocking to the judicial conscience. Interference is not justified by factual inaccuracies or even questionable legal flaws in contract interpretation.
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Quantum meruit and Section 70: no rewriting of contracts
In response to the High Court's criticism of rewarding extra effort, the Supreme Court supported the arbitrator's reliance on Section 70 of the Contract Act, which includes the notion of quantum meruit for non-gratuitous conduct. The Court noted that the additional bauxite was supplied after the initial contract was completed, at BALCO's request, with the explicit understanding that rates would be determined later. BALCO received and benefited from the supplies.
In such cases, compensation was just an application of Section 70, not a rewrite of contractual provisions. The Court emphasised that the arbitrator awarded only a small increased rate after weighing evidence and balancing equities.
Evidence and damages: precision is not perfection
The Supreme Court likewise rejected the claim that damages were based solely on speculation. It noted that the arbitrator relied on witness testimony, correspondence and admissions from BALCO personnel, while removing overstated statements and rejecting some outright. Acknowledging the realities of mining and infrastructure disputes, the Court reiterated that mathematical precision is not mandatory where loss is established and estimation is honest and reasoned.
Setting aside the High Court’s judgment, the Supreme Court restored both the arbitral award and the Commercial Court’s order. It held that none of the findings suffered from patent illegality or perversity and that the High Court had impermissibly substituted its own commercial assessment for that of the arbitrator.
The ruling reinforces two critical principles in Indian arbitration law. First, quantum meruit under Section 70 can validly support claims for extra work when the beneficiary has accepted the benefit and the contract is silent on price. Second, courts must exercise extreme restraint under Sections 34 and 37, intervening only when an award is fundamentally flawed.
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