1. Introduction

The Arbitration and Conciliation Act, 1996 ("the Act"), under Section 5 mandates minimal judicial intervention in arbitral proceedings and awards.  In furtherance of the said principle, the Courts in India have been hesitant in permitting the parties to raise additional facts or grounds in an appeal filed under Section 37 of the Act ("Section 37 Appeal"), if the parties have failed to do so in the original petition. Only in exceptional circumstances, have the courts permitted the parties to bring to notice of the court, a new fact or raise an additional ground of appeal in a Section 37 Appeal.

Recently, a Division Bench of the Supreme Court of India ('Supreme Court') has, in the case of State of Chhattisgarh vs Sal Udyog Private Limited1 ('the Concerned Judgment'), adopted a slightly unique perspective on raising additional ground in a Section 37 Appeal. The Supreme Court observed that a party may raise new grounds in a Section 37 Appeal, which was not raised earlier in a petition filed under Section 34 the Act.

The Concerned Judgment appears to be a departure from the previous judicial precedents2 which ruled that since new grounds for setting aside the award cannot be taken beyond a period of four months (i.e. 90 days + 30 days) from the date of receipt of an award, therefore, such new ground ought to be disallowed in an appeal under Section 37 of the Act. To this effect, the Supreme Court in the case of State of Maharashtra vs Hindustan Construction3 while determining the question regarding the permissibility of a new/additional ground of appeal in a Section 37 Appeal, held that:

"The grounds sought to be added in the memorandum of arbitration appeal by way of the amendment are absolutely new grounds for which there is no foundation in the application for setting aside the award. Obviously, such new grounds containing new material/facts could not have been introduced for the first time in an appeal when admittedly these grounds were not originally raised in the arbitration petition for setting aside the award."

  1. Underlying Facts

The dispute in the present case had arisen out of an agreement executed between State of Madhya Pradesh (now State of Chhattisgarh pursuant to enforcement of the Madhya Pradesh Re-organisation Act, 2000) and the Sal Udyog Private Limited ('Respondent') for the supply of Sal seeds ("the said agreement"). However, the said agreement was terminated by virtue of the enactment of new legislation. Aggrieved by the termination, the Respondent raised certain disputes, including a claim for refund of excess recovery done towards supervision charges by the State of Madhya Pradesh ("Refund Claim"). The Arbitral Tribunal vide its award dated 17.02.2005 ("Award"), partially permitted the claim of the Respondent along with interest at the rate of 18% per annum along with future interest at the rate of 18 % per annum.

Aggrieved by the Award, the State of Chhattisgarh ("Appellant") filed a petition under the provisions of Section 34 of the Act before the District Judge, Raipur. Vide order dated 14.03.2006 ("Section 34 Order"), the learned District Judge declined to interfere with the Award except for modifying the same to the extent of the interest awarded in favor of the Respondent.

The Appellant being aggrieved by the Section 34 Order assailed it under the provisions of Section 37 of the Act before the Chhattisgarh High Court. The Appellant in the Section 37 Appeal raised an additional ground of appeal to the grant of the Refund Claim on the ground that the Respondent had never claimed a refund towards it throughout the tenure of the said agreement and therefore, the Respondent was now estopped from claiming the same. However, the Chhattisgarh High Court vide its judgment dated 21.10.2009 ("Impugned Judgement") upheld the Award without dealing with the issue of the Refund Claim.

Aggrieved by the Impugned Judgement, the Appellant approached the Supreme Court. The Supreme Court heard this case limited to the issue of Refund Claim. The Respondent objecting to the said contention argued that as the Appellant had failed to raise any objection relating to the Refund Claim in its petition filed under Section 34 of the Act, therefore, the Respondent was now barred from raising any such ground, in a Section 37 Appeal. The Respondent placed reliance on the judgment of the Supreme Court in the case of State of Maharashtra vs Hindustan Construction Co. Limited4.

  1. Verdict

The Supreme Court, dealt with the facts of the case in detail and noted that the law on interference in matters of arbitral awards has been circumscribed with the object of minimizing the interference by courts. To this effect, an award may be challenged under Section 34 of the Act, on exceptionally limited grounds, including that of "patent illegality". As discussed in the case of Associate Builders vs Delhi Development Authority5 and Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority of India6  the principle of "patent illegality" primarily contains the following limbs:

  1. A contravention of the substantive law of India which would result in the death knell of an arbitral award.
  2. A contravention of the Arbitration Act itself (for example, if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act).
  3. A contravention of the terms of the contract and usages of the trade as required under Section 28(3) of the said Act.
  4. Illegality that goes to the root of the matter and therefore, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction.

