Limited supervisory role of courts while reviewing arbitral award: SC
Court pointed out that the appellate jurisdiction under Section 37 is also limited, as it is constrained by the grounds specified in Section 34 and the court cannot undertake an independent assessment of the merits of the award
;The Supreme Court has underscored that courts have a limited supervisory role when reviewing arbitral awards, as outlined under Section 34 of the Arbitration and Conciliation Act. It clarified that judicial intervention is restricted strictly to the grounds specified in the provision, and courts are not empowered to correct errors within the arbitral award.
A bench of Justices P S Narasimha and Sandeep Mehta pointed out that the appellate jurisdiction under Section 37 is also limited, as it is constrained by the grounds specified in Section 34 and the court cannot undertake an independent assessment of the merits of the award by reappreciating evidence or interfering with a reasonable interpretation of contractual terms by the arbitral tribunal.
The court under Section 37 must only determine whether the Section 34 court has exercised its jurisdiction properly and rightly, without exceeding its scope, the bench said.
The bench also said when the jurisdictional issue has not been raised in accordance with Section 16 of the Act, it is deemed that the objecting party has waived his right, in terms of Section 4, to raise the same at a later stage. Such objection cannot be raised for the first time when the party is challenging the award under Section 34.
The bench was dealing with an appeal filed by A C Chokshi Share Broker Private Limited. The issue was whether respondent no 1, who was the husband of respondent no 2, could have been made a party to the arbitration that was invoked by the appellant, who was a registered stockbroker, and held to be jointly and severally liable for the debit balance that had accrued in the wife’s (respondent no. 2’s) account with the appellant.
The court pointed out that the Bombay Stock Exchange Bye-laws, 1957, 248(a) provides for arbitration between members and non-members of the BSE, and an oral contract undertaking joint and several liabilities fall within the scope of the arbitration clause.
The arbitral tribunal found that both respondents were jointly and severally liable for repaying the debit balance in respondent no 2’s account, and the respondents’ applications under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the arbitral award were dismissed by the single judge of the high court. However, the division bench of the high court allowed the Section 37 appeal preferred by respondent no 1 by order of April 29, 2021, and set aside the arbitral award only against him, which was challenged in the present appeal.
The bench allowed the appeal and set aside the impugned order by interpreting bye-law 248(a) of the Bombay Stock Exchange Byelaws, 1957 that provides for arbitration between members and non-members of the BSE, and considering the nature of respondent no 1’s involvement qua transactions conducted in respondent no 2’s account.
Under bye-law 248(a), the arbitral tribunal could have exercised jurisdiction over respondent no 1 on the basis of an oral contract that he would be jointly and severally liable for the transactions undertaken in respondent no 2’s account. Such oral contract would not amount to a “private” transaction that falls outside the scope of arbitration, the bench said.
"We have held that an oral contract undertaking joint and several liability falls within the scope of the arbitration clause and the arbitral tribunal could exercise jurisdiction over respondent no 1. Second, considering the settled jurisprudence on the scope of judicial intervention under Section 34 and Section 37 of the Act, we have held that the arbitral tribunal arrived at a reasonable conclusion, based on evidence, as to the joint and several nature of the respondents’ liability," the bench said.
Court also found the arbitral award did not suffer from perversity and patent illegality as had been held by the high court in the Section 37 appeal.
"We have upheld the arbitral award in its entirety," the bench said.
The court said the respondent no 1 was jointly and severally liable, along with respondent no 2, to pay the appellant the arbitral sum of Rs 1,18,48,069 along with 9% interest per annum from May 01, 2001 till date of repayment as had been directed by the arbitral tribunal.
Case Title: A C Chokshi Share Broker Private Limited Vs Jatin Pratap Desai & Anr