Supreme Court clarifies the power of remand in Section 37 Arbitration Act Appeals: Bombay Slum Redevelopment vs. Samir Narain Bhojwani (2024)

Date of the Judgment: July 8, 2024
Citation: 2024 INSC 478
Judges: Abhay S. Oka, J., Pankaj Mithal, J.
Can an appellate court send a case back to a lower court for a fresh hearing in arbitration matters? The Supreme Court of India recently addressed this crucial question regarding the power of remand under Section 37 of the Arbitration and Conciliation Act, 1996. This judgment clarifies the circumstances under which a High Court can order a remand in arbitration appeals, emphasizing the need for efficiency and minimal court intervention in the arbitration process. The bench, comprising Justices Abhay S. Oka and Pankaj Mithal, delivered this judgment.

Case Background

The case revolves around a property initially leased by the Maharashtra Housing and Area Development Authority (MHADA) to the Andheri Kamgar Nagar Co-operative Housing Society Limited on March 31, 1993. The Society, intended for slum dwellers, appointed M/s. Aurora Properties and Investments as the property developer on October 6, 1996, to implement a slum rehabilitation scheme. However, M/s. Aurora failed to meet its obligations.

Subsequently, on September 22, 1999, the Society appointed Bombay Slum Redevelopment Corporation Private Limited (the appellant) as the developer. The appellant agreed to take over M/s. Aurora’s obligations and provide 15,000 square feet of built-up area to M/s. Aurora. On March 10, 2003, the appellant entered into an agreement with Samir Narain Bhojwani (the respondent), allocating 55% of the Floor Space Index (FSI) to the respondent for construction. A deed of confirmation was executed on July 3, 2004, to register this agreement. A tripartite agreement was executed on September 11, 2009, between M/s. Aurora, the appellant, and the respondent, increasing the area to be provided to M/s. Aurora to 22,500 square feet.

Disputes arose on March 22, 2012, when the respondent alleged default by the appellant, leading to a prolonged correspondence and ultimately, the respondent initiating arbitration proceedings under Section 11 of the Arbitration and Conciliation Act, 1996.

Timeline

Course of Proceedings

The arbitral proceedings concluded with an award on September 7, 2018, in favor of the respondent, granting most of his claims and rejecting the appellant’s counter-claim. The appellant challenged this award under Section 34 of the Arbitration Act before the High Court.

On September 13, 2019, a Single Judge of the High Court allowed the appellant’s petition, setting aside the arbitral award on grounds of perversity and patent illegality. The respondent then appealed this decision under Section 37(1)(c) of the Arbitration Act.

The Division Bench of the High Court, in its judgment dated July 7, 2023, set aside the Single Judge’s order and remanded the case back to the Single Judge, stating that several issues were not considered. The Division Bench also directed the continuation of interim arrangements, including the appointment of a Court Receiver, for four weeks. Both parties then filed cross-appeals before the Supreme Court.

Legal Framework

The primary legal framework for this case is the Arbitration and Conciliation Act, 1996. Key provisions include:

• Section 11 of the Arbitration Act: This section deals with the appointment of arbitrators. In this case, it was the basis for the respondent’s petition to initiate arbitration proceedings.
• Section 34 of the Arbitration Act: This section provides the grounds for challenging an arbitral award. The appellant used this section to challenge the award before the High Court.
• Section 37(1)(c) of the Arbitration Act: This section allows an appeal against an order setting aside or refusing to set aside an arbitral award under Section 34. The respondent used this section to appeal the Single Judge’s decision.
• Section 19(1) of the Arbitration Act: This section states that the Arbitral Tribunal is not bound by the Code of Civil Procedure, 1908.

The Arbitration Act aims to provide a fair, efficient, and expeditious mechanism for resolving disputes, minimizing court intervention in the arbitral process.

