A fundamental principle of India’s arbitration law is to have limited judicial intervention in the process. It is a principle that balances the sanctity of arbitration agreements against access to justice when necessary. The Arbitration and Conciliation Act, 1996 aimed to limit judicial intervention in contractual disputes but allow recourse to the courts in exceptional situations.
However, this objective has weakened over time. Judicial intervention has become common after arbitral awards, with parties asking that awards be set aside under section 34 of the act on grounds of patent illegality on the face of the award or of conflict with public policy.
The Supreme Court recently dealt with this situation in Konkan Railway Corporation Limited v Chenab Bridge Project Undertaking, and gave a robust judgment on the application of section 34 in setting aside awards and the scope of appealable orders under section 37.
In this matter, the appellant and respondent had an agreement to construct a bridge. Disputes arose, which were referred to a standing arbitral tribunal. Before the tribunal, the respondent raised 35 claims, all of which the tribunal rejected.
The respondent applied to the high court to set aside the award under section 34. The court dismissed the application, holding that the power of that section could be invoked to interfere with the tribunal’s findings merely because there were two possible views of the construction of a contract and the tribunal chose one, considering it reasonable.
This decision was itself appealed under section 37 to an appellate bench of the high court. This court held that, where two interpretations of a contract are possible, a court must adopt the one that gives voice to all clauses, rather than the one that renders any particular clause otiose or nugatory. It ruled that the tribunal had failed to interpret the contractual clauses holistically, the award was perverse and the award had to be set aside in part.
The appellant appealed that decision to the Supreme Court. It contended that the appellate bench had exceeded its limited jurisdiction under section 37, and had assumed the role of a full court of appeal.
The Supreme Court held that a court being asked to exercise jurisdiction under section 37 is bound by the same limitations as those of section 34. The mere possibility of an alternative view on facts or interpretation of a contract does not entitle courts to reverse the findings of an arbitral tribunal, especially as a court under section 37 cannot reinterpret a contractual clause.
The Supreme Court ruled that there was no scope for reinterpretation of a contract by a court under section 37 if different interpretations of a contract were possible, and the tribunal chose one of them. The court approved its own approach in Vidya Drolia and Ors v Durga Trading Corporation in emphasising the restriction in section 5 of the act on interference by judicial authorities.
The Supreme Court has interpreted the law in holding that the jurisdiction of a court under section 37 of the act is not that of an appellate court. A court cannot go beyond the grounds of challenge in section 34.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at email@example.com. Readers should not act on the basis of this information without seeking professional legal advice.