Appellate Courts Cannot Disturb Arbitral Awards Merely To Permit A Different View, Supreme Court Reiterates

The Supreme Court, recently, set aside a Madras High Court order that had deleted compensation awarded to a dredging contractor and reiterated that appellate courts cannot interfere with arbitral awards merely because they prefer a different interpretation of the contract.

A Bench of Justice Pamidighantam Sri Narasimha and Justice Pankaj Mithal held that courts hearing appeals in arbitration matters have a narrow and limited role.

Once an arbitral award has been examined and found free from serious flaws, an appellate court cannot re-enter the dispute or reassess the merits.

“If an award is not liable to be disturbed under Section 34 of the Act, the same could not have been interfered with in exercise of powers under Section 37 of the Act,” the court held.

The dispute related to a major dredging project at Tuticorin Port. The Port Trust had awarded Jan De Nul Dredging India Pvt. Ltd. a contract worth about Rs 465 crore to deepen the port channel and basin to accommodate larger vessels. The company completed the work nearly eight months ahead of schedule. Problems arose when the final bill was settled.

The contractor claimed that parts of the site were not handed over on time, leaving its backhoe dredger idle. It sought compensation for this idle period. The arbitral tribunal accepted the claim and awarded about Rs 14.66 crore as compensation.

The Port Trust then moved the Madras High Court. A Single Judge refused to interfere, recording that the tribunal had looked at the material on record and taken a plausible view of the contract. On appeal, however, the Division Bench stepped in and deleted the idling charges, holding that such compensation was meant only for major dredgers and not for the backhoe dredger used in the project.

The Supreme Court held that this approach was legally unsustainable. It held that the Division Bench had crossed the narrow limits placed on appellate courts in arbitration matters and had effectively substituted its own interpretation for that of the arbitral tribunal.

"In the instant case, the power to award compensation for idle time of the equipment including Backhoe Dredger is traceable to Clause 51.1 of the Lease Agreement and therefore the Arbitral Tribunal was not wrong in interpreting the clauses so as to make an award in favour of the appellant-Dredging India under Claim No. 7. In such a situation, the interpretation given by the Arbitral Tribunal is apparently a plausible view and was rightly not disturbed by the Learned Single Judge in exercise of power under Section 34 of the Act. Therefore, in appeal under Section 37 of the Act, the said reasoning could not have been disturbed so as to permit a different view. The interpretation given by the Arbitral Tribunal had to be accepted by the Appellate Court", it said. 

Emphasising why restraint is central to arbitration, the top court added, “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.”

The appeal was allowed, and the arbitral award was restored.