A full bench of the Bombay High Court has ruled in a recently reported decision that an arbitral award can be set aside either in whole or in part. In RS Jiwani v. Ircon International Ltd, the Bombay High Court ruled that through Section 34 of the Indian Arbitration and Conciliation Act, 1996 (the "Act"), the legislature had vested courts with a wide discretion to set aside an arbitral award either partially or completely. (Section 34 of the Act provides for circumstances under which parties can approach the Indian Courts for recourse against an arbitral award.)
The decision in RS Jiwani v. Ircon International Ltd overruled an earlier judgment of the Bombay High Court, Mrs Pushpa P Mulchandani v. Admiral Radhakrishin Tahiliani ("Tahiliani Decision"), which had decided that an award can be partially set aside only if Section 34 (2) (iv) of the Act is applicable and not otherwise. Section 34(2)(iv) is concerned with setting aside an award if the award deals with issues which were "not contemplated by or not falling within the terms of the submission to the arbitration, or it contains decisions on matters beyond the scope of the submissions to arbitration."
Facts of the Case and Decision of the Court
Ircon International was awarded a government contract for constructing a railway line over a bridge. Ircon subcontracted a part of the project to RS Jiwani through a tender process. Although the assigned part of the project was completed by RS Jiwani, disputes arose between the parties on the issue of delay and consequential losses and penalty. The parties went to arbitration before a sole arbitrator, who allowed 15 claims of RS Jiwani and rejected all the counterclaims of Ircon International. Ircon challenged the award before a single judge bench of the Bombay High Court. The single judge, bound by the Tahiliani Decision, set aside the entire award on the grounds that he could set aside an award partially only if it was challenged under Section 34(2)(iv). As Section 34 (2)(iv) was not applicable in the present case, the single judge set aside the entire award. The decision was appealed to a full bench of the Bombay High Court.
Considering principles of statutory interpretation and contract law, the full bench of the Bombay High Court decided that Section 34 of the Act does not prohibit the application of the principle of severability to arbitral awards under the Act. The Court rejected the contention that Section 34 should be construed rigidly and restrictedly, and ruled that the Court would have power to set aside an award partially, if the facts and circumstances of the case allow for the same. In the facts of the present case, the Court ruled that it would have been unjust and inequitable if the entire award was set aside and hence only set aside the award partially.
Although the decision is binding only on the Bombay High Court, it has been welcomed by practitioners in India and outside, in that it avoids the draconian outcome of losing the entire award if only part is defective. Hence even if an award is challenged in part under Section 34, the remaining aspects of the award can still be enforced.
This judgment is a welcome demonstration of support for alternative dispute resolution by the Indian courts, and a boost for arbitration in the country.