LEGAL ISSUE: Scope of appellate jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996. CASE TYPE: Arbitration Law. Case Name: Haryana Tourism Limited vs. M/s Kandhari Beverages Limited. Judgment Date: January 11, 2022
Introduction
Date of the Judgment: January 11, 2022. Citation: (2022) INSC 26. Judges: Justice M.R. Shah and Justice B.V. Nagarathna. Can a High Court, in an appeal against an arbitration award, re-evaluate the merits of the case like a regular first appeal? The Supreme Court of India recently addressed this crucial question regarding the extent of appellate jurisdiction under the Arbitration and Conciliation Act, 1996. The Court clarified that a High Court cannot act as a regular first appellate court when hearing an appeal under Section 37 of the Arbitration Act. This judgment is authored by Justice M.R. Shah, with Justice B.V. Nagarathna concurring.
Case Background
Haryana Tourism Limited (the Corporation) and M/s Kandhari Beverages Limited (the Respondent) entered into a contract for the supply of aerated cold drinks at the Corporation’s tourist complexes. The contract period was from May 15, 2001, to May 14, 2002. As part of the agreement, the Respondent was obligated to pay Rs. 20 lakhs for brand promotion, to be spent as mutually agreed upon by both parties. The Corporation organized a Mango Mela on July 7-8, 2001, spending Rs. 1 lakh. Both parties also agreed to hold musical nights, with the Respondent claiming to have spent Rs. 13.92 lakhs. However, the Corporation demanded Rs. 19 lakhs from the Respondent as sponsorship money through a letter dated September 20, 2001. Subsequently, the Corporation terminated the contract on January 17, 2002, leading to a dispute that was referred to arbitration.
Timeline
| Date | Event |
|---|---|
| May 15, 2001 – May 14, 2002 | Contract period for supply of aerated cold drinks. |
| July 7-8, 2001 | Haryana Tourism Limited organized Mango Mela, spending Rs. 1 lakh. |
| September 20, 2001 | Corporation demanded Rs. 19 lakhs from the Respondent as sponsorship money. |
| January 17, 2002 | Corporation terminated the contract. |
| November 17, 2005 | Arbitrator directed the Respondent to pay Rs. 9.5 lakhs and dismissed the Respondent’s counter claim. |
| September 25, 2014 | Additional District Judge dismissed the Respondent’s objection petition against the arbitrator’s award. |
| July 17, 2018 | High Court allowed the Respondent’s appeal, setting aside the arbitrator’s award and the order of the Additional District Judge. |
| January 11, 2022 | Supreme Court allowed the appeal of Haryana Tourism Limited, restoring the arbitrator’s award. |
Course of Proceedings
The dispute was initially referred to a sole arbitrator. The arbitrator, on November 17, 2005, directed the Respondent to pay Rs. 9.5 lakhs to the Corporation, while dismissing the Respondent’s counter claim of Rs. 13.92 lakhs. The Respondent then filed an objection petition under Section 34 of the Arbitration and Conciliation Act, 1996, before the Additional District Judge, Chandigarh, which was dismissed on September 25, 2014. The Respondent further appealed to the High Court of Punjab and Haryana under Section 37 of the Arbitration Act. The High Court, on July 17, 2018, allowed the appeal, setting aside both the arbitrator’s award and the order of the Additional District Judge. This led to the Corporation’s appeal to the Supreme Court.
Legal Framework
The case revolves around the interpretation of Section 37 of the Arbitration and Conciliation Act, 1996. This section deals with appeals from orders made under Section 34, which concerns setting aside an arbitral award. The Supreme Court emphasized that the scope of interference under Section 37 is limited. An award can only be set aside if it is against the public policy of India, which includes being contrary to the fundamental policy of Indian Law, the interests of India, justice or morality, or if it is patently illegal.
Arguments
Appellant (Haryana Tourism Limited) Arguments:
- The High Court exceeded its jurisdiction under Section 37 of the Arbitration Act by entering into the merits of the claim.
