Supreme Court of India
Punjab State Civil Supplies … vs M/S. Sanman Rice Mills on 27 September, 2024
Author: Pankaj Mithal
Bench: Pankaj Mithal, Pamidighantam Sri Narasimha
2024 INSC 742 NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2024
(ARISING OUT OF SLP (C) NO. 27699 OF 2018)
PUNJAB STATE CIVIL SUPPLIES
CORPORATION LIMITED & ANR. …APPELLANT(S)
VERSUS
M/S SANMAN RICE MILLS & ORS. …RESPONDENT(S)
JUDGMENT
PANKAJ MITHAL, J.
1. Leave granted.
2. The challenge in this Civil Appeal is to the judgment and
order dated 10.01.2017 passed by the High Court of Punjab
Signature Not Verified & Haryana at Chandigarh in exercise of powers under
Digitally signed by
SNEHA DAS
Date: 2024.09.27
17:09:36 IST
Reason:
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Section 37 of the Arbitration and Conciliation Act, 19961
setting aside the order dated 07.04.2015 passed under
Section 34 of the Act and also the arbitral order dated
08.11.2012.
FACTS:
3. The appellant – Punjab State Civil Supplies Corporation Ltd.2
entered into an agreement dated 06.10.2008 with M/s
Sanman Rice Mills3 whereunder the Corporation was to
supply paddy to the Rice Mill for the purpose of milling that
had to supply back the resultant rice to the Corporation.
4. A total of 2,02,850 bags of Grade ‘A’ variety of paddy weighing
70,997.50 quintals was supplied by the Corporation to the
Rice Mill. However, after processing, the Rice Mill resupplied
only a part of the same with a shortfall of 35110.39 quintals
of rice. Thus, this shortage in quantity of rice equivalent to a
total cost of Rs.7,16,15,716/- was recoverable from the Rice
Mill. Against the aforesaid outstanding amount, the Rice Mill
1 hereinafter referred to as ‘the Act’
2 hereinafter referred to as ‘the Corporation’
3 hereinafter referred to as ‘the Rice Mill’2
paid ten cheques of Rs.50 lakh each amounting to Rs.5 croreto the Corporation leaving a balance of Rs.2,16,15,716/-.
Thus, there arose a dispute between the parties with regard
to the recovery of the balance amount. The dispute was
referred to the Arbitrator.
5. The Arbitrator passed an award on 08.11.2012 and awarded
a sum of Rs.2,67,66,804/- in favour of the Corporation as
against the Rice Mill. The amount awarded was to be paid
with interest @ 12 per cent per annum. The said award was
objected to by the Rice Mill by filing a petition under Section
34 of the Act before the Additional District Judge. It was
dismissed on 07.04.2015 with the finding that there is no
illegality in the award within the scope of interference
permissible under Section 34 of the Act. Not satisfied by the
aforesaid order, the Rice Mill filed an appeal under Section
37 of the Act before the High Court. The appeal has been
allowed by the impugned judgment and order 10.01.2017
and not only the judgment and order passed by the
Additional District Judge under Section 34 of the Act has
been set aside but also the Arbitral order dated 08.11.2012.
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6. It is in the above factual scenario that the Corporation has
preferred the present appeal for setting aside the impugned
judgment and order dated 10.01.2017 passed by the High
Court in an appeal under Section 37 of the Act.
7. Learned counsel for the parties were heard at length.
POINT OF DETERMINATION:
8. The short question on the submission of the parties, which
arises for our consideration is about the scope of powers of
the Appellate Court under Section 37 of the Act and whether
the Appellate Court was justified in setting aside the award
dated 08.11.2012 which had already been confirmed under
Section 34 of the Act.
LEGAL POSITION:
9. The object of the Act is to provide for a speedy and
inexpensive alternative mode of settlement of dispute with
the minimum of intervention of the courts. Section 5 of the
Act is implicit in this regard and prohibits interference by the
judicial authority with the arbitration proceedings except
where so provided in Part-I of the Act. The judicial
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interference, if any, is provided inter-alia only by means of
Sections 34 and 37 of the Act respectively.
10. Section 34 of the Act provides for getting an arbitral award
set aside by moving an application in accordance with sub-
Section (2) and sub-Section (3) of Section 34 of the Act which
inter-alia provide for the grounds on which an arbitral award
is liable to be set aside. One of the main grounds for
interference or setting aside an award is where the arbitral
award is in conflict with the public policy of India i.e. if the
award is induced or affected by fraud or corruption or is in
contravention with the fundamental policy of Indian law or it
is in conflict with most basic notions of morality and justice.
A plain reading of Section 34 reveals that the scope of
interference by the court with the arbitral award under
Section 34 is very limited and the court is not supposed to
travel beyond the aforesaid scope to find out if the award is
good or bad.
