Challenge to arbitral awards before courts would frustrate very purpose of Act: SC

New Delhi, The Supreme Court on Wednesday said if courts are allowed to step in at every stage and arbitral awards are subjected to a challenge before them, it would frustrate and defeat the very purpose of the law on arbitration.

A bench of Justices P S Narasimha and Pankaj Mithal said the Arbitration and Conciliation Act, 1996, is a special enactment aimed at resolving contractual or commercial disputes through arbitration, with the minimum intervention of the court.

The top court's observations came while setting aside a March 2021 judgment of a division bench of the Madras High Court, which had directed for the deletion of a claim awarded by an arbitral tribunal to a firm.

"Before parting, we consider it proper to note that the Act is a special enactment, which aims to resolve contractual or commercial disputes through arbitration, with the minimum intervention of the court, if not without the intervention of the court," the bench observed.

It said if courts are allowed to step in at every stage and the arbitral awards are subjected to a challenge before them in hierarchy "and finally, by means of SLP/civil appeal before the Supreme Court, it would obviate/frustrate and defeat the very purpose of the Act".

The apex court delivered its verdict on an appeal filed by a firm, which has expertise in executing complex dredging operations, challenging the high court order.

The top court said it is necessary to accept an arbitral award if it is not patently illegal or does not fall within the scope of intervention under section 34 of the Act, which deals with an application for setting aside arbitral awards.

It said the appeal has a much narrower scope of intervention, particularly when the arbitral award has been upheld under section 34 of the Act.

"The appellate jurisdiction acquires little significance only when the arbitral award has been erroneously upheld or set aside by the court in exercise of its power under section 34 of the Act as discussed earlier, but has no authority of law to consider the matter which was before the arbitral tribunal on merits," it said.

The bench said the primary objective of the Act was to provide a speedy and inexpensive mode of resolution of disputes through the process of arbitration, with the minimum intervention of courts.

It said the Act provides for a challenge of an arbitral award before a court on limited grounds, as contemplated by section 34.

"In other words, the scope of interference of the court with the arbitral matters is virtually prohibited, if not absolutely barred," the bench said.

It noted that disputes arose between the parties relating to alleged non-payment and under-payment of dues, as raised under the final bill for a dredging project.

Initially, the dispute was referred in September 2012 to an arbitral tribunal, which awarded an amount of ₹14.66 crore to the firm in respect of its claim regarding idling charges of Backhoe Dredger.

The arbitral award was challenged by the Tuticorin Port Trust before a single-judge bench of the high court.

The single-judge bench dismissed the petition and upheld the findings of the arbitral tribunal.

Later, the port trust went in appeal before the high court's division bench, which directed for the deletion of the claim awarded by the tribunal in respect of the idle charges for Backhoe Dredger.

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