Recently, the Supreme Court held that an arbitral award cannot be interfered with under Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996, merely because an alternative or “better” interpretation of the contract is possible. Emphasising the limited scope of judicial intervention in arbitral matters, the Court cautioned that excessive appellate interference would “defeat the very purpose of the Act”
Brief facts:
The case arose from a large-scale dredging contract awarded by a statutory port authority for deepening and strengthening navigational channels to accommodate larger vessels. The contractor deployed substantial dredging equipment, including major dredgers and a backhoe dredger, and completed the project well ahead of the stipulated timeline. Although the works were certified as satisfactorily completed and the port was commissioned at the enhanced depth, disputes surfaced at the stage of final settlement of accounts, with the contractor alleging short-payment of its dues. This impasse led to the invocation of the arbitration mechanism under the contract, culminating in an arbitral award that, among other claims, allowed compensation for idling charges of the backhoe dredger on the finding that delays in providing access to the work site were attributable to the port authority.
Contentions of the Appellant:
The Appellant contended that the scope of interference under Section 37 of the Arbitration and Conciliation Act, 1996, is strictly circumscribed by the limits of Section 34. It was argued that once the arbitral tribunal’s interpretation of the Licence Agreement had been upheld by the Single Judge of the Madras High Court as a plausible and reasonable view, the Division Bench had no jurisdiction to re-examine the merits or substitute its own interpretation. Reliance was placed on settled precedent holding that courts cannot sit in appeal over arbitral awards merely because another contractual interpretation is possible.
Contentions of the Respondent:
On the other hand, the Counsel for the Respondent Port Trust argued that the arbitral tribunal had committed patent illegality by awarding idling charges for a backhoe dredger, which it characterised as a “minor dredger” excluded from compensation under Clause 38 of the Licence Agreement. It was further submitted that the tribunal had wrongly invoked Clause 51.1 when the claim allegedly fell under Clauses 41.1 and 41.2, relating to failure to give possession of the site, thereby justifying appellate interference under Section 37.
Observation of the Court:
The Court held that “The Appellate Court exercising powers under Section 37 of the Act has no authority of law to consider the matter in dispute before the Arbitral Tribunal on merits so as to hold as to whether the award of the Arbitral Tribunal is right or wrong. The Appellate Court in exercise of such power cannot sit as an ordinary court of appeal and reappraise the evidence to record a contrary finding.”
The Bench observed that “The appellate power under Section 37 of the Act is exercisable only to find out if the court exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred.”
The Court stated that “The arbitral award is not liable to be interfered unless a case for interference as set out… is made out. It cannot be disturbed only for the reason that instead of the view taken by the arbitral tribunal, the other view which is also a possible view is a better view according to the appellate court.”
Significantly, while emphasising the legislative intent behind the Arbitration and Conciliation Act, 1996, the Court issued a broader caution against excessive judicial intervention, stating that “The Act is a special enactment which aims to resolve contractual/commercial disputes through arbitration with the minimum intervention of the court… If the courts are allowed to step in at every stage… it would obviate/frustrate and defeat the very purpose of the Act.”
The decision of the Court:
In light of the foregoing discussion, the Apex Court set aside the judgment of the Madras High Court Division Bench and restored the arbitral award, holding that interference under Section 37 of the Arbitration and Conciliation Act, 1996, was wholly unwarranted.
Case Title: Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust
Case No.: SLP (C) No. 8803 of 2021
Coram: Hon’ble Mr. Justice P.S. Narasimha and Hon’ble Mr. Justice Pankaj Mithal
Advocate for the Petitioner: Sr. Adv. Chander U. Singh, Advs. Surekha Raman, Amarjit Singh Bedi, Shreyash Kumar, Yashwant Sanjenbam
Advocate for the Respondent: Sr. Adv. S. Nagamuthu, AOR Charulata Chaudhary, Adv. Mohan Raj A
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