11. Section 37 of the Act provides for a forum of appeal inter-alia
against the order setting aside or refusing to set aside an
arbitral award under Section 34 of the Act. The scope of
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appeal is naturally akin to and limited to the grounds
enumerated under Section 34 of the Act.
12. It is pertinent to note that an arbitral award is not liable to
be interfered with only on the ground that the award is illegal
or is erroneous in law that too upon reappraisal of the
evidence adduced before the arbitral trial. Even an award
which may not be reasonable or is non-speaking to some
extent cannot ordinarily be interfered with by the courts. It is
also well settled that even if two views are possible there is
no scope for the court to reappraise the evidence and to take
the different view other than that has been taken by the
arbitrator. The view taken by the arbitrator is normally
acceptable and ought to be allowed to prevail.
13. In paragraph 11 of Bharat Coking Coal Ltd. v. L.K.Ahuja,4
it has been observed as under:
“11. There are limitations upon the scope of
interference in awards passed by an arbitrator.
When the arbitrator has applied his mind to the
pleadings, the evidence adduced before him and
the terms of the contract, there is no scope for the
court to reappraise the matter as if this were an4 (2001) 4 SCC 86
6
appeal and even if two views are possible, the
view taken by the arbitrator would prevail. So
long as an award made by an arbitrator can be
said to be one by a reasonable person no
interference is called for. However, in cases
where an arbitrator exceeds the terms of the
agreement or passes an award in the absence of
any evidence, which is apparent on the face of
the award, the same could be set aside.”
14. It is equally well settled that the appellate power under
Section 37 of the Act is not akin to the normal appellate
jurisdiction vested in the civil courts for the reason that the
scope of interference of the courts with arbitral proceedings
or award is very limited, confined to the ambit of Section 34
of the Act only and even that power cannot be exercised in a
casual and a cavalier manner.
15. In Dyna Technology Private Limited v. Crompton
Greaves Limited5, the court observed as under:
“24. There is no dispute that Section 34 of the
Arbitration Act limits a challenge to an award
only on the grounds provided therein or as
interpreted by various courts. We need to be
cognizant of the fact that arbitral awards should5 (2019) 20 SCC 1
7
not be interfered with in a casual and cavalier
manner, unless the court comes to a conclusion
that the perversity of the award goes to the root
of the matter without there being a possibility of
alternative interpretation which may sustain the
arbitral award. Section 34 is different in its
approach and cannot be equated with a normal
appellate jurisdiction. The mandate under
Section 34 is to respect the finality of the arbitral
award and the party autonomy to get their
dispute adjudicated by an alternative forum as
provided under the law. If the courts were to
interfere with the arbitral award in the usual
course on factual aspects, then the commercial
wisdom behind opting for alternate dispute
resolution would stand frustrated.
25. Moreover, umpteen number of judgments of
this Court have categorically held that the courts
should not interfere with an award merely
because an alternative view on facts and
interpretation of contract exists. The courts need
to be cautious and should defer to the view taken
by the Arbitral Tribunal even if the reasoning
provided in the award is implied unless such
award portrays perversity unpardonable under
Section 34 of the Arbitration Act.”
16. It is seen that the scope of interference in an appeal under
Section 37 of the Act is restricted and subject to the same
grounds on which an award can be challenged under Section
34 of the Act. In other words, the powers under Section 37
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vested in the court of appeal are not beyond the scope of
interference provided under Section 34 of the Act.
17. In paragraph 14 of MMTC Limited v. Vedanta Limited,6
it has been held as under:
“14. As far as interference with an order made
under Section 34, as per Section 37, is concerned,
it cannot be disputed that such interference
under Section 37 cannot travel beyond the
restrictions laid down under Section 34. In other
words, the court cannot undertake an
independent assessment of the merits of the
award, and must only ascertain that the exercise
of power by the court under Section 34 has not
exceeded the scope of the provision. Thus, it is
evident that in case an arbitral award has been
confirmed by the court under Section 34 and by
the court in an appeal under Section 37, this
Court must be extremely cautious and slow to
disturb such concurrent findings.”
18. Recently a three-Judge Bench in Konkan Railway
Corporation Limited v. Chenab Bridge Project
Undertaking7 referring to MMTC Limited (supra) held that
the scope of jurisdiction under Section 34 and Section 37 of
the Act is not like a normal appellate jurisdiction and the
6 (2019) 4 SCC 163
7 (2023) 9 SCC 85
9
courts should not interfere with the arbitral award lightly in
a casual and a cavalier manner. The mere possibility of an
alternative view on facts or interpretation of the contract does
not entitle the courts to reverse the findings of the arbitral
tribunal.
