India: Courts Denuded Of The Power To Modify An Arbitral Award Under Section 34: The Project Director, National Highway Authority Of India V. M. Hakeem By Hmj R.F. Nariman And Hmj B.R. Gavai

INTRODUCTION

The statutory power of court under Section 34 of the Arbitration and Conciliation Act, 1996 (Act, 1996) is limited to the setting aside of the award subject to the grounds provided therein. However, the courts have on several occasions gone beyond their limited power of setting aside the arbitral award as prescribed under section 34, to deliver complete justice. In this regard, the hon'ble Supreme Court recently, in the case of The Project Director, National Highways No. 45 E and 220 (NHAI) v. M. Hakeem & Anr.¹ rendered a judgment dated 20.07.2021 wherein the bench comprising of Justice R.F. Nariman and Justice B.R. Gavai, dealt with the question – 'Whether Courts have the power to modify an award under Section 34 of the Arbitration and Conciliation Act, 1996?'. While deciding the issue, the Apex court clarified upon the power of the court under section 34 of the Act, 1996.

FACTUAL BACKGROUND

The facts of the instant case arose from certain notifications issued under the National Highway Act, 1956 (NHA), wherein the Special District Revenue Officer (Competent Authority under the NHA) had determined abysmally low amounts as compensation for the landowners. Subsequently, the District Collector was appointed by the Central Government as the arbitrator for deciding the amount of compensation and the arbitral awards passed thereunder. Further, it is important to note that as per section 3G (7) of the NHA, the market value of the land is to be taken into consideration for award of compensation to the landowners. However, in all the cases that were eventually challenged, the compensation was determined on the basis of the 'guideline value' and not on the basis of sale deeds of similar lands. Therefore, these awards were challenged under section 34 of the Arbitration and Conciliation Act, 1996.

Pursuant to the challenge under section 34 of the Arbitration and Conciliation Act, 1996 (Act) before the district court, the district Court modified the arbitral awards and increased the compensation substantially. NHAI brought an appeal before the Madras High Court, against the order of the district court increasing the amount of compensation. The Madras High Court upheld the modifications made to the arbitral awards by the district court. The division bench of the hon'ble Madras High Court disposed-off a large number of appeals filed under Section 37 of the Act laying down as a matter of law that, at least in so far as arbitral awards made under the National Highways Act, 1956 is concerned, section 34 of the Act must be so read as to permit modification of an arbitral award made under the National Highways Act, so as to enhance compensation awarded by a learned arbitrator. The judgment of the Madras High Court was then challenged before the hon'ble Supreme Court of India.

SUBMISSIONS BEFORE THE COURT

The petitioner argued that the object sought to be achieved by the Arbitration Act is speedy and expeditious disposal of dispute, as reflected in the limited grounds of challenge to arbitral award prescribed under section 34 of the Act, that too not on the merits of the award. Judicial interference is limited to either setting aside the award or remitting the award to the arbitrator under section 34(4), so as to eliminate any grounds of challenge under section 34. This is in contrast with the Arbitration Act, 1940 which contained a specific provision to remit an award under section 15. It was further stated that the Act of 1996 is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985, which has specifically restricted the grounds of challenge and the consequent remedy which is only to set aside or remit the award in limited circumstances. ²

The judgment of the Madras High Court in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.³ was countered by the petitioners by stating that once the Supreme Court had laid down as a matter of law that no modification of an award is possible, it was not open to a single judge to differ from such a view.

