Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter "the Act") stipulates the grounds for the challenge of an arbitral award. The provision sets out that a party wanting to challenge an arbitral award has to do so within three months from the date of receipt of the arbitral award. However, when a sufficient cause has been shown by the party then the period of limitation is further extended by 30 days. When compared to, the Indian Arbitration Act, of 1940 which provided for three remedies against an award (rectification, remission, and setting aside under the 1940 Act) the scope of the challenge and setting aside in the 1996 Act is fairly narrow and restrictive.1

The Act includes the challenge of an award on various grounds including incapacity of one part, invalid arbitration agreement, improper notice to the party, arbitrators dealing with issues not falling within the terms of submission to arbitration, the composition of arbitral tribunal not in accordance with agreement of parties, subject matter not capable of settlement through arbitration and awards that are in conflict with public policy, among others.

There were diverse opinions given by various courts on the scope of interference of a court while deciding a challenge under Section 34.

Various High Courts like Madras2, Telangana3 , and Andhra Pradesh4 have stated that courts also have the power to amend/modify an arbitral award. On the other hand, High Courts like Bombay5 and Delhi6 were of the view that under Section 34 the courts can only quash an arbitral award, after which the parties would have to initiate fresh resolution proceedings. However, the Apex Court in its decision of National 7 Highways Authority of India v. M. Hakeem7 laid down the law of scope of interpretation of Section 34 and the power of the courts to interfere with the award of an arbitrator, while holding that

"It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on Inte rnati onal Comme r c ial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the "limited remedy" under Section 34 is coterminous with the "limited right", namely, either to set aside an award o r r e m a n d t h e m a tt e r u n d e r t h e circumstances mentioned in Section 34 of the Arbitration Act, 1996."

Through this decision, the Supreme Court clarified that any competent court that is deciding on the challenge of an arbitral award under section 34 of the Act, cannot modify an award granted by the Arbitrator(s); it can only set aside the award granted.

INTERFERENCE WITH INTERPRETATION OF CONTRACTUAL TERMS

An arbitrator while deciding on a challenge under section 34 looks into the interpretation of the terms of the contract which binds the parties to the arbitration. In certain cases, parties have challenged the award on the ground that the arbitrator has not interpreted the contract accurately or has misinterpreted the contract. The question to be answered is if the clauses in the contract are open to two or more plausible interpretations and the arbitrator derives the conclusion based on one of the plausible interpretations, can that be a ground for challenging an award?

Another point of determination would be what would cause a misinterpretation by an arbitrator. It is pertinent to note that various decisions by the Supreme Court and the High Courts have laid 8 down judicial precedents about this issue.8

In Atlanta Limited v. Union of India9, a three-judge bench of the Apex court consisting of Hon'ble N.V. Ramana, former C.J.I., A.S. Bopanna J., and Hima Kohli J. limited the scope of interference of a court with the Arbitral Tribunals interpretation of the terms of the contract by stating that

"19. It is also a well-settled principle of law that challenge cannot be laid to the Award only on the ground that the Arbitrator has drawn his own conclusion or failed to appreciate the relevant facts. Nor can the Court substitute its own view on the conclusion of law or facts as against those drawn by the Arbitrator, as if it is sitting in appeal.

20. As long as the Arbitrator has taken a possible view, which may be a plausible view, simply because a di

The court concluded that it is beyond the jurisdiction of the court to construe the terms of the contract as long as the arbitrator has taken a possible view.

And reiterated that it is a settled legal position that the Arbitrator is the final arbiter of the disputes between the parties and it is not open to a party to challenge the Award on the ground that he has drawn his conclusions or has failed to appreciate certain facts.

While upholding the award and setting aside the High Court's decision the Supreme Court in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran10 held that

"43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator."

The Supreme Court in Indian Oil Corporation Ltd. v. Shree Ganesh Petroleum, Rajgurunagar11 very clearly held as to what sort of an interpretation would attract the grounds for challenge under section 34. It stated that:

"44. However, a distinction has to be drawn between failure to act in terms of a contract and an erroneous interpretation of the terms of a contract. An Arbitral Tribunal is entitled to interpret the terms and conditions of a contract, while adjudicating a dispute. An error in interpretation of a contract in a case where there is valid and lawful submission of arbitral disputes to an Arbitral Tribunal is an error within jurisdiction."

45. The Court does not sit in appeal over the award made by an Arbitral Tribunal. The Court does not ordinarily interfere with interpretation made by the Arbitral Tribunal of a contractual provision, unless such interpretation is patently unreasonable or perverse. Where a contractual provision is ambiguous or is capable of being interpreted in more ways than one, the Court cannot interfere with the arbitral award, only because the Court is of the opinion that another possible interpretation would have been a better one."

Various other decisions by the courts like Food Corporation of India v. Joginderpal Mohinderpal & Ano 12 ther, Puri Construction Pvt. Ltd v. Union of 14 13 India and Hind Builders v. Union of India have substantiated that, while exercising appellate power, the courts should not substitute their opinion with that of the arbitrator. If an arbitrator construes a term of the contract reasonably, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do15

CONCLUSION

The legislature aimed to reduce the intervention of courts and provide a speedy justice delivery system. Judgments like these have limited the powers of the court to interfere with the holdings of an arbitral tribunal.

It is also pertinent to note that with the pro-enforcement view that the Indian courts have started adopting, decisions limiting the scope of judicial interference would encourage arbitration as a dispute resolution process. However, one must keep in mind that even though the Arbitration and Conciliation Act, 1996 provides an alternative to the litigation system, it is not a complete departure from it. It is rather a system that co-exists with the court system, and therefore interference of courts in matters, where grounds under Section 34 are justified, would be inevitable.

Footnotes

1 UHL Power Company Ltd. v. State of Himachal Pradesh, (2022) 4 SCC 116.

2 Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.,2014 SCC OnLine Mad 6568; ISG Novasoft Technologies Ltd. v. Gayatri Balasamy, 2019 SCC OnLine Mad 15819.

3 Saptarishi Hotels (P) Ltd. v. National Institute of Tourism & Hospitality Management, 2019 SCC OnLine TS 1765.

4 Kurra Venkateshwara Rao v. Competent Authority, 2020 SCC OnLine AP 146.

5 Dirk India (P) Ltd. v. Maharashtra State Electricity Generation Co. Ltd., 2013 SCC OnLine Bom 481 ; Wind World (India) Ltd. v. Enercon GmbH, 2017 SCC OnLine Bom 1147.

6 Nussli Switzerland Ltd. v. Organising Commonwealth Games, 2010, 2014 SCC OnLine Del 4834.

7 2021 SCC OnLine SC 473. 1UHL Power Company Ltd. v. State of Himachal Pradesh, (2022) 4 SCC 116.

8 State of Rajasthan v. Puri Construction Co. Ltd. And Another (1994) 6 SCC 485; Delhi Tourism and Transportation v. Gammon India Limited MANU/DE/2567/2018; McDermott International Inc. v. Burn Standard Co. Ltd. and Ors., (2006) 11 SCC 181.

9 (2022) 3 SCC 739.

10 (2012) 5 SCC 306.

11 (2022) 4 SCC 463

12 AIR 1989 SC 1263.

13 AIR 1989 SC 777.

14 AIR 1990 SC 1340.

15 Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.

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