Article on

Scope of appeals under Section 37 of

Arbitration and Conciliation Act 1996 –

A case for consistency

By-

Vinod Kumar Goyal, Advocate

The Arbitration and Conciliation Act, 1996, serves as a critical framework for resolving disputes through arbitration in India. One of the key provisions of this Act is Section 37, which deals with appeals against orders passed under Section 34—the provision dealing with setting aside arbitral awards. However, recent judgments by the Supreme Court of India have revealed a divergence in the interpretation of this provision, highlighting the need for consistency in the law.

 The Case: Punjab State Civil Supplies Corporation Ltd. vs. Sanman Rice Mills

A recent Supreme Court case, Punjab State Civil Supplies Corporation Ltd. & Anr. vs. Sanman Rice Mills & Ors., provides a striking example of the inconsistent approach adopted by different Benches of the Court when interpreting the scope of appeals under Section 37. The case arose after the Additional District Judge dismissed a petition under Section 34, rejecting a challenge to an arbitral award. The High Court, however, set aside the District Judge’s order and the arbitral award in its appeal under Section 37.

The Supreme Court’s two-judge Bench, in this case, initially observed that the appellate power under Section 37 was akin to the grounds of challenge enumerated under Section 34. The Court emphasized that the appellate jurisdiction under Section 37 is restricted, with limited interference with arbitral awards, following the grounds laid out in Section 34. Specifically, the scope of interference is to ensure that the court under Section 34 has not exceeded its jurisdiction or failed to exercise its power.

However, the Court’s analysis seems to contradict this conclusion. After affirming that the appellate power should only be exercised in cases where the court under Section 34 has acted beyond its prescribed jurisdiction, the Bench proceeded to endorse the arbitral award. The Court found the award to be reasonable and based on evidence, implying that the Section 34 court’s decision to uphold it was correct. Yet, almost in passing, it remarked that the appellate court should not have set aside the award without establishing that it suffered from any illegality as per Section 34.

 Divergence in Judicial Approach

This judgment is significant because it failed to consider the earlier ruling of a coordinate Bench in Bombay Slum Redevelopment Corporation Pvt. Ltd. vs. Samir Narain Bhojwani. In that case, a similar fact situation arose, and the Supreme Court had decided that, where the single judge of a High Court had already addressed the merits of the challenge under Section 34, the matter should be remanded to the Division Bench for a fresh decision on the merits. The Bombay Slum case highlighted that the appellate court under Section 37 should not re-analyze the merits of the arbitral award or the findings of the Section 34 court, as this would deprive the losing party of an important opportunity to contest the decision.

In stark contrast, the Bench in the Punjab State Civil Supplies case did not remand the matter but instead overturned the High Court’s order on the grounds that the appellate court had made a "manifest error of law." This decision deprived the parties of a chance to re-argue the matter on its merits before the appellate court. Strangely, the same judge who had been part of the Bombay Slum Bench also decided the Punjab State Civil Supplies case, which makes the lack of consistency in the judicial approach even more notable.

 Importance of Consistency in Judicial Pronouncements

The inconsistent approach taken by these coordinate Benches of the Supreme Court brings to light a critical issue of judicial consistency. The principle that a decision by one coordinate Bench binds another is well-established in Indian law. In Shah Faesal vs. Union of India, the Supreme Court affirmed that rulings of a coordinate Bench are binding on subsequent Benches of the same strength, stressing that deviations from such rulings can only be made by a larger Bench.

Despite this, in the case of the Punjab State Civil Supplies Corporation, the later Bench seemingly ignored the earlier decision in the Bombay Slum Redevelopment case, thereby creating confusion in the law. This divergence not only undermines legal certainty but also harms the parties involved, who are left unsure about the consistency of the Court’s interpretation of Section 37. This creates a legal environment where the predictability of outcomes in arbitration-related appeals is compromised.

   The Need for Systemic Consistency

The conflicting approaches to the scope of appeals under Section 37 underscore the urgent need for greater consistency in judicial pronouncements. This issue is not just a technical legal matter but a question of access to justice and fair treatment for parties involved in arbitration.

In particular, the failure to follow an earlier coordinate Bench decision in the Punjab State Civil Supplies case leaves the door open to confusion and legal uncertainty. As emphasized in previous rulings, including those in National Insurance Co. Ltd. v. Pranav Sethi, when there are conflicting decisions by coordinate Benches, it becomes the duty of the Court to resolve the inconsistency, either by referring the matter to a larger Bench or ensuring that subsequent decisions align with established principles.

 Conclusion

The evolving jurisprudence surrounding Section 37 of the Arbitration and Conciliation Act calls for careful and consistent application of legal principles by the judiciary. The inconsistent approach in recent Supreme Court rulings, as demonstrated in the Punjab State Civil Supplies case, highlights the need for systemic reforms to ensure consistency in the interpretation of appeals against arbitral awards. This is crucial not only for ensuring the effectiveness of arbitration as a dispute resolution mechanism but also for fostering trust in the legal system.

THANK YOU

Vinod Kumar Goyal, Advocate

Founder – VKG Law Firm

9810735073 – www.vkglawfirm.co.in

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