Arguments

Appellant’s Submissions:

• The appellant argued that an appeal under Section 37 of the Arbitration Act is a continuation of the proceedings under Section 34, and the scope of interference is narrower than under Section 34.
• The appellant contended that the Court under Section 37(1)(c) can either set aside or affirm the award but cannot remand the petition under Section 34 for a fresh hearing. They argued that the provisions of Order XLI of the Code of Civil Procedure, 1908 (CPC) concerning remand do not apply to appeals under Section 37 of the Arbitration Act.
• The appellant highlighted that the Single Judge had thoroughly addressed all issues in a detailed judgment while allowing the petition under Section 34. They asserted that the reasons given by the Single Judge were elaborate and the remand order by the Division Bench was unwarranted.

Respondent’s Submissions:

• The respondent sought the restoration of the Arbitral Tribunal’s award.
• The respondent argued that the Division Bench was correct in remanding the matter to the Single Judge as the Single Judge had not considered all the issues.

Intervenor’s Submissions:

• The intervenor also sought the restoration of the Arbitral Tribunal’s award.

The innovativeness of the arguments lies in the appellant’s challenge to the Division Bench’s power to remand the case, arguing that Section 37 does not allow for a remand and that the Single Judge’s decision was comprehensive.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the Appellate Court dealing with an appeal under Section 37(1)(c) of the Arbitration Act has the power to pass an order of remand to the Section 34 Court.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

On the scope of interference under Section 37 of the Arbitration Act:

• MMTC Limited v. Vedanta Limited [2019] 4 SCC 163, Supreme Court of India: The Court reiterated that interference under Section 37 cannot exceed the restrictions laid down under Section 34, and the court cannot undertake an independent assessment of the merits of the award.

• UHL Power Company Limited v. State of Himachal Pradesh [2022] 4 SCC 116, Supreme Court of India: The Court emphasized that the jurisdiction of an appellate court under Section 37 is more circumscribed than that of a court under Section 34.

• Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking [2023] 9 SCC 85, Supreme Court of India: The Court clarified that the jurisdiction under Section 37 is akin to the jurisdiction under Section 34.

Legal Provisions Considered:

• Section 19(1) of the Arbitration and Conciliation Act, 1996: This provision states that the Arbitral Tribunal is not bound by the Code of Civil Procedure, 1908.

Judgment

How each authority was viewed by the Court:

• MMTC Limited v. Vedanta Limited [2019] 4 SCC 163: The Court relied on this case to emphasize the limited scope of interference under Section 37, stating that the appellate court cannot re-evaluate the merits of the award.
• UHL Power Company Limited v. State of Himachal Pradesh [2022] 4 SCC 116: This case was used to highlight that the appellate court’s jurisdiction under Section 37 is even more restricted than the court’s jurisdiction under Section 34.
• Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking [2023] 9 SCC 85: The Court cited this case to reinforce that the jurisdiction under Section 37 is similar to that under Section 34.

What weighed in the mind of the Court?

The Supreme Court’s reasoning was primarily driven by the need to maintain the integrity and efficiency of the arbitration process. The Court emphasized that the appellate court’s role under Section 37 is not to re-evaluate the merits of the case but to ensure that the lower court (Section 34 court) has acted within its jurisdiction. The Court’s concern was that routine remands would undermine the very purpose of arbitration, which is to provide a quick and cost-effective alternative to traditional litigation. The Court also expressed concerns about the increasing length and complexity of arbitral proceedings and the need for restraint by members of the Bar.

Fact:Law Ratio: The Court’s decision was influenced by a ratio of approximately 20% fact and 80% law. This indicates that the Court’s decision was primarily based on the interpretation of the legal provisions of the Arbitration Act and the precedents set by previous judgments, rather than the specific factual details of the case.

The Court’s reasoning was based on the principle that the appellate court should not act as a second court of first instance, and that remands should be reserved for cases where the lower court has failed to consider all the relevant issues or has acted without jurisdiction.

The court considered that the learned Single Judge has elaborately dealt with the merits of the challenge in the Section 34 petition. The Court held that it should benefit from reasoned judgment rendered by the Court under Section 37.

