India: Can The Court Partially Set Aside The Award Under Section 34?: Analyzing The Nhai Vs. Additional Commissioner, Nagpur & Others

INTRODUCTION:

Minimum Judicial intervention in arbitration proceedings ensures that disputes are resolved in an efficacious, speedy, and cost-effective manner. 'The Arbitration and Conciliation Act, 1996', (hereinafter, 'the Act'), is the cardinal law for Indian arbitration, follows the 'UNCITRAL Model Law on International Commercial Arbitration, 1985', and replaced 'the Indian Arbitration Act, 1940'. The 1996 Act follows the policy of minimum judicial intervention and does not have any provisions like sections 15 and 16 of the 1940 Act, which empowered the court to modify, correct or remit an arbitral award. Section 34 of the 1996 Act in consonance with Article 34 of the Model Law, does not empower the court to modify the award while hearing a challenge to an award and limits the court's power to set aside the arbitral awards, strictly in terms of the specific grounds enshrined therein. However, in many cases, the Courts have modified arbitral awards while hearing challenges under Section 34 of the Act. Therefore, time and again, the extent of the Court's power in interfering with arbitral awards under Section 34 of the 1996 Act, had been subject to judicial scrutiny. In 2021, the Apex Court of India in NHAI vs. M. Hakeem¹ settled the law and held that the court does not possess the power to modify an arbitral award while hearing a challenge under Section 34 of the Act.

Recently, the single judge bench of Bombay High Court in NHAI vs. Additional Commissioner, Nagpur & Ors.,² reignite the aforementioned quandary as the court observed that the Court can partially set aside the award while hearing a challenge under Section 34 of the Act. The legal question is whether partial setting aside of the award amounts to modification of the award and disturbs the settled position of law. This article analyzes the aforesaid Bombay High Court's decision.

BRIEF FACTS OF THE CASE

The appellants acquired the lands of Respondent No. 3 to 8 (Land Owners) under the National Highways Act, 1956 (hereinafter, 'NHA'). Respondent No. 2 i.e., Land Acquisition Collector offered compensation to Respondent No. 3 to 8. Aggrieved by the low amount of compensation, Respondent No. 3 to 8 invoked the arbitration clause under Section 3G (5) of the NHA, and arbitration commenced before Respondent No. 1. Award was passed in favor of Respondent No. 3 to 8. The appellant filed an application before the District Court disputing the arbitral award under Section 34 of the Act. On 21st December, 2020, the District Court partly overturned the award.

District Court set aside the award to the extent of an additional 10 percent amount on the total compensation to Respondent No. 3 to 8 for their loss of easementary rights as per Section 3G(2) of the National Highway Act, 1956, because of lack of evidence furnished by Respondent No. 3 to 8 before the arbitrator. Subsequently, the appellant challenged the order dated 21st December, 2020 before the Bombay High Court under Section 37 of the Act.

ARGUMENTS BY THE PARTIES

The appellants submitted that the partial setting aside of the award is not in consonance with Section 34 of the Act and amounts to modification of the arbitral award. The appellant relied on numerous Apex Court cases³, wherein the court held that, while dealing with the application under Section 34 of the Act, the court can only either completely uphold or completely set aside any arbitral award. Respondent No. 3 to 8 while relying on the Shri Sarjuprasad s/o Sangmlal Gupta versus National Highways Authority of India and others⁴, submitted that the partial setting aside of the award does not amount to a modification of the arbitral award, and therefore, not in violation of Section 34 of the Act.

JUDGMENT AND ITS ANALYSIS

The Bombay High Court reinstate the law that modification of award is not allowed under Section 34 of the Act, which was settled by the Apex court in NHAI vs M. Hakeem and another, wherein the apex court observed that: "Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over."⁵

Therefore, the law is settled that while dealing with the application under Section 34 of the Act, the court has no power to interfere with or modify the award. The courts under Section 34 of the Act have only a supervisory role and cannot correct the errors of the award.⁶

Therefore, the primary issue before the court st was whether the impugned order dated 21 December, 2020 partially set aside the award amounts to modification of the said arbitral award or not. This issue can further be resolved by dwelling on the fact that, when the arbitral tribunal is right on the majority of the issues, can the award be partially set aside only on the ground of it being wrong on certain issues. Such a question can arise when the arbitrator has erred while deciding certain issues and the arbitral award otherwise passed is sustainable as per the law.