- The High Court’s role is limited to reviewing whether the award is against the public policy of India, and not to re-evaluate the evidence.
- The High Court acted as if it was hearing a first appeal against a trial court judgment, which is not permissible under Section 37 of the Arbitration Act.
Respondent (M/s Kandhari Beverages Limited) Arguments:
- The arbitrator lacked jurisdiction to pass the award because no amount was due as the Corporation did not spend any money on marketing activities.
- The appointment of the sole arbitrator was not in accordance with clause 13 of the contract.
- The issue of jurisdiction can be raised under Section 16 of the Arbitration Act, even after the award is passed.
- The Respondent had a counter claim of Rs. 13.92 lakhs which was wrongly rejected by the arbitrator.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Jurisdiction of High Court under Section 37 of the Arbitration Act |
✓ High Court exceeded its jurisdiction by entering into merits of claim. ✓ Scope of Section 37 is limited to public policy review, not re-evaluation of evidence. ✓ High Court acted as a first appellate court, which is not permissible. |
✓ Arbitrator lacked jurisdiction as no amount was due. ✓ Appointment of arbitrator was not as per contract. ✓ Jurisdiction issue can be raised under Section 16 even after award. |
| Merits of the Claim | ✓ Respondent had a counter claim of Rs. 13.92 lakhs which was wrongly rejected. |
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section, but the core issue was:
- What is the scope and extent of the High Court’s jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, while hearing an appeal against an order passed under Section 34 of the Act?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Scope of High Court’s jurisdiction under Section 37 of the Arbitration Act | The Supreme Court held that the High Court exceeded its jurisdiction by re-evaluating the merits of the case. The High Court’s role under Section 37 is limited to reviewing whether the award is against the public policy of India. |
Authorities
The Supreme Court relied on the settled position of law that an award can be set aside only if it is against the public policy of India, which includes being contrary to:
- Fundamental policy of Indian Law
- The interests of India
- Justice or morality
- Patently illegal
The Court also considered the scope of Sections 34 and 37 of the Arbitration Act.
| Authority | Court | How the authority was used |
|---|---|---|
| Settled position of law on public policy | Supreme Court of India | The Court relied on the established principle that an award can only be set aside if it is against the public policy of India. |
| Section 34 of the Arbitration and Conciliation Act, 1996 | Parliament of India | The Court considered the scope of Section 34, which deals with setting aside an arbitral award. |
| Section 37 of the Arbitration and Conciliation Act, 1996 | Parliament of India | The Court considered the scope of Section 37, which deals with appeals from orders under Section 34. |
Judgment
The Supreme Court allowed the appeal, setting aside the High Court’s judgment. The Court held that the High Court had exceeded its jurisdiction under Section 37 of the Arbitration Act by entering into the merits of the claim. The Court restored the arbitrator’s award and the order of the Additional District Judge. The Court emphasized that the High Court’s role is limited to reviewing whether the award is against the public policy of India, and not to re-evaluate the evidence.
| Submission by Parties | Treatment by the Court |
|---|---|
| High Court exceeded jurisdiction under Section 37 | The Court agreed, stating the High Court’s role is limited to public policy review, not re-evaluation of evidence. |
| Arbitrator lacked jurisdiction | The Court noted the High Court had overruled this objection, and the respondent did not appeal that decision. |
| Merits of the claim | The Court held that the High Court should not have entered into the merits of the claim, as it is not permissible under Section 37 of the Arbitration Act. |
How each authority was viewed by the Court?
- The Court relied on the settled position of law regarding public policy to state that the High Court’s jurisdiction was limited to reviewing whether the award was against the public policy of India, and not to re-evaluate the evidence.
- The Court considered the scope of Section 34 of the Arbitration and Conciliation Act, 1996* to understand the grounds on which an award can be set aside.