The respondents argued that abysmally low amounts were given as compensation to the landowners. The respondent supported the impugned judgment to contend that even if learned Single Judge in Gayatri Balaswamy⁴ had not laid down the law correctly, so far as matters arising out of Arbitration Act are concerned, yet the impugned judgment makes a justified and correct distinction between consensual arbitration and an arbitrator appointed by the Central Government. ⁵ Also, if the reasoning given by the petitioners is accepted then there would be no remedy, as all that could be done under the section 34 jurisdiction is to set aside the award, resulting in a fresh arbitration before the same/similar competent authority, as appointed by the Central Government. ⁶

TAKEAWAYS FROM THE JUDGEMENT

i. Court does not have power to modify an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996

The apex court observed that Section 34 provides for setting aside of awards on very limited grounds with the reasoning that Section 34 is modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985 under which the courts have no power to modify an arbitral award while hearing a challenge thereto. Further, under section 34(4) the court could only adjourn the proceedings so as to give the tribunal an opportunity to cure the defects. It is only the arbitral tribunal that can eliminate the grounds for setting aside the award.⁷

ii. Distinction between the 1940 and 1996 Acts

It was highlighted by way of contrast, that, under Sections 15 and 16 of the Arbitration Act, 1940, the court is given the power to modify or correct an award under circumstances mentioned in Section 15, apart from the power to remit the award under Section 16.

iii. Thus, under the scheme of the old Act, an award may be remitted, modified or otherwise set aside according to the grounds contained in Section 30 which was a broader provision than Section 34 of the 1996 Act.⁸

iv. Ratio Decidendi

The court observed that under the NHA, the compensation scheme involving the arbitration was not fair, however, this cannot lead to the conclusion that the arbitral awards made by such arbitrators can be challenged on merits under Section 34 of the Arbitration Act.

The hon'ble court declared that Section 34 of the Arbitration Act, 1996, cannot be held to include within it a power to modify an award. The Supreme Court stated that 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'.⁹

The law makers very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. The court emphasised that section 34 of the Act uses the term, 'recourse'. Recourse is the method of enforcing a right. Therefore, when the right is itself limited, the enforcement of such a right will also be limited. ¹⁰

v. Judicial Dicta that has been followed: An analysis of the judicial trends

The question of judicial interference to modify an arbitral award under section 34 has now finally by at least three decisions of the hon'ble Supreme Court namely Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.,¹¹ a recent judgment of Supreme Court also followed McDermott International Inc. v. Burn Standard Co. Ltd.,¹² and Kinnari Mullick v. Ghanshyam Das Damani13, reconfirmed the law that there is no power to modify an arbitral award under Section 34. The relevant extract in that regard is as follows: been settled

Also, Supreme Court in its decision in MMTC Ltd. v. Vedanta Ltd.¹⁴, held that Section 34 proceeding does not contain any challenge on the merits of the award.

CONCLUSION:

The hon'ble court observed that the exercise of power to modify an arbitral award by court under section 34, would amount to crossing the Lakshman Rekha. The decision of apex court puts a full stop on the different opinion of the courts on the issue of power to modify an Arbitral Award under Section 34. The court declared that the power of the court to interfere with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 is subject to grounds provided therein and it is not open to the court to go beyond it. The hon'ble court also emphasized the necessity of minimal judicial interference in the proceedings dealing with arbitral awards, as manifest in the recent amendments made to the Arbitration Act, 1996.

Footnotes

1 The Project Director, National Highways No. 45 E and 220 (NHAI) v. M. Hakeem & Anr, 2021 SCC OnLine SC 473.

2 M. Hakeem (n.1).

3 Gayatri Balaswamy v. ISG Novasoft Technologies Ltd 2014 SCC Online Mad 6568.

4 ibid.

5 M. Hakeem (n.1).

6 M. Hakeem (n.1).

7 M. Hakeem (n.1), Kinnari Mullick v. Ghanshyam Das Damini, (2018) 11 SCC 328.

8 M. Hakeem (n.1).

9 M. Hakeem (n.1)

10 Ssangyong Engg. & Construction Co. Ltd. v. NHAI ((2019) 15 SCC 131) and Renusagar Power Co. Ltd. v. General Electric Co (1994 Supp (1) SCC 644) were also relied upon by the court, wherein similar observations were made, holding that there could be no challenge on the merits of the arbitral award.

11 Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC OnLine SC 157

12 McDermott (n.19).

13 (2018) 11 SCC 328

14 MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163.

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