The legal landscape is currently overcrowded with outstanding cases, making arbitration a crucial mechanism for resolving disputes between parties outside of the courtroom. However, courts have started to question the legitimacy of arbitral awards, which raises concerns about the validity and autonomy of arbitration institutions.
This situation presents a significant risk to the effectiveness of arbitration as an alternative dispute resolution method. It leads to overstepping the boundaries of the court which leads to moving beyond the challenging grounds under section 34(2)(ii) of the Arbitration and Conciliation Act, 1996.[1] In this article, we have discussed the challenged awards that are not within the purview of court jurisdiction or re-appreciation of evidence.
The legal implications upon the courts in solving the issues relating to overstepping of boundaries by the courts under the limitation provided under the Arbitration and Conciliation Act, 1966 in the case of “Oil & Natural Gas Corporation Ltd Versus David Parker Construction Ltd C/O I B Patel (P A Holder) & Anr”.
Factual matrix of the case
The disputes related to the construction contract between ONGC and David Parker Construction Ltd. for the construction of “D-Type” residential units for ONGC Township at Vadodara. As a result arbitration proceedings started between the parties a result arbitral awards were conferred upon each of these parties.
Dissatisfied with the arbitral awards, the ONGC contested the alleged claim on certain grounds such as liquidated damages and overpayment related to price escalation. The Additional District Judge heard the claims of the ONGC and gave a decree setting aside the award, dissatisfied with the decree/order, David Parker Construction Ltd. challenged the decision before the high court.
Ruling in favor of the arbitrator
The High Court of Gujarat criticized the appeal to be heard as it passed its limitation under section 34 of the Arbitration and Conciliation Act, 1996 for allowing it to pass to set aside arbitral award. The court took cognizance of the issues and clarified that the application under section 34(b)[2] is not valid and re-appreciation of evidence isn’t possible and held that the arbitration decision is reasonable, and supported by documents. The lower court decision is contrary to the statute and David Parker Construction Ltd. failed to provide its valid statements supported with evidence to set aside the award.
As a result, the high court overturned the judgment of the lower court. It impliedly expressed that re-examination of evidence isn’t permissible under section 34 if the contractual terms aren’t properly interpreted by the court in setting aside an arbitral award. However, David Parker Construction Ltd. failed to provide evidence regarding the overdue bills and failed to pay in certain other suits. This court found it to be reasonable upon which the arbitrator provided its reasonable award.
Analyzing it with another judgment related to Reliance Communications Limited Vs Unique Identification Authority Of Indiaheld that “when contractual obligations are unambiguous, the arbitral tribunal does not need to evaluate trade practices. Section 28(3)[3] compels the Arbitral Tribunal to evaluate both contract terms and trade usages, with the contract terms taking precedence”[4]. It is reasoned that the interpretation made by the arbitrator is a reasonable one, and it adhered to contractual clauses. Analyzing it, the high court took certain interim measures to hear from both sides the appellant as well as the David Parker Construction Ltd.
Inadequate implementation of appropriate procedures by the court in exercising its jurisdiction
In this judgment, it can be analyzed that the decree provided by the court is not rational due to the interpretation not within the contractual terms of the contract. The additional court oversaw the fact the arbitral award was provided by the arbitrator by hearing and analyzing from both sides, and it concluded, that both the parties received their arbitral awards within the interpretation of the contractual terms.
The high court analyzed that arbitral awards were awarded with reasoned substantive because clauses 7 and 8 of the contract, serve the function of the billing process and measurement process. The arbitrator noticed that David Parker Construction Ltd. did not adhere to this due date and had some non-payment history. The lower court overstepped its boundaries by stepping beyond the statute and past limitations. As a result, it is a matter of grave concern of arbitration which challenges its purpose is to maintain neutrality and arbitral awards be binding.
However, in this case, there were instances of violation, and did show that the lower court needed to properly rethink its decision depending upon the contractual terms for which the arbitral award was passed. It provides us some insight that the arbitration is primarily instituted for solving disputes between the parties but, if the court finds different grounds for challenging not within the statutes. It would overburden the court with several case files and would have a delay in hearing it.
Limitation of courts to interfere in arbitral awards
The courts have limited grounds in which the arbitral award can be challenged under section 34 & section 37 of the Arbitration and Conciliation Act, 1996[5]. In PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021[6] wherein it was observed that “It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii)[7], but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts”.
