A Great Deal Of Restraint Required While Examining Validity Of Arbitral Award When It’s Upheld Wholly Or Substantially U/S 34 A&C Act: SC
The Apex Court allowed a Civil Appeal preferred against the Judgment by which the Appeal of National Highways Authority of India (NHAI) was allowed under Section 37 of the A&C Act.
The Supreme Court reiterated that a great deal of restraint is required while examining the validity of an Arbitral Award when the same has been upheld wholly or substantially under Section 34 of the Arbitration and Conciliation Act, 1994 (A&C Act).
The Court reiterated thus in a Civil Appeal preferred against the Judgment of the Delhi High Court by which it allowed the Appeal of the National Highways Authority of India (NHAI) under Section 37 of the A&C Act.
The two-Judge Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan observed, “As reiterated by this Court in Reliance Infrastructure Ltd. (supra), it is necessary to remind the courts that a great deal of restraint is required to be shown while examining the validity of an arbitral award when such an award has been upheld, wholly or substantially, under Section 34 of the 1996 Act. Frequent interference with arbitral awards would defeat the very purpose of the 1996 Act.”
The Bench also reiterated that an error in the interpretation of contractual terms by an Arbitrator is an error within his jurisdiction and would, therefore, not be a ground to interfere with an Arbitral Award.
Senior Advocate Arvind Minocha appeared on behalf of the Appellant while Senior Advocate Krishnan Venugopal appeared on behalf of the Respondents.
Brief Facts
The case was related to execution of a contract awarded by NHAI to the Appellant (Joint Venture) regarding the work of four laning and strengthening of the existing two-lane section between Km. 470.000 and Km. 38.000 on NH-2 (construction package II-B) near Kanpur in the State of Uttar Pradesh under World Bank Loan Assistance. Following a process of open bid tender, the related contract was allotted by NHAI to the Appellant vide the contract agreement in 2002 who undertook to execute the work at the contract price of Rs. 4,961,183,599/-. A joint venture between Consulting Engineering Services (I) Ltd. and BECA International Consultants Ltd. was appointed by NHAI as the Engineer of the project in terms of the contract agreement to supervise the construction work. The contract agreement provided for a mechanism of dispute resolution at the first instance through a Dispute Review Board (DRB) prior to the parties availing of their remedy by way of arbitration. A three-member panel of DRB was constituted comprising of one member appointed by each of the two parties and the third member appointed by the said two members.
While executing the contract, a dispute arose between the parties in respect of item No. 7.07 of the BOQ (Bill of Quantities). The Appellant raised this dispute before the DRB contending that the Engineer/Employer was intending wrongful application of Clause 52.2 of the Conditions of Particular Application (COPA) for downward revision of rates for BOQ item No. 7.07 (ii) of geogrid for quantity in excess of BOQ quantity. DRB vide its decision recommended that quantities of geogrid required limited to the facia area provided in the BOQ have to be paid as per the BOQ rates. Being dissatisfied with this, the Respondent-NHAI invoked the arbitration clause and the Arbitral Tribunal held that the quantity of geogrid given at the tender stage by NHAI was wrong. This was challenged by NHAI under Section 34 A&C Act and the Single Judge dismissed its Application. On an Appeal, the Division Bench set aside the Tribunal’s Award and agreed with the NHAI’s contention. Hence, the Appellant approached the Apex Court.
Reasoning
The Supreme Court in view of the above facts, noted, “… learned Single Judge rightly declined to interfere with the award under Section 34 of the 1996 Act. If that be the position, there was no justification at all for the Division Bench of the High Court to set aside the award under Section 37 of the 1996 Act.”
The Court further referred to the case of MMTC Ltd. v. Vedanta Ltd. (2019) in which it was held that the Court does not sit in Appeal over an Arbitral Award and may interfere on merits only on the limited ground provided under Section 34(2)(b)(ii) i.e., if the award is against the public policy of India.
“Even then, the interference would not entail a review on the merits of the dispute but would be limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse or when the conscience of the court is shocked or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts”, it added.
The Court elucidated that an interference under Section 37 cannot travel beyond the restrictions laid down under Section 34 i.e., the Court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision.
“Violation of Indian statutes linked to public policy or public interest and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. It would also mean that the arbitral award is against basic notions of justice or morality. An arbitral award can be set aside on the ground of patent illegality i.e. where the illegality goes to the root of the matter but re-appreciation of evidence cannot be permitted under the ground of patent illegality”, it also observed.
Moreover, the Court referred to the case of Reliance Infrastructure Ltd. v. State of Goa (2023), in which it was held that the scope of interference under Section 37 is all the more circumscribed keeping in view the limited scope of interference with an Arbitral Award under Section 34 of the A&C Act.
“As it is, the jurisdiction conferred on courts under Section 34 of the 1996 Act is fairly narrow. Therefore, when it comes to scope of an appeal under Section 37 of the 1996 Act, jurisdiction of the appellate court in examining an order passed under Section 34, either setting aside or refusing to set aside an arbitral award, is all the more circumscribed”, it said.
The Court was of the view that the Division Bench was not at all justified in setting aside the Arbitral Award exercising extremely limited jurisdiction under Section 37 of the A&C Act by merely using expressions like “opposed to the public policy of India”, “patent illegality” and “shocking the conscience of the court”.
Accordingly, the Apex Court allowed the Appeal, set aside the impugned Judgment, and restored the Arbitral Award.
Cause Title- Somdatt Builders –NCC – NEC(JV) v. National Highways Authority of India & Ors. (Neutral Citation: 2025 INSC 113)
Appearance:
Appellant: Senior Advocate Arvind Minocha, AOR Mayank Kshirsagar, Advocates Rakesh Kharb, Anumita Verma, Parth Sarathi, Akhilesh Yadav, and Dhanlaxmi Iyyer.
Respondents: Senior Advocate Krishnan Venugopal and AOR Santosh Kumar – I.
