Scope of appeals under Section 37 of Arbitration and Conciliation Act 1996 - A case for consistency

In Punjab State Civil Supplies Corporation Limited and another versus Sanman Rice Mills and Others, a two-judge Bench of the Supreme Court considered the scope of powers of an appellate court under Section 37 of the Arbitration Act. In this case, the Section 34 petition challenging an award passed by an arbitrator was dismissed by the Additional District Judge after finding that there was no illegality in the award. However, the High Court, in appeal under Section 37, allowed the same and set aside both the judgment and order of the Additional District Court and the arbitral award.

The legal analysis in the apex court’s judgment initially proceeds on the basis that the scope of appeal, which lies against an order setting aside or refusing to set aside an arbitral award, is “naturally akin to” and “limited to” the grounds enumerated under Section 34 of the Arbitration Act (at para 11). The Court notes (at para 14) that the appellate power under Section 37 is not akin to the normal appellate jurisdiction vested in the civil courts owing to the limited scope of interference of the courts with arbitral proceedings or awards which is confined to the grounds set out in Section 34 of the Arbitration Act. The Court further states (at para 16) that the scope of interference in an appeal under Section 37 is restricted and subject to the same grounds on which an award can be challenged under Section 34 of the Act and that the powers of an appellate court are not beyond the scope of interference under Section 34.

The Court then appears to course correct itself when it holds that the appellate power under Section 37 is only exercisable to find out whether the court exercising power under Section 34 has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred. It further holds that it is only where the court exercising jurisdiction under Section 34 fails to exercise the jurisdiction vested in it or travels beyond its jurisdiction that the appellate court can step in and set aside the order passed under Section 34 of the Arbitration Act. The Court further clarifies that this appellate power is more akin to the power of superintendence as is vested in civil courts while exercising revisionary powers.

However, after setting out the above exposition of law, the Court, instead of applying the tests enumerated in the above paragraph to the judgment of the appellate court under Section 37, undertakes an entirely inverted process of deduction. The Court initially goes on to endorse the award as being based on evidence and reasonable and then holds that the award was correctly upheld by the court exercising jurisdiction under Section 34. Then, the Court adds, almost as a postscript, that the appellate court could not have set aside the award without recording any finding that the award suffered from any illegality as contained in Section 34 or that the court had committed error in upholding the same.       

Additionally, during the course of the above analysis, the Bench cursorily refers to an earlier judgment of a coordinate Bench in Bombay Slum Redevelopment Corporation Private Limited versus Samir Narain Bhojwani, amongst other cases. This reference was made to reiterate the judicial view that the jurisdiction of an appellate court in examining an order setting aside or refusing to set aside an award is circumscribed by the statutorily limited jurisdiction of the court under Section 34 of the Arbitration Act.

Strangely, the Bench deciding the Punjab State Civil Supplies case (supra) failed to notice or consider that the coordinate Bench in the Bombay Slum case (supra) had, in a somewhat similar fact situation, found that although the single judge of the High Court had elaborately dealt with the merits of the challenge under Section 34, the apex court did not have the benefit of a decision of the appellate court dealing with all the issues dealt with by the single judge. It also failed to notice that in the Bombay Slum case (supra), the Bench held that it will not be appropriate for the apex court to look at the arbitral award and the findings recorded by the Section 34 court and exercise the jurisdiction of the Section 37 court. The said Bench had theorised that if the apex court were to do what the appellate court exercising jurisdiction under Section 37 is required to do, it will be unjust to the parties as the unsuccessful party before the Court will be deprived of one forum of challenge.

Further, the Bench in the Punjab State Civil Supplies case (supra) was seemingly oblivious of the fact that in the Bombay Slum case (supra), the Bench set aside the judgment of the Division Bench of the High Court and “requested” the Division Bench to decide the appeal on merits after considering the arbitral award and the decision of the Section 34 court, while leaving all the issues raised in the appeal open.

As a result, the Bench deciding the Punjab State Civil Supplies case (supra) did not even consider whether the matter ought to be remanded to the High Court as was done in the Bombay Slum case (supra). Instead, it set aside the order of the appellate court on the basis that the said court had committed ‘manifest error of law’ in setting aside the order passed under Section 34 of the Arbitration Act and consequently the award.

Consequently, the losing litigant in the Punjab State Civil Supplies case (supra) was effectively deprived of an opportunity to re-argue the matter before the appellate court as was provided by the earlier bench to the petitioner in the Bombay Slum case (supra). Interestingly, one of the Hon’ble Judges who decided the Punjab State Civil Supplies case (supra) was also a member of the coordinate Bench in the Bombay Slum case (supra).

The Supreme Court has consistently emphasised the binding nature of an earlier decision of a coordinate Bench on a later Bench. In Shah Faesal versus Union of India, a judgment delivered by a five judge Bench, this principle was reasserted in the following terms:

“23. This brings us to the question, as to whether a ruling of a coordinate Bench binds subsequent coordinate Benches. It is now a settled principle of law that the decision rendered by a coordinate Bench is binding on the subsequent Benches of equal or lesser strength. The aforesaid view is reinforced in the National Insurance Co. Ltd. V. Pranav Sethi wherein this Court held that: (SCC pp. 713-14, para 59)

"59.1. The two-Judge Bench in Santosh Devi should have been well advised        to refer the matter to a larger Bench as it was taking a different view than what has been stated in Sarla Verma, a judgment by a coordinate Bench. It is because a coordinate Bench of the same strength cannot take a contrary view than what has been held by another coordinate Bench.”

This kind of divergence in the approach of coordinate Benches of the Supreme Court is not only a cause for concern for consumers of justice but also heralds a clarion call for systemic consistency in the pronouncements of the Court.

About the author: Ajit Warrier is a Partner at Shardul Amarchand Mangaldas & Co. specialising in the Dispute Resolution and Litigation Practice.

Disclaimer: The contents of this article are intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Further, the views in this article are the personal views of the author.  

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