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Beyond the Verdict: A Thorough Investigation of Sec. 34 & 37 of the Arbitration & Conciliation Act

The authors are Shravin Relan and Jai Chauhan, third year students at Jindal Global Law School.


Introduction


The belief that the people have in the nation's judiciary, especially in a country where we see lakhs of cases, is rooted in the notion of justice delivery, which is prevalent in a society of approximately 1.5 billion people and counting.[1] Several instances call for further non-agreement for a party with the award given by the Ld. Arbitrator, which can be made as an appeal before a court of law, but there is a stringent rule in the Act, under Sec. 34 and 37[2], where it limits the scope of judicial intervention in the award passed. In this paper, we will discuss how the Courts have been taking a proactive step in ensuring that the sanctity of the ADR is not harmed, and the ideal view is presented, i.e., an award granted is supreme and there exists no point in the intervening with the same until certain special circumstances are present.


Limiting the boundaries of Judicial Involvement under Sections 34 & 37 of the A&C Act, 1996


The fact that an award, when passed by the Ld. Tribunal is final and comes with the prospect of it having a circumcised nature for interpretation by the Courts. This note has been taken by the courts because the Ld. Arbitrator is someone who is appointed as per the special nature of qualifications and his capabilities to assess such cases based on the root level as he has the technical knowledge of the subject matter put before him, whereas the courts usually are legal minds rather than technical minds, therefore having a gap for misinterpreting the technical specifications involved in such cases. The Hon’ble Supreme Court has time and again tried to limit the judicial intervention while setting aside an Arbitral Award under Sections 34 & 37 of the Arbitration & Conciliation Act, 1996.[3] It is a settled position of law that an Award can only be set aside if it is “perverse” or “patently illegal” or contradicts the “public policy” of India. The Award can be set aside when the arbitrator ignores vital evidence or passes an award that is so irrational and beyond unreasonable that it defies the understanding and interpretation of a rational person. The vice of perversity should be such that it is clear on the face of it and goes to the root of the matter as held in Para 31 of Associate Builders Vs Delhi Development Authority. The Apex Court, in the said judgment, has duly interpreted that whenever there is a question, as to the construction, of a contract, in a reasonable manner, it is always upon the Ld. Arbitrator to bear in mind the importance of providing the Award as per the terms of the contract, and therefore, when done in accordance with Section 28 of the Act, then there is no such ground for the Appellate Court to interfere with the Award, thus limiting the scope of the intervention. A similar view was taken by the Apex Court in the case of Delhi Airport Metro Express Pvt. Ltd. V. Delhi Metro Rail Corporation, where it was held that an Award could be set aside on the grounds of patent illegality when a grave error has been committed on the part of the Arbitrator like ignoring vital evidence or when the Award passed by the Ld. Arbitrator is unreasonable, thereby portraying the limited scope of interference with the Award. The bar for setting aside an arbitral award has been set quite high through a series of legislations by the Supreme Court in order to limit judicial involvement. In the Delhi Airport Metro Express Pvt. Ltd. the Hon’ble Apex court noted that there is very limited scope and stated that while dealing with the application under section 34, the “courts are mandated to strictly act in accordance with and within the confines of the section 34, refraining from appreciation and re-appreciation of matters of facts as well as law.”


The Hon’ble Supreme Court through multiple judgments since 2015 to as latest as 2022, in Associate builders, SsangYong Engineering, etc. like has been of the opinion that an Award, which is passed by the Tribunal can’t merely be interfered with by the court of law as the legislative aim of setting up the said authority was to reduce the litigious work and introducing a setup where the disputes could be solved out of court, but there have been multiple appeals filed by parties challenging the Awards passed by Ld. Arbitrator, In the case of UHL Power Company Ltd. V. State of Himachal, where the Hon’ble court notes that the interference with the award is highly limited as if, a Court thinks that another view could have been arrived at, then it would be erroneous on the part of the court to take such view and interfere with the award.


