Introduction:
Arbitration as a mode of Alternate Dispute Resolution came into existence with a very important objective, i.e., to speed up the process of dispute resolution.[1] To meet this objective the legislation and Courts have time and again made efforts to minimize the interference of the Court in the arbitration process.[2]
Whenever an arbitral award goes against one of the parties to the dispute, the usual tendency of the losing party is to seek ways of setting it aside. An award can be set aside only on the grounds mentioned in Section 34 of the Arbitration Act, 1996.[3]
What is an arbitral award?
An arbitral award is a decision made by an arbitration tribunal in an arbitration proceeding that is believed to be equivalent to a court of law’s judgment.[1] An arbitral award can be set aside only when the arbitral award conflicts with the public policy of India as stated under section 34(2)(b)(ii). The award may provide the parties with several remedies, including money, consent, injunctions, and other remedies.
Reinforced judicial precedence
The conundrum surrounding the issue of whether the power of the courts under Section 34 of the Arbitration Act, 1996 to set aside an Arbitral Award would also include the power to modify such an Award has been an issue of contention for a long. The Supreme Court has now ended the controversy and cleared the air giving the arbitration regime a much need clarity.
In the case of McDermott International Inc. v. Burn Standard, Co. Ltd.[i] Supreme Court held that Courts cannot correct the errors of the arbitrators and can only quash arbitral awards under Section 34 of the Act. From the observation described above, it appears that the Court’s power under Section 34 is only limited to setting aside arbitral awards and does not include the power to modify arbitral awards.
Delhi High Court in Angel Broking Ltd. v. Sharda Kapur[ii] directly dealt with the issue of whether Section 34 authorizes the Courts to modify arbitral awards or grant additional or alternative reliefs which were prayed for in the arbitration proceedings but were denied by the arbitral tribunal. While answering the aforesaid issue, the Delhi High Court observed that Section 34 does not provide the Courts with the power to modify, vary or remit the arbitral award. It was thus held that the Courts have no authority to modify the arbitral award or to grant additional/alternative reliefs, which the arbitral tribunal did not grant. While arriving at the said conclusions, the High Court relied upon the Supreme Court judgment in McDermott as well as the earlier judgment passed by a Division Bench of the Delhi High Court in Puri Construction Ltd. and Ors. v. Larsen and Turbo Ltd.[iii]
The judgment passed in the case of Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., is a classic example wherein the Supreme Court partially modified an arbitral award. In the Dyna Technologies case, the arbitral tribunal’s ruling for Claim No. 2 was overturned by the Madras High Court. The tribunal had awarded the appellant Rs. 27,78,125 along with interest at 18% per year until the date of payment.
The arbitral award is illegible and cannot be upheld, the Supreme Court noted in its decision on the appeal against the Madras High Court’s ruling. The Supreme Court, however, modified the tribunal’s award relating to Claim No. 2 and ordered the Respondents to pay Rs. 30,00,000/- along with interest @ 12% p.a. from the date of the judgment until the date of payment to the Appellant based on the observation that “litigation has been protracted for more than 25 years, without any end for the parties.”
In Gayatri Balaswamy v. Isg Novasoft Technologies Ltd.,[i] The court opined that the instances relied upon in that decision were such that the award adjustment was done by the authority granted by Article 142 of the Indian Constitution. The court concluded that it was incorrect to interpret Section 34 of the Arbitration text as having the authority to amend, revise, and change awards in light of this judicial tendency. This would go against the Arbitration Act’s motive, which aimed to restrict court intrusion, as well as the abundance of rulings.
The current appeal Project Director, NHAI vs. M Hakeem,[ii] Hon’ble Supreme Court has observed that and stems from a decision of a division bench of the Madras High Court that stated as a matter of law that arbitral awards, to the extent they are made under the National Highways Act of 1956, can be modified to increase the amount of compensation awarded by the arbitrator under the authority given to courts by Section 34 of the Arbitration Act. Does Section 34 of the Arbitration Act give the Court authority to amend the arbitral award?
Regarding the aforementioned issue, the Supreme Court ruled that Section 34 of the Arbitration Act only permitted the arbitral decision might be set aside under subsections (2) and (3) of Section 34. The court emphasized that this clause is based on the UNCITRAL Model Law and that the legislative policy behind it is to uphold the idea of limiting judicial intervention in arbitral proceedings. The Supreme Court also drew comparisons with Sections 15 and 16 of the 1940 Arbitration Act, which provided that in the situations specified therein, the court had the authority to modify, correct, or remit an award to the arbitral tribunal.
The Court concluded that there was no legislative intent to include the authority to amend or remit the arbitral verdict under the Arbitration Act because the 1996 Arbitration Act does not expressly retain any provision similar to Sections 15 and 16 of the 1940 Arbitration Act.
Conclusion & Analysis
It has been established that the present legislature intends to reduce the burden of the proceedings from the court. In light of the same, the aforementioned decisions follow that the court only exercises the power to set aside the awards rather than any modification under Section 34 of the Act.
However, to foster settlement and complete justice, it becomes more tenable for the courts to modify the order and not leave the parties at the outset of the proceedings going through the whole arbitral or judicial process again. This defeats the purpose of the Act.
The solution to this problem can also be driven by the behavior of the courts, where they observe that Sec 34 of the Arbitration Act only allows the power to set aside the award, but Article 142 of the Indian Constitution allows the power to deliver complete justice, where the courts can correct any apparent illegality or unjust act if any done in the arbitral award.
Nonetheless, it is the opinion of the author that a provision allowing a limited scope of modification to the court will further smoothen the process of justice, to truly accentuate the intention of the legislation. The same has been adopted by a variety of international regimes including that of Singapore, Australia, and the United States of America.
Written by,
Varun Ahuja, Partner.
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[1] Preamble, The Arbitration and Conciliation Act,1996
[1] Removal of Section 15 and 16 from the previous Arbitration Act, 1940. The section allowed the courts to modify the award.
[1] Arbitration and Conciliation Act 1996 (India) s.34.
[1] https://www.adrtimes.com/arbitration-award/
[1] (2006) 11 SCC 181
[1] [2017] SCC OnLine Del 8211.
[1] [2015] SCC OnLine Del 9126.
[1] 2019 SCC OnLine SC 1656
[1] 2014 SCC OnLine Mad 6568
[1] 2021 SCC Online SC 473