Appellate Court Cannot Reappraise Arbitral Award Merely on Alternate View; Division Bench Order Set Aside

A bench of Justice Pamidighantam Sri Narasimha and Justice Pankaj Mithal heard an appeal challenging a Division Bench judgment of the Madras High Court which had set aside portions of an arbitral award relating to idling charges for a Backhoe Dredger (BHD) in a major port dredging contract. The primary question was whether the Division Bench, in exercise of its powers under Section 37 of the Arbitration and Conciliation Act, 1996, could disturb a Single Judge’s confirmation of the arbitral award where the award was not vitiated by any ground available under Section 34.

The Supreme Court allowed the appeal, set aside the Division Bench order dated 15.03.2021 and restored the Arbitral Tribunal’s award as affirmed by the Single Judge. The Court held that the scope of appellate interference under Section 37 was coextensive with the limited grounds of challenge under Section 34 and that an appellate court could not reappraise the merits or substitute its own view where the arbitral tribunal’s construction of the contract was a plausible one. The Court emphasised the need for minimal judicial intervention in domestic arbitration and held that the Arbitral Tribunal was entitled to award idle-time compensation for the Backhoe Dredger under the contract terms, in particular Clause 51.1 read with other clauses. The Court, in its reasoning, observed: "In other words, the scope of interference of the court with the arbitral matters is virtually prohibited, if not absolutely barred. The powers of the Appellate Court are even more restricted than the powers conferred by Section 34 of the Act. The appellate power under Section 37 of the Act is exercisable only to find out if the court exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred. The Appellate Court exercising powers under Section 37 of the Act has no authority of law to consider the matter in dispute before the Arbitral Tribunal on merits so as to hold as to whether the award of the Arbitral Tribunal is right or wrong. The Appellate Court in exercise of such power cannot sit as an ordinary court of appeal and reappraise the evidence to record a contrary finding. The award of the Arbitral Tribunal 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."

Background The dispute arose from a License Agreement between a dredging contractor and a Major Port Trust for deepening port channels. The contractor completed the work ahead of schedule and submitted its final bill, but payment disputes followed. The matter went to arbitration and the three-member Arbitral Tribunal awarded, among other claims, Rs.14,66,04,216 for idling charges of a Backhoe Dredger (Claim No.7) on account of delayed possession and interruptions. The Port Trust challenged the award under Section 34 before the Madras High Court; the Single Judge dismissed the petition, upholding the Tribunal’s interpretation that idle-time compensation could extend to equipment other than the “major dredgers” expressly mentioned in Clause 38. Clause 38 stated, inter alia, that "The Contractor shall furnish idle time charges for the major dredgers proposed to be deployed by him in the BOQ." Clause 51.1 provided for payment for interruptions caused by port traffic and other operations and defined the mechanics for notifying and measuring idle time. The Division Bench in OSA No.101/2020 restricted its challenge to Claim No.7 and held that idle-time compensation applied only to major dredgers, deleting the award for the Backhoe Dredger. The contractor appealed to the Supreme Court.

Counsel for the appellant argued that Section 37 did not permit the appellate court to travel beyond the narrow ambit of Section 34 and that the Tribunal’s interpretation was a reasonable one that the courts below should not disturb. Counsel for the Port Trust contended that the award was contrary to the contract because Backhoe Dredger was not a major dredger and that the Tribunal had erred in applying Clauses 41 and 51.1 interchangeably. The Supreme Court reviewed precedent (including MMTC v. Vedanta, Konkan Railway, and Punjab State Civil Supplies) stressing that appellate interference was permissible only where a Section 34 ground was made out or there was patent illegality. Finding no such ground and holding the award to be a “speaking award” based on plausible interpretation of the contract, the Court held the Division Bench erred in reappraising the merits and set aside its order. The appeal was allowed with no order as to costs.

Case No.: 2026 INSC 34 (Arising out of S.L.P. (C) No. 8803 of 2021) Case Title: Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust Appearances: For the Petitioner(s): Shri Chander U. Singh, Senior Counsel For the Respondent(s): Shri S. Nagamuthu, Senior Counsel