The Bombay High Court, in a significant ruling, has clarified that when an arbitral award is set aside by the court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, the parties involved are returned to their original pre-arbitration position. This decision implies that fresh arbitration is permissible and does not constitute an unfair second opportunity for either party.
Background of the Case
The dispute originated between Batliboi Environmental Engineering Ltd. ("Batliboi") and Hindustan Petroleum Corporation Ltd. ("HPCL") over a turnkey project concerning the construction of a sewage treatment reclamation plant. The dispute was taken to arbitration, with Batliboi claiming approximately Rs. 3.41 crores.
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The arbitral tribunal delivered its award on March 23, 1999, which was subsequently upheld by a single judge of the Bombay High Court under Section 34 of the Act on December 4, 2000. However, HPCL appealed under Section 37, leading to a Division Bench setting aside the Section 34 judgment on November 2, 2007.
The matter escalated to the Supreme Court, where Batliboi filed a special leave petition under Article 136 of the Constitution of India. The Supreme Court, in a judgment dated September 21, 2023, upheld the Section 37 judgment, effectively nullifying the original arbitral award.
Following the Supreme Court ruling, Batliboi sought to invoke arbitration afresh on October 12, 2023, arguing that its claims had not been adjudicated on merits. HPCL, however, contended that the Supreme Court’s observations amounted to a ruling on the merits, barring any fresh arbitration.
Arguments Presented Before the Court
HPCL argued that the Supreme Court judgment endorsed the findings of the Division Bench under Section 37, constituting a ruling on the merits. According to HPCL, the Supreme Court had extensively commented on the flaws in the original arbitral award, leaving no room for a fresh arbitration proceeding.
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Conversely, Batliboi contended that the Supreme Court’s judgment was not a ruling on merits but merely a negation of the arbitral award under the limited review powers of Sections 34 and 37. Since the Supreme Court explicitly stated it was not adjudicating the claims on merits, Batliboi asserted that the original claims remained open for fresh arbitration.
Court's Observations and Findings
The Bombay High Court analyzed the scope of judicial review under Sections 34 and 37 of the Arbitration and Conciliation Act. The court reiterated that these provisions do not allow for a full-fledged appellate review of arbitral awards but merely ensure that awards comply with legal standards and principles of justice.
"The court's role under Sections 34 and 37 is limited. It does not substitute its own findings for those of the arbitral tribunal but only determines whether the award meets the statutory requirements."
The court emphasized that when an arbitral award is set aside, the parties revert to their pre-arbitration status, allowing them to arbitrate again if necessary. This principle was upheld in the Supreme Court’s decision in McDermott International Inc. vs. Burn Standard Co. Ltd., which stated:
"The court cannot correct errors of the arbitrators. It can only quash the award, leaving the parties free to begin arbitration again if desired."
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Further, the court distinguished this case from previous rulings such as Jaiprakash Associates vs. NHPC Limited and Tantia Construction Limited vs. Union of India, where arbitration was denied in post-award references. In those cases, the courts determined that the issues had already been conclusively decided. However, in the present case, the Supreme Court had explicitly stated that it was not ruling on the merits, reinforcing Batliboi’s right to initiate fresh arbitration.
Given these findings, the Bombay High Court allowed Batliboi’s application under Section 11 of the Arbitration and Conciliation Act, appointing Justice S.C. Gupte, a former Bombay High Court judge, as the sole arbitrator to adjudicate the disputes afresh.
Case Title: Batliboi Environmental Engineering Ltd. v. Hindustan Petroleum Corporation Limited
Case Number: Arbitration Application No.338 Of 2024
Appearance:
For the Applicant - Mr. Virag Tulzapurkar, Senior Advocate a/w. Mr. Aadil Parsurampuria & Mr. Aalam Parsurampuria i/b. Mr. Prashant Parsurampuria, Advocates for Applicant.
For the Respondent - Mr. Zal Andhyarujina, Senior Advocate a/w. Mr. Vijay Purohit, Mr. Jahaan Dastur, Mr. Pratik Jhaveri, Mr. Faizan Mithaiwala & Mr. Vinit Kamdar i/b. P & A Law Offices, Advocates for Respondent.
