The Supreme Court has reiterated that an arbitral tribunal cannot rewrite the parties' contract or grant relief contrary to its terms.

A bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva heard the dispute that arose from a property development transaction between the parties. The matter was referred to arbitration, where the majority of the arbitral tribunal granted relief in favour of the respondents, including specific performance.

The arbitral award was challenged before the district court under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”). The dispute eventually reached the Supreme Court after the High Court affirmed the challenge under Section 37, which examined whether the award could be sustained in view of the contractual terms and the statutory limits governing arbitral decision-making.

Refusing to interfere with the impugned findings, the judgment authored by Justice Sanjay Kumar reiterated that an arbitral tribunal is required to decide disputes in accordance with the terms of the contract, as mandated by Section 28(3) of the Act.

An arbitral tribunal derives its authority from the parties' agreement and cannot substitute its own terms for the bargain made by the parties. An award that disregards the contractual terms may be open to challenge under Section 34, subject to the grounds and standards applicable to the proceedings, the Court said.

Since the matter pertains to the pre-amended version of Section 34 of the Act, i.e., before the 2015 amendment to the Act, as the application for setting aside the award was filed in 2012, the Court examined the validity of the award in terms of the un-amended Section 34, as, according to the Court, a mere violation of Section 28(3) of the Act would not automatically be a ground to set aside the award.

To be informed, the 2015 (Amendment) Act narrowed and clarified the public-policy ground for setting aside arbitral awards and introduced Section 34(2A), which permits a domestic arbitral award to be set aside for patent illegality appearing on the face of the award, subject to the statutory limitations.

In Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (2019), the Court clarified that the amended provision applies to Section 34 applications made to the court on or after the date of amendment took effect.

Keeping in mind the aforesaid principles, the Court adopted the pre-amended approach to deal with Section 34 applications. Reference was drawn to its decision in Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. (2003), where the Court had recognised that an award contrary to the terms of the contract could be set aside on the ground of patent illegality as part of the then-applicable public-policy doctrine.

Applying the relevant legal framework, the Court set aside the majority award granting specific performance, as it amounts to rewriting of a contract.

Appearance:

For Appellant(s) : Mr. Darius Khambata, Sr. Adv. Mr. Kunal Vajani, Adv. Mr. Kunal Mimani, AOR Mr. Kartikey Bhatt, Adv. Mr. Prashant Alai, Adv. Mr. Abhinav Rana, Adv.

For Respondent(s) : Mr. Shyam Diwan, Sr. Adv. Mr. Aniruddha Joshi, Sr. Adv. Mr. Nivit Srivastava, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Samrat Krishnarao Shinde, AOR Mr. Aditya Krishna, Adv. Mr. Pratyush Kalro, Adv. Ms. Anshula Laroiya, Adv. Mr. Yashvardhan Singh, Adv. Ms. Shambhavi Kanade, Adv.