19. In Bombay Slum Redevelopment Corporation Private
Limited v. Samir Narain Bhojwani8, a Division Bench of
this Court followed and reiterated the principle laid down in
the case of MMTC Limited (supra) and UHL Power Company
Limited v. State of Himachal Pradesh9. It quoted and
highlighted paragraph 16 of the latter judgment which
extensively relies upon MMTC Limited (supra). It reads as
under:
“16. As it is, the jurisdiction conferred on courts
under Section 34 of the Arbitration Act is fairly
narrow, when it comes to the scope of an appeal
under Section 37 of the Arbitration Act, the
jurisdiction of an appellate court in examining an
order, setting aside or refusing to set aside an
award, is all the more circumscribed. In MMTC
Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd.,
(2019) 4 SCC 163: (2019) 2 SCC (Civ) 293], the8 2024 SCC OnLine SC 1656
9 (2022) 4 SCC 11610
reasons for vesting such a limited jurisdiction on
the High Court in exercise of powers under
Section 34 of the Arbitration Act have been
explained in the following words: (SCC pp. 166-
67, para 11)
“11. As far as Section 34 is concerned,
the position is well- settled by now that
the Court does not sit in appeal over the
arbitral award and may interfere on
merits on the limited ground provided
under Section 34(2)(b)(ii) i.e. if the
award is against the public policy of
India. As per the legal position clarified
through decisions of this Court prior to
the amendments to the 1996 Act in
2015, a violation of Indian public policy,
in turn, includes a violation of the
fundamental policy of Indian law, a
violation of the interest of India, conflict
with justice or morality, and the
existence of patent illegality in the
arbitral award. Additionally, the
concept of the “fundamental policy of
Indian law” would cover compliance
with statutes and judicial precedents,
adopting a judicial approach,
compliance with the principles of
natural justice, and Wednesbury
[Associated Provincial Picture Houses
Ltd. v. Wednesbury Corpn., [1948] 1
Κ.Β. 223 (CA)] reasonableness.
Furthermore, “patent illegality” itself
has been held to mean contravention of
the substantive law of India,
contravention of the 1996 Act, and
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contravention of the terms of the
contract.””
CONCLUSION:
20. In view of the above position in law on the subject, the scope
of the intervention of the court in arbitral matters is virtually
prohibited, if not absolutely barred and that the interference
is confined only to the extent envisaged under Section 34 of
the Act. The appellate power of Section 37 of the Act is
limited within the domain of Section 34 of the Act. It 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 has no
authority of law to consider the matter in dispute before the
arbitral tribunal on merits so as to find out as to whether
the decision of the arbitral tribunal is right or wrong upon
reappraisal of evidence as if it is sitting in an ordinary court
of appeal. It is only where the court exercising power under
Section 34 has failed to exercise its jurisdiction vested in it
by Section 34 or has travelled beyond its jurisdiction that
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the appellate court can step in and set aside the orderpassed under Section 34 of the Act. Its power is more akin
to that superintendence as is vested in civil courts while
exercising revisionary powers. The arbitral award is not
liable to be interfered unless a case for interference as set
out in the earlier part of the decision, is made out. It cannot
be disturbed only for the reason that instead of the view
taken by the arbitral tribunal, the other view which is also a
possible view is a better view according to the appellate
court.
21. It must also be remembered that proceedings under Section
34 of the Act are summary in nature and are not like a
full-fledged regular civil suit. Therefore, the scope of Section
37 of the Act is much more summary in nature and not like
an ordinary civil appeal. The award as such cannot be
touched unless it is contrary to the substantive provision of
law; any provision of the Act or the terms of the agreement.
22. In the case at hand, the arbitral award dated 08.11.2012 is
based upon evidence and is reasonable. It has not been
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found to be against public policy of India or the fundamentalpolicy of Indian law or in conflict with the most basic notions
of morality and justice. It is not held to be against any
substantive provision of law or the Act. Therefore, the award
was rightly upheld by the court exercising the powers under
Section 34 of the Act. The Appellate Court, as such, could
not have set aside the award without recording any finding
that the award suffers from any illegality as contained in
Section 34 of the Act or that the court had committed error
in upholding the same. Merely for the reason that the view
of the Appellate Court is a better view than the one taken by
the arbitral tribunal, is no ground to set aside the award.
23. Thus, in our opinion, the Appellate Court committed
manifest error of law in setting aside the order passed under
Section 34 of the Act and consequently the arbitral award
dated 08.11.2012.
24. Accordingly, the impugned judgment and order dated
10.01.2017 passed under Section 37 is hereby set aside and
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the arbitral award dated 08.11.2012 is restored to beimplemented in accordance with law.
25. The appeal is allowed with no order as to costs.
26. Pending application(s), if any, shall stand disposed of.
……………….………………………….. J.
(PAMIDIGHANTAM SRI NARASIMHA)
………….……………………………….. J.
(PANKAJ MITHAL)
NEW DELHI;
SEPTEMBER 27, 2024
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