- The Court considered the scope of Section 37 of the Arbitration and Conciliation Act, 1996* to state that the High Court’s role is limited to reviewing whether the award is against the public policy of India.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of limited judicial interference in arbitration matters. The Court emphasized that the High Court’s role under Section 37 of the Arbitration Act is not to re-evaluate the merits of the case but to ensure that the arbitral award is not against the public policy of India. The Court noted that the High Court had acted as if it was hearing a first appeal, which is not permissible under Section 37. The Court also noted that the High Court had overruled the objection regarding the jurisdiction of the arbitrator.
| Reason | Percentage |
|---|---|
| Limited scope of Section 37 | 50% |
| High Court exceeded jurisdiction | 30% |
| Public policy of India | 20% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Logical Reasoning:
The Supreme Court considered the High Court’s approach and found that the High Court had acted outside the scope of its jurisdiction under Section 37 of the Arbitration Act. The Supreme Court emphasized the importance of upholding the finality of arbitral awards and limiting judicial intervention to the grounds specified in the Act.
“As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India.”
“The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal.”
“The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial Court.”
Key Takeaways
- High Courts have limited jurisdiction under Section 37 of the Arbitration Act.
- High Courts cannot re-evaluate the merits of a claim when hearing an appeal against an arbitral award.
- The scope of review under Section 37 is limited to whether the award is against the public policy of India.
- This judgment reinforces the principle of minimal judicial interference in arbitration matters.
- It emphasizes the finality of arbitral awards and the importance of adhering to the statutory framework.
Directions
The Supreme Court did not give any specific directions other than setting aside the High Court’s judgment and restoring the arbitrator’s award and the order of the Additional District Judge.
Development of Law
The ratio decidendi of this case is that the High Court, while exercising its appellate jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, cannot re-appreciate the evidence or enter into the merits of the claim. Its jurisdiction is limited to examining whether the arbitral award is in conflict with the public policy of India. This judgment reinforces the principle of minimal judicial interference in arbitration matters and upholds the finality of arbitral awards. There is no change in the previous position of law, but this judgment clarifies the scope of Section 37 of the Arbitration and Conciliation Act, 1996.
Conclusion
The Supreme Court’s decision in Haryana Tourism Limited vs. M/s Kandhari Beverages Limited clarifies the limited scope of appellate jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996. The Court emphasized that High Courts cannot act as first appellate courts and re-evaluate the merits of a claim. This judgment reinforces the principle of minimal judicial interference in arbitration matters and upholds the finality of arbitral awards, ensuring that the arbitral process remains efficient and effective.
Category
Parent Category: Arbitration Law
Child Categories:
- Section 37, Arbitration and Conciliation Act, 1996
- Public Policy
- Appellate Jurisdiction
- Arbitration Award
Parent Category: Arbitration and Conciliation Act, 1996
Child Category: Section 37, Arbitration and Conciliation Act, 1996
FAQ
Q: What is the main issue in the Haryana Tourism vs. Kandhari Beverages case?
A: The main issue was whether the High Court exceeded its jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, by re-evaluating the merits of an arbitral award.
Q: What is the scope of Section 37 of the Arbitration Act?
A: Section 37 of the Arbitration Act deals with appeals against orders made under Section 34, which concerns setting aside an arbitral award. The scope of review under Section 37 is limited to whether the award is against the public policy of India.
Q: Can a High Court re-evaluate the evidence in an appeal under Section 37?
A: No, the High Court cannot re-evaluate the evidence or enter into the merits of the claim. Its role is limited to reviewing whether the award is against the public policy of India.
Q: What does “public policy of India” mean in the context of arbitration?
A: An award is considered against the public policy of India if it is contrary to the fundamental policy of Indian Law, the interests of India, justice or morality, or if it is patently illegal.
Q: What was the Supreme Court’s decision in this case?
A: The Supreme Court allowed the appeal, setting aside the High Court’s judgment. The Court restored the arbitrator’s award and the order of the Additional District Judge, emphasizing the limited scope of jurisdiction under Section 37 of the Arbitration Act.