Source: Supreme Court  

Why in News? 

Recently, the bench of Justice Abhay S. Oka and Ujjal Bhuyan   has held that in an appeal under Section 37 of the Arbitration and Conciliation Act, the scope of review is even narrower if the arbitral award has already been upheld under Section 34. 

• The Supreme Court held this in the matter of M/s. C & C Constructions Ltd. v. IRCON International Ltd (2025). 
• Larsen Air Conditioning and Refrigeration Company v. Union of India, the Court stated that interference is permissible only in cases of patent illegality or denial of natural justice.  
• The case stemmed from a contractual dispute over delays in constructing Road Over Bridges, where the appellant's claims were rejected at multiple judicial levels before reaching the Supreme Court. 

What was the Background of M/s. C & C Constructions Ltd. v. IRCON International Ltd? 

• In June 2012, C & C Constructions Ltd. (the appellant) entered into an agreement with IRCON International Ltd. (the respondent) to construct five Road Over Bridges (ROBs) at different locations in Rajasthan. 
• The appellant claimed that the work at the sites was delayed due to reasons attributable to the respondent, specifically for three ROBs: LC-89, LC-228, and LC-108. 
• The appellant sought multiple extensions of time for project completion, initially with penalties and later without penalties, for the three ROBs. 
• During the extension requests, the appellant initially mentioned potential financial burdens resulting from delays but later agreed to remove such statements from their extension requests. 
• On multiple occasions, the respondent granted time extensions, with the appellant providing undertakings not to claim anything extra beyond escalation for work executed. 
• Despite these undertakings, the appellant submitted monetary claims on September 3, 2014, seeking compensation for delays, which the respondent rejected. 
• Two years after giving the undertakings, on January 25, 2017, the appellant invoked the arbitration clause and filed claims totaling Rs. 44.11 crores under 15 substantive heads. 
• The respondent contested these claims by invoking clause 49.5 of the General Conditions of Contract (GCC), which barred the contractor from claiming damages or compensation for delays. 

What were the Court’s Observations? 

• The Court noted that the appellant's claims were directly contradictory to the earlier undertakings provided on 14th January, 2015, wherein they agreed not to make claims other than escalation. 
• The Court observed that the appellant had repeatedly acted upon clause 49.5, seeking time extensions on three separate occasions, which implied an acceptance of the contract's terms. 
• The Court stated that the appellant could not raise new contentions regarding the validity of clause 49.5 at the Supreme Court stage, as these were not raised in earlier legal proceedings. 
• The Court states that the limited scope of interference under Section 37 of the Arbitration Act, which restricts the appellate court's review of arbitral awards. 
• The Court rejected the appellant's argument of clause 49.5 being waived by the respondent, noting that the respondent's communications did not suggest any such waiver. 
• The Court stressed that the arbitrator must decide according to contract terms, and a reasonable interpretation of contract terms does not automatically render the award challengeable. 
• The Court observed that any illegality challenging an arbitral award must be fundamental and go to the root of the matter, not be trivial. 

What is Section 37 of the Arbitration and Conciliation Act,1996? 

• Section 37 of the Arbitration and Conciliation Act, 1996, is a crucial procedural provision that delineates the specific circumstances under which appeals can be filed against certain arbitration-related orders. 
• The section provides a limited and carefully circumscribed right of appeal, explicitly stating that appeals can only be made from designated orders and not from any other arbitration-related decisions. 
• The first category of appealable orders includes judicial decisions such as: 
• Refusing to refer parties to arbitration under Section 8 
• Granting or refusing interim measures under Section 9 
• Setting aside or refusing to set aside an arbitral award under Section 34 
• The second category of appealable orders pertains to specific arbitral tribunal decisions, including: 
• Accepting jurisdictional objections under Section 16 
• Granting or refusing interim measures under Section 17 
• To prevent prolonged litigation, the Act explicitly prohibits second appeals from orders passed in the first appeal under Section 37, thereby creating a stringent limitation on repeated judicial interventions. 
• However, the provision safeguards the fundamental right to approach the Supreme Court, ensuring that the prohibition on second appeals does not completely extinguish the right to seek the highest judicial review. 
• The section is designed to balance the principles of minimal judicial interference in arbitration proceedings with the need to provide reasonable judicial oversight to protect parties' interests. 
• By specifying precise grounds for appeal, Section 37 aims to maintain the efficacy and expediency of arbitration as an alternative dispute resolution mechanism. 
• The carefully crafted language of Section 37 reflects the legislative intent to promote arbitration as a swift, efficient, and less procedurally cumbersome method of resolving commercial disputes. 

What was the Landmark Case Larsen Air Conditioning and Refrigeration Company v. Union of India? 

• The Court established that the jurisdiction under Section 34 of the Arbitration Act is limited and extremely circumscribed, permitting interference with an arbitral award only on specific grounds of patent illegality that fundamentally affect the core of the matter. 
• The Court clarified that while an arbitrator must decide in accordance with the contract terms, a reasonable interpretation of contract terms by the arbitrator does not automatically render the award liable to be set aside. 
• The Court identified two primary grounds for challenging an arbitral award: patent illegality that goes to the root of the matter, and denial of natural justice, emphasizing that the illegality must be substantive and not trivial. 
• In appeals under Section 37, the appellate court has a narrower scope of review, which is restricted to examining the findings in an award only if it has been upheld or substantially upheld under Section 34.