The notion behind this observation as there is a high probability that challenging the arbitral award will be issued from time to time as it will question the validity of the arbitration, and will lose its credibility of not being influenced by external factors such as force, coercion, or fraud, etc. As a result, it would fail to set a precedent in Indian jurisprudence if many cases arise regarding its credibility and its scope for faster disposal of cases outside the courts.
The statute of arbitration provides for limited grounds to interfere with arbitral awards such as patent illegality and against the public policy in India[8]. As a result, it attracts the constitutional violation of articles 13[9], article 14[10], and can be corrected through writ appeals enforced or directed through article 32[11] of the Constitution of India. The Constitution of India makes sure that law or any other statute violates or infringes upon any legal rights, it would protect it and ensure fairness, equity, and justice.
Section 34[12] of the arbitration provides grounds against setting aside an arbitral award under public policy in India. While the term encompasses everything, the court is limited to such grounds unless precedent has been set to impose directions or orders due to the changing mechanism of grounds dynamic in the legal landscape in India.
Suggestion
With the rise of new cases to be disposed before the courts, especially in arbitration, it needs to focus on implementing a policy or establishing an act regarding setting aside arbitral awards to contradict express or implied terms in contracts or agreements.
Furthermore, I believe that the time has come for the Supreme Court to establish rules governing when High Courts and lower courts may interfere under section 34, under the public policy heading. It is simple to adopt the perspective, shared by some observers, that the 1996 Act was intended to restrict the Court’s supervisory power and that the Court should not deviate from the legislative objective of Parliament.
Conclusion
The case provides insights into the challenges associated with arbitration awards that cannot be contested due to the absence of explicit contractual terms and the limited grounds for challenge. Despite this, the court exercised its jurisdiction to set aside the award, an action that overstepped its limitations and lacked reasonable justification.
Consequently, the case was dismissed, establishing a valuable precedent. This outcome has encouraged parties to resolve disputes outside of court, highlighting a critical opportunity for the parliament to develop policies and establish a committee to define the grounds for challenging arbitration awards.
It is easy to take the view, held by some observers, that the Court should not stray from Parliament’s legislative goal and that the 1996 Act was designed to limit the Court’s supervisory authority. As arbitration evolves in India, this would lead to the implementation and regulation of more stringent laws in the future. In conclusion, I assert that the Supreme Court should take the necessary steps to set clear guidelines regarding the conditions under which High Courts and lower courts can intervene under Section 34, particularly concerning the public policy element. While it is easy to align with the viewpoint held by some commentators that the 1996 Act aimed to limit the supervisory authority of the Court, it is essential for the Court to adhere to the legislative intent established by Parliament.
[1] Arbitration and Conciliation Act 1996, s 34.
[2] Arbitration and Conciliation Act 1996, s 34(b)
[3] Arbitration and Conciliation Act 1996, s 28(3)
[4] Rajesh Kumar, ‘Delhi High Court Dismisses Reliance Communications’ Petition, Upholds Arbitrator’s Calculation of Call Minutes Based on Total Call Seconds’ < https://www.livelaw.in/arbitration-cases/delhi-high-court-dismisses-reliance-communications-petition-upholds-arbitrator-calculation-call-minutes-based-on-total-call-seconds-263463?fromIpLogin=72884.40483551295> accessed on 1st of December 2024.
[5] Arbitration and Conciliation Act 1996, s 37.
[6] Bhumika Indulia, ‘Court’s interference in regard to arbitral awards: Limited or Not? Del HC explains with the view taken by SC decision’ < https://www.scconline.com/blog/post/2021/10/07/scope-of-interference-in-regard-to-arbitral-awards/#:~:text=%E2%80%9CIt%20is%20only%20if%20one%20of%20these%20conditions,but%20goes%20to%20the%20root%20of%20the%20matter.> accessed on 2nd of December 2024.
[7] Arbitration and Conciliation Act 1996, s 34.
[8] Rajesh Kumar, ‘Gujrat High Court Sets Aside Order of District Judge Which Interfered with Arbitration Award’ < https://www.livelaw.in/high-court/gujarat-high-court/gujrat-high-court-sets-aside-order-of-district-judge-which-interfered-with-arbitration-award-260596?fromIpLogin=6885.099756297919> accessed on 1st of December 2024.
[9] Constitution of India, art 13.
[10] Constitution of India, art 14.
[11] Constitution of India, art 32.
[12] Arbitration and Conciliation Act 1996, s 34.
Author: Asmit Kumar Singh, 3rd year, BA LL.B student National Law University Odisha (NLUO)
