Introduction
The Arbitration and Conciliation Act, 1996, (Hereinafter referred as ‘the Act’) was enacted to promote arbitration as a swift, efficient and cost-effective mechanism for dispute resolution. Sections 34 and 37 of the Act are pivotal in maintaining a balance between judicial intervention and arbitral autonomy. While Section 34 restricts the grounds for challenging an arbitral award, Section 37 outlines the framework for appeals, emphasizing limited judicial scrutiny. However, recent judicial interpretations, particularly regarding Section 37, have raised questions about the extent of appellate powers and their impact on the finality and efficiency of arbitration. This article explores the evolving judicial approach to Section 37 and its implications for the arbitral process.
Arbitral Awards: What Lies Beyond the Veil of Section 34?
Section 34 of the Act outlines the grounds on which a final arbitral award can be set aside. Under Section 34(4), courts are also empowered to remit the matter back to the tribunal if the tribunal’s actions can address the grounds for setting aside the award. Additionally, computational or typographical errors, or issues related to the interpretation of the award, can be rectified under Section 33 of the Act.
Section 34 of the Act is based on the UNCITRAL Model Law[1], which permits judicial intervention only on very limited grounds, excluding those related to the merits of the case. In NHAI v. M. Hakeem[2], the Hon’ble Supreme Court highlighted this principle of ‘Limited Remedy’, which aligns with the restricted right to set aside an award or remand the matter under specific conditions in the Act. Justice Nariman, in the Hakeem judgment[3], strongly criticized the inclusion of powers of modification, likening it to crossing the “Lakshmanrekha” and allowing courts to impose their own judgments.
The limited role of courts in arbitration was well established by Hon’ble Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd.[4], where the court’s role was defined as supervisory, with the purpose of reviewing the tribunal’s actions solely to ensure fairness. The judgment emphasized minimal court intervention, restricting it to specific instances under Section 34[5], and clearly stated that courts cannot correct errors made by arbitrators. The decision underscored that arbitration is chosen by parties for its expediency and finality, which can only be preserved by limiting judicial interference. The court concluded that its sole option is to quash an award, leaving the parties to decide whether to pursue another round of arbitration.
However, deviations from this principle frequently occur for two reasons. First, there is ambiguity about the next steps when an award is set aside. While the law indicates that another round of arbitration is the proper course, courts often intervene to resolve the dispute due to the absence of statutory clarity. Second, remnants of the Arbitration Act, 1940[6], seem to influence judicial behaviour. The broader grounds under Section 30 of the Arbitration Act, 1940 permitted greater court involvement, which appears to linger despite the narrower scope of Section 34 in the Act.
The jurisprudence under Section 34 not only defines the grounds for setting aside an arbitral award but also delineates the courts’ role in the arbitral process. This, in turn, provides critical guidance for interpreting Section 37
Rethinking the Boundaries: A Fresh look at Section 37
The Act, does not explicitly outline the powers of courts in appeals, leaving these to be inferred from the language of Section 37[7], read alongside Section 5 of the Act. Section 37 does not distinguish between its subsections, specifically 37(1)(c) and 37(2)(b). While legislative intent seems to suggest a uniform standard for all orders under Section 37 based on the framework of Section 34[8], courts have applied varying standards despite the identical wording across subsections. Consequently, powers implied for appeals under Section 37(2)(b)[9] have been extended to 37(1)(c)[10], potentially allowing courts to modify arbitral awards in the interest of justice a power not explicitly granted under the Act and contrary to its principles.
Section 37[11] of the Act governs appeals related to arbitration proceedings in India. It specifies the circumstances under which appeals are permitted and outlines the appellate structure. Relevant extract from the provision is as follows: –
“(1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely: —
(a) refusing to refer the parties to arbitration under section 8.
(b) granting or refusing to grant any measure under section 9.
(c) setting aside or refusing to set aside an arbitral award under section 34.
(2) Appeal shall also lie to a court from an order of the arbitral tribunal–
(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim measure under section 17.
(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”
In Augmont Gold (P) Ltd. v. One97 Communication Ltd.[12], the Hon’ble Delhi High Court took a noteworthy stance on the scope of powers under Section 37(2)[13] of the Act. The case involved an appeal against an interim order issued by the tribunal under Section 17[14], requiring a party to furnish a monetary security in the dispute. The court differentiated between the types of orders appealable under Section 37[15] and the extent of powers that could be exercised.
The court observed that orders under Section 16[16] should be treated differently from those under Section 17[17] due to the discretionary nature of the latter. It emphasized that appellate jurisdiction over Section 17[18] orders should be invoked only in rare and exceptional circumstances. Despite this emphasis on minimal interference, the court asserted in paragraph 75[19] of its judgment that it possesses the power to modify orders under appeal a power explicitly not available under Section 34[20]. Importantly, the language of the judgment appeared broad enough to suggest that this power could extend beyond interim orders to final awards as well.
This development raises significant questions, as the court assumed powers that the Act deliberately limited, as evidenced by the framework of Section 34[21]. By effectively providing a remedy for the restrictions imposed by Section 34[22], the court’s approach undermines the principle of finality in arbitration and strikes at the core of the arbitral process. In this case, the court ultimately set aside the interim order issued by the arbitral tribunal.
