Introduction

Recently, the Supreme Court ("Court") in the case titled "The Project Director, NHAI v. M. Hakeem and Anr".1 dismissed an Appeal concerning whether the power vested under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter as "Arbitration Act") with courts to set aside an Arbitral Award would also include the power to modify such an Award. The Court's focal point of the judgment was the concept of 'limited remedy' enshrined under Section 34 of the Arbitration Act. The Court held that the statute cannot be interpreted in a manner to worsen the disease, so as the remedy. The Court even clarified that the assimilation of Section 34 of the Arbitration Act with the revisional jurisdiction under Section 115 of the CPC, 1908 is "fallacious" as "Section 115 of the CPC expressly sets out the three grounds on which a revision may be entertained and then states that the High Court may make 'such order as it thinks fit'. These latter words are missing in Section 34, given the legislative scheme of the Arbitration Act, 1996".

This Article briefs out the journey of the said controversy and discusses the relevant provisions highlighted by the Court to settle the conundrum surrounding the aforesaid issue.

Factual Matrix

Under the National Highways Act, 1997 (hereinafter as "NH Act"), a competent authority determines the amount of compensation to be paid in exchange for land acquired for highway construction. In the present case, The Special District Revenue Officer ("Competent Authority") under the NH Act was a government servant, who passed all Awards since 2009 based on the 'guideline value' of the lands-in-question instead of sale deeds of such lands because of which Awards in all these cases had abysmally low amounts. Since the amount determined by the Competent Authority was not acceptable to the landowners, a District Collector was appointed as an Arbitrator by the Central Government to settle the issue. The District Collector upheld the decision of the Competent Authority. Consequently, Section 34 of the Arbitration Act was invoked, and petitions were filed before the District and Sessions Court and the amounts were enhanced. As a result, the Award of the District Collector was modified by the District and Sessions Court in the exercise of its powers under Section 34 of the Arbitration Act. The decision of increased compensation was upheld by the Madras High Court. Aggrieved by its decision NHAI filed an Appeal before the Court.

Issue:

Whether the power of a Court under Section 34 of the Arbitration Act to "set aside" an Award of an Arbitrator would include the power to modify such an Award?

What's the Dilemma?

The Arbitration Act of 1940 gave powers to Indian courts under Section 15 and 16 to modify the Arbitral Awards besides remitting or setting them aside, however, the arena of court's interference was reduced to setting off an Award by amendment of the Arbitration Act, which was based on the UNCITRAL Model Law on International Commercial Arbitration ("UNICITRAL Model Law). The UNICITRAL Model Law does not empower the courts to amend/modify any Award unless specifically provided by the local laws. Under Section 34 of the Arbitration Act, the power of setting aside an Award is capped with certain specific conditions, and the aspect of modification has not been dealt with. Thus, on the plain reading of Section 34 of the Arbitration Act, it is clear that the Parliament intended that no power of modification of an Award exists under Section 34 of the Arbitration Act. However, the courts in India have time and again given conflicting views and have crossed the "Lakshman Rekha" by putting themselves in the shoes of the Parliament by including the power to modify an Award in Section 34 of the Arbitration Act.

Court's Decision:

The Court observed that Section 34 of the Arbitration Act mentions the scope of judicial intervention i.e., the 'recourse' to a court against an Arbitral Award can be made only by way of an Application to "set aside" the Arbitral Award in accordance with sub-section (2) and (3) of the same Section. Opining the same, the Court attempted to define the word "recourse" and held that "recourse" is a method of enforcing the right, however where the right under Section 34 of the Arbitration Act is itself truncated, the enforcement of such truncated right can also be limited in nature.

The Court further observed that UNCITRAL Model serves as the grundnorm for the Arbitration Act, and it gives no power to courts to modify an Arbitral Award, except on specific grounds, as that would involve going into the merits of the case which is not permissible under the Arbitration Act. Regarding the same, the Court placed its reliance on a catena of judgments including MMTC Ltd. v Vedanta Ltd2, Ssangyong Engg. & Construction Co. Ltd. v. NHAI3, Maharashtra State Electricity Distribution Co. Ltd. v. Data Switchgear Limited4, which settled the position that a Section 34 proceeding does not contain any challenge on merits.

Referring to the principle of minimal judicial intervention, the Court noted that in McDermott International Inc. v. Burn Standard Co. Ltd.5, it has been held that the Arbitration Act makes provision for the supervisory role of courts for the review of the Arbitral Awards to ensure fairness. The court cannot correct the errors of the arbitrators. It can only quash the Award leaving the parties to begin the arbitration again if desired. Thus, the court held, Section 34 did not contain any power to modify an Arbitral Award. The Court noted that this statement of law is also upheld in other decisions vis-a-vis Kinnari Mullick v. Ghanshyam Das Damani6 and Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.7

Court also relied on the decisions of Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd8, Nussli Switzerland Ltd. v. Organising Committee Commonwealth Games9, Puri Construction P. Ltd. v. Larsen and Toubro Ltd.10 to hold that the power to modify, vary or remit an Award does not exist under Section 34 of the Arbitration Act.

Scrutinizing the decisions in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd11, Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd12, DDA v. R.S. Sharma and Co, Royal Education Society v. LIS (India) Construction Co. (P) Ltd13; as relied upon by the Respondent to contend that modification of an Award is permissible under Section 34 of the Arbitration Act, the Court held that in the aforesaid decisions, the courts exercised their power under Article 142 of the Indian Constitution, therefore the intention was to serve justice and cannot be used in the present case.

Consequently, the Court held the remedy under Section 34 of the Arbitration Act is limited to setting aside an Arbitral Award or remand the matter under the circumstances mentioned under Section 34 of the Arbitration Act, 1996. The Court noted that the provision for the modification of an Award must be expressly provided in the statute for the courts to interfere in such manner. Under the Arbitration Act, it is clearly stated that the power of court only extends up to setting aside an Award. Since the Arbitration Act is based on UNCITRAL Model Law, hence there is a limited remedy under Section 34 of the Arbitration Act and the courts cannot modify an Award unless expressly stated in the statute.

Conclusion

The conundrum surrounding the issue of whether the power of the courts under Section 34 of the Arbitration Act to set aside an Award would also include the power to modify such an Award stand settled by the Court in this noteworthy judgment. The decision also accelerates the amendments made to the Arbitration Act, and in particular, those made to Section 34 of the Arbitration Act. Having said so, the Parliament never intended to give the power of modification of Awards to the court under Section 34 of the Arbitration Act. The Court has once again reaffirmed that a Judge must interpret the law as it has been framed by the Legislature and he cannot go beyond creative interpretation of legislation.

Footnotes

1. 2021 SCC OnLine SC 473

2. (2019) 4 SCC 163

3. (2019) 15 SCC 131

4. (2018) 3 SCC 133

5. (2006) 11 SCC 181

6. (2018) 11 SCC 328

7. (2021) SCC OnLine SC 157

8. (2012) SCC OnLine Del 1155

9. (2014) SCC OnLine Del 4834

10. (2015) SCC OnLine Del 9126

11. 2014 SCC OnLine Mad 6568

12. (2007) 8 SCC 466

13. (2009) 2 SCC 261

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