Varied Take of the Courts on the Scope of Interference


The courts have agreed and noted that there exists very limited scope for the courts to interfere with the award, the term used here ‘limited’, which essentially doesn't mean that the whole ambit for setting aside any award passed by the tribunal is not vacated. There exists an area, where the courts can in fact come in front and set aside the impugned award, This notion is present because it doesn’t matter if the Ld. Arbitrator has a knowledge and understanding of certain technical aspects, he too can be wrong and the grounds for such wrongful award are provided under Sec. 34(2)(b)(ii), where a new ground is laid down through the 2015 Amendment act, which was duly suggested by the 246th Law Commission report.


The report further suggests “the addition of section 34 (2A) to deal with purely domestic awards, which may also be set aside by the Court if the Court finds that such award is vitiated by “patent illegality appearing on the face of the award.” This contention of the commission displays a sense, where they intended to show and somewhat set solid grounds available for setting aside, opposite consequences of the decision of the Hon’ble Supreme Court in ONGC vs. Saw Pipes Ltd, which somehow allowed the courts to extend their approach towards the awards. The amendments were brought in 2015, which circumscribed the scope, but still, there exists, even much limited, scope for interference. The Indian Courts, mainly Apex Court, have been continuously interpreting such cases, where one such case is IOCL V. M/s Shree Ganesh Petroleum Rajgurunagar, where the scope is discussed, The Hon’ble Court cites Associate Builders, where they note the circumstances under which an award can be set aside. The courts in this case have held that, when a dispute arises out of the terms of the contract, the Ld. Arbitrator must and is “Bound” to act in the term of the contract, and if failed to do so, that would be under the component of “patent illegality”, making it ground for interfering with the award, in the subsequent para, the court holds that if an Arbitrator fails to interpret the contract in a wrongful manner, then it is a ground for interference and it would count as breaching of the jurisdictional limit. The same was discussed in PSA SICAL Terminals Pvt. Ltd. V. The Board of Trustees. Lately, In judgments, the courts have been actively taking note of how the Ld. Arbitrators have been interpreting the terms of the contracts and whether the said interpretation is a valid one or construed in a manner that the justice delivery is hampered to a certain point that the parties are at a backdrop and have been subject to the perversity of the arbitrator, the court in judgment like Anglo American Metallurgical Coal Pty. Ltd. V. MMTC Ltd. and SEAMEC V. Oil India Ltd., has held the same and qualified such ill interpretation as perverse and that no such reasonable person could have come to such a point. Taking the notion, the award is liable to be set aside as there had been an erroneous act done by the tribunal.


The apex court has in length discussed all the notions of setting aside an award in SsangYong Engineering & Construction Co. Ltd. V. NHAI, which discusses the scope under section 34, post amendment in the Act, in this case, the award given by the Tribunal was set aside and the ground used was a contravention of “public policy of India”, they used Associate builders to come to a point where they note that above expression would mean to be against the “fundamental policy of Indian Law.


The concept of finality is important, because as we discuss the moving trend of not going to the courts, there must be an alternative, but the same if not having the structure where one has to abide by it, that would cease the implication, ideology, and the whole intention behind the establishment of such institute. To ensure the proper execution of the dispute settlement mechanism in arbitration, the award must have strict implications of the findings and the orders, as it will increase the belief of the people in such a procedure. The take of courts in narrowing the scope of interreference has positively ensured that the concept is much stronger and firm.


Conclusion


In conclusion, we can completely agree with the fact that, while resolving the dispute through arbitration, the concept of finality is of paramount importance, and the legislative and the judiciary have both agreed on the contentions, as mentioned the Act, itself lays down very stringent grounds for interfering with the awards, but what if the award is so wrong that the justice delivery is hampered, in that case, the courts can very well interfere, but can only set aside the award or upheld it, not modify the same.[4] The principle is to prevent arbitrary or irrational awards from becoming final while respecting the arbitrators' expertise and intentions. Cases like SsangYong Engineering & Construction Co. Ltd. v. NHAI have further clarified the parameters for setting aside awards, emphasizing the importance of adhering to the fundamental policy of Indian law, by doing this courts acknowledge the need for limited intervention.

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