This reasoning, however, is not unprecedented for the Hon’ble Delhi High Court in State Trading Corporation of India Ltd. v. Toepfer International Asia PTE Ltd.[23], the court noted that appellate powers under Section 34[24] could extend to modifying orders rather than merely confirming or setting them aside. Similarly, in Edelweiss Asset Reconstruction Company Ltd. v. GTL Infrastructure Ltd.[25], the court held that interim orders issued by a tribunal could be modified if the tribunal failed to consider all relevant merits of the case. These decisions collectively reflect a judicial trend towards expanding appellate powers under Section 37[26], raising concerns about the impact on the autonomy and finality of arbitration.
The Hon’ble Bombay High Court, in M/s Halliburton India Operations Pvt. Ltd. v. Vision Projects Technologies Pvt. Ltd.[27], reaffirmed[28] that appellate jurisdiction under Section 37[29] of the Act, is confined to instances where the lower court’s order is arbitrary, capricious, perverse, or ignores settled legal principles on interlocutory injunctions. Dismissing Halliburton’s[30] appeal against the denial of interim relief under Section 9[31], the court emphasized that disputes concerning termination, force majeure and financial liabilities are to be resolved in arbitration. The single judge’s order, deemed reasonable and non-perverse, was upheld, underscoring that appellate interference should remain minimal and within the limits of discretion established by law.
In Punjab State Civil Supplies Corporation Ltd. v. Sanman Rice Mills[32], the Apex Court clarified that the appellate jurisdiction under Section 37[33] of the Act, is limited to examining whether the court under Section 34[34] acted within its jurisdiction. The Court emphasized that appellate powers under Section 37[35] are confined to the grounds specified in Section 34[36] and do not allow a reappraisal of the merits of the arbitral award. The judgment underscored that an appellate court could interfere only if the Section 34[37] court fails to exercise jurisdiction, exceeds its limits or commits a manifest error of law. It reiterated that the scope of appeal is not equivalent to standard appellate jurisdiction and is narrowly circumscribed by the statute.
At the end courts’ role in arbitration appeals is not to re-adjudicate the matter but to evaluate it within the boundaries set by the Act. Unlike the Arbitration Act of 1940[38], the Act does not provide courts with the authority to modify arbitral awards and such powers should not be inferred by judicial interpretation.
Conclusion
The evolving jurisprudence under Section 37[39] of the Act, highlights a growing tension between the legislative intent of minimal judicial interference and the courts’ expansive interpretations of their appellate powers. While the intent of the Act is to uphold the autonomy and finality of arbitration, judicial trends suggest a cautious but notable shift towards broader appellate scrutiny. To preserve the core principles of arbitration as an alternative dispute resolution mechanism, it is imperative to adhere to the statutory boundaries and avoid overreach. A balanced approach is essential to ensure arbitration remains an efficient and effective tool for resolving disputes.
Authored By:
Varun S. Ahuja
Ahuja Law Offices
M: 9971673660
[1] UNCITRAL Model Law on International arbitration, 1985.
[2] 2021 SCC Online SC 473.
[3] Ibid.
[4] 2006 AIR SCW 3276.
[5] Supra Note 1.
[6] The Arbitration Act, 1940 (10 of 1940), amended on 22nd August 1996 and replaced by The Arbitration and Conciliation Act, 1996.
[7] Ibid.
[8] Supra Note 1.
[9] Supra Note 26.
[10] Supra Note 25.
[11] Supra Note 2.
[12] 2021 SCC OnLine Del 4484.
[13] The Arbitration and Conciliation Act, 1996 (26 of 1996) s. 37(2).
[14] The Arbitration and Conciliation Act, 1996 (26 of 1996) s. 17.
[15] Supra Note 2.
[16] The Arbitration and Conciliation Act, 1996 (26 of 1996) s. 16.
[17] Supra Note 34.
[18] Ibid.
[19] Augmont Gold (P) Ltd. v. One97 Communication Ltd., 2021 SCC OnLine Del 4484.
[20] Supra Note 1.
[21] Ibid.
[22] Ibid.
[23] 2015 SCC OnLine Del 6832.
[24] Supra Note 1.
[25] 2022 SCC OnLine Del 346.
[26] Supra Note 2.
[27] M/s Halliburton India Operations Pvt. Ltd. Vs. Vision Projects Technologies Pvt. Ltd. Commercial Appeal (L) No. 17720 of 2024 decided on 19th June 2024 (Bombay High Court).
[28] Wander Ltd. Vs Antox India, 1990 SCC OnLine SC 490.
[29] Supra Note 2.
[30] Supra Note 47.
[31] The Arbitration and Conciliation Act, 1996 (26 of 1996) s. 9.
[32] 2024 INSC 742.
[33] Supra Note 2.
[34] Supra Note 1.
[35] Supra Note 2.
[36] Supra Note 1.
[37] Ibid.
[38] Supra Note 16.
[39] Supra Note 2.