Appellate Court Under Section 37 Cannot Sit in Appeal Over Arbitral Award on Merits: Supreme Court

“Interpretation by Arbitral Tribunal, if plausible, is final — Appellate Court under Section 37 has no authority to reappraise evidence or substitute contractual interpretation” —  In a forceful reaffirmation of arbitration jurisprudence, the Supreme Court on January 7, 2026, set aside a judgment by the Division Bench of the Madras High Court which had interfered with an arbitral award upheld earlier under Section 34 of the Arbitration and Conciliation Act, 1996. The Court held that appellate powers under Section 37 are narrower than those under Section 34, and courts cannot second-guess the contractual interpretation arrived at by arbitral tribunals.

“The appellate court has no authority of law to consider the matter in dispute before the arbitral tribunal on merits so as to hold whether the award is right or wrong. The appellate court cannot reappraise the evidence to record a contrary finding,” declared the bench of Justice Pamidighantam Sri Narasimha and Justice Pankaj Mithal.

“If the Award Is Not Patently Illegal, It Must Be Respected”: Court Restores ₹14.66 Crores Compensation for Idle Time of Equipment

The case arose out of a dredging contract awarded by the Tuticorin Port Trust to Jan De Nul Dredging India Pvt. Ltd., valued at over ₹465 crores. The project was completed ahead of time, and upon submission of the final bill, disputes arose over underpayment and unpaid claims.

One such claim — Claim No. 7, amounting to ₹14.66 crores — related to idle time charges for a Backhoe Dredger (BHD). The arbitral tribunal allowed this claim in favour of the contractor, finding merit in the argument that idling occurred due to the Port Trust’s failure to provide access to the site in time. The tribunal interpreted the contract clauses, particularly Clause 51.1, as permitting such compensation even for non-major dredgers.

The Single Judge of the Madras High Court upheld this finding under Section 34. However, the Division Bench reversed it under Section 37, holding that idle time compensation was only applicable to “major dredgers” under Clause 38.

The Supreme Court took strong exception to this intervention, observing:

“Ordinarily, the interpretation given by the Arbitral Tribunal, as affirmed by the Court under Section 34 of the Act, ought to have been accepted”.

“Section 37 Is Not a Second Appeal on Merits — Courts Must Not Frustrate the Arbitration Framework”

The Court delved deep into the legislative framework of the Arbitration and Conciliation Act, stressing that Section 5 mandates minimal court intervention and that Section 34 provides limited grounds to set aside an award, primarily those dealing with public policy, fundamental legal violations, or procedural unfairness.

Reiterating its earlier rulings, the Court held:

“The scope of jurisdiction under Section 34 and Section 37 of the Act is not akin to normal appellate jurisdiction. It is well-settled that courts ought not to interfere with the arbitral award in a casual and cavalier manner”.

In doing so, the Court cited and followed its own precedents including MMTC Ltd. v. Vedanta Ltd., Konkan Railway Corp. v. Chenab Bridge Project, and UHL Power Co. Ltd. v. State of Himachal Pradesh — all of which underscored the extremely circumscribed powers of courts when dealing with arbitral awards.

Importantly, the Court observed:

“The arbitral award is a speaking award with findings and interpretations based upon reasons. There is no patent illegality on the face of the award”.

“Backhoe Dredger Not Categorised as Major or Minor — Deployment Was Contractually Valid”

The Port Trust had argued that the Backhoe Dredger (BHD), being a “minor dredger,” was ineligible for idle time compensation under Clause 38, which referred specifically to “major dredgers.” The Supreme Court rejected this as a narrow and misleading interpretation. It held that Clause 51.1 and the overall structure of the contract did not prohibit compensation for idle time of other equipment, including the BHD.

“Clause 38 cannot be read to exclude the possibility of compensation for other equipment. The License Agreement permits deployment of the Backhoe Dredger without specifying whether it is a major or a minor dredger,” the Court held.

On the issue of interpretation, the Court reiterated:

“If the arbitrator construes a term of a contract in a reasonable manner, it will not mean that the award can be set aside on that ground”.

“Allowing Court Intervention at Every Stage Defeats the Arbitration Framework”

In a powerful closing observation, the Court warned against judicial overreach that undermines the very purpose of arbitration. It cautioned:

“If the courts are allowed to step in at every stage and the arbitral awards are subjected to challenge through regular appeals… it would frustrate the very purpose of the Act”.

Thus, the Court allowed the appeal and restored the arbitral award in respect of Claim No. 7, holding the Division Bench’s reversal under Section 37 as legally unsustainable.

Date of Decision: January 7, 2026