Limited Judicial Intervention in Arbitration

Source: Supreme Court 

Why in News? 

The bench of Justices P.S. Narasimha and Pankaj Mithal in the case of Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust (2026) set aside the Madras High Court Division Bench judgment, which had allowed the appeal against the Single Judge's order refusing to set aside the arbitral award. 

• The Court stated that the arbitral award cannot be touched by the court unless it is contrary to the substantive provision of law or any provision of the Act or the terms of the agreement. 

What was the Background of Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust (2026) Case? 

• The dispute arose from a 2010 dredging contract awarded by Tuticorin Port Trust to Jan De Nul for deepening its channel. 
• The company completed the work eight months ahead of schedule. 
• A dispute arose over final payments, leading to arbitration. 
• The Arbitral Tribunal in 2014 allowed several claims worth more than ₹14.66 crore, including Claim No. 7 for idling charges of a Backhoe Dredger (BHD) deployed for the project. 
• The idling was attributed to the Port Trust's failure to provide site access in time. 
• The Port Trust's challenge under Section 34 of the Arbitration and Conciliation Act, 1996, was dismissed by a single judge of the Madras High Court in 2019, who found no grounds to interfere. 
• A Division Bench, in an appeal under Section 37 of the Act, reversed this in March 2021. 
• The Division Bench accepted the Port Trust's argument that contractual Clause 38, which mentioned idle time charges for "major dredgers," excluded compensation for a BHD, which it termed a "minor dredger." 
• The Division Bench justified its intervention on the ground that the Arbitral Tribunal failed to adopt what it considered to be a "better" interpretation of the contract, treating this as a ground for interference on the premise that the award was contrary to the substantive provisions of law. 

What were the Court's Observations? 

• The Court disagreed with the Division Bench's decision, stating that a different interpretation of the contract by itself cannot be a ground to interfere with an award. 
• The Court noted that the Arbitral Award contained logical reasons in construing the License Agreement clauses, and the view taken had been accepted under Section 34 as reasonable and possible. 
• The Court emphasized that if the arbitral tribunal's interpretation remains undisturbed under Section 34, it cannot be disturbed under Section 37 appeals. 
• The Court clarified that appellate courts under Section 37 have no authority to consider the dispute on merits or determine whether the arbitral award is right or wrong. They cannot sit as ordinary appellate courts and reappraise evidence. 
• The Court held that arbitral awards cannot be touched unless contrary to substantive law, the Act's provisions, or the agreement terms. 
• The Court observed that the Appellate Court was bound by the interpretation given by the Arbitral Tribunal and accepted by the Single Judge under Section 34. 
• The Court noted that the Arbitration Act aims to resolve commercial disputes with minimum court intervention. Allowing courts to step in at every stage would defeat the Act's very purpose. 
• The Court stated that arbitral awards must be accepted if not patently illegal or outside Section 34's scope of intervention. Appeals have a much narrower scope, particularly when awards are upheld under Section 34. 
• Resultantly, the appeal was allowed, restoring the arbitral award. 

What is Section 34 of the Arbitration and Conciliation Act, 1996? 

Section 34: Application for Setting Aside Arbitral Awards: 

General Principle: 

• Recourse against an arbitral award can only be made through an application for setting aside under Section 34. 

Grounds for Setting Aside (Sub-section 2(a)): 

Party must establish on record that: 

• A party was under some incapacity. 
• The arbitration agreement is not valid under applicable law. 
• Party was not given proper notice of arbitrator appointment or arbitral proceedings. 
• Party was unable to present their case. 
• Award deals with disputes not contemplated by or falling outside the arbitration agreement. 
• Award contains decisions beyond the scope of submission to arbitration. 
• Composition of arbitral tribunal or procedure was not in accordance with parties' agreement or the Act. 

Grounds for Setting Aside (Sub-section 2(b)): 

Court finds that: 

• Subject matter of dispute is not capable of settlement by arbitration under law. 
• Award is in conflict with public policy of India. 

Public Policy Clarification: 

Award is in conflict with public policy only if: 

• Making of award was induced by fraud or corruption or violated Section 75 or 81. 
• Award contravenes fundamental policy of Indian law. 
• Award conflicts with most basic notions of morality or justice. 
• Important: Test for contravention with fundamental policy does not entail review on merits 

Patent Illegality (For Domestic Arbitrations): 

• Award may be set aside if vitiated by patent illegality appearing on face of award. 
• Exception: Award cannot be set aside merely on ground of erroneous application of law or reappreciation of evidence. 

Time Limit: 

• Application must be filed within 3 months from receiving the award. 
• Extension of maximum 30 days possible if prevented by sufficient cause. 
• No application entertained after total period of 3 months + 30 days. 

Procedural Requirements 

• Prior notice must be issued to other party before filing application. 
• Application must be accompanied by affidavit confirming compliance with notice requirement. 
• Application must be disposed of expeditiously within 1 year from service of notice. 

Court's Discretionary Power: 

• Court may adjourn proceedings to allow arbitral tribunal opportunity to resume proceedings or take corrective action to eliminate grounds for setting aside.