Supreme Court Upholds Arbitration Award in Haryana Tourism Dispute
The case of Haryana Tourism Limited v. M/s Kandhari Beverages Limited concerns the scope of judicial intervention under the Arbitration and Conciliation Act, 1996, particularly under Sections 34 and 37. The Supreme Court ruled in favor of Haryana Tourism Limited, restoring the arbitration award and emphasizing the limited role of the High Court in arbitration appeals.
Background of the Case
Haryana Tourism Limited (hereinafter referred to as ‘Corporation’) invited tenders for the supply of aerated cold drinks at its tourist complexes for the period from May 15, 2001, to May 14, 2002. M/s Kandhari Beverages Limited was awarded the contract, which included a clause requiring it to pay ₹20 lakhs towards brand promotion. The amount was to be spent as per mutual agreement.
During a Mango Mela organized by the Corporation on July 7-8, 2001, a dispute arose over promotional expenses:
- The Corporation claimed that Kandhari Beverages was required to deposit ₹19 lakhs as sponsorship money.
- Kandhari Beverages argued that it had already spent ₹13.92 lakhs on promotional activities.
- The Corporation terminated the contract on January 17, 2002, leading to arbitration proceedings.
Arbitration and Lower Court Proceedings
The matter was referred to arbitration, resulting in an award on November 17, 2005. The arbitrator directed Kandhari Beverages to pay ₹9.5 lakhs to the Corporation, rejecting the company’s counterclaim of ₹13.92 lakhs.
Challenging the award, Kandhari Beverages filed objections under Section 34 of the Arbitration Act before the Additional District Judge, Chandigarh. The objections were dismissed on September 25, 2014. The company then appealed under Section 37 of the Act before the Punjab and Haryana High Court.
The High Court, by order dated July 17, 2018, allowed the appeal, setting aside both the arbitration award and the Additional District Judge’s order. Aggrieved, Haryana Tourism Limited appealed to the Supreme Court.
Arguments of the Appellant (Haryana Tourism Limited)
- The High Court exceeded its jurisdiction under Section 37 by re-examining the merits of the arbitration award.
- Judicial review of an arbitration award is limited to specific grounds under Sections 34 and 37, none of which were met in this case.
- The High Court treated the arbitration appeal as a first appeal against a civil court judgment, which is not permissible.
- The award was passed in accordance with the contract and did not violate any fundamental legal principles.
Arguments of the Respondent (M/s Kandhari Beverages Limited)
- The arbitrator lacked jurisdiction since no amount was due to the Corporation.
- The composition of the arbitral tribunal and appointment of the arbitrator were not in accordance with Clause 13 of the contract.
- The arbitrator ignored evidence showing that ₹13.92 lakhs had already been spent on marketing.
- The company had challenged the arbitrator’s jurisdiction from the beginning.
Key Observations of the Supreme Court
1. High Court Exceeded Its Jurisdiction
The Court emphasized that the High Court had overstepped its authority under Section 37 of the Arbitration Act:
“An appeal under Section 37 does not permit a re-examination of the merits of the arbitration award. The High Court acted as if it were hearing a first appeal, which is impermissible.”
2. Grounds for Setting Aside an Arbitration Award
The Court reaffirmed that an arbitration award can only be set aside if it falls under one of the following grounds:
- Contrary to the fundamental policy of Indian law.
- Against the interest of India.
- Violates justice or morality.
- Is patently illegal.
None of these conditions were met in the present case.
3. Limited Role of Courts in Arbitration
The Court stressed the principle of minimal judicial interference in arbitration:
“Courts should not interfere with arbitration awards unless there is clear illegality. The autonomy of arbitral tribunals must be respected.”
4. Respondent Cannot Reopen Jurisdiction Issue
The Court rejected Kandhari Beverages’ jurisdictional challenge, noting that it had not filed an appeal against the High Court’s ruling on this issue:
“The respondent cannot challenge the arbitrator’s jurisdiction at this stage, as it had already been decided against them by the High Court.”
Final Judgment
The Supreme Court allowed the appeal and ruled as follows:
- The High Court’s order dated July 17, 2018, is quashed and set aside.
- The arbitration award dated November 17, 2005, is restored.
- The order of the Additional District Judge under Section 34, which upheld the award, is restored.
- The respondent is directed to comply with the award and pay the amount as ordered by the arbitrator.
Significance of the Judgment
This ruling reinforces key principles of arbitration law:
- High Courts cannot re-examine the merits of an arbitration award in appeals under Section 37.
- Judicial intervention in arbitration is limited to exceptional circumstances.
- Once jurisdiction issues are decided, they cannot be reopened at a later stage.
- Parties must abide by contractual agreements and arbitral rulings unless clear legal grounds exist for challenge.
This judgment ensures that arbitration remains an effective and autonomous dispute resolution mechanism, preventing unnecessary judicial interference.
Petitioner Name: Haryana Tourism Limited.
Respondent Name: M/s Kandhari Beverages Limited.
Judgment By: Justice M.R. Shah, Justice B.V. Nagarathna.
Place Of Incident: Chandigarh, India.
Judgment Date: 11-01-2022.
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