The Supreme Court said repeated court challenges to arbitral awards defeat the purpose of the Arbitration and Conciliation Act, 1996. Courts must interfere only on limited grounds, as excessive judicial intervention frustrates speedy dispute resolution.
New Delhi: The Supreme Court of India on Wednesday clearly reiterated that excessive court interference in arbitration matters goes against the very spirit of the arbitration law in India. The Court cautioned that if courts are allowed to interfere at every stage and arbitral awards are repeatedly challenged, it would completely defeat the purpose of arbitration as a dispute resolution mechanism.
A Bench comprising Justices P. S. Narasimha and Pankaj Mithal made these observations while setting aside a March 2021 judgment passed by a Division Bench of the Madras High Court, which had ordered deletion of a claim granted by an arbitral tribunal in favour of a firm involved in complex dredging operations.
The Supreme Court explained that the Arbitration and Conciliation Act, 1996 is a special law enacted to ensure speedy and effective resolution of contractual and commercial disputes through arbitration, while keeping court intervention to the bare minimum.
While concluding the case, the Bench observed:
“Before parting, we consider it proper to note that the Act is a special enactment, which aims to resolve contractual or commercial disputes through arbitration, with the minimum intervention of the court, if not without the intervention of the court,”
The Court strongly warned that allowing courts to interfere at every level would frustrate the entire arbitration framework.
It said:
“If courts are allowed to step in at every stage and the arbitral awards are subjected to a challenge before them in hierarchy and finally, by means of SLP/civil appeal before the Supreme Court, it would obviate/frustrate and defeat the very purpose of the Act”.
The apex court delivered its verdict in an appeal filed by a firm specialising in executing technically complex dredging projects. The firm had challenged the Madras High Court’s decision that interfered with the arbitral award passed in its favour.
The Supreme Court emphasised that an arbitral award must be accepted if it does not suffer from patent illegality and does not fall within the limited grounds of interference provided under Section 34 of the Arbitration and Conciliation Act, which deals with setting aside arbitral awards.
The Bench further noted that the scope of interference becomes even narrower when an arbitral award has already been upheld by a court under Section 34. In this context, the Court observed:
“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,”
Reiterating the legislative intent behind the arbitration law, the Court said that the primary objective of the Act is to provide a fast, cost-effective, and efficient method for dispute resolution, without unnecessary judicial intervention.
The Bench explained that while the Act does allow parties to challenge arbitral awards, such challenges are permitted only on very limited grounds under Section 34. It underlined the restricted nature of judicial interference by stating:
“In other words, the scope of interference of the court with the arbitral matters is virtually prohibited, if not absolutely barred,”
The case arose from disputes between the parties over alleged non-payment and under-payment of dues in relation to the final bill of a dredging project. The dispute was first referred to arbitration in September 2012.
The arbitral tribunal awarded a sum of ₹14.66 crore to the firm towards its claim for idling charges of a Backhoe Dredger. This award was challenged by the Tuticorin Port Trust before a single-judge bench of the Madras High Court.
The single judge dismissed the challenge and upheld the arbitral tribunal’s findings. However, the port trust later filed an appeal before the Division Bench of the High Court, which interfered with the award and ordered deletion of the claim related to idle charges.
Setting aside the Division Bench’s order, the Supreme Court reaffirmed that courts must respect arbitral awards and avoid re-examining matters on merits, unless the strict conditions laid down under the Arbitration and Conciliation Act are met.
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