The Supreme Court has observed that a court while considering an appeal under Section 37 of the Arbitration and Conciliation Act, cannot undertake an independent assessment of the merits of the award.
The Supreme Court in the matter of MMTC Ltd. v. M/s Vedanta Ltd. (Civil Appeal No. 1862/2014), delivered the above-mentioned reasoning, vide order dated 18.02.2019.
The pertinent issue arises in the matter relates to whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration.
In the present matter the Respondent was the manufacturer of cast copper rod. The Respondent appoints the Appellant as a consignment agent from whom the Respondent could avail services such as storage, handling and marketing of the copper rods. As per the agreement the Appellant raised the invoices in the name of the customers of the products sold and delivered. Goods were to be sold only against payment of 100% advance which the Appellant had to remit to the Respondent after deducting service charges.
The dispute in the matter pertains to supplies of the copper rods by the Appellant to Hindustan Transmission Products Ltd. The payment for the same were not made by HTPL to the Appellant, who also subsequently failed to make payment for the supplied goods to the Respondent. The Respondent invoked the arbitration clause against the Appellant liability. The tribunal directed the Appellant to pay certain amounts to the Respondent under their agreement. The Appellant challenged the arbitration award before the High Court and Supreme Court raising the main concern regarding the arbitrability of the dispute, which the High Court and the tribunal failed to appreciate.
The Supreme Court explained the scope of interference with an arbitral award in India, in terms of Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996. The court observed that while considering petition under Section 34, a 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). The bench took note of 2015 amendments, and briefly explained the changes effected after the amendment. The Court observed that the insertion of Explanation 1 to Section 34(2). The scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality.
The Court also opined that the when the question arises whether the terms fall within the submission to arbitration the Court must addresse the same. The terms of a contract, the conduct of parties and correspondences exchanged would be relevant factors to decide the arbitration jurisdiction.
The Court further explained that an order made passed under section 37 cannot travel beyond the restrictions laid down under Section 34. Therefore, 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.