The Bombay High Court upheld the district court's order and held that the court is not bound to set aside the entire award when it is apparent that the Arbitrator erred solely on certain issues and that the substantial arbitral award is valid. While dealing with a similar issue, the apex court in J.G. engineers Pvt. Ltd. vs. Union of India and anr.,⁷ held that while hearing the application under Section 34 of the Act, the court can set aside the arbitral award depending upon the facts and circumstances of the case⁸. In this case, the apex court has specifically applied the 'Doctrine of Severability' to arrive at the conclusion that when there are several claims listed, each of them can be considered to be distinct and separate from the other.

Therefore, it falls well within the jurisdiction of the court to separate the claims that suffer from any infirmity and uphold the rest of the part of such award. The scope and extent of such judicial intervention under Section 34(2) of the Act have specifically been dealt with by the apex court in the case of Delhi Development Authority vs. M/s. R.S. Sharma and Company⁹ wherein the court arrived at the conclusion that the arbitrator, as well as the Division bench of the High Court, were right in partially upholding the arbitral amount as only Claims 1 to 3 were sustainable. Therefore, it would not be wrong to conclude that each of the claims as decided by the arbitrator were distinct and separate in nature and the court can set aside an award partially under Section 34 of the Act, based on the facts and circumstances of the case. Further, the approach of the court aligns with the statutory provision, i.e., proviso to Section 34 (2A) of the Act, which states that an award may not be reversed only based on an erroneous application of the law or reappreciation of evidence. Therefore, the District Court's order dated 21st December, 2020 partially set aside the award to reach the right position of law.

CONCLUSION

The aforesaid Bombay High Court's judgment is legally tenable as it affirmed the principle of minimum judicial interference in the Indian arbitration jurisdiction. The said judgment does not disturb the settled law but rather reinstated the law that modification of award is not allowed under Section 34 of the Act. At the same time, the Bombay High Court harmonizes the principle of minimum judicial interference with the principle of judicial discretion, if justice requires so. Applying the 'Doctrine of Severability', every claim should be analyzed independent of each other, and rather than setting aside the entire award or recommencing the fresh arbitration, the court while hearing an application under Section 34 of the Act, can set aside an award partially based on the facts and circumstances of the case. Otherwise, it would be unjust, unfair, and inequitable, and would not achieve the goals of justice. Further, the approach of the court aligns with the statutory provision, i.e., proviso to Section 34 (2A) of the Act which states that an award may not be reversed only based on an erroneous application of the law or re-appreciation of evidence. Therefore, in our opinion, the Bombay high court rightly dismissed the appeal and upheld the District Court's order.

Footnotes

1. NHAI vs. M. Hakeem, 2021 SCC OnLine SC 473

2. NHAI vs. Additional Commissioner, Nagpur & Ors., Arbitration Appeal No. 03 of 2022

3. NHAI vs. M. Hakeem and another, (2021) 9 SCC 1; State of Chhattisgarh and others vs. Sal Udyog Private Limited, (2022) 2 SCC 275; Dakshin Haryana Bijli Vitran Nigam Limited vs. Navigant Technologies Private Limited, (2021) 7 SCC 657; and Mcdermott International Inc. vs. Burn Standard Co. Ltd. & Ors., (2006) 11 SCC 181.

4. Shri Sarjuprasad s/o Sangmlal Gupta vs. National Highways Authority of India and others, Arbitration Appeal No. 28 of 2019.

5. NHAI vs. M. Hakeem and another, (2021) 9 SCC 1 at Paragraph 48.

6. Mcdermott International Inc. vs. Burn Standard Co. Ltd. & Ors., (2006) 11 SCC 181.

7. J.G. engineers Pvt. Ltd. vs. Union of India and anr, (2011) 5 SCC 758.

8. R.S. Iron International Ltd. vs. Jiwani [(2010) 1 Mh.L.J. 547]

9. Delhi Development Authority vs. R.S. Sharma and Company, (2008) 13 SCC 80.

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