While considering appeal under Sec.37 of Arbitration and Conciliation Act, High Court cannot enter into merits of claim: Supreme Court

Read Judgment: Haryana Tourism Limited V. M/s Kandhari Beverages Limited 

Pankaj Bajpai

New Delhi,  January 12, 2022: The Supreme Court has opined that an arbitral award can be set aside u/s 34/37 of the Arbitration and Conciliation Act, 1996, if the award is found to be contrary to, fundamental policy of Indian Law; or the interest of India; or justice or morality; or if it is patently illegal.

A Division Bench of Justice M.R. Shah and Justice B.V. Nagarathna observed that an arbitral award can be set aside only if the award is against the public policy of India. 

The background of the case was that, Haryana Tourism Limited (Appellant – Corporation) invited tenders for supply of Aerated Cold Drinks at its Tourist Complexes for the period May 15, 2001 to May 14, 2002. The tender submitted by Kandhari Beverages (Respondent) was accepted by the Corporation. As per the agreement, the respondent was supposed to pay a sum of Rs. 20 lakhs on account of Brand Promotion which was required to be spent as per mutual agreement between the parties.

In the meanwhile, the Corporation organized a Mango Mela and spent a sum of Rs. 1 lakh. Both the parties agreed to hold musical nights. According to the respondent, it spent a sum of Rs.13.92 lakhs. However, the appellant-Corporation asked the respondent to deposit a sum of Rs. 19 lakhs as sponsorship money. Later, the appellant terminated the contract, which resulted in dispute between the parties and the matter was referred to the sole arbitrator. Accordingly, the arbitrator directed the respondent to pay a sum of Rs. 9.5 lakhs.

The respondent thereafter filed objection petition before Additional District Judge, Chandigarh u/s 34 of the Arbitration Act against the award passed by the arbitrator, which came to be dismissed. Later, the High Court quashed the award passed by the arbitrator as well as the order passed by Additional District Judge, Chandigarh. 

After considering the submissions, the Apex Court noted that in an appeal u/s 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers u/s 37 of the Arbitration Act. 

Speaking for the Bench, Justice Shah observed that the High Court had entered into the merits of the claim and had decided the appeal u/s 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the Trial Court. 

Thus, the High Court had exercised the jurisdiction not vested in it u/s 37 of the Arbitration Act, concluded the Bench. 

Accordingly, the award passed by the arbitrator and the order passed by the Additional District Judge u/s 34 of the Arbitration Act overruling the objections stood restored, added the Apex Court.