The Supreme Court has said that arbitration in India has not failed, but that judicial interference, and at times the conduct of governments, has undermined the efficacy of the arbitral process.
The Supreme Court
The Supreme Court has said that arbitration in India has not failed, but that judicial interference, and at times the conduct of governments, has undermined the efficacy of the arbitral process. The court said the role of governments in casting doubts over the viability of arbitration cannot be overlooked, particularly given its impact on the ease of doing business in India.
Cautioning against governments knocking on the doors of courts to challenge arbitral awards and prolong litigation, a Bench of Justice J.K. Maheshwari and Justice Atul S. Chandurkar, in a judgment delivered on May 29, said, “A single doubtful precedent in the arbitration field has the potential to cast a shadow on its viability in India and its impact on the ease of doing business in India.”
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Pronouncing the judgment, Justice Maheshwari said, “Arbitration in India has not failed; however, courts sometimes have failed arbitration in India. Even the government’s role cannot be ignored. A single doubtful precedent in the arbitration field has the potential to cast a shadow on its viability in India and its impact on the ease of doing business in India.”
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The judgment, authored by Justice Maheshwari, said, “There is no gainsaying that judicial interference in alternative dispute resolution has often been a cure without a disease in India. In this context, it is high time that judges realise that certainty, uniformity and finality are also cherished values.”
Emphasising the sanctity of arbitral awards and the limited scope of judicial intervention, the court said, “It is also well settled that once the arbitral tribunal has applied its mind, appreciated the evidence on record, and interpreted the terms of the contract to take a certain view, such view of the arbitral tribunal would ordinarily be accepted and ought not to be interfered with by the court unless it is palpably erroneous, falling within the limited grounds as mentioned in Section 34 of the 1996 Act.”
The court further observed that even if two views are possible, it is beyond the scope of Section 34 for a court to reappraise the evidence and substitute its own view for that of the arbitral tribunal.
Exhorting courts to adopt a hands-off approach while dealing with challenge to an arbitral awards, the judgment said, “It is the duty of the court to ensure that the object of the Arbitration and Conciliation Act, 1996, i.e., speedy resolution of disputes with minimal judicial interference, is effectuated, and that intervention remains confined to circumstances where such support is indispensable for the arbitral process or where there is perversity so manifest that it shocks the conscience of the court.”
The court referred to Sections 5, 34 and 37 of the Arbitration and Conciliation Act, 1996, to underscore the limited role of courts in interfering with arbitral awards.
The judgment also referred to a seven-judge Bench judgment of December 13, 2023, which held: “The principle of judicial non-interference in arbitral proceedings is fundamental to both domestic as well as international commercial arbitration. The principle entails that the arbitral proceedings are carried out pursuant to the agreement of the parties or under the direction of the tribunal without unnecessary interference by the national courts.”
The 2023 judgment further observed that this principle “serves to proscribe judicial interference in arbitral proceedings, which would undermine the objective of the parties in agreeing to arbitrate their disputes, their desire for less formal and more flexible procedures, and their desire for neutral and expert arbitral procedures.”
The observations came while dismissing an appeal filed by the Madhya Pradesh Road Development Corporation Ltd. against a December 21, 2016 judgment of the Madhya Pradesh High Court in favour of Jabalpur Corridor Pvt. Ltd., a Malaysian-backed concessionaire engaged for the construction of the 176-km Sagar–Damoh–Jabalpur Road project.
The Build-Operate-Transfer (BOT) concession agreement among Madhya Pradesh Road Development Corporation Ltd., Malaysian company Tiara Dhaya Maju Constructions (M) SDN BHD, and the Special Purpose Vehicle, Jabalpur Corridor Pvt. Ltd., was executed on April 11, 2003.
The Supreme Court directed the Registry of the Madhya Pradesh High Court to release the deposited amount, along with accrued interest, to Jabalpur Corridor Pvt. Ltd. within two weeks from the date of the judgment, May 29, 2026. It further directed Madhya Pradesh Road Development Corporation Ltd. to pay the remaining amount, together with accrued interest, to JCL within three months.
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