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19 June 2025

Trend Of Increasing Judicial Intervention In Arbitral Award Challenge And Its Impact : A Case Study

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Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), is the principal provision under which an Arbitral Award can be challenged in India.
India Delhi Litigation, Mediation & Arbitration

Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), is the principal provision under which an Arbitral Award can be challenged in India. An Arbitral Award may be challenged only by making an application to the court for setting aside the award, as per Section 34(1) under the grounds specified Section 34(2) of the Arbitration Act. Further, an appeal under Section 37 lies from an order setting aside or refusing to set aside an arbitral award under Section 34 of the Arbitration Act. Recourse to orders under Section 37 is available before the Hon'ble Supreme Court by way of a Special Leave Petition.

The Arbitration Act provides a limited and specific framework for challenging arbitral awards, primarily under Section 34, with strict grounds and procedural requirements to ensure finality and minimize judicial intervention in Arbitral Proceedings.

However, the Hon'ble Supreme Court in “Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd 2024 SCC OnLine SC 522 (“DMRC Case”), exercised its Curative Jurisdiction” and overturned an Award against Delhi Metro Rail Corporation in favour of Delhi Airport Metro Express Private Limited and thereby cured its own orders and upheld the Division Bench Judgment finding that Award in favor of DAMEPL was suffering from ‘Patent illegality'. In the said case, the Hon'ble Supreme Court exercised its special jurisdiction under Article 142 of the Constitution of India.

In the wake of the Hon'ble Supreme Court's judgment in DMRC case, the scope for judicial intervention in challenge to Awards especially in cases where contractual terms and conditions are the subject matter of interpretation before Tribunals has widened and the judicial scrutiny of Awards passed by Tribunals has increased to some extent. In the present article, the Authors by way of recent case studies, have sought to explore the trend of increasing judicial intervention at the stage of Section 34 and Section 37 of the Arbitration Act, by various High Court following the DMRC case.

Recently the Hon'ble High Court of Delhi in its judgment in Union of India v. Reliance Industries Ltd., 2025 SCC OnLine Del 841 dated 14.02.2025, passed by a bench comprising of J. Saurabh Banerjee and J. Rekha Palli has referring to the DMRC case undertaken a detailed exercise of analyzing the Award passed in Arbitral Proceedings and set aside the Ld. Single Judge's order finding the Award to be patently illegal.

In the above-mentioned case, the Union of India (UOI), through the Ministry of Petroleum & Natural Gas, had entered into a Production Sharing Contract (PSC) with Reliance Industries Limited (RIL) and Niko Limited for Block KG-DWN-98/3 in the Krishna-Godavari Basin. On disputes arising between the parties, the matter was referred to an Arbitral Tribunal and an Award was passed in the favor of RIL. The UOI challenged the majority award under Section 34 of the Arbitration Act, arguing that the award suffered from patent illegality, was contrary to public policy (including the Public Trust Doctrine), and that the dispute was non-arbitrable as it involved public law issues.

In appeal proceedings, the Division Bench of the Delhi High Court set aside both the Arbitral Award and the Ld. Single Judge's order, holding that RIL's extraction of migrated gas without explicit permission from the UOI, and its failure to disclose critical data, constituted a material breach of the PSC and violated the Public Trust Doctrine and Public Policy. Therefore, despite concurrent findings of the Arbitral Tribunal and the Ld. Single Judge, the division bench held that the arbitral award suffered from patent illegality and could not be sustained.

In another recent judgment of IRB Ahmedabad Vadodara Super Express Tollway (P) Ltd. v. National Highways Authority of India, 2025 SCC OnLine Del 715 dated 11.02.2025, passed by J. C Hari Shankar, a challenge by IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd. (IRB) to an arbitral award that rejected its claim for compensation from the National Highways Authority of India (NHAI) under a Concession Agreement (CA) dated July 25, 2011 was being adjudicated.

The question before the Ld. Single Judge was whether IRB was entitled to compensation due to the construction of a "Competing Road" (the Savli Road) by the State of Gujarat, which allegedly impacted IRB's toll collections on the project highway. The High Court set aside the arbitral award to the extent it rejected IRB's claim for compensation under Article 35.4. The matter was remanded for de novo consideration by the Arbitral Tribunal, which must now determine IRB's entitlement to compensation from the date the Savli Road (Competing Road) was opened to traffic, in accordance with the correct interpretation of Articles 6.3 and 35.4.The Court did not express any opinion on the merits of IRB's claim or the sufficiency of evidence, leaving these issues for the Tribunal to decide. The petition was disposed of with the arbitral award set aside in part, and the claim for compensation remanded for fresh adjudication in line with the Court's interpretation of the contract.

Pertinently the Constitution Bench of the Hon'ble Supreme Court in its most recent Judgment dated 30.04.2025 in Gayatri Balasamy v.ISG Novasoft Technologies Limited, Civil Appeal @ S.L.P.(C) Nos.15336-15337 of 2021, was inter alia dealing with the question whether the powers of the Court under Sections 34 and 37 of the Arbitration Act include the power to modify an arbitral award. The Constitution Bench has held that the Court has limited power under Sections 34 and 37 of the Act to modify the Arbitral Award under certain circumstances namely (i) when the award is severable, by severing the “invalid” portion from the “valid” portion of the award (ii) for correcting clerical or computational errors which appear erroneous on the face of the record (iii) for modifying post award rate of interest or (iv) under Article 142 of the Constitution to do complete justice between the parties.

While there have been instances of interference by the Court's with Awards passed in Arbitration Proceedings, the Hon'ble Courts have also adhered to the limited scope of intervention envisaged under the Arbitration Act despite the DMRC case.

In the case ofIRCTC Ltd. v. Brandavan Food Products, 2025 SCC OnLine Del 699 dated 10.02.2025, a division bench comprising of J. Navin Chawla and J. Shalinder Kaur of the Hon'ble High Court in a case involving cross-appeals between Indian Railways Catering and Tourism Corporation Limited (IRCTC) and Brandavan Food Products, refused to interfere with the Award.

In IRCTC's case, the sole arbitrator had ruled in favor of Brandavan. The Single Judge partially set aside the arbitral award, whereas, the Division Bench emphasized on the limited scope of interference under Sections 34 and 37 of the Arbitration Act, stating that courts should not reappraise evidence or reinterpret contracts unless the arbitral award is perverse or patently illegal. The Bench found that the arbitrator's interpretation of the contract and circulars was reasonable and not perverse.

Similarly, in Next Generation Business Powers Systems Ltd. v. Telecommunication Consultants India Ltd., 2025 SCC OnLine Del 367 dated 10.01.2025, bench comprising of J. Vibhu Bakhru and J. Tara Vitasta Ganju, emphasized that arbitral awards should not be interfered with unless there is patent illegality or perversity. It was held that the findings of the sole arbitrator were not perverse or irrational, and the Single Judge's interference with the award was unwarranted.

From the above case studies, it is clear and discernible that while litigation on Awards often travels through the tests of Section 34 and Section 37 and thereafter Hon'ble Supreme Court's special jurisdiction, the intent of the Arbitration Act to limit judicial intervention in Arbitral Proceedings is sometimes lost in the said process. While we note that following the DMRC Case, the standard of testing the Awards passed by Ld. Tribunals has been bolstered, it is important to not loose sight of the contours of the Arbitration Act and limit judicial intervention in Arbitral proceedings within the said contours.

In the words of Lord Denning, “Arbitration is good so long as it is expeditious and just. If it becomes dilatory or unjust, then it is worse than litigation itself.”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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