Supreme Court: If Courts Are Allowed To Step In At Every Stage & Arbitral Awards Are Challenged Via Regular Appeals, It Would Frustrate Purpose Of A&C Act

The Supreme Court has remarked that if the Courts are allowed to step in at every stage and the Arbitral Awards are subjected to challenge before the Courts through Regular Appeals, it would frustrate and defeat the very purpose of the Arbitration and Conciliation Act, 1996 (A&C Act).

The Court was hearing a Civil Appeal filed by a private company registered under the Indian Companies Act, 1956 with an expertise in executing complex dredging operations.

The two-Judge Bench of Justice P.S. Narasimha and Justice Pankaj Mithal observed, “Before parting, we consider it proper to note that the Act is a special enactment which aims to resolve contractual/commercial disputes through arbitration with the minimum intervention of the court, if not without the intervention of the court. In the event, the courts are allowed to step in at every stage and the arbitral awards are subjected to challenge before the courts in hierarchy before court of first instance, through regular appeals and finally by means of SLP/Civil Appeal before the Supreme Court, it would obviate/frustrate and defeat the very purpose of the Act.”

The Bench added that it is necessary to accept the arbitral award if it is not patently illegal or does not fall within the scope of intervention under Section 34 of the A&C Act.

Senior Advocate Chander U. Singh appeared for the Appellant, while Senior Advocate S. Nagamuthu appeared for the Respondent.

Case Background

The Respondent-Tuticorin Port Trust (TPT), a statutory authority constituted under the Major Port Trust Act, 1963 undertook a major dredging project titled “Deepening of the Channel and Basin to Cater to 12.80 meter Draught Vessels at Tuticorin Port”. In context with the project to enhance the navigational depth of the port to accommodate larger sea vessels, the TPT in 2009 issued a Notice Inviting Tender (NIT). The Appellant company was one of the bidders and after evaluation of the bids, the contract was awarded to it. Consequently, a License Agreement incorporating the tender conditions was formally executed between the parties, which involved the monetary value of Rs.465,47,56,517/-. It was stipulated that the work would be completed within 14 months from the commencement. The Appellant commenced operations and deployed sufficient equipment more than what was agreed upon in the License Agreement, including two major Cutter Suction Dredger (CSD) as well as a Backhoe Dredger (BHD).

The dredging work of the project was completed much ahead of schedule i.e., eight months before the stipulated deadline. Upon the completion of the work, a joint survey was conducted by the PPT and the National Institute of Oceanography, Goa. The work was found to have been completed satisfactorily. Accordingly, the port was commissioned at a new depth and a Completion Certificate/Taking Over Certificate was issued to the Appellant. The Appellant submitted a final bill but it was not settled in full and hence, disputes arose between the parties. Consequently, the Appellant invoked arbitration and the Arbitral Tribunal awarded an amount of Rs. 14,66,04,216/- to the Appellant. This was challenged by the Respondent before the Madras High Court under Section 34 of A&C Act. The Single Judge dismissed the Respondent’s Petition and it went in Appeal. The Division Bench allowed its Appeal directed for the deletion of the claim awarded by the Arbitral Tribunal. Being aggrieved, the Appellant approached the Apex Court.

Reasoning

The Supreme Court after hearing the arguments from both sides, noted, “… the jurisdiction of the court under Section 37 of the Act is akin to the jurisdiction of the court under Section 34 of the Act, and, therefore, the scope of interference by the court in appeal under Section 37 cannot go beyond the grounds on which challenge can be made to the award under Section 34 of the Act. Moreover, the courts exercising powers under Sections 34 and 37, do not act as a normal court, and therefore, ought not to interfere with the arbitral award on a mere possibility of an alternative view.”

The Court enunciated that the scope of interference of the Court with the arbitral matters is virtually prohibited, if not absolutely barred and the powers of the Appellate Court are even more restricted than the powers conferred by Section 34 of the Act.

“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 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”, it said.

The Court added that 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 and that the award of the Arbitral Tribunal cannot be touched by the Court unless it is contrary to the substantive provision of law or any provision of the Act or the terms of the agreement.

“… if the interpretation given by the Arbitral Tribunal cannot be disturbed under Section 34 of the Act, the same cannot also be disturbed by exercising powers under Section 37 of the Act”, it remarked.

The Court was of the view that there is apparently no violation of the fundamental policy of any Indian law or the basic notions of morality and justice to enable the Courts to interfere with the award.

“In the instant case, the power to award compensation for idle time of the equipment including Backhoe Dredger is traceable to Clause 51.1 of the Lease Agreement and therefore the Arbitral Tribunal was not wrong in interpreting the clauses so as to make an award in favour of the appellant-Dredging India under Claim No. 7”, it held.

The Court reiterated that the limited and extremely circumscribed jurisdiction of the Court under Section 34 of the Act, permits the Court to interfere with an award, sans the grounds of patent illegality but if an arbitrator construes a term of a contract in a reasonable manner, it will not mean that the award can be set aside on that ground.

“In the case at hand, the Arbitral Award contains logical reasons in construing the various clauses of the License Agreement and the view taken by the Arbitral Tribunal had been accepted by the court under Section 34 of the Act as a reasonable and a possible view. Therefore, in the light of above referred decision of Larsen Air Conditioning (supra), the Arbitral Award could not have been set aside even if there was a possible second view regarding the interpretation of the clauses of the License Agreement”, it further observed.

Conclusion

The Court was of the opinion that the Appellate Court manifestly erred in law in interfering with the Judgment and Order of the Single Judge of the High Court passed under Section 34 of the Act so as to disturb the arbitral award in respect of Claim No.7.

“The appeal thereof has a much narrower scope of intervention particularly when the arbitral award has been upheld under Section 34 of the Act. The appellate jurisdiction acquires little significance only when the arbitral award has been erroneously upheld or set aside by the court in exercise of its power under Section 34 of the Act as discussed earlier, but has no authority of law to consider the matter which was before the Arbitral Tribunal on merits”, it concluded.

Accordingly, the Apex Court allowed the Appeal and set aside the impugned Judgment.

Cause Title- Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust (Neutral Citation: 2026 INSC 34)

Appearance:

Appellant: Senior Advocate Chander U. Singh, Advocates Surekha Raman, Amarjit Singh Bedi, Shreyash Kumar, Sidharth Nair, Yashwant Sanjenbam, and Harshit Singh.

Respondent: Senior Advocate S. Nagamuthu, AOR Charulata Chaudhary, Advocates Mohan Raj A, and Shaily Jain.

Click here to read/download the Judgment