India: Modification Of Arbitral Awards: Supreme Court Reiterates No Interference Approach

In the recent decision of The Project Director, NHAI v. M. Hakeem and Anr., the Hon'ble Supreme Court held that a court is not empowered to modify an award under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The present article briefly examines the findings of the Hon'ble Supreme Court in the aforementioned matter.

Brief Facts

All the appeals in the instant matter concern notifications issues under the National Highways Act and arbitral awards passed thereunder. Under the National Highways Act, 1956 (National Highways Act) the competent authority determines the amount of compensation for the land acquired for constructing highways. If the parties are not satisfied with the compensation, they may file an application to refer the matter to an arbitrator who is appointed by the Central Government. In the instant matter, abysmally low amounts were granted by the competent authority which were then upheld by the arbitrator. Consequently, petitions under Section 34 of the Arbitration Act were filed before the District and Sessions Judge resulting in an enhancement of the compensation. In an appeal, the Division Bench of the Madras High Court (High Court) upheld the enhanced compensation. The High Court held that insofar as the arbitral awards made under the National Highways Act, Section 34 of the Arbitration Act must be so read as to permit modification of award for enhancement of compensation. Aggrieved by the decision, the NHAI approached the Hon'ble Supreme Court. The moot proposition in the instant matter is whether the power of a court under Section 34 of the Arbitration Act to "set aside" an award would also include the power to modify it.

Held

The Hon'ble Supreme Court examined the scope of operation of Section 34 of the Arbitration Act. It was held that Section 34 of the Arbitration Act was not be construed as an appellate provision. In fact, Section 34 was far from being an appellate provision and allowed setting aside of the award only on very limited grounds contained in Sub-sections (2) and (3). The Hon'ble Supreme Court observed that Section 34 of the Arbitration Act was modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985, (Model Law) under which no power to modify an award is given to a court hearing a challenge to an award.

The Apex Court then referred to a catena of cases¹ to reiterate that a court under Section 34 of the Arbitration Act cannot correct the errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. Thus, the statutory scheme under Section 34 of the Arbitration Act was in keeping with the Model Law and the legislative policy of minimal judicial interference in arbitral awards. Based on the decisions referred and the statutory scheme under Section 34 of the Arbitration Act, it was held that there can be no doubt that Section 34 cannot be held to include within it a power to modify the award.

Having answered the moot question, the Hon'ble Supreme Court discussed upon the aspect of grant of differential compensation. It was noted that the NHAI had in several cases allowed similarly situated land owners to receive compensation at a much higher rate than what was awarded in the instant matter. Thus, the Hon'ble Supreme Court held that based on the test for reasonable classification law laid in Nagpur Improvement Trust v. Vithal Rao², the appeals of NHAI were dismissed.

Comments

The instant judgment hits the nail on the head in terms of the legal position qua the limited scope of interference of courts under Section 34 of the Arbitration Act. There can be no doubt that that a court does not sit in appeal in proceedings under Section 34 of the Arbitration Act. The judgment reinforces the line of judicial precedents that have consistently held that interference of courts under Section 34 is upon the limited grounds mentioned under sub-sections (2) and (3).

* The author would like to acknowledge the research and assistance rendered by Harshvardhan Korada.

Footnotes

1. MMTC Ltd. v. Vedanta Ltd., 2019 4 SCC 163; Ssangyong Engg. & Construction Co. Ltd. v. NHAI, 2019 15 SCC 131; Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp 1 SCC 644; Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., 2018 3 SCC 133; Mc Dermott International Inc. v. Burn Standard Co. Ltd., 2006 11 SCC 181; Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd., 2012 SCC OnLine Del 1155; Nussli Switzerland Ltd. v. Organizing Commonwealth Games, 2014 SCC OnLine Del 4834. 

2. Nagpur Improvement Trust v. Vithal Rao, 1973 1 SCC 500.

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