Section 37 Is Not A Second Appeal On Merits: Delhi High Court Refuses To Re-Appreciate Evidence In Challenge To Arbitral Award

“A Selective Emphasis On An Isolated Answer In Cross-Examination Cannot Dislodge A Reasoned Conclusion” – Delhi High Court delivered a significant ruling reiterating the narrow scope of appellate interference under Section 37 of the Arbitration and Conciliation Act, 1996. A Division Bench comprising Justice Anil Khetarpal and Justice Amit Mahajan dismissed an appeal challenging the dismissal of a Section 34 petition, thereby upholding an arbitral award which declined specific performance of a collaboration agreement but granted damages of ₹1.65 crores for wrongful termination.

The Court held that Section 37 jurisdiction is “akin to and cannot travel beyond” the limitations under Section 34 and that re-appreciation of evidence or reinterpretation of contractual clauses is impermissible unless patent illegality or conflict with public policy is demonstrated.

The dispute arose out of a Collaboration Agreement dated 07.11.2011 concerning a 1148 sq. yds. property situated in Ishwar Nagar, Mathura Road, New Delhi. The Respondent before the Arbitral Tribunal (Appellant before the High Court) was the owner of the property, while the Claimant was a real estate developer engaged for construction.

Under the Agreement, the developer was to bear construction costs and pay ₹5.20 crores in stages. Crucially, the owner was obligated to obtain sanction of building plans within 60 days of execution. The developer paid ₹50 lakhs upfront.

The developer alleged that the owner failed to apply for and intimate building plan sanction within the stipulated period and illegally terminated the agreement on 22.03.2014 while returning a photocopy of a cheque for ₹50 lakhs. The owner, however, contended that the developer failed to furnish credentials of financial capacity and experience, justifying termination.

During arbitral proceedings, on 18.09.2017, parties informed the Sole Arbitrator that the matter had been settled for ₹1.65 crores. However, a consent award was not passed due to absence of a Board resolution from the owner-company.

Ultimately, by Award dated 20.11.2020, the Sole Arbitrator declined specific performance under Section 14(c) of the Specific Relief Act, 1963 but held termination illegal and awarded damages of ₹1.65 crores with 12% pre-award and post-award interest.

The Section 34 petition challenging the award was dismissed by a learned Single Judge on 14.08.2023, leading to the present Section 37 appeal.

Legal Issues Before The Division Bench And Court’s Observations

The principal issue before the Court was whether, within the narrow confines of Sections 34 and 37 of the Arbitration Act, any ground existed to interfere with the award which had declined specific performance but granted damages.

The Bench emphatically reiterated that Section 37 does not confer general appellate powers. Quoting Punjab State Civil Supplies Corpn. Ltd. v. Sanman Rice Mills, the Court observed:

“Section 37 of the Act provides for a forum of appeal… The scope of appeal is naturally akin to and limited to the grounds enumerated under Section 34 of the Act.”

It further stressed: “The Appellate Court has no authority of law to consider the matter in dispute before the arbitral tribunal on merits so as to find out as to whether the decision of the arbitral tribunal is right or wrong upon reappraisal of evidence as if it is sitting in an ordinary court of appeal.”

The Court clarified that even if two views are possible, the Arbitrator’s plausible view must prevail.

Specific Performance And Section 14(c) Of Specific Relief Act

The Sole Arbitrator had refused specific performance on the ground that the collaboration agreement required continuous supervision, falling within Section 14(c) of the Specific Relief Act.

The High Court held that the contract involved multi-storey construction with ongoing quality and timeline supervision, making it unsuitable for specific performance. It found the Arbitrator’s reasoning plausible and within jurisdiction.

The Bench observed that this conclusion was “not reached in vacuo” but based on pleadings, conduct of parties, and the nature of obligations.

Readiness And Willingness – Section 16(c)

The Appellant argued that the Claimant had failed to prove continuous readiness and willingness and relied on an answer in cross-examination where the Director allegedly stated willingness subject to price revision.

Rejecting this argument, the Court held: “A selective emphasis on an isolated answer in cross-examination, cannot dislodge a reasoned conclusion derived from the entire factual conspectus.”

The Court further noted that during arbitration, the owner’s counsel had stated there was “no objection if the award for specific performance… is passed”, which substantially undermined its present stance.

The findings on readiness and willingness were held to be factual determinations not open to re-appreciation under Section 37.

Illegal Termination And Breach Under Sections 73 And 74

The Court upheld the finding that termination dated 22.03.2014 was illegal. The owner had applied for building sanction approximately 175 days after execution, far beyond the stipulated 60 days.

The Bench noted that the owner failed to establish bona fide steps taken within the agreed timeframe and did not intimate sanction to the developer.

Such breach attracted compensation under Sections 73 and 74 of the Indian Contract Act, 1872. The Court rejected the argument that refusal of specific performance barred grant of damages, holding that this was contrary to the remedial structure of contract law.

Contractual Interpretation – Clause Imposing Penalty On Builder

The Appellant argued that Clause (v)(d) imposed penalty only on the builder and did not envisage damages payable by the owner.

The Court held that construction of contractual clauses is primarily within the Arbitrator’s domain. An alternative interpretation is insufficient to warrant interference unless the interpretation is perverse or irrational.

No such perversity was demonstrated.

Settlement Of 18.09.2017 And Quantification Of Damages

Though the Arbitrator declined to pass a consent award under Section 30 due to absence of Board resolution, he treated ₹1.65 crores—the settled amount—as best evidence of quantification.

The Court upheld this approach, observing that nothing prohibits treating a failed settlement as evidentiary material reflecting the parties’ contemporaneous valuation of rights.

Pre-award and post-award interest at 12% were also upheld.

Absence Of Framed Issue On Readiness And Willingness

The Court rejected the contention that absence of a separately numbered issue vitiated the award. It held that the Arbitrator had addressed all core controversies in reasoned conclusions.

“Mere absence of a separately numbered issue… cannot be elevated to a violation of natural justice.”

The Division Bench found no patent illegality, perversity, or violation of public policy in the award or in the judgment dismissing the Section 34 petition.

Reaffirming judicial restraint in arbitral matters, the Court concluded:

“The arbitral award is not liable to be interfered unless a case for interference… is made out… It cannot be disturbed only for the reason that instead of the view taken by the arbitral tribunal, the other view… is a better view according to the appellate court.”

The appeal was dismissed as devoid of merit, reinforcing that Section 37 is not a platform for a second appeal on facts.

Date of Decision: 16 February 2026