INTRODUCTION
Recently, the Supreme Court in the State Of Chhattisgarh & Anr. V. M/S Sal Udyog Private Limited (“Sal Seeds Case”) noted that a party is not barred from raising an additional ground of a ‘patent illegality’ appearing on the face of the award, in arbitration appeal under Section 37 of the Arbitration and Conciliation Act,1996 (“the Arbitration Act”) merely because the said ground was not raised in the petition under Section 34 of the Arbitration Act for setting aside the award.
Before we dive into the facts and analysis in the present judgment, we will discuss the scope of provisions relating to ‘setting aside an arbitral award’ and ‘appealable orders’ under the Arbitration Act to the extent relevant to the facts of this case.
Setting aside an arbitral award under Chapter VII Section 34:
Section 34 often comes under the focus of courts even if the legislative policy demands minimal judicial interference in arbitral proceedings. This section specifies that any person aggrieved by an arbitral award can file an application seeking setting aside of the arbitral award in terms of Sections 34(2), (2-A) and (3) of the Arbitration Act. It is pertinent to note that there is no suo-motu jurisdiction available with the Indian courts to set aside an arbitral award and hence the same can only be done after making an application to the competent court of law.
Appealable order under Chapter IX Section 37:
Section 37 of the Arbitration Act exhaustively enlists orders against which an appeal can be preferred by parties under the Act. Section 37 inter alia allows the aggrieved party to file an appeal against an order passed by a Court under the provisions of sec. 34.
FACTS IN BRIEF
The respondent had entered into an agreement with the State of Madhya Pradesh for facilitating the supply of Sal seeds. Later the Government made an enactment invalidating all agreements relating to forest produce. Aggrieved by the said termination, the respondent caused the initiation of Arbitration Proceedings claiming inter alia refund of certain amounts from the state government. The sole arbitrator pronounced an arbitral award favouring the respondent’s claim for a refund (including interest at 18 per cent per year). Aggrieved by the award, the appellant filed a petition under Section 34 of the Arbitration Act before the District Court. However, the reliefs sought by the appellant were dismissed and subsequently they preferred an appeal before the Chhattisgarh High Court against the order of the learned District Judge under Section 37 of the Arbitration Act. In the said appeal the appellant has raised a new ground (which was not agitated before the District Court) on the non-requirement of refund of ‘supervision charges’, on the basis of the provisions of the underlying agreement, which was not considered by the Arbitrator while passing the Award. The High Court passed an order dated 21st October 2009 which only revised the interest rate from 18 per cent to 9 per cent and other reliefs in the appeal were disposed of. Disgruntled by the order, a second appeal was preferred by the respondent before the Hon’ble Supreme Court.
LEGAL ISSUES INVOLVED:
The Supreme Court was faced with the singular issue of whether the appellant can raise an additional ground which pertains to the refund of ‘supervision charges’ in arbitration appeal even if the same was not raised in the petition?
DECISION
The Supreme Court in its judgment dated 8th November 2021 inferred that the grounds raised by the State in the case at hand would qualify the requirement of ‘patent illegality’ that is manifest on the face of the Arbitral Award. It was held that the language used in Section 34(2A) empowers the Court to set aside an award if it finds that the same is vitiated by ‘patent illegality’ appearing on the face of the same. The court, by giving emphasis on the language of sec. 34 [2A] of the Arbitration Act, clarified that the expression used in sub-rule 2A is “the Court finds that” and therefore, a provision that enables a Court acting on its own in deciding a petition under Section 34 for setting aside an Award would be available in an appeal preferred under Section 37 of the Arbitration Act. Consequently, the apex court rejected the plea of the respondent that since the state did not raise such an objection in the grounds spelt out in the Section 34 petition and is, therefore, estopped from taking the same in the appeal preferred under Section 37 or before the Supreme Court and .
CONCLUSION
The Apex Court, in the present case, clearly points out that under Section 34(2)(b) of the Arbitration Act is in harmony with the pro-arbitration approach and also empowers the Court to grant leave to amend the Section 34 application if the circumstances of the case so warrant and it is required in the interest of justice. In the present case, ignoring the implication of provisions regarding supervision charges in the underlying agreement while passing the Arbitration Award was seen as a patent illegality by the Apex Court. Though the said ground was not agitated before the District Court, the impugned Award which permitted deduction of ‘supervision charges’ was quashed and set aside since it contradicts the terms of the contract governing the parties.
