Setting Aside Of Arbitral Award Leaves It Open To Parties To Choose To Arbitrate Again: Bombay High Court

Background

In disputes between the Applicant, Batliboi Environmental Engineering Ltd. (“Batliboi”), and the Respondent, Hindustan Petroleum Corporation Ltd. (“HPCL”) relating to a turnkey project, proceedings were conducted by the sole arbitrator for claims amounting to Rs. ~3.41 crores. Eventually, on March 23, 1999, the Arbitral Tribunal passed an award (“Arbitral Award”), which was upheld by a Learned Single Judge of this Court exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 by an order dated December 4, 2000 (“Section 34 Judgement”). An appeal by HPCL under Section 37 of the Act led to a Division Bench of this Court setting aside the Section 34 Judgement by a judgement dated November 2, 2007 (“Section 37 Judgement”).

Batliboi filed a special leave petition in the Supreme Court under Article 136 of the Constitution of India, which granted leave, considered the appeal and by a reasoned judgement dated September 21, 2023 (“SC Judgement”), upheld the Section 37 Judgement, dismissing Batliboi's appeal.

Batliboi invoked arbitration afresh on October 12, 2023, on the premise that the Arbitral Award having been set aside and Batliboi's claims not having been dismissed on merits, it was constrained to invoke arbitration afresh. By a reply dated November 7, 2023, HPCL took the stance that Batliboi's claims had been adjudicated on merits and the same disputes cannot be re-adjudicated again in arbitration. This stand-off led to the captioned Application being filed under Section 11 of the Act.

Contentions

The Counsel for HPCL submitted that in course of rendering the judgment, the Supreme Court made extensive observations on merits of the case. The SC judgment endorsed the Section 37 Judgment, which meant that there are two concurrent findings on merits and therefore, there was no scope for a fresh adjudication of the merits.

The Counsel for Batliboi submitted that the decision in the SC Judgment was essentially that the Arbitral Award did not withstand scrutiny under Section 37 with Section 34 of the Act. He further submitted that the SC judgment led to the Section 37 Judgment merging into the SC Judgment which necessarily meant that the Section 37 Judgment was no longer in existence. It was further contended that the SC judgment emphatically ruled that the Arbitral Award was devoid of reasons which lead to the conclusion in the eyes of the law that the claims had not been adjudicated on merits.

Observations

The Court analysed the contours of its power under Section 34 and 37 of the Arbitration and Conciliation Act, whereby it observed that the Act disallows Courts to conduct an appellate review of arbitral awards, choosing instead, to limit the scope of judicial review of arbitral awards to the limited grounds set out in Section 34 of the Act. Judicial review of an arbitral award is framed in a binary position – the award is either upheld or set aside on the grounds available in Section 34.

It further observed that the jurisdiction of limited review under Section 37 read with Section 34 could not assume the character of a full- blown appellate review. While exercising its power under Section 34 and Section 37, the Court does not have the power to consider the case on merits and substitute the judgment in the arbitral award with its own judgment. The Court noted that when the Supreme Court judgment ruled that the Section 37 Judgment was right, it was essentially exercising the same jurisdiction as flowing from Section 37 of the Act read with Section 34 of the Act.

Discussing the consequence of setting aside of an arbitral award, the Court noted that it would result in the parties to the arbitration being placed in the original position that they were in, before the proceedings began, leaving it open to them to arbitrate again.

In view of the fact that the Supreme Court did not conduct its own assessment of evidence to return findings on merits and itself stated that it was not commenting or examining the merits of the Arbitral Award, it could not be said the Supreme Court judgment was on merits. The Court observed that the Supreme Court judgment was a negation of the validity of the Arbitral Award and not a positive affirmation of the merits of either party's case.

The Court distinguished the facts of the present case from the facts in Jaiprakash Associates Limited vs. NHPC Limited – 2025 SCC OnLine Del 170 and Tantia Construction Limited Vs. Union of India – 2021 SCC OnLine Cal 2465, wherein the courts had refused to refer the parties to arbitration in a post-award reference. The Court concluded that no case had been made out to deviate from the norm that the parties are restored to the original pre-arbitral award position.

Accordingly, the Section 11 application was allowed and Justice S.C. Gupte, a former judge of the Bombay High Court was appointed as the Sole Arbitrator to adjudicate the disputes between the parties.

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.

Date: 11.03.2025