NIKHIL KUMAR AND ASSOCIATES | Advocates High Court Allahabad Lawyers NCLT Prayagraj Lucknow Noida Ghaziabad

Courtesy: Armaan Khanduja

Section 37 of the Arbitration and Conciliation Act, 1996, provides the grounds for appealing arbitration orders. Appeals can be made against orders refusing to refer parties to arbitration, granting or refusing to grant interim measures, or setting aside or refusing to set aside arbitral awards. Additionally, appeals are allowed against arbitral tribunal orders accepting pleas under Section 16(2) or 16(3), or granting or refusing interim measures under Section 17. However, no second appeal is permitted, except for appeals to the Supreme Court.

What orders are Appealable?

The orders against which an appeal is maintainable are –

1. Order refusing to refer the parties to arbitration under section 8;

2. Order granting or refusing to grant any measure under section 9;

3. Order setting aside or refusing to set aside an arbitral award under section 34.]

4. Order of Tribunal accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; 

5. Order of Tribunal granting or refusing to grant an interim measure under section 17.

What is the scope of section 37 of Arbitration and Conciliation Act 1996?

The Supreme Court in MMTC Ltd. v. Vedanta Ltd. (Civil Appeal No. 1862 of 2014) made it clear that the jurisdiction under Section 37 is confined to the grounds permissible under Section 34. Courts cannot re-assess the merits of the case or conduct a re-evaluation of an arbitral award. The appellate court’s role is limited to ensuring that the decision did not exceed its legal boundaries. Thus, When an arbitral award is upheld by both the Section 34 court and the Section 37 appellate court, higher courts must be extremely cautious and slow to disturb such concurrent findings. It is well-settled that courts ought not to interfere with the arbitral award in a casual and cavalier manner. 

The Supreme Court has consistently emphasized that mere errors in fact-finding or a possible alternative interpretation of the contract are not grounds for interference. As reiterated in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) [(2019) 15 SCC 131] the mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal

What is the limitation period for filing an appeal?

An appeal under Section 37 of the Arbitration and Conciliation Act, 1996 should be filed within 60 days from the date of the order as per Section 13(1A) of the Commercial Courts Act, 2015. However, in rare cases where the specified value is less than INR 3,00,000, the appeal under Section 37 would be governed by Articles 116 and 117 of the Schedule of the Limitation Act, which provides a limitation period of 90 days. This was upheld in National Highway Authority of India Vs. Smt. Sampata Devi and others 2023 (12) ADJ 787. 

In Government of Maharashtra, (Water Resources Department) Represented by Executive Engineer v. M/s Borse Brothers Engineers & Contractors Pvt. Ltd. reported in (2021) 6 SCC 460 the court held:-

“a delay beyond 90 days, 30 days or 60 days, respectively, is to be condoned by way of exception and not by way of rule. In a fit case in which a party has otherwise acted bona fide and not in a negligent manner, a short delay beyond such period can, in the discretion of the court, be condoned.”

The Supreme Court also reiterated in in National Highway Authority of India Vs. Smt. Sampata Devi that Section 5 of the Limitation Act, which allows condonation of delay for “sufficient cause,” applies to appeals filed under Section 37 of the Arbitration Act. However, it stressed that the phrase “sufficient cause” is not elastic enough to cover long delays. Only short delays can be condoned, and this is only by way of exception, not as a rule. Additionally, such condonation can occur only when the party seeking it has acted in a bona fide manner and has not exhibited negligence.

Additionally, in State of UP vs. Rajveer Singh, the Allahabad High Court affirmed this approach, holding that long delays cannot be condoned and only short delays caused by genuine and bona fide reasons can be condoned.

What are the grounds for setting aside an Arbitral Award under Section 37(1)(c)?

As per the settled position of law laid down by the Supreme Court in Haryana Tourism Limited Vs. Kandhari Beverages Limited, an award can be set aside under Section 37 of the Arbitration Act, if the award is found to be contrary to – 

1. fundamental policy of Indian Law- An award that is contrary to the fundamental legal principles or policies of India can be set aside. This includes situations where the tribunal has acted in an arbitrary or unreasonable manner.

(b) the interest of India- If the award is detrimental to the interests of India, the court may intervene. This ground covers instances where the award could harm the nation’s economic, political, or social interests.

(c) justice or morality- If the arbitral award disregards essential principles of fairness, equity, or morality, the court may intervene. However, this applies only to gross violations of justice, not to minor procedural issues.

(d) if it is patently illegal- If the award is rendered illegal due to violations of statutory provisions, the court has the authority to set it aside. This ground applies when the arbitral tribunal has failed to follow the law.

Challenging Section 8 orders  

Under Section 37(1)(a) of the Act, an appeal can be filed against an order refusing to refer parties to arbitration as per Section 8. Section 8 mandates that if a valid arbitration agreement exists, the court must refer the parties to arbitration unless the agreement is null, void, inoperative, or incapable of being performed. The appeal should show that the court erred in its refusal to refer the matter to arbitration. Grounds for appeal are:

1. There was a valid arbitration agreement: The party must establish that a valid arbitration agreement existed between the parties, either explicitly in the contract or through implication.
2. The dispute falls within the scope of the arbitration agreement: The dispute must be clearly within the scope of the arbitration agreement, as defined by its terms.
3. The court’s decision was incorrect: The party must show that the court’s reasoning or application of the law was flawed, leading to an incorrect decision.

