ARTICLE
25 March 2024

Modifying The Un-Modifiable: Supreme Court To Revisit The M. Hakeem Judgement

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Luthra and Luthra Law Offices India

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India while revamping its 1940's arbitration law, had consciously chosen to adopt largely from the model law circulated in 1985 by the United Nations Commission on International Trade Law (‘UNCITRAL').
India Litigation, Mediation & Arbitration

India while revamping its 1940's arbitration law, had consciously chosen to adopt largely from the model law circulated in 1985 by the United Nations Commission on International Trade Law ('UNCITRAL'). Accordingly, the legislature enacted the new arbitration law i.e. Arbitration and Conciliation Act, 1996 ('Act') and even accredited the model law in its preamble. The new Act provides a structure to the process of domestic arbitration, which concludes into an 'Award' between the parties. Moreover, the Act also outlines the considerably debated, argued and legislated process of challenge to the very award. However, both the Act and UNCITRAL Model law are uncomfortably silent of the process in case such challenge to the award is allowed either partly or wholly.

This is the 'Lakshman Rekha' that many litigants are now faced with, post the ruling of the Hon'ble Supreme Court in Project Director NHAI vs. M. Hakeem1 ('M.Hakeem'). The Apex Court in M. Hakeen has interpreted Section 34 and 37 of the Act to restrict the power of the Courts from modifying or varying an arbitral award. Such has been followed and re-enforced in Larsen Air Conditioning and Refrigeration Company vs. Union of India2 and SV Samudram vs. State of Karnataka3. Therefore, a litigant, post setting aside of an award, is forced to revisit another arbitral process on the issue from scratch to be decided afresh in an appropriate proceedings4 causing both delay, pendency and cost escalation for all parties.

Hence, M. Hakeem, in interpreting the provisions had the un-intended effect of categorising courts as mere gatekeepers, who are to screen awards basis a narrow compass, and either let them pass or set them aside to be restarted again.

But don't de novo proceedings run contrary to the idea of speedy alternative modes of dispute resolution? The Supreme Court has acknowledged that de novo proceedings are against alternative modes of dispute resolution. In holding so, the Supreme Court has itself at times even exercised its extraordinary powers under Section 142 of the Constitution of India to modify awards to put a quietus to long pending disputes5. Hence, even as per the Supreme Court, restraining the power of courts in allowing modification/variation of arbitral awards is to be balanced between the interpretation of Section 34 and 37 of the Act and the interests of litigants choosing alternative dispute resolution mechanisms. However, the flip side to the argument disallowing modification/variation is that the judge hearing a Section 34/37 petition may modify an award summarily without having a holistic view of the proceedings or having gone through the entire proceedings including witness examinations or may in effect then be sitting in appeal akin to a regular court litigation, which defeats the purpose of the speedy alternative dispute resolution process.

Section 34(4) of the Act also offers little help in this regard, as it is not akin to the power to remit the dispute back to the arbitrator for re-adjudication or review, but is limited to only provide reasons to fill in gaps or cure 'curable defects'6.

A comparative analysis of similar statutes also doesn't help the case for the interpretation for modification, especially, as under the legislations in countries like England7, Singapore8 and Australia9, specific powers to modify awards have been provided instead of expansion of the scope of powers by interpretation.

Interpreting M.Hakeem, recent judgement of the Delhi High Court in National Highway Authority of India v Trichy Thanjavur Expressway Limited10 has carved a niche by allowing setting aside of independent portions of the award in a partial manner. This approach does away with the broad-brush argument that the award will either have to be upheld or set aside in its entirety. This interpretation has been applied by courts to impact one portion of the award, which independently can be severed and still effect in varying the entire award without directly modifying any specific claim11.

In light of the above, recently, a full bench of the Supreme Court in Gayatri Balasamy v M/s ISG Novasoft Technologies Limited12 has referred the following questions to the Chief Justice of India for appropriate orders:

  1. Whether the powers of the Court under section 34 and 37 of the Arbitration and Conciliation Act, 1996, will include the power to modify an arbitral award?
  2. If the power to modify the award is available, whether such power can be exercised only where the award is severable and a part thereof can be modified?
  3. Whether the power to set aside an award under section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
  4. Whether the power to modify an award can be read into the power to set aside an award under section 34 of the Act?
  5. Whether the judgment of this Court in Project Director NHAI vs. M. Hakeem, followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India and SV Samudram vs. State of Karnataka lay down the correct law, as other benches of two Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa) and three Judges (in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd., Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd.) of this Court have either modified or accepted modification of the arbitral awards under consideration?"

Therefore, within the question of whether the courts should have power to modify/vary an award in a strict prism, lies the debate between the principle of strict interpretation of statute as may have aptly been done in this case (and has many takers quoting certainty in law); and between an approach which intuitively seems unfair on the litigants who may for a procedural defect or mistake of the arbitrator and be forced to traverse the entire arbitration process again.

Any limited discretion of the Courts to modify or vary awards, would therefore need to be given either by way of a purposive or creative interpretation of the Act, or by a clear legislative amendment (such as in other national legislations). The reference of Gayatri Balaswamy13 will be closely watched by arbitration practitioners and would go a long way in deciding the success of alternate dispute resolution mechanisms in India

Footnotes

1. (2021) 9 SCC 1

2. (2023) SCC Online SC 982

3. (2024) SCC Online SC 19

4 Dakshin Haryana Bijli Vitran Nigam Limited v. M/s. Navigant Technologies Pvt. Ltd (2021) 7 SCC 657

5. Project Director NHAI vs. M. Hakeem (2021) 9 SCC 1; Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala (2021) 6 SCC 150

6. I-Pay Clearing Services Pvt. Ltd. v. ICICI Bank Limited 2022 SCC Online SC 4

7. English Arbitration Act, 1996

8. Singapore Arbitration Act, 2001

9. International Arbitration Act, 1974

10. 2023 SCC Online Del 5183

11. M/s NHPC Limited v M/s Jaiprakash Associates, OMP (ENF.) (Comm) 184/2023 order dated 14th February 2024

12. Special Leave to Appeal (C) Nos.15336-15337/2021 order dated 20th February 2024

13. Ibid

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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