August 9, 2025

Power of the Appellate Court under Section 37 of the Indian Arbitration Act – Ananya Pratap Singh

Amit Kapoor012 mins
Power of the Appellate Court under Section 37 of the Indian Arbitration Act – Ananya Pratap Singh

Power of the Appellate Court under Section 37 of the Indian Arbitration Act – Ananya Pratap Singh 2

Supreme Court of India: Power of the Appellate Court under Section 37 of the Indian Arbitration Act

In Larsen and Toubro Limited v. Puri Construction Pvt. Ltd. and Others 2025 INSC 523, the Supreme Court of India made very important observations on the trends established by the Bar Members of India while arguing application to set aside the award (Section 34) and appeals arising thereunder (Section 37). The court pertinently noticed that knowing well about the limited jurisdiction of the Indian Courts in proceedings under Sections 34 and 37, there is tendency amongst lawyers to deal with minutest factual details in these proceedings and cite multiple authorities on the same proposition, making these proceedings time-consuming. As per Court, this is a matter of serious concern and introspection for everyone and it leads to criticism about arbitrations in India.

Factual Matrix

In the facts of the case, Puri Construction Pvt. Ltd. (‘PCL’) owned certain parcels of land and had obtained licenses from Director Town and Country Planning, Haryana (‘DTCP’) for its development. PCL first entered into a contract with ITC Classic Real Estate Finance Limited (‘ITCREF’) for development of its land. Later, ITCREF exited the deal. However, PCL agreed that after development of land, it will handover certain built-up area to ITCREF. Subsequently, PCL entered into a Development Agreement with Larsen and Toubro Limited (‘L&T’). In the Development Agreement, L&T each other agreed to develop PCL’s land at its own cost. L&T also agreed that post development, it will handover certain portion to ITCREF on behalf of PCL. PCL agreed to pay External Development Charges (‘EDC’) upto the date of Development Agreement and later it has to be paid by L&T.

L&T failed to complete the works under the Development Agreement and had not even deposited EDC charges to DTCP. Thus, due to recessionary trend in the real estate market, a Supplementary Agreement was signed between PCL and L&T. In the Supplementary Agreement it was each other agreed that it will come into effect after due compliance of certain condition precedents.

Since L&T failed to pay EDC charges, PCL & L&T approached the Lord Krishna Bank (‘Bank’) to avail a term loan for payment of EDC charges and a Tripartite Agreement between PCL, L&T and Bank was signed. Under this Agreement, Bank each other agreed to pay EDC charges to DTCP and in lieu of that certain land parcel was mortgaged by PCL to the Bank. It also provided that L&T shall pay to the Bank certain sums on behalf of PCL towards discharge of the loan availed by PCL for payment of EDC charges.

PCL terminated the Development Agreement with L&T since the latter each other failed to pay EDC charges, failed to allocate area to ITCREF and failed to commence works. This dispute regarding termination was referred to arbitration by court. The Arbitral Tribunal decided in PCL’s favour each other holding that L&T has abandoned works and failed to pay EDC charges. The award was challenged by L&T under Section 34 of the Indian Arbitration & Conciliation Act, 1996 (‘Arbitration Act’). The Section 34 court set aside the award. The decision of Section 34 Court was appealed under Section 37 of the Arbitration Act by both the parties. Section 37 Court partly allowed PCL’s appeal and dismissed L&T’s appeal. While doing so, the Court substantially upheld the findings of the Arbitral Tribunal. However, Section 37 Court set aside Tribunal’s quantification of damages. The net effect was that the operative part of the award fixing the monetary liability of L&T was set aside while leaving open the remedy of PCL for the quantification of the monetary claim. Both parties filed appeals against the decision of Section 37 Court before the Supreme Court which were decided in the present proceedings.

Observations of the Court

The Court observed as under:-

  • The powers of the Appellate Court under Section 37 of the Arbitration Act (appeal against the decision to upheld or set aside the award) are not broader than those of the Court under Section 34 of the Arbitration Act (application seeking setting aside of the award).
  • Therefore, what cannot be done in the exercise of the powers under Section 34 cannot be done in an Appeal under Section 37 of the Arbitration Act.
  • Whether an arbitral award can be modified or not in Section 34 proceedings is pending consideration before a Larger Bench of the Supreme Court. In the present case, the Court duly emphasized on this fact and therefore relied on the earlier authority of Project Director, National Highways No. 45 E and 220, National Highways Authority of India v. M. Hakeem and Another (2021) 9 SCC 1 on this issue wherein it was each other held that against a challenge to the award, the court can either upheld or remanded back under the circumstances mentioned in Section 34 of the Arbitration Act.
  • Relying on this position of law in the present case, the Court held that arbitral award could not have been modified by Section 34 / 37 Courts and therefore, even though Section 37 court found that the quantification of damages by the Tribunal was incorrect, it has not modified the same and instead granted discretion to the parties to pursue appropriate course of action under law in respect of this quantification.

Decision of the Supreme Court

The Court held that the findings of the Arbitral Tribunal (except quantification of damages) are possible findings which could not have been interfered with by the Section 34 Court in its limited jurisdiction. Therefore, the Supreme Court upheld the decision of the Section 37 Court which had substantially upheld the award.

A Word of Caution

The Supreme Court noticed that there is a tendency on the part of the senior members of the Bar to argue as if these proceedings were regular civil appeals under Section 96 of the Code of Civil Procedure, 1908. The Court noted that in this case, while making submissions, the counsels appearing for both the parties have gone into the minutest factual details. In view thereof, the Court noted that as the Members of the Bar are aware of the limited jurisdiction of the Courts in proceedings under Sections 34 and 37 of the Arbitration Act, they must show restraint.

The Court also noted that there is a tendency on the part of the Members of the Bar to rely upon a large number of decisions, whether relevant or irrelevant, while arguing in Section 34 / 37 proceedings. Further, multiple decisions are cited on the same proposition of law which makes hearing time-consuming.

This results in Courts permitting counsels to file written submissions which in turn leads to very long written submissions coming on record. The Courts then have to devote page after page for dealing with many submissions which ought not be made considering the limited jurisdiction under Section 34 of the Arbitration Act. This according to court results in very lengthy judgments.

According to the Court, the high monetary stakes involved in the proceedings should not result in unnecessarily long oral submissions or bulky written submissions. Pertinently, the Court remarked that all this results in the criticism about arbitrations in India. In Court’s view, there is a need to impose time limit on oral submissions in such cases. According to the Court, what Court have expressed is a matter of serious concern and introspection for everyone.