Challenging Section 9 Orders 

Section 9 of the Arbitration and Conciliation Act, 1996, provides for the grant of interim measures during the pendency of arbitration proceedings. Orders passed under Section 9 are appealable under Section 37(1)(b) of the Act. The appeal must challenge the interim measures granted or denied by the court. The appeal should specify the legal errors or misapplication of law by the court when passing the Section 9 order. grounds for appeal include:

1. The court granted or denied interim measures without properly considering the balance of convenience, irreparable harm, or prima facie case.
2. The court’s decision unduly interferes with the arbitration process or alters the contractual rights of the parties without justification.
3. The interim relief granted was excessive or disproportionate, causing undue hardship or financial burden on one party.

Challenging orders under Section 34 of the Act 

Section 34 of the Arbitration and Conciliation Act 1996, provides a mechanism for a party to apply to a court to set aside an arbitral award. The application for setting aside the award must be made in accordance with the provisions of the Act and within the time frame specified under Section 34(3). Section 34(2)(a) provides for the specified grounds under which a Court can set aside an arbitral award only if –

1. the party making the application provides a proof that-
   1. incapacity of the parties to the agreement.
   2. if an arbitration agreement is invalid in the eyes of law or failing any indication thereon, under the law for the time being in force; or
   3. the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings.
   4. the dispute between the party’s deal by an arbitral award does not fall within the terms of the submission to arbitration.
   5. the composition of the arbitral tribunal was not in accordance with the terms specified in the agreement entered by the parties to the disputes.
2. (b) the Court finds that-
   1. the subject matter of the dispute cannot be settled by means of arbitration under the law.
   2. the stipulated award conflicts with the interest of the general public law or fundamental policy.

What is the remedy available to an aggrieved party when-

1. When the arbitral tribunal rejects a plea challenging its jurisdiction or claims that it is exceeding its authority:

In such a case, under Section 16(5) of the Arbitration and Conciliation Act, the tribunal will continue with the arbitration proceedings and ultimately issue an award. If the aggrieved party disagrees with this decision, their remedy lies in challenging the arbitral award through an application under Section 34 of the Act, which provides for setting aside the award on limited grounds, including lack of jurisdiction.

2. When the arbitral tribunal accepts a plea that it lacks jurisdiction:

 If the tribunal upholds a plea that it does not have jurisdiction over the dispute, the tribunal will terminate the proceedings. The aggrieved party, in this case, can appeal the tribunal’s decision under Section 37(2) of the Act. Section 16(1) of the Act empowers the arbitral tribunal to decide its own jurisdiction, including any objections to the existence or validity of the arbitration agreement. Such pleas must be raised at specific stages during the proceedings, as outlined in Section 16(2) and (3), although delays may be permitted if justified under Section 16(4).

Challenging Order under Section 17

Section 37(2)(b) allows appeals against orders of the arbitral tribunal granting or refusing interim measures under Section 17. Grounds for Appeal under Section 37(2)(b):-

1. Non-party to Arbitration Agreement: Only parties to the arbitration agreement can seek interim measures under Section 17. Courts have held that relief cannot be granted to or against a non-party, although there are exceptions (e.g., third-party beneficiaries, guarantors) under the doctrine of implied consent, as established by the Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.

2. Application of Wander v. Antox Principle: When reviewing interim orders, appellate courts follow principles akin to those governing interim injunctions in civil suits. The appellate court will not interfere with the tribunal’s discretion unless the order is arbitrary, capricious, or perverse. This principle was upheld in Wander Ltd. v. Antox India (P) Ltd. and is adopted in arbitration cases. 

3. Perversity: The courts have expanded the notion of perversity to justify setting aside interim orders. An order can be challenged if it is irrational, or is inconsistent with settled principles of law. 

4. Unilateral Appointment of Arbitrator: A Section 17 order can be challenged if the arbitrator was unilaterally appointed by one party, which violates the principles laid down by the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd

Conclusion

Section 37 of the Arbitration and Conciliation Act, 1996, provides recourse for aggrieved parties allowing them to appeal orders. The court has the power to set aside or uphold the award under some specified conditions that are stipulated under the statute but cannot modify and correct the errors made in the arbitral award. Additionally, the High Court cannot adjudicate the appeal by examining the merits of the claim, which means that the scope of the appeal under Section 37 is limited and should be enforced within the prescribed limit. Also, no second appeal is permitted against the same order, if parties are dissatisfied with the appellate court’s decision they can seek further redressal by approaching the Supreme Court through a Special Leave Petition under Article 136 of the Indian Constitution. 

While drafting an appeal, it is important to ensure that the order in question is appealable under Section 37, which includes refusals to refer parties to arbitration, interim measures, or decisions regarding the setting aside arbitral awards. The grounds for the appeal must be clearly outlined showing how the tribunal’s decision violates fundamental legal principles, adversely affects the interests of India, or contravenes the principles of justice. Supporting facts are also essential, as they provide context to the dispute and illustrate how the tribunal’s ruling impacts the party’s rights. The appeal should be concise, well-structured, and formally presented, including all necessary documents.