The Supreme Court after considering the above decisions was of the opinion that:

  1. In view of the fact that the said agreement has a clause pertaining to the collection of supervision charges, therefore, recovery of supervision charges was a part and parcel of the contract executed with the Respondent. Thus, the Award should be set aside as it suffered from patent illegally because the Arbitral Tribunal granted the Refund Claim, in contravention with the express terms of the Agreement.
  2. The plea of waiver taken by the Respondent will also not be available to the Respondent in the present case. This is because of the language used in Section 34(2A) of the Act which empowers the Court to set aside an award if it finds that the same is vitiated by patent illegality. Once the Appellant had taken such a ground in the Section 37 Appeal then the High Court ought to have interfered by resorting to Section 34(2A) of the Act, a provision which would be equally available for application in a Section 37 Appeal as it is to a petition filed under Section 34 of the Act.
  3. The Appellant did raise an objection to this effect before the Arbitral Tribunal on the Refund Claim and placed reliance on the said agreement in support of this contention. Though the said objection was turned down by the Arbitral Tribunal.

Therefore, Supreme Court was of the opinion that the High Court should have set aside the Award in Section 37 Appeal on the basis of this additional ground raised by the Appellant because the said ground goes to the very root of the Award and makes the Award patently illegal.

  1. Critical Analysis

It can be thus concluded that there is no bar on raising additional ground of appeal in a Section 37 Appeal, even if the same was not raised in a petition filed under Section 34 of the Act. However, the same can be done only in exceptional circumstances. The said grounds should qualify the following yardsticks –

  1. The ground should not be an absolutely new ground thereby bringing before the Court new facts, which were never placed before the Arbitral Tribunal.
  2. The ground should vitiate the award on the ground of "patent illegality".

Therefore, one can conclude that by the Concerned Judgment, the Supreme Court has adopted the interpretation that the grounds that go to the root of the award can be raised by a party at any stage. The Supreme Court in the case of Lion Engineering Consultants Vs. State of Madhya Pradesh & Ors.7, had supported a similar view wherein it held that,

"We do not see any bar to plea of jurisdiction being raised by way of an objection under Section 34 of the Act even if no such objection was raised under Section 16."

However, the interpretation adopted by the Supreme Court in support of its decision in the Concerned Judgment may have serious consequences. The Hon'ble Supreme Court in the Concerned Judgment opines that - 

"Section 34(2A) of the 1996 Act that 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. Once the appellant-State had taken such a ground in the Section 37 petition and it was duly noted in the impugned judgment, the High Court ought to have interfered by resorting to Section 34(2A) of the 1996 Act, a provision which would be equally available for application to an appealable order under Section 37 as it is to a petition filed under Section 34 of the 1996 Act. In other words, the respondent-Company cannot be heard to state that the grounds available for setting aside an award under sub-section (2A) of Section 34 of the 1996 Act could not have been invoked by the Court on its own, in exercise of the jurisdiction vested in it under Section 37 of the 1996 Act. Notably, the expression used in the sub-rule is "the Court finds that"

This ratio decidendi may lead to serious consequences as it may open the door for several mischievous interpretations. This interpretation diminishes the difference between a Section 37 Appeal and an objection filed under Section 34 of the Act. Pursuant to this verdict, a Section 37 appeal shall be treated less of an appeal to an order under Section 34 of the Act and more of an objection application wherein an award can be re-challenged for setting it aside on the ground of 'patent illegality. That said the Concerned Judgment has brought the law pertaining to an appeal in arbitration in consonance with general practice wherein a pure question of law (not requiring the investigation of any facts) can be raised by a party at any stage8.

Footnotes

1 MANU/SC/1036/2021

2 Vastu Invest & Holdings Pvt. Ltd. vs Gujarat Lease Financing Ltd. [(2001) 2 BOMLR 156]

3 MANU/SC/0215/2010

4 Supra

5 MANU/SC/1076/2014

6 AIR 2019 SC 5041

7 [2018] 16 SCC 758

8 Seth Badri Prasad And Others vs Seth Nagarmal And Others [AIR 1959 SC 559]

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