Current Affairs

Source: Allahabad High Court

Why in News?

Recently the Allahabad High Court held that the scope of interference in appellate proceedings under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) stands bracketed to the grounds which are available under Section 34 of A&C Act for challenging the award.

What was the Background of Union of India Through Garrison Engineer vs Ms. Satendra Nath Sanjeev Kumar Architect, Contractors/Builders, Civil Engineers, And Colonisers case?

• A tender was floated by the appellant for executing the work of Provn of Water Borne Sanitation to existing Pan Type Latrines.
• The completion period was 12 months, i.e. 17^th September 1986, but on extension, the work was finished on 30^th April 1998 on which date, the respondent physically handed over the project to the appellant.
• Disputes and differences started, and it was referred to sole arbitration.
• The tribunal pronounced the award in favor of respondent.
• Appellant filed an application under Section 34 of A&C Act to challenge the award pronounced by tribunal before the Commercial Court.
• The commercial court rejected the application and upheld the validity of the award pronounced by sole arbitrator.
• The appeal was presented before the Allahabad High Court to challenge the order of commercial court and the award of sole arbitrator.
• The bone of contention between the parties is whether the escalation of wages etc. was arbitral or not.

What were the Court’s Observations?

• The Court finds that Clause 58 of the General Conditions of Contracts deals with the payment of fair wages which should not be minimum to the wages fixed under the Payment of Wages Act. The High Court stated in our opinion the escalation of wages could not have been said to be non-arbitral.
• The award is not required to be set aside until and unless it is vitiated by "patent illegality" appearing on the face of the record with a caveat that the award should not be set aside merely on the ground of erroneous application of law or by appreciation of evidence.
• Nonetheless, it is also not permissible to interfere, particularly, when the interpretation is a plausible one.
• Viewing the case from all the angles, this Court has no hesitation to hold that the award does not suffer from any patent illegality so as to warrant interference in the present proceedings.
• Therefore, the High Court upheld the decision of the Commercial Court.
• Accordingly, the appeal being devoid of merits and is liable to be dismissed.

What are the Legal Provisions Involved in this Case?

Section 34 of A&C Act:

• This Section deals with the application for setting aside arbitral award. It states that-

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application establishes on the basis of the record of the arbitral tribunal that—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

Section 37 of A&C Act:

• This Section deals with the appealable orders. It states that-

(1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders (and from no others) to the Court authorized by law to hear appeals from original decrees of the Court passing the order, namely: —

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) Appeal shall also lie to a court from an order of the arbitral tribunal—

(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or takeaway any right to appeal to the Supreme Court.