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Synopsis

The Supreme Court on September 27, 2024, said that appellate courts have no legal authority to review matters before an arbitral tribunal on merits. Court emphasized that appellate courts cannot re-evaluate the tribunal's decisions by reassessing evidence as if it is sitting in an ordinary court of appeal. 

A bench of Justices P S Narasimha and Pankaj Mithal said that the scope of the intervention of the court in arbitral matters is virtually prohibited, if not absolutely barred, and that the interference is confined only to the extent envisaged under Section 34 of the Arbitration and Conciliation Act, 1997. 

The appellate power of Section 37 of the Act is limited within the domain of Section 34 of the Act. It is exercisable only to find out if the court, exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred, the court said.

"It is only where the court exercising power under Section 34 has failed to exercise its jurisdiction vested in it by Section 34 or has travelled beyond its jurisdiction that the appellate court can step in and set aside the order passed under Section 34 of the Act," the bench said.

Court further explained that its power is more akin to that of superintendence as is vested in civil courts while exercising revisionary powers. 

"The arbitral award is not liable to be interfered unless a case for interference is made out. It cannot be disturbed only for the reason that instead of the view taken by the arbitral tribunal, the other view which is also a possible view is a better view according to the appellate court," the court said.

The bench emphasised that it must also be remembered that proceedings under Section 34 of the Act are summary in nature and are not like a full-fledged regular civil suit. 

"Therefore, the scope of Section 37 of the Act is much more summary in nature and not like an ordinary civil appeal. The award as such cannot be touched unless it is contrary to the substantive provision of law; any provision of the Act or the terms of the agreement," the bench said.

Court explained the legal position while allowing an appeal filed by the Punjab Civil Supplies Corporation Limited and another against against the Punjab and Haryana High Court's order of January 10, 2017.

"Merely for the reason that the view of the appellate court is a better view than the one taken by the arbitral tribunal, is no ground to set aside the award," it said.

Court set aside the high court's order under Section 37 of the Act which had reversed the 2015 order passed by the Additional District Judge and restored the arbitral order of 2012.

A dispute arose between the appellant corporation and respondent M/s Sanman Rice Mills & Ors over the shortage in supplies of rice in terms of an agreement in 2008. Against the outstanding sum of over seven crore, the rice mill paid back Rs five crore, leaving a balance of Rs 2,16,15,716.

The Arbitrator passed an award in 2012 and awarded a sum of Rs 2,67,66,804 in favour of the Corporation as against the rice mill, with interest at the rate of 12 % per annum. 

The rice mill filed a petition under Section 34 of the Act before the Additional District Judge, who dismissed it in 2015 with the finding that there is no illegality in the award within the scope of interference permissible under Section 34 of the Act. On appeal, the high court set aside the ADJ's order and the arbitral award.

The bench said that even an award that may not be reasonable or is non-speaking to some extent cannot ordinarily be interfered with by the courts. It is also well settled that even if two views are possible there is no scope for the court to reappraise the evidence and to take the different view other than that has been taken by the arbitrator. The view taken by the arbitrator is normally acceptable and ought to be allowed to prevail, the court stressed. 

In the case at hand, the bench held that the arbitral award was based upon evidence and was reasonable.

It has not been found to be against public policy of India or the fundamental policy of Indian law or in conflict with the most basic notions of morality and justice. It is not held to be against any substantive provision of law or the Act, court noted. 

Therefore, the top court held that the award was rightly upheld by the ADJ court exercising the powers under Section 34 of the Act. The appellate court, as such, could not have set aside the award without recording any finding that the award suffers from any illegality as contained in Section 34 of the Act or that the court had committed an error in upholding the same, it observed. 

Case Title: PUNJAB STATE CIVIL SUPPLIES CORPORATION LIMITED & ANR VERSUS M/S SANMAN RICE MILLS & ORS