The Arbitration and Conciliation Act 1996 (the act) is the substantial Indian legislation that regulates arbitration proceedings. It is modelled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. At the time of its enactment, the act replaced the Arbitration Act 1940, which was too outdated to keep pace with the modern growth of arbitration. The Arbitration and Conciliation Act 1996 underwent a large-scale amendment in 2015 to bring it in line with certain best practices that were being followed in foreign jurisdictions, and in light of court involvement in appointing arbitrators and interfering with awards, both domestic and international.
Section 34 of the act deals with the court's power to set aside an arbitral award. It contemplates a restricted set of grounds for any court to interfere with an arbitral award pronounced by an arbitral tribunal. Time and again, courts in India have held that a challenge to an arbitral award is not akin to an appeal under civil law, but is circumscribed by the grounds contained under section 34 of the act. The substantial grounds of challenge to an arbitral award, other than breach of natural justice and failure to comply with the requirements of the arbitration agreement, are:
- if it conflicts with Indian public policy; or
- if it suffers from patent illegality.
While deciding on the issue of interpreting the grounds on which an arbitral award can be set aside in McDermott International v Burn Standard Co Ltd,(1) the Supreme Court determined that a court hearing a petition to set aside an arbitral award has no power to modify the award. This finding was fortified in light of the restricted power of a court hearing a challenge to an award under section 34 of the act. However, this finding was not in the judgment, but formed part of the obiter, as this was not the issue before the Court. This view was thereafter observed by the Supreme Court in certain other judgments as well.(2) However, in those cases, the issue before the Court did not specifically concern the court's power to modify an arbitral award, but the grounds on which an arbitral award can be interfered with by a court under section 34 of the act. The Supreme Court has, in certain cases,(3) varied the interest payable to a party under an arbitral award in accordance with its inherent powers under article 142 of the Constitution of India, but is has never substantially varied an arbitral award.
Following the judgment in McDermott, the high courts had differing views. Some hold that the power to set aside under section 34 would have to include the power to vary,(4) while others hold that there would be no power to vary an award under section 34 of the act.(5)
In ISG Novasoft, which was passed after McDermott, the Madras High Court held that an arbitral award can be varied in a section 34 proceeding. To come to this conclusion, the Court relied on the provisions of:
- the English Arbitration Act 1996;
- the Australian Federal International Arbitration Act 1974;
- the Canadian Commercial Arbitration Act 1985;
- the US Federal Arbitration Act 1925; and
- the Singaporean Arbitration Act 2001.
It should be noted that in these legislations, the statutes contemplate a power for the court hearing petitions that challenge an arbitral award's validity to vary such awards, which is expressly absent under section 34 of the act. The Madras High Court was of the view that based on the interpretation of the provisions of the aforementioned foreign legislations, section 34 of the act would also have to be interpreted such that the power to set aside an award would also include a power to modify an arbitral award.
In its 20 July 2021 judgment in a batch of appeals, with the lead appeal being The Project Director, National Highways 45E and 220 v M Hakeem SLP (Civil) 13020 of 2020, the Supreme Court conclusively affirmed the proposition that courts which are hearing petitions to set aside arbitral awards under section 34 of the act cannot modify such awards.
Land acquisition proceedings were undertaken under the National Highways Act 1956, for which notifications were passed in 2009. The special district revenue officer, who was the statutory arbitrator under the National Highways Act (adjudicating disputes on the amount to be paid for the value of acquired lands), did not award sums based on the land's marketable or sale value; accordingly, the sums awarded were low. To challenge these awards, proceedings were filed in the district court under section 34 of the act. The district court under section 34 of the act modified the amounts payable to the persons whose lands were acquired, based on the marketable or sale value of the lands. On appeal, the Madras High Court, under section 37 of the act, held that insofar as the National Highways Act was concerned, the power under section 34 of the act would also include the power to modify the award.
The Supreme Court observed that section 34 of the act, similar to the UNCITRAL Model Law, begins with the word "recourse", and the word "recourse" is defined as an enforcement of a right. However, given the limited grounds for review under section 34 of the act, the right itself would be truncated and, as such, the enforcement would also be on truncated grounds. The Supreme Court, while relying on the UNCITRAL Model Law of Arbitration and International Commentaries, specifically referred to the fact that under the Arbitration Act 1940, modification of an award was permitted; however, this was not permitted under the act as that would involve going into the merits of the award, which is not permissible under the act. The Court held that, considering the overall conspectus of the act, there would be no power to modify an award's contents.
The Supreme Court also pointed out that foreign legislations, which the Madras High Court referenced in ISG Novasoft, had a specific power to vary an arbitral award, but that this was expressly absent under the act. The Supreme Court continued that if the legislature thought fit, it would be for the legislature to vest a court with the power to modify an arbitral award.
However, on the facts of the present case, the Supreme Court dismissed the appeals and confirmed the Madras High Court's findings.
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(2) See Maharashtra State Electricity Distribution Co Ltd v Datar Switchgear Ltd (2018) 3 SCC 133; Kinnari Mullick v Ghanshyam Das Damani (2018) 11 SCC 328; MMTC Ltd v Vedanta Ltd (2019) 4 SCC 163; Ssangyong Engg & Construction Co Ltd v NHAI (2019) 15 SCC 131; Dyna Technologies (P) Ltd v Crompton Greaves Ltd (2019) 20 SCC 1; Dakshin Haryana Bijli Vitran Nigam Ltd v Navigant Technologies Pvt Ltd 2021 SCC OnLine SC 157.
(3) Tata Hydro-Electric Power Supply Co Ltd v Union of India (2003) 4 SCC 172; Hindustan Zinc Ltd v Friends Coal Carbonisation (2006) 4 SCC 445; Krishna Bhagya Jala Nigam Ltd v G Harischandra Reddy (2007) 2 SCC 720; Numaligarh Refinery Ltd v Daelim Industrial Co Ltd (2007) 8 SCC 466; DDA v RS Sharma and Co (2008) 13 SCC 80; Royal Education Society v LIS (India) Construction Co (P) Ltd (2009) 2 SCC 261.
(4) Bhasin Associates v NBCC (2005) ILR 2 Delhi 88; Union of India v Modern Laminators Ltd 2008 (3) ARB LR 489 (Delhi); Axios Navigation Co Ltd v Indian Oil Corporation Limited 2012 (114) BOM LR 392; Angerlehner Structurals and Civil Engineering Co v Municipal Corporation of Greater Mumbai 2013 (7) Bom CR 83; West Bengal Electronics Industries Development Corporation Ltd v Snehasis Bhowmick decision of the Calcutta High Court in APO 240 of 2012; Ms G v ISG Novasoft Technologies Ltd (2015) 1 MLJ 5; ISG Novasoft Technologies Limited v Gayatri Balasamy 2019 SCC OnLine Mad 15819.
(5) Cybernetics Network Pvt Ltd v Bisquare Technologies Pvt Ltd 2012 SCC OnLine Del 1155; Nussli Switzerland Ltd v Organizing Committee Commonwealth Games 2014 SCC OnLine Del 4834; Puri Construction P Ltd v Larsen and Toubro Ltd 2015 SCC OnLine Del 9126.