Arbitration Award Upheld: Supreme Court Sets Aside High Court’s Interference

The Supreme Court of India recently ruled in favor of Punjab State Civil Supplies Corporation Ltd. in a significant arbitration dispute involving the supply of goods. The case arose from an arbitral award, which was upheld by the District Judge but later overturned by the Punjab and Haryana High Court. The Supreme Court found that the High Court had exceeded its jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, and restored the arbitrator’s decision.

The judgment, delivered by a bench comprising Dr. Dhananjaya Y. Chandrachud and A. S. Bopanna, reasserted the principles governing judicial interference with arbitration awards.

Background of the Case

The dispute arose from a contract dated April 4, 2002, under which M/s Ramesh Kumar and Company was to supply 24,900 batons to the Punjab State Civil Supplies Corporation Ltd. Out of the total quantity, 22,389 batons were accepted, while the remaining were rejected. The appellants had also forfeited the security deposit of ₹1,00,000 due to alleged sub-standard quality.

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The supplier challenged this action in arbitration, but the arbitrator ruled against them. The District Judge, under Section 34 of the Arbitration and Conciliation Act, upheld the award. However, the Punjab and Haryana High Court set aside the award and decreed the supplier’s claim.

Supreme Court’s Observations

The Supreme Court held that the High Court had erred in treating the arbitration appeal as a first appeal in a civil suit. It observed:

“The High Court was not exercising its jurisdiction as a first appellate court in a civil suit and could not have awarded the claim.”

The Court also noted that an arbitral award can only be set aside under specific grounds listed in Section 34 of the Arbitration Act, which the High Court failed to consider.

Legal Analysis

• Judicial review of arbitral awards is limited under Sections 34 and 37 of the Arbitration Act.
• The High Court overstepped its jurisdiction by interfering with the findings of fact made by the arbitrator.
• The District Judge had rightly upheld the arbitration award, following established legal principles.

Final Judgment

The Supreme Court set aside the High Court’s ruling and restored the arbitrator’s decision, stating:

“The judgment of the High Court is unsustainable. The appeal is accordingly allowed, and the High Court’s order is set aside.”

This ruling reinforces the limited scope of judicial intervention in arbitration matters, strengthening the finality of arbitral decisions.

Petitioner Name: Punjab State Civil Supplies Corporation Ltd. & Anr.
Respondent Name: M/s Ramesh Kumar and Company & Ors.
Judgment By: Justice Dr. Dhananjaya Y. Chandrachud, Justice A. S. Bopanna.
Place Of Incident: Punjab.
Judgment Date: 13-11-2021.

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