On September 27, 2024, the Supreme Court bench,  Justice PS Narasimha and Justice Pankaj Mithal, addressed the arbitration dispute and effectively clarified that the appellate court cannot reevaluate the evidence to determine the validity of the arbitral tribunal's award.

The background of this case was that the Punjab State Civil Supplies Corporation entered into an agreement with M/s Sanman Rice Mills on October 6, 2008, to supply paddy for milling. The Corporation provided 2,02,850 bags of paddy, but the Rice Mill only returned part of the processed rice, resulting in a shortfall of 35,110.39 quintals. This shortage, amounting to Rs. 7,16,15,716, was recoverable from the Rice Mill. Due to the dispute an Arbitrator was appointed. On November 8, 2012, the Arbitrator passed an arbitral award and awarded Rs. 2,67,66,804 to the Punjab State Civil Supplies Corporation, along with interest at 12% per annum.

The Rice Mill challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996 but the Additional District Judge dismissed the petition on April 7, 2015, finding no grounds for interference. Dissatisfied by this, the Rice Mill appealed under Section 37 of the Arbitration and Conciliation Act to the High Court, which allowed the appeal on January 10, 2017, overturning both the District Judge's decision and the original arbitral award.

Aggrieved by the order dated January 10, 2017, the corporation filed an appeal before the Supreme Court to set aside the High Court's judgement and District Judge's Order that overturned the previous arbitral award.

After hearing the submission made by both parties, the question before the Supreme Court was the scope of powers of the High Court under Section 37 of the Arbitration Act and if the High Court was justified in setting aside the award that had already been confirmed under Section 34 of the Act.

The Arbitration and Conciliation Act, 1996, aims to offer a quick and cost-effective alternative for dispute resolution, minimising court intervention. Section 5 reinforces this by prohibiting judicial interference in arbitration proceedings, except as specified in Part I of the Act. Interference with arbitration is limited to Sections 34 and 37 of the Act. Section 34 allows for an arbitral award to be set aside on specific grounds, such as being contrary to India's public policy, fraud, corruption, or fundamental legal principles. The court's review under this section is restricted, focussing only on these grounds. Section 37 establishes a right to appeal against orders related to setting aside arbitral awards under Section 34.

"It is equally well settled that the appellate power under Section 37 of the Act is not akin to the normal appellate jurisdiction vested in the civil courts for the reason that the scope of interference of the courts with arbitral proceedings or award is very limited, confined to the ambit of Section 34 of the Act only and even that power cannot be exercised in a casual and a cavalier manner."

Consequently, the court emphasised that intervention in arbitration matters is largely prohibited, limited to the grounds specified in Section 34. The appellate authority under Section 37 can only assess whether the lower court acted within its jurisdiction without re-evaluating the merits of the case. In this instance, the arbitral award from November 8, 2012, was found reasonable and not contrary to public policy or law. The appellate court erred by setting aside the award without establishing any illegality under Section 34. Consequently, the impugned judgement from January 10, 2017, is reversed, and the original arbitral award is reinstated for implementation. 

The Court allowed the Appeal with no costs ordered.

Advocate for Petitioner: Devendra Singh

Advocate for Respondent: Abhimanyu Tewari

Case Details: Punjab State Civil Suppliers Corporation Ltd. & Anr. v. M/s Sanman Rice Mills & Ors, 2024 INSC 742

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