The Court also considered that if the Courts dealing with appeals under Section 37 of the Arbitration Act start routinely passing the orders of remand, the arbitral procedure will cease to be efficient.

The Court also noted that the object of the Arbitration Act is to provide an arbitral procedure that is fair, efficient, and capable of meeting the needs of specific arbitration.

The Court also noted that the supervisory role of the Courts is very restricted.

The Court also noted that the parties by their own volition choose to go before the Arbitral Tribunal instead of availing remedy before the traditional civil courts.

The Court also observed that the proceedings under Sections 34 and 37 are being treated as if the same are appeals under Section 96 of the CPC.

The Court also observed that when members of the bar take up so many grounds in petitions under Section 34, which are not covered by Section 34, there is a tendency to urge all those grounds which are not available in law and waste the Court’s time.

The Court also noted that everyone associated with the arbitral proceedings must remember that brevity will make the arbitral proceedings and the proceedings under Sections 34 and 37 more effective.

The Court also observed that all the stakeholders need to introspect, otherwise, the very object of adopting the UNCITRAL model will be frustrated.

The Court quoted from the judgment:

• “As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34.”
• “The jurisdiction of the Appellate Court dealing with an appeal under Section 37 against the judgment in a petition under Section 34 is more constrained than the jurisdiction of the Court dealing with a petition under Section 34.”
• “The object of the Arbitration Act is to provide an arbitral procedure that is fair, efficient, and capable of meeting the needs of specific arbitration.”

Key Takeaways

• Limited Remand Power: Appellate courts under Section 37 of the Arbitration Act should exercise the power of remand sparingly, only in exceptional circumstances.
• Focus on Merits: Appellate courts should primarily focus on the merits of the Section 34 court’s decision rather than routinely remanding cases.
• Efficiency in Arbitration: The judgment reinforces the need for efficiency and minimal court intervention in the arbitration process.
• Brevity in Proceedings: Members of the Bar should exercise restraint and incorporate only legally permissible grounds in petitions under Section 34 and appeals under Section 37.
• Cost-Effectiveness: The judgment highlights the need for cost-effective dispute resolution through arbitration.

Directions

The Supreme Court issued the following directions:

1. The impugned judgment of the Division Bench of the High Court was set aside.
2. The appeal was restored to the file of the High Court.
3. The High Court was directed to place the restored appeal before the roster bench on July 29, 2024.
4. The parties were directed to appear before the concerned bench on that day.
5. The High Court was directed to permit the appellants to file an amended memorandum of appeal containing only the relevant and permissible grounds.
6. The High Court was directed to fix a schedule for the hearing of the appeal.
7. The Registry of the Supreme Court was directed to forward a copy of the judgment to the Prothonotary and Senior Master of the High Court of Bombay.
8. The interim relief granted by the Supreme Court on August 11, 2023, was extended till the disposal of the remanded appeal.
9. The Court clarified that no adjudication was made on the merits of the arbitral award and the judgment of the Single Judge, and all issues arising in the remanded appeal were left open to be decided by the High Court.

Specific Amendments Analysis

There is no specific amendment discussed in the judgment.

Development of Law

The ratio decidendi of this case is that the power of remand under Section 37(1)(c) of the Arbitration Act should be exercised sparingly and only in exceptional circumstances. The appellate court’s primary role is to scrutinize the findings of the Section 34 court and decide the appeal on merits, not to routinely remand cases. This judgment reinforces the principle that arbitration proceedings should be efficient and expeditious, with minimal court intervention. There is no change in the previous position of law but the position of law has been reiterated.

Conclusion

The Supreme Court, in this judgment, clarified the scope of appellate power under Section 37 of the Arbitration Act, emphasizing that remands should be exceptional and not routine. The Court set aside the High Court’s order of remand and directed the High Court to decide the appeal on merits. This judgment aims to ensure that arbitration remains an efficient and cost-effective dispute resolution mechanism, with minimal court intervention.