The two-view rule: why courts can not rewrite your arbitration award

Understanding the Two-View Rule: Protecting Arbitration Awards from Judicial Rewrite.

Background

In Reliance Infrastructure Ltd. v. State of Goa, (2024) 1 SCC 479, the Supreme Court was called upon to decide whether a High Court, exercising appellate jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, could reverse findings of an arbitral tribunal merely because it preferred a different reading of the contractual terms. The dispute arose from a Power Purchase Agreement and concerned questions of variable charges, fuel pricing, and plant downrating, among others. While the arbitral tribunal had decided four of five issues in favour of the claimant, the Bombay High Court (Goa Bench) reversed substantial portions of the award in a Section 37 appeal.

What the Supreme Court Held

The Supreme Court set aside the High Court's interference and restored the arbitral award. The Court reaffirmed what is by now a settled proposition: a court hearing a challenge under Section 34 does not sit as an appellate court over the arbitral tribunal. The scope of review is confined to specific grounds such as public policy violations and patent illegality. Patent illegality, the Court clarified, requires an error that goes to the root of the matter and is not merely an erroneous application of law.

Critically, the Court held that where an arbitrator's interpretation of a contract is a plausible or possible view on the facts, a court cannot substitute its own view. The High Court had re-appreciated evidence and applied contractual clauses that the arbitral tribunal had found inapplicable, which the Supreme Court treated as impermissible reappraisal. Under Section 37, the scope of interference is even narrower, being limited to the grounds available under Section 34. Concurrent findings by the arbitral tribunal and the Section 34 court should be disturbed only in rare circumstances.

Why This Matters for Commercial Dispute Resolution

The judgment draws a firm line against courts functioning as courts of appeal over arbitral awards. Parties who enter into contracts with arbitration clauses and obtain awards in their favour receive a significant degree of finality. An opposing party cannot simply argue, at the Section 34 or Section 37 stage, that the arbitrator got the contract wrong and expect the court to conduct a fresh reading of the documents.

For platforms and practitioners operating in the online dispute resolution space, this judgment reinforces the value of a well-conducted arbitration on the merits. Awards issued by experienced, sector-aware arbitrators, after full consideration of contractual terms and evidence, will withstand judicial scrutiny as long as the reasoning reflects a coherent and defensible interpretation. The institutional quality of the arbitration process, including how proceedings are documented and how the record is maintained, directly affects how protected the award is from challenge.

Citation: Reliance Infrastructure Ltd. v. State of Goa, Civil Appeal Nos. 3615-3616 of 2023, decided on 10.05.2023, reported at (2024) 1 SCC 479.