Supreme Court: Award Cannot Be Overturned Merely Because Appellate Court Has A Better Perspective

Supreme Court: Award Cannot Be Overturned Merely Because Appellate Court Has A Better Perspective

The Supreme Court has observed that unless an arbitral award suffers from the illegality specified under Section 34 of the Arbitration & Conciliation Act, 1996 (Act), no award can be interfered with or set aside by the Appellate Courts under Section 37 of the Act.

A bench comprising Justices P.S. Narasimha and Pankaj Mithal noted that an award cannot be set aside merely because the Appellate Court holds a better view than that of the arbitral tribunal. The award cannot be challenged unless it contradicts a substantive provision of law, any provision of the Act, or the terms of the agreement, the bench added.

The court stated, “In the case at hand, the arbitral award dated 08.11.2012 is based upon evidence and is reasonable. It has not been found to be against the 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. Therefore, the award was rightly upheld by the court exercising the powers under Section 34 of the Act. The Appellate Court could not have set aside the award without recording any finding that it suffers from any illegality as contained in Section 34 of the Act or that the court had committed an error in upholding the same. 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.”

The judgment, authored by Justice Pankaj Mithal, reasoned that the appellate court's power under Section 37 of the Act is not akin to the normal appellate jurisdiction vested in civil courts. The scope of interference of the courts with arbitral proceedings or awards is very limited, confined to the ambit of Section 34 of the Act, and even that power cannot be exercised casually or cavalierly.

The main grounds for interference or setting aside an award under Section 34 of the Act are when the arbitral award conflicts with the public policy of India. This includes situations where the award is induced or affected by fraud or corruption, contravenes the fundamental policy of Indian law, or conflicts with the most basic notions of morality and justice.

The court noted, “A plain reading of Section 34 reveals that the scope of interference by the court with the arbitral award under Section 34 is very limited, and the court is not supposed to travel beyond the aforesaid scope to find out if the award is good or bad.”

Relying on the judgment in Bharat Coking Coal Ltd. v. L.K. Ahuja (2001), the court observed that an arbitral award is not liable to be interfered with solely on the grounds of being illegal or erroneous in law, particularly upon reappraisal of the evidence adduced before the arbitral trial.

The court emphasized that the view taken by the arbitrator must be accepted even if two views are possible, and there is no room for interference by the Appellate Court to adopt a different view for setting aside the award. “It is also well settled that even if two views are possible, there is no scope for the court to reappraise the evidence and take a different view from that of the arbitrator. The view taken by the arbitrator is normally acceptable and ought to be allowed to prevail,” the court stated.

Reference was made to the case of Dyna Technology Private Limited v. Crompton Greaves Limited (2019), where it was held that the appellate courts should not interfere with an award merely because an alternative view on facts and interpretation of the contract exists. The courts need to exercise caution and should defer to the view taken by the Arbitral Tribunal, even if the reasoning provided in the award is implicit, unless the award portrays an unpardonable perversity under Section 34 of the Arbitration Act. The court noted that the scope of interference in an appeal under Section 37 of the Act is restricted and subject to the same grounds on which an award can be challenged under Section 34 of the Act.