Courts cannot enter into the merits of a case, while deciding an appeal under Section 37 of the Arbitration and Conciliation Act.

In the matter of Haryana Tourism Limited Vs. M/s Kandhari Beverages Limited, Civil Appeal no. 266 of 2022 decided by the Hon’ble Supreme Court on 11.02.2022.

Facts of the case:

Haryana Tourism Corporation had accepted the tender submitted by the Respondent for supplying of cold drinks at its tourist complexes. As per the agreement, the Respondent was supposed to pay a sum of Rs. 20 Lakhs on account of brand promotion which was required to be spent as per mutual agreement between the parties. The Corporation organised a Mango Mela in which, it spent Rs 1 Lakh. As per the Respondent, it spent a sum of Rs. 13.92 Lakhs, however, the Corporation vide letter dated 20.09.2011 asked the Respondent to submit a sum of Rs. 19 Lakhs as sponsorship money.

Dispute arose between the parties and matter was referred to arbitration, wherein, the sole arbitrator directed the Respondent to pay a sum of 9.5 Lakhs and dismissed the counter-claim of Rs. 13.92 Lakhs filed by the Respondent. Being aggrieved, the Respondent-Company filed an appeal u/s 34 of the Arbitration Act, which was dismissed vide order dated 25.09.2014.

The Respondent further preferred an appeal u/s 37 of the Arbitration Act, which was allowed by Punjab and Haryana High Court by entering into the merits of the claim.

Against, this impugned judgment, the Corporation approached the Hon’ble Supreme Court on the ground that while quashing and setting aside the award passed by the arbitrator, the High Court has exceeded its jurisdiction u/s 37 of the Act.

Observation of the Apex Court-

The Apex Court observed that for deciding the appeal u/s 37 of the Arbitration Act, the High Court has entered into the merits of the claim, which is not permissible in exercise of powers u/s 37 of the said Act.

The Court further noted that ‘as per the settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. However, none of the aforesaid exceptions are applicable to the facts of the case at hand.

The Hon’ble Apex Court in view of the above reasons, set aside the impugned judgment by holding that the High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the Ld. Trial Court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act.