India: Powers Of The Court Transcends What Meets The Eye: Section 37 Of The Arbitration And Conciliation Act, 1996

1. INTRODUCTION

As obvious as it is, one of the keys objects behind enactment of the Arbitration and Conciliation Act, 1996 (the "Act") was to minimize the supervisory role of courts in the arbitral process. For the said reason, the scope of powers of a 'Court' under Sections 34 of the Act while dealing with challenges to an arbitral award were kept limited.

A party further aggrieved by an order passed by a 'Court' under Section 34 has the right to appeal under Section 37 of the Act. The Hon'ble Delhi High Court, in a recent judgment titled MMTC Ltd. v. Anglo American Metallurgical Coal Pty. Ltd. ("MMTC Case") ¹ decided on March 02, 2020, despite its restrictions, has taken a unique stand as to what may be deemed perverse in law for setting aside an arbitral award under Section 37 of the Act.

2. STANDARD OF REVIEW UNDER SECTION 37 OF THE ACT

Section 34 (2A) of the Act provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same also expressly states that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating of evidence. This implies that while entertaining appeals under Section 37 of the Act, the Court is not actually sitting as a court of appeal over the award of the arbitral tribunal and would not re-appreciate or re-assess the evidence.

From a perusal of the judicial precedents, there remain no two thoughts on the fact that a court exercising appellate jurisdiction under Section 37 of the Act cannot undertake an independent assessment of the merits of an award, and must only ascertain that the exercise of power by the court under Section 34 of the Act has not exceeded the scope of the provision.² Thus, it is natural that courts under Section 37 of the Act are cautious and vastly unwilling to disturb findings of the tribunal.

The reason behind such limited interference from the court is also well established - an arbitrator is considered the ultimate master of quantity and quality of evidence to be relied upon when he delivers the award and once it is found that the arbitrator's approach is not arbitrary or capricious, the arbitrator is the last word on facts.³ If the courts, sitting in appellate jurisdiction, were to interfere with the merits of the awards as a matter of procedure, it would defeat the very purpose of having an alternative dispute resolution mechanism.

3. BRIEF FACTS

In the case at hand, MMTC, a Government of India enterprise, challenged a judgment dated July 10, 2015 wherein the Ld. Single Judge, whilst dismissing challenges to the arbitral award under Section 34 of the Act upheld the arbitral award dated May 12, 2014 ("Award").

By way of the Award, the claim filed by Anglo American Metallurgical Coal Pty. Ltd. ("AAMC") for damages for breach of contract on account of non-lifting of coking coal by MMTC Ltd. was allowed and AAMC was held entitled to recover damages in the sum of USD 78,720,414.92 along with pendente lite and future interest and costs.

Broadly, the challenge made by MMTC was based on the fact that despite unambiguity, the tribunal had given its own interpretation to the communications between the parties and hence, it was argued that the Award was perverse and irrational. On the other hand, AAMC defended the challenge so made by contending that the arbitrators were entitled to read the documents holistically, and that the duty of the court in these circumstances is to see whether the view taken by the arbitrator is a plausible view on the facts, pleadings and evidence before the arbitrator. Even if on the assessment of material, the court while considering the objections under Section 34 of the Act is of the view that there are two views possible and the Arbitral Tribunal has taken one of the possible views which could have been taken on the material before it, the court would be reluctant to interfere. It was further argued that the court is not to substitute its view with the view of the arbitrator if the view taken by the arbitrator is reasonable and plausible even though there may be a differing view, the courts ordinarily cannot get into merits of an award by evaluating evidence under Section 37 of the Act.⁴

4. DECISION

Upon perusal of the arbitral record and the evidence, the Hon'ble High Court has in this case held that notwithstanding the limitations of its jurisdiction, the court shall not be hesitant in correcting an inference of the tribunal, which is not supported by a plain reading of the documents. It was also held that it is an overreach of powers by the arbitral tribunal to mould the principles of interpretation and choosing to read into words that do not exist while omitting to read what is written in plain, simple English. Furthermore, it was held that when such communication is purely commercial and exchanged between educated, worldly-wise men of the relevant field, words that do not exist in the communications cannot be inferred.

The Hon'ble High Court came down heavily upon the Award passed by the arbitral tribunal observing that when asked to interpret a document, a court must focus at its language. Thereafter, if the language is clear and unambiguous, it shall accept the ordinary meaning, for the duty of the court is not to delve deep into the intricacies of the human mind to ascertain one's undisclosed intention, but only to take the meaning of the words used by him, that is to say his expressed intentions.⁵ Relying upon various judgments⁶, the Hon'ble High Court expressed a strong view to state that when imaginary interpolations are allowed into the e-mails/ correspondence of parties unnecessarily, then the inferences and conclusions derived therefrom must be held to be perverse in law and liable to be set aside.

In furtherance to criticizing the claim being allowed in the Award, the Hon'ble High Court also noted that there was no basis on which the amount of damages were granted by the arbitral tribunal. The Hon'ble High Court was of the view that the tribunal showcased perversity by relying upon 'imaginary evidence' which can under no circumstances be permitted.

In view of the above mentioned, the Hon'ble High Court ultimately while setting aside the award on the grounds of being arbitrary and capricious held that majority view therein is not a possible view since it is not a question of the 'quantity' or 'quality' but that the inferences drawn are a non-sequitur to the plain and simple words of the e-mails/communications read in evidence, which were before the tribunal and which do not support the inferences drawn.

5. INDUSLAW VIEW

The discussed judgment of the Hon'ble High Court is most likely to go before the Hon'ble Supreme Court where the question as to what may be deemed 'perverse' and 'irritational' under Section 37 of the Act will be answered by court.

The Hon'ble High Court is fair in upholding the trite law that the intention and the conduct of the parties need only be adverted to in the event there is ambiguity or the language is capable of lending a meaning which leads to ambiguity.⁷ While the said judgment on one hand may be considered a welcome move as it shall help maintain better checks and balances, it may also be considered to have opened a pandora's box inviting frivolous litigations challenging awards on merits, thereby defeating the purpose of having an alternative dispute resolution mechanism in place.

Footnotes

1. FAO (OS) 532/2015

2. MMTC v. Vedanta Ltd., AIR 2019 SC 1168

3. NHAI v. Progressive Constructions Ltd., 2015(5) ArbLR 71(Delhi)

4. Jhang Cooperative Group Housing Society v. P.T Munshi Ram & Associates Private Limited, 202(2013) DLT 218.

5. Smt. Kamala Devi vs. Seth Takhatmal & Anr., (1964) 2 SCR 152.

6. Associate Builders v. DDA 2015 (3) SCC 49, Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons (1992) Supp. (2) SCC 312, Kuldeep Singh v. Commr. of Police, AIR 1999 SC 677.

7. The Godhra Electricity Co. Ltd. & Anr. v. State of Gujarat & Anr. (1975) 1 SCC 199.

Originally published 30/04/2020

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