A two-judge Bench of Justice MR Shah and Justice BV Nagarathna has held that as per the settled position of law laid down by the Supreme Court in various precedents, an award passed by the Arbitrator can be set aside under Section 34/37 of the Arbitration Act if it is found to be against the public policy of India.
The Court in this context, further observed –
"The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal."
Counsel Mr. B.K. Satija appeared for the Appellant while Counsel Mr. Kanwal Chaudhary appeared for the Respondent during the proceedings before the Apex Court.
An appeal was preferred by the Original Claimant - Respondent assailing the judgment of Punjab and Haryana High Court which had allowed the appeal of the Respondent filed under Section 37 of the Arbitration Act. The Court had set aside the award passed by the Arbitrator and the order passed by the First Appellate Court – ADJ, Chandigarh.
In this case, the Appellant had organized a Mango Mela and spent a sum of Rs. 1 lakh. As both the parties were under an agreement, the Respondent spent a sum of Rs. 13.92 lakhs. However, the Appellant-Corporation asked the Respondent to deposit a sum of Rs. 19 lakhs as sponsorship money. Following this, the Appellant terminated the contract and a dispute arose between the parties which was referred to Arbitration.
The Arbitrator directed the Respondent to pay a sum of Rs. 9.5 lakhs, however, the counterclaim filed by the Respondent demanding Rs. 13.92 was dismissed by the Arbitrator. The Petition filed before the First Appellate Court – ADJ also came to be dismissed.
Thereafter, an appeal was filed before the HC by the Respondent which came to be allowed and set aside the award passed by the Arbitrator and the order passed by the ADJ.
The Appellant contended before the Supreme Court that the HC exceeded its jurisdiction under Section 37 while setting aside the award passed by the Arbitrator as the HC as limited scope under the said section.
Further, it was argued that the HC decided the appeal as if it was deciding the first appeal against the judgment and decree passed by the learned trial Court which as such is not permissible while exercising the power under Section 37 of the Arbitration Act.
While the Respondent argued that the Arbitrator had no jurisdiction to pass the award as no amount was due and payable as nothing was spent on marketing activities by the Appellant.
Further, it was argued that the appointment of sole Arbitrator and his competence was challenged by the Respondent, which was summarily rejected by the High Court.
Mr. Chaudhary pleaded that the question of jurisdiction can be raised under Section 16 of the Arbitration Act which can also be raised after the award is passed.
Question of Jurisdiction
The Apex Court noted that the question of jurisdiction of the Arbitrator was raised before the HC and the said objection was overruled by the High Court against which the Respondent has not preferred an appeal.
Thus, it was not open for the Respondent to challenge the jurisdiction of the Arbitrator in the appeal preferred by the Original Claimant-Respondent.
Quashing and Setting Aside Award and Order passed by ADJ
The Supreme Court in this context observed that the HC entered into the merits of the claim, which was not permissible in the exercise of powers under Section 37 of the Arbitration Act.
The Bench further added, "As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand."
Additionally, the Bench elucidated that the High Court exceeded its jurisdiction not vested in it under Section 37. Thus, the impugned judgment and order passed by the High Court was not sustainable.
Accordingly, the Court allowed the appeal and set aside the impugned judgment of the High Court. The Court restored the order passed by the First Appellate Court – ADJ under Section 34 of the Arbitration Act.