SC Restores Arbitral Award, Limits Scope Of Review Under Sections 34 And 37

New Delhi, Jan 16 (KNN) The Supreme Court held that an arbitral award cannot be challenged under Section 34, or appealed under Section 37 of the Arbitration and Conciliation Act, simply because the arbitrator did not choose a different or 'better' interpretation of the contract.

Background of the Case

A Bench of Justices P.S. Narasimha and Pankaj Mithal overturned the Madras High Court Division Bench’s ruling, which had allowed an appeal claiming the arbitral award should be set aside for not adopting a different contract interpretation.

The dispute involved a 2010 Tuticorin Port Trust dredging contract with Jan De Nul. The work finished eight months early, but payment disagreements led to arbitration, where the 2014 tribunal awarded over Rs 14.66 crore, including idling charges for a delayed Backhoe Dredger.

Supreme Court’s Observations on Sections 34 and 37

The Court clarified that merely offering an alternative interpretation of contract terms does not justify overturning an arbitral award emphasising that under Section 34, a court can challenge an award only on specific grounds.

The grounds included a party’s incapacity, invalid arbitration agreement, improper notice, denial of the right to present a case, matters beyond the arbitration’s scope, improper tribunal constitution, disputes not arbitrable, or violations of public policy.

Section 37 limits appellate review to assessing whether the court acting under Section 34 stayed within its authority. It does not allow the appellate court to re-evaluate evidence or question the arbitral tribunal’s interpretation of the contract.

Here, the Single Judge had upheld the arbitral award under Section 34, and the Division Bench erred by overturning it simply because it favored a different interpretation of Clause 38 on idling charges.

The Supreme Court emphasised that the award contained logical reasoning and a valid interpretation, which the Single Judge had accepted.

Supreme Court Verdict

The Court held that the appellate court must respect the arbitral tribunal’s interpretation once it has been upheld under Section 34. It stressed that arbitration is a special enactment designed to resolve commercial disputes with minimal court intervention, and repeated judicial interference would defeat its purpose.

Resultantly, the Supreme Court allowed the appeal, restoring the arbitral award.

This judgment is particularly significant from the perspective of MSMEs, especially in cases involving delayed payments. Arbitral awards are often delayed due to challenges under Sections 34 and 37 of the Arbitration Act, where wide scope for appeals leads to prolonged litigation.

The Supreme Court’s ruling limits such judicial interference, making arbitral awards including those passed by the MSEFCs far less prone to being set aside and thereby strengthening enforceability and providing faster recovery of delayed payments.

(KNN Bureau)