In a recent case, certain land was acquired for the construction of highways under the National Highways Authority of India Act 1956 (NHAI Act). Compensation was paid on the basis of the guideline value and not on the basis of sale deeds of similar lands by the special district revenue officer appointed under the provisions of the NHAI Act, but it was meagre.
Under the provisions of the NHAI Act, if the person whose land is being acquired is not satisfied with the compensation provided, the matter can be referred to arbitration, where the sole arbitrator is appointed by the central government. Therefore, the matter in this case was referred to the arbitrator, the district collector, who found no anomalies in the compensation awarded and did not interfere therewith. However, the district court, under section 34 of the Arbitration and Conciliation Act, amended the arbitral award and substantially increased the compensation to be awarded. On appeal by the appellant, the high court refused to interfere in the matter.
The primary issue before the Supreme Court was "whether the power of a court under section 34 of the Act to 'set aside' an award of an arbitrator would also include the power to modify, revise or vary such an award".
In the appeal to the Court, the counsel for the appellant, the solicitor general, stated that since the matter had been referred to arbitration under the NHAI Act, the provisions of the Arbitration and Conciliation Act 1996 would apply. Any challenge to an arbitral award is to be made under section 34 of the Arbitration and Conciliation Act and under this section, the Court can only set aside the order or remit the matter back to the arbitrator. The counsel for the appellant stated that the Court itself had pronounced various judgments on the matter and had thus laid down the law already.
The solicitor general responded to the judgment of the high court, stating that as the question of amending an arbitral award had already been made clear by the Supreme Court, it was not open to it to take an adverse view – hence the appeal of the order should be allowed.
The respondents stated in reply that in most cases, the compensation had already been paid by the appellant and thus it could not select a set of matters and appeal before the Court as it was a "state" under article 12 of the Constitution of India. The respondents then referred to the case of Gayatri Balaswamy v ISG Novasoft Technologies Ltd(1) and supported this line of reasoning. The judgment in question made a distinction between consensual arbitration and an arbitrator appointed by the central government. If section 34 of the Arbitration and Conciliation Act were to be construed in the same manner as suggested on behalf of the appellant, there would be no remedy, as all that the district judge could do under the jurisdiction of section 34 would be to set aside the award, resulting in a fresh arbitration before another arbitrator appointed by the central government.
The bench analysed section 34 of the Arbitration and Conciliation Act in detail by dissecting each and every provision of it. The bench was of the opinion that under section 34 of the Arbitration and Conciliation Act, there are only a few grounds – as mentioned in subsections 2 and 3 – under which an arbitral award can be set aside by a court. The Court stated that section 34 of the Arbitration and Conciliation Act had been modelled on article 34 of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985, under which no power to modify an award is given to a court hearing a challenge to an award. This was in contrast with sections 15 and 16 of the Arbitration Act 1940, under which the courts had wide powers to amend arbitral awards.
The bench then referred to a series of judgments, including:
- MMTC Ltd v Vedanta Ltd,(2) where it had been held that a proceeding under section 34 of the Arbitration and Conciliation Act does not contain any challenge on the merits of the award; and
- SsangYong Engg & Construction Co Ltd v NHAI,(3) where the Court held that "section 34(2)(a) does not entail a challenge to an arbitral award on merits" and which was itself based on the Court's judgment in Renusagar Power Co Ltd v General Electric Co.(4)
The Court then proceeded to cite the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) and various other authorities to conclude that there could be no challenge on merits under the grounds mentioned in section 34 of the Arbitration and Conciliation Act. The Court then rejected the decision of the high court based on the Court's judgment in the case of McDermott International Inc v Burn Standard Co Ltd,(5) where it had been held that:
The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
The same decision of the Court was followed in various judgments, including Kinnari Mullick v Ghanshyam Das Damani (6) and Dakshin Haryana Bijli Vitran Nigam Ltd v Navigant Technologies Pvt Ltd.(7) As a result, the Court held that the high court could not neglect these judgments and make a decision in contravention of those judgments. To deal with the judgment of Gayatri Balaswamy v ISG Novasoft Technologies Ltd,(8) the Court held that this judgment had been passed under section 15 of the Arbitration Act 1940.
The Court concluded by overruling the decisions of the high court, thereby effectively finalising the rule of law that under no circumstances whatsoever does the Court have the power to amend arbitral awards under section 34 of the Arbitration and Conciliation Act. However, the Court did not interfere in the compensation provided as most of the compensation had been paid seven to 10 years previously and it did not find any merit in sending the cases back for a new trial. The appeals were dismissed on the facts.
For further information on this topic please contact Nihal Shaikh or Nikhil Shirsekar at Clasis Law by telephone (+91 11 4213 0000) or email ([email protected] or [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.