Arbitration Act | Appellate Courts Can't Reassess Awards, Must Limit Enquiry On Public Policy Breach : Supreme Court

The Supreme Court reaffirmed that arbitral awards should only be interfered with in cases of perversity, violation of public policy, or patent illegality. It emphasized that appellate courts cannot reassess the merits of awards and must limit their inquiry to whether the award breaches Section 34(2)(b)(ii) of the Arbitration Act i.e., if the award is against the public policy of India.The bench comprising Justices Abhay S Oka and Ujjal Bhuyan was hearing the case where the dispute arose concerning increased quantities of geogrid required for constructing a reinforced earth (RE) wall as part of a road construction project. NHAI claimed that increased quantities beyond those stated in the Bill of Quantities (BOQ) warranted renegotiation of rates. The Appellant-Somdatt Builders-NCC-NEC (JV), the contractor, disputed the renegotiation of rates for geogrid quantities under Clause 51 and Clause 52 of the contract after the actual quantities exceeded the estimates in the Bill of Quantities (BOQ). The Arbitral Tribunal decided in the Appellant's favor holding that the increased quantities did not constitute a “variation” under Clause 51.1 and therefore did not warrant renegotiation of rates. The Single Judge of the Delhi High Court upheld the Arbitral Tribunal's decision. However, in an intra-court appeal, the Division Bench of the High Court overturned the Single Bench decision prompting the Appellant to appeal to the Supreme Court. Setting aside the High Court's Division Bench decision, the judgment authored by Justice Bhuyan observed that the Division Bench erred in interpreting the clause of the contract noting that such an increase in geogrid quantity does not warrant renegotiation of rates, as it is considered part of the contract's scope. The Court emphasized that at the Appellate Stage, the Court cannot undertake an independent assessment of the merits of the award and must limit its inquiry within the restrictions laid down under Section 34(2)(b)(ii) of the Arbitration Act i.e. if the award is against the public policy of India. “In MMTC Ltd. Vs. Vedanta Ltd. (2019) 4 SCC 163, this Court held that as far as Section 34 is concerned, the position is well settled that the court does not sit in appeal over an arbitral award and may interfere on merits only on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. Even then, the interference would not entail a review on the merits of the dispute but would be limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse or when the conscience of the court is shocked or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. As far as interference with an order made under Section 34 by the court under Section 37 is concerned, it has been held that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision.”, the court observed.The Court noted that the Division Bench erred in interfering with the well-reasoned order passed by the Arbitral Tribunal, which does not require interference because the award did not suffer from vires of perversity, nor opposed to the public policy of India or was patently illegal. "Therefore, Division Bench of the High Court was not at all justified in setting aside the arbitral award exercising extremely limited jurisdiction under Section 37 of the 1996 Act by merely using expressions like 'opposed to the public policy of India', 'patent illegality' and 'shocking the conscience of the court'. As reiterated by this Court in Reliance Infrastructure Ltd. (supra), it is necessary to remind the courts that a great deal of restraint is required to be shown while examining the validity of an arbitral award when such an award has been upheld, wholly or substantially, under Section 34 of the 1996 Act. Frequent interference with arbitral awards would defeat the very purpose of the 1996 Act.”, the court held.Accordingly, the appeal was allowed, and the Award was restored. Case Title: SOMDATT BUILDERS –NCC – NEC(JV) VERSUS NATIONAL HIGHWAYS AUTHORITY OF INDIA & ORS.Citation : 2025 LiveLaw (SC) 115Click here to read/download the judgmentAppearance: For Appellant(s) Mr. Arvind Minocha, Sr. Adv. Mr. Rakesh Kharab, Adv. Mr. Mayank Kshirsagar, AOR Ms. Dhanlaxmi Iyer, Adv. For Respondent(s) Mr. Krishnan Venungopal, Sr. Adv. (For R-1) Mr. Vikas Goel, Adv. Mr. Abhishek Kumar, Adv. Mr. Avinash Mathews, Adv. Ms. Garima Kaul, Adv. Mr. Santosh Kumar - I, AOR

Arbitration Act | Appellate Courts Can't Reassess Awards, Must Limit Enquiry On Public Policy Breach : Supreme Court

Yash Mittal

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