Arbitration | Arbitral Award Can't Be Interfered With Just Because Another Interpretation Of Contract Is Possible : Supreme Court
The Supreme Court reaffirmed that an arbitral award cannot be set aside under Section 34, nor can it be interfered with in an appeal under Section 37 of the Arbitration and Conciliation Act, merely because the arbitrator has not adopted an alternative or second possible interpretation of the substantive contract. A Bench comprising Justices P.S. Narasimha and Pankaj Mithal set aside the...
The Supreme Court reaffirmed that an arbitral award cannot be set aside under Section 34, nor can it be interfered with in an appeal under Section 37 of the Arbitration and Conciliation Act, merely because the arbitrator has not adopted an alternative or second possible interpretation of the substantive contract.
A Bench comprising Justices P.S. Narasimha and Pankaj Mithal set aside the Madras High Court Division Bench judgment, which had allowed the appeal against the Single Judge's order refusing to set aside the arbitral award. The Division Bench had justified its intervention on the ground that the Arbitral Tribunal failed to adopt what it considered to be a “better” interpretation of the contract, treating this as a ground for interference on the premise that the award was contrary to the substantive provisions of law.
Disagreeing with the impugned decision, the judgment authored by Justice Mithal stated that a different interpretation of the contract by in itself cannot be a ground to interfere with an award.
“In the case at hand, the Arbitral Award contains logical reasons in construing the various clauses of the License Agreement and the view taken by the Arbitral Tribunal had been accepted by the court under Section 34 of the Act as a reasonable and a possible view. Therefore, in the light of above referred decision of Larsen Air Conditioning (supra), the Arbitral Award could not have been set aside even if there was a possible second view regarding the interpretation of the clauses of the License Agreement.”, the court observed.
The Court lists out the grounds of challenge of arbitral award under Section 34, stating that if the interpretation given by the arbitral tribunal, while passing an award remains, undisturbed under Section 34, the same cannot also be disturbed by exercising powers under Section 37 of the Act.
“The Act provides for the challenge of the arbitral award before the court on limited grounds as contemplated by Section 34 of the Act i.e.
a) where one of the party was under some incapacity; or where the arbitration agreement itself was not valid; or
b) the parties were not given proper notice of the appointment of an arbitrator or the arbitral proceedings; or
c) was unable, for some reason, to present his case before the Arbitrator or Arbitral Tribunal; or
d) if the arbitral award deals with the dispute not contemplated or falling within the terms of the arbitration or deals with the matters beyond the scope of the arbitration; or
e) where the constitution of the Arbitral Tribunal was not in accordance with arbitration agreement; and, or
f) where the court finds the subject matter of the arbitral dispute was incapable of settlement by arbitration or the arbitral award is in conflict with the public policy of India.”
The dispute arose from a 2010 dredging contract awarded by the Respondent, Tuticorin Port Trust, to the Appellant, Jan De Nul, for deepening its channel. The company completed the work eight months ahead of schedule. However, a dispute arose over final payments, leading to arbitration.
The Arbitral Tribunal in 2014 allowed several claims worth more than ₹14.66 crore, including Claim No. 7 for idling charges of a Backhoe Dredger (BHD) deployed for the project, attributing the idling to the Port Trust's failure to provide site access in time.
The Port Trust's challenge under Section 34 of the Arbitration and Conciliation Act, 1996, was dismissed by a single judge of the Madras High Court in 2019, who found no grounds to interfere. However, a Division Bench, in an appeal under Section 37 of the Act, reversed this in March 2021. It accepted the Port Trust's argument that contractual Clause 38, which mentioned idle time charges for "major dredgers," excluded compensation for a BHD, which it termed a "minor dredger."
Finding an error in the impugned decision, the court reiterated that “the appellate power under Section 37 of the Act 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 Appellate Court exercising powers under Section 37 of the Act has no authority of law to consider the matter in dispute before the Arbitral Tribunal on merits so as to hold as to whether the award of the Arbitral Tribunal is right or wrong. The Appellate Court in exercise of such power cannot sit as an ordinary court of appeal and reappraise the evidence to record a contrary finding. The award of the Arbitral Tribunal cannot be touched by the court unless it is contrary to the substantive provision of law or any provision of the Act or the terms of the agreement.”, the court added.
In essence, the Court held that a different interpretation by the arbitral tribunal cannot be a ground to interfere with an arbitral award at an Appellate stage, when due and proper interpretation “of the various clauses of the Licence Agreement was given by the Arbitral Tribunal and the same also had the approval of the Learned Single Judge by his judgment passed in exercise of powers under Section 34 of the Act.”
“The Appellate Court was actually bound by the interpretation of the clauses of the Licence Agreement as given by the Arbitral Tribunal and accepted by the Court under Section 34.”, the court added.
Other important observation made by the Court:
“we consider it proper to note that the Act is a special enactment which aims to resolve contractual/commercial disputes through arbitration with the minimum intervention of the court, if not without the intervention of the court. In the event, the courts are allowed to step in at every stage and the arbitral awards are subjected to challenge before the courts in hierarchy before court of first instance, through regular appeals and finally by means of SLP/Civil Appeal before the Supreme Court, it would obviate/frustrate and defeat the very purpose of the Act. It is therefore, necessary to accept the arbitral award if it is not patently illegal or does not fall within the scope of intervention under Section 34 of the Act. The appeal thereof has a much narrower scope of intervention particularly when the arbitral award has been upheld under Section 34 of the Act. The appellate jurisdiction acquires little significance only when the arbitral award has been erroneously upheld or set aside by the court in exercise of its power under Section 34 of the Act as discussed earlier, but has no authority of law to consider the matter which was before the Arbitral Tribunal on merits.”
Resultantly, the appeal was allowed, restoring the arbitral award.
Cause Title: JAN DE NUL DREDGING INDIA PVT. LTD. VERSUS TUTICORIN PORT TRUST
Citation : 2026 LiveLaw (SC) 47
Click here to download judgment
Appearance:
For Petitioner(s) Mr. Chander U. Singh, Sr. Adv. Ms. Surekha Raman, Adv. Mr. Amarjit Singh Bedi, Adv. Mr. Shreyash Kumar, Adv. Mr. Yashwant Sanjenbam, Adv. M/S. K J John And Co, AOR
For Respondent(s) Mr. S. Nagamuthu, Sr. Adv. Mr. Mohan Raj A, Adv. Ms. Charulata Chaudhary, AOR