Supreme Court reiterates: HC can’t enter into merits of claim U/S. 37 of A&C Act

The Supreme Court allowed the appeal against the order passed by Punjab and Haryana High Court under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, ‘the Arbitration Act’) setting aside the judgement passed by the Additional Sessions Court.

FACTS:

Haryana Tourism (appellant) had invited tenders to supply aerated cold drinks in its complexes. The respondent company’s tender was accepted. Due to disputes between the two, the contract was terminated and the matter was referred to a sole arbitrator. The arbitrator directed respondent to pay ₹9.5 lakhs to the corporation. The objection appeal filed by the respondent against the arbitrator’s award was dismissed by the ADJ under Section 34 of Arbitration Act. However, the High Court allowed the appeal under Section 37 of the Arbitration Act, setting aside the award passed by the arbitrator and the order by the Additional District Court.

APPELLANT’S CASE:

The advocate on behalf of the appellant stressed over the fact that the High Court has very limited scope under Section 37 of the Arbitration Act, and the order passed by it has exceeded its jurisdiction.

SUPREME COURT HELD:

The Supreme Court condemned the High Court’s judgement setting aside the arbitrator’s award and the ADJ’s decision. Agreeing with the appellant’s advocate the SC said,

“As the impugned judgment and order passed by the High Court quashing and setting aside the award and the order passed by the Additional District Judge under Section 34 of the Arbitration Act are concerned, it is required to be noted that in an appeal under Section 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers under Section 37 of the Arbitration Act.”

The Supreme Court also explained the exceptions under which the arbitrator’s award can be quashed under Sections 34 and 37.

The award can be set aside, if the award is found to be contrary to,

1. fundamental policy of Indian Law; or
2. the interest of India; or
3. justice or morality; or
4. if it is patently illegal.

The apex court clarified that none of the above exceptions are valid in the given case, stating that the High Court “has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order passed by the High Court is hence not sustainable.”

Thus, the appeal was allowed, over ruling the HC’s Judgement and restored the judgement by the trial court and the award passed by the arbitrator.

Bench:  Justice M.R. Shah and Justice B.V. Nagarathna
Case Title: Haryana Tourism Ltd. v. M/s Kandhari Beverages Limited
Case Details: C.A. No.- 000226-000226 / 2022
Petitioner’s Advocate: B.K. Satija
Respondent’s Advocate: Kanwal Chaudhary
Dated: 11th January 2022

Read the Judgement: