The adjudication process of Arbitration, through the Arbitration & Conciliation Act, 1996 (“1996 Act”) has constantly aimed at reducing the intervention of Courts by way of various judicial pronouncements and legislative changes. Section 34 of the 1996 Act, flowing from Article 34 of the UNCITRAL Model Law, delineates specific and limited grounds for challenging an arbitral award. This provision is pivotal in allowing challenges to arbitral awards passed by an arbitrator, albeit within restricted grounds and circumstances as specified. An award can be challenged only on the following grounds under Section 34(2): i. if a party was under some incapacity, ii. if the arbitration agreement is not valid in accordance with the law to which the parties to the Agreement have subjected themselves, iii. no proper notice of the appointment of the arbitrator or the proceeding had been given to the parties, iv. the dispute dealt by the arbitral award does not fall within the terms of the submission to arbitration, or the award contains a decision beyond the scope of the submission to arbitration, v. the composition of the tribunal was not in accordance with the agreement of the parties. Moreover, under section 34 (2) (b) of the Act the court may set aside the Award if: i. the subject matter of the dispute cannot be settled by means of Arbitration, ii. the Arbitral award is in conflict with the public policy of India.

Section 37 the 1996 Act provides for appealable orders, and allows for appeals from the orders passed under the following: Section 8 for refusing to refer the parties to arbitration, Section 9 for granting or refusing to grant any measure, for setting aside or refusing to set aside an arbitral award under Section 34, accepting the plea under Section 16(2), 16(3) and for granting or refusing to grant an interim measure under Section 17. The Hon’ble Supreme Court has enumerated in many cases that the principle of minimal intervention by the Courts, as enshrined in Section 5 of the 1996 Act, extends to the right of appeal provided in Section 37.

In essence, Section 37 plays a crucial role in regulating appeals against orders passed in arbitration proceedings and ensures that appeals are limited to defined circumstances and align with the overarching principles of arbitration.

In a recent case of S.V Samudram vs State of Karnataka [2024 SCC OnLine SC 19], the issue before the Hon’ble Supreme Court revolved around the modification of an arbitral award under Sections 34 and 37 of the 1996 Act. The appellant filed a Section 34 appeal before the Ld. Civil Judge contesting the arbitrator's award claiming that the award passed was lacking any sound reasoning. The Ld. Civil Judge proceeded to modify the arbitrator's award and reducing the costs awarded by the arbitrator This decision was later upheld by the Hon’ble High Court in the challenge before it although it differed with certain findings of the Ld. Civil Judge. Therefore, the main challenge before the Hon’ble Supreme Court was whether the modification made by the Ld. Civil Judge and upheld by the High Court were legally justified.

In its judgment, the Apex Court criticized the Ld. Civil Judge's modification as a deviation from the statutory framework, stating that the Ld. Civil Judge cited inconsistent reasons that did not align with the restricted grounds under Section 34. The Hon’ble Court highlighted the changes in Section 34 before and after the 2015 Amendment to the Act, which limited grounds for challenging awards and introduced the concept of patent illegality on the face of an award. It emphasized that under Section 37 too, challenges are confined to confirming, setting aside, or rejecting applications, and no other interference is warranted.

Referring to the cases of National Highways Authority of India v. M. Hakeen [2021 9 SCC 1] and Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited Civil Appeal No. 5627 of 2021, the Hon’ble Court highlighted that the question of modification of an arbitral award was no longer res integra. It was also emphasized that an award passed by a technical expert is not meant to be scrutinized in the way a legally trained mind would do.

In conclusion, the court emphasized that any attempt to modify an award under Section 34 would exceed legal boundaries as courts are only empowered to set aside awards on specified grounds. It emphasized focusing on the substance of findings rather than a literal interpretation and highlighted the binding nature of arbitral proceedings compared to judicial proceedings. The Court set aside the challenged order and reinstated the original arbitral award, showcasing the importance of independence of arbitral proceedings.

By